UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For Quarterly Period Ended June 30, 2008
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Transition period from _______________ to ______________
Commission File Number: 1-14244
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 84-1214736
--------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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1111 EAST TAHQUITZ CANYON WAY, SUITE 110, PALM SPRINGS, CALIFORNIA 92262
(Address of principal executive offices) (Zip Code)
(760) 327-5284
Registrant's telephone number, including area code
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the proceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes[_X_] No[___]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [___] Accelerated filer [___]
Non-accelerated filer [___] Smaller reporting company [_X_]
(Do not check if a smaller
reporting company)
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes[___] No[_X_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
As of July 31, 2008 the number of shares outstanding of the registrant's
class of common stock was 50,954,776.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION.....................................................................................................1
ITEM 1. FINANCIAL STATEMENTS.................................................................................................1
CONDENSED CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2008 (UNAUDITED) AND DECEMBER 31, 2007........................................2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND JUNE 30, 2007
(UNAUDITED).....................................................................................................................3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND JUNE 30, 2007
(UNAUDITED).....................................................................................................................4
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS..................................................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................9
ITEM 3. QUANTIATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........................................................11
ITEM 4T. CONTROLS AND PROCEDURES.............................................................................................11
PART II - OTHER INFORMATION.......................................................................................................12
ITEM 1. LEGAL PROCEEDINGS...................................................................................................12
ITEM 1A. RISK FACTORS........................................................................................................12
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.........................................................13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.....................................................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................................................14
ITEM 5. OTHER INFORMATION...................................................................................................14
ITEM 6. EXHIBITS............................................................................................................14
SIGNATURES........................................................................................................................15
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
at June 30, 2008 (unaudited) and December 31, 2007
-----------------------------------------------------------------------------------------------------------------------
ASSETS
Unaudited Revised
as of as of
June 30, December 31,
2008 2007
------------------ ------------------
CURRENT ASSETS
Cash & cash equivalents $ 22,813 $ -
Accounts receivable 372,328 136,430
Receivable - other 5,199 6,397
Prepaid expense 1,988 926,254
------------------ ------------------
TOTAL CURRENT ASSETS 402,328 1,069,080
NET PROPERTY & EQUIPMENT 67,916 72,972
OTHER ASSETS
Deposits 2,120 2,120
Net - association membership list 632,750 639,852
Employee Advances 37,226 -
------------------ ------------------
TOTAL OTHER ASSETS 672,096 641,972
------------------ ------------------
TOTAL ASSETS $ 1,142,340 $ 1,784,024
================== ==================
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 1,360,061 $ 661,550
Bank overdraft 245,930 369,475
Line of credit 339,499 220,417
Accrued liabilities 147,370 144,502
Taxes payable 2,035 -
Loans payable 2,712,403 1,957,746
Loans payable - related party 39,320 22,900
------------------ ------------------
TOTAL CURRENT LIABILITIES 4,846,618 3,376,590
LONG-TERM LIABILITIES
Unsecured 10% Loan payable 1,243,934 1,243,934
------------------ ------------------
TOTAL LONG-TERM LIABILITIES 1,243,934 1,243,934
------------------ ------------------
TOTAL LIABILITIES 6,090,552 4,620,524
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, (par value $.001 per share, 100,000,000 shares
authorized: 50,637,879 and 21,745,698 shares issued and
outstanding as of June 30, 2008 and December 31, 2007, respectively) 50,637 21,745
Paid-in capital 25,852,570 21,593,382
Retained earnings (30,851,419) (24,451,627)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (4,948,212) (2,836,500)
------------------ ------------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY (DEFICIT) $ 1,142,340 $ 1,784,024
================== ==================
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See Notes to the Consolidated Financial Statements
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ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
for the Six Months Ended June 30, 2008 and June 30, 2007 (unaudited)
----------------------------------------------------------------------------------------------
Unaudited Revised
Six Months Six Months
Ended Ended
June 30, June 30,
2008 2007
-------------------- -------------------
REVENUES
Income $ 865,150 $ 291,570
-------------------- -------------------
NET REVENUE 865,150 291,570
COST OF GOODS SOLD
Cost of goods sold 446,775 56,751
-------------------- -------------------
TOTAL COST OF GOODS SOLD 446,775 56,751
-------------------- -------------------
GROSS PROFIT 418,375 234,819
OPERATING EXPENSES
Depreciation 9,118 12,556
Finance fee 924,267 -
Professional fees 642,844 303,082
Consulting fee 3,261,536 -
General and administrative 655,764 2,198,932
-------------------- -------------------
TOTAL OPERATING EXPENSES 5,493,529 2,514,570
-------------------- -------------------
LOSS FROM OPERATIONS (5,075,154) (2,279,751)
OTHER INCOME (EXPENSES)
Interest expense (1,321,513) (49,965)
Other income - 58,989
Goodwill - (8,111,186)
Other expenses (3,125) -
-------------------- -------------------
TOTAL OTHER INCOME (EXPENSES) (1,324,638) (8,102,162)
-------------------- -------------------
NET INCOME (LOSS) $ (6,399,792) $ (10,381,913)
==================== ===================
BASIC EARNING (LOSS) PER SHARE $ (0.22) $ (0.68)
-------------------- -------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES - BASIC AND DILUTED 29,320,697 15,252,618
==================== ===================
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See Notes to the Consolidated Financial Statements
-3-
---------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
(Formerly Glass-Aire Industries Group, Ltd.)
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2008 adn June 30, 2007 (unaudited)
---------------------------------------------------------------------------------------------------------------
Unaudited Revised
Six Months Six Months
Ended Ended
June 30, June 30,
2008 2007
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (6,399,792) $ (10,381,913)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 9,118 12,556
Common stock issued for services 4,013,080 5,379,986
Common stock to be issued - 357,500
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (235,898) (224,091)
(Increase) decrease in other receivable 1,199 (1,228)
(Increase) decrease in prepaid expenses 924,266 (3,752,434)
(Increase) decrease in goodwill - 7,223,576
(Increase) decrease in trademarks 563
(Increase) decrease in net - association membership list 7,102 -
(Increase) decrease in employee advances (37,226) -
(Increase) decrease in security deposits - 69,906
(Increase) decrease in accounts payable and accrued expenses 701,379 161,499
(Increase) decrease in bank overdraft (123,545) -
(Increase) decrease in income tax payable 2,035 55,300
----------------- ----------------
NET CASH USED BY OPERATING ACTIVITIES (1,138,282) (1,098,780)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (4,064) (402,484)
----------------- ----------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (4,064) (402,484)
CASH FLOWS FROM FINANCING ACTIVITIES
Line of credit 119,082 (3,444)
Proceeds from loans payable 754,657 935,000
Proceeds from loans payable - (a related party) 16,420 -
Proceeds from long-term liabilities - 384,103
Common stock issued for cash 275,000 -
----------------- ----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,165,159 1,315,659
----------------- ----------------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 22,813 (185,605)
CASH AT BEGINNING OF PERIOD - 303,758
----------------- ----------------
CASH AT END OF PERIOD $ 22,813 $ 118,153
================= ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for Interest $ - $ 18,600
================= ================
Income taxes paid $ - $ -
================= ================
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See Notes to the Consolidated Financial Statements
-4-
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2008
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying June 30, 2008 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, 2008 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, 2007 audited consolidated financial statements. The
results of operations for the three months period ended June 30, 2008 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 will be raised by
the Company. 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 Service Professionals, Inc. ("ESP" or the "Company") is a Nevada
corporation headquartered in Southern California. Management believes that ESP
is the first company in the moisture inspection industry vertical to become a
publicly traded company.
Since 2006 ESP has embarked on a strategy to acquire businesses dealing with
environmental issues and resolving environmentally sensitive problems. The
Company has completed four acquisitions and is in various stages of discussion
with additional companies that management believes are a good philosophical,
operational and economic fit with the Company. Of the current companies
targeted, management anticipates that some will be freestanding subsidiaries and
others will be absorbed into existing operations.
ESP offers various inspection services for addressing mold and moisture
intrusion that can have an acute or chronic negative impact on the indoor air
quality of commercial and residential buildings.
-5-
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2008
NOTE 3 - ORGANIZATION AND DESCRIPTION OF BUSINESS - CONTINUED
Environmental Safeguard Professionals, Inc., a wholly owned subsidiary
("Safeguard"), has developed a standardized training, certification, inspection,
and results reporting analysis program which forms the foundation of a suite of
services that together comprise the Certified Environmental Home Inspector
("CEHI") program. Management believes that business unit will provide the annual
subscription-based moisture maintenance and energy use awareness programs to
both residential and commercial clients.
National Professional Services, Inc., a wholly owned subsidiary ("NPS"), is
currently a conglomerate of seven individual associations and maintains annual
paying members. The focus of this business unit is to establish cross training
on CEHI Programs and to provide information concerning residential environmental
issues, establish training for underwriters, loan officers and appraisers to
educate these groups about CEHI inspection protocols. These training programs
for insurance companies, underwriters, loss control and risk management
personnel educate and emphasize the benefits of using a CEHI on the initial
inspection and then establishing annual inspections.
NOTE 4 - NOTES PAYABLE & LONG TERM LIABILITIES
Notes payable as of June 30, 2008 consist of the following:
June 30, 2008
-------------------------------------------- -------------------------------
Unsecured loans, with annual interest of 8%. $ 2,712,403
Unsecured notes, with annual interest
of 10%. 1,243,934
-------------------------------------------- --------------------------------
$ 3,956,337
============================================ ================================
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-6-
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2008
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, 2008 June 30, 2007
------------------------------------ --------------------- --------------------
NET INCOME (LOSS) FROM OPERATIONS $(6,399,792) $ (10,381,914)
Basic income / (loss) per share
$ (0.22) $ (0.68)
===================== ====================
Weighted average number of shares
outstanding 29,320,697 15,252,618
===================== ====================
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NOTE 6 - SIGNIFICANT EVENTS
On June 19, 2008, Environmental Service Professionals, Inc. completed the
closing of a stock purchase agreement with Porter Valley Software, Inc., a
California corporation. Pursuant to the stock purchase agreement, the Company
acquired 100% of the total issued and outstanding stock of Porter Valley
Software, Inc in consideration for 650,000 shares of the Company's common stock,
issuable in installments over time, plus $400,000 in cash, payable in
installments over time.
NOTE 7. STOCK TRANSACTIONS
In April 2008, the Company issued 407,000 shares of its common stock to three
consultants for services rendered.
In April 2008, the Company issued 350,000 shares of its common stock to its
investor relations firm.
In April 2008, the Company issued 495,000 shares of its common stock to its
public relations firm.
In April 2008, the Company issued 50,000 shares of its common stock to three
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consultants for investor relations services rendered.
In April 2008, the Company issued 25,000 shares of its common stock to one
lender in connection with a $25,000 loan to the Company.
In April 2008, the Company issued 500,000 shares of its common stock to one
lender as a late fee pursuant to a bridge loan.
On April 7, 2008, the Company issued 8,000,000 shares of its common stock to its
Chief Operating Officer and 17,000,000 shares of its common stock to its Chief
Executive Officer for services rendered.
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ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2008
In May 2008, the Company issued 10,000 shares of its common stock to one
consultant for computer services rendered.
In May 2008, the Company reissued 800,000 shares of its common stock to its
former Chief Financial Officer to be held in escrow until the resolution of the
Company's dispute with its former Chief Financial Officer.
On June 20, 2008 the Company issued 250,000 shares of its common stock in
connection with the Company's acquisition of Porter Valley Software, Inc.
In June 2008, the Company issued 30,000 shares of its common stock to one lender
as a late fee pursuant to a short term loan.
As of June 30, 2008, the Company had 50,637,879 shares of common stock
outstanding.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENTS
This Form 10-Q contains financial projections and other
"forward-looking statements," as that term is used in federal securities laws,
about Environmental Service Professionals, Inc.'s ("our," "ESP," or the
"Company") 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-Q. 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-Q. 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-Q. 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-Q 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.
OVERVIEW
ESP is a Nevada corporation headquartered in Southern California, which
through its various business units and subsidiaries offers environmental
services designed to address mold and moisture intrusion and the associated
acute or chronic issues that impact the interior air quality of commercial and
residential buildings.
Over the past eight months, ESP has focused on developing and
delivering what we believe to be state-of-the-art, "Best in Class" procedures,
tools, and education to provide services for addressing moisture related and
other environmental issues, including but not limited to radon and allergy
testing, for the residential and commercial real estate industries. We believe
that our procedures, tools, and education allow us a real opportunity to provide
a standardized pro-active approach to the highly fragmented and relatively
unsophisticated inspection industry.
We believe that the key to risk mitigation for industry stakeholders
and peace of mind for consumers is early detection of potential environmental
hazards. Annual inspections allow our Certified Environmental Home Inspectors
("CEHIs") to identify indoor air quality issues in a timely manner. We provide a
-9-
Healthy Assurance Certification ("HAC") in conjunction with our inspections.
After a 203 checkpoint inspection has been conducted by one of our CEHIs, a
subject property that passes inspection receives a HAC. The HAC is placed in the
window closest to the main entrance of the building in order to alert visitors
that the subject property promotes a healthy living environment through
management of potentially harmful indoor air quality issues and is valid for 12
months.
We also offer a pro-active comprehensive subscription based annual
maintenance process called the Healthy Living Maintenance Program ("HLMP") to
all residential properties that have received a HAC. Once a subject property
receives an initial HAC it is eligible to subscribe to the HLMP. Every 12
months, a new 203 checkpoint inspection will be conducted and after any issues,
if required, are corrected a new HAC will be issued. We believe that the HLMP
adds value to a property and mitigates risk for the insurance, mortgage banking,
building, real estate, and property management industries by reducing claims,
instilling confidence in property safety, and promoting a positive green image.
We believe that our acquisition of seven real estate industry
associations has provided us with the access necessary to train and provide the
associations' members with information that is consistent with ESP's approach.
On June 19, 2008, we acquired Porter Valley Software, Inc. ("PVS"), an
inspection software company. We plan to absorb PVS into our corporate structure
in order to provide support across our various business units. We believe that
PVS will become a core component of the on-line and automated procedural
protocols we are developing in concert with other industry participants.
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
for the fiscal year ended December 31, 2007, as well as in the notes to the
December 31, 2007 consolidated financial statements. There have not been any
significant changes to these accounting policies since they were previously
reported at December 31, 2007.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2008 AS COMPARED TO SIX
MONTHS ENDED JUNE 30, 2007
REVENUE
Total revenue for the six months ended June 30, 2008 increased by
$573,580 from $291,570 during the six months ended June 30, 2007 to $865,150 for
the six months ended June 30, 2008. This increase in revenue was a result of the
launching of the CEHI and HAC programs and the receipt of early annual
membership renewals from National Professionals Services, Inc. ("NPS"). It is
anticipated over the third quarter of 2008 that our subsidiary Environmental
Safeguard Professionals, Inc. ("Safeguard") will continue to increase the number
of approved vendors that will be certified to deliver inspection services under
the CEHI program, that our subsidiary NPS will continue to invoice and collect
the remaining annual 2008 membership dues and continue to increase new
memberships in each of its associations, and that our subsidiary Porter Valley
Software, Inc. ("PVS") will invoice and collect the annual 2008 software license
fees and continue to increase new sales of its software products.
-10-
OPERATING EXPENSES
Operating expenses increased by $2,978,958, up from $2,514,571 during
the six months ended June 30, 2007, to $5,493,529 for the six months ended June
30, 2008. This increase in operating expenses was the result of increased
financing fees, professional fees and consulting fees totaling $4,525,565 from
the prior period. Expenses for the period that related to stock issuances were:
finance fee $924,267 and consulting fee of $3,261,536.
NET LOSS
Net loss decreased by $3,982,121 for the six months ended June 30,
2008. This decrease in net loss was the result of operating efficiencies, lower
general and administrative expenses and the write down of goodwill in the
previous period. Stock issuance related expenses for the six months ended June
30, 2008 were $4,185,803. Currently operating costs exceed revenue because sales
are not yet sufficient. We cannot assure when or if revenue will exceed
operating costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net cash of $22,813 at June 30, 2008, as compared to
net cash of $117,975 at June 30, 2007.
During the six months ended June 30, 2008, the Company used $1,138,282
of cash for operating activities, as compared to $1,704,215 during the six
months ended June 30, 2007. The decrease in the use of cash for operating
activities was a result of continuous optimization of the general and
administration support.
Cash provided by financing activities relating to the issuance of
promissory notes and shares of common stock during the six months ended June 30,
2008 was $1,165,159, as compared to $1,915,659 during the six months ended June
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 2008 and
2009. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4T. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed by the Company is recorded,
processed, summarized, and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission.
Our management, under the direction of our Chief Executive Officer and
Principal Financial Officer, has evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as such terms are defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2008. As
part of such evaluation, management considered the matters discussed below
relating to internal control over financial reporting. Based on this evaluation
our management, including the Company's Chief Executive Officer and Principal
Financial Officer, has concluded that the Company's disclosure controls and
procedures were effective as of June 30, 2008.
-11-
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's Chief Executive Officer and Principal Financial Officer,
is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). ESP's
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes of accounting
principles generally accepted in the United States. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can
provide only reasonable assurance of achieving their control objectives.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There were no changes in the Company's internal control over financial
reporting identified in connection with the evaluation of it that occurred
during the quarter ended June 30, 2008 that materially affected or are
reasonably likely to materially affect the Company's internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
JOHN COOLEY V. PACIFIC ENVIRONMENTAL SAMPLING, INC. ETC., ET AL.
On July 3, 2008, a hearing regarding plaintiff Cooley's fourth amended
complaint was held before the Court and the Company was granted all submitted
demurrers and Motions to Strike. On July 29, 2008, plaintiff Cooley advised that
he does not intend to file a fifth amended complaint. A Case Management
Conference has been set for September 4, 2008. As of the date of this report,
ESP and its affiliates cannot predict the outcome of this case. ESP and its
affiliates believe they have meritorious defenses and are vigorously defending
the action. For additional information regarding this legal proceeding, see the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
2007.
ITEM 1A.-RISK FACTORS
WE DID NOT TIMELY FILE WITH THE SEC OUR FORM 10-KSB FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2007. AS A RESULT OF THIS DELAYED FILING, WE ARE CURRENTLY
INELIGIBLE TO USE FORM S-3 TO REGISTER SECURITIES WITH THE SEC IN
CAPITAL-RAISING TRANSACTIONS, WHICH MAY ADVERSELY AFFECT OUR COST OF FUTURE
CAPITAL.
We did not timely file with the SEC our Form 10-KSB for the fiscal year
ended December 31, 2007. Although the filing of this Quarterly Report on Form
10-Q will bring us current in our filings with the SEC, because our Form 10-KSB
was not filed within the deadline promulgated by the SEC, the filing was not
timely under applicable SEC rules. As a result of the delayed filing of our Form
10-KSB, we are ineligible to use a "short form" registration statement on Form
S-3 to register securities for sale by us or for resale by other security
holders, in capital raising transactions, until we have timely filed all
periodic reports under the Securities Exchange Act of 1934 for at least 12
calendar months. In the meantime, for capital raising transactions, we would
need to use Form S-1 to register securities with the SEC, or issue such
securities in a private placement, which could increase the time and resources
required to raise capital during this period.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On June 20, 2008, we issued 250,000 shares of our common stock in
connection with our acquisition of Porter Valley Software, Inc.
In June 2008, the Company issued 30,000 shares of its common stock to
one lender as a late fee pursuant to a short term loan.
In May 2008, the Company issued 10,000 shares of its common stock to
one consultant for computer services rendered.
In May 2008, the Company reissued 800,000 shares of its common stock to
its former Chief Financial Officer to be held in escrow until the resolution of
the Company's dispute with its former Chief Financial Officer.
From April 1, 2008 to June 30, 2008, we issued a total of 2,049,999
warrants to purchase 2,049,999 shares of our common stock to 5 consultants for
services rendered, of which 350,000 are exercisable for five years from the date
of issuance at an exercise price of $0.01 per share, 350,000 are exercisable for
five years from the date of issuance at an exercise price of $0.17 per share,
300,000 are exercisable for three years from the date of issuance at an exercise
price of $0.17 per share, 249,999 are exercisable for three years from the date
of issuance at an exercise price of $0.25 per share, 300,000 are exercisable for
three years from the date of issuance at an exercise price of $0.58 per share,
and 500,000 are exercisable for three years from the date of issuance at an
exercise price of $0.75 per share.
In April 2008, we issued 350,000 shares of common stock and authorized
the issuance of 1,000,000 warrants to purchase 1,000,000 shares of our common
stock to our investor relations firm. The warrants will be issued in equal
increments over the one year term of our agreement and are exercisable for three
years from the date of our agreement at an exercise price of $0.25 per share.
Currently, we have issued 249,999 of the warrants.
In April 2008, we issued to our public relations firm 495,000 shares of
our common stock and 600,000 warrants to purchase 600,000 shares of our common
stock, of which 300,000 are exercisable for three years from the date of
issuance at an exercise price of $0.17 per share and 300,000 are exercisable for
three years from the date of issuance at an exercise price of $0.58 per share.
In April 2008, we issued stock options to purchase 800,000 shares of
our common stock at an average exercise price of $0.10 per share to our two
independent directors.
In April 2008, the Company issued 407,000 shares of its common stock to
three consultants for services rendered.
In April 2008, the Company issued 50,000 shares of its common stock to
three consultants for investor relations services rendered.
In April 2008, the Company issued 500,000 shares of its common stock to
one lender as a late fee pursuant to a bridge loan.
In April 2008, we received $25,000 pursuant to one short term loan
agreement. This short term loan is payable all principal and accrued but unpaid
interest on or before May 31, 2008. In conjunction with this short term loan we
issued to the lender a total of 25,000 shares of common stock and 150,000
warrants to purchase 150,000 shares of our common stock exercisable for a period
of three years from the date of issuance at an exercise price of $0.58 per
share.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS
EXHIBIT DESCRIPTION
31.1 Section 302 Certification of Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer
32.1 Section 906 Certification of Chief Executive Officer
32.2 Section 906 Certification of Chief Financial Officer
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
Dated: August 19, 2008 By: s Edward L. Torres
---------------------------------------
Edward L. Torres, Chairman of the Board,
Chief Executive Officer (Principal
Executive Officer), President, and Acting
Chief Financial Officer (Principal
Financial Officer)
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