UNITED
STATES




SECURITIES
AND EXCHANGE COMMISSION




WASHINGTON,
D.C. 20549




FORM
10-Q /A


(Amendment
No. 1)




x          
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934




For the
quarterly period ended June 30, 2008




o           TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




Commission
File Number: 000-51577




ESPRE
SOLUTIONS INC.




(Exact
name of registrant as specified in its charter)




NEVADA
              68-0576847(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)5700
      W. Plano Parkway, Suite 2600, Plano, Texas
              75093(Address
      of principal executive offices)
              (Zip
      Code)





(214)
254-3708




(Registrant’s
telephone number, including area code)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


x
Yes    o No




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):




Large
      accelerated filer o
              
              Accelerated
      filer o
              
              Non-accelerated
      filer o


Small
reporting company x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  o Yesx  No




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date. 355,640,130 shares of Common Stock as
of August 12, 2008.













EXPLANATORY
NOTE







This
Amendment No. 1 to the Quarterly Report on Form 10-QSB/A (the “Report”) for the
quarterly period ended June 30, 2008, includes a restatement of our consolidated
financial statements for the quarterly periods ended June 30, 2008 (and related
disclosures), initially filed on August 19, 2008.




The
Company has restated its Consolidated Balance Sheet as of June 30, 2008, its
Consolidated Statement of Stockholders’ (deficit) Equity for the three and nine
months ended June 30, 2008, and its Consolidated Statements of Operations and
Cash Flows for the three and nine months ended June 30, 2008 (as contained
in this Report) to correct its accounting for its stock based
compensation related to employee stock options. A further
discussion of the restatement of the consolidated financial statements for these
fiscal quarters is contained in Note 2 to the unaudited consolidated financial
statements of this Report.









FORM10-Q/ACONTENTSPART
      I — FINANCIAL INFORMATION (Unaudited)
                          
                          PAGEItem
      1
                          —
                          Financial
      StatementsConsolidated Balance Sheets at
      June 30, 2008 and September 30,2007
                          
                          2Consolidated Statements of
      Operations for the three and nine months ended June 30, 2008 and
      2007
                          
                          3Consolidated Statements of Cash
      Flows for the nine months ended June 30, 2008 and 2007
                          
                          4Selected Notes to Consolidated
      Financial Statements
                          
                          5Item
      2
                          —
                          Management’s Discussion
      and Analysis of Financial Condition and Results of
      Operations
                          
                          18Item
      3
                          —
                          Quantitative and Qualitative Disclosures about Market
      Risk
                          
                          21Item
      4
                          —
                          Controls and
      Procedures
                          
                          21PART
      II — OTHER INFORMATIONItem
      1
                          —
                          Legal
      Proceedings
                          
                          21Item
      1A
                          —
                          Risk
    Factors
                          
                          22Item
      2
                          —
                          Unregistered Sales of Equity
      Securities and Use of Proceeds
                          
                          22Item
      3
                          —
                          Defaults upon Senior
      Securities
                          
                          22Item
      4
                          —
                          Submission of Matters to a
      Vote of Security
      Holders
                          
                          22Item
      5
                          —
                          Other
      Information
                          
                          22Item
      6
                          —
                          List of
      Exhibits
                          
                          22Signature
                          
                          23EX-31.1
      Section 302 CertificationEX-31.2
      Section 302 CertificationEX-32.1
      Section 906 CertificationEX-32.2
      Section 906 Certification





1
 Table of Contents





PARTI — FINANCIAL INFORMATION


Item
1 — Financial Statements


ESPRE
SOLUTIONS INC. AND SUBSIDIARY


Consolidated
Balance Sheets




June
      30,
                
                
                September
      30,2008
                
                
                2007(Unaudited)
                  (as Restated)ASSETSCurrent
      assets:Cash
                
                $
                703,034
                
                
                $
                3,850,666Accounts
      receivable, net
                
                
                52,750
                
                
                
                251,050Prepaid
      expenses and advances
                
                
                50,373
                
                
                
                34,564Total
      current assets
                
                
                806,157
                
                
                
                4,136,280Equipment,
      net
                
                
                348,429
                
                
                
                296,758Intangible
      assets, net
                
                
                77,121
                
                
                
                73,191Loans
      to related parties
                
                
                60,432
                
                
                
                69,432Other
      assets
                
                
                123,975
                
                
                
                97,292Total
      assets
                
                $
                1,416,114
                
                
                $
                4,672,953LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Notes
      payable to related parties
                
                
                25,000
                
                
                
                1,667,944Accounts
      payable and accrued expenses
                
                
                1,307,845
                
                
                
                1,449,399Total
      current liabilities
                
                
                1,332,845
                
                
                
                3,117,343Deferred
      revenue — related party
                
                
                -
                
                
                
                1,000,000Minority
      interest
                
                
                959,334
                
                
                
                348,093Stockholders’
      (deficit) equityCommon
      shares — $0.001 par value; authorized 500,000,000 shares; and
      353,782,630  and 318,522,499 shares issued and outstanding ,
      respectively
                
                
                353,782
                
                
                
                318,522Additional
      paid-in capital
                
                
                78,727,115
                
                
                
                71,110,086Stock
      subscription receivable
                
                
                (18,500
                )
                
                
                (190,000
                )Retained
      (deficit)
                
                
                (79,938,462
                )
                
                
                (71,031,091
                )Total
      stockholders’ (deficit) equity
                
                
                (876,065
                )
                
                
                207,517Total
      liabilities and stockholders’ equity
                
                $
                1,416,114
                
                
                $
                4,672,953





The
accompanying notes are an integral part of these consolidated financial
statements





2
 Table of Contents





ESPRESOLUTIONS INC. AND SUBSIDIARY


Consolidated
Statements of Operations


(Unaudited)





Three
      Months Ended June 30,
                                                                                                
                                                                                                
                                                                                                Nine
      Months Ended June 30,2008
                                                                                                
                                                                                                
                                                                                                2007
                                                                                                
                                                                                                
                                                                                                2008
                                                                                                
                                                                                                
                                                                                                2007(As
      Restated)
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                (As
      Restated)Revenue:Software
      licensing fees
                                                                                                
                                                                                                $
                                                                                                1,000,000
                                                                                                
                                                                                                
                                                                                                $
                                                                                                150,000
                                                                                                
                                                                                                
                                                                                                $
                                                                                                2,000,000
                                                                                                
                                                                                                
                                                                                                $
                                                                                                1,390,000Custom
      engineering fees
                                                                                                
                                                                                                
                                                                                                37,116
                                                                                                
                                                                                                
                                                                                                
                                                                                                92,500
                                                                                                
                                                                                                
                                                                                                
                                                                                                512,742
                                                                                                
                                                                                                
                                                                                                
                                                                                                497,700Other
                                                                                                
                                                                                                
                                                                                                (35,576
                                                                                                )
                                                                                                
                                                                                                
                                                                                                20,656
                                                                                                
                                                                                                
                                                                                                
                                                                                                27,554
                                                                                                
                                                                                                
                                                                                                
                                                                                                126,764Total
      revenue
                                                                                                
                                                                                                
                                                                                                1,001,540
                                                                                                
                                                                                                
                                                                                                
                                                                                                263,156
                                                                                                
                                                                                                
                                                                                                
                                                                                                2,540,296
                                                                                                
                                                                                                
                                                                                                
                                                                                                2,014,464Expenses:General,
      administrative and selling expenses
                                                                                                
                                                                                                
                                                                                                4,073,240
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,535,665
                                                                                                
                                                                                                
                                                                                                
                                                                                                8,552,070
                                                                                                
                                                                                                
                                                                                                
                                                                                                3,990,052General,
      administrative and selling expenses stock based
      compensation
                                                                                                
                                                                                                
                                                                                                457,029
                                                                                                
                                                                                                
                                                                                                
                                                                                                2,646,051
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,998,827
                                                                                                
                                                                                                
                                                                                                
                                                                                                5,656,459Research
      and development
                                                                                                
                                                                                                
                                                                                                163,471
                                                                                                
                                                                                                
                                                                                                
                                                                                                692,995
                                                                                                
                                                                                                
                                                                                                
                                                                                                2,487,191
                                                                                                
                                                                                                
                                                                                                
                                                                                                878,595Amortization
      and depreciation
                                                                                                
                                                                                                
                                                                                                57,770
                                                                                                
                                                                                                
                                                                                                
                                                                                                31,615
                                                                                                
                                                                                                
                                                                                                
                                                                                                115,443
                                                                                                
                                                                                                
                                                                                                
                                                                                                78,361Total
      operating expenses
                                                                                                
                                                                                                
                                                                                                4,751,510
                                                                                                
                                                                                                
                                                                                                
                                                                                                4,906,326
                                                                                                
                                                                                                
                                                                                                
                                                                                                13,153,531
                                                                                                
                                                                                                
                                                                                                
                                                                                                10,603,467Loss
      from operations
                                                                                                
                                                                                                
                                                                                                (3,749,970
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (4,643,170
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (10,613,235
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (8,589,003
                                                                                                )Interest
      income
                                                                                                
                                                                                                
                                                                                                6,708
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,342
                                                                                                
                                                                                                
                                                                                                
                                                                                                42,738
                                                                                                
                                                                                                
                                                                                                
                                                                                                311Interest
      expense
                                                                                                
                                                                                                
                                                                                                (3,503
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (1,956
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (1,928
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (11,640
                                                                                                )Net
      loss before minority interest
                                                                                                
                                                                                                
                                                                                                (3,746,765
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (4,643,784
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (10,572,425
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (8,600,332
                                                                                                )Minority
      interest
                                                                                                
                                                                                                
                                                                                                754,376
                                                                                                
                                                                                                
                                                                                                
                                                                                                68,693
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,665,054
                                                                                                
                                                                                                
                                                                                                
                                                                                                129,354Net
      (loss)
                                                                                                
                                                                                                $
                                                                                                (2,992,389
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                (4,575,091
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                (8,907,371
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                (8,470.978
                                                                                                )Basic
      and diluted net loss per share
                                                                                                
                                                                                                $
                                                                                                (0.01
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                (0.02
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                (0.03
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                (0.04
                                                                                                )Weighted
      average shares outstanding, basic and diluted
                                                                                                
                                                                                                
                                                                                                342,487,914
                                                                                                
                                                                                                
                                                                                                
                                                                                                232,546,146
                                                                                                
                                                                                                
                                                                                                
                                                                                                331,337,944
                                                                                                
                                                                                                
                                                                                                
                                                                                                216,455,124





The
accompanying notes are an integral part of these consolidated financial
statements





3
 Table of Contents





ESPRESOLUTIONS INC. AND SUBSIDIARY


Consolidated
Statements of Cash Flows


Nine
Months Ended June 30


(Unaudited)





2008
                  
                  
                  2007(As
      Restated)Cash
      flows from operating activities:Net
      (loss) for period
                  
                  $
                  (8,907,371
                  )
                  
                  $
                  (8,470,978
                  )Adjustments
      to reconcile net loss to cash used in operating
      activities:Stock
      and options issued for services
                  
                  
                  1,356,685
                  
                  
                  
                  -Stock
      based compensation
                  
                  
                  1,998,827
                  
                  
                  
                  5,656,459Amortization
      and depreciation
                  
                  
                  115,443
                  
                  
                  
                  78,361Minority
      interest
                  
                  
                  (1,665,054
                  )
                  
                  
                  (129,354
                  )Changes
      in assets and liabilities:Deferred
      revenue
                  
                  
                  (1,000,000
                  )
                  
                  
                  1,150,000Accounts
      receivable
                  
                  
                  198,300
                  
                  
                  
                  (390,020
                  )Prepaid
      expenses
                  
                  
                  (15,809
                  )
                  
                  
                  4,399Other
      assets
                  
                  
                  (26,682
                  )
                  
                  
                  (36,120
                  )Accounts
      payable and accrued expenses
                  
                  
                  (141,554
                  )
                  
                  
                  178,566Total
      cash used in operating activities
                  
                  
                  (8,087,215
                  )
                  
                  
                  (1,958,687
                  )Net
      cash used in investing activities:Purchase
      of equipment
                  
                  
                  (115,213
                  )
                  
                  
                  (54,035
                  )Purchase
      of intangible assets
                  
                  
                  (55,832
                  )
                  
                  
                  (197,230
                  )Loan
      to affiliate
                  
                  
                  9,000
                  
                  
                  
                  (50,000
                  )Net
      cash used in investing activities
                  
                  
                  (162,045
                  )
                  
                  
                  (301,265
                  )Cash
      flows provided by financing activities:Payments
      on notes payable to related parties
                  
                  
                  (100,000
                  )
                  
                  
                  32,956Proceeds
      from sale of stock
                  
                  
                  2,925,333
                  
                  
                  
                  2,455,050Minority
      capital raised
                  
                  
                  2,276,295
                  
                  
                  
                  376,721Net
      cash provided (used in) by financing activities
                  
                  
                  5,101,628
                  
                  
                  
                  2,864,727Net
      (decrease)/increase in cash
                  
                  
                  (3,147,632
                  )
                  
                  
                  604,775Cash,
      beginning of period
                  
                  
                  3,850,666
                  
                  
                  
                  291,426Cash,
      end of period
                  
                  $
                  703,034
                  
                  
                  $
                  896,201Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                  
                  $
                  -
                  
                  
                  $
                  -Non-cash
      transactions:Issuance
      of common stock to retire debt
                  
                  $
                  1,542,943
                  
                  
                  $
                  619,000







The
accompanying notes are an integral part of these consolidated financial
statements




4
 Table of Contents




ESPRESOLUTIONS, INC. AND SUBSIDIARY




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







1.  BASIS
OF PRESENTATION AND CONTROLLED SUBSIDIARY




The
consolidated financial statements included herein have been prepared by the
Company, without audit, in accordance with accounting principles generally
accepted in the United States of America and pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States of
America have been condensed or omitted pursuant to such rules and regulations,
although the Company believes such disclosures are adequate to make the
information presented not to be misleading. In the opinion of management, the
amounts shown reflect all adjustments necessary to present fairly the financial
position and results of operations for the periods presented. All such
adjustments are of a normal recurring nature.




It is
suggested that the financial statements be read in conjunction with the
financial statements and notes thereto included in the Company’s Form 10/A filed
March 31, 2008.




On
April 27, 2007, the Company and Peter Leighton who was then its President
(“Leighton”), founded Blideo, Inc. (dba Openacircle.com), each with a 40%
interest. The Company and Leighton control Blideo and it has therefore been
consolidated in these condensed consolidated financial
statements.







2. RESTATEMENT OF PREVIOUSLY ISSUED
CONSOLIDATED FINANCIAL STATEMENTS




The
Company has restated its Consolidated Balance Sheet as of June 30, 2008, its
Consolidated Statement of Stockholders’ Equity (Deficit) for the three and nine
months ended June 30, 2008, and its Consolidated Statements of Operations and
Cash Flows for the three and nine months ended June 30, 2008, to correct
its accounting for its stock based compensation related to employee stock
options.




The
Company’s originally filed financial statements for the quarter ended December
31, 2007, reflected stock option expense for the entire year ended September 30,
2008, and not just the three months ended December 31, 2007, rather than being
amortized on a straight-line basis over the vesting period.  This
error was corrected in the quarter ended June 30, 2008, and all prior
quarters.




The
impact of the restatement and other reclassifications on the
Company's Consolidated Balance Sheet as of June 30, 2008, its Consolidated
Statement of Stockholders’ Equity (Deficit) for the three and nine months ended
June 30, 2008, and its Consolidated Statements of Operations and Cash
Flows for the three and nine months ended June 30, 2008, is summarized in
the tables below:





5
 Table of Contents





CONSOLIDATED
BALANCE SHEET




reclassificationsas
      previously
                
                
                andreported
                
                
                adjustment
                
                
                as
      restatedASSETSCurrent
      assets:Cash
                
                $
                703,033
                
                
                $
                1
                
                
                $
                703,034Accounts
      receivable
                
                
                52,750
                
                
                
                -
                
                
                
                52,750Prepaid
      expenses and advances
                
                
                50,373
                
                
                
                -
                
                
                
                50,373Total
      current assets
                
                
                806,156
                
                
                
                1
                
                
                
                806,157Equipment,
      net
                
                
                348,429
                
                
                
                -
                
                
                
                348,429Intangible
      assets, net
                
                
                77,121
                
                
                
                -
                
                
                
                77,121Loans
      to related parties
                
                
                60,432
                
                
                
                -
                
                
                
                60,432Other
      assets
                
                
                123,975
                
                
                
                -
                
                
                
                123,975Total
      assets
                
                $
                1,416,113
                
                
                $
                1
                
                
                $
                1,416,114LIABILITIES
      AND STOCKHOLDERS' (DEFICIT) EQUITYCurrent
      liabilities:Notes
      payable to related parties
                
                $
                25,000
                
                
                $
                -
                
                
                $
                25,000Accounts
      payable and accrued expenses
                
                
                1,303,988
                
                
                
                3,857
                
                
                
                1,307,845Total
      current liabilities
                
                
                1,328,988
                
                
                
                3,857
                
                
                
                1,332,845Minority
      interest
                
                
                959,334
                
                
                
                -
                
                
                
                959,334Stockholders'
      (deficit) equityCommon
      stock
                
                
                354,232
                
                
                
                (450
                )
                
                
                353,782Additional
      paid in capital
                
                
                78,712,970
                
                
                
                (15,840
                )
                
                
                78,727,115Stock
      subscription receivable
                
                
                (18,500
                )
                
                
                
                
                
                
                (18,500
                )Retained
      (deficit)
                
                
                (79,920,911
                )
                
                
                12,434
                
                
                
                (79,938,462
                )(872,209
                )
                
                
                (3,856
                )
                
                
                (876,065
                )Total
      liabilities and stockholders' (deficit) equity
                
                $
                1,416,113
                
                
                $
                1
                
                
                $
                1,416,114





6
 Table of Contents





CONSOLIDATED
STATEMENT OF OPERATIONS




Three
      months ended June 30, 2008
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            Nine
      months ended June 30, 2008reclassifications
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            reclassificationsas
      previously
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            and
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            as
      previously
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            andreported
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            adjustment
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            as
      restated
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            reported
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            adjustment
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            as
      restatedRevenue:Software
      licensing fees
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            1,000,000
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            1,000,000
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            2,000,000
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            2,000,000Custom
      engineering fees
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            1,750
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            35,366
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            37,116
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            512,742
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            512,742Other
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (35,576
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (35,576
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            27,554
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            27,554Total
      revenue
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            1,001,750
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (210
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            1,001,540
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            2,540,296
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            2,540,296Expenses:General,
      administrative and selling expenses
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            3,111,176
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            962,064
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            4,073,240
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            8,645,670
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (93,600
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            8,552,070General,
      administrative and selling expenses
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -stock
      based compensation
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            457,029
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            457,029
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            1,891,532
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            107,295
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            1,998,827Research
      and development
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            664,079
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (500,608
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            163,471
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            2,487,191
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            2,487,191Amortization
      and depreciation
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            32,719
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            25,051
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            57,770
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            115,443
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            115,443Total
      operating expenses
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            3,807,974
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            943,536
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            4,751,510
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            13,139,836
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            13,695
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            13,153,531-
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -Loss
      from operations
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (2,806,224
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (943,746
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (3,749,970
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (10,599,540
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (13,695
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (10,613,235
                                                                                                                                                            )Interest
      income
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            2,661
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            4,047
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            6,708
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            42,738
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            42,738Interest
      expense
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (1,254
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (2,249
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (3,503
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (1,928
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (1,928
                                                                                                                                                            )Net
      loss before minority interest
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (2,804,817
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (941,948
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (3,746,765
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (10,558,730
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (13,695
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (10,572,425
                                                                                                                                                            )Minority
      interest
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            754,376
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            754,376
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            1,665,054
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            1,665,054Net
      income (loss)
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            (2,050,441
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            (941,948
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            (2,992,389
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            (8,893,676
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            (13,695
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            (8,907,371
                                                                                                                                                            )Basic
      and diluted net loss per share
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            (0.01
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            (0
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            (0.01
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            (0.03
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            (0
                                                                                                                                                            )
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            (0.03
                                                                                                                                                            )Weighted
      average shares outstanding basic and diluted
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            342,487,914
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            342,487,914
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            331,337,944
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            -
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            331,337,944





7
 Table of Contents





CONSOLIDATED
STATEMENT OF CASH FLOWS





reclassificationsas
      previously
                      
                      
                      andreported
                      
                      
                      adjustment
                      
                      
                      as
      restatedCash
      flows from operating activities:Net
      income (loss) for period
                      
                      $
                      (8,889,820
                      )
                      
                      $
                      (17,551
                      )
                      
                      $
                      (8,907,371
                      )Adjustments
      to reconcile net loss to cash used in operating
      activities:Stock
      and options issued for services
                      
                      
                      1,356,685
                      
                      
                      
                      -
                      
                      
                      
                      1,356,685Stock
      based compensation
                      
                      
                      1,891,532
                      
                      
                      
                      107,295
                      
                      
                      
                      1,998,827Amortization
      and depreciation
                      
                      
                      115,443
                      
                      
                      
                      -
                      
                      
                      
                      115,443Minority
      interest
                      
                      
                      (1,665,054
                      )
                      
                      
                      -
                      
                      
                      
                      (1,665,054
                      )Changes
      in assets and liabilities:Deferred
      revenue
                      
                      
                      (1,000,000
                      )
                      
                      
                      -
                      
                      
                      
                      (1,000,000
                      )Accounts
      receivable
                      
                      
                      198,300
                      
                      
                      
                      -
                      
                      
                      
                      198,300Prepaid
      expenses
                      
                      
                      (15,809
                      )
                      
                      
                      -
                      
                      
                      
                      (15,809
                      )Other
      assets
                      
                      
                      (26,683
                      )
                      
                      
                      1
                      
                      
                      
                      (26,682
                      )Accounts
      payable and accrued expenses
                      
                      
                      (145,410
                      )
                      
                      
                      3,856
                      
                      
                      
                      (141,554
                      )Total
      cash used in operating activities
                      
                      
                      (8,180,816
                      )
                      
                      
                      93,600
                      
                      
                      
                      (8,087,215
                      )Net
      cash used in investing activities:Purchase
      of equipment
                      
                      
                      (115,213
                      )
                      
                      
                      -
                      
                      
                      
                      (115,213
                      )Purchase
      of intangible assets
                      
                      
                      (55,832
                      )
                      
                      
                      -
                      
                      
                      
                      (55,832
                      )Loan
      to affiliate
                      
                      
                      9,000
                      
                      
                      
                      -
                      
                      
                      
                      9,000Net
      cash used in investing activities
                      
                      
                      (162,045
                      )
                      
                      
                      -
                      
                      
                      
                      (162,045
                      )Cash
      flows provided by financing activities:Payments
      on notes payable to related parties
                      
                      
                      (100,000
                      )
                      
                      
                      -
                      
                      
                      
                      (100,000
                      )Proceeds
      from sale of stock
                      
                      
                      3,018,933
                      
                      
                      
                      (93,600
                      )
                      
                      
                      2,925,333Minority
      capital raised
                      
                      
                      2,276,295
                      
                      
                      
                      -
                      
                      
                      
                      2,276,295Net
      cash provided (used in) by financing activities
                      
                      
                      5,195,228
                      
                      
                      
                      (93,600
                      )
                      
                      
                      5,101,628Net
      decrease in cash
                      
                      
                      (3,147,633
                      )
                      
                      
                      -
                      
                      
                      
                      (3,147,632
                      )Cash,
      beginning of period
                      
                      
                      3,850,666
                      
                      
                      
                      -
                      
                      
                      
                      3,850,666Cash,
      end of period
                      
                      $
                      703,033
                      
                      
                      
                      -
                      
                      
                      $
                      703,034Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      -Non-cash
      transactions:Issuance
      of common stock to retire debt
                      
                      $
                      1,542,943
                      
                      
                      
                      -
                      
                      
                      $
                      1,542,943





8
 Table of Contents





3.  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES




Principles
of consolidation




The
consolidated financial statements include the accounts of the Company and its
subsidiary. All intercompany transactions have been eliminated in
consolidation.




Reclassifications




Prior
year’s information is reclassified whenever necessary to conform to current
year’s presentation.




Stock
Based Compensation




The
Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R,
“Share-Based Payment” effective July 1, 2005, which requires companies to record
compensation expense for stock options issued to employees or non-employee
directors at the fair value of the options.  SFAS NO. 123R is
effective for annual periods beginning after June 15, 2005.




The
Company has adopted SFAS No. 123R using the “modified prospective application”
and, therefore, financial statements from periods ended prior to October 1, 2005
have not been restated.  The Company’s net loss for the three months
ended June 30, 2008 and 2007 was $457,029 and $2,646,051, respectively higher
than if it had continued to account for share-based compensation under APB No.
25.  The Company’s net loss for the nine months ended June 30, 2008
and 2007 was $1,998,827 and $5,656,459, respectively, higher than if it had
continued to account for share-based compensation under APB No. 25.




Recent
pronouncements




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159
permits entities to choose to measure many financial assets and financial
liabilities at fair value. Unrealized gains and losses on items for which the
fair value option has been elected are reported in earnings. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. The Company will
adopt SFAS No. 159 on October 1, 2008, and is currently evaluating the impact of
such adoption on its financial statements.




In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007),
Business Combinations, which replaces SFAS No 141. The statement retains the
purchase method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are recognized in
the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141R is effective for us
beginning October 1, 2008 and will apply prospectively to business
combinations completed on or after that date.




In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB 51, which changes the
accounting and reporting for minority interests. Minority interests will be
recharacterized as non-controlling interests and will be reported as a component
of equity separate from the parent’s equity, and purchases or sales of equity
interests that do not result in a change in control will be accounted for as
equity transactions. In addition, net income attributable to the non-controlling
interest will be included in consolidated net income on the face of the income
statement and, upon a loss of control, the interest sold, as well as any
interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for us beginning October 1,
2009, and will apply prospectively, except for the presentation and disclosure
requirements, which will apply retrospectively. We are currently assessing the
potential impact that adoption of SFAS No. 160 would have on our financial
statements.





9
 Table of Contents





In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities, and an amendment of FASB Statement No. 133." SFAS No.
161 requires enhanced disclosure related to derivatives and hedging activities
and thereby seeks to improve the transparency of financial reporting. Under SFAS
No. 161, entities are required to provide enhanced disclosures relating to: (a)
how and why an entity uses derivative instruments; (b) how derivative
instruments and related hedge items are accounted for under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," and its related
interpretations; and (c) how derivative instruments and related hedged items
affect an entity's financial position, financial performance, and cash flows.
SFAS No. 161 must be applied prospectively to all derivative instruments and
non-derivative instruments that are designated and qualify as hedging
instruments and related hedged items accounted for under SFAS No. 133 for all
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. The Company is currently
assessing the impact that SFAS No. 161 will have on its financial position and
results of operations.




In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (SFAS 162”).  SFAS 162 identifies the sources
of accounting principles and the framework for selecting principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States.  This statement shall be effective 60 days following
the SEC’s approval of the Public Company Accounting Oversight Board’s amendments
to AU section 411, The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. The Company is in the process of evaluating the
potential effect of adoption of SFAS 162.




4. GOING CONCERN AND MANAGEMENT’S
PLAN




The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. The Company has incurred significant
and recurring losses and negative cash flow from operations which raises
substantial doubt about its ability to continue as a going concern. The
Company’s continued existence is dependent upon its ability to achieve
profitability and to generate cash either from operations or
financing.




For the
remainder of calendar year 2008 we will continue to focus on completing
development of VUELIVE (formerly called ESPRELive) and the planning for product
launch.  The Company will continue to raise additional debt and equity
financing to fund product development and sales and marketing
efforts.




On May
15, 2008, Blideo, Inc. (“Blideo”), the Company’s 39.76% owned subsidiary,
launched its product, which the underlying technology is a subset of the
Company’s VUELIVE.  We will continue to develop technology and
enhancements for Blideo for a fee equivalent to what third party developers
would charge for such services.  Blideo is in the process of raising
capital through the sale of equity which will reduce the Company’s ownership
percentage.




In the
period from inception to June 30, 2008, the Company has transacted a substantial
amount of its business with related parties. The Company continues to be
dependent on revenues from these related parties. The achievement of
profitability and the ability to generate cash flows from operations are
dependent upon, among other things, the acceptance of the Company’s products and
services, competition from other products, and the deployment of video
applications by our customers. There is no assurance that management’s plan will
be successful. Accordingly, substantial doubts exist about the Company’s ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.





10
 Table of Contents





5.  CASH




At June
30, 2008, the Company had $280,500 in cash (excluding Blideo’s cash of $422,533,
over which the Company may be deemed to have control through the ownership
interests in Blideo of the Company and Mr. Leighton) compared with $3,352,414
(excluding Blideo’s cash of $498,252) at September 30, 2007.







6.  INVESTMENT
IN AND LOANS TO RELATED PARTIES




Blideo
Inc.




On
April 24, 2007, prior to joining the Company, Peter Leighton, who served as the
Company’s President from July 26, 2007, and a director from May 1, 2007, until
August 21, 2008, founded Blideo, Inc., and invested $200,000 in May 2007, and
$300,000 in July 2007. The Company invested the same amounts in the same time
periods.  In May 2007, Blideo acquired an exclusive license from Media
Distribution Solutions, LLC (“MDS”), a customer of the Company since April 2006,
for the distribution and use of MDS’s software in any social networking
application for $175,000 plus certain ongoing royalties. In September 2007,
Espre’s Vice President — Sales invested $125,000 in Blideo. Certain former
officers and employees of the Company are now officers and employees of
Blideo.  Subsequent to year end, on October 31, 2007, the Company
licensed VUELIVE (formerly known as ESPRE Live) on a non-exclusive basis to
Blideo for five (5) years for a one time license fee of $1,000,000 plus 1% of
gross revenues.




As an
integral part of this agreement, Blideo agreed to pay the Company $700,000 for
engineering and design services to build the Blideo Application Release 1.0 from
September 1, 2007 to March 31, 2008. The $700,000 contract engineering fees paid
for core technology development will decrease the license fee. As part of this
license the Company has agreed not to contract with any application service
provider that plans to launch a service competitive to Blideo’s for one year
following the acceptance by Blideo of the application the Company is designing
and building. In addition, Blideo is obligated to pay the Company a product
maintenance fee for the application the Company is building for Blideo of
$70,000 for the first year commencing September 2007 and thereafter at a rate to
be negotiated. In addition, until April 1, 2008, the Company provided office
accommodation to Blideo for $2,000 per month.  On April 1, 2008,
Blideo sublet offices from an independent third party and moved its entire staff
to them.  The Company provided accounting services to Blideo for $500
per month through May 2008. The Company believes all related party transactions
have been consummated on terms equivalent to those that prevail in arms’- length
transactions.




Blideo
continues to raise capital by the sale of equity.  To the extent
Blideo raises capital, the Company’s ownership and ability to direct Blideo will
be reduced.




The
assets of Blideo are not available to the Company other than through the
contractual agreements more fully described above and through direct control
through the same management personnel.




7.  NOTES
PAYABLE TO RELATED PARTIES




Notes
payable —consisted of the following:




June
      30,
                  
                  
                  Sept.
      30,2008
                  
                  
                  2007Contingent  repurchase
      agreement to Video Software Partners, secured by certain software
      products, payable on February 1, 2008, interest imputed at
    10%
                  
                  $
                  -
                  
                  
                  $
                  1,642,944Note
      payable to a related individual, at 10%, due November 25, 2004, extended
      year to year, unsecured
                  
                  
                  25,000
                  
                  
                  
                  25,000$
                  25,000
                  
                  
                  $
                  1,667,944





11
 Table of Contents





8.  ACCOUNTS
PAYABLE AND ACCRUED EXPENSES




Accounts
payable and accrued expenses consisted of the following at:




June
      30,
                          
                          
                          Sept.
      30,2008
                          
                          
                          2007Accounts
      payable - trade
                          
                          $
                          994,444
                          
                          
                          $
                          543,487Accrued
      expenses - other
                          
                          
                          55,559
                          
                          
                          
                          242,151Due
      to investment banker
                          
                          
                          -
                          
                          
                          
                          139,825Accrued
      vacation pay
                          
                          
                          129,673
                          
                          
                          
                          76,640Accrued
      payroll and payroll taxes
                          
                          
                          39,848
                          
                          
                          
                          297,296Customer
      advances
                          
                          
                          -
                          
                          
                          
                          150,000Accrued
      interest
                          
                          
                          64,886
                          
                          
                          
                          -Accrued
      rent
                          
                          
                          23,434
                          
                          
                          
                          -$
                          1,307,844
                          
                          
                          $
                          1,449,399





9.  OTHER
RELATED PARTY TRANSACTIONS




The
Company regularly engages the services of a related vendor.  The
vendor became related when its principals purchased restricted common stock from
the Company.  In the three and nine month periods ended June 30, 2008,
the Company incurred $219,417 and $619,075, respectively, in product development
and consulting expenses and $767 and $1,967, respectively, in general, sales and
administrative expenses from this vendor.




The
Company sold a license to a related customer.  The customer became
related when its principals purchased restricted common stock from the
Company.  In the three and nine month periods ending June 30, 2008,
the Company licensed $0 and $2,000,000, respectively, in software license fee
from this customer.




10.  STOCKHOLDERS’
(DEFICIT) / EQUITY




Common
stock




Payments
for Services




In the
nine months ended June 30, 2008, the Company issued a total of 7,676,719 shares
of common stock for consulting, advisory and other services recorded at market
values ranging between of $0.13 and $0.26 per share, or
$1,524,394.  For the same period in the previous fiscal year, the
Company issued 4,438,462 shares at market values ranging between $0.05 and $0.13
per share, or $482,500, for consulting and advisory services.




Capital
Raises




In the
nine months ended June 30, 2008, the Company issued 26,083,412 shares of
restricted common stock with no demand or piggy-back registration rights to
accredited investors for $2,652,786 gross before any fees. The Company paid fees
of $175,242 in connection with the sale of these common shares.





12
 Table of Contents





11.  STOCK
OPTIONS




The
Company's 2004 Equity Incentive Plan ( the "Stock Option Plan") provides that
employees, consultants and directors can be granted options to purchase shares
of the Company's common stock, including incentive stock options
("ISOs").  The maximum aggregate number of shares of common stock
available for award under the Stock Option Plan is 100,000,000, and is subject
to adjustment as set forth therein.  Under the plan, ISOs may not be
vested until a date, or dates, subsequent to their date of grant, or until the
occurrence of one or more specified events annually.   At June
30, 2008, the Company had granted 99,504,634 ISOs.  Of the granted
ISOs, 84,965,000 vest on the anniversary of the date of grant equally over three
years; 9,039,634 vested immediately; 2,125,000 vest completely thirteen months
after the date of grant; and 3,375,000 vest completely over eighteen months
after the date of grant.  All ISOs expire no later than ten years from
the date of grant for participants that own no more than ten percent of all
classes of voting stock of the Company and its subsidiaries.  The
expiration for participants that own more than ten percent of all voting classes
of stock of the Company and its subsidiaries is five years from the date of
grant.




The
exercise price for the ISOs is not to be less than the fair market value of the
common stock of the Company at the date of grant for participants owning less
than ten percent of all voting classes of stock in the Company and its
subsidiaries and not less than 110% of the fair market value of the common stock
of the Company at the date of grant for participants owning more than ten
percent of all classes of voting stock in the Company and its
subsidiaries.




At June
30, 2008, summarized stock options outstanding and exercisable
were:




Outstanding
      Stock Options
                                        
                                        
                                        
                                        
                                        
                                        Exercisable
      Stock OptionsOptions
                                        
                                        
                                        Weighted
                                          Average
                                          Exercise
      Price
                                        
                                        
                                        Options
                                        
                                        
                                        Weighted
                                          Average
                                          Exercise
      PriceOutstanding
      at beginning of period
                                        
                                        
                                        84,404,634
                                        
                                        
                                        $
                                        .1159
                                        
                                        
                                        
                                        40,767,182
                                        
                                        
                                        $
                                        .1159Granted
                                        
                                        
                                        15,100,000
                                        
                                        
                                        $
                                        .1000
                                        
                                        
                                        
                                        4,169,848
                                        
                                        
                                        $
                                        .0874Outstanding
      at end of period
                                        
                                        
                                        99,504,634
                                        
                                        
                                        $
                                        .1135
                                        
                                        
                                        
                                        44,937,030
                                        
                                        
                                        $
                                        .1135








Outstanding
      Stock Options
                                                        
                                                        
                                                        Exercisable
      Stock OptionsExercise Price Range
                                                        
                                                        
                                                        Shares
                                                        
                                                        
                                                        Life
                                                        
                                                        
                                                        Weighted
      Average exercise Price
                                                        
                                                        
                                                        Shares
                                                        
                                                        
                                                        Life
                                                        
                                                        
                                                        Weighted
      Average exercise Price$
                                                        0.010
      - $0.085
                                                        
                                                        
                                                        
                                                        51,979,634
                                                        
                                                        
                                                        
                                                        8.15
                                                        
                                                        
                                                        $
                                                        0.08
                                                        
                                                        
                                                        
                                                        23,250,012
                                                        
                                                        
                                                        
                                                        815
                                                        
                                                        
                                                        $
                                                        0.08$
                                                        0.100
      - $0.200
                                                        
                                                        
                                                        
                                                        42,045,000
                                                        
                                                        
                                                        
                                                        7.53
                                                        
                                                        
                                                        $
                                                        0.10
                                                        
                                                        
                                                        
                                                        20,254,516
                                                        
                                                        
                                                        
                                                        7.53
                                                        
                                                        
                                                        $
                                                        0.10$
                                                        0.210
      - $1.333
                                                        
                                                        
                                                        
                                                        5,480,000
                                                        
                                                        
                                                        
                                                        6.70
                                                        
                                                        
                                                        $
                                                        0.54
                                                        
                                                        
                                                        
                                                        1,432,502
                                                        
                                                        
                                                        
                                                        6.90
                                                        
                                                        
                                                        $
                                                        0.6199,504,634
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        44,937,030





The
weighted average fair value of each option has been approximated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants; no dividend yield, volatility of 160%, risk
free interest rate of 3.59%, and an expected term of five years.





13
 Table of Contents





As of
June 30, 2008, there was approximately $3.9 million of unrecognized compensation
cost related to unvested share-based compensation arrangements granted under the
Stock Option Plan.  This expense will be recognized on a straight-line
basis over the remaining requisite service period, currently through December
2010.




12.  WARRANTS
  Transactions and other
information relating to warrants as of June 30, 2008, are summarized as
follows:




Outstanding
      Warrants
                                                          
                                                          Exercisable
      WarrantsWeighted
                                                          
                                                          
                                                          
                                                          WeightedAverage
                                                          
                                                          
                                                          
                                                          AverageExercise
                                                          
                                                          
                                                          
                                                          ExerciseShares
                                                          
                                                          Price
                                                          
                                                          Shares
                                                          
                                                          PriceOutstanding
      at October 1, 2007
                                                          
                                                          
                                                          44,019,716
                                                          
                                                          
                                                          $
                                                          0.10
                                                          
                                                          
                                                          
                                                          44,019,716
                                                          
                                                          
                                                          $
                                                          0.10Granted
      during period
                                                          
                                                          
                                                          6,938,272
                                                          
                                                          
                                                          $
                                                          0.10
                                                          
                                                          
                                                          
                                                          6,938,272
                                                          
                                                          
                                                          $
                                                          0.10Exercised
      during the period
                                                          
                                                          
                                                          (2,892,858
                                                          )
                                                          
                                                          $
                                                          0.10
                                                          
                                                          
                                                          
                                                          (2,892,858
                                                          )
                                                          
                                                          $
                                                          0.10Outstanding
      at June 30, 2008
                                                          
                                                          
                                                          48,065,130
                                                          
                                                          
                                                          $
                                                          0.10
                                                          
                                                          
                                                          
                                                          48,065,130
                                                          
                                                          
                                                          $
                                                          0.10




13.  CONCENTRATION
OF CREDIT RISK AND DEPENDENCY




For the
nine months ended June 30, 2008, the Company had one sale to a customer that
individually accounted for more than 79% of the total gross sales for that
period. For the nine months ended June 30, 2007, the Company had sales to one
customer that accounted for more than 57% of the Company’s total gross sales for
that period.




For the
nine months ended June 30, 2008, the Company purchased services from one
supplier that individually accounted for 17% percent of the Company’s total
product and development and consulting fees for the period.  Should
the Company lose this supplier, it will have a material adverse impact on the
operations of the Company.




The
Company maintains deposits in a financial institution that at times exceed
amounts covered by the insurance provided by the U.S. Federal Deposit Insurance
Corporation. The Company believes that there is no significant risk with respect
to these deposits.




14.  DEFERRED
INCOME TAXES




The
Company reduced the deferred tax asset resulting from its tax loss carry
forwards by a valuation allowance of an equal amount to the deferred asset as
the realization of the deferred tax asset is uncertain. Deferred tax assets are
as follows:




June
      30,
                          
                          
                          September 30,2008
                          
                          
                          2007Net
      operating loss
                          
                          $
                          23,659,000
                          
                          
                          $
                          19,239,000In-process
      research and development
                          
                          
                          332,000
                          
                          
                          
                          1,528,000Stock-based
      compensation
                          
                          
                          680,000
                          
                          
                          
                          1,386,000Transition
      adjustment
                          
                          
                          217,000
                          
                          
                          
                          217,00024,888,000
                          
                          
                          
                          22,370,000Less
      valuation allowance
                          
                          
                          (24,888,000
                          )
                          
                          
                          (22,370,000
                          )Net
      deferred tax assets
                          
                          $
                          -
                          
                          
                          $
                          -





14
 Table of Contents





15.  SUBSEQUENT
EVENTS




On August
20, 2008, the Company entered into a convertible secured promissory note and
loan agreement (the “Note”) with Dalcor, Inc., a corporation organized under the
laws of the Republic of Panama (“Dalcor”), pursuant to which the Company
borrowed from Dalcor $5,000,000 in cash (the “Principal Amount”) with interest
at a rate of 6.0% per annum and a maturity date of August 20, 2016 (the
“Transaction”).  Interest on the Note shall be made in cash or, at
Dalcor’s option, in shares of Common Stock of the Company (“Common
Stock”).  The first three months of interest were prepaid upon closing
the Transaction.




The Note
is convertible, at the option of Dalcor, up to the full Principal Amount, into
shares of the Company’s Series C Preferred Stock, par value $0.001 per share
(the “Series C Preferred Stock”).  The number of shares of Series C
Preferred Stock into which the Note may be converted is equal to the dollar
amount of the Note being converted divided by a conversion price of
$1.00.




The Note
may not be prepaid without the written consent of Dalcor.  The Company
is obligated to prepay the Principal Amount, together with all accrued and
unpaid interest, fees and other amounts due and payable pursuant to the Note, if
the Company sells, exclusively licenses, conveys, assigns, leases, abandons or
otherwise transfers or disposes of any of its properties or assets, unless (i)
such transaction is in the ordinary course of the Company’s business, (ii) the
proceeds of such transaction are paid to Dalcor, or (iii) with the prior written
consent of Dalcor.  The Note grants to Dalcor anti-dilution rights in
the event the Company enters into a corporate transaction and the right of first
refusal in the event the Company desires to issue any securities of the Company
or enter into any new indebtedness.  If an event of default occurs and
is continuing, Dalcor may rescind any outstanding conversion notice and declare
any and all amounts owing under the Note immediately due and payable at a price
of 118% of the Principal Amount, together with all accrued and unpaid interest
thereon.




The Note,
any Series C Preferred Stock deliverable upon conversion of the Note and any
Common Stock received as interest under the Note, have not been registered under
the Securities Act of 1933, as amended (the “Securities Act”), and may not be
offered or sold absent registration under the Securities Act or an applicable
exemption from registration under the Securities Act.




As
indicated above, the Company issued a convertible promissory note to an
accredited investor, Dalcor, in a private transaction.  The Company
did not use any underwriters nor did it use any form of advertising or general
solicitation in connection with the sale of the Note.  The sale of the
Note was made in reliance on an exemption provided by Section 4(2) of the
Securities Act.




In
connection with the Transaction, the Company and Dalcor entered into a security
agreement (the “Security Agreement”) on August 20, 2008, pursuant to which the
Company granted Dalcor a security interest in all of the Company’s personal
property to secure the Company’s obligations under the Note.  Also in
connection with the Transaction, the Company and Dalcor entered into a pledge
agreement (the “Pledge Agreement”) on August 20, 2008, pursuant to which the
Company granted Dalcor a first-priority security interest in all of the shares
of common stock of Blideo, Inc., a Texas corporation, held by the Company and
certain indebtedness owed to the Company to secure the Company’s obligations
under the Note.  Also in connection with the transaction, the Company
and Dalcor entered into a registration rights agreement on August 20, 2008,
pursuant to which the Company granted Dalcor demand and piggyback registration
rights with respect to the Note and the Series C Preferred Stock issued upon
conversion of the Note.





15
 Table of Contents


On
August 22, 2008, the Company filed a Certificate of Withdrawal with respect to
its Series B Preferred Stock, none of which was then issued or outstanding, and
filed a Certificate of Designation for its Series C Preferred Stock establishing
the rights, preferences, privileges, qualifications, restrictions and
limitations relating to the Series C Preferred Stock, of which 5,000,000 shares
are authorized, none of which are issued or outstanding but all of which are
reserved for issuance upon conversion of the outstanding principal amount of the
Note.
  The
holders of the Series C Preferred Stock shall be entitled to receive a dividend
and distribution equal to the product of 100 multiplied by the dividend or
distribution to be received by each share of Common Stock, including any amount
received in a merger transaction, sale of the Company’s assets or similar
transaction.  Holders of the Series C Preferred Stock shall be
entitled to 100 votes for each share of Series C Preferred Stock held with
respect to any and all matters presented to the stockholders of the Company for
their action. The consent of the holders of a majority of the Series C Preferred
Stock, voting separately as a class, shall be necessary for the Company to (i)
increase the share capital of the Company or authorize or issue any securities
or rights to subscribe for or convert into or call for the issue of any
additional securities not outstanding on the date of the Certificate of
Designation, (ii) declare or pay any dividends or other distributions upon any
of its securities, or to redeem or purchase or otherwise acquire any of the
Company’s securities or (iii) grant or award any registration
rights.  Each share of the Series C Preferred Stock shall be deemed
converted into 100 shares of Common Stock and shall participate pari passu with
the Common Stock in the proceeds available to the Company’s shareholders upon
the liquidation, dissolution, or winding up of the
Company.




The
description of the private placement in this Report on Form 10-Q does not
purport to be complete and is qualified in its entirety by reference to the
Note, the Security Agreement and the Pledge Agreement filed as exhibits to the
Company's Report filed August 26, 2008, on Form 8-K.




Termination of a Material
Definitive Agreement




On July
15, 2008, the Company entered into a securities purchase agreement (the
“Purchase Agreement”) with La Jolla Cove Investors, Inc. (“La Jolla”), pursuant
to which the Company sold a private placement convertible debenture (the
“Debenture”) to La Jolla.  The Debenture was for gross proceeds of
$2,000,000 (the “Debenture Amount”), of which $250,000 was paid by La Jolla at
the closing of the Purchase Agreement and the balance of $1,750,000 was payable
by a promissory note (the “La Jolla Note”) due January 30, 2011.  The
Debenture accrued interest on the Debenture Amount at a rate of 6% per
annum.  The Debenture was convertible into shares of Common
Stock.




In
connection with the Transaction, on August 20, 2008, the Company provided notice
of redemption (the “Notice of Redemption”) of the Debenture issued to La Jolla
to redeem, terminate and pay in full the Debenture.  A payment in the
amount of $262,993, representing 100% of the outstanding principal amount of the
Debenture plus accrued and unpaid interest, was made by the Company to La Jolla
in connection with the Notice of Redemption.




In
connection with the Transaction, on August 20, 2008, the Company and Nonsuch
Holdings Ltd. (“Nonsuch”) cancelled and terminated that certain promissory note
in the principal amount of $100,000 (the “Nonsuch Note”), which was issued by
the Company to Nonsuch on July 29, 2008.  In exchange for cancellation
and termination of the Nonsuch Note, the Company transferred 104,167 shares of
common stock of Blideo, Inc., a Texas corporation, owned beneficially and of
record by the Company to Nonsuch.  Nonsuch is an affiliate of, and is
owned and controlled by Peter Leighton.




16
 Table of Contents





Changes in Control of
Registrant




On August
20, 2008, the Company entered into the Note with Dalcor, pursuant to which the
Company borrowed from Dalcor $5,000,000 in cash with interest at a rate of 6.0%
per annum and a maturity date of August 20, 2016.  The source of the
funds comes from Dalcor’s cash on hand.  The Note is convertible, at
the option of Dalcor, up to the full Principal Amount, into the Series C
Preferred Stock.  The number of shares of Series C Preferred Stock
into which the Note may be converted is equal to the dollar amount of the Note
being converted divided by a conversion price of $1.00.  In the event
that Dalcor exercises its conversion rights under the Note and converts the full
Principal Amount into Series C Preferred Stock, Dalcor will own beneficially and
of record 5,000,000 shares of Series C Preferred Stock.




As of
August 12, 2008, 355,640,130 shares of Common Stock were issued and
outstanding.  In the event that Dalcor converts the Note into
5,000,000 shares of Series C Preferred Stock, with voting and preferential
rights of 100/1, Dalcor will own approximately 58.43% of the Company’s voting
power and economic benefits, which will result in a change of control of the
Company.  The Peninsula Group, which holds approximately 10.2% of the
Company, is currently the controlling shareholder.




Pursuant
to the Note, the Note may be converted into shares of Series C Preferred Stock,
in whole or in part at any time at the option of Dalcor.  Further
pursuant to the Note, the Company and Dalcor agree that so long as the Note
remains outstanding, two of the three Board members shall be representatives of
Dalcor.




Departure of Directors or
Certain Officers; Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers




On August
21, 2008, Peter Leighton resigned from the office of President and as a director
of the Company.  On August 21, 2008, Peter Ianace resigned from the
office of Chief Executive Officer of the Company.  On August 21, 2008,
the Board expanded the size of the Board to three persons and appointed William
Hopke and Oliver Chappaz as directors to fill the newly created
vacancies.




On August
21, 2008, the Board approved the appointment of Peter Ianace as Chairman of the
Board of the Company and William Hopke as President and Chief Executive Officer
of the Company, each effective immediately.  The annual compensation
for each of Mr. Ianace and Mr. Hopke will be $198,000.  There is
currently no bonus program.




Mr.
Chappaz is 33 years old and has served as a partner at the law firm of Hornung
Hovagemyan Avocats in Geneva, Switzerland since March 2008.  From
March 2005 to February 2008, Mr. Chappaz served as a director at UBS SA in
Geneva, Switzerland.  From July 2003 to February 2005, Mr. Chappaz
served as an Estate Planning Officer at Royal Bank of Canada (Suisse) SA in
Geneva, Switzerland.  From January 2001 to June 2003, Mr. Chappaz was
employed with UBS SA in Geneva, Switzerland.  As of August 16, 2008,
Mr. Chappaz was an officer or a beneficial owner of 10% or more of a company
that owns shares of the Company’s Common Stock.  On May 15, 2008,
Surecast Media, Inc. (“Surecast”) purchased a license from the Company for an
aggregate amount of $1,000,000.  At the time of the purchase by
Surecast, Mr. Chappaz was a director of Surecast.  Mr. Chappaz is no
longer a director of Surecast.




Mr.
Hopke is 52 years old and has been self employed in the investment banking
services industry since October 2007.  From May 2003 to September
2007, Mr. Hopke served as Vice President Business Development for Software
Performance Systems in Clinton, Maryland.  From January 2002 to April
2003, Mr. Hopke served as Chief Executive Officer of Teetimes.com in
Williamsburg, Virginia.  As of August 16, 2008, Mr. Hopke owned and
had registered in his name 183,789 shares of the Company’s Common
Stock.  As of August 16, 2008, Mr. Hopke’s spouse owned 11,200 shares
of the Company’s Common Stock, as to which Mr. Hopke disclaims any beneficial
ownership.  As of August 16, 2008, Mr. Hopke’s adult children, who do
not have the same home as Mr. Hopke, owned 84,512 shares of the Company’s Common
Stock, as to which Mr. Hopke disclaims any beneficial ownership.  Mr.
Hopke has received advisory fees in the aggregate amount of $18,000 from the
Company other than as in his capacity as a member of the Board or any committee
of the Board.  From 1986 to 1994, Mr. Hopke was Chief Operating
Officer and Chief Financial Officer and a member of the Board of Directors of
Dominion Capital (a wholly owned subsidiary of Dominion Resources) where he
managed over $1.5 billion of investment assets and $2.0 billion of
financing.  During his career, Hopke has served on other boards
including, Organogenesis Inc., Columbia Labs Inc., Wilshire Technologies,
Petersburg Longdistance Inc., Rincon Securities, Houston Venture Partners,
Advanced Materials and others. In addition to serving as an officer and director
of the Company, Mr. Hopke is a director of the Company's Bildeo, Inc.
subsidiary.





17
 Table of Contents





Mr.
Ianace has served as the Company’s Chief Executive Officer and as a director of
the Company, and its predecessor Espre Texas, since July 2004.  He
served in the same capacity from its organization in December 2003 until its
merger with the Company in July 2004.  From April 2001 to November
2003, Mr. Ianace was Chief Executive Officer of Vianet Technologies, Inc., a
company engaged in video software application and VOIP services.  He
served as executive Vice President of Business Development for Vianet from June
1989 to April 2001.  Mr. Ianace served as the President and Chief
Executive Officer of Intelect Network Technologies from April 1995 until April
1999, where he managed the growth and integration of worldwide sales and product
development and was responsible for equity capitalization and strategic
relationship building and partnering.  Mr. Ianace graduated from
Newburgh Free Academy in 1966 and attended St. John’s University from
1966-1968.




Amendments to Articles of
Incorporation or Bylaws;




On August
18, 2008, the Board approved the following amendments to the Amended and
Restated Bylaws (the “Bylaws”) of the Company:




·
            Article
      I, Section 1.8 was amended to change the definition of a quorum for
      stockholder action at any meeting to the outstanding shares representing a
      majority of the voting power
outstanding.





·
            Article
      9 was added to allow the Company to opt out of the requirements imposed by
      Nevada Revised Statutes Section 78.378 and Section
  78.3793.





·
            Article 3, Section 3.1, Section
      3.2.1(b) and Section 3.2.2 were amended so as to remove the Chairman of
      the Board as an executive officer of the
  Company.




Item2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations




Overview




Results
of Operations for the nine months ended June 30, 2008




The
Company has restated its Consolidated Balance Sheet as of June 30, 2008, its
Consolidated Statement of Stockholders’ Equity (Deficit) for the three and nine
months ended June 30, 2008, and its Consolidated Statements of Operations and
Cash Flows for the three and nine months ended June 30, 2008 to correct its
accounting for its stock based compensation related to employee stock
options.
  The
Company’s originally filed financial statements for the quarter ended December
31, 2007, reflected stock option expense for the entire year ended September 30,
2008, and not just the three months ended December 31, 2007, rather than being
amortized on a straight lines basis over the vesting period.  This
error was corrected in the quarter ended June 30, 2008, and all prior
quarters.
  The
impact of the restatement and other reclassifications on the
Company's Consolidated Balance Sheet as of June 30, 2008, its Consolidated
Statement of Stockholders’ Equity (Deficit) for the three and nine months ended
June 30, 2008, and its Consolidated Statements of Operations and Cash
Flows for the three and nine months ended June 30, 2008, is summarized in
Note 2 of the Notes to Consolidated Financial Statements.




During
the nine months ended June 30, 2008, we generated revenues of $2,540,296
(compared with $2,014,464 in the same period last year, or an increase of 26%).
The major components of revenue were:




●
            Revenues were $1,001,540 for the
      three months ended June 30, 2008 (compared with $263,156 for the same
      period last year).


●
            In April 2007 we entered into a
      license agreement for the exclusive right to use our technology for the
      entertainment market for an initial amount of $1,000,000 and a further
      $450,000 contingent on our delivering certain design proofs of concept.
      The license agreement granted the license holder a put option which could
      have required us to repurchase the license for $2,000,000 at any time
      after January 31, 2008, and before April 31, 2010. The revenue from this
      license was deferred and is included on our balance sheet as deferred
      revenue at September 30, 2007. In December 2007, we concluded an agreement
      with the licensee to waive the put option in return for a waiver of the
      balance due under the license of $450,000, and accordingly we recorded the
      full license fee of $1,000,000 in the quarter ended December 31,
      2007.


●
            $453,000 for the design of our
      customers’ applications, including a major US telecommunications carrier.
      We expect continued engineering revenues if and when these customers
      successfully deploy their product and/or service
      offerings.




For the
nine months ended June 30, 2008, our total operating expenses were $13,153,531
(compared to $10,603,467 the same period last year). Product development and
consulting expenses amounted to $2,487,191 (compared to $878,595 in the
comparable period in 2007, or an increase of 183%).  This substantial
increase is primarily attributable to an increase in outsource engineering costs
incurred in the development of VUELIVE, the design of Blideo’s application and
the provision of engineering services to third parties. For the nine months
ended June 30, 2008, our general, administrative and selling expenses were
$8,552,070 (compared to $3,990,052 in the comparable period last year, or an
increase of 114%). General, administrative and selling expenses incurred for the
nine months ended June 30, 2008, which were attributable to the non-cash
expenses from the Company’s incentive stock option plan, were $1,998,827
(compared to $5,656,459 in the comparable period last year, or a decrease of
65%).  We incurred increased salary expenses related to our sales and
marketing program and legal and accounting expenses relating to our becoming a
fully-reporting company.





18
 Table of Contents





Liquidity
and Capital Resources




The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. The Company has incurred significant
and recurring losses from the period December 22, 2003 (inception), through June
30, 2008. At June 30, 2008, we had $280,500 in cash (excluding Blideo’s cash of
$422,533, over which the Company may be deemed to have had control through the
ownership interests in Blideo of the Company and Mr. Leighton) compared with
$3,352,414 (excluding Blideo’s cash of $498,251) at September 30,
2007.  The Company’s continued existence is dependent upon its ability
to achieve profitability and to generate cash either from operations or
financing.




Management’s
financial plan is as follows:




·
            For
      the remainder of 2008, focus on completing the development of and
      launching of VUELIVE (previously ESPRE
Live)




VUELIVE will deliver live
interactive video services targeted at specific verticals such as:




Remote
consultations – Medical




Remote
Depositions – Legal




Remote
Maintenance – Industrial




Online
Advertising – Visual collaboration




VUEChat transforms the camera
on any device into a broadcast feed that can be viewed, live or on-demand, to
anyone on the web with a browser.




Multi-party
video-communication(up to 7-way): the
ability for a subscriber to communicate through video with anyone else in the
community




Additionally
there will be specific focus on live event broadcasting, including sports and
breaking news through our service offering, VUECAST.




VUECAST transforms the camera
on any device into a broadcast feed that can be viewed, live or on-demand, to
anyone on the web with a browser.




o
            Panel
      Broadcasts (up to 3 panelists): a broadcast is enhanced by a
      “panel” of commentators or guests




o
            Selective
      Broadcasts: the ability to broadcast live or pre-recorded content
      to a selected, limited number of
subscribers.




o
            User
      Generated Broadcasts: the ability for a subscriber to broadcast
      it’s own live or pre-recorded
content




o
            Multi-party
      video-communication (up to 7-way): the ability for a subscriber to
      communicate through video with anyone else in the community (take
      questions from the audience)





19
 Table of Contents





·
            Engage
      in partnerships with firms in key vertical markets. These partners will be
      market experts and have well-defined application strategies that require
      VUELive to deliver them. Potential customers have been identified and the
      Company is in active negotiations with them. No assurance can be given,
      however, that we will be successful in entering into satisfactory
      commercial arrangements with these or other
  customers.


·
            Establish
      independent sales agreements with representatives to sell our VUELive
      services into the enterprise market. We will actively pursue the
      engagement of additional independent sales representatives that can
      distribute the Company’s existing video products and services both
      domestically and internationally. Potential partners have been identified
      and we are in active negotiations with them. No assurance can be given,
      however, that we will be successful in entering into satisfactory
      commercial arrangements with these or other
  partners.


·
            Foster
      and build relationship with technology partners that want to add live
      video to their product portfolio thereby leveraging their existing
      customer bases. Potential partners have been identified and we are in
      active negotiations with them. No assurance can be given, however, that we
      will be successful in entering into satisfactory commercial arrangements
      with these or other partners.


·
            Raise
      additional debt and equity financing.  This is critical for the
      Company to continue as a going
concern.




For the
nine months ended June 30, 2008, and June 30, 2007, we used net cash of
$8,087,216 and $1,958,687, respectively, for operations; we used net cash of
$162,045 and $301,265, respectively, for investing; and realized net cash of
$5,101,628 and $2,864,727, respectively, from financing activities, primarily
from the sale of our common stock and receipts of stock subscription
receivables. The increase of $6,128,529 in net cash used was primarily due to
the addition of personnel in the area of sales, marketing, and engineering along
with Blideo’s not having come into existence prior to April 2007.  The
achievement of profitability and the ability to generate cash flows from
operations will depend on, among other things, the acceptance of our products
and services, competition, and the deployment of video applications by our
customers. These matters by their nature contain uncertainties and our financial
statements do not include any adjustments that might occur from future efforts.
There is therefore substantial doubt about our ability to continue as a going
concern.




Our
current cash requirements are approximately $1,150,000 per month, principally
for salaries, professional services and office expenses. Included in these
expenditures is approximately $400,000 of development expense for the design and
deployment of Blideo’s application, VUELIVE, and other customers. As Blideo’s
application and VUELIVE design and development near completion, we project our
cash requirements per month to decrease and approach $550,000.  Our
capital expenditures (depending on our hiring program), which principally
consist of computer equipment, test equipment and office requirements, are
approximately $15,000 per month. Based on our cash flow projections, we expect
that while our cash requirements will continue at their current rate for the
foreseeable future, we will be able to meet a portion of our cash requirements
from the proceeds of agreements for our services and the sale of our products.
We have been and expect to remain cash flow negative for calendar year 2008, and
will therefore be dependent on the proceeds of the sale of our equity
securities, as to which there is no assurance.




As
with any company engaged in the development of new technology, we have
constantly been challenged by the need to find continuing and new sources of
capital to meet our operating expenses. There can be no assurance that we will
continue to be successful in obtaining financing, or that we will be able to
generate significant revenues from operations in calendar 2008, in which event
we may be unable to proceed with our business operations. Substantial doubt
exists about our ability to continue as a going concern if we do not generate
significant revenues from financing and from operations.




Critical
Accounting Policies and Recent Accounting Pronouncements




The
Company’s significant accounting policies are set forth in Note 1 of Notes to
Consolidated Financial Statements in the Company’s registration statement on
Form 10/A filed March 31, 2008. A discussion of those policies that require
management judgment and estimates and are most important in determining the
Company’s operating results and financial condition appears in Management’s
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company’s registration statement on Form 10/A. The Financial
Accounting Standards Board issues, from time to time, new financial accounting
standards, staff positions and emerging issues task force consensus. See Note 2
of Notes to Condensed Consolidated Financial Statements for a discussion of
these matters.





20
 Table of Contents





Forward-Looking
Statements




All
statements other than statements of historical fact included in this Report,
including without limitation statements regarding the Company’s financial
position, business strategy, and the plans and objectives of the Company’s
management for future operations, are forward-looking statements. When used in
this Report, words such as “anticipate,” “believe,” “estimate,” “expect,”
“intend” and similar expressions, as they relate to the Company or its
management, identify forward-looking statements. Such forward-looking statements
are based on the beliefs of the Company’s management, as well as assumptions
made by and information currently available to the Company’s management. Actual
results could differ materially from those contemplated by the forward-looking
statements as a result of certain factors, including, but not limited to,
general business and economic conditions, including, results of integrating
acquired businesses into existing operations, competitive factors and pricing
pressures in the technology and development of video delivery over internet
protocol.  Such statements reflect the views of the Company with
respect to future events and are subject to these and other risks, uncertainties
and assumptions relating to the operations, results of operations, growth
strategy and liquidity of the Company as previously disclosed in the Company’s
registration statement on Form 10/A filed March 31, 2008. Readers are cautioned
not to place undue reliance on these forward-looking statements. The Company
does not undertake any obligation to release publicly any revisions to these
forward-looking statements to reflect future events or circumstances or to
reflect the occurrence of unanticipated events.




Item3.  Quantitative and Qualitative Disclosure About
Market Risk




Management
does not believe that there is any material market risk exposure with respect to
derivative or other financial instruments that is required to be
disclosed




Item4.  Controls and Procedures




The
Company has carried out an evaluation under the supervision and with the
participation of its management as to the effectiveness of the design and
operation of its disclosure controls and procedures. The evaluation examined the
Company’s disclosure controls and procedures as of June 30, 2008, the end of the
period covered by this report pursuant to Rule 13a-15(b) under the Securities
Exchange Act of 1934, as amended. Based on that evaluation, such officers have
concluded that, as of June 30, 2008, the Company’s disclosure controls and
procedures were effective to ensure that information required to be disclosed by
the Company in the reports filed or submitted by it under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time period specified in the rules and forms of the
Securities and Exchange Commission, and include controls and procedures designed
to ensure that information required to be disclosed by the Company in such
reports is accumulated and communicated to management, including the Company’s
Chief Executive Officer and the Company’s Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosures.




During
the period covered by this Report, there were no changes in the Company’s
internal control over financial reporting which materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.




Limitations on the
Effectiveness of Controls




The
Company believes that a control system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the control
system are met, and no evaluation of controls can provide absolute assurance
that all controls issues and instances of fraud, if any, within a company have
been detected. The Company’s disclosure controls and procedures are designed to
provide reasonable assurance of achieving their objectives and the company’s
President and CFO have concluded that such controls and procedures are effective
at the “reasonable assurance” level.






PART
II — OTHER INFORMATION




Item1.  Legal
Proceedings




None





21
 Table of Contents





Item1A.  Risk
Factors




There
have been no material changes from the risk factors disclosed in Item 1A to Part
I in the Company’s Registration Statement on Form 10 filed March 31,
2008.




Item2.  Unregistered Sales of Equity
Securities and Use of Proceeds




In the
nine months ended June 30, 2008, the Company issued 27,385,412 shares of
restricted common stock to accredited investors for cash with no demand or
piggy-back registration rights. These securities were sold pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act of
1933 and Regulation D, Rule 506, promulgated there under.  The
proceeds were used for operational expenses.




Item3.  Defaults upon Senior
Securities




None




Item4.  Submission of Matters to a
Vote of Security Holders




None




Item5.  Other
Information




None




Item6.  Exhibits




Exhibit 31.1 — Section 302 Certificate of Chief
Executive Officer




Exhibit 31.2— Section 302 Certificate
of Chief Financial Officer




Exhibit
32.1— Section 906 Certificate of Chief Executive
Officer




Exhibit 32.2 — Section 906 Certificate of Chief
Financial Officer





22
 Table of Contents





SIGNATURE







Pursuant
to the requirements of the securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereto
duly authorized.







ESPRE SOLUTIONS,
INC.




Registrant








Date
                          
                          
                          
                          Date/s/
      William Hopke
                          
                          October
      8, 2008
                          
                          /s/
      BG Moore
                          
                          October
      8,2008William
      Hopke
                          
                          
                          
                          BG
      MooreChief
      Executive Officer/President
                          
                          
                          
                          Chief
      Financial Officer







23