SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly period ended September 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 September 30, 2001
----- ------------------
Common stock, $0.001 par value 8,696,778
ENTERPRISES SOLUTIONS, INC.
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1 -- Unaudited Financial Statements
Balance Sheets as of September 30, 2001 and 2000
(Unaudited) .................................................. 3
Statements of Operations for the Nine Months Ended
September 30, 2001 and 2000 and for the Three Months
Ended September 30, 2001 and 2000 (Unaudited) ................ 4
Statements of Cash Flows for the Nine Months Ended
September 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
SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
ASSETS
2001 2000
------------ ------------
Current assets
Cash and cash equivalents $ 183,566 $ 2,306,267
Loans receivable-Delta Mutual 56,808 --
Accrual interest receivable 35,042 7,497
Loans receivable-CODIS -- 150,000
Total Current Assets 275,416 2,463,764
------------ ------------
Fixed assets, net of accumulated depreciation of 81,095 100,259
Loans receivable-DIGITAL -- 25,000
------------ ------------
Other Assets 81,095 125,259
------------ ------------
Total Assets $ 356,511 $ 2,589,023
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 212,500 $ 246,538
Accrued interest payable 4,950 272,917
Convertible loans payable 99,000 5,250,000
Demand loans payable -- 362,323
------------ ------------
Total Current Liabilities 316,450 6,131,778
------------ ------------
Shareholders' Equity
Preferred stock; $0.001 par value; 5,000,000 shares authorized; -0- and
148,500 shares issued and outstanding at September 30, 2001 and 2000,
respectively -- 148
Common stock; $0.001 par value; 100,000,000 shares authorized;
8,689,780 and 4,309,500 shares issued and outstanding at September 30, 2001
and 2000, respectively 8,697 4,310
Additional paid-in-capital 11,135,350 3,369,305
(Less) officer loans (763,030) (650,000)
Retained (Deficit) (1,633,508) (1,633,508)
(Deficit) accumulated during the development stage (8,707,448) (4,633,010)
------------ ------------
Total Shareholders' Equity 40,061 (3,542,755)
------------ ------------
Total Liabilities & Shareholders' Equity $ 356,511 $ 2,589,023
============ ============
See notes to unaudited financial statements.
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 AND
FOR THE PERIOD FROM JANUARY 1, 1998 TO SEPTEMBER 30, 2001
(UNAUDITED)
For The Nine For The Three
Months Ended Months Ended
--------------------------------- --------------------------
September 30, September 30, For the Period From
--------------------------------- -------------------------- January 1, 1998 To
2001 2000 2001 2000 September 30, 2001
----------- ----------- ----------- ----------- ------------------
Revenue $ -- $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Bad debt expense 160,952 -- -- -- 913,569
Compensation 526,261 270,273 183,093 173,657 1,419,395
Professional, consultants and directors fees 1,050,568 1,076,404 265,817 359,163 3,765,626
Rent 15,120 36,485 5,040 8,865 91,775
Insurance 27,313 37,200 4,372 8,693 94,650
Communications 29,912 42,292 10,941 15,738 95,028
Office expenses 78,364 64,010 54,037 20,870 167,652
Relocation expenses -- -- -- -- 48,474
Stock transfer and related expenses 27,472 50,056 4,525 21,149 108,693
Abandonment of licensing agreement -- -- -- -- 100,000
Travel and promotion 232,589 262,810 56,839 90,017 665,391
Research and development 285,506 380,578 110,971 117,670 775,328
Interest 15,898 860,819 2,475 141,667 1,007,011
Depreciation 2,093 1,712 1,035 1,714 19,990
----------- ----------- ----------- ----------- -----------
Total Costs and Expenses 2,452,048 3,082,639 699,145 959,203 9,272,582
----------- ----------- ----------- ----------- -----------
Operating (Loss) (2,452,048) (3,082,639) (699,145) (959,203) (9,272,582)
Interest income 71,124 78,403 17,350 47,404 186,461
----------- ----------- ----------- ----------- -----------
Net (Loss) before extraordinary item (2,380,924) (3,004,236) (681,795) (911,799) (9,086,121)
Extraordinary item:
Gain on extinguishment of debt -- -- -- -- 378,673
----------- ----------- ----------- ----------- -----------
Net (Loss) $(2,380,924) $(3,004,236) $ (681,795) $ (911,799) $(8,707,448)
=========== =========== =========== =========== ===========
Basic and diluted net (loss) per common share $ (0.28) $ (0.70) $ (0.08) $ (0.21) N/A
=========== =========== =========== =========== ===========
Weighted average common shares outstanding 8,411,600 4,309,500 8,271,400 4,309,500 N/A
=========== =========== =========== =========== ===========
See notes to unaudited financial statements.
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
FOR THE PERIOD FROM JANUARY 1, 1998 TO SEPTEMBER 30, 2001
(UNAUDITED)
For The Nine
Months Ended
---------------------------------
September 30, For The Period From
--------------------------------- January 1, 1998 To
2001 2000 September 30, 2001
----------- ----------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(2,380,924) $(3,004,236) $(8,707,448)
Adjustments to reconcile net (loss) to net cash
(used) by operating activities
Extraordinary gain -- -- 378,673
Interest income (4,500) (7,497) (4,500)
Depreciation 29,054 7,158 46,951
Charge officer advance to payroll 25,000 -- 25,000
Stock issued for services 156,000 -- 1,651,249
Interest expense 15,897 855,576 1,001,162
Bad debts 160,952 -- 925,374
Loans - Delta Mutual (56,808) -- (56,808)
Accrued interest income (29,263) -- (41,493)
Accounts payable and accrued expenses 177,500 28 212,924
Commissions payable (500,000) -- --
Consulting service -- 250,000 --
----------- ----------- -----------
NET CASH (USED) BY OPERATING ACTIVITIES (2,407,092) (1,898,971) (5,326,262)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase fixed assets (20,627) (107,418) (128,045)
Officer loans (5,530) (650,000) (763,030)
Loans and advances -- (150,000) (889,242)
Officer advance -- -- (25,000)
----------- ----------- -----------
NET CASH (USED) BY INVESTING ACTIVITIES (26,157) (907,418) (1,805,317)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares of common stock -- -- 1,048,500
Proceeds from issuance of shares of preferred stock -- -- 148,500
Proceeds from convertible notes 577,125 5,250,000 6,634,625
Demand loan advances -- 323,225 683,975
Repay convertible notes -- (250,000) (250,000)
Demand loan repayments -- (242,150) (318,800)
Underwriting expenses -- -- (633,133)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 577,125 5,081,075 7,313,667
----------- ----------- -----------
Net (decrease) increase in cash (1,856,124) 2,274,686 182,088
Cash and equivalents at beginning of year 2,039,690 31,581 1,478
----------- ----------- -----------
Cash and equivalents at end of period $ 183,566 $ 2,306,267 $ 183,566
=========== =========== ===========
See notes to unaudited financial statements.
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
1. 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 concluded that it had no plans for its
subsidiary and that the cost of maintaining it was not in the Company's
best interest. The subsidiary had not had any operations in the years
2000, 1999 and 1998. The accompanying financial statements are those of
the Company alone for all years presented, reflecting the change in
accounting entity. The effect of this change on the net loss and
related basic and diluted net loss per share amounts for all periods
presented is zero.
In March 1999, the Company amended its certificate of incorporation to
change its name from American Casinos International, Inc. (ACII) to
Enterprises Solutions, Inc. (ESI), to alter the authorized number of
common shares to 25,000,000 shares, par value $0.001, and to authorize
5,000,000 preferred shares, par value $0.001, with the Board of
Directors authorized to determine, among others, the series, etc. In
August 2000, the Company amended its certificate of incorporation to
increase the authorized number of common shares to 100,000,000, par
value $0.001. These changes were made retroactively in these financial
statements.
In June 1999, the Company declared a 50% common stock split which
totaled 1,238,383 common shares. This adjustment was reported in these
financial statements as if it had occurred in the earliest date
presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Responsibilities for Financial Statements
The unaudited financial statements reflect all adjustments (consisting
of normal and recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of the unaudited
financial position and operating results for the interim periods
presented. The unaudited financial statements should be read in
conjunction with the financial statements and notes thereto contained
the Company's Annual Report on Form 10-K for the year ended December
31, 2000. The results of operations for the nine months ended September
30, 2001 are not necessarily indicative of the results for the entire
year ending December 31, 2001. Certain prior year amounts have been
reclassified to conform to the 2001 financial statement presentation.
6
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
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.
Cash Equivalents
The Company considers cash in operating bank accounts, demand deposits
and highly liquid debt instruments purchased with a maturity of three
months or less to be cash and cash equivalents.
Loan Receivable
In March 2000, the Company provided a foreign entity with $150,000 in
unsecured loans at 6% interest, originally due May 29, 2000 but
extended to June 30, 2001. At June 30, 2001, the Company determined the
loan plus accrued interest of $11,952 to be worthless and wrote them
off to bad debts.
Officers Loans
At September 30, 2001, the Company had advanced $754,530 to its
president and $8,500 to its treasurer. The loans bear simple interest
at the rate of 7% per year, with interest payable on a monthly basis.
The president's loan is repayable no later then May 31, 2010 and the
treasurer's no later then October 17, 2002. Accrued interest on the
loans through September 30, 2001 is $35,042. Both loans are secured by
Company stock equal in value to 125% of the outstanding principal
balance. The actual number of shares securing the loans is determined
by a formula set out in the notes. At September 30, 2001, approximately
525,000 shares secured the president's loan and approximately 9,375
shares secured the treasurer's loan. Each officer has executed a stock
pledge agreement.
The Company and its former Chief Executive Officer and a director
negotiated a settlement of the CEO's employment contract that is
contingently effective on the closing of the Agreement of Sale between
the Company and Delta Mutual, Inc. The settlement agreement proposes
that the former CEO and the Company sign mutual releases in exchange
for the CEO giving up all claims under his employment contract and
being issued 2,000,000 warrants to purchase the Company's common stock
for $1, expiring in 5 years. The former CEO is also permitted to keep
options to purchase 100,000 shares of the Company's common stock at an
exercise price of $6.25, expiring in March 2003.
7
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
In the normal course of business, the Company routinely performs
ongoing assessments of collectibility of its receivables. No allowance
is provided herein as management deems this amount collectible.
Office Equipment And Furniture
Office equipment and furniture is depreciated on the straight-line
basis over 36 months.
Software Development
The Company develops software for sale, lease or subject to other
marketing arrangements. The Company follows the guidance contained in
Statement of the Financial Accounting Standards Board No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed." The Company expenses (as Research & Development)
the costs of research and development associated with establishing the
technological feasibility of a software product. A software product's
feasibility is established when a detail program design or working
model has been completed. After that point, the Company intends to
capitalize its direct costs associated with producing the software.
Convertible Notes And Demand Loans
During the nine months ended September 30, 2001 and 2000, the Company
raised $577,125 and $5,573,225, respectively, from the issuance of
convertible notes and demand loans.
In April 2000, the Company received $5,000,000 from a convertible note,
bearing interest at 10%. In connection with the financing, the agent
received a note in the amount of $250,000 for fees associated with
raising capital, which was charged to additional paid-in capital as an
incremental cost of raising capital. The $5,250,000 was convertible for
a period of one year commencing from the time of issuance at a rate of
90% of the 22 day moving average of the Company's stock price at the
time of conversion. At the time of issuance, the 22 day moving average
of the Company's stock was $9.61, or $8.65 for the conversion feature.
The resulting difference between the fair value of the Company's stock
($9.61) and the conversion amount ($8.65) was multiplied times the
number of shares that could have been issued from conversion (606,936
shares) yielding interest expense of $582,659. This amount was charged
to interest expense in the Statement of Operations. The total of these
notes plus the accrued interest of $389,794 was converted into
2,015,000 shares of the Company's common stock effective December 2000.
In connection with this conversion, the Company issued to the
convertible note holders warrants to purchase 320,000 shares of the
Company's common stock at a purchase price of $1.00 per share on or
before December 31, 2003. These warrants were not valued separately as
there is no market for them.
8
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
In the nine months ended September 30, 2001, the Company received
$577,125 from the issuance of 10% promissory notes (notes) convertible
into common shares of the Company at the rate of approximately $3.37
per share. At the time of issuance, the notes were convertible,
including accrued but unpaid interest, at any time prior to their
maturity. There were no warrants attached to these notes. Through
September 30, 2001, $623,125 of principal together with $11,417 of
interest, or $634,542, was converted into 188,016 shares of the
Company's common stock. At September 30, 2001 there is one note for
$99,000 outstanding, which is due October 25, 2001.
During the nine months ended September 30, 2000, the Company received
$323,225 from demand loans and repaid $242,150 of such loans. The
Company also repaid $250,000 of convertible notes during this period.
Research And Development Expenses
Research and development expenses (R&D), consisting primarily of rent,
salaries, wages and taxes, and other costs, are incurred to blend
currently available technologies into new and novel solutions.
Depreciation expense associated with these activities has been included
with other depreciation in the Statements of Operations. Among the
various R&D activities, the Company develops software for sale, lease
or subject to other marketing arrangements. The Company's R&D costs of
software development include those to establish that the product can be
produced in accordance with its design specifications (technological
feasibility). Technological feasibility is not established until the
Company has completed the product design, the detail program design,
determined that the necessary skills, hardware, and software technology
are available to produce the product, and confirmed that the detail
program design is complete and consistent with the product design.
Costs and expenses incurred after the point of technological
feasibility are capitalized and the Company's policies in regard to
these are more fully discussed under Software Development.
The Company currently has three prototype products available for
testing. The costs and expenses associated with the construction of
these prototypes have been expensed as R& D costs.
Income Taxes
At September 30, 2001, the Company has a current net operating loss,
and, therefore a provision for income taxes has not been provided. At
September 30, 2001, the Company has net operating loss carry forwards
of approximately $10.3 million available to offset future taxable
income, which if unused, expire in varying amounts through 2021.
9
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
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.
Basic and Diluted Net (Loss) Per Common Share
Basic and diluted 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.
3. 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. Although the Company has sufficient
cash to maintain itself for approximately 4 to 7 months, management is
currently seeking additional sources of equity or a company whose stock
is publicly traded as a merger partner. During this period, the Company
is continuing its efforts to implement its plan of operations. However,
this is not expected to be successful before additional funding is
needed. Management believes that by merging with a company whose stock
is already trading, raising equity capital will be that much easier. In
the meantime, management continues to seek additional sources of
capital. There can be no assurance that the Company will be successful
in implementing any of its plans or that whatever is accomplished will
be sufficient. This conditions 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.
4. SHAREHOLDERS' EQUITY
During the nine months ended September 30, 2001, the Company issued
387,103 shares of its common stock as compensation for services
rendered (employees and non-employees received 109,000 shares and
278,103 shares, respectively). The Company's president received 24,000
shares under his employment contract and 26,000 shares for services as
a Company director; the Company's treasurer received 20,000 shares for
services as a director; a director received 20,000 shares for services
as a director; and, other consultants received 258,103 shares for
services. Compensation to employees aggregated $109,000 while $278,103
was for non-employee services. All shares were issued at $1 per share,
which approximates fair value in management's estimation. This
estimation gives weight to the value of the services as bargained
between unrelated parties or, in the case of employees or related
parties, the fair value of the Company's stock. The value of the
Company's stock reflects the Company's financial condition, the stock's
lack of marketability, the lack of reliable quotes and a not very
active market.
10
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
5. STOCK AND OPTION PLANS
Compensatory Stock Options
The Company accounts for compensatory stock option plans under APB
Opinion No. 25, under which no compensation expense has been
recognized, as options have been granted with an exercise price equal
to the market value of the Company's stock at the date of grant. The
fair value of the options is estimated to equal the market value of the
Company's common stock. In the nine months ended September 30, 2001,
the Company issued 25,000 options to purchase Company shares at $3.50
per share. These options expire on June 30, 2002.
Board of Directors Option Plan
The Company grants stock options for a fixed number of shares to
members of the Board of Directors with an exercise price equal to the
fair market value of the shares at the date of grant. The options are
to expire two years after the resignation of a Director who has served
in that capacity at least one year, unless otherwise modified by an
action of a majority of the Board of Directors. At September 30, 2001,
there were 172,500 options outstanding, exercisable at per share
amounts of $0.667 (22,500 options), $5.67 (15,000 options), $7.50
(10,000 options) and $6.25 (125,000 options). These options are for a
term of three years. As of September 30, 2001, none of these options
have been exercised.
2000 Restricted Stock Plan
The Company's Board of Directors on August 7, 2000 approved the
Company's 2000 Restricted Stock Plan (Plan), which reserves 1,000,000
shares of the Company's common stock for issuance as compensation for
services rendered or to be rendered to the Company in accordance with
the Plan's provisions. During the nine months ended September 30, 2001,
the Company issued 86,000 shares under the Plan, leaving -0- shares for
the future. The Company received no proceeds from the issuances and
valued them at approximately $1.00 per share.
11
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
Options Summary
Weighted
Options Average
# of Exercised Exercise
# of Option Shares During Price of
Options Price Issuable the Year Options
------------- ------------- ------------- ----------- -------------
Balance, December 31, 1998 1,800,000 a-) $ 2.00 1,800,000 - $ 2.00
------------- ------------
1999 Activity:
Issued to directors (Non-employee) 47,500 $ 0.667 to $ 7.50 47,500 - $ 3.69
------------- ------------ ----------- -------------
Balance, December 31, 1999 1,847,500 1,847,500 - $ 2.04
------------- ------------ ----------- -------------
2000 Activity:
Issued to employees 160,000 $ 3.50 and $ 6.25 160,000 - $ 5.22
Issued to directors (Non-employee) 25,000 $ 6.25 25,000 - $ 6.25
Note holders 637,000 a-) $ 1.00 to $ 6.00 637,000 - $ 2.01
------------- ------------ ----------- -------------
Balance, December 31, 2000 2,669,500 2,669,500 - $ 2.27
------------- ------------ ----------- -------------
2001 Activity:
Expired (217,000) $1.667 (217,000) - $ 1.667
Issue to employees 25,000 a-) $3.50 25,000 - $ 3.50
Note holders 200,000 a-) $1.00 200,000 - $ 1.00
------------- ------------ ----------- -------------
Balance, September 30, 2001 2,677,500 2,677,500 - $ 2.23
============= ============ =========== =============
Exercisable at end of period 2,677,500 $ 2.23
============= ============
Weighted average fair value of options
granted $ 0.00 b-)
============
(a- These were not issued pursuant to any formal plan.
(b- The Company does not separately value its option as there is no market for
them. All options are granted with an exercise price equal to the Company's
market price at date of grant.
12
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
6. SUPPLEMENTAL CASH FLOW ITEMS
During the nine months ended September 30, 2000, the Company paid
interest of $5,243.
During the nine months ended September 30, 2001, the Company converted
convertible notes of $623,125 into 188,016 shares of the Company's
common stock
7. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases facilities and equipment in both Massachusetts and
California. The term of these agreements varies from a month-to-month
basis to a three-year term. The facilities in Massachusetts are leased
on a month-to-month basis, with a monthly rental cost of $1,680. The
facilities in California are leased for a 36-month term, expiring in
September 2002, with a base monthly rental cost of $5,919. The Company
is responsible for annual operating expenses, services and utilities.
The minimum lease payments under the long-term lease for the next 12
months are $71,028.
Legal Proceedings
The Company is subject to legal proceedings and claims that arise in
the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not
materially affect the financial position of the Company.
Employment Agreements
The Company has employment agreements with its 3 employees for periods
up to 5 years. In accordance with certain provisions, the Company has
agreed to issue to its President sufficient common stock to maintain
his interest in the Company at 9% and to pay him a bonus of no less
than 7% of net before tax profits of the Company. In the event of a
change in control, as defined in the agreements, the Company would be
required to make payments equal to the unpaid portion of salaries.
Annual salaries payable to the Company's president, treasurer and other
employee equal $500,000, $83,500 and $120,000, respectively.
The Company and its former Chief Executive Officer and a director
negotiated a settlement of the CEO's employment contract that is
contingently effective on the closing of the Agreement of Sale between
the Company and Delta Mutual, Inc. The settlement agreement proposes
that the former CEO and the Company sign mutual releases in exchange
for the CEO giving up all claims under his employment contract and
being issued 2,000,000 warrants to purchase the Company's common stock
for $1, expiring in 5 years. The former CEO is also permitted to keep
options to purchase 100,000 shares of the Company's common stock at an
exercise price of $6.25, expiring in March 2003.
13
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
8. Historical Quarterly Financial Data - Unauditied
For The Three Months Ended
--------------------------------------------------------------------------------------------
Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
2001 2001 2001 2000 2000 2000 2000
--------------------------------------------------------------------------------------------
Revenues $ - $ - $ - $ - $ - $ - $ -
(Loss) before extraordinary items $ (681,795) $ (1,071,791) $ (627,296) (1,638,777) (911,799) (1,668,363) $ (424,074)
Net (Loss) $ (681,795) $ (1,071,791) $ (627,296) (1,260,104) (911,799) (1,668,363) $ (424,074)
(Loss) per common share $ (0.08) $ (0.13) $ (0.08) $ (0.39) $ (0.21) $ (0.39) $ (0.10)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
CAUTIONARY INFORMATION
Certain statements in this report are, and statements in other material filed or
to be filed with the Securities and Exchange Commission (as well as information
included in oral statements or other written statements made or to be made by
the Company) are, or will be, forward-looking within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934. These
forward-looking statements include, without limitation, statements regarding:
expectations as to operational improvements; expectations as to cost savings,
the time by which certain objectives will be achieved; proposed new products and
services; expectations that claims, lawsuits, commitments, contingent
liabilities, or other matters will not have a material adverse effect on its
financial position, results of operations or liquidity; and statements
concerning projections, predictions, expectations, estimates or forecasts as to
the Company's business, financial and operational results, and future economic
performance, statements of management's goals and objectives and other similar
expressions concerning matters that are not historical facts.
Forward-looking statements should not be read as a guarantee of future
performance or results, and will not necessarily be accurate indications of the
times at, or by which, such performance or results will be achieved.
Forward-looking information is based on information available at the time and/or
management's good faith belief with respect to future events, and is subject to
risks and uncertainties that could cause actual performance or results to differ
materially from those expressed in the statements.
Important factors that could cause such differences include, but are not limited
to, whether the Company is fully successful in implementing their financial and
operational initiatives; industry competition, conditions, performance and
consolidation; legislative and/or regulatory developments; the effects of
adverse general economic conditions, both within the United States and globally;
and the outcome of claims and litigation.
Forward-looking statements speak only as of the date the statement was made. The
Company assumes no obligation to update forward-looking information to reflect
actual results, changes in assumptions or changes in other factors affecting
forward-looking information. If the Company does update one or more
forward-looking statements, no inference should be drawn that the Company will
make additional updates with respect thereto or with respect to other
forward-looking statements.
14
The Company has had no revenues from the beginning of its development stage,
January 1, 1998, through September 30, 2001. The Company has incurred
significant operating losses in each of these fiscal years. Under these
conditions, the Company's cash reserves of $184,000 at September 30, 2001 may
only be sufficient to sustain the Company through 1 to 2 more 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 to
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 has targeted the following markets arenas: the Health Care Industry,
Financial Industry and Department of Defense to concentrate its marketing
activities. 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
Research and development costs, and estimated marketing costs, are projected to
total $15,000,000 over the next five years. Of this total,$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 September 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 $260,058 in the third quarter ended September 30,
2001,or 27%, from the $959,203 experienced in the same period for 2000. For nine
months ended September 30, 2001 overall expenses decreased $630,591 from
$3,082,639 or 20% for the same period in 2000. Professional fees, consultants
and directors fees of $265,817 in the third quarter 2001 were $93,346 less than
the $359,163 incurred in the third quarter of 2000. Travel and promotion of
$56,839 in the third quarter 2001 was $33,178 less than the $90,017 incurred in
the same period of 2000. Travel and promotions for nine months ended September
30, 2001 decreased by $30,221 or 11% from $262,810 for the same period of 2000.
Compensation of $183,093 in the third quarter 2001 was up from $173,657 or an
increase of $9,436 for the same period in 2000. Compensation for the nine-month
period ended September 30, 2001 increased $255,988 from $270,273 for nine months
ended September 30, 2000 to $526,261 for the same period in 2001, reflecting the
hiring of full-time management at competitive market salaries and benefits.
Interest expense in the third quarter was $2,475 representing a $139,192
decrease for the same period 2000.
15
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
No. Description
--- -----------
10.19 Settlement Agreement, dated August 31, 2001,
between the Company and John A. Solomon.
(b) Reports on Form 8-K.
In the quarter ended September 30, 2001, the Company did not file any
reports on Form 8-K.
16
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 thereunto duly authorized.
ENTERPRISES SOLUTIONS, INC.
/s/ Alfred T. Saker
-----------------------
Alfred T. Saker
Treasurer and
Chief Financial Officer
Dated: November 14, 2001