NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(UNAUDITED)
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying June 30, 2007 condensed consolidated financial
statements have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows at June 30, 2007 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's December 31, 2006 audited consolidated financial statements. The
results of operations for the six month period ended June 30, 2007 are not
necessarily indicative of the operating results for the full years.
NOTE 2 - GOING CONCERN
The Company's condensed consolidated financial statements are prepared
using generally accepted accounting principles applicable to a going concern,
which contemplates the realization of assets and liquidation of liabilities in
the normal course of business. The accompanying condensed consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of liabilities that might result from the outcome of this
uncertainty. It is management's intention to seek additional operating funds
through operations, and debt or equity offerings. Management has yet to decide
what type of offering the Company will use or how much capital the Company will
raise. There is no guarantee that the Company will be able to raise any capital
through any type of offerings.
NOTE 3 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Environmental Services Professionals, Inc. (formerly Glas-Aire
Industries Group Ltd.), a Nevada corporation (the "Company" or "ESP"), was
incorporated on September 29, 1992. Prior to ceasing business in March 2004, the
Company manufactured and distributed wind deflector products for automobile
manufacturers in the United States, Canada and Japan.
Environmental Service Professionals, Inc. ("ESP") has adopted a
strategy to acquire several businesses that have complimentary goals for dealing
with environmental issues and resolving environmentally sensitive problems. ESP
has completed two acquisitions and is in various stages of discussion with
several other companies that management believes are good operational and
economic fits. The current acquisition candidates, if they are acquired, will
include some that will be free-standing subsidiaries and others that will be
absorbed into existing operations.
ESP's strategy is being implemented in the following three phases: (1)
Phase 1 (last quarter 2006), ESP focused on developing the holding company's
legal, financial, operational and management structures; (2) Phase 2 (first and
second quarter 2007), ESP focused on integrating new affiliates into the holding
company, developing and test marketing the new suite of products and services
that will be offered through these affiliates; and (3) Phase 3 (third and fourth
quarters 2007), ESP plans to focus on the full implementation of its national
marketing campaign.
The Company is in the process of converting all current franchises into
independent contractors under the Certified Environmental Home Inspection (CEHI)
program through ESP's AHI subsidiary. As of June 30, 2007, ESP had transferred
all of its current and future CEHI business operations to its wholly owned
subsidiary, Allstate Home Inspection & Household Environmental Testing, Ltd.
("AHI"). AHI will continue to operate the CEHI program that provides limited
mold, moisture and allergen survey services for residential and commercial
buildings utilizing the Company's mandatory central call center. Visual
inspections and collection of samples are part of the survey services that are
offered. An accredited laboratory analyzes these samples and the results are
reported to the clients. Temporary containment services are offered as
appropriate.
Effective October 11, 2006, the Company completed (a) a one for 3.75
reverse split of its total issued and outstanding common stock, (b) amended its
Articles of Incorporation and changed its name to Environmental Service
Professionals, Inc. It also increased its authorized common stock to 100,000,000
shares, par value $0.001 per share, and (c) closed the reverse merger with
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(UNAUDITED)
Pacific Environmental Sampling, Inc. pursuant to which PES became a wholly-owned
subsidiary of the Company, and PES's management and shareholders assumed control
of the Company.
NOTE 4 - NOTES PAYABLE & LONG TERM LIABILITIES
Notes payable as of June 30, 2007 consist of the following:
JUNE 30, 2007
Unsecured loan to a related party with
annual interest of 8%. $ 1,773,000
Unsecured notes, with annual interest of
10%. $ 1,243,934
---------
$ 3,016,934
=========
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NOTE 5. BASIC INCOME / (LOSS) PER COMMON SHARE
Basic gain (loss) per common share has been calculated based on the
weighted average number of shares of common stock outstanding during the period.
June 30, June 30,
2007 2006
------------------------- ----------------------
NET INCOME (LOSS) FROM OPERATIONS $ (10,425,518) $ (18,154)
Basic income / (loss) per share $ (0.68) $ (0.00)
========================= ======================
Weighted average number of shares outstanding 15,252,618 3,876,050
========================= ======================
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NOTE 6 - SIGNIFICANT EVENTS
On July 2, 2007, effective as of June 25, 2007, Environmental Service
Professionals, Inc. (the "Company"), Advanced Roofing Solutions, Inc., a
California corporation ("ARS"), Eduardo Guerra, an individual and 50%
shareholder of ARS, and Marco Guerra, an individual and 50% shareholder of ARS,
entered into a stock purchase agreement (the "SPA") pursuant to which the
Company will acquire 100% of the total issued and outstanding stock of ARS from
Eduardo Guerra and Marco Guerra in exchange for a minimum of 1,100,000 shares
and a maximum of 1,500,000 shares of the Company's common stock issuable in
installments over time (the "Stock Payment"), 1,000,000 warrants entitling
Eduardo Guerra and Marco Guerra to collectively purchase 1,000,000 additional
shares of the Company's common stock at a purchase price of $0.75 per share for
a period of three years from the date of the closing of the purchase under the
SPA, issuable at such time as specified in the SPA, plus a minimum of $1,000,000
and a maximum of $1,950,000 in cash (subject to possible further increase),
payable in installments over time (the "Cash Payment"). Upon the closing of the
SPA (the "Closing"), which was scheduled to occur on July 15, 2007, or on
another date, place and time as the parties mutually agree in writing, or within
10 days after completion of ARS's 2005 and 2006 audited and 2007 unaudited
financial statements, whichever occurs later, but in no event after July 31,
2007 (the "Closing Date"), unless extended by mutual written agreement of the
parties, ARS is agreed to become a wholly owned subsidiary of the Company.
The Cash Payment to Eduardo Guerra and Marco Guerra will be made as
follows: (i) $750,000 paid upon Closing, (ii) $100,000 paid 30 days after
Closing, (iii) $100,000 paid 60 days after Closing, and (iv) $50,000 paid 90
days after Closing. The Stock Payment to Eduardo Guerra and Marco Guerra (as
between them on a 50% - 50% basis) as follows: (i) 750,000 shares upon Closing,
(ii) 50,000 shares 30 days after Closing, (iii) 50,000 shares 60 days after
-5-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(UNAUDITED)
Closing, (iv) 50,000 shares 120 days after Closing, (v) 50,000 shares 180 days
after Closing, and (vi) 150,000 shares 275 days after Closing.
All shares of the Company's common stock and all of the warrants
issuable to Eduardo Guerra and Marco Guerra by the Company under the SPA must be
held by Eduardo Guerra and Marco Guerra for a period of at least one year from
the date of the Closing. Furthermore, Eduardo Guerra and Marco Guerra will have
piggyback registration rights with respect to the shares and the shares
underlying the warrants, subject to potential adjustment by the underwriter for
such registration statement, if any.
The amount of the Cash Payment and Stock Payment may be increased and
paid subject to the following terms and conditions: Eduardo Guerra and Marco
Guerra will earn a collective total of an additional $250,000 in cash (the
"Program Bonus") if and upon ARS signing a Home Warranty Program (the "Program")
with a nationwide home warranty provider which represents over 100,000 national
home warranty contracts across several markets in the United States, reflecting
a minimum of $16,000,000 of estimated gross revenue for ARS over the 36 months
following the execution of the agreements evidencing the Program. Eduardo Guerra
and Marco Guerra will earn a collective total of an additional $200,000 in cash
(the "Projection Bonus") on or before January 31, 2009 if ARS achieves 85% or
more of its projected gross revenue and net profits during the period from
Closing to December 31, 2008. Eduardo Guerra and Marco Guerra will earn a
collective total of an additional $500,000 in cash (the "Excess Projection
Bonus") on or before January 31, 2009 if ARS exceeds its projected gross revenue
during the period from Closing to December 31, 2008 by more than 35%. If ARS
achieves or exceeds its projected net profits during the period from Closing to
December 31, 2008 and exceeds its projected gross revenue during that period by
more than 35%, then for each percentage point above 35% that ARS exceeds it
projected revenue during said period, Eduardo Guerra and Marco Guerra will earn
an additional collective total of $14,000 payable on or before January 31, 2009,
up to a total maximum of an additional $300,000.
Eduardo Guerra and Marco Guerra will earn a collective total of an
additional 400,000 shares of the Company's common stock on or before January 31,
2009 if ARS achieves 85% or more of its projected gross revenue and net profits
during the period from Closing to December 31, 2008 (the "Bonus Stock").
In the event that (i) the employment of both Eduardo Guerra and Marco
Guerra with ARS and the Company and their successors-in-interest and affiliates
is unilaterally terminated by the Company without cause prior to December 31,
2008, or (ii) the Company does not upon the written request of Eduardo Guerra
and Marco Guerra invest at least $500,000 into ARS, including the Bridge Loan
(as defined below), then the Company will immediately pay to Eduardo Guerra and
Marco Guerra in cash a collective total of the Program Bonus, the Projection
Bonus, and the Excess Projection Bonus, as well as issue to Eduardo Guerra and
Marco Guerra the Bonus Stock.
Upon the execution SPA, the Company made a $250,000 bridge loan (the
"Bridge Loan") to ARS to be used by ARS for the establishment of its training
and educational program as mutually agreed by ESP and ARS. The Bridge Loan will
be noninterest bearing and will be converted into an equity investment in ARS at
the Closing, or if the Closing does not occur, will be converted into voting
common stock of ARS issued to ESP in an amount based on a pre-money valuation of
ARS of $3,200,000; provided, that if the Closing does not occur due to a breach
of the SPA by ARS, then the Bridge Loan will be immediately due and payable and
commence bearing interest at the rate of 10% per annum. Effective as of the
Closing, the Company will employ Marco Guerra as the Division President of the
ARS Division, and Eduardo Guerra as the Senior Vice President of ARS with an
annual salary to be agreed upon for both individuals in the annual budget and
projections of ARS for 2007 and 2008. Eduardo Guerra shall be employed by the
Company as Executive Vice President of Strategic Planning and shall report
directly to the President and Chief Executive Officer of the Company. The term
of the employment arrangements will be for a minimum of 275 days after the
Closing, and thereafter on an "at will" basis. As an inducement to the Company
to enter into and to perform its obligations under the SPA, Marco Guerra and
Eduardo Guerra will each enter into a non-compete covenant pursuant to which
during the term of their employment with the Company and for so long as they are
officers, directors, employees or consultants of the Company or any of its
subsidiaries or affiliates, they will not directly or indirectly, whether (a) as
an employee, agent, consultant, employer, principal, partner, officer or
director; (b) holder of more than five percent of any class of equity securities
or more than five percent of the aggregate principal amount of any class of
equity securities or more than five percent of the aggregate principal amount of
any class of debt, notes or bonds of a company with publicly traded equity
securities; or (c) in any other individual or representative capacity
-6-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(UNAUDITED)
whatsoever, for their own account or the account of any other person or entity,
engage in any business or trade competing with the then business or trade of the
Company or its affiliates in the United States.
The SPA may be terminated by either party upon written notice to the
other party and without further obligation by either party to the other party,
if (i) the Closing does not occur by July 31, 2007, or (ii) Eduardo Guerra and
Marco Guerra may also terminate the SPA by written notice to the Company upon
certain defaults by the Company, or (iii) if either party provides written
notice of termination to the other party on or before July 31, 2007 and Eduardo
Guerra and Marco Guerra agree to immediately refund the Bridge Loan to the
Company, as set forth in the SPA. While the SPA is technically terminated, and
ARS has repaid the Bridge Loan to the Company, the Company and ARS are currently
in discussions regarding an extension of the July 31, 2007 closing date and the
terms of the acquisitions may be revised.
ARS was founded in August, 2001 and is engaged in the business of
providing analysis, preventative maintenance, service and repairs for the roofs
of clients such as individual homeowners, home owner associations, property
managers, commercial property owners, multi-unit residences, and commercial
Organizations with five or more units within any city limit.
On April 2, 2007, Pacific Environmental Sampling, Inc., a California
corporation, sold substantially all of its assets (including all good will) to
ESP for cash consideration and the assumption of certain liabilities. Effective
as of June 30, 2007 (the "Closing"), Environmental Service Professionals, Inc.
(the "Company"), Pacific Environmental Sampling, Inc., a California corporation
("PES"), and Hugh Dallas, an individual ("Dallas"), completed the closing of a
stock purchase agreement (the "PES SPA") pursuant to which Dallas acquired 100%
of the total issued and outstanding stock of PES from the Company in exchange
for one dollar in cash and other good and valuable consideration. As a result of
the Closing, PES is no longer a wholly owned subsidiary of the Company,
effective June 30, 2007 (the "Closing"). Edward Torres submitted his resignation
(to be effective as of the Closing) from the Board of Directors of PES and
Dallas was appointed to the Board Directors of PES (effective as of the
Closing). Edward Torres submitted his resignation (to be effective as of the
Closing) as the Chief Executive Officer, President, Chief Financial Officer, and
Secretary of PES and Hugh Dallas was appointed as the Chief Executive Officer,
President, Chief Financial Officer, and Secretary of PES (to be effective as of
the Closing).
During June, July and August 2007, the Company entered into lending
agreements and borrowed a total of $1,657,300 through short-term bridge loans
having maturity dates approximately six months after the funding of the loans.
In connection with the bridge loans, the Company issued 1,792,300 shares of its
common stock and 644,420 warrants to purchase common stock to the lenders as
additional consideration for the loans.
On July 25, 2007 Environmental Service Professionals, Inc. completed
its Asset Purchase Agreement with Robert Johnson and International Association
Managers Inc. Robert G. Johnson (the "Seller") is the 100% owner of each of the
following Minnesota entities: International Association Managers, Inc., National
Association of Real Estate Appraisers, Environmental Assessment Association,
Association of Construction Inspectors, Housing Inspection Foundation,
International Real Estate Institute, and International Society of Meeting
Planners (collectively, the "Entities"). International Association Managers,
Inc. is the manager of each of the other above-listed entities (the "Manager").
Collectively, the Entities are engaged in the businesses of construction
inspection, environmental inspection and testing, promotion and development of
home inspection, professional realty and appraisal reports, the provision of
meeting planners, the promotion of ongoing education in appraisal review, and
mortgage underwriting (collectively, the "Business"). Seller is associated with
the National Association of Review Appraisers & Mortgage Underwriters ("NARA"),
Non-profit association. Since it is non-profit organization, it is not included
within the scope of the transaction. However, upon closing, Buyer will take on
the day-to-day management responsibilities of the organization. In consideration
for the sale, assignment, and transfer of the Acquired Assets and unearned
revenue liability of approximately $ 134,000 to the Buyer, the Buyer paid to
Seller $659,000 in cash in its entirety on the closing.
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