SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ______________
Commission file number 000-28195
ENTERPRISES SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0232148
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
140 Wood Road, Suite 200, Braintree, Massachusetts 02184
(Address of principal executive offices)
(781) 356-4387
(Issuer's telephone number)
The number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
Class October 31, 2000
----- ----------------
Common stock, $ 0.001 par value 4,905,305
ENTERPRISES SOLUTIONS, INC.
TABLE OF CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1 - Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2000 and 1999
(Unaudited)..................................................... 3
Consolidated Statements of Operations for the Nine Months
Ended September 30, 2000 and 1999 and for the Three Months
Ended September 30, 2000 and 1999 (Unaudited)................... 4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 (Unaudited)....... 5
Notes to Unaudited Consolidated Financial Statements............ 6
ITEM 2
Management's Plan of Operation.................................. 7
PART II. OTHER INFORMATION
ITEM 1
Legal Proceedings............................................... 10
ITEM 6
Exhibits and Reports on Form 8-K................................ 10
Signatures...................................................... 11
Financial Data Schedule...................................Exhibit 27
2
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
ASSETS
2000 1999
----------- ----------
Cash and Cash Equivalents $ 2,306,267 $ 35,550
Accrued Interest-Officer Loan 7,497 -
----------- ----------
Total Current Assets 2,313,764 35,550
----------- ----------
Loans and Advances 25,000 130,000
Loans Receivable-CODIS 150,000 -
Officer Loan, 10 year term,
7% per annum 650,000 -
Other - 220
Fixed Assets, Net of $7,159 in Accumulated
Depreciation in 2000 100,259 10,000
----------- ----------
Total Assets $ 3,239,023 $ 175,770
=========== ==========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
Accrued Other Expenses $ 246,538 $ 2,017
Demand Loans 362,323 42,000
Accrued Interest Payable 275,000 -
Convertible Note 5,250,000 -
----------- ----------
Total Current Liabilities 6,133,861 44,017
----------- ----------
Shareholders' (Deficit):
Preferred Stock $1.00 Par 148 148
Common Stock $.001 Par 4,310 4,076
Additional Paid-in Capital 2,786,646 2,795,985
Retained (Deficit) (1,633,508) (1,633,508)
(Deficit) Accumulated During The
Development Stage (4,052,434) (1,034,948)
----------- ----------
Total Shareholders' (Deficit) (2,894,838) 131,716
----------- ----------
Total Liabilities & Shareholders' (Deficit) $ 3,239,023 $ 175,770
=========== ==========
See Notes to Unaudited Consolidated Financial Statements
3
ENTERPRISES SOLUTIONS, INC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 AND
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
FOR THE PERIOD FROM JANUARY 1, 1998 TO SEPTEMBER 30, 2000 (DEVELOPMENT STAGE)
(UNAUDITED)
Cumulative
Y-T-D September 30, QTR. September 30, During the
------------------------ ------------------------ Development
2000 1999 2000 1999 Stage
--------- -------- --------- -------- -----------
Revenue $ - $ - $ - $ - $ -
----------- -------- ----------- -------- -----------
Costs and Expenses:
Consulting Fees 719,553 131,373 218,363 95,249 1,047,335
Professional Fees 356,551 26,243 140,544 21,213 430,913
Office Expenses 65,712 5,304 (10,333) 2,960 87,314
Rent 36,485 17,574 (30,474) 17,577 84,366
Research & Development 380,578 - 116,688 - 380,578
Software Expenses - - - - 100,000
Telephone 42,292 3,221 15,738 1,974 53,857
Travel Expenses 254,588 41,271 96,660 12,095 339,277
Interest 280,243 - 231,250 - 280,243
Insurance 37,200 18,768 8,693 18,768 68,344
Salaries 271,919 31,256 231,918 31,256 447,648
Corporate registrations 50,056 8,580 26,904 5,580 65,036
Auto 3,222 - 3,222 - 3,222
Advertising 5,000 - - - 5,570
Depreciation 1,712 - 1,712 - 1,712
Bad Debt Expense - 634,022 - 634,022 739,242
Other Expenses (3,048) (7,906) (5,498) (8,542) (3,543)
----------- -------- ----------- -------- -----------
Total Costs and Expenses 2,502,063 909,709 1,045,387 832,152 4,131,114
----------- -------- ----------- -------- -----------
Other Income:
Interest 78,403 - 51,248 - 78,680
----------- -------- ----------- -------- -----------
NET (LOSS) $(2,423,660) $(909,709) $ (994,139) $(832,152) $(4,052,434)
=========== ========= =========== ========== ===========
NET (LOSS) PER
COMMON SHARE $ (0.56) $ (0.26) $ (0.23) $ (0.24) N/A
=========== ========= =========== ========= ===========
See Notes to Unaudited Consolidated Financial Statements
4
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
FOR THE PERIOD FROM JANUARY 1, 1998 TO SEPTEMBER 30, 2000 (DEVELOPMENT STAGE)
(UNAUDITED)
Cumulative
During the
2000 1999 Development Stage
--------- -------- -----------------
Cash Flows From Operating Activities:
Net (Loss) $(2,423,660) $(909,709) $(4,052,434)
Adjustments to Reconcile Net (loss) to Net Cash
(Used) By Operating Activities:
Accrued Interest (7,497) - (7,497)
Depreciation 7,159 - 7,159
Increase In Accounts Payable and
Accrued Expenses 275,028 1,797 521,538
Consulting Fees 250,000 - 250,000
----------- -------- -----------
Net Cash (Used) By Operating Activities (1,898,970) (907,912) (3,281,234)
----------- -------- -----------
Cash Flows From Investing Activities:
Loans Receivable - CODIS (150,000) - (150,000)
Loans and Advances, Net (25,000) (5,000) (25,000)
Officer Loan (650,000) - (650,000)
Purchases of Fixed Assets (107,417) (10,000) (107,417)
----------- -------- -----------
Cash Flows (Used) By Investing Activities (932,417) (15,000) (932,417)
----------- -------- -----------
Cash Flows From Financing Activities:
Convertible note 5,000,000 - 5,000,000
Increase In Demand Loans 106,073 42,000 362,323
Stock Issuances - 877,488 1,931,014
(Less) Non-Cash Amounts - - (774,897)
----------- -------- -----------
Cash Flows From Financing Activities 5,106,073 919,488 6,518,440
----------- -------- -----------
Net Increase (Decrease) In Cash 2,274,686 (3,424) 2,304,789
Cash And Equivalents, Beginning of Year 31,581 38,974 1,478
----------- -------- -----------
Cash And Equivalents, End of Period $ 2,306,267 $ 35,550 $ 2,306,267
=========== ======== ===========
Non-Cash Financing Activities:
Conversion of Shareholder Loans
To Equity $ - $ - $ 774,897
=========== ======== ===========
See Notes to Unaudited Consolidated Financial Statements
5
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
by the Company in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such SEC rules and regulations; nevertheless, the Company
believes that the disclosures are adequate to make the information presented not
misleading. These financial statements and the notes hereto should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999. In
the opinion of the Company, all adjustments, including normal recurring
adjustments necessary to present fairly the financial position of Enterprises
Solutions, Inc. at September 30, 2000 and 1999, and the results of its
operations and cash flows for the quarters and nine months then ended, have been
included. The results of operations for the quarters and nine months ended
September 30, 2000 and 1999 are not necessarily indicative of the operating
results to be expected for the full year.
2. FORWARD-LOOKING INFORMATION
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth in this
report, the Company's Annual Report on Form 10-KSB and other reports and
documents that the Company files with the Securities and Exchange Commission.
3. NET (LOSS) PER COMMON SHARE
The weighted average common shares outstanding for the nine months ended
September 30, 2000 and 1999 were 4,309,954 and 3,503,893, respectively.
4. NON-CASH ITEMS
During the nine months ended September 30, 2000, the Company charged
$250,000 to consulting fees in connection with its loan for $5,000,000. The
consulting fees are added to the debt for an aggregate loan amount of
$5,250,000.
6
ENTERPRISES SOLUTIONS, INC.
Item 2. Management's Plan of Operation
You should read the following plan of operation in conjunction with our
audited consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999, and
the unaudited consolidated financial statements and the related notes included
elsewhere in this report.
OVERVIEW
We are a development stage company. Our objective is to address what we
perceive as the lack of security in the Internet for network services and
eBusiness transactions. We were founded in 1987 and, in March 1999, we changed
our name to Enterprises Solutions, Inc. and began to focus on the development of
a suite of products and solutions for Internet security.
Since our inception, we have incurred significant losses. For the year
1999, our net loss was $1,503,535. As of December 31, 1999, we had an
accumulated deficit during the development stage of $1,628,774 and an aggregate
deficit of $3,262,283. For the nine months ended September 30, 2000, we
experienced additional losses of $2,423,660, bringing our accumulated deficit
during the development stage to $4,052,434. In the future, we expect to incur
costs and expenses similar in nature to what we have been experiencing to date.
We expect to incur significant research and development, consulting and
professional fees, travel, salaries, interest, and administrative expenses, and,
as a result, we will need to generate significant revenues to achieve and
maintain profitability.
PLAN OF OPERATION
For the next twelve months, we will require a significant amount of
cash, estimated as high as $2 million, to conclude arrangements with a
technology provider and other vendors. In addition, we estimate that we will
require as much as an additional $10,000,000 to fund higher administrative
expenses, salaries, professional and consulting fees, travel, interest, and
research and development expenditures. Planned research and development over the
next twelve months is budgeted at $8,000,000. We do not foresee significant
capital expenditures in this period; however, we plan to increase the number of
our employees from four to approximately 20 by the first quarter of 2001.
We will therefore require substantial additional equity financing, of at
least $18,000,000, over the next twelve months to accomplish our business
objectives. There is no assurance that we will be successful in obtaining this
required additional capital.
We currently have two offices in the United States. We plan to expand
our international operations by establishing a foreign office, hiring additional
personnel and recruiting international resellers.
7
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues
We did not have any revenues in the nine months ended September 30,
1999, or in the nine months ended September 30, 2000.
Operating Expenses
Research and Development. Research and development expenses consist
primarily of salaries and rent. Research and development expenses increased from
zero in the nine months ended September 30, 1999, to $381,000 in the nine months
ended September 30, 2000.
Consulting and Professional Fees. Consulting and professional fees were
$1.1 million in the period ended September 30, 2000, an increase from 1999 of
$918,000. The increase in professional fees ($330,300) was the result of higher
legal and accounting fees brought about by an action filed against the Company
by the Securities and Exchange Commission. One result of this action was the
Company commenced to seek alternative markets and partners outside the United
States to enhance the Company's potential in the international marketplace. The
Company incurred significant amounts of consulting fees in this arena,
accounting for approximately $338,000 of the overall increase of $588,000. The
Company incurred $250,000 of consulting/commission fees in connection with the
$5,000,000 Deed Poll executed in Europe in April 2000.
Travel and Salaries. Travel expenses reached approximately $255,000 in
the nine months ended September 30, 2000, an increase of $296,000 from the prior
year. The increase reflects an increased travel schedule coincident with the
Company's commitment to research and development, and its interest in seeking
markets and partners outside the United States. Salaries went from approximately
$31,000 in the nine months ended September 30, 1999 to approximately $272,000 in
2000, reflecting the hiring of full time professional managers.
Administrative Expenses. Administrative expenses, consisting primarily
of corporate registrations, rent, phone, insurance and office expense increased
approximately $178,000 from the nine months ended September 30, 1999. The
increase reflects the Company's move to new office space in the Boston area and
its activities in implementing its business plan.
Interest Expense. Interest expense of $280,000 primarily reflects the
Company's debt of $5,250,000. Interest at 10% per annum is approximately $44,000
per month.
Income Tax Provision (Benefit). Because we have incurred net operating
losses in the nine months ended September 30, 2000 and 1999 our effective tax
rate in each period is zero. Any tax benefit that may be realizable has been
offset by an equal valuation allowance because realization is doubtful.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents totaled $2.3 million at September 30,
2000, and represented 71% of total assets. Cash equivalents are highly liquid
instruments with original maturities of 90 days or less. At September 30, 2000,
we had $6.1 million of total obligations. Shareholders' (deficit) was
approximately $2.9 million at September 30, 2000.
8
For the nine months ended September 30, 2000, net cash used in operating
activities was $1.9 million, resulting primarily from the net loss for the nine
months ended September 30, 2000.
Our investing activities used cash of $932,417 in the nine months ended
September 30, 2000, an increase of approximately $917,000 primarily because of
the $650,000 officer loan, $97,000 in fixed asset purchases and $150,000 loan to
a company with which we are trying to form a strategic alliance.
Financing activities provided cash of $5.1 million in the nine months
ended September 30, 2000, an increase of approximately $4.2 million over 1999.
The increase is attributable principally to the Deed Poll of April, 2000, for
$5,000,000, offset by $877,000 of stock issuances in 1999.
QUALITATIVE AND QUANTITATIVE DISCLOSURE OF MARKET RISK
We do not currently have any derivative financial instruments and do not
intend to invest in derivatives. We invest our cash in short-term highly liquid
cash equivalents. As a result, we believe that our exposure to interest rate
risk is not material to our results of operations.
9
ENTERPRISES SOLUTIONS, INC.
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the description of legal proceedings set forth in
the Company's Amendment No. 3 to Form 10-KSB, filed with the Commission on
October 4, 2000.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K relating to the quarter ended
September 30, 2000.
The Company filed reports on Form 8-K on April 7, 2000, and
October 16, 2000.
10
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ENTERPRISES SOLUTIONS, INC.
By: /s/ John A. Solomon
-------------------------------------
John A. Solomon
President and Chief Executive Officer
Dated: November 14, 2000
11