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, 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)
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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 November 1, 2008 the number of shares outstanding of the registrant's
class of common stock was 52,541,781.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION.....................................................................................................1
ITEM 1. FINANCIAL STATEMENTS.................................................................................................1
CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2007........................2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30,
2007 (UNAUDITED).....................................................................................................3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 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................................8
ITEM 3. QUANTIATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........................................................10
ITEM 4T. CONTROLS AND PROCEDURES.............................................................................................10
PART II - OTHER INFORMATION.......................................................................................................11
ITEM 1. LEGAL PROCEEDINGS...................................................................................................11
ITEM 1A. RISK FACTORS........................................................................................................11
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.........................................................12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.....................................................................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................................................12
ITEM 5. OTHER INFORMATION...................................................................................................12
ITEM 6. EXHIBITS............................................................................................................12
SIGNATURES........................................................................................................................13
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2007
-----------------------------------------------------------------------------------------------------------------------
ASSETS
UNAUDITED REVISED
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2008 2007
------------------ ------------------
CURRENT ASSETS
Cash & cash equivalents $ - $ -
Accounts receivable 89,380 136,430
Employee loans 37,227 -
Receivable - other 26,181 6,398
Prepaid expense 12,609 926,254
------------------ ------------------
TOTAL CURRENT ASSETS 165,397 1,069,081
NET PROPERTY & EQUIPMENT 54,638 72,972
OTHER ASSETS
Deposits 2,120 2,120
Net - association membership list 632,750 639,852
------------------ ------------------
TOTAL OTHER ASSETS 634,870 641,972
------------------ ------------------
TOTAL ASSETS $ 854,905 $ 1,784,025
================== ==================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,340,534 $ 661,550
Bank overdraft 43,099 369,475
Line of credit 581,427 220,417
Accrued liabilities 147,371 144,502
Taxes payable 545 -
Loans payable 2,881,402 1,957,746
Loans payable - related party 35,357 22,900
------------------ ------------------
TOTAL CURRENT LIABILITIES 5,029,735 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 6,273,669 4,620,524
STOCKHOLDERS' EQUITY
Common stock, (par value $.001 per share, 100,000,000 shares
authorized: 52,230,168 and 21,783,375 shares issued and outstanding
as of September 30, 2008 and December 31, 2007, respectively) 52,230 21,745
Paid-in capital 25,988,805 21,593,382
Retained earnings (31,459,799) (24,451,626)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY (5,418,764) (2,836,499)
------------------ ------------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 854,905 $ 1,784,025
================== ==================
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See Notes to the Consolidated Financial Statements
2
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------
REVISED REVISED
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2008 2007 2008 2007
----------------- ---------------- ---------------- --------------
REVENUES
Income $ 547,447 $ 143,184 $ 1,087,210 $ 553,603
----------------- ---------------- ---------------- --------------
NET REVENUE 547,447 143,184 1,087,210 553,603
COST OF GOODS SOLD
Cost of Goods Sold 210,822 23,727 379,753 80,028
----------------- ---------------- ---------------- --------------
TOTAL COST OF GOODS SOLD 210,822 23,727 379,753 80,028
----------------- ---------------- ---------------- --------------
GROSS PROFIT 336,625 119,457 707,457 473,575
OPERATING EXPENSES
Depreciation 9,217 4,960 18,335 17,515
Finance fee 409 2,664,051 925,367 2,664,051
Consulting fee 28,000 481,652 3,148,054 628,196
Professional fees 339,710 1,062,653 1,106,305 1,971,162
General and administrative 384,751 606,539 1,064,743 1,616,459
----------------- ---------------- ---------------- --------------
TOTAL OPERATING EXPENSES 762,087 4,819,854 6,262,804 6,897,381
----------------- ---------------- ---------------- --------------
LOSS FROM OPERATIONS (425,462) (4,700,397) (5,555,347) (6,423,806)
OTHER INCOME (EXPENSES)
Interest income - 358 - 358
Interest expense (143,867) (49,951) (1,452,880) (99,872)
Other income - 141,596 - 200,595
Other expenses - (58,107) - (58,107)
Impairment of goodwill - 600,000 53 (8,111,186)
----------------- ---------------- ---------------- --------------
TOTAL OTHER INCOME (EXPENSES) (143,867) 633,897 (1,452,827) (8,068,211)
----------------- ---------------- ---------------- --------------
NET INCOME (LOSS) $ (569,329) $ (4,066,500) $ (7,008,174) $ (14,492,018)
================= ================ ================ ==============
BASIC EARNING (LOSS) PER SHARE $ (0.01) $ (0.21) $ (0.19) $ (0.85)
----------------- ---------------- ---------------- --------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES - BASIC AND DILUTED 51,163,016 19,013,176 36,654,958 17,064,228
================= ================ ================ ==============
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See Notes to the Consolidated Financial Statements
3
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007 (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------------
UNAUDITED REVISED
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2008 2007
----------------------- -----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (7,008,174) $ (14,492,018)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 18,335 17,515
Common stock issued for services 4,425,908 9,076,821
Common stock to be issued - 357,500
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 47,050 (335,769)
(Increase) decrease in other receivable (19,785) (1,228)
(Increase) decrease in prepaid expenses 913,645 (3,049,163)
(Increase) decrease in goodwill - 7,193,185
(Increase) decrease in trademarks - 414
(Increase) decrease in employee advances (37,227) -
(Increase) decrease in security deposits - 69,906
(Increase) decrease in business areas - (250,001)
(Increase) decrease in association membership list 7,102 (650,835)
(Increase) decrease in accounts payable and accrued expenses 681,853 87,541
(Increase) decrease in bank overdraft (326,376) -
(Increase) decrease in taxes payable 545 -
----------------------- -----------------------
NET CASH USED BY OPERATING ACTIVITIES (1,297,124) (1,976,131)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment - (412,806)
----------------------- -----------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES - (412,806)
CASH FLOWS FROM FINANCING ACTIVITIES
Line of credit 361,010 (7,761)
Proceeds from loans payable 923,656 1,739,300
Proceeds from loans payable - (a realted party) 12,458 -
Proceeds from long-term liabilities - 384,103
----------------------- -----------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,297,124 2,115,642
----------------------- -----------------------
Net increase (decrease) in cash & cash equivalents - (273,295)
Cash at beginning of period - 303,758
----------------------- -----------------------
CASH AT END OF PERIOD $ - $ 30,463
======================= =======================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for Interest $ 1,452,880 $ 103,900
======================= =======================
Income taxes paid $ - $ -
======================= =======================
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See Notes to the Consolidated Financial Statements
4
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying September 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
September 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 September 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. (the "Company" or "ESP") is a Nevada
corporation headquartered in Southern California. Through its subsidiary
Environmental Safeguard Professionals, Inc. ("Safeguard"), ESP offers various
inspection services to address mandated energy certification, construction
defects, moisture or other environmental issues in commercial and residential
buildings. Through its subsidiary National Professional Services, Inc. ("NPS"),
ESP offers annual trade memberships and management services for industry related
associations. Through its subsidiary Porter Valley Software, Inc. ("PVS"), an
inspection software company, the Company plans to provide the core of its
on-line inspection protocols.
Since March 31, 2008 Safeguard has developed an all inclusive multi-disciplined
inspection process (the "EcoCheck Inspection(TM)") that is focused on reducing
liabilities and mitigating risks to protect homeowners, retail properties,
builders, lenders, mortgage brokers/agents relating to state mandated energy
certification, construction defects, moisture or other environmental issues. The
EcoCheck Inspection(TM) is based on standardized training, certification,
inspection, and result reporting analysis protocols and forms the foundation of
5
NOTE 3 - ORGANIZATION AND DESCRIPTION OF BUSINESS - CONTINUED
services that together are provided by the Certified Environmental Home
Inspector(TM) ("CEHI"). The annual Healthy Home Assurance Certification(TM)
("HAC") and the pro-active comprehensive subscription based 10 year annual
maintenance process, Healthy Living Maintenance Program(TM) ("HLMP") add value
to a property and mitigates risk by reducing claims, instilling confidence in
property safety, and promotes a positive green image.
NPS is currently a conglomerate of seven real estate industry trade
associations. NPS plans to promote ESP's services by providing information and
training about the EcoCheck Inspection(TM) protocols. This training is planned
to be focused on underwriters, loan officers, appraisers, insurance companies,
loss control and risk management personnel and to emphasize the benefits of
using a CEHI and subscribing for the HLMP.
PVS has developed various software programs which have been designed
specifically for detailed data searching and data retention under the name
"InspectVue(TM)". InspectVue(TM) is the core component of ESP's automated
on-line EcoCheck Inspection(TM) protocols that include the new energy inspection
requirements that are being developed in concert with other industry
participants.
NOTE 4 - NOTES PAYABLE & LONG TERM LIABILITIES
Notes payable as of September 30, 2008 consist of the following:
September 30, 2008
--------------------------------------------- ---------------------------
Unsecured loans, with annual interest of 8%. $ 2,881,402
Unsecured notes, with annual interest of 10%. 1,243,934
--------------------------------------------- ---------------------------
$ 4,125,336
============================================= ===========================
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NOTE 5 - 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.
6
NOTE 6 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, 2008 September 30, 2007
-------------------- ----------------------
NET INCOME (LOSS) FROM $(7,008,174) $ (14,492,019)
OPERATIONS
Basic income / (loss) per share $ (0.19) $ (0.85)
==================== ======================
Weighted average number of shares
outstanding 36,654,958 17,064,228
==================== ======================
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NOTE 7. STOCK TRANSACTIONS
On September 23, 2008, the Company issued 200,000 shares of its common stock to
two employees for services rendered.
On September 19, 2008, the Company issued 525,000 shares of its common stock to
a single investor at a purchase price of $0.58 per share pursuant to a private
placement.
On August 21, 2008, the Company issued 98,324 shares of its common stock to
seven consultants for services rendered.
On August 19, 2008, the Company issued 200,000 shares of its common stock in
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connection with the Company's acquisition of PVS.
On August 15, 2008, the Company issued 326,896 shares of its common stock to a
single bridge lender as a late payment penalty.
On August 13, 2008, the Company issued 112,069 shares of its common stock to a
single investor at a purchase price of $0.58 per share pursuant to a private
placement.
On July 29, 2008, the Company issued 50,000 shares of its common stock to a
single bridge lender as a late payment penalty, 20,000 shares of its common
stock to a single consultant for services rendered, and 40,000 shares of its
common stock to a single investor at a purchase price of $0.58 per share
pursuant to a private placement.
As of September 30, 2008, the Company had 52,230,166 shares of common stock
outstanding.
7
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") is a Nevada
corporation headquartered in Southern California. Through our subsidiary
Environmental Safeguard Professionals, Inc. ("Safeguard"), we offer various
inspection services to address mandated energy certification, construction
defects, moisture or other environmental issues in commercial and residential
buildings. Through our subsidiary National Professional Services, Inc. ("NPS"),
we offer annual trade memberships and management services for industry related
associations. Through our subsidiary Porter Valley Software, Inc. ("PVS"), an
inspection software company, we plan to provide the core of our on-line
inspection protocols.
Since March 31, 2008 Safeguard has developed an all inclusive
multi-disciplined inspection process (the "EcoCheck Inspection(TM)") that is
focused on reducing liabilities and mitigating risks to protect homeowners,
retail properties, builders, lenders, mortgage brokers/agents relating to state
mandated energy certification, construction defects, moisture or other
environmental issues. The EcoCheck Inspection(TM) is based on standardized
training, certification, inspection, and result reporting analysis protocols and
forms the foundation of services that together are provided by the Certified
8
Environmental Home Inspector(TM) ("CEHI"). The annual Healthy Home Assurance
Certification(TM) ("HAC") and the pro-active comprehensive subscription based 10
year annual maintenance process, Healthy Living Maintenance Program(TM) ("HLMP")
add value to a property and mitigates risk by reducing claims, instilling
confidence in property safety, and promotes a positive green image.
NPS is currently a conglomerate of seven real estate industry trade
associations. We anticipate that NPS will promote ESP's services by providing
information and training about the EcoCheck Inspection(TM) protocols. We expect
that this training will be focused on underwriters, loan officers, appraisers,
insurance companies, loss control and risk management personnel and will
emphasize the benefits of using a CEHI and subscribing for the HLMP.
PVS has developed various software programs which have been designed
specifically for detailed data searching and data retention under the name
"InspectVue(TM)." InspectVue(TM) is the core component of ESP's automated
on-line EcoCheck Inspection(TM) protocols that include the new energy inspection
requirements that are being developed 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 NINE MONTHS ENDED SEPTEMBER 30, 2008 AS COMPARED
TO NINE MONTHS ENDED SEPTEMBER 30, 2007
REVENUE
Total revenue for the nine months ended September 30, 2008 increased by
$533,607 from $553,603 during the nine months ended September 30, 2007 to
$1,087,210 for the nine months September 30, 2008. This increase in revenue was
a result of our launching of the CEHI and EcoCheck Inspection(TM) programs and
our receipt of early annual membership renewals from National Professionals
Services, Inc. ("NPS"). We anticipate that over the fourth quarter of 2008 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.
9
OPERATING EXPENSES
Operating expenses decreased by $634,577, from $6,897,381 during the
nine months ended September 30, 2007, to $6,248,804 for the nine months ended
September 30, 2008. This majority of the decrease in operating expense was the
result of a $551,716 decrease in general and administrative expense from the
prior period. Expenses for the period that related to stock issuances were:
finance fee $925,367, consulting fee of $3,148,054 and professional fees of
$1,106,305.
NET LOSS
Net loss decreased by $7,483,844 from $14,492,018 during the nine
months ended September 30, 2007, to $7,008,174 for the nine months ended
September 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 September 30, 2008 were $5,263,408. 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 $0 at September 30, 2008, as compared to
net cash of $0 at September 30, 2007.
During the nine months ended September 30, 2008, the Company used
$1,297,124 of cash for operating activities, as compared to $1,976,131 during
the nine months ended September 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 bank line of credit,
the issuance of promissory notes and shares of common stock during the nine
months ended September 30, 2008 was $1,297,124, as compared to $2,115,642 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 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
As required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, we
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by
this Quarterly Report. This evaluation was carried out under the supervision and
with the participation of our Chief Executive Officer and our Chief Financial
Officer.
We maintain a set of disclosure controls and procedures designed to
ensure that information required to be disclosed by us in reports filed under
the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified by the Securities and
Exchange Commission's rules and forms. Disclosure controls are also designed
with the objective of ensuring that this information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
10
Based upon their evaluation as of the end of the period covered by this
report, our Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures are effective as of September 30, 2008 to
ensure that information required to be included in our periodic filings with the
Securities and Exchange Commission are recorded, processed, summarized, and
reported within the time periods specified in the Securities and Exchange
Commission rules and forms.
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 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 September 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 was held 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.
11
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On September 23, 2008, we issued 200,000 shares of our common stock to
two employees for services rendered.
On September 19, 2008, we issued 525,000 shares of our common stock to
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a single investor at a purchase price of $0.58 per share pursuant to a private
placement made by us in accordance with Rule 506 of Regulation D of the
Securities Act of 1933, as amended (the "Act").
On August 21, 2008, we issued 98,324 shares of our common stock to
seven consultants for services rendered.
On August 19, 2008, we issued 200,000 shares of our common stock in
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connection with our acquisition of Porter Valley Software, Inc.
On August 15, 2008, we issued 326,896 shares of our common stock to a
single bridge lender as a late payment penalty.
On August 13, 2008, we issued 112,069 shares of our common stock to a
single investor at a purchase price of $0.58 per share pursuant to a private
placement made by us in accordance with Rule 506 of Regulation D of the Act.
On July 29, 2008, we issued 50,000 shares of our common stock to a
single bridge lender as a late payment penalty, 20,000 shares of our common
stock to a single consultant for services rendered, and 40,000 shares of our
common stock to a single investor at a purchase price of $0.58 per share
pursuant to a private placement made by us in accordance with Rule 506 of
Regulation D of the Act.
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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12
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 19, 2008 By: /s/ Edward L. Torres
------------------------------------------
Edward L. Torres, Chairman of the Board,
President, Chief Executive Officer and
Acting Chief Financial Officer,(Principal
Executive Officer and Principal Accounting
Officer)
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13
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