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 June 30, 2001
[ ] 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 June 30, 2001
----- --------------
Common stock, $ 0.001 par value 8,689,778
ENTERPRISES SOLUTIONS, INC.
TABLE OF CONTENTS
PAGE NO.
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PART I. FINANCIAL INFORMATION
ITEM 1 - Unaudited Financial Statements
Balance Sheets as of June 30, 2001 and 2000
(Unaudited)..................................................... 3
Statements of Operations for the Six Months Ended
June 30, 2001 and 2000 and for the Three Months
Ended June 30, 2001 and 2000 (Unaudited)........................ 4
Statements of Cash Flows for the Six Months
Ended June 30, 2001 and 2000 (Unaudited)........................ 5
Notes to Unaudited Financial Statements......................... 6
ITEM 2
Management's Discussion and Analysis or Plan of Operations...... 7
PART II. OTHER INFORMATION
ITEM 6
Exhibits and Reports on Form 8-K................................ 8
Signatures...................................................... 9
2
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
JUNE 30, 2001 AND 2000
(UNAUDITED)
ASSETS
2001 2000
------------ ------------
Cash $ 742,030 $ 3,350,906
Interest receivable 32,869 3,792
Loans receivable - CODIS 150,000 150,000
- Delta Mutual 8,084 --
Loans and advances -- 27,288
------------ ------------
Total current assets 932,983 3,531,986
------------ ------------
Office equipment and furniture,
net of accumulated depreciation
of $36,435 at June 2001 89,872 79,925
Officers loans 757,500 650,000
------------ ------------
Total Assets $ 1,780,355 $ 4,261,911
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 42,475 $ 290,289
Convertible loans payable 99,000 5,250,000
Demand loans -- 622,323
------------ ------------
Total Current Liabilities 141,475 6,162,612
------------ ------------
Shareholders' Equity
Common stock $.001 Par 8,690 4,310
Additional paid-in capital 10,924,372 2,786,794
Retained (deficit) (1,633,509) (1,633,509)
(Deficit) accumulated during the
development stage (7,660,673) (3,058,296)
------------ ------------
Total Shareholders' Equity 1,638,880 (1,900,701)
------------ ------------
Total Liabilities & Shareholders' Equity $ 1,780,355 $ 4,261,911
============ ============
See Notes to Unaudited Financial Statements
3
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
For The Period From
January 1, 1998 To
Y-T-D June 30, QTR. June 30, June 30, 2001
-------------------------- -------------------------- ----------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenue $ -- $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Bad debt expense -- -- -- -- 752,616
Compensation 343,168 38,325 172,075 37,939 1,236,302
Professional, consultants
and directors fees 784,707 721,697 517,347 576,383 3,499,766
Rent 12,950 66,959 7,827 56,725 88,499
Insurance 22,943 28,508 6,861 24,060 90,278
Telephone 18,972 26,555 11,809 12,710 84,087
Office expenses 21,455 76,045 (5,642) 28,538 117,315
Relocation expenses -- 3,000 3,000 48,474
Stock transfer and
related expenses 22,947 23,152 21,584 22,129 104,168
Abandonment of
licensing agreement -- -- -- -- 100,000
Travel expenses 175,749 157,928 88,590 88,053 603,087
Research & development 157,055 263,890 99,154 122,821 655,403
Interest 13,425 48,993 3,725 48,993 421,877
Depreciation 18,538 -- 9,587 -- 27,912
Other expenses -- 1,625 -- 4,000 --
----------- ----------- ----------- ----------- -----------
Total Costs and Expenses 1,591,909 1,456,677 932,917 1,025,351 7,829,784
----------- ----------- ----------- ----------- -----------
Other Income:
Interest 53,774 27,155 22,078 26,725 169,111
----------- ----------- ----------- ----------- -----------
NET (LOSS) (1,538,135) $(1,429,522) $ (910,839) $ (998,626) $(7,660,673)
=========== =========== =========== =========== ===========
NET (LOSS) PER
COMMON SHARE $ (0.19) $ (0.33) $ (0.11) $ (0.24) N/A
=========== =========== =========== =========== ===========
Weighted average common
shares outstanding 8,271,400 4,332,000 8,280,000 4,161,000 N/A
=========== =========== =========== =========== ===========
See Notes to Unaudited Financial Statements
4
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
For The Six For The Period From
Months Ended June, 30 January 1, 1998 to
2001 2000 June 30, 2001
----------- ----------- -------------
Cash Flows From Operating Activities:
Net (Loss) $(1,538,135) $(1,429,522) $(7,660,673)
Adjustments to reconcile net (loss) to net cash
(used) by operating activities:
Bad debts -- -- 764,422
Depreciation 18,538 -- 36,435
Accrued interest income (20,639) -- (32,869)
Stock issued for services 149,000 -- 1,644,249
Interest expense 8,448 -- 411,054
(Decrease) increase in:
Accounts payable and accrued expenses 6,871 43,778 42,295
Commissions payable (500,000) -- --
----------- ----------- -----------
Net Cash (Used) By Operating Activities (1,875,917) $(1,385,744) (4,795,087)
----------- ----------- -----------
Cash Flows From Investing Activities:
Purchase office equipment and furniture (18,888) -- (126,306)
Loans receivable - CODIS -- (150,000) --
- Delta Mutual (8,084) -- (8,084)
Loans and advances 25,000 (111,005) (250,000)
Officer loans -- (650,000) (1,371,742)
Officer advance -- -- (25,000)
----------- ----------- -----------
Cash Flows (Used) By Investing Activities (1,972) (911,005) (1,781,132)
----------- ----------- -----------
Cash Flows From Financing Activities:
Demand loan proceeds -- -- 683,975
Demand loan repayments -- -- (225,800)
Proceeds from issuance of shares of common stock 3,104 -- 1,051,604
Proceeds from issuance of shares of preferred stock -- -- 148,500
Proceeds from convertible notes 577,125 5,250,000 6,634,625
Repay convertible notes -- -- (343,000)
Decrease in demand loans -- 366,074 --
Underwriting expense -- -- (633,133)
----------- ----------- -----------
Cash Flows From Financing Activities: 580,229 5,616,074 7,316,771
----------- ----------- -----------
Net (Decrease) Increase In Cash (1,297,660) 3,319,325 740,552
Cash and equivalents at beginning of period 2,039,690 31,581 1,478
----------- ----------- -----------
Cash and equivalents at June 30, 2001 $ 742,030 $ 3,350,906 $ 742,030
=========== =========== ===========
See Notes to Unaudited Financial Statements
5
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance
with U.S. generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. The accompanying
financial statements should be read in conjunction with the Company's Form
10-KSB which included audited financial statements for the year ended
December 31, 2000.
Reclassifications
Certain items in the accompanying June 30, 2000 unaudited financial statements
have been reclassified to conform to the presentation in the current period's
unaudited financial statements.
GENERAL
Enterprises Solutions, Inc. (ESI) (Company), a Nevada Corporation, plans to
provide both government and commercial enterprises with high assurance
security technology.
The Company is in the development stage and currently has no revenue of a
continuing nature. It is management's plan to develop and provide high
assurance security computer networks and related products and services.
During 2000, the Company wrote off its investment ($1,191,895) in its
wholly-owned subsidiary, which in the past years had been fully consolidated
with the Company. The accompanying financial statements are those of the
Company alone for all the years presented. The Company has accounted for the
write-off as if it had occurred in the earliest year presented.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
Assets, liabilities, revenues and expenses are recognized on the accrual method
of accounting for financial statement presentation and for federal income tax
purposes. The Company's year-end is December 31.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
The Company has a current net operating loss, and, therefore a provision
for income taxes has not been provided. At June 30, 2001, the Company has net
operating loss carry forwards of approximately $9.3 million available to offset
future taxable income, which if unused, expire through 2020.
The Company's loss carry forwards give rise to a deferred tax benefit, which has
been fully offset by valuation allowance due to uncertainties as to whether the
results of future operations will enable the Company to realize the tax benefits
arising from these loss carry forwards.
Net (Loss) Per Common Share
Net (loss) per common share has been computed by dividing the net (loss) by the
weighted average number of common shares outstanding during the period.
GOING CONCERN
Currently, the Company has no revenues of a continuing nature, has suffered
recurring losses from operations and depends on outside sources for its
working capital. Management is planning to raise equity to pursue its intended
plan of operations. No assurance can be had that the Company will be successful
in raising additional funds or that any funding will be sufficient. The Company
has limited resources. This condition raises substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
AGREEMENT OF SALE
In May 2001, Delta Mutual Inc. (Delta) amd ESI enterd into an agreement whereby
ESI will sell its assets to Delta for 1.2676 newly issued Delta common shares
for each common share of ESI outstanding. Delta is then expected to pay all of
ESI's remaining liabilities. ESI will then be liquidated in accordance with the
Plan of Liquidation and Dissolution. Approximately 10,500,000 shares of Delta
are expected to be issued to ESI shareholders. In short, ESI shareholders will
hold approximately 95% of the total issued and outstanding shares of Delta after
the transaction. Also, the continuing business of the new entity will be that of
ESI. For these reasons, this transaction is considered to be a merger and will
be accounted for as if ESI were the surviving entity.
Although the transaction documents refer to Delta as purchasing the net assets
of ESI, the transaction for accounting purposes is considered a merger between
the two companies. As a result, the net assets of ESI are not revalued but are
carried over to the new entity at their net asset values as reflected on ESI's
books pre merger. Delta will record the transaction at the par value of the
newly issued stock and adjust the additional paid-in capital account for the par
value of ESI's retired stock and elimination of Delta's deficit.
The Agreement is conditioned on the effectiveness of the registration statement
required to be filed with the Securities and Exchange Commission for the
Acquisition, approval of the sale of substantially all of the assets of ESI as
part of the Acquisition transaction by the stockholders of ESI, and on the
approval by the stockholders of the Company of the recapitalizaion. Following
the recapitalization, the Company will have an authorized capitalization of
100,000,000 shares of common stock and 5,000,000 shares of preferred stock.
The following unaudited pro forma condensed statements of operations for the
three months ended June 30, 2001 and 2000 give effect to the transaction as if
it occurred on January 1, 2000.
Three Months Ended June 30,
---------------------------
2001 2000
---- ----
Revenue $ -- $ --
Total operating costs and expenses $ 946,030 $ 1,027,740
Net (Loss) $ (923,952) $ (1,001,015)
Net (Loss) per common share $ (0.08) $ (0.09)
Weighted average number of
common shares outstanding 11,032,000 11,032,000
============ ============
6
ITEM 2. Management's Discussion and Analysis or Plan of Operations
FORWARD LOOKING STATEMENTS
This document includes 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. These statements are based on the Company's current expectations as to
future events. In the light of the uncertainties in the potential markets for
the Company's planned products, the forward-looking events and circumstances
discussed in this document might not occur and actual results could differ
materially from those anticipated or implied in the forward-looking statements.
Plan of Operations
The Company has had no revenues from the beginning of its development stage,
January 1, 1998, through June 30, 2001. The Company has incurred significant
operating losses in each of these fiscal years. Under these conditions, the
Company's cash reserves of $.7 million at June 30, 2001 may only be sufficient
to sustain the Company through 3 to 4 months, unless additional funds are
raised. The Company anticipates the need for up to $5 million in additional
capital in 2001 and 2002 to permit it to develop and market its proposed
products discussed under "Description of Business" in the Company's 10-KSB and
is actively engaged in pursuing possible sources. The Company has been
vigorously marketing its products with limited staff in 2001. Specifically, in
addition to the products it has developed, the Company plans offer downloadable
software for the Business-to-Consumer (B2C) and Business-to-Business (B2B)
markets. There is no assurance, of course, that the Company will be able
successfully to develop and market this new software.
The Company fully expects that the markets will determine the marketing
activities of the business, and no specific market segments or customers have
been targeted. The Company estimates that about $1,000,000 will be required to
commence marketing activities.
However, it is expected that additional capital will be required in 2001, as
well as 2002, until revenues from product sales are adequate to cover
administrative, operational and product development costs. Further product
development costs, including estimated marketing costs, are projected to total
$15,000,000 over the next five years, of which $5,000,000 would be incurred,
assuming availability of capital or revenues from product sales, in 2001 and
2002. There is no assurance that the Company's revenue stream will be sufficient
at any time in the future to result in profitable or continuing operations for
the Company or that the Company will be able to finance these estimated costs
through capital infusions.
In the period ended June 30, 2001 as well as the year 2000, the Company's
research and development activities were directed at completing development of
its first products as delineated in the "Description of Business" in the
Company's 10-KSB. It was reported that the Company finalized its first two
products, The Trusted Authorization Device (TAD) and the Global Positioning
Satellite (GPS) Enabled TAD were finalized in March, 2001 and are ready for
production and delivery with Patents Pending on them. Subsequent to the 10-KSB
the Company introduced its own new SAPPHIRE ONE Server. SAPPHIRE ONE is
currently available and offers what the Company believes is a superior platform
with designed in computer and network security. Operating on the standard
Intel-based architecture, the appliance based platform can be used to protect
sensitive commercial and government business processes.
The Company does not plan any significant capital expenditures for
infrastructure or equipment, but plans to add 16 engineers and technical
employees and 4 marketing personnel and 2 administrative people in the period
2001 to 2002 to the three engineers currently on staff. The Company has
currently engaged as consultants 4 additional engineers.
Overall expenses decreased $92,434 in the second quarter ended June 30, 2001,
or 9%, from the $1,025,351 experienced in the same period for 2000. For six
months ended June 30, 2001 expenses increased $135,232 from $1,456,677 or 9% for
the same period in 2000. Professional fees, consultants and directors fees of
$517,347 in the second quarter 2001 were $59,036 less than the $576,383 incurred
in the second quarter of 2000. Travel and promotion of $88,590 in the second
quarter 2001 was $537 more than the $88,053 incurred in the same period of 2000.
Travel and promotions for six months ended June 30, 2001 increased by $17,821 or
11% from $157,928 for the same period of 2000, reflecting more travel for
discussions with potential business partners. Compensation of $172,075 in the
second quarter 2001 was up from $37,939 or an increase of $134,136 for the same
period in 2000. Compensation for the six month period ended June 30, 2001
increased $304,843 from $38,325 for six months ended June 30, 2000 to $343,168
for the same period in 2001, reflecting the hiring of full-time management at
competitive market salaries and benefits. Interest expense in the second quarter
was $3,725 representing a $45,268 decrease for the same period 2000.
7
ENTERPRISES SOLUTIONS, INC.
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K relating to the quarter ended June 30, 2001.
The Company did file two reports on Form 8-K during the quarter
ended June 30, 2001. The reports were filed on April 24 and May 22,
2001.
8
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: August 14, 2001
9