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 March 31, 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 ofincorporation
      or organization)
            (I.R.S.
      EmployerIdentification
      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, a non-accelerated filer or a smaller reporting company. See
definition of “accelerated filer, large accelerated filer and smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):





Large
      accelerated filer o
              Accelerated
      filer o
              Non-accelerated
      filer oSmaller
      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  Yes       x  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 November 12, 2008 .












EXPLANATORY
NOTE




This
Amendment No. 1 to the Quarterly Report on Form 10-QSB/A (the “Report”) for the
quarterly period ended March 31, 2008, includes a restatement of our
consolidated financial statements for the quarterly periods ended March 31, 2008
(and related disclosures), initially filed on May 20, 2008.





The
Company has restated its Consolidated Balance Sheet as of March 31, 2008, and
its Consolidated Statements of Operations and Cash Flows for the three and six
months ended March 31, 2008 (as contained in this Report) to correct its
accounting for its stock based compensation related to employee stock options,
its expensing of performance based options, its accounting for minority
interest, its classification of software licensing fee revenues, its
classification of stock and options for services, its classification of interest
income and its classification of amortization expense.  Finally, the
Company has corrected its accounting for revenues reported in the prior year for
the three and six months ended March 31, 2007, in accordance with its revenue
recognition policies.  The errors were discovered and corrected in the
quarter ended June 30, 2008 and for all prior quarters.





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.







FORM 10-Q/ACONTENTSPART
      I — FINANCIAL INFORMATION (Unaudited)
                                                          PAGEItem
      1
                                                          —
                                                          Financial
      StatementsConsolidated Balance Sheets at
      March 31,2008 and September 30,
      2007
                                                          2Consolidated Statements of
      Operations forthe three and six
      months ended March 31,2008 and
      2007
                                                          3Consolidated Statements of Cash
      Flows forthe three and six months
      ended March 31,2008 and March 31,
      2008
                                                          4Selected Notes to
      Consolidated FinancialStatements
                                                          5Item
      2
                                                          —
                                                          Management’s Discussion
      andAnalysis of Financial Condition
      andResults of
      Operations
                                                          21Item
      3
                                                          —
                                                          Quantitative and Qualitative
      Disclosuresabout Market
      Risk
                                                          24Item
      4
                                                          —
                                                          Controls and
      Procedures
                                                          24PART
      II — OTHER INFORMATIONItem
      1
                                                          —
                                                          Legal
      Proceedings
                                                          25Item
      1A
                                                          —
                                                          Risk
    Factors
                                                          25Item
      2
                                                          —
                                                          Unregistered Sales of Equity
      Securities andUse of
      Proceeds
                                                          25Item
      3
                                                          —
                                                          Defaults upon Senior
      Securities
                                                          25Item
      4
                                                          —
                                                          Submission of Matters to a Vote
      ofSecurity
      Holders
                                                          25Item
      5
                                                          —
                                                          Other
      Information
                                                          25Item
      6
                                                          —
                                                          List of
      Exhibits
                                                          25SignatureEX-31.1
      Section 302 CertificationEX-31.2
      Section 302 CertificationEX-32.1
      Section 906 CertificationEX-32.2
      Section 906 Certification


- 1
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PART
      I — FINANCIAL INFORMATIONItem
      1 — Financial StatementsESPRE
      SOLUTIONS INC. AND SUBSIDIARYConsolidated
      Balance Sheets





March 31,
                    2008
                  
                  
                  September 30,
                    2007(Unaudited)(As
      Restated)ASSETSCurrent
      assets:Cash
                  
                  $
                  1,374,728
                  
                  
                  $
                  3,850,666Accounts
      receivable, net
                  
                  
                  247,348
                  
                  
                  
                  251,050Prepaid
      expenses and advances
                  
                  
                  93,064
                  
                  
                  
                  34,564Total
      current assets
                  
                  
                  1,715,140
                  
                  
                  
                  4,136,280Equipment,
      net
                  
                  
                  341,992
                  
                  
                  
                  296,758Intangible
      assets, net
                  
                  
                  79,038
                  
                  
                  
                  73,191Loans
      to related parties
                  
                  
                  69,432
                  
                  
                  
                  69,432Other
      assets
                  
                  
                  124,124
                  
                  
                  
                  97,292Total
      assets
                  
                  $
                  2,329,726
                  
                  
                  $
                  4,672,953LIABILITIES
      AND STOCKHOLDERS’ (DEFICIT) EQUITYCurrent
      liabilities:Notes
      payable to related parties
                  
                  $
                  25,000
                  
                  
                  $
                  1,667,944Accounts
      payable and accrued expenses
                  
                  
                  1,227,687
                  
                  
                  
                  1,449,399Total
      current liabilities
                  
                  
                  1,252,687
                  
                  
                  
                  3,117,343Deferred
      revenue — related party
                  
                  
                  -
                  
                  
                  
                  1,000,000Minority
      interest
                  
                  
                  1,332,505
                  
                  
                  
                  348,093Stockholders’
      (deficit) equityCommon
      shares — $0.001 par value; authorized 500,000,000 shares; and 340,690,884
      and 318,522,499 shares issued and outstanding ,
      respectively
                  
                  
                  340,690
                  
                  
                  
                  318,522Additional
      paid-in capital
                  
                  
                  76,630,778
                  
                  
                  
                  71,110,086Stock
      subscription receivable
                  
                  
                  (28,500
                  )
                  
                  
                  (190,000
                  )Retained
      (deficit)
                  
                  
                  (77,198,434
                  )
                  
                  
                  (71,031,091
                  )Total
      stockholders’ (deficit) equity
                  
                  
                  (255,466
                  )
                  
                  
                  207,517Total
      liabilities and stockholders’ (deficit )equity
                  
                  $
                  2,329,726
                  
                  
                  $
                  4,672,953





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


- 2
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ESPRE SOLUTIONS INC. AND SUBSIDIARYConsolidated
      Statements of Operations(Unaudited)





Three
      Months Ended
                  March 31,
                
                
                Six
      Months Ended
                  March 31,2008
                
                
                2007
                
                
                2008
                
                
                2007Revenues:
                
                (As
      Restated)
                
                
                (As
      Restated)
                
                
                (As
      Restated)
                
                
                (As
      Restated)Software
      licensing fees
                
                $
                -
                
                
                $
                600,000
                
                
                $
                1,000,000
                
                
                $
                1,240,000Custom
      engineering fees
                
                
                453,650
                
                
                
                244,500
                
                
                
                510,992
                
                
                
                477,750Other
                
                
                13,992
                
                
                
                116,534
                
                
                
                27,764
                
                
                
                124,160Total
      revenues
                
                
                467,642
                
                
                
                961,034
                
                
                
                1,538,756
                
                
                
                1,841,910Expenses:General,
      administrative and selling expenses
                
                
                3,215,226
                
                
                
                1,290,372
                
                
                
                5,281,914
                
                
                
                2,383,800General,
      administrative and selling expenses stock based
      compensation
                
                
                358,389
                
                
                
                1,726,334
                
                
                
                1,441,798
                
                
                
                2,810,408Research
      and development
                
                
                974,795
                
                
                
                366,900
                
                
                
                1,626,063
                
                
                
                451,500Amortization
      and depreciation
                
                
                32,086
                
                
                
                23,399
                
                
                
                70,173
                
                
                
                46,746Total
      operating expenses
                
                
                4,580,496
                
                
                
                3,407,005
                
                
                
                8,419,948
                
                
                
                5,692,454Loss
      from operations
                
                
                (4,112,854
                )
                
                
                (2,445,971
                )
                
                
                (6,881,192
                )
                
                
                (3,850,544
                )Interest
      income
                
                
                15,641
                
                
                
                -
                
                
                
                36,031
                
                
                
                -Interest
      expense
                
                
                (675
                )
                
                
                (1,836
                )
                
                
                (675
                )
                
                
                (9,684
                )Net
      loss before minority interest
                
                
                (4,097,888
                )
                
                
                (2,447,807
                )
                
                
                (6,845,836
                )
                
                
                (3,860,228
                )Minority
      interest
                
                
                518,763
                
                
                
                -
                
                
                
                825,587
                
                
                
                -Net
      (loss)
                
                $
                (3,579,125
                )
                
                $
                (2,447,807
                )
                
                $
                (6,020,249
                )
                
                $
                (3,860,228
                )Basic
      and diluted net loss per share
                
                $
                (0.01
                )
                
                $
                (0.01
                )
                
                $
                (0.02
                )
                
                $
                (0.02
                )Weighted
      average shares outstanding, basic and diluted
                
                
                330,385,415
                
                
                
                208,334,315
                
                
                
                323,934,532
                
                
                
                208,334,315





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


- 3
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ESPRE SOLUTIONS INC. AND SUBSIDIARYConsolidated
      Statements of Cash FlowsSix
      Months Ended March 31,(Unaudited)





2008
                  
                  
                  2007Cash
      flows from operating activities:
                  
                  (As
      Restated)
                  
                  
                  (As
      Restated)Net
      (loss) for period
                  
                  $
                  (6,020,249
                  )
                  
                  $
                  (3,860,228
                  )Adjustments
      to reconcile net loss to cash used in operating
      activities:Stock
      and options issued for services
                  
                  
                  838,233
                  
                  
                  
                  200,000Stock
      based compensation
                  
                  
                  1,441,798
                  
                  
                  
                  2,810,408Amortization
      and depreciation
                  
                  
                  70,173
                  
                  
                  
                  46,746Minority
      interest
                  
                  
                  (825,587
                  )
                  
                  
                  -Changes
      in assets and liabilities:Deferred
      revenue
                  
                  
                  (1,000,000
                  )
                  
                  
                  150,000Accounts
      receivable
                  
                  
                  4,702
                  
                  
                  
                  (445,486
                  )Prepaid
      expenses
                  
                  
                  (58,500
                  )
                  
                  
                  27,811Other
      assets
                  
                  
                  (26,833
                  )
                  
                  
                  (7,600
                  )Accounts
      payable and accrued expenses
                  
                  
                  (209,353
                  )
                  
                  
                  254,809Total
      cash used in operating activities
                  
                  
                  (5,785,616
                  )
                  
                  
                  (823,540
                  )Net
      cash used in investing activities:Purchase
      of equipment
                  
                  
                  (86,545
                  )
                  
                  
                  (19,348
                  )Purchase
      of intangible assets
                  
                  
                  (34,709
                  )
                  
                  
                  (127,580
                  )Loan
      to affiliate
                  
                  
                  -
                  
                  
                  
                  (250,000
                  )Net
      cash used in investing activities
                  
                  
                  (121,254
                  )
                  
                  
                  (396,928
                  )Cash
      flows provided by financing activities:Payments
      on notes payable to related parties
                  
                  
                  (100,000
                  )
                  
                  
                  102,957Proceeds
      from sale of stock
                  
                  
                  1,781,932
                  
                  
                  
                  1,140,000Minority
      capital raised
                  
                  
                  1,749,000
                  
                  
                  
                  -Net
      cash provided by financing activities
                  
                  
                  3,430,932
                  
                  
                  
                  1,242,957Net
      (decrease) increase in cash
                  
                  
                  (2,475,938
                  )
                  
                  
                  22,489Cash,
      beginning of period
                  
                  
                  3,850,666
                  
                  
                  
                  291,426Cash,
      end of period
                  
                  $
                  1,374,728
                  
                  
                  $
                  313,915Supplemental
      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
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ESPRE
SOLUTIONS, 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 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 consolidated financial statements be read in conjunction with
the consolidated financial statements and notes thereto for the year ended
September 30, 2007 included in the Company’s Form 10 filed on March 31,
2008.





On
April 27, 2007, the Company and Peter Leighton, who was then its President
(“Leighton”), founded Blideo, Inc. (“Blideo”) (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 March 31, 2008, and
its Consolidated Statements of Operations and Cash Flows for the three and six
months ended March 31, 2008, to correct its accounting for its stock based
compensation related to employee stock options, its expensing of performance
based options and its accounting for minority interest, its classification of
interest income and its classification of amortization expense and its
accounting for revenues for the three and six months ended March 31,
2007.





The
Company’s originally filed financial statements for the quarter ended December
31, 2007, reflected stock option expense for the entire year in that quarter,
rather than being amortized on a straightline basis over the vesting period.
This also resulted in an overstatement of expenses for the three and six months
ended March 31, 2008.  The Company also improperly expensed certain
performance-based stock options in the quarter ended March 31, 2008, when the
conditions for vesting had not been met.  The options were
subsequently forfeited.  The company also corrected its classification
of stock and options for services, which was previously classified as
stock-based compensation, to general, administrative and selling expenses. The
Company also corrected its accounting for minority interest for the three and
six months ended March 31, 2008, which was previously based on an incorrect
number of common shares outstanding and an incorrect percentage ownership in its
consolidated subsidiary, which previously included the effects of a stock split
authorized subsequent to March 31, 2008.  In addition, the Company
corrected its classification of interest income, which was previously classified
as revenues, as well as its classification of custom engineering fees, which was
previously classified as other revenues, and its classification of amortization
expense, which was previously improperly classified as a reduction of the
underlying asset rather than as an increase in accumulated
amortization.





Finally,
the Company corrected its accounting for revenues reported in the prior year for
the three and six months ended March 31, 2007, in accordance with its revenue
recognition policies.  We corrected our software licensing fee
revenues that were prematurely recognized in the prior year three month period
ended December 31, 2006.  The revenues were subsequently recorded in
the proper three and six months prior year period ended March 31, 2007 when all
of the conditions for revenue recognition were fully met.  The errors
were discovered and corrected in the quarter ended June 30, 2008, and for all
prior quarters.





The
impact of the restatement and other reclassifications on the Company's
Consolidated Balance Sheet as of March 31, 2008, and its Consolidated Statements
of Operations and Cash Flows for the three and six months ended March 31, 2008
and the three and six months ended March 31, 2007, is summarized in the tables
below:


- 5
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 Table of Contents




CONSOLIDATED BALANCE SHEETAs
      of March 31, 2008As
      previously
                                                                  reported
                                                                
                                                                
                                                                Reclassifications
                                                                  and
                                                                  adjustment
                                                                
                                                                
                                                                As
      restatedASSETSCurrent
      assets:Cash
                                                                
                                                                $
                                                                1,374,728
                                                                
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                1,374,728Accounts
      receivable
                                                                
                                                                
                                                                247,348
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                247,348Prepaid
      expenses and advances
                                                                
                                                                
                                                                93,064
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                93,064Total
      current assets
                                                                
                                                                
                                                                1,715,140
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                1,715,140Equipment,
      net
                                                                
                                                                
                                                                341,992
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                341,992Intangible
      assets, net
                                                                
                                                                
                                                                79,038
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                79,038Loans
      to related parties
                                                                
                                                                
                                                                69,432
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                69,432Other
      assets
                                                                
                                                                
                                                                124,124
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                124,124Total
      assets
                                                                
                                                                $
                                                                2,329,726
                                                                
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                2,329,726LIABILITIES
      AND STOCKHOLDERS (DEFICIT)Current
      liabilities:Notes
      payable to related parties
                                                                
                                                                $
                                                                25,000
                                                                
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                25,000Accounts
      payable and accrued expenses
                                                                
                                                                
                                                                1,229,812
                                                                
                                                                
                                                                
                                                                (2,125
                                                                )
                                                                
                                                                
                                                                1,227,687Total
      current liabilities
                                                                
                                                                
                                                                1,254,812
                                                                
                                                                
                                                                
                                                                (2,125
                                                                )
                                                                
                                                                
                                                                1,252,687Minority
      interest
                                                                
                                                                
                                                                1,186,414
                                                                
                                                                
                                                                
                                                                146,091
                                                                
                                                                
                                                                
                                                                1,332,505Stockholders'
      (deficit)Common
      stock
                                                                
                                                                
                                                                340,690
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                340,690Additional
      paid in capital
                                                                
                                                                
                                                                78,782,089
                                                                
                                                                
                                                                
                                                                (2,151,311
                                                                )
                                                                
                                                                
                                                                76,630,778Stock
      subscription receivable
                                                                
                                                                
                                                                (28,500
                                                                )
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (28,500
                                                                )Retained
      (deficit)
                                                                
                                                                
                                                                (79,205,779
                                                                )
                                                                
                                                                
                                                                2,007,345
                                                                
                                                                
                                                                
                                                                (77,198,434
                                                                )Total
      stockholders’ (deficit)
                                                                
                                                                
                                                                (111,500
                                                                )
                                                                
                                                                
                                                                (143,966
                                                                )
                                                                
                                                                
                                                                (255,466
                                                                )Total
      liabilities and stockholders' (deficit)
                                                                
                                                                $
                                                                2,329,726
                                                                
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                2,329,726


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CONSOLIDATED
      STATEMENT OF OPERATIONSThree
      months ended March 31, 2008
                                  
                                  
                                  Six
      months ended March 31, 2008Previously
                                    reported
                                  
                                  
                                  Reclassifications
                                    and
                                    adjustments
                                  
                                  
                                  As
      restated
                                  
                                  
                                  As
      previously
                                    reported
                                  
                                  
                                  Reclassifications
                                    and
                                    adjustments
                                  
                                  
                                  As
      restatedRevenues:Software
      licensing fees
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  1,000,000
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  1,000,000Custom
      engineering fees
                                  
                                  
                                  418,284
                                  
                                  
                                  
                                  35,366
                                  
                                  
                                  
                                  453,650
                                  
                                  
                                  
                                  475,626
                                  
                                  
                                  
                                  35,366
                                  
                                  
                                  
                                  510,992Other
                                  
                                  
                                  13,380
                                  
                                  
                                  
                                  612
                                  
                                  
                                  
                                  13,992
                                  
                                  
                                  
                                  63,130
                                  
                                  
                                  
                                  (35,366
                                  )
                                  
                                  
                                  27,764Total
      revenues
                                  
                                  
                                  431,664
                                  
                                  
                                  
                                  35,978
                                  
                                  
                                  
                                  467,642
                                  
                                  
                                  
                                  1,538,756
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,538,756Expenses:General,
      administrative and selling
                                  
                                  
                                  2,441,707
                                  
                                  
                                  
                                  773,519
                                  
                                  
                                  
                                  3,215,226
                                  
                                  
                                  
                                  5,211,890
                                  
                                  
                                  
                                  70,023
                                  
                                  
                                  
                                  5,281,913General,
      administrative and selling stock based compensation
                                  
                                  
                                  1,801,577
                                  
                                  
                                  
                                  (1,443,188
                                  )
                                  
                                  
                                  358,389
                                  
                                  
                                  
                                  3,798,318
                                  
                                  
                                  
                                  (2,356,520
                                  )
                                  
                                  
                                  1,441,798Research
      and development
                                  
                                  
                                  1,003,810
                                  
                                  
                                  
                                  (29,015
                                  )
                                  
                                  
                                  974,795
                                  
                                  
                                  
                                  1,590,697
                                  
                                  
                                  
                                  35,366
                                  
                                  
                                  
                                  1,626,063Amortization
      and depreciation
                                  
                                  
                                  25,886
                                  
                                  
                                  
                                  6,200
                                  
                                  
                                  
                                  32,086
                                  
                                  
                                  
                                  57,673
                                  
                                  
                                  
                                  12,500
                                  
                                  
                                  
                                  70,173Total
      operating expenses
                                  
                                  
                                  5,272,980
                                  
                                  
                                  
                                  (692,484
                                  )
                                  
                                  
                                  4,580,496
                                  
                                  
                                  
                                  10,658,578
                                  
                                  
                                  
                                  (2,238,631
                                  )
                                  
                                  
                                  8,419,947Loss
      from operations
                                  
                                  
                                  (4,841,316
                                  )
                                  
                                  
                                  728,462
                                  
                                  
                                  
                                  (4,112,854
                                  )
                                  
                                  
                                  (9,119,822
                                  )
                                  
                                  
                                  2,238,631
                                  
                                  
                                  
                                  (6,881,191
                                  )Interest
      income
                                  
                                  
                                  36,030
                                  
                                  
                                  
                                  (20,389
                                  )
                                  
                                  
                                  15,641
                                  
                                  
                                  
                                  36,030
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  36,030Interest
      expense
                                  
                                  
                                  (1,575
                                  )
                                  
                                  
                                  900
                                  
                                  
                                  
                                  (675
                                  )
                                  
                                  
                                  (1,575
                                  )
                                  
                                  
                                  900
                                  
                                  
                                  
                                  (675
                                  )Net
      loss before minority interest
                                  
                                  
                                  (4,806,861
                                  )
                                  
                                  
                                  708,973
                                  
                                  
                                  
                                  (4,097,888
                                  )
                                  
                                  
                                  (9,085,367
                                  )
                                  
                                  
                                  2,239,531
                                  
                                  
                                  
                                  (6,845,836
                                  )Minority
      interest
                                  
                                  
                                  529,319
                                  
                                  
                                  
                                  (10,556
                                  )
                                  
                                  
                                  518,763
                                  
                                  
                                  
                                  910,678
                                  
                                  
                                  
                                  (85,091
                                  )
                                  
                                  
                                  825,587Net
      (loss)
                                  
                                  $
                                  (4,277,542
                                  )
                                  
                                  $
                                  698,417
                                  
                                  
                                  $
                                  (3,579,125
                                  )
                                  
                                  $
                                  (8,174,689
                                  )
                                  
                                  $
                                  2,154,440
                                  
                                  
                                  $
                                  (6,020,249
                                  )Basic
      and diluted net loss per share
                                  
                                  $
                                  (0.01
                                  )
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  (0.01
                                  )
                                  
                                  $
                                  (0.03
                                  )
                                  
                                  $
                                  0.01
                                  
                                  
                                  $
                                  (0.02
                                  )Weighted
      average shares outstanding, basic and diluted
                                  
                                  
                                  330,385,415
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  330,385,415
                                  
                                  
                                  
                                  323,934,532
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  323,934,532


- 7
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CONSOLIDATED
      STATEMENT OF CASH FLOWSSix
      months ended March 31, 2008As
      previously
                                  reported
                                
                                
                                Reclassifications
                                  and
                                  adjustments
                                
                                
                                As
      restatedCash
      flows from operating activities:Net
      (loss) for period
                                
                                $
                                (8,174,689
                                )
                                
                                $
                                2,154,440
                                
                                
                                $
                                (6,020,249
                                )Adjustments
      to reconcile net loss to cash used in operating
      activities:Stock
      and options issued for services
                                
                                
                                732,477
                                
                                
                                
                                105,756
                                
                                
                                
                                838,233Stock
      based compensation
                                
                                
                                3,798,318
                                
                                
                                
                                (2,356,520
                                )
                                
                                
                                1,441,798Amortization
      and depreciation
                                
                                
                                57,673
                                
                                
                                
                                12,500
                                
                                
                                
                                70,173Minority
      interest
                                
                                
                                (910,678
                                )
                                
                                
                                85,091
                                
                                
                                
                                (825,587
                                )Changes
      in assets and liabilities:Deferred
      revenue
                                
                                
                                (1,000,000
                                )
                                
                                
                                -
                                
                                
                                
                                (1,000,000
                                )Accounts
      receivable
                                
                                
                                3,702
                                
                                
                                
                                1,000
                                
                                
                                
                                4,702Prepaid
      expenses
                                
                                
                                (58,501
                                )
                                
                                
                                -
                                
                                
                                
                                (58,501
                                )Other
      assets
                                
                                
                                (26,832
                                )
                                
                                
                                -
                                
                                
                                
                                (26,832
                                )Accounts
      payable and accrued expenses
                                
                                
                                (219,587
                                )
                                
                                
                                10,234
                                
                                
                                
                                (209,353
                                )Total
      cash used in operating activities
                                
                                
                                (5,798,117
                                )
                                
                                
                                12,501
                                
                                
                                
                                (5,785,616
                                )Net
      cash used in investing activities:Purchase
      of equipment
                                
                                
                                (87,032
                                )
                                
                                
                                487
                                
                                
                                
                                (86,545
                                )Purchase
      of intangible assets
                                
                                
                                (21,721
                                )
                                
                                
                                (12,988
                                )
                                
                                
                                (34,709
                                )Net
      cash used in investing activities
                                
                                
                                (108,753
                                )
                                
                                
                                (12,501
                                )
                                
                                
                                (121,254
                                )Cash
      flows provided by financing activities:Payments
      on notes payable to related parties
                                
                                
                                (100,000
                                )
                                
                                
                                -
                                
                                
                                
                                (100,000
                                )Proceeds
      from sale of stock
                                
                                
                                1,781,932
                                
                                
                                
                                -
                                
                                
                                
                                1,781,932Minority
      capital raised
                                
                                
                                1,749,000
                                
                                
                                
                                -
                                
                                
                                
                                1,749,000Net
      cash provided by financing activities
                                
                                
                                3,430,932
                                
                                
                                
                                -
                                
                                
                                
                                3,430,932Net
      decrease in cash
                                
                                
                                (2,475,938
                                )
                                
                                
                                -
                                
                                
                                
                                (2,475,938
                                )Cash,
      beginning of period
                                
                                
                                3,850,666
                                
                                
                                
                                -
                                
                                
                                
                                3,850,666Cash,
      end of period
                                
                                $
                                1,374,728
                                
                                
                                $
                                -
                                
                                
                                $
                                1,374,728Supplemental
      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


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CONSOLIDATED
      STATEMENT OF OPERATIONSThree
      months ended March 31, 2007
                                  
                                  
                                  Six
      months ended March 31, 2007Previously
                                    reported
                                  
                                  
                                  Reclassifications and
                                    adjustments
                                  
                                  
                                  As restated
                                  
                                  
                                  As previously
                                    reported
                                  
                                  
                                  Reclassifications and
                                    adjustments
                                  
                                  
                                  As restatedRevenues:Software
      licensing fees
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  600,000
                                  
                                  
                                  $
                                  600,000
                                  
                                  
                                  $
                                  1,990,000
                                  
                                  
                                  $
                                  (750,000
                                  )
                                  
                                  $
                                  1,240,000Custom
      engineering fees
                                  
                                  
                                  244,500
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  244,500
                                  
                                  
                                  
                                  477,750
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  477,750Other
                                  
                                  
                                  116,534
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  116,534
                                  
                                  
                                  
                                  124,160
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  124,160Total
      revenues
                                  
                                  
                                  361,034
                                  
                                  
                                  
                                  600,000
                                  
                                  
                                  
                                  961,034
                                  
                                  
                                  
                                  2,591,910
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,841,910Expenses:General,
      administrative and selling
                                  
                                  
                                  1,218,772
                                  
                                  
                                  
                                  71,600
                                  
                                  
                                  
                                  1,290,372
                                  
                                  
                                  
                                  2,383,800
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,383,800General,
      administrative and selling: stock based compensation
                                  
                                  
                                  1,726,334
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,726,334
                                  
                                  
                                  
                                  2,810,408
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,810,408Research
      and development
                                  
                                  
                                  366,900
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  366,900
                                  
                                  
                                  
                                  451,500
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  451,500Amortization
      and depreciation
                                  
                                  
                                  23,399
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  23,399
                                  
                                  
                                  
                                  46,746
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  46,746Total
      operating expenses
                                  
                                  
                                  3,335,405
                                  
                                  
                                  
                                  71,600
                                  
                                  
                                  
                                  3,407,005
                                  
                                  
                                  
                                  5,692,454
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  5,692,454Loss
      from operations
                                  
                                  
                                  (2,974,371
                                  )
                                  
                                  
                                  528,400
                                  
                                  
                                  
                                  (2,445,971
                                  )
                                  
                                  
                                  (3,100,544
                                  )
                                  
                                  
                                  (750,000
                                  )
                                  
                                  
                                  (3,850,544
                                  )Interest
      income
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Interest
      expense
                                  
                                  
                                  (1,836
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,836
                                  )
                                  
                                  
                                  (9,684
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (9,684
                                  )Net
      loss before minority interest
                                  
                                  
                                  (2,976,207
                                  )
                                  
                                  
                                  528,400
                                  
                                  
                                  
                                  (2,447,807
                                  )
                                  
                                  
                                  (3,110,228
                                  )
                                  
                                  
                                  (750,000
                                  )
                                  
                                  
                                  (3,860,228
                                  )Minority
      interest
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Net
      (loss)
                                  
                                  $
                                  (2,976,207
                                  )
                                  
                                  $
                                  528,400
                                  
                                  
                                  $
                                  (2,447,807
                                  )
                                  
                                  $
                                  (3,110,228
                                  )
                                  
                                  $
                                  (750,000
                                  )
                                  
                                  $
                                  (3,860,228
                                  )Basic
      and diluted net loss per share
                                  
                                  $
                                  (0.01
                                  )
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  (0.01
                                  )
                                  
                                  $
                                  (0.01
                                  )
                                  
                                  $
                                  (0.01
                                  )
                                  
                                  $
                                  (0.02
                                  )Weighted
      average shares outstanding, basic and diluted
                                  
                                  
                                  220,393,640
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  220,393,640
                                  
                                  
                                  
                                  220,393,640
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  220,393,640


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 Table of Contents




CONSOLIDATED
      STATEMENT OF CASH FLOWSSix
      months ended March 31, 2007As
      previously
                                      reported
                                    
                                    
                                    Reclassifications
                                      and
                                      adjustments
                                    
                                    
                                    As
      restatedCash
      flows from operating activities:Net
      (loss) for period
                                    
                                    $
                                    (3,110,228
                                    )
                                    
                                    $
                                    (750,000
                                    )
                                    
                                    $
                                    (3,860,228
                                    )Adjustments
      to reconcile net loss to cash used in operating
      activities:Stock
      and options issued for services
                                    
                                    
                                    200,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    200,000Stock
      based compensation
                                    
                                    
                                    2,810,408
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,810,408Amortization
      and depreciation
                                    
                                    
                                    46,746
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    46,746Changes
      in assets and liabilities:Deferred
      revenue
                                    
                                    
                                    150,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    150,000Accounts
      receivable
                                    
                                    
                                    (1,195,486
                                    )
                                    
                                    
                                    750,000
                                    
                                    
                                    
                                    (445,486
                                    )Prepaid
      expenses
                                    
                                    
                                    27,811
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    27,811Other
      assets
                                    
                                    
                                    (7,600
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (7,600
                                    )Accounts
      payable and accrued expenses
                                    
                                    
                                    254,809
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    254,809Total
      cash used in operating activities
                                    
                                    
                                    (823,540
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (823,540
                                    )Net
      cash used in investing activities:Purchase
      of equipment
                                    
                                    
                                    (19,348
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (19,348
                                    )Purchase
      of intangible assets
                                    
                                    
                                    (127,580
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (127,580
                                    )Loan
      to affiliate
                                    
                                    
                                    (250,000
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (250,000
                                    )Net
      cash used in investing activities
                                    
                                    
                                    (396,928
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (396,928
                                    )Cash
      flows provided by financing activities:Payments
      on notes payable to related parties
                                    
                                    
                                    102,957
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    102,957Proceeds
      from sale of stock
                                    
                                    
                                    1,140,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,140,000Net
      cash provided by financing activities
                                    
                                    
                                    1,242,957
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,242,957Net
      decrease in cash
                                    
                                    
                                    22,489
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    22,489Cash,
      beginning of period
                                    
                                    
                                    291,426
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    291,426Cash,
      end of period
                                    
                                    $
                                    313,915
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    313,915Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -Non-cash
      transactions:Issuance
      of common stock to retire debt
                                    
                                    $
                                    619,000
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    619,000


- 10
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 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.





Revenue
Recognition




The
Company has adopted the following principles in which all of certain criteria
must be met before revenues are recognized.  The principal standards
include:




·
            Persuasive
      evidence of a contractual arrangement
  exists;


·
            Delivery
      of the service has occurred in accordance with the Company’s contractual
      obligations and title has passed to the
  customer;


·
            The
      fee or revenue recognized is fixed or determinable;
    and,


·
            The
      right to payment is unconditional and collectability is
      probable.





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 ending prior to October 1,
2005 have not been restated.  The Company’s net loss for the three
months ended March 31, 2008 and 2007 was $358,389 and $1,726,334, respectively,
higher than if it had continued to account for share-based compensation under
APB No. 25.  The Company’s net loss for the six months ended March 31,
2008 and 2007 was $1,441,798 and $2,810,408, 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, Noncontrolling 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 noncontrolling 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 noncontrolling
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,
2008, 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.


- 11
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In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities, 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.




Management’s
plan is as follows:




·
            Obtain
      additional debt and equity
financing





·
            Market
      its principal product, VUELIVE (previously EspreLive), to customers
      wishing to build applications using video and provide custom engineering
      services to those customers as
requested.





·
            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 develop
  them.





·
            Launch
      Blideo as an application service
provider.





·
            Establish
      independent sales agreements with representatives to sell its products and
      services.  The Company will actively pursue the engagement of
      additional independent sales representatives who can distribute the
      Company’s existing video products and services, both domestically and
      internationally.





In the
period from inception to March 31, 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 is
dependent upon, amongst 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.


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5.  CASH





At
March 31, 2008 the Company had $247,340 in cash (excluding Blideo’s cash of
$1,127,388, over which the Company may be deemed to have control through the
ownership interests in Blideo of the Company and Mr. Leighton) compared
with $3,352,415 (excluding Blideo’s cash of $498,251) 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, founded
Blideo, Inc., (“Blideo”) 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 of
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. On October 31, 2007, the
Company licensed VUELIVE 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 a one-time fee
of $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 also
provides accounting services to Blideo for $500 per month on a month to month
basis. The Company believes all related party transactions have been consummated
on terms equivalent to those that prevail in arms’ length
transactions.




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




7.  NOTES
PAYABLE TO RELATED PARTIES





Notes
payable consisted of the following:





March 31,
                      2008
                    
                    
                    September 30,
                      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


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8.  ACCOUNTS
PAYABLE AND ACCRUED EXPENSES





Accounts
payable and accrued expenses consisted of the following at:





March 31,
      2008
                  
                  
                  September 30,
      2007Accounts
      payable - trade
                  
                  $
                  845,349
                  
                  
                  $
                  543,487Accrued
      expenses
                  
                  
                  38,845
                  
                  
                  
                  242,151Due
      to investment banker
                  
                  
                  -
                  
                  
                  
                  139,825Accrued
      vacation pay
                  
                  
                  76,640
                  
                  
                  
                  76,640Accrued
      payroll and payroll taxes
                  
                  
                  266,853
                  
                  
                  
                  297,296Customer
      advances
                  
                  
                  -
                  
                  
                  
                  150,000$
                  1,227,687
                  
                  
                  $
                  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 six month periods ending March 31,
2008, the Company incurred $213,615 and $411,980, respectively, in Product
Development and Consulting expenses and $1,200 in General, Sales and
Administrative expenses from this vendor.





10.  STOCKHOLDERS’
(DEFICIT) EQUITY





Common
stock




Payments
for Services


In the
six months ended March 31, 2008, the Company issued a total of 4,596,719 shares
of common stock for consulting, advisory and other services recorded at market
values ranging between of $0.16 and $0.26 per share or $732,477.  For
the same period in the previous fiscal year the Company issued 1,538,462 shares
at a market price of $0.13 per share or $200,000 for consulting and advisory
services.





Capital
Raises


In the
six months ended March 31, 2008, the Company issued 15,621,667 shares of
restricted common stock with no demand or piggy-back registration rights to
accredited investors for $1,620,432. The Company paid fees of $38,263 in
connection with the sale of these common shares.


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11.  STOCK
OPTIONS





The
Company's 2004 Equity Incentive Plan (the "Stock Option Plan”) provides
employees, consultants and directors to be granted options to purchase shares of
the Company's common stock, 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 March 31, 2008, the Company had
granted 84,404,634 ISOs.  Of the granted ISOs, 69,865,000 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 March
31, 2008, summarized stock options outstanding and exercisable
were:





Outstanding
      Stock Options
                                              
                                              
                                              
                                              Exercisable
      Stock OptionsOptions
                                              
                                              WeightedAverageExercise
      Price
                                              
                                              Options
                                              
                                              WeightedAverageExercise
      PriceOutstanding
      at beginning of period
                                              79,904,634
                                              
                                              $
                                              .1174
                                              
                                              36,506,010
                                              
                                              $
                                              .1174Granted
                                              4,500,000
                                              
                                              $
                                              .0883
                                              
                                              4,261,172
                                              
                                              $
                                              .0876
                                              .Outstanding
      at end of period
                                              84,404,634
                                              
                                              $
                                              .1159
                                              
                                              40,767,182
                                              
                                              $
                                              .1159








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.




At
March 31, 2008, summarized stock options outstanding and exercisable
were:





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
                                  
                                  
                                  8.33
                                  
                                  
                                  $
                                  0.08
                                  
                                  
                                  
                                  19,619,273
                                  
                                  
                                  
                                  8.33
                                  
                                  
                                  $
                                  0.08$
                                  0.100
      - $0.200
                                  
                                  26,945,000
                                  
                                  
                                  7.70
                                  
                                  
                                  $
                                  0.10
                                  
                                  
                                  
                                  19,730,749
                                  
                                  
                                  
                                  7.70
                                  
                                  
                                  $
                                  0.10$
                                  0.210
      - $1.333
                                  
                                  5,480,000
                                  
                                  
                                  6.90
                                  
                                  
                                  $
                                  0.54
                                  
                                  
                                  
                                  1,417,160
                                  
                                  
                                  
                                  6.90
                                  
                                  
                                  $
                                  0.6184,404,634
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  40,767,182


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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.





As of
March 31, 2008, there was approximately $3.1 million of unrecognized
compensation costs related to unvested share-based compensation arrangements
granted under the Stock Option Plan, including 4,500,000 of new grants
authorized in the current quarter.  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 March 31, 2008, are summarized
as follows:





Outstanding
      Warrants
                      
                      
                      Exercisable
      WarrantsShares
                      
                      
                      Weighted
                        Average
                        Exercise
                        Price
                      
                      
                      Shares
                      
                      
                      Weighted
                        Average
                        Exercise
                        PriceOutstanding
      at December 31, 2007
                      
                      
                      44,019,716
                      
                      
                      $
                      0.10
                      
                      
                      
                      44,019,716
                      
                      
                      $
                      0.10Granted
      during period
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Exercised
      during the period
                      
                      
                      (892,858
                      )
                      
                      $
                      0.10
                      
                      
                      
                      (892,858
                      )
                      
                      $
                      0.10Outstanding
      at March 31, 2008
                      
                      
                      43,126,858
                      
                      
                      $
                      0.10
                      
                      
                      
                      43,126,858
                      
                      
                      $
                      0.10







13.  CONCENTRATION
OF CREDIT RISK AND DEPENDENCY





For the
six months ended March 31, 2008, the Company had one sale to one customer who
individually accounted for more 66% of the total gross sales for that period.
For the six months ended March 31, 2007, the Company had sales to one customer
who accounted for more than ten percent of the Company’s total gross sales for
that period.





For
the six months ended March 31, 2008, the Company purchased services from one
supplier who individually accounted for 23% 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.


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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:





March 31,
                      2008
                    
                    
                    September 30,
                      2007Net
      operating loss carryforward
                    
                    $
                    21,388,000
                    
                    
                    $
                    19,433,000In-process
      research and development
                    
                    
                    1,129,000
                    
                    
                    
                    1,528,000Transition
      adjustment
                    
                    
                    217,000
                    
                    
                    
                    217,000$
                    22,734,000
                    
                    
                    $
                    21,178,000Less
      valuation allowance
                    
                    
                    (22,734,000
                    )
                    
                    
                    (21,178,000
                    )Net
      deferred tax assets
                    
                    $
                    -
                    
                    
                    $
                    -








15.  SUBSEQUENT
EVENTS





Entry into a Material Definitive
Agreement





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.





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.


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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 proportionally with the Common Stock in the proceeds available to
the Company’s shareholders upon the liquidation, dissolution, or winding up of
the Company.





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.


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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.  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.





As
of November 12, 2008, 355,640,130 shares of Espre Common Stock were issued
and outstanding.  In the event that Dalcor converts the Note in to
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 stockholders.





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 and on October 24,
2008, he resigned as an officer and director 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.  As
discussed above, on October 24, 2008, Mr. Ianace resigned as an officer and
director of the Company.





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 1993 to 1996, Mr. Hopke served on the board of
directors of Organogenesis, Inc.  From 1992 to 1996, Mr. Hopke served
on the board of directors of Columbia Labs.  From 1986 to 1994, Mr.
Hopke served on the board of directors for Dominion Capital.  In
addition to serving as an officer and director of the Company, Mr. Hopke is the
President and a director of the Company’s Blideo, Inc.
subsidiary.


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Mr.
Ianace served as the Company’s Chief Executive Officer and as a director of the
Company from July 2004 until his resignations on August 21 and October 24,
2008.  He served in the same capacity with the Company’s predecessor,
Espre Texas, Inc., 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.


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Item 2.  Management’sDiscussion and Analysis of Financial
Condition and Results of Operations





Results
of Operations for the three and six months ended March 31, 2008





We
have restated the Consolidated Balance Sheet as of March 31, 2008, and the
Consolidated Statements of Operations and Cash Flows for the three and six
months ended March 31, 2008, to correct the accounting for stock based
compensation related to employee stock options, certain performance based
options, our accounting for minority interest and our classification of interest
income and amortization expense.





Our
originally filed financial statements for the quarter ended March 31, 2008,
reflected stock option expense for the entire year ended September 30, 2008, and
not just the three and six months ended March 31, 2008, rather than being
amortized on a straight lines basis over the vesting period. We expensed certain
performance-based stock options in the three and six months ended March 31,
2008, when the conditions for vesting had not been met.  The options
were subsequently forfeited.  We also corrected our classification of
stock and options for services, which was previously classified as stock-based
compensation, to general, administrative and selling expenses.  In
addition, we also corrected our accounting for minority interest for the three
and six months ended March 31, 2008, which was previously based on an incorrect
number of common shares outstanding and an incorrect percentage ownership in our
consolidated subsidiary and previously included the effects of a stock split
authorized subsequent to June 30, 2008.  In addition, we also
corrected our classification of interest income, which was previously classified
as revenues, as well as our classification of custom engineering fees, which was
previously classified as other revenues, and our classification of amortization
expense, which was previously improperly classified as a reduction of the
underlying asset rather than an increase in accumulated
amortization.





Finally,
we corrected our software licensing fee revenues that were prematurely
recognized in the prior year three month period ended December 31,
2006.  The revenues were subsequently recorded in the proper three and
six months prior year period ended March 31, 2007 when all of the conditions for
revenue recognition were fully met.  The errors were discovered and
corrected in the quarter ended June 30, 2008, and for all prior
quarters.





The
impact of the restatement and other reclassifications on our Consolidated
Balance Sheet as of March 31, 2008, and the Consolidated Statements of
Operations and Cash Flows for the three and six months ended March 31, 2008 and
March 31, 2007, is summarized in Note 2 of the Notes to Consolidated Financial
Statements.





During
the six months ended March 31, 2008, we generated revenues of $1,538,756
(compared with $1,841,910 in the same period last year, or a decrease of
16%).  Revenues included $1,000,000 of software licensing fees
(compared to $1,240,000 in the same period last year) and $510,992 for the
design of our customers’ applications, including a major US telecommunications
carrier.




For
the six months ended March 31, 2008, our total operating expenses were
$8,419,948 (compared to $5,692,454 in the same period last year). Product
development and consulting expenses amounted to $1,626,063 (compared to $451,500
in last year, or an increase of 260%).  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 six months ended March 31,
2008, our general, administrative and selling expenses were $6,723,712 (compared
to $5,194,208 in the comparable period last year); an increase of $1.5 million
or 29%, as more fully described below.




Of the
general, administrative and selling expenses incurred for the six months ended
March 31, 2008, $1,441,798 or 21% are attributable to the non-cash expenses from
Company’s incentive stock option plan (compared to $2,810,408 or 54% in the
previous year).  In August 2007, we increased our sales and marketing
staff by eight (8) persons in response to sales efforts and the planned launch
of our VUELIVE version 3.0 in January 2008.  We anticipate this higher
expense level to continue through the third quarter of fiscal 2008 when the
expenses associated with the initial development and launch of VUELIVE are
expected to be reduced. We also incurred increased salary expenses related to
our sales and marketing program and legal and accounting expenses relating to
our becoming a fully-reporting company.




For
the three months ended March 31, 2008, we generated revenues of $467,642
(compared with $961,034 in the same period last year), or a decrease of
51%.  Revenues principally included $453,650 for the design of our
customers’ applications, as discussed above.


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For
the three months ended March 31, 2008, our total operating expenses were
$4,580,496 (compared to $3,407,005 in the same period last
year).  Stock based compensation costs of $358,389 were down
$1,367,945 from the same period a year ago, however; product development and
consulting expenses increased by $607,985 or 165% over last year, attributed to
an increase in outsource engineering costs incurred in the development of
VUELIVE.   Our selling, general and administrative costs for the
three months ended March 31, 2008 of $3,215,226 were also up $1,924,854 or 149%
on increased salary expenses relating to an increase by eight (8) persons in our
sales and marketing staff, as well as increased legal and accounting expenses
relating to our becoming a fully-reporting company.




Liquidity
and Capital Resources





The
accompanying consolidated financial statements have been prepared assuming we
will continue as a going concern. We have incurred significant and recurring
losses from the period December 22, 2003 (inception) through March 31, 2008. At
March 31, 2008, we had $248,340 in cash (excluding Blideo’s cash of $1,126,388,
over which we may be deemed to have control through the ownership interests in
Blideo of Espre and Mr. Leighton’s being Director of both companies)
compared with $3,352,414 (excluding Blideo’s cash of $498,251) at September 30,
2007. Working capital at March 31, 2008, was $460,329 (compared with $1,018,937
at September 30, 2007). Our 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:




·
            Obtain
      additional debt and equity
financing





·
            Market
      our principal product, VUELIVE (previously EspreLive), to customers
      wishing to build applications using video and provide custom engineering
      services to those customers as
requested.





·
            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 build them.  Potential
      customers 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 customers.





·
            Establish
      independent sales agreements with representatives to sell its products and
      services.  We will actively pursue the engagement of additional
      independent sales representatives who can distribute our 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.





For
the six months ended March 31, 2008, and March 31, 2007, we used net cash of
$5,785,616 and $823,540, respectively, for operations; we used net cash of
$121,254 and $396,928, respectively, for investing; and we realized net cash of
$3,430,932 and $1,242,957, respectively from financing activities, primarily
from the sale of our common stock and receipts of stock subscription
receivables. 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 our 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 substantial doubt about our ability to continue as a going
concern.





Our
current cash requirements are approximately $725,000 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 $500,000.  Our
capital expenditures depend 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 the next twelve months, and
will therefore be dependent on the proceeds of the sale of our equity
securities.


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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, as we now
anticipate, be able to generate significant revenues from operations and
financing in the next twelve months or obtain additional financing, 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 operations or obtain
financing.





Subsequent Events





See
footnote 15 to the Company’s Consolidated Financial Statements for information
related to a change in control of the Company, departure of certain executives,
entry into a material definitive agreement, and other matters.




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.





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.





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 on Form 8-K filed August 26, 2008.





Critical
Accounting Policies and Recent Accounting Pronouncements





The
Company’s critical accounting policies are set forth in Note 1 of Notes to
Consolidated Financial Statements in the Company’s report on Form 10 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 Form
10.  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.




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
report on Form 10 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 .


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Item 3.  Quantitativeand 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






Item 4.  Controlsand 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 March 31, 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 March 31, 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.


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PART
II — OTHER INFORMATION





Item 1.  Legal Proceedings





None





Item 1A.  Risk Factors





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





Item 2.  UnregisteredSales of Equity Securities and Use
of Proceeds





In the
six months ended March 31, 2008, the Company issued 15,621,667 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 thereunder.





Item 3.  Defaults uponSenior Securities





None





Item 4.  Submission of Mattersto a Vote of Security
Holders





None





Item 5.  Other Information





None





Item 6.  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


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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
              November
      12, 2008
              /s/
      BG Moore
              November
      12, 2008William Hopke
              
              BG MoorePresident
              
              Chief
      Financial Officer