ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
(FORMERLY GLASS-AIRE INDUSTRIES GROUP, LTD.)
CONDENSED CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------------------------------------------
ASSETS
AS OF
SEPTEMBER 30, AS OF
2007 DECEMBER 31,
UNAUDITED 2006
---------------- ---------------
CURRENT ASSETS
Cash & cash equivalents $ 32,890 $ 302,943
Accounts receivable 722,122 258,989
Receivable - other 1,228 -
Prepaid expense 2,447,147 412,496
---------------- ---------------
TOTAL CURRENT ASSETS 3,203,387 974,428
NET PROPERTY & EQUIPMENT 429,766 38,820
OTHER ASSETS
Deposits 2,120 72,026
Net trademarks 149 563
Goodwill 3,392,192 9,340,570
Investments in business areas 265,780 15,779
---------------- ---------------
TOTAL OTHER ASSETS 3,660,240 9,428,938
---------------- ---------------
TOTAL ASSETS $ 7,293,393 $ 10,442,186
================ ===============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 376,912 $ 427,298
Line of credit 94,201 101,962
Accrued liabilities 144,502 -
Income taxes payable 35,500 35,500
Loans payable 2,577,300 238,000
---------------- ---------------
TOTAL CURRENT LIABILITIES 3,228,415 802,760
LONG-TERM LIABILITIES
Unsecured 10% Loan payable 1,243,934 859,831
---------------- ---------------
TOTAL LONG-TERM LIABILITIES 1,243,934 859,831
---------------- ---------------
TOTAL LIABILITIES
4,472,349 1,662,591
STOCKHOLDERS' EQUITY
Common stock, (par value $.001 per share, 100,000,000 shares
authorized: 21,264,039 and 13,935,869 shares issued and outstanding
as of September 30, 2007 and December 31, 2006 respectively) 21,264 13,935
Paid-in capital 20,745,720 11,323,073
Shares to be issued - -
Retained earnings (17,945,939) (2,557,413)
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 2,821,045 8,779,595
---------------- ---------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 7,293,393 $ 10,442,186
================ ===============
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See Notes to the Condensed Consolidated Financial Statements
1
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
(FORMERLY GLASS-AIRE INDUSTRIES GROUP, LTD.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
-------------------------------------------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2007 2006 2007 2006
---------------- ----------------- ---------------- -----------------
REVENUES $ 1,226,424 $ - $ 1,636,843 $ -
COST OF GOODS SOLD 84,326 - 140,627 -
---------------- ----------------- ---------------- -----------------
GROSS PROFIT 1,142,097 - 1,496,215 -
OPERATING EXPENSES
Depreciation 6,278 - 18,834 -
Finance fees 2,663,728 - 2,663,728 -
Consulting 506,652 - 653,196 -
Commissions 1,937,653 - 2,846,162 -
General and administrative 969,386 128 1,979,305 -
---------------- ----------------- ---------------- -----------------
TOTAL OPERATING EXPENSES 6,083,696 128 8,161,224 -
---------------- ----------------- ---------------- -----------------
LOSS FROM OPERATIONS (4,941,599) (128) (6,665,009) -
OTHER INCOME (EXPENSES)
Interest income 448 - 448 1
Interest expense (53,979) (701) (103,900) (7,082)
Other income - 6,243 58,998 56,243
Impairment of goodwill (55,600) - (8,766,786) -
---------------- ----------------- ---------------- -----------------
TOTAL OTHER INCOME (EXPENSES) (109,131) 5,542 (8,811,239) 49,162
---------------- ----------------- ---------------- -----------------
NET INCOME (LOSS) $ (5,050,729) $ 5,414 $ (15,476,248) $ 49,162
================ ================= ================ =================
BASIC EARNING (LOSS) PER SHARE $ (0.25) $ 0.00 $ (0.75) $ 0.01
---------------- ----------------- ---------------- -----------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES - BASIC AND DILUTED 20,289,834 5,881,152 20,689,679 4,569,295
================ ================= ================ =================
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See Notes to the Condensed Consolidated Financial Statements
2
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
(FORMERLY GLASS-AIRE INDUSTRIES GROUP, LTD.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------------------------------------
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2007 2006
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(15,476,248) $ 49,162
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 18,834 -
Common stock 9,517,697 -
Common stock to be issued - -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (463,133) -
(Increase) decrease in other receivable (1,228) -
(Increase) decrease in prepaid expenses (2,034,651) -
(Increase) decrease in goodwill 5,948,378 -
(Increase) decrease in security deposits 69,906 -
(Increase) decrease in business areas (250,001) -
(Increase) decrease in accounts payable and accrued expenses 94,116 10,940
(Increase) decrease in income tax payable - -
-------------- ---------------
NET CASH USED BY OPERATING ACTIVITIES (2,576,329) 60,102
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (409,366) -
-------------- ---------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (409,366) -
CASH FLOWS FROM FINANCING ACTIVITIES
Line of credit (7,761) -
Increase in loan payable 2,339,300 -
Proceeds from long-term liabilities 384,103 -
-------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,715,642 -
-------------- ---------------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (270,053) 60,102
CASH AT BEGINNING OF PERIOD 302,943 1,832
CASH AT OCTOBER 11, 2006 OF SUBSIDIARY - -
-------------- ---------------
CASH AT END OF PERIOD $ 32,890 $ 61,934
============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 103,900 $ 7,082
============== ===============
Income taxes paid $ - $ -
============== ===============
|
See Notes to the Condensed Consolidated Financial Statements
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(UNAUDITED)
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying September 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
September 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 periods ended September 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 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
NATURE OF OPERATIONS:
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 (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 (last quarter 2007 and 2008), 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 September 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.
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(UNAUDITED)
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 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 SEPTEMBER 30, 2007 CONSIST OF THE FOLLOWING:
SEPTEMBER 30, 2007
Unsecured loan to a related party with
annual interest of 8%. $2,577,300
Unsecured notes, with annual interest of
10%. $1,243,934
------------
$3,821,234
============
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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.
September 30, September 30,
2007 2006
------------------------- ----------------------
NET INCOME (LOSS) FROM OPERATIONS $ (15,476,248) $ (12,740)
BASIC INCOME / (LOSS) PER SHARE $ (0.75) $ (0.00)
--------------------------------
========================= ======================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 20,689,679 4,569,295
--------------------------------------------- ========================= ======================
|
NOTE 6 - SIGNIFICANT EVENTS
On or about February 20, 2007 (the "Closing"), Environmental Service
Professionals, Inc. (the "Company"), Allstate Home Inspection & Household
Environmental Testing, Ltd., a Delaware corporation ("AHI"), and Francis X.
Finigan, an individual and sole shareholder of AHI ("Finigan"), completed the
closing of a stock purchase agreement (the "SPA") pursuant to which the Company
acquired 100% of the total issued and outstanding stock of AHI from Finigan in
exchange for 1,000,000 shares of the Company's common stock issuable in
installments over time (the "Stock Payment"), 250,000 warrants issuable 275 days
after the Closing entitling Finigan to purchase 250,000 additional shares of the
Company's common stock at a purchase price of $0.75 per share exercisable for a
period of five years from the date of the Closing, plus $950,000 in cash,
payable in installments over time (the "Cash Payment"). As a result of the
Closing, AHI is a wholly owned subsidiary of the Company.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(UNAUDITED)
During September, July and November 2007, the Company entered into lending
agreements and borrowed a total of $1,657,300 through short-term bridge loans
having maturity dates approximately nine 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. closed 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.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENTS
This Form 10-QSB contains financial projections and other
"forward-looking statements," as that term is used in federal securities laws,
about Environmental Service Professionals, Inc.'s financial condition, results
of operations and business. These statements include, among others, statements
concerning the potential for revenues and expenses and other matters that are
not historical facts. These statements may be made expressly in this Form
10-QSB. You can find many of these statements by looking for words such as
"believes," "expects," "anticipates," "estimates," or similar expressions used
in this Form 10-QSB. These forward-looking statements are subject to numerous
assumptions, risks and uncertainties that may cause the Company's actual results
to be materially different from any future results expressed or implied by the
Company in those statements. The most important facts that could prevent the
Company from achieving its stated goals include, but are not limited to, the
following:
(a) Volatility or decline of the Company's stock price;
(b) Potential fluctuation in quarterly results;
(c) Failure of the Company to earn revenues or profits;
(d) Inadequate capital and inability to raise the additional capital
or obtain the financing needed to implement its business plans;
(e) Inadequate capital to continue business;
(f) Absence of demand for the Company's products and services;
(g) Rapid and significant changes in markets;
(h) Litigation with or legal claims and allegations by outside
parties against ESP and its subsidiaries;
(i) Insufficient revenues to cover operating costs;
(j) Default by the Company on short-term bridge loans and other
indebtedness incurred by the Company due to a lack of capital or
cash flow to service and repay the debt; and
(k) Additional dilution incurred as the Company issues more of its
capital stock to finance acquisitions and operations.
Because the statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. The Company cautions you not to place undue reliance
on the statements, which speak only as of the date of this Form 10-QSB. The
cautionary statements contained or referred to in this section should be
considered in connection with any subsequent written or oral forward-looking
statements that the Company or persons acting on its behalf might issue. The
Company does not undertake any obligation to review or confirm analysts'
expectations or estimates or to release publicly any revisions to any
forward-looking statements to reflect events or circumstances after the date of
this Form 10-QSB or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with our
condensed consolidated financial statements and notes to those statements. In
addition to historical information, the following discussion and other parts of
this quarterly report contain forward-looking information that involves risks
and uncertainties.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of the Company's financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires the Company to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis,
the Company evaluates its estimates, including those related to bad debts,
intangible assets, income taxes, and contingencies and litigation, among others.
The Company bases its estimates on historical experience and on various other
assumptions that it believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions. The Company believes that the following critical accounting policies
affect its more significant judgments and estimates used in the preparation of
its consolidated financial statements: discontinued operations, use of estimates
and impairment of long-lived assets. These accounting policies are discussed in
"ITEM 6 --MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION" contained in the Company's Annual Report on Form 10-KSB
7
for the fiscal year ended December 31, 2006, as well as in the notes to the
December 31, 2006 consolidated financial statements. There have not been any
significant changes to these accounting policies since they were previously
reported at December 31, 2006.
REVENUE RECOGNITION
We recognize revenue on the sale of products at the time the products
are shipped to customers.
WARRANTY ACCRUAL
The Company records a liability for estimated costs that may be
incurred under its warranties at the time that product revenue is recognized.
The Company periodically assesses the adequacy of its recorded warranty
liability and adjusts the amounts as necessary.
VALUATION OF LONG LIVED ASSETS
The Company evaluated the future recoverability of its fixed assets
when events or changes in business circumstances indicate that the carry amount
of the assets may not be fully recoverable.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AS COMPARED
TO NINE MONTHS ENDED SEPTEMBER 30, 2006
REVENUE
Total revenue for the first nine months period ended September 30, 2007
increased by $1,636,843 from $0 in the nine-month period ending September 30,
2006 to $1,636,843 for the nine months ended September 30, 2007. This increase
in revenue was a result of the restructuring of AHI and the incorporation of the
CEHI program and the acquisition of IAMI. It is anticipated over the last
quarter of 2007 that AHI will retrain new home inspectors to be certified under
the CEHI program; and NPSI (IAMI) will increase new memberships in each of its
associations. The Company will also release the national public relations
program through Clearvision Productions, which has targeted the 50 most
populated cities in the United States. ESP has also targeted other acquisitions
for the third and fourth quarters, which are anticipated to increase the
Company's revenue if they are closed.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $ 8,161,224, up from
$0 during the nine-month period ended September 30, 2006, to $ 8,161,224 for the
nine-month period ended September 30, 2007. This increase in general and
administrative expenses was the result of increased staffing of office and
clerical personnel from the prior period, primarily through business
acquisitions, and increased professional and consulting fees from the prior
period. Expenses for the period that related to stock issuance were: Finance fee
$2,663,728, Consulting fee of $653,196, and Commissions expense of $2,846,162.
NET LOSS
Net loss increased by $15,476,248 for the nine-month period ended
September 30, 2007. This increase in net loss was the result of an increase in
general and administrative expenses and marketing costs, as well as a charge off
of $8,711,186 for the sale of Pacific Environmental Sampling, Inc. on June 30,
2007 as described in the Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 2007, in Note 6 for its financial statements in that
report. Stock related expenses for the nine months ended September 30, 2007 were
$6,163,086. Currently operating costs exceed revenue because sales are not yet
sufficient. We cannot assure when or if revenue will exceed operating costs.
8
LIQUIDITY AND CAPITAL RESOURCES
The Company had net cash of $32,890 at September 30, 2007, as compared
to net cash of $302,943 at December 31, 2006.
During the nine months ended September 30, 2007, the Company used $
2,576,329 of cash for operating activities, as compared to $60,102 during the
nine months ended September 30, 2006. The increase in the use of cash for
operating activities was a result of restructuring the Company for a national
marketing program for 50 cities for the CEHI inspection program and for the
acquisitions of AHI and upcoming potential acquisitions. A portion of the funds
was used to create a standard national software system and create a national
call center to support the estimated 3,000 Certified Environmental Home
Inspectors (CEHI).
Cash used in investing activities during the nine months ended
September 30, 2007 was $ 409,366 compared to $0 during the nine months ended
September 30, 2006.
Cash provided by financing activities relating to the issuance of
promissory notes and shares of common stock during the nine months ended
September 30, 2007 was $2,715,642, as compared to $ 0 during the nine months
ended September 30, 2007. Since January 1, 2006, our capital needs have
primarily been met from the proceeds of private placements, bridge loans and, to
a lesser extent, sales.
The Company will have additional capital requirements during 2007. If
we are unable to satisfy our cash requirements through product and service
sales, we will attempt to raise additional capital through the sale of our
common stock.
We cannot assure that the Company will have sufficient capital to
finance our growth and business operations or that such capital will be
available on terms that are favorable to us or at all. We are currently
incurring operating deficits that are expected to continue for the foreseeable
future.