UNITED
STATES





SECURITIES
AND EXCHANGE COMMISSION





WASHINGTON,
D.C. 20549





FORM
10-Q /A


(Amendment
No. 2)





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





For the
quarterly period ended December 31, 2007





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





Commission
File Number: 000-51577





ESPRE
SOLUTIONS INC.


(Exact
name of registrant as specified in its charter)





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





(214)
254-3708


(Registrant’s
telephone number, including area code)





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


x Yes   
o
No





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





Large
      accelerated filer o
              
              Accelerated
      filer o
              
              Non-accelerated
      filer oSmall 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.







Table of Contents




EXPLANATORY
NOTE








This
Amendment No. 2 to the Quarterly Report on Form 10-QSB/A (the “Report”) for the
quarterly period ended December 31, 2007, includes a restatement of our
consolidated financial statements for the quarterly period ended December 31,
2007 (and related disclosures), initially filed on February 19,
2008.





The
Company has restated its Consolidated Balance Sheet as of December 31, 2007, and
its Consolidated Statements of Operations and Cash Flows for the three months
ended December 31, 2007 (as contained in this Report), to correct its accounting
for its stock based compensation related to employee stock options, its
accounting for certain performance based stock options and its accounting for
minority interest.  In addition, the Company has corrected certain
errors in the classification of revenues and interest income as well as
corrected its classification of certain operating expenses.





Finally,
the Company has corrected its accounting for revenues reported in the prior year
period ended December 31, 2006, 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 this
fiscal quarter is contained in Note 2 to the unaudited consolidated financial
statements of this Report.





- 1
-




FO RM 10-Q/ACONTENTSPART
      I — FINANCIAL INFORMATION (Unaudited)
                      
                      PAGEItem
      1
                      —
                      Financial StatementsConsolidated Balance Sheets at December 31, 2007 and September
      30, 2007
                      
                      2Consolidated Statements of Operations for the three months
      ended December 31, 2007 and 2006
                      
                      3Consolidated Statements of Cash Flows for the three months
      ended December 31, 2007 and 2006
                      
                      4Selected Notes to Consolidated Financial
      Statements
                      
                      5Item
      2
                      —
                      Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                      
                      21Item
      3
                      —
                      Quantitative and Qualitative Disclosures about Market
      Risk
                      
                      24Item
      4
                      —
                      Controls and Procedures
                      
                      24PART
      II — OTHER INFORMATIONItem
      1
                      —
                      Legal Proceedings
                      
                      26Item
      1A
                      —
                      Risk Factors
                      
                      26Item
      2
                      —
                      Unregistered Sales of Equity Securities and Use of
      Proceeds
                      
                      26Item
      3
                      —
                      Defaults upon Senior Securities
                      
                      26Item
      4
                      —
                      Submission of Matters to a Vote of Security
      Holders
                      
                      26Item
      5
                      —
                      Other Information
                      
                      26Item
      6
                      —
                      List of Exhibits
                      
                      26SignatureEX-31.1
      Section 302 CertificationEX-31.2
      Section 302 CertificationEX-32.1
      Section 906 CertificationEX-32.2
      Section 906 Certification




Table of Contents





PART
I — FINANCIAL INFORMATION


Item 1 — Financial Statements





ESPRE SOLUTIONS INC. AND SUBSIDIARY


Consolidated
Balance Sheets




December 31,
                    2007
                  
                  
                  September 30,
                    2007(Unaudited)(As
      Restated)ASSETSCurrent
      assets:Cash
                  
                  $
                  3,297,089
                  
                  
                  $
                  3,850,666Accounts
      receivable, net
                  
                  
                  1,808
                  
                  
                  
                  251,050Prepaid
      expenses and advances
                  
                  
                  113,417
                  
                  
                  
                  34,564Total
      current assets
                  
                  
                  3,412,314
                  
                  
                  
                  4,136,280Equipment,
      net
                  
                  
                  329,153
                  
                  
                  
                  296,758Intangible
      assets, net
                  
                  
                  72,526
                  
                  
                  
                  73,191Loans
      to related parties
                  
                  
                  69,432
                  
                  
                  
                  69,432Other
      assets
                  
                  
                  114,848
                  
                  
                  
                  97,292Total
      assets
                  
                  $
                  3,998,273
                  
                  
                  $
                  4,672,953LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Notes
      payable to related parties
                  
                  $
                  25,000
                  
                  
                  $
                  395,000Accounts
      payable and accrued expenses
                  
                  
                  1,085,386
                  
                  
                  
                  1,449,399Total
      current liabilities
                  
                  
                  1,110,386
                  
                  
                  
                  1,844,399Deferred
      revenue — related party
                  
                  
                  -
                  
                  
                  
                  1,000,000Minority
      interest
                  
                  
                  1,601,269
                  
                  
                  
                  348,093Stockholders’
      equityCommon
      shares — $0.001 par value; authorized 500,000,000 shares; and 329,217,550
      and 318,522,499 shares issued and outstanding ,
      respectively
                  
                  
                  329,217
                  
                  
                  
                  318,522Additional
      paid-in capital
                  
                  
                  74,644,952
                  
                  
                  
                  72,383,030Stock
      subscription receivable
                  
                  
                  (10,000
                  )
                  
                  
                  (190,000
                  )Retained
      (deficit)
                  
                  
                  (73,677,551
                  )
                  
                  
                  (71,031,091
                  )Total
      stockholders’ equity
                  
                  
                  1,286,618
                  
                  
                  
                  1,480,461Total
      liabilities and stockholders’ equity
                  
                  $
                  3,998,273
                  
                  
                  $
                  4,672,953





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





- 2
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 Table of Contents




ESPRE SOLUTIONS INC. AND SUBSIDIARY


Consolidated
Statements of Operations


Three
Months Ended December 31,


(Unaudited)





2007
                
                
                2006Revenues:
                
                (As
      Restated)
                
                
                (As
      Restated)Software
      licensing fees
                
                $
                1,000,000
                
                
                $
                640,000Custom
      engineering fees
                
                
                57,342
                
                
                
                233,250Other
                
                
                13,771
                
                
                
                7,626Total
      revenues
                
                
                1,071,113
                
                
                
                880,876Expenses:General,
      administrative and selling expenses
                
                
                2,066,686
                
                
                
                1,093,428General,
      administrative and selling expenses stock based
      compensation
                
                
                1,083,409
                
                
                
                1,084,074Research
      and development
                
                
                651,268
                
                
                
                84,600Amortization
      and depreciation
                
                
                38,087
                
                
                
                23,347Total
      operating expenses
                
                
                3,839,450
                
                
                
                2,285,449(Loss)
      from operations
                
                
                (2,768,337
                )
                
                
                (1,404,573
                )Interest
      income
                
                
                20,389
                
                
                
                -Interest
      expense
                
                
                -
                
                
                
                (7,848
                )Net
      (loss) before minority interest
                
                
                (2,747,948
                )
                
                
                (1,412,421
                )Minority
      interest
                
                
                306,824
                
                
                
                -Net
      (loss)
                
                $
                (2,441,124
                )
                
                $
                (1,412,421
                )Basic
      and diluted net (loss) per share
                
                $
                (0.01
                )
                
                $
                (0.01
                )Weighted
      average shares outstanding, basic and diluted
                
                
                324,093,718
                
                
                
                205,085,889





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




- 3
-
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ESPRE SOLUTIONS INC. AND SUBSIDIARY


Consolidated
Statements of Cash Flows


Three
Months Ended December 31,


(Unaudited)





2007
                  
                  
                  2006(As
      Restated)
                  
                  
                  (As
      Restated)Cash
      flows from operating activities:Net
      (loss) for period
                  
                  $
                  (2,441,124
                  )
                  
                  $
                  (1,412,421
                  )Adjustments
      to reconcile net loss to cash used in operating
      activities:Stock
      and options issued for services
                  
                  
                  105,209
                  
                  
                  
                  -Stock
      based compensation
                  
                  
                  1,083,409
                  
                  
                  
                  1,084,074Amortization
      and depreciation
                  
                  
                  38,087
                  
                  
                  
                  23,347Minority
      interest
                  
                  
                  (306,824
                  )
                  
                  
                  -Changes
      in assets and liabilities:Deferred
      revenue
                  
                  
                  (1,000,000
                  )
                  
                  
                  150,000Accounts
      receivable
                  
                  
                  249,242
                  
                  
                  
                  (448,220
                  )Prepaid
      expenses
                  
                  
                  (78,854
                  )
                  
                  
                  928Other
      assets
                  
                  
                  (17,555
                  )
                  
                  
                  4,400Accounts
      payable and accrued expenses
                  
                  
                  (356,357
                  )
                  
                  
                  443,962Total
      cash used in operating activities
                  
                  
                  (2,724,767
                  )
                  
                  
                  (153,930
                  )Net
      cash used in investing activities:Purchase
      of equipment
                  
                  
                  (51,997
                  )
                  
                  
                  1,411Purchase
      of intangible assets
                  
                  
                  (17,821
                  )
                  
                  
                  (35,991
                  )Net
      cash used in investing activities
                  
                  
                  (69,818
                  )
                  
                  
                  (34,580
                  )Cash
      flows provided by financing activities:Payments
      on notes payable to related parties
                  
                  
                  (100,000
                  )
                  
                  
                  (97,985
                  )Proceeds
      from sale of stock
                  
                  
                  714,000
                  
                  
                  
                  -Minority
      capital raised
                  
                  
                  1,447,008
                  
                  
                  
                  -Receipt
      of stock subscriptions receivable
                  
                  
                  180,000
                  
                  
                  
                  -Net
      cash provided (used in) by financing activities
                  
                  
                  2,241,008
                  
                  
                  
                  (97,985
                  )Net
      (decrease) in cash
                  
                  
                  (553,577
                  )
                  
                  
                  (286,495
                  )Cash,
      beginning of period
                  
                  
                  3,850,666
                  
                  
                  
                  291,426Cash,
      end of period
                  
                  $
                  3,297,089
                  
                  
                  $
                  4,931Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                  
                  $
                  -
                  
                  
                  $
                  7,848Non-cash
      transactions:Issuance
      of common stock to retire debt
                  
                  $
                  270,000
                  
                  
                  $
                  -





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





- 4
-
 Table of Contents




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 December 31, 2007, and
its Consolidated Statements of Operations and Cash Flows for the three months
ended December 31, 2007, to correct its accounting for its stock based
compensation related to employee stock options, its expensing of performance
based stock options, its accounting for minority interest, its classification of
interest income and its classification of amortization expense of a minority
owned subsidiary.





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.  The Company also improperly expensed certain performance
based stock options, when the conditions for vesting had not been
met.  The Company also corrected its accounting for minority interest
for the three months ended December 31, 2007, 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 s stock split authorized subsequent to June 30, 2008.   In
addition, the Company also corrected certain errors in the classification of
interest income, which was previously classified as revenues, as well as
corrected its classification of amortization expense, which was previously
improperly classified as a reduction of the underlying asset rather than an
increase in accumulated amortization.





Finally,
the Company corrected its accounting for revenues reported in the prior year
period ended December 31, 2006, in accordance with its revenue recognition
policies.  The corrections made in the three months ended December 31,
2006, were to reduce revenues and increase operating loss by
$1,600,000.  All 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 December 31, 2007, and its Consolidated
Statements of Operations and Cash Flows for the three months ended December 31,
2007, is summarized in the tables below:





- 5
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 Table of Contents





CONSOLIDATED
BALANCE SHEET





Three
      months ended December 31, 2007As previously
                    reported
                  
                  
                  Reclassifications
                    and
                    adjustments
                  
                  
                  As restatedASSETSCurrent
      assets:Cash
                  
                  $
                  3,297,089
                  
                  
                  $
                  -
                  
                  
                  $
                  3,297,089Accounts
      receivable
                  
                  
                  1,808
                  
                  
                  
                  -
                  
                  
                  
                  1,808Prepaid
      expenses and advances
                  
                  
                  113,417
                  
                  
                  
                  -
                  
                  
                  
                  113,417Total
      current assets
                  
                  
                  3,412,314
                  
                  
                  
                  -
                  
                  
                  
                  3,412,314Equipment,
      net
                  
                  
                  329,153
                  
                  
                  
                  -
                  
                  
                  
                  329,153Intangible
      assets, net
                  
                  
                  72,526
                  
                  
                  
                  -
                  
                  
                  
                  72,526Loans
      to related parties
                  
                  
                  69,432
                  
                  
                  
                  -
                  
                  
                  
                  69,432Other
      assets
                  
                  
                  114,848
                  
                  
                  
                  -
                  
                  
                  
                  114,848Total
      assets
                  
                  $
                  3,998,273
                  
                  
                  $
                  -
                  
                  
                  $
                  3,998,273LIABILITIES
      AND STOCKHOLDERS EQUITYCurrent
      liabilities:Notes
      payable to related parties
                  
                  $
                  25,000
                  
                  
                  $
                  -
                  
                  
                  $
                  25,000Accounts
      payable and accrued expenses
                  
                  
                  1,082,451
                  
                  
                  
                  2,935
                  
                  
                  
                  1,085,386Total
      current liabilities
                  
                  
                  1,107,451
                  
                  
                  
                  2,935
                  
                  
                  
                  1,110,386Minority
      interest
                  
                  
                  1,413,741
                  
                  
                  
                  187,528
                  
                  
                  
                  1,601,269Stockholders'
      equityCommon
      stock
                  
                  
                  329,217
                  
                  
                  
                  -
                  
                  
                  
                  329,217Additional
      paid in capital
                  
                  
                  75,458,285
                  
                  
                  
                  (813,333
                  )
                  
                  
                  74,644,952Stock
      subscription receivable
                  
                  
                  (10,000
                  )
                  
                  
                  -
                  
                  
                  
                  (10,000
                  )Retained
      (deficit)
                  
                  
                  (74,300,421
                  )
                  
                  
                  622,870
                  
                  
                  
                  (73,677,551
                  )Total
      stockholders’ equity
                  
                  
                  1,477,081
                  
                  
                  
                  (190,463
                  )
                  
                  
                  1,286,618Total
      liabilities and stockholders' equity
                  
                  $
                  3,998,273
                  
                  
                  $
                  -
                  
                  
                  $
                  3,998,273





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 Table of Contents





CONSOLIDATED
STATEMENT OF OPERATIONS





Three
      months ended December 31, 2007As previously
                          reported
                        
                        
                        Reclassifications
                          and
                          adjustments
                        
                        
                        As restatedRevenues:Software
      licensing fees
                        
                        $
                        1,000,000
                        
                        
                        $
                        -
                        
                        
                        $
                        1,000,000Custom
      engineering fees
                        
                        
                        44,842
                        
                        
                        
                        12,500
                        
                        
                        
                        57,342Other
                        
                        
                        41,116
                        
                        
                        
                        (27,345
                        )
                        
                        
                        13,771Total
      revenues
                        
                        
                        1,085,958
                        
                        
                        
                        (14,845
                        )
                        
                        
                        1,071,113Expenses:General,
      administrative and selling expenses
                        
                        
                        2,037,182
                        
                        
                        
                        29,504
                        
                        
                        
                        2,066,686General,
      administrative and selling expenses stock based
      compensation
                        
                        
                        1,996,741
                        
                        
                        
                        (913,332
                        )
                        
                        
                        1,083,409Research
      and development
                        
                        
                        670,963
                        
                        
                        
                        (19,695
                        )
                        
                        
                        651,268Amortization
      and depreciation
                        
                        
                        31,762
                        
                        
                        
                        6,325
                        
                        
                        
                        38,087Total
      operating expenses
                        
                        
                        4,736,648
                        
                        
                        
                        (897,198
                        )
                        
                        
                        3,839,450Loss
      from operations
                        
                        
                        (3,650,690
                        )
                        
                        
                        882,353
                        
                        
                        
                        (2,768,337
                        )Interest
      income
                        
                        
                        -
                        
                        
                        
                        20,389
                        
                        
                        
                        20,389Interest
      expense
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Net
      loss before minority interest
                        
                        
                        (3,650,690
                        )
                        
                        
                        902,742
                        
                        
                        
                        (2,747,948
                        )Minority
      interest
                        
                        
                        381,359
                        
                        
                        
                        (74,535
                        )
                        
                        
                        306,824Net
      (loss)
                        
                        $
                        (3,269,331
                        )
                        
                        $
                        828,207
                        
                        
                        $
                        (2,441,124
                        )Basic
      and diluted net loss per share
                        
                        $
                        (0.01
                        )
                        
                        $
                        -
                        
                        
                        $
                        (0.01
                        )Weighted
      average shares outstanding, basic and diluted
                        
                        
                        324,093,718
                        
                        
                        
                        -
                        
                        
                        
                        324,093,718




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 Table of Contents





CONSOLIDATED
STATEMENT OF CASH FLOWS





Three
      months ended December 31, 2007As previously
                        reported
                      
                      
                      Reclassifications
                        and
                        adjustments
                      
                      
                      As restatedCash
      flows from operating activities:Net
      (loss) for period
                      
                      $
                      (3,269,331
                      )
                      
                      $
                      828,207
                      
                      
                      $
                      (2,441,124
                      )Adjustments
      to reconcile net loss to cash used in operating
      activities:Stock
      and options issued for services
                      
                      
                      105,209
                      
                      
                      
                      -
                      
                      
                      
                      105,209Stock
      based compensation
                      
                      
                      1,996,741
                      
                      
                      
                      (913,332
                      )
                      
                      
                      1,083,409Amortization
      and depreciation
                      
                      
                      31,762
                      
                      
                      
                      6,325
                      
                      
                      
                      38,087Minority
      interest
                      
                      
                      (381,359
                      )
                      
                      
                      74,535
                      
                      
                      
                      (306,824
                      )Changes
      in assets and liabilities:Deferred
      revenue
                      
                      
                      (1,000,000
                      )
                      
                      
                      -
                      
                      
                      
                      (1,000,000
                      )Accounts
      receivable
                      
                      
                      249,242
                      
                      
                      
                      -
                      
                      
                      
                      249,242Prepaid
      expenses
                      
                      
                      (78,854
                      )
                      
                      
                      -
                      
                      
                      
                      (78,854
                      )Other
      assets
                      
                      
                      (17,555
                      )
                      
                      
                      -
                      
                      
                      
                      (17,555
                      )Accounts
      payable and accrued expenses
                      
                      
                      (366,947
                      )
                      
                      
                      10,590
                      
                      
                      
                      (356,357
                      )Total
      cash used in operating activities
                      
                      
                      (2,731,092
                      )
                      
                      
                      6,325
                      
                      
                      
                      (2,724,767
                      )Net
      cash used in investing activities:Purchase
      of equipment
                      
                      
                      (51,922
                      )
                      
                      
                      (75
                      )
                      
                      
                      (51,997
                      )Purchase
      of intangible assets
                      
                      
                      (11,571
                      )
                      
                      
                      (6,250
                      )
                      
                      
                      (17,821
                      )Net
      cash used in investing activities
                      
                      
                      (63,493
                      )
                      
                      
                      (6,325
                      )
                      
                      
                      (69,818
                      )Cash
      flows provided by financing activities:Payments
      on notes payable to related parties
                      
                      
                      (100,000
                      )
                      
                      
                      -
                      
                      
                      
                      (100,000
                      )Proceeds
      from sale of stock
                      
                      
                      714,000
                      
                      
                      
                      -
                      
                      
                      
                      714,000Minority
      capital raised
                      
                      
                      1,447,008
                      
                      
                      
                      -
                      
                      
                      
                      1,447,008Receipt
      of stock subscriptions receivable
                      
                      
                      180,000
                      
                      
                      
                      -
                      
                      
                      
                      180,000Net
      cash provided by financing activities
                      
                      
                      2,241,008
                      
                      
                      
                      -
                      
                      
                      
                      2,241,008Net
      decrease in cash
                      
                      
                      (553,577
                      )
                      
                      
                      -
                      
                      
                      
                      (553,577
                      )Cash,
      beginning of period
                      
                      
                      3,850,666
                      
                      
                      
                      -
                      
                      
                      
                      3,850,666Cash,
      end of period
                      
                      $
                      3,297,089
                      
                      
                      $
                      -
                      
                      
                      $
                      3,297,089Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Non-cash
      transactions:Issuance
      of common stock to retire debt
                      
                      $
                      270,000
                      
                      
                      $
                      -
                      
                      
                      $
                      270,000





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 Table of Contents





CONSOLIDATED
STATEMENT OF OPERATIONS





Three
      months ended December 31, 2006As previously
                      reported
                    
                    
                    Reclassifications
                      and
                      adjustments
                    
                    
                    As restatedRevenues:Software
      licensing fees
                    
                    $
                    2,240,000
                    
                    
                    $
                    (1,600,000
                    )
                    
                    $
                    640,000Custom
      engineering fees
                    
                    
                    233,250
                    
                    
                    
                    -
                    
                    
                    
                    233,250Other
                    
                    
                    7,626
                    
                    
                    
                    -
                    
                    
                    
                    7,626Total
      revenues
                    
                    
                    2,480,876
                    
                    
                    
                    (1,600,000
                    )
                    
                    
                    880,876Expenses:General,
      administrative and selling expenses
                    
                    
                    1,093,428
                    
                    
                    
                    -
                    
                    
                    
                    1,093,428General,
      administrative and selling expenses stock based
      compensation
                    
                    
                    1,084,074
                    
                    
                    
                    -
                    
                    
                    
                    1,084,074Research
      and development
                    
                    
                    84,600
                    
                    
                    
                    -
                    
                    
                    
                    84,600Amortization
      and depreciation
                    
                    
                    23,347
                    
                    
                    
                    -
                    
                    
                    
                    23,347Total
      operating expenses
                    
                    
                    2,285,449
                    
                    
                    
                    -
                    
                    
                    
                    2,285,449Income
      (loss) from operations
                    
                    
                    195,427
                    
                    
                    
                    (1,600,000
                    )
                    
                    
                    (1,404,573
                    )Interest
      expense
                    
                    
                    (7,848
                    )
                    
                    
                    -
                    
                    
                    
                    (7,848
                    )Net
      income (loss) before minority interest
                    
                    
                    187,579
                    
                    
                    
                    (1,600,000
                    )
                    
                    
                    (1,412,421
                    )Minority
      interest
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Net
      income (loss)
                    
                    $
                    187,579
                    
                    
                    $
                    (1,600,000
                    )
                    
                    $
                    (1,412,421
                    )Basic
      and diluted net loss per share
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    (0.01
                    )Weighted
      average shares outstanding,basic
      and diluted
                    
                    
                    205,085,889
                    
                    
                    
                    -
                    
                    
                    
                    205,085,889




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CONSOLIDATED
STATEMENT OF CASH FLOWS





Three
      months ended December 31, 2006As previously
                        reported
                      
                      
                      Reclassifications
                        and
                        adjustments
                      
                      
                      As restatedCash
      flows from operating activities:Net
      income (loss) for period
                      
                      $
                      187,579
                      
                      
                      $
                      (1,600,000
                      )
                      
                      $
                      (1,412,421
                      )Adjustments
      to reconcile net loss to cash used in operating
      activities:Stock
      and options issued for services
                      
                      
                      1,084,074
                      
                      
                      
                      -
                      
                      
                      
                      1,084,074Stock
      based compensation
                      
                      
                      23,347
                      
                      
                      
                      -
                      
                      
                      
                      23,347Amortization
      and depreciation
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Minority
      interest
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Changes
      in assets and liabilities:Deferred
      revenue
                      
                      
                      150,000
                      
                      
                      
                      -
                      
                      
                      
                      150,000Accounts
      receivable
                      
                      
                      (2,048,220
                      )
                      
                      
                      1,600,000
                      
                      
                      
                      (448,220
                      )Prepaid
      expenses
                      
                      
                      928
                      
                      
                      
                      -
                      
                      
                      
                      928Other
      assets
                      
                      
                      4,400
                      
                      
                      
                      -
                      
                      
                      
                      4,400Accounts
      payable and accrued expenses
                      
                      
                      443,962
                      
                      
                      
                      -
                      
                      
                      
                      443,962Total
      cash used in operating activities
                      
                      
                      (153,930
                      )
                      
                      
                      -
                      
                      
                      
                      (153,930
                      )Net
      cash used in investing activities:Purchase
      of equipment
                      
                      
                      1,411
                      
                      
                      
                      -
                      
                      
                      
                      1,411Purchase
      of intangible assets
                      
                      
                      (35,991
                      )
                      
                      
                      -
                      
                      
                      
                      (35,991
                      )Net
      cash used in investing activities
                      
                      
                      (34,580
                      )
                      
                      
                      -
                      
                      
                      
                      (34,580
                      )Cash
      flows provided by financing activities:Payments
      on notes payable to related parties
                      
                      
                      (97,985
                      )
                      
                      
                      -
                      
                      
                      
                      (97,985
                      )Proceeds
      from sale of stock
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Minority
      capital raised
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Receipt
      of stock subscriptions receivable
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      cash (used in) financing activities
                      
                      
                      (97,985
                      )
                      
                      
                      -
                      
                      
                      
                      (97,985
                      )Net
      decrease in cash
                      
                      
                      (286,495
                      )
                      
                      
                      -
                      
                      
                      
                      (286,495
                      )Cash,
      beginning of period
                      
                      
                      291,426
                      
                      
                      
                      -
                      
                      
                      
                      291,426Cash,
      end of period
                      
                      $
                      4,931
                      
                      
                      $
                      -
                      
                      
                      $
                      4,931Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                      
                      $
                      7,848
                      
                      
                      $
                      -
                      
                      
                      $
                      7,848Non-cash
      transactions:Issuance
      of common stock to retire debt
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -




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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 December 31, 2007 and 2006 was $808,200 and $1,084,074,
respectively, higher than if it had continued to account for share-based
compensation under APB No. 25.





Recent
pronouncements





In May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,”
which provides guidance on the accounting for and reporting of accounting
changes and correction of errors.  This statement changes the
requirements for the accounting for and reporting of a change in accounting
principle and applies to all voluntary changes in accounting
principle.  It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions.  This statement is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005.  The adoption of this standard is not
expected to have a material effect on the Company’s results of operations or
financial position.





In
July 2006, the FASB issued Financial Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” (“FIN
48”), which is a change in accounting for income taxes.  FIN 48
specifies how tax benefits for uncertain tax positions are to be recognized,
measured, and derecognized in financial statements; requires certain disclosures
of uncertain tax matters; specifies how reserves for uncertain tax positions
should be classified on the balance sheet; and provides transition and
interim-period guidance, among other provisions.  FIN 48 was effective
for fiscal years after December 15, 2006, and as a result, is effective for the
Company in the first quarter of fiscal 2008.  The Company is in the
process of evaluating the impact of adoption of FIN 48 will have on the
consolidated fiscal statements.





In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (“SFAS
No. 157”) which defines fair value, establishes a framework for measuring fair
value and expands disclosure about fair value measurements.  SFAS No.
157 is effective for fiscal years beginning after November 15,
2007.  The Company will adopt SFAS No. 157 on October 1, 2009, and is
currently evaluating the impact of such adoption on its financial
statements.





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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 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. The Company is currently
assessing the potential impact that adoption of SFAS No. 160 would have on our
financial statements.





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





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





4.  GOING CONCERN AND
MANAGEMENT’S PLAN





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





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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 December 31, 2007, 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, among other things, the acceptance of the Company’s products and
services, competition from other products and the deployment of video
applications by our customers. There is no assurance that management’s plan will
be successful. Accordingly, substantial doubts exist about the Company’s ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.





5.  CASH





At
December 31, 2007, the Company had $1,758,656 in cash (excluding Blideo’s
cash of $1,538,433, over which the Company may be deemed to have control through
the ownership interests in Blideo of the Company and Mr. Leighton) compared with
$3,352,414 (excluding Blideo’s cash of $498,252) at September 30, 2007.





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6.  INVESTMENT
IN AND LOANS TO RELATED PARTIES





Blideo,
Inc.





On
April 24, 2007, prior to joining the Company, Peter Leighton, who served as the
Company’s President from July 26, 2007, and a director from May 1, 2007, until
his resignation from both positions on August 21, 2008, founded Blideo,
Inc., and invested $200,000 in May 2007 and $300,000 in July 2007. The Company
invested the same amounts in the same time periods.  In May 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.  Subsequent to year
end, on October 31, 2007, the Company licensed VUELIVE (formerly known as ESPRE
Live) on a non-exclusive basis to Blideo for five (5) years for a one time
license fee of $1,000,000 plus 1% of gross revenues.





As an
integral part of this agreement, Blideo agreed to pay the Company 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 provided
accounting services to Blideo for $500 per month through May 2008. The Company
believes all related party transactions have been consummated on terms
equivalent to those that prevail in arms’- length transactions.





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





7.  NOTES
PAYABLE TO RELATED PARTIES





Notes
payable consisted of the following:





December 31,
                                2007
                              
                              
                              September 30,
                                2007Contingent  repurchase
      agreement to Video Software Partners, secured by certain software
      products, payable on February 1, 2008, interest imputed at
      10%
                              
                              $
                              -
                              
                              
                              $
                              370,000Note
      payable to a related individual, at 10%, due November 25, 2004, extended
      year to year, unsecured
                              
                              
                              25,000
                              
                              
                              
                              25,000$
                              25,000
                              
                              
                              $
                              395,000





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8.  ACCOUNTS
PAYABLE AND ACCRUED EXPENSES





Accounts
payable and accrued expenses consisted of the following at:





December 31,
                    2007
                  
                  
                  September 30,
                    2007Accounts
      payable - trade
                  
                  $
                  650,034
                  
                  
                  $
                  543,487Accrued
      expenses - other
                  
                  
                  191,494
                  
                  
                  
                  242,151Due
      to investment banker
                  
                  
                  -
                  
                  
                  
                  139,825Accrued
      vacation pay
                  
                  
                  76,640
                  
                  
                  
                  76,640Accrued
      payroll and payroll taxes
                  
                  
                  127,615
                  
                  
                  
                  297,296Customer
      advances
                  
                  
                  -
                  
                  
                  
                  150,000Accrued
      interest
                  
                  
                  9,139
                  
                  
                  
                  -Accrued
      rent
                  
                  
                  30,464
                  
                  
                  
                  -$
                  1,085,386
                  
                  
                  $
                  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 months ending December 31, 2007, the
Company incurred $198,365 in product development and consulting expenses from
this vendor.





10.  STOCKHOLDERS’
EQUITY





Common
stock





Payments
for Services





In the
three months ended December 31, 2007, the Company issued a total of 586,717
shares of common stock for consulting, advisory and other services recorded at
market value of $0.18 per share or $105,209.





Capital
Raises





In the
three months ended December 31, 2007, the Company issued 8,608,334 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 $7,100
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
for employees, consultants and directors to be granted options to purchase
shares of the Company's common stock, including incentive stock options
("ISOs").  The maximum aggregate number of shares of common stock available
for award under the Stock Option Plan is 100,000,000, and is subject to
adjustment as set forth therein.  Under the plan, ISOs may not be vested
until a date, or dates, subsequent to their date of grant, or until the
occurrence of one or more specified events annually.   At December 31,
2007, the Company had granted 79,904,634 ISOs.  Of the granted ISOs,
65,365,000 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
December 31, 2007, summarized stock options outstanding and exercisable
were:





Outstanding
      Stock Options
                
                Exercisable
      Stock OptionsOptions
                
                Weighted
                  Average
                  Exercise Price
                
                Options
                
                Weighted
                  Average
                  Exercise PriceOutstanding
      at beginning of period
                73,824,634
                
                $
                .1197
                
                29,862,536
                
                $
                .1197Granted
                6,080,000
                
                $
                .0895
                
                6,643,474
                
                $
                .0872
                .Outstanding
      at end of period
                79,904,634
                
                $
                .1174
                
                36,506,010
                
                $
                .1174





Outstanding
      Stock Options
                
                
                Exercisable
      Stock OptionsExercise
      Price Range
                
                
                Shares
                
                
                Life
                
                
                Weighted
      Average exercise Price
                
                
                Shares
                
                
                Life
                
                
                Weighted
      Average exercise Price$
                0.010
      - $0.085
                
                
                
                48,479,634
                
                
                
                8.46
                
                
                $
                0.08
                
                
                
                15,973,512
                
                
                
                8.46
                
                
                $
                0.08$
                0.100
      - $0.200
                
                
                
                25,945,000
                
                
                
                7.90
                
                
                $
                0.10
                
                
                
                19,135,283
                
                
                
                7.90
                
                
                $
                0.10$
                0.210
      - $1.333
                
                
                
                5,480,000
                
                
                
                7.20
                
                
                $
                0.54
                
                
                
                1,397,215
                
                
                
                7.20
                
                
                $
                0.6179,904,634
                
                
                
                
                
                
                
                
                
                
                
                36,506,010





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
December 31, 2007,  there was approximately $3.1 million of
unrecognized compensation cost related to unvested share-based compensation
arrangements granted under the Stock Option Plan.  This expense will
be recognized on a straight-line basis over the remaining requisite service
period, currently through December 2010.





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12.  WARRANTS





Transactions
and other information relating to warrants as of December 31, 2007, are
summarized as follows:




Outstanding
      Warrants
                                
                                
                                Exercisable
      WarrantsShares
                                
                                
                                Weighted
                                  Average
                                  Exercise
                                  Price
                                
                                
                                Shares
                                
                                
                                Weighted
                                  Average
                                  Exercise
                                  PriceOutstanding
      at October 1, 2007
                                
                                
                                44,019,716
                                
                                
                                $
                                0.10
                                
                                
                                
                                44,019,716
                                
                                
                                
                                0.10Granted
      during period
                                
                                
                                4,938,272
                                
                                
                                
                                0.10
                                
                                
                                
                                4,938,272
                                
                                
                                
                                0.10Exercised
      during the period
                                
                                
                                (892,858
                                )
                                
                                
                                0.10
                                
                                
                                
                                (892,858
                                )
                                
                                
                                0.10Outstanding
      at December 31, 2007
                                
                                
                                48,065,130
                                
                                
                                $
                                0.10
                                
                                
                                
                                48,065,130
                                
                                
                                $
                                0.10


13.  CONCENTRATION
OF CREDIT RISK AND DEPENDENCY





For
the three months ended December 31, 2007, the Company had one sale to a customer
that individually accounted for more than 96% of the total gross sales for that
period. For the three months ended December 31, 2006, the Company had sales to
one customer that accounted for more than 10% of the Company’s total gross sales
for that period.





For
the three months ended December 31, 2007, the Company purchased services from
one supplier that individually accounted for 82% percent of the Company’s total
product development and consulting fees for the period.  Should
the Company lose this supplier, it will have a material adverse impact on the
operations of the Company.





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





14.  DEFERRED
INCOME TAXES





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




December
      31,
                      2007
                    
                    
                    September
      30,
                      2007Net
      operating loss carryforward
                    
                    $
                    20,094,000
                    
                    
                    $
                    19,433,000In-process
      research and development
                    
                    
                    1,329,000
                    
                    
                    
                    1,528,000Transition
      adjustment
                    
                    
                    217,000
                    
                    
                    
                    217,000$
                    21,640,000
                    
                    
                    $
                    21,178,000Less
      valuation allowance
                    
                    
                    (21,640,000
                    )
                    
                    
                    (21,178,000
                    )Net
      deferred tax assets
                    
                    $
                    -
                    
                    
                    $
                    -





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15.  SUBSEQUENT
EVENTS





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





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




The 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.




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.





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.




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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.




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 Note is convertible, at the option of Dalcor, up to the
full Principal Amount, into the Series C Preferred Stock.  The number
of shares of Series C Preferred Stock into which the Note may be converted is
equal to the dollar amount of the Note being converted divided by a conversion
price of $1.00.  In the event that Dalcor exercises its conversion
rights under the Note and converts the full Principal Amount into Series C
Preferred Stock, Dalcor will own beneficially and of record 5,000,000 shares of
Series C Preferred Stock.





As of
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 8.5% of the
Company, is currently the controlling stockholder of the
Company.





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.


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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
previously noted, 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 a director of the Company, Mr. Hopke is
the President and a director of the Company’s Blideo, Inc.
subsidiary.





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’s Discussion and Analysis of Financial Condition and Results of
Operations




Overview





Results
of Operations for the three months ended December 31, 2007





We
have restated the Consolidated Balance Sheet as of December 31, 2007, and our
Consolidated Statements of Operations and Cash Flows for the three months ended
December 31, 2007, to correct our accounting for our stock based compensation
related to employee stock options, our accounting for certain performance based
stock options, our accounting for minority interest, our classification of
interest income and our classification of amortization expense.





Our
originally filed financial statements for the quarter ended December 31, 2007,
reflected stock option expense for the entire year ended September 30,
2008.  This resulted in an overstatement of expenses for the three
months ended December 31, 2007.  Additionally, we also corrected our
accounting for minority interest for the three months ended December 31, 2007,
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, the Company also corrected certain errors in
the classification of interest income, which was previously classified as
revenues, as well as corrected its 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 prior
year period 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 December 31, 2007, and our Consolidated Statements of
Operations and Cash Flows for the three months ended December 31, 2007 and
December 31, 2006, is summarized in Note 2 of the Notes to the consolidated
financial statements.





During
the three months ended December 31, 2007, we generated revenues of $1,071,113
(compared with $880,876 in the same period last year, or an increase of 22%).
The major components of revenue were:




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




·
            $57,342
      for the design of our customers’ applications, including a major US
      telecommunications carrier.





For
the three months ended December 31, 2007, our total operating expenses were
$3,839,450 (compared to $2,285,449 in the same period last year). Product
development and consulting expenses were $651,268 (compared to $84,600 in
the comparable period in 2006, or an increase of 669%).  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 three months ended December 31, 2007, our general, administrative and
selling expenses were $3,150,095 (compared to $2,177,502 in the comparable
period last year, or an increase of 45%). General, administrative and selling
expenses incurred for the three months ended December 31, 2007, which were
attributable to the non-cash expenses from the Company’s incentive stock option
plan, were $1,083,409 (compared to $1,084,074 in the comparable period last
year, which was essentially unchanged).  We incurred increased salary
expenses related to our sales and marketing program and legal and accounting
expenses relating to our becoming a fully-reporting company.





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-
 Table of Contents




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 December 31,
2007.  At December 31, 2007, we had $1,758,656 in cash (excluding
Blideo’s cash of $1,538,433, over which we may be deemed to have control through
the ownership interests in Blideo of Espre and Mr. Leighton is being a director
of both companies) compared with $3,352,414 (excluding Blideo’s cash of
$498,251) at September 30, 2007.  Our continued existence is dependent
upon our 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 three months ended December 31, 2007, we used net cash of $2,724,767
($153,930 in the same period last year) for operations; and we used net cash of
$69,818 ($34,580 in the same period last year) for investing; and
we realized net cash of $2,241,008 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
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 $850,000 per month, principally for
salaries, professional services and office expenses. Included in these
expenditures is approximately $450,000 of development expense for the design and
deployment of Blideo’s application, VUELIVE, and other customers.  Our
capital expenditures (depending on our hiring program), which principally
consist of computer equipment, test equipment and office requirements, are
approximately $15,000 per month. Based on our cash flow projections, we expect
that while our cash requirements will continue at their current rate for the
foreseeable future, we will be able to meet a portion of our cash requirements
from the proceeds of agreements for our services and the sale of our products.
However, 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.





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 over the next twelve
months, 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 and obtain
financing.





- 22
-
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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.





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-
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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.





I te m 3.  Quantitative and Qualitative Disclosure
About Market Risk





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





I te m 4.  Controls and Procedures





Evaluation
of Disclosure Controls and Procedures
  The
Company has carried out an evaluation under the supervision and with the
participation of its management as to the effectiveness of the design and
operation of its disclosure controls and procedures. The evaluation examined the
Company’s disclosure controls and procedures as of September 30, 2007.
Based on that evaluation, such officers have concluded that, as of December 31,
2007, the Company’s disclosure controls and procedures were not 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.
  In
connection with the completion of its audit of, and the issuance of its report
on, the Company’s consolidated financial statements for the fiscal year ended
September 30, 2007, the Company’s independent registered public accounting
firm, Sweeney, Gates & Co., communicated to the Company’s management that
certain matters involving the Company’s internal controls were considered to be
“significant deficiencies,” as defined under the standards established by the
Public Company Accounting Oversight Board, or PCAOB. These matters pertained to
(i) inadequate policies and procedures with respect to review and oversight
of financial results to ensure that accurate consolidated financial statements
were prepared and reviewed on a timely basis, (ii) inadequate number of
individuals with U.S. GAAP experience and (iii) inadequate review of
account reconciliations, analyses and journal entries.
  In
light of the significant deficiencies described above, the Company performed
additional analyses and other post-closing procedures to ensure the Company’s
consolidated financial statements are prepared in accordance with generally
accepted accounting principles. Accordingly, management believes that the
financial statements included in this quarterly report fairly represent in all
material respects the Company’s financial condition, results of operations and
cash flows for the periods presented.
  - 24
-
  Change in Internal Controls
 During the three months ended December 31, 2007, other than
explained above, there were no changes in the Company’s internal control over
financial reporting that have materially affected or are reasonably likely to
materially affect such 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.




- 25
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PART
II — OTHER INFORMATION





I te m 1.  Legal
Proceedings





None





I te m 1A. Risk
Factors





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





I te m 2.   Unregistered Sales of Equity
Securities and Use of Proceeds





In the
three months ended December 31, 2007, the Company issued 8,605,334 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.





I te m 3.  Defaults upon Senior
Securities





None





I te m 4.  Submission of Matters to a
Vote of Security Holders





None





I te m 5.  Other
Information





None





I te m 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
      21, 2008
                          
                          /s/
      BG Moore
                          
                          November
      21, 2008William
      Hopke
                          
                          
                          
                          BG
      MoorePresident
                          
                          
                          
                          Chief
      Financial Officer