Attached files
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 September 30, 2009
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File Number: 1-14244
---------------------------------
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
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(Exact name of registrant as specified in its charter)
NEVADA 84-1214736
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
810 N. FARRELL DRIVE, PALM SPRINGS, CALIFORNIA 92262
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(Address of principal executive offices) (Zip Code)
(760) 327-5284
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Registrant's telephone number, including area code
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(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 October 31, 2009 the number of shares outstanding of the registrant's
class of common stock was 72,449,512.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION.....................................................................................................3
ITEM 1. FINANCIAL STATEMENTS.................................................................................................3
CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008........................4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND
SEPTEMBER 30, 2008 (UNAUDITED).......................................................................................5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30,
2008 (UNAUDITED).....................................................................................................6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.......................................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............................11
ITEM 4T. CONTROLS AND PROCEDURES.............................................................................................14
PART II - OTHER INFORMATION.......................................................................................................15
ITEM 1. LEGAL PROCEEDINGS...................................................................................................15
ITEM 1.A. RISK FACTORS........................................................................................................15
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.........................................................16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.....................................................................................16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................................................16
ITEM 5. OTHER INFORMATION...................................................................................................16
ITEM 6. EXHIBITS............................................................................................................16
SIGNATURES........................................................................................................................17
-2-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
-3-
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
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ASSETS
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2009 2008
----------------- -----------------
(Unaudited)
CURRENT ASSETS
Cash & cash equivalents $ 23,367 $ 8,744
Accounts receivable 71,088 79,814
Receivable - other 9,000 9,199
----------------- -----------------
TOTAL CURRENT ASSETS 103,455 97,757
NET PROPERTY & EQUIPMENT 47,802 54,637
OTHER ASSETS
Deposits - 2,120
Net - association membership list 751,750 751,750
Employee Advances 37,771 90,944
TOTAL OTHER ASSETS 789,521 844,814
----------------- -----------------
TOTAL ASSETS $ 940,778 $ 997,208
================= =================
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 2,861,800 $ 2,081,707
Bankoverdraft 67,406 83,758
Line of credit 586,689 583,461
Accrued liabilities 617,045 233,212
Taxes payable 500 1,151
Loans payable 3,435,635 2,958,885
Loans payable - related party 27,943 28,493
----------------- -----------------
TOTAL CURRENT LIABILITIES 7,597,018 5,970,667
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 8,840,952 7,214,601
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, (par value $.001 per share, 395,000,000 shares
authorized: 65,822,012 and 55,599,595 shares issued and outstanding
as of September 30, 2009 and December 31, 2008, respectively) 65,822 55,599
Paid-in capital 25,749,736 24,964,721
Retained earnings (Deficit) (33,715,732) (31,237,713)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (7,900,174) (6,217,393)
----------------- -----------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY (DEFICIT) $ 940,778 $ 997,208
================= =================
See notes to the Condensed Consolidated Financial Statements
-4-
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Operations
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NINE MONTHS NINE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2009 2008 2009 2008
------------------- ------------------- -------------------- ------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES
Income $ 528,387 $ 1,087,210 $ 314,231 $ 547,447
------------------- ------------------- -------------------- ------------------
NET REVENUE 528,387 1,087,210 314,231 547,447
COST OF GOODS SOLD
Cost of goods sold 138,394 379,753 41,364 210,822
------------------- ------------------- -------------------- ------------------
TOTAL COST OF GOODS SOLD 138,394 379,753 41,364 210,822
------------------- ------------------- -------------------- ------------------
GROSS PROFIT 389,993 707,457 272,867 336,625
OPERATING EXPENSES
Depreciation 10,242 18,335 3,414 9,217
Finance fee 143 925,367 - 409
Consulting fees - 3,148,054 - 28,000
Professional fees 1,364,308 1,106,305 716,256 339,710
General and administrative 1,038,946 1,064,743 632,779 384,751
------------------- ------------------- -------------------- ------------------
TOTAL OPERATING EXPENSES 2,413,639 6,262,804 1,352,449 762,087
------------------- ------------------- -------------------- ------------------
LOSS FROM OPERATIONS (2,023,646) (5,555,347) (1,079,582) (425,462)
OTHER INCOME (EXPENSES)
Interest expense (455,406) (1,452,880) (147,032) (143,867)
Other income 1,057 - - -
Other expenses (25) 53 - -
------------------- ------------------- -------------------- ------------------
TOTAL OTHER INCOME (EXPENSES) (454,374) (1,452,827) (147,032) (143,867)
------------------- ------------------- -------------------- ------------------
NET INCOME (LOSS) $ (2,478,020) $ (7,008,174) $ (1,226,614) $ (569,329)
=================== =================== ==================== ==================
BASIC EARNING (LOSS) PER SHARE $ (0.04) $ (0.19) $ (0.02) $ (0.01)
------------------- ------------------- -------------------- ------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES - BASIC AND DILUTED 59,702,964 36,654,958 59,726,073 51,163,016
=================== =================== ==================== ==================
See notes to the Condensed Consolidated Financial Statements
-5-
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
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NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2009 2008
------------------- ------------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (2,478,020) $ (7,008,174)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation 10,242 18,335
Common stock issued for services 795,238 4,425,908
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 8,726 47,050
(Increase) decrease in other receivable 199 (19,785)
(Increase) decrease in prepaid expenses - 913,645
(Increase) decrease in employee advances 53,173 (37,226)
(Increase) decrease in security deposits 2,120 -
(Increase) decrease in accounts payable and accrued expenses 1,163,927 681,853
(Increase) decrease in bank overdraft (16,352) (326,376)
(Increase) decrease in association membership list - 7,102
(Increase) decrease in income tax payable (651) 545
------------------- ------------------
NET CASH USED BY OPERATING ACTIVITIES (461,398) (1,297,124)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (3,407) -
------------------- ------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (3,407) -
CASH FLOWS FROM FINANCING ACTIVITIES
Line of credit 3,228 361,010
Proceeds from loans payable 476,750 923,656
Increase in loan payable - related party (550) 12,458
Common stock issued for cash - -
------------------- ------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 479,428 1,297,124
------------------- ------------------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 14,623 -
CASH AT BEGINNING OF PERIOD 8,744 -
------------------- ------------------
CASH AT END OF PERIOD $ 23,367 $ -
=================== ==================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 455,406 $ 1,452,880
=================== ==================
Income taxes paid $ - $ -
=================== ==================
See notes to the Condensed Consolidated Financial Statements
-6-
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009
(Unaudited)
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying September 30, 2009 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, 2009 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, 2008 audited consolidated financial statements. The
results of operations for the three months period ended September 30, 2009 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 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.
-7-
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009
(Unaudited)
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 September 30, 2009 consist of the following:
September 30, 2009
--------------------------------------------- ---------------------------------
Unsecured loans, with annual interest of 8%.
$ 3,435,635
Unsecured notes, with annual interest of 10%. 1,243,934
--------------------------------------------- ---------------------------------
$ 4,679,569
============================================= =================================
-8-
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009
(Unaudited)
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, 2009 September 30, 2008
--------------------------------------------- ---------------------------- -------------------------
NET INCOME (LOSS) FROM OPERATIONS $ (2,478,020) $ (7,088,174)
Basic income / (loss) per share $ (0.04) $ (0.19)
============================ =========================
Weighted average number of shares outstanding 59,702,964 36,654,958
============================ =========================
NOTE 6. STOCK TRANSACTIONS
On January 7, 2009 the Company issued 6,060 shares of its common stock for
services rendered.
On January 7, 2009 the Company issued 100,000 shares of its common stock for
services rendered.
On January 7, 2009 the Company issued 200,000 shares of its common stock for
services rendered.
On January 7, 2009 the Company issued 200,000 shares of its common stock for
services rendered.
On January 20, 2009 the Company issued 200,000 shares of its common stock for
services rendered.
On January 20, 2009 the Company issued 500,000 shares of its common stock for
services rendered.
On January 20, 2009 the Company issued 200,000 shares of its common stock for
services rendered.
On January 20, 2009 the Company issued 500,000 shares of its common stock for
services rendered.
On February 17, 2009 the Company issued 5,690 shares of its common stock for
services rendered.
On May 12, 2009 the Company issued 100,000 shares of its common stock for
services rendered.
-9-
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009
(Unaudited)
NOTE 6. STOCK TRANSACTIONS - CONTINUED
On May 12, 2009 the Company issued 2,000,000 shares of its common stock for
services rendered.
On June 5, 2009 the Company issued 556,667 shares of its common stock for
services rendered.
On July 31, 2009 the Company issued 2,500,000 shares of its common stock for
services rendered.
On August 11, 2009 the Company issued 1,850,000 shares of its common stock for
services rendered.
On August 14, 2009 the Company issued 500,000 shares of its common stock for
services rendered.
On August 31, 2009 the Company issued 400,000 shares of its common stock for
services rendered.
On September 9, 2009 the Company issued 1,500,000 shares of its common stock for
services rendered.
On September 21, 2009 the Company issued 125,000 shares of its common stock for
services rendered.
On September 22, 2009 the Company cancelled 1,020,000 shares of its common stock
and returned them to treasury.
As of September 30, 2009, the Company had 65,822,012 shares of common stock
outstanding.
-10-
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
Environmental Service Professionals, Inc. ("ESP," "we," "us," or the
"Company") is a Nevada corporation headquartered in Southern California. Through
ESP's wholly-owned subsidiary Environmental Safeguard Professionals, Inc.
("Safeguard"), the Company offers various inspection services to address
mandated energy certification, construction defects, moisture and other
environmental issues in commercial and residential buildings. ESP's services
include the Certified Environmental Home Inspector(TM) ("CEHI") program, Healthy
Living Maintenance Program(TM) ("HLMP"), and EcoCheck Inspection(TM) program.
Through ESP's wholly owned subsidiary National Professional Services, Inc.
("NPS"), the Company offer annual trade memberships and management services for
industry related associations. Porter Valley Software, Inc. ("PVS"), the
nation's number one inspection software company, will provide the core of ESP's
on-line inspection protocols.
-11-
ENVIRONMENTAL SAFEGUARD PROFESSIONALS, INC. - ("SAFEGUARD")
Safeguard has developed an all inclusive multi-disciplined inspection
program focused on reducing liabilities and mitigating risks. The program is
designed to protect homeowners, businesses and retail properties, builders,
lenders, mortgage brokers/agents, and all other real estate oriented properties
relating to state mandated energy certification, construction defects, moisture
or other environmental issues. It is known as the EcoCheck Inspection(TM). The
EcoCheck Inspection(TM) has developed, based on standardized training,
certification, inspection, and results, reporting analysis programs which form
the foundation of a suite of services that together are provided by ESP's
Certified Environmental Home Inspector(TM) ("CEHI"). One of the programs the
Company provides by the CEHI program is the Healthy Home Assurance
Certification(TM) ("HAC"). After a EcoCheck Inspection(TM) has been conducted by
one of ESP's 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.
Through the EcoCheck Inspection(TM), ESP also offers a pro-active
comprehensive subscription based 10 year annual maintenance process called the
Healthy Living Maintenance Program(TM) ("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(TM). Every 12 months a new EcoCheck
Inspection(TM) is conducted and after any issues, if required, are corrected, a
new HAC is issued. The Company believes that the HLMP(TM) 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 to both
residential and commercial clients.
NATIONAL PROFESSIONAL SERVICES, INC. - ("NPS")
NPS currently provides comprehensive management services for seven
different real-estate trade membership organizations of which four are both
National and International Organizations and one is non-profit. NPS has the
ability to work with various trade associations that have between 250 members to
50,000 members. NPS comprehensive management services include complete
organization, association and administrative management, advisory council and
board of director coordination, seminars, conferences, graphic design and
printing, accounting and reporting and consulting. NPS maintains a servicing
facility in Palm Springs, California, which includes a fully trained staff,
conference room, library, accounting services and a computer room updated with
the latest server technology.
Incrementally, NPS has established and is now promoting information
exchange concerning residential environmental issues, cross-training of the
CEHI(TM) programs and inspection protocols to underwriters, loan officers and
appraiser. Including the delivery of training programs for insurance companies,
underwriters, loss control, and risk management personnel educate and emphasize
the benefits of using a CEHI(TM) on the initial inspection and then establishing
annual inspections.
PORTER VALLEY SOFTWARE, INC. - ("PVS")
PVS has developed various software programs, which have been designed
specifically for corporate applications that require highly detailed data
searching and data retention solutions, including but not limited to
InspectVue(TM) Report-Writers. InspectVue(TM) Report-Writers is a software
application used by CEHIs for both residential and commercial structural,
moisture, environmental and fireplace inspections. InspectVue(TM) Report-Writers
uses PVS' PVS Inspection Platform(TM) as its underlying technology to accumulate
and record specific and unique data on every building inspected. In January
2005, PVS won the Innovations Award presented by The International Association
of Certified Home Inspectors for its InspectVue(TM) line of Professional
Report-Writers. The Company believes that PVS will become a core component of
the on-line and automated procedural protocols, including but not limited to new
energy inspection requirements, the Company are developing in concert with
ConSol and other industry participants.
-12-
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, 2008, as well as in the notes to the
December 31, 2008 consolidated financial statements. There have not been any
significant changes to these accounting policies since they were previously
reported at December 31, 2008.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AS COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 2008 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2009 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2008
REVENUE
Total revenue for the three months ended September 30, 2009 decreased
by $233,216 from $547,447 during the three months ended September 30, 2008 to
$314,231 for the three months ended September 30, 2009. This decrease is
attributed to the down turn in US economy. Total revenue for the nine months
ended September 30, 2009 decreased by $558,823 from $1,087,210 during the nine
months ended September 30, 2008 to $528,387 for the nine months ended September
30, 2009. This decrease in revenue was a result of the continuing down turn of
the economy.
OPERATING EXPENSES
Operating expenses increased by $590,362, from $762,087 during the
three months ended September 30, 2008, to $1,352,449 for the three months ended
September 30, 2009. Operating expenses decreased by $3,849,165, from $6,262,804
during the nine months ended September 30, 2008, to $2,413,639 for the nine
months ended September 30, 2009. This majority of the decrease in operating
expense was the result of expenses for the nine months ended September 30, 2009
that related to stock issuances for consulting fees.
NET LOSS
Net loss increased by $657,285 from $569,329 during the three months
ended September 30, 2008, to $1,226,614 for the three months ended September 30,
2009. Net loss decreased by $4,530,154 from $7,008,174 during the nine months
ended September 30, 2008, to $2,478,020 for the nine months ended September 30,
2009. This decrease in net loss was the result of operating efficiencies, lower
general and administrative expenses and lower finance fees as compared to the
nine months ended September 30, 2008. Stock issuance related expenses for the
nine months ended September 30, 2009 were $470,000. 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 $23,367 at September 30, 2009, as compared
to net cash of $0 at September 30, 2008.
-13-
During the nine months ended September 30, 2009, the Company used
($461,398) of cash for operating activities, as compared to ($1,297,124) during
the nine months ended September 30, 2008. 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 bank line of credit,
the issuance of promissory notes and shares of common stock during the nine
months ended September 30, 2009 was $479,428, as compared to $1,297,124 during
the nine months ended September 30, 2008. 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 2009 and
2010. 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
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed by ESP is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms of the Securities and Exchange Commission. The Company's
Chief Executive Officer and Acting Chief Financial Officer is responsible for
establishing and maintaining controls and procedures for the Company.
Management has evaluated the effectiveness of the Company's disclosure
controls and procedures as of September 30, 2009 (under the supervision and with
the participation of the Company's Chief Executive Officer and Acting Chief
Financial Officer) pursuant to Rule 13a-15(e) under the Securities Exchange Act
of 1934, as amended. As part of such evaluation, management considered the
matters discussed below relating to internal control over financial reporting.
Based on this evaluation, the Company's Chief Executive Officer and Acting Chief
Financial Officer has concluded that the disclosure controls and procedures are
effective.
The term "internal control over financial reporting" is defined as a
process designed by, or under the supervision of, the registrant's principal
executive and principal financial officers, or persons performing similar
functions, and effected by the registrant's board of directors, management and
other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
o pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and
dispositions of the assets of the registrant;
o provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the registrant are being
made only in accordance with authorizations of management and
directors of the registrant; and
o provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of
the registrant's assets that could have a material effect on
the financial statements.
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INTERNAL CONTROL OVER FINANCIAL REPORTING
Our Chief Executive Officer and Principal Financial Officer are
responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our
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 have been no changes in the Company's internal control over
financial reporting that occurred during the Company's fiscal year that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting. Prior to the November 1,
2008, ESP completed procedures to achieve Sarbanes-Oxley 404 compliance, which
were tested during and since that time.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
JOHN COOLEY V. PACIFIC ENVIRONMENTAL SAMPLING, INC. ETC., ET AL.
A Case Management Conference was held March 30, 2009 at which time
another Case Management Conference was scheduled for August, 2009. 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, 2008.
STEINER V. KEITH SWIFT, JACKI SWIFT, INDIVIDUALS, ENVIRONMENTAL SERVICE
PROFESSIONALS, INC.
On December 9, 2008, Lorne Steiner filed a cross complaint in Los
Angeles County naming Environmental Service Professionals, Inc. as a
Cross-Defendant in response to a civil complaint filed against him by Keith
Swift and Jacki Swift. Steiner's allegation against the Company are for breach
of contract, fraud, abuse of legal process and indemnification as it relates to
the stock purchase agreement of Porter Valley Software, Inc. On January 23,
2009, Steiner filed for a default judgment on the Company, this was subsequently
denied. On March 20, 2009, Steiner applied for a Writ of Attachment against the
Company's assets, which was subsequently denied. The Company has provided all
responses required. ESP and its affiliates believe they have meritorious
defenses and are vigorously defending the action.
ITEM 1A.-RISK FACTORS
WE DID NOT TIMELY FILE WITH THE SEC OUR FORM 10-KSB FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2008. 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.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 31, 2009 the Company issued 2,500,000 shares of its common stock for
services rendered.
On August 11, 2009 the Company issued 1,850,000 shares of its common stock for
services rendered.
On August 14, 2009 the Company issued 500,000 shares of its common stock for
services rendered.
On August 31, 2009 the Company issued 400,000 shares of its common stock for
services rendered.
On September 9, 2009 the Company issued 1,500,000 shares of its common stock for
services rendered.
On September 21, 2009 the Company issued 125,000 shares of its common stock for
services rendered.
On September 22, 2009 the Company cancelled 1,020,000 shares of its common stock
and returned them to treasury.
As of September 30, 2009, the Company had 65,822,012 shares of common stock
outstanding.
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: November 23, 2009 By: /s/ Edward L. Torres
--------------------------------------------
Edward L. Torres, Chairman of the Board,
President and Chief Executive Officer,
(Principal Executive Officer), Acting Chief
Financial Officer (Principal Financial
Officer)
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