FORM 10-K
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2008
COMMISSION FILE NUMBER 1-14244
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 84-1214736
--------------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
|
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
--------------------------- --------------------------
COMMON STOCK OTC
|
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes |_| No |X|
Indicate by check mark if the registrant is not required to filed
reports pursuant to Section 13 or Section 15(d) of the Act. Yes |_| No |X|
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 preceding 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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
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|
The aggregate market value of voting stock held by non-affiliates of
the registrant was approximately $1,199,406 as of March 31, 2009 (computed by
reference to the last sale price of a share of the registrant's Common Stock on
that date as reported by OTC Bulletin Board).
There were 57,310,345 shares outstanding of the registrant's Common
Stock as of March 31, 2009.
TABLE OF CONTENTS
PART 1
ITEM 1 Business................................................................................................. 4
ITEM 1A Risk Factors............................................................................................. 13
ITEM 2 Properties............................................................................................... 22
ITEM 3 Legal Proceedings........................................................................................ 22
ITEM 4 Submission of Matters to a Vote of Security Holders...................................................... 23
PART II
ITEM 5 Market for Common Equity and Related Stockholder Matters................................................. 23
ITEM 6 Selected Financial Data.................................................................................. 24
ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operation..................... 24
ITEM 8 Financial Statements and Supplementary Data.............................................................. 29
ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................... 30
ITEM 9A(T) Controls and Procedures.................................................................................. 30
ITEM 9B Other Information........................................................................................ 31
PART III
ITEM 10 Directors, Executive Officers, and Corporate Governance.................................................. 31
ITEM 11 Executive Compensation................................................................................... 37
ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.................................................................................................. 39
ITEM 13 Certain Relationships and Related Transactions, and Director Independence................................ 41
ITEM 14 Principal Accounting Fees and Services................................................................... 42
ITEM 15 Exhibits, Financial Statement Schedules.................................................................. 43
SIGNATURES ......................................................................................................... 44
|
-3-
PART I
This Annual Report on Form 10-K contains forward-looking statements
including, without limitation, statements concerning the future of the industry
in which Environmental Service Professionals, Inc. (the "Company") operates, the
Company's product development plans, business strategy and financial estimates,
the continued acceptance of its products and its dependence on significant
distributors and customers. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimated," "predicts," "potential," "continue," or
the negative of such terms or other comparable terminology. The Company cannot
guarantee that it actually will achieve the plans, intentions or expectations
disclosed in its forward-looking statements and you should not place undue
reliance on the forward-looking statements contained in this document. When
considering forward-looking statements, you should keep in mind the risk factors
and other cautionary statements made in this Annual Report on Form 10-K.
Forward-looking statements, particularly those concerning anticipated events
relating to the development and marketing of the Company's products and
services, and the timing or magnitude of those events, are inherently uncertain.
The risk factors discussed below and other considerations noted throughout this
Annual Report on Form 10-K could cause its actual results to differ
significantly from those contained in any forward-looking statements.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance, or achievements. The Company is under
no duty to update any of the forward-looking statements after the date of this
Annual Report on Form 10-K to conform forward-looking statements to actual
results.
ITEM 1. BUSINESS
GENERAL
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.
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
-4-
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.
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(TM) programs and to provide information concerning
residential environmental issues, to establish training for underwriters, loan
officers and appraisers, and to educate these groups about CEHI(TM) inspection
protocols. 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.
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 leading
participants.
WHOLLY OWNED SUBSIDIARIES
ENVIRONMENTAL SAFEGUARD PROFESSIONALS, INC.
OVERVIEW. 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, and mortgage brokers/agents relating to state mandated energy
certification, construction defects, moisture and other environmental issues. It
strives to be "The Industry's Best in Class Inspection."
The branding of this program is called the Certified Environmental Home
Inspector(TM) program ("CEHI program"). The Company believes that the CEHI(TM)
program represents the keystone for environmental inspection services to address
mandated energy certification, construction defects, moisture and other
environmental issues in commercial and residential buildings. The EcoCheck
Inspection(TM) program services will support the residential real-estate
mortgage, banking and insurance industries in their ability to manage losses
through moisture related claims. The Company also believes that the CEHI(TM)
program will play a significant role in managing the health and indoor air
quality of the environments where people work and live.
One of the programs the Company provides as a part of the CEHI(TM)
program is ESP's Healthy Assurance Certification(TM) ("HAC"). After an 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.
The Company also offers a pro-active comprehensive subscription-based
10-year annual maintenance program 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.
Safeguard, while developing the CEHI(TM)program, has engaged in working
relationships with five industry participants: the National Association of
Moisture Management ("NAMM"), Porter Valley Software, Inc., EMLabs P&K,
Environmental Data Resources Inc. ("EDR"), CMC Energy Services, Inc. ("CMC"),
and ConSol, the nation's leading green and energy engineering company.
By accepting (a) ConSol's inspection protocols for Green Building and
Energy Certification, (b) NAMM's inspection protocols as the basis for the
moisture inspection, (c) EMLabs P&K's MoldScore(TM) as the prime method of
sample analysis and (d) by bringing it all together, utilizing the core of the
InspectVue(TM) application from Porter Valley as the software platform, ESP has
constructed a system that the Company believe produces a universally accepted
-5-
standardized report for moisture related issues using the best science currently
available to determine if any mold that may be present poses a hazard.
Safeguard's CEHI(TM) program, which includes the Certified Moisture
Inspection and MoldScore(TM) analysis meets the requirements of the "mold
prevention and maintenance plan ("MPMP") as defined in the "Mold Steps Toward
Clarity - A White Paper by the Mold Working Group Updated: July 2007" published
by the Commercial Real Estate/Multifamily Finance Board of Governors ("COMBOG")
Underwriting and Closing Committee of the Mortgage Bankers Association.
In order to attempt to attain the highest level of training for
participants in the CEHI(TM) program, Safeguard has partnered with Allied
Business Schools to enhance and deliver the required curriculum for the CEHI(TM)
program. Allied Business Schools, Inc. is nationally accredited by the Distance
Education and Training Council ("DETC"). The Accrediting Commission of the
Distance Education and Training Council is listed by the U.S. Department of
Education as a nationally-recognized accrediting agency. Management believes
that this partnership provides the necessary credentials to attract both active
duty and retired veterans in the CEHI(TM) while providing consistent quality of
instruction to all participants.
The CEHI(TM) program is all about risk management for the individual.
Management believes it is a significant tool to assess the health of one's
environment. Management believes that for the industry, it provides an easily
understood, standardized way of assessing the risks of their policies,
regardless of location.
SERVICE DESCRIPTION. The services included in the CEHI(TM) program are
comprised of what management believes to be highly advanced and standardized
on-line and automated procedural protocols developed in concert with each of the
four industry participants, ESP, NAMM, EMLab P&K, Porter Valley Software, EDR,
CMC, and ConSol. It is a requirement that all CEHIs utilize the on-line system
when delivering any of the CEHI(TM) program services. By working with nationally
recognized industry leaders, management believes that the Company has developed
state of the art "best in class" procedures providing the residential
real-estate and insurance industries the ability to manage losses through claim
reduction.
Management believes that clients utilizing CEHIs, can be assured that
every single employee or approved vendor who provides services through the
CEHI(TM) program has obtained the industries' best training, certifications and
equipment required to provide the CEHIs program's services.
Management believes that the CEHI(TM) program also benefits the
individual inspector. Approved vendors of Safeguard who deliver CEHI(TM) program
services are anticipated to have the ability to deliver more effective
inspections and meaningful reports, as well as the ability to provide additional
environmental services (e.g.: Allergen Screening, Energy/Environmental reports
and Radon testing). The CEHI's ability to provide certain environmental services
may be subject state or federal law and/or additional training requirements.
NATIONAL PROFESSIONAL SERVICES, INC.
OVERVIEW. NPS is a management company, whose 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 currently provides
comprehensive management services for seven different membership organizations
of which four are both National and International Organizations and one is
non-profit. NPS maintains a servicing facility in Phoenix, Arizona, which
includes a fully trained staff, conference room, library, accounting services
and a computer room updated with the latest server technology.
NPS is a full service association management company with the ability
to work with trade associations that have between 250 members to 50,000 members.
DESCRIPTION OF ASSOCIATIONS. Founded in 1966, the National Association
of Real Estate Appraisers ("NAREA") is a professional organization of real
estate appraisers. NAREA is one of the largest professional associations in the
United States. Management believes that NAREA has earned the credibility and
public trust needed when affiliating with a professional organization.
-6-
Management believes that the Code of Ethics and Uniform Standards of
Professional Appraisal Practice ("USPAP"), to which members must adhere,
provides the industry with the assurance it needs when accepting an appraisal
report from a NAREA designated member. Along with the regular nationwide
seminars and an annual Appraisal Expo Conference, members receive bi-monthly
newsletters, appraisal guidelines, updates on regulations, the Annual Membership
Directory, legislative monitoring of the issues affecting the appraisal industry
and much more.
The Environmental Assessment Association ("EAA") is an international
organization dedicated to providing members with information and education in
the environmental industry relating to environmental inspections and testing.
EAA represents thousands of environmental professionals who provide services to
a wide variety of clients including lenders, federal & state agencies and
private companies. EAA's membership consists of environmental inspectors,
lenders, remediation firms and government agencies. The Environmental Assessment
Association offers several professional designations and memberships which
management believes makes the association one of the largest in the world for
environmental professionals. EAA has worked closely with Environmental
Protection Agencies and management believes that EAA is at the forefront of the
environmental industry maintaining a well earned reputation of "being involved."
Effective December 1, 2008, EAA has taken over the governing and
certifying of the CEHI from Safeguard. Management believes that by achieving the
highest level certification under the CEHI program, "EcoCheck Inspector(TM)"
professional inspectors will be empowered to validate their assessment expertise
and advance their careers. The Company believes that organizations will be able
to be confident hiring inspection professionals with the new CEHI(TM)
certification as it identifies experts capable of providing the EcoCheck
Inspection(TM) as protection to 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.
Management believes that the Association of Construction Inspectors
("ACI") is the largest professional organization for those involved in
construction inspection and construction project management. Management also
believes that ACI is the leading association providing standards, guidelines,
regulations, education, training, and professional recognition in a field that
has quickly become critical for both residential and commercial construction.
Management believes that members of ACI provide a vital service to the
construction industry, providing both construction inspections (verifying
percentage of completion for the purpose of draw requests) and construction
project management (providing full construction monitoring, paying of the
contractor and sub-contractors, verifying each stage of construction and
reporting to the client).
The Housing Inspection Foundation ("HIF") is an organization of
professionals dedicated to the promotion and development of Home Inspection. HIF
was created to provide members with information, education, standards, ethics,
and professional recognition. Management believes that the home inspection
industry is the fastest growing profession today. Management believes that this
creates new opportunities for those who are involved in the real estate,
construction or environmental fields who are willing to learn how to perform
these vital services-including home inspectors, building inspectors, real estate
professionals, construction inspectors, and remodeling contractors.
The International Real Estate Institute ("IREI") is a professional
organization founded in 1966, making available real estate professionals to
those requiring Professional Realty Reports. Management believes that IREI is
one of the largest professional associations in the world, with more members in
more cities than any other organization. Management believes that IREI has
earned the credibility and public trust one needs when affiliating with a
professional organization. Management believes that the Code of Ethics and
Professional Standards of Professional Real Estate Practice, to which members
must adhere, provides the industry the assurance it needs when accepting an
appraisal report from an IREI designated member. Professionally presented
education programs enhance the member's knowledge. Along with weekly seminars
and an annual Realtor Expo and Conference, members receive bi-monthly
Newsletters, real estate guidelines, updates on regulations, the Annual
Membership Directory, legislative monitoring of the issues affecting the real
estate industry and much more.
The International Society of Meeting Planners ("ISMP") is a
professional organization founded in 1966, making available professional meeting
planners. Management believes that ISMP is one of the largest professional
associations in the United States with more members in more cities than any
other organization. Management believes that ISMP has earned the credibility and
public trust one needs when affiliating with a professional organization.
-7-
Management believes that the Code of Ethics and Uniform Standards of
Professional Meeting Planners Practice, to which members must adhere, provides
the industry the assurance it needs when accepting a meeting report from an ISMP
designated member. Professionally presented education programs enhance the
member's knowledge. In addition to the weekly seminars and an Annual Planners
Expo and Conference, members receive bi-monthly Newsletters, meeting guidelines,
updates on regulations, the Annual Membership Directory and legislative
monitoring of the issues affecting the industry.
PORTER VALLEY SOFTWARE, INC.
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.
MARKET OPPORTUNITY
ESP believes the present market for various inspection services to be
about 1.5 million tests per year. Because the inspection industry is fragmented
and largely privately held, the exact size of the market is difficult to gauge.
Sources familiar with the testing volumes for the two largest labs that analyze
samples for mold and allergens indicate that their volume is more than 100,000
per month each. There are also thousands of smaller labs around the country
analyzing microbiological and allergen samples.
ESP believes that the high volume of this business is supported by the
recent acquisition of Aerotech Laboratories by EMLabs P&K which primarily
conducts mold and allergen screening with estimated annual revenues of
approximately $250 million dollars. Aerotech has grown from employing seven
people in 1997 to about 325 people prior to being sold in 2006.
ESP is in the process of trying to expand the market by looking to
include every home in the United States as a possible prospect. ESP's goal is to
capture 1.5 million homes each year by 2011 that will require an initial
inspection. This would represent approximately 10.2% of the estimated
126,000,000 homes in the United States; at an average cost of $650 per initial
inspection.
GROWTH STRATEGY
ESP believes that currently the inspection industry, as a whole lacks a
predominant brand, lacks uniform inspection and reporting protocols, has
inconsistent product and service pricing, and no consistent public outreach
program. Cursory web searching tends to confirm the fragmented and relatively
unsophisticated nature of the inspection industry. The Company believes that
there are a few participants who are trying to build a national presence and/or
a certified network of independent inspectors, but management has found no
indication that these participants are very far along or well-funded in their
efforts.
ESP's inspection programs are all about "Risk Management". Management
believes that it they are a significant tool to assess the health of an
individual's environment. For the inspection industry, they provide an easily
understood and standardized way of assessing risks regardless of location.
ESP's inspection programs are focused on the residential real-estate,
mortgage, banking and insurance industries.
The goals are three-fold and in order of priority:
-8-
1) To gain the acceptance of the residential insurance industry to a level
where members will consider offering a discount to their policyholders
if their customers receive an initial EcoCheck Inspection(TM) and then
participate in the pro-active comprehensive subscription based 10-year
annual maintenance process called the HLMP.
2) To attract by 2013 the approximately 5,000 existing top tier home and
moisture inspectors and veterans nationwide to become approved vendors
of ESP as independent contractors in order to deliver the CEHI program
of services.
3) To focus on turning every household in America into ESP's marketplace
through environmental awareness and education by offering allergen
screening, energy assessments, mold sampling, moisture management
inspections, neighborhood environmental reports and radon testing.
a. Implement a dedicated sales team to reach out to existing home
inspectors and active duty and retired veterans.
b. Implement ESP's national marketing campaign.
CURRENT STATE OF THE INDUSTRY
ESP believes there are two main concerns for its industry's
stakeholders, which include the mortgage banking industry, the insurance
industry, the real estate industry, the building industry, and the consumer, as
it relates to moisture intrusion and indoor air quality and the severe impact
that they can have on personal health, on-going maintenance costs, and
ultimately the value of the property:
ESP believes that I stakeholders of the building industry have an
excellent understanding of the cause and effect of moisture to the structural
integrity of a building and a strong understanding of the concerns of radon,
asbestos, and lead issues and a volatile organic compounds ("VOCs").
Management believes that the solution is to get a handle on how
moisture plays a part in indoor air quality and to find a reasonable way to
manage it by getting the industry partners to support:
The consumer has additional issues to face while the insurance industry
tries to get a handle on how to approach moisture intrusion issues.
According to KIMBERLY LANKFORD JUNE 9, 2006, in a study by the
California Insurance Department, 25% of the companies refused to renew the
policies of customers who made one or two nonwater-damage claims in the past
three years and 32% refused to renew policies for people who made one or two
water-loss claims in the past three years.
According to KIMBERLY LANKFORD JUNE 9, 2006, "Getting dropped by your
insurance company isn't the only problem. Insurers share claims information with
each other through a database called the Comprehensive Loss Underwriting
Exchange ("CLUE"), and other insurers may not want to insure you after you've
had a few small claims either, even if they were with another insurance company.
In the California Insurance Department study, 62% of the top 13 companies
refused applicants with only one or two claims in the past three years." 2
ESP believes there is no reliable and standardized procedure to have
your property removed from the CLUE report.
Various state governments are enacting legislation and publishing in-
formation on protecting buildings from moisture, mold and related environmental
issues. The common thread is regular inspections to ensure any issues do not
become chronic one. http://www.tdi.state.tx.us/pubs/consumer/cb074.html
The annual costs associated with the lawsuits, additional health care
including medical emergencies, construction, and remediation costs surrounding
mold and moisture issues are real and staggering.
According to the Insurance Information Institute, "US insurers paid out
at least $3 billion in mold-related claims in 2002, more than double the $1.3
billion paid the previous year due to moisture related issues."
-9-
The Company is presenting to inspection industry stakeholders that they
need to understand that the pressure to address indoor air quality concerns are
coming from the collective conscience of the buyers and owners who are now are
focused on environmental issues and demanding "healthy" and "green" places to
work and live.
----------------- ----------------------------------------------
In recent years, media attention on indoor mold has AGE AVERAGE PERCENT OF TIME SPENT 1,2
surged, and this has led to rising concern about mold-related ----------------- ------------ ---------- ------------ ---------
health effects. Mold spores primarily cause health problems when INSIDE THE OTHER OUTDOORS INSIDE A
they are present in large numbers and people inhale an unusually HOME INDOORS VEHICLE
high number of them. This occurs primarily when there is active ----------------- ------------ ---------- ------------ ---------
mold growth within a home, office, or school where people live or CHILDREN 85 4 7 4
work. People can also be exposed to mold by touching contaminated 0-2
materials and by eating contaminated foods. The most serious ----------------- ------------ ---------- ------------ ---------
health effects of indoor mold chiefly include inflammation of the 3-5 76 9 10 5
mucous membranes or respiratory tract and infection; however, ----------------- ------------ ---------- ------------ ---------
allergic symptoms are the most common following mold exposure. 6-11 71 12 13 4
Typical symptoms that mold-exposed persons report (alone or in ----------------- ------------ ---------- ------------ ---------
combination) include: respiratory problems, such as wheezing, ADULTS & TEENS 62 25 6 7
difficulty breathing, and shortness of breath; nasal and sinus ----------------------------------------------------------------
congestion; eye irritation (burning, watery, or reddened eyes); 1)From: STUDY OF CHILDREN'S ACTIVITY PATTERNS (Wiley ET AL.,
dry, hacking cough; nose or throat irritation; and skin rashes or 1991a, ARB Contract no. A733-149; Phillips ET AL., 1991).
irritation. The Institute of Medicine reviewed the literature and ----------------------------------------------------------------
found evidence that mold exacerbates asthma. 2)From: ACTIVITY PATTERNS OF CALIFORNIA RESIDENTS (Wiley ET AL.,
1991b, ARB Contract no. A6-177-33; Jenkins ET AL., 1992a).
----------------------------------------------------------------
|
-------------- -----------------------------------------------------------------
HEALTH END ESTIMATED ANNUAL COSTS OF INDOOR AIR POLLUTION IN CALIFORNIA
POINTE ALONE
-------------- ------------------ --------------- --------------- -------------- As an example, a key reason indoor
HEALTH MEDICAL LOST E pollution is so critical to health is that
VALUATION: PRODUCTIVITY Californians, like others from industrialized
PREMATURE COST 1,2 COST 1,2 nations, spend most of their time
DEATH 1,2 ($ ($ indoors-about 87%, on average. So, if
($ BILLIONS/YR) BILLIONS/YR) BILLIONS/YR) pollutants are present indoors, there is a
-------------- ------------------ --------------- --------------- -------------- high likelihood that people will be exposed
Mold and 0.031 0.19 NA 0.22 to them. The home is a critical exposure
moisture: microenvironment for all, and especially for
asthma and children.
allergies
-------------- ------------------ --------------- --------------- -------------- Dampness, mold, dirty carpeting, and
Sick NA NA 8.5 8.5 pest infestations are often components of
building substandard housing, each leading to
syndrome associated health problems, especially
-------------- ------------------ --------------- --------------- -------------- allergy symptoms and exacerbation of asthma
TOTAL 3 0.031 0.19 8.5 8.72 attacks in asthmatics. Homes with moisture
-------------------------------------------------------------------------------- and dampness contributing to mold growth are
1. Estimates are based on average or mid-point of incidence rates of mortality more likely to be older, poorly insulated
and morbidity from sources discussed in the main report. Values are rounded to buildings.
two significant figures. 2. Original data were adjusted to year 2000 dollars and
year 2000 population. 3. Totals are rounded to two significant figures. These
totals are likely low because conservative cost estimates were used, and
quantitative information is not readily available for many known impacts of
indoor air pollution, such as for indoor PM and many indirect costs of health
effects. The actual impact on the California economy may be several times this
total amount.
--------------------------------------------------------------------------------
|
According to the 2002 Report to the California Legislature on Indoor
Air Pollution in California, "The combined cost of both fatal and non-fatal
impacts due to indoor air pollution in California homes, schools, and
non-industrial workplaces is substantial: it is estimated at $35 billion per
year. The quantifiable medical costs (direct and some indirect) due to indoor
air pollution total more than $0.6 billion per year, with a large portion of the
costs attributable to mold and other moisture-related allergens."
That same Report also states that "Finally, proper operation and
maintenance of buildings is critical to achieving and maintaining healthful air
quality in buildings. Ventilation systems should be maintained as intended and
filters replaced routinely to prevent soiling and the growth of mold and
bacteria in the ventilation system and in the occupied space. Roof leaks that
are not repaired promptly can lead to moisture intrusion and mold growth. Such
-10-
factors not only lead to poor indoor air quality, but can also prove more costly
in the long term due to increased costs to remedy the larger problems that
result."
Cal/OSHA requires that workplaces be maintained in a sanitary
condition, and that employers correct all types of water intrusion or leakage,
to reduce the potential for mold growth.
COMPETITION
ESP estimates that currently its competition is represented by 10,000
indoor air quality experts who conduct residential environmental screenings and
about 40,000 home inspectors (about 10,000 conduct environmental testing as
well). Approximately 20,000 consultants nationwide conduct residential
environmental testing.
ESP believes with the exception of a handful of inspection franchisors
with between 150 and 400 independently owned and operated offices respectively,
the inspection industry is populated primarily by sole proprietors.
In ESP's estimation the inspection industry as a whole currently lacks
a predominant brand, does not have uniform inspection and reporting protocols,
is without consistent product and service pricing, and does not benefit from a
public outreach or awareness program. Cursory web searching confirms the
fragmented and relatively unsophisticated nature of the Industry. While there
are a few people who are trying to build a national presence and/or a certified
network of independent inspectors, there is no indication that they are very far
along or well-funded in their efforts.
KEY COMPETITIVE ADVANTAGES
-------------------------------------------------
ESP has developed a combination of standardized proprietary processes KEY INTERNAL PROGRAM FEATURES
for each aspect of the client account from initial call, to the dispatch, -------------------------------------------------
through completion of every inspection. >> Standardized Training
>> Standardized Certification Process
In an effort to ensure profitability, the Company has standardized each >> Standardized Inspection & Report Process
of its processes and has documented a standardized training program, which all >> Standardized Result Analysis
employees/contractors must pass. New CEHI's (including Veteran's) are required >> Proprietary dispatch process
to learn the Company's processes, while developing working relationships with >> Scripted needs assessment
administrative personal at HQ under simulated, low-stress conditions. Teamwork >> Standardized rate card
is built by fostering an understanding of all aspects of the business. >> Database driven trends analysis
>> Scalable CEHI support systems
>> Veteran Affairs approved educational
institution
-------------------------------------------------
|
STANDARDIZED PROCESSES AND TRAINING CREATE A COMMUNITY AMONG ALL COMPANY TEAM
MEMBERS, ENSURING DEDICATION TO COMMON GOALS OF HIGH QUALITY AND EFFICIENCY
EMPLOYEES
The Company currently employs nine full-time individuals, all of who
are working at the Company's offices at 1111 East Tahquitz Canyon Way, Suite
110, Palm Springs, California 92262. Of those nine full-time employees, five are
employed in administrative, marketing, and sales positions, and the remaining
four are technical employees employed in research, development and production
positions. The Company projects that during the next 12 months, the Company's
workforce is likely to increase.
To support the Company's need for technical staffing, the Company has
established relationships with technical staffing organizations that
continuously offer highly qualified personnel to meet the Company's needs, both
locally and from out of the area.
-11-
INTELLECTUAL PROPERTY MATTERS
All of the Company's employees have executed agreements that impose
nondisclosure obligations on the employee and in which the employee has assigned
to the Company (to the extent permitted by Federal law) all copyrights and other
inventions created by the employee during employment with the Company. The
rights underlying the application for the patent of the ESP technology have been
assigned to the Company. The Company has in place a trade secret protection
policy that the Company's management believes to be adequate to protect the
Company's intellectual property and trade secrets.
Establishing or acquiring strong brand identity is important to ESP's
plans to recruit the required independent contractors and establish a strong
presence in local, regional and national markets. We are working with ESP's
intellectual property counsel to register a number of names for us to use in
developing external brand identity. In addition, management is impressed with
the number of small operators who have developed significant brand acceptance
and recognition in their geographic area. We believe that these brand assets
could be leveraged in much larger geographic areas with substantially larger
market share. We are pursuing opportunities to expand ESP's brand identity with
such small operators having significant brand acceptance in three ways: (1)
through an affiliate relationship; (2) licensing for expanded territories;
and/or (3) acquisition potential, where appropriate.
Currently, ESP owns the following registered trademarks/service marks:
1. Environmental Sampling Professionals, Inc(R), registration
number 2721471;
2. ESP and Design(R), registration number 2788620;
3. Allstate Home Inspection & Household Environmental Testing(R),
registration number 2509084; and
4. Advance Look(R), registration number 3035162.
The Company has submitted applications for registering the following
trademarks/service marks:
1. EcoCheck Inspection and design
2. EcoCheck Inspector and design
3. CEHI (Certified Environmental Home Inspector and design)
4. HLMP (Healthy Living Maintenance Program and design)
SEASONALITY
ESP's operations are expected to be somewhat affected by seasonal
fluctuations due to the rainy and wetter conditions during the fall and winter
months, as opposed to the drier conditions during spring and summer months.
Management does not, however, expect the disparity in cash flow from summer and
winter to be detrimental to the operation of the Company and its subsidiaries on
an overall basis.
GOVERNMENT REGULATION
ESP and its affiliates are subject to various federal, state and local
laws affecting regulation of the indoor air quality testing industry. ESP is
also subject to government laws and regulations governing health, safety,
working conditions, employee relations, wrongful termination, wages, taxes and
other matters applicable to businesses in general. Labor laws apply to the
employment of workers. Furthermore, ESP and its affiliates will be required to
obtain business licenses from state and local governments in order to operate
its facilities. ESP and its affiliates must also obtain certifications for their
Certified Industrial Hygienists from the local or state jurisdictions when ESP
and its affiliates decide to operate in other states.
OTHER GOVERNMENT REGULATIONS
ESP believes that the current administration will either enact
legislation or establish policies for the establishment of national standards
for residential and commercial building inspections and a requirement for annual
inspections for all federally insured mortgages (covering Housing and Urban
-12-
Development, Federal Housing Authority and Ginnie Mae), mortgages securitized by
government sponsored enterprises (Freddie Mac and Fannie Mae), mortgages by
lending institutions or properties insured by institutions receiving funds
through the Emergency Economic Stabilization Act of 2008, and all properties
leased and/or owned by the U.S. Government will may result in immediate and
sustainable benefits. These benefits may include, but are not limited to:
>> Reduction in financial risk of and preservation of hundreds of billions
of dollars of economic value for all U.S. Government directly and
indirectly backed mortgages,
>> Amelioration of financial risks to lending institutions across the
nation,
>> Annual inspections assist in preventing moisture related issues thereby
protecting the value of the property and the health of the occupant.
>> Reduction in insurance claims and lawsuits for construction defects and
accidental property damage,
>> Elimination of uninhabitable, uninsurable, and unsalable or condemned
properties,
>> Stabilization and subsequent growth of the local property tax base in
all states and communities,
>> Creation of 200,000 to 300,000 jobs industry related nationwide with an
emphasis on providing job training for veterans
>> Establishment and maintenance of environmentally healthy buildings for
employees, families, and visitors.
>> The Public will benefit the most from this stimulus action.
ITEM 1A. RISK FACTORS
WE HAVE A LIMITED OPERATING HISTORY, WHICH COULD MAKE IT DIFFICULT TO ACCURATELY
EVALUATE OUR BUSINESS AND PROSPECTS.
We began offering our environmental inspection services as
Environmental Service Professionals, Inc. in October 2006 and our association
management services in July 2007. Accordingly, we have a limited operating
history and, as a result, we have limited financial data that you can use to
evaluate our business and prospects. Our business model is evolving and it may
not be successful. As a result of these factors, the future revenue and income
potential of our business is uncertain. Although we have experienced significant
revenue growth in recent periods, we may not be able to sustain this growth. Any
evaluation of our business and our prospects must be considered in light of
these factors and the risks and uncertainties often encountered by companies in
our state of development. Some of these risks and uncertainties relate to our
ability to do the following:
o Maintain and expand our current relationships, and develop new
relationships with state, federal and environmental regulatory bodies
o Gain the acceptance of the commercial and residential insurance
industry to a level where they will consider offering a discount to
their policyholders, if their customers/insured's receive an initial
inspection services and then participate in an annual inspection
program
o Maintain and expand our current relationships, and develop new
relationships with the industry stakeholders including insurance,
mortgage, and banking businesses, and realtors, builders, asset
managers and the consumer
o Continue to grow our revenue and meet anticipated growth targets
o Manage our expanding operations and implement and improve our
operational, financial, and management controls o Respond effectively
to competition
o Implement ESP's national marketing campaign
o Attract and retain qualified management and employees
o Attract the existing top tier home and moisture inspectors nationwide
and to become approved vendors as independent contractors in order to
deliver the CEHI Program of services
If we are unable to address these risks, our business, results of operation, and
prospects could suffer.
-13-
LACK OF PUBLIC ACCEPTANCE OF OUR SERVICES WOULD HAVE A NEGATIVE IMPACT OUR SALES
AND PROFITABILITY.
Our business is speculative and dependent upon the acceptance of our
services as an effective and reliable method to perform indoor air quality and
energy use inspections. Our business is also dependent on the effectiveness of
our marketing program to convince potential clients and potential independent
contractors to utilize our services so that we will become profitable. We cannot
assure that the public or industry stakeholders will accept our inspection
services, or that we will be successful or that our business will earn any
profit. We cannot assure that we will earn any revenues or that investors will
not lose their entire investment. We cannot assure that we will operate our
business successfully or that our common stock will have value. A failure of our
marketing campaign would have a material adverse impact on its operating
results, financial condition and business performance.
WE MAY RISK EXPOSURE FROM LIABILITY CLAIMS.
Environmental inspectors face the risk of exposure to liability claims
in the event that the use of analysis reports or reliance on inspection
protocols cause property damage, injury or illness as a result of contamination
from environmental hazards that were included in such analysis, inspection
protocols, or otherwise. We expect to maintain sufficient primary or excess
umbrella liability insurance. However, such insurance may not continue to be
available at a reasonable cost, or, if available, may not be adequate to cover
all liabilities. Although we intend to seek contractual indemnification and
insurance coverage from parties supplying its services, such indemnification or
insurance coverage is limited, as a practical matter, to the creditworthiness of
the indemnifying party and the insured limits of any insurance provided by
suppliers. If we do not have adequate insurance or contractual indemnification
available, product liability relating to defective products could materially
reduce our future net earnings and earnings per share.
WE MAY BE HARMED BY ACTIONS TAKEN BY OUR ENVIRONMENTAL INSPECTORS THAT ARE
OUTSIDE OUR CONTROL.
A significant portion of our environmental inspectors are independent
contractors and are not our employees. We provide training and support to the
environmental inspectors, but the quality of their operations may be diminished
by any number of factors beyond our control. Consequently, our environmental
inspectors may not successfully operate in a manner consistent with our
standards and requirements, or may not hire and train qualified personnel. Our
image and reputation, and the image and reputation of other environmental
inspectors, may suffer materially and system-wide sales could significantly
decline if our environmental inspectors do not operate successfully.
WE MAY BECOME RELIANT ON TECHNOLOGY FOR EFFICIENT OPERATIONS WHICH COULD
INCREASE OUR OPERATING COSTS IN THE SHORT TERM AND MAKE US VULNERABLE TO
DISRUPTIONS.
The need to synchronize data and the related information which is key
to our on-line work flow system. Global trends are moving toward developing and
adopting standardized protocols for data synchronization. The implementation of
these protocols will be an added expense encountered by us in executing our
business strategy. One of the greatest coordination challenges for us is having
inspectors utilize on-line work flow systems effectively to ensure efficient and
effective service to our clients and to capture the mission critical data post
inspection. The Internet is playing a growing role in creating an automated
communications network for presenting, tracking, and capturing this mission
critical information. We believe that we will need to develop a network to
enable the on-line work flow system on the Internet in order to operate
profitability, which could increase our operating costs in the short term.
Our ability to reduce costs in the long term and increase profits, as
well as our ability to serve customers most effectively, may depend on the
reliability of our technology network. We expect to use software and other
technology systems to dispatch inspectors in the most efficient manner to
optimize the use of standardized inspection and analysis protocols and minimize
the time spent at each stop. Any disruption to these computer systems in the
future could adversely impact our customer service, decrease the volume of our
business, and result in increased costs. While we expect to invest in technology
security initiatives and disaster recovery plans, we recognize that these
measures cannot fully insulate us from technology disruption that could result
in adverse effects on operations and profits.
-14-
OUR BUSINESS STRATEGY, IN PART, DEPENDS UPON OUR ABILITY TO COMPLETE AND MANAGE
ACQUISITIONS OF OTHER COMPANIES.
Our primary strategy is to achieve growth through acquisitions of
businesses. We may not be able to make acquisitions in the future and any
acquisitions we do make may not be successful. Furthermore, future acquisitions
may have a material adverse effect upon our operating results, particularly in
periods immediately following the consummation of those transactions while the
operations of the acquired businesses are being integrated into our operations.
Achieving the benefits of acquisitions depends on the timely, efficient
and successful execution of a number of post-acquisition events, including
integrating the business of the acquired company into our operations, marketing
programs, and reporting and information systems. We may not be able to
successfully integrate the acquired company's operations or personnel, or
realize the anticipated benefits of the acquisition. Our ability to integrate
acquisitions may be adversely affected by many factors, including the relatively
large size of a business and the allocation of our limited management resources
among various integration efforts.
In connection with the acquisitions of businesses in the future, we may
decide to consolidate the operations of any acquired business with our existing
operations or make other changes with respect to the acquired business, which
could result in special charges or other expenses. Our results of operations
also may be adversely affected by expenses we incur in making acquisitions, by
amortization of acquisition-related intangible assets with definite lives and by
additional depreciation attributable to acquired assets. Any of the businesses
we acquire may also have liabilities or adverse operating issues, including some
that we fail to discover before the acquisition, and our indemnity for such
liabilities typically has been limited and may, with respect to future
acquisitions, also be limited.
Additionally, our ability to make any future acquisitions may depend
upon obtaining additional financing. We may not be able to obtain additional
financing on acceptable terms or at all. To the extent that we seek to acquire
other businesses in exchange for our common stock, fluctuations in our stock
price could have a material adverse effect on our ability to complete
acquisitions.
WE HAVE NO ASSURANCE THAT OUR PROPOSED ACQUISITIONS WILL BE COMPLETED.
Our business strategy, in part, is to expand our operations through
strategic acquisitions. We have not entered into any agreements, arrangements or
understandings to acquire any operating companies, and we cannot assure that any
acquisition will be completed for any number of reasons. These reasons include,
but are not limited to, our ability to obtain funding, complete the necessary
due diligence to our satisfaction, agree on all material terms of definitive
purchase agreements, obtain audited financial statements consistent with the
unaudited financial statements, or otherwise consummate the acquisition of any
or all of such entities.
WE MAY NOT BE ABLE TO MANAGE PROPOSED ACQUISITIONS AND ACHIEVE PROFITABILITY.
In the event that we are able to complete any acquisitions, such
acquisitions would present numerous challenges to us. These include, but are not
limited to, the integration of the acquired entities with our operations,
technologies and management and the attendant risks associated with such
acquisitions, including, but not limited to, possible unanticipated liabilities,
unanticipated costs, and diversion of management attention or loss of personnel.
We cannot assure you that we will successfully integrate or profitably
manage any acquired businesses, that our continued business will achieve sales
levels, profitability, efficiencies or synergies that justify the acquisitions,
or that the acquisitions will result in increased earnings for us in any future
period. Successful integration of our operations will depend on, among other
things, our ability to attract, hire and retain skilled management and other
personnel, none of which can be assured. To manage growth effectively, we will
need to invest in development of enhancements to existing services, implement
operational, financial and management information systems, procedures and
controls, and integrate our personnel and operations with those of an acquired
company. We cannot assure that we will be able to manage the combined operations
effectively, and failure to do so could have a material adverse effect on our
business, financial condition and/or operating results.
-15-
WE MAY BECOME SUBJECT TO UNDISCLOSED LIABILITIES AS A RESULT OF PROPOSED
ACQUISITIONS.
While we will conduct whatever due diligence we can with regard to all
acquisitions, there may be significant undisclosed liabilities associated with
an entity that might not be known to us prior to an acquisition. The indemnities
and warranties that we will receive in connection with the proposed acquisitions
might not fully cover such liabilities, in which case our operations may be
adversely affected.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE AGAINST COMPANIES WITH SUBSTANTIALLY
GREATER RESOURCES.
The indoor air quality testing industry is extremely competitive. Our
principal competitors include other indoor air quality testers, certified
industrial hygienists, home inspectors, termite inspectors, and remediation and
abatement companies. These competitors may have longer operating histories,
greater name recognition, larger installed customer bases, and substantially
greater financial and marketing resources than ESP. We believe that the
principal factors affecting competition in this proposed market include name
recognition, and the ability to receive referrals based on client confidence in
our services. There are no significant barriers of entry that could keep
potential competitors from opening similar indoor air quality testing
facilities. Our ability to compete successfully in the industry will depend in
large part upon our ability to market and sell our indoor air quality testing
services and to respond effectively to changing insurance industry standards and
methodology. We cannot assure that ESP will be able to compete successfully in
the indoor air quality testing industry, or that future competition will not
have a material adverse effect on our business, operating results, and financial
condition.
WE MAY FROM TIME TO TIME BE SUBJECT TO DISPUTES WITH CUSTOMERS AND VENDORS
RELATING TO AMOUNTS INVOICED FOR SERVICES PROVIDED WHICH WE MAY NOT BE ABLE TO
RESOLVE IN OUR FAVOR.
It is not unusual in our industry to occasionally have disagreements
with vendors relating to amounts billed for services provided between the
recipient of the services and the vendor. To the extent we are unable to
favorably resolve these disputes, our revenues, profitability or cash may be
adversely affected.
OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY IS UNCERTAIN.
We rely on know-how and trade secrets to maintain our competitive
position. Confidentiality agreements or other agreements with our employees,
consultants and advisors may not be enforceable or may not provide meaningful
protection for our proprietary technology, know-how, trade secrets, or other
proprietary information in the event of misappropriation, unauthorized use or
disclosure or other breaches of the agreements, or, even if such agreements are
legally enforceable, we may not have adequate remedies for breaches of such
agreements. The failure of our agreements to protect our proprietary technology
could result in significantly lower revenues, reduced profit margins or loss of
market share.
The market for our services depends to some extent upon the goodwill
associated with our trademarks and service marks. We own, or have licenses to
use, the material trademarks, service marks and trade names used in connection
with the marketing and performance of our services in the markets where those
services are sold. Therefore, trademark protection is important to our business.
Although our trademarks and service marks are registered in the United States,
we may not be successful in asserting trademark protection. In addition, the
laws of certain foreign countries may not protect our trademarks or service
marks to the same extent as the laws of the United States. The loss or
infringement of our trademarks or service marks could impair the goodwill
associated with our brands, harm our reputation and have a material adverse
effect on our financial results.
WE EXPECT TO CONTINUE TO INCUR LOSSES FOR THE NEAR FUTURE.
We project that we will continue to incur development and
administrative expenses and operate at a loss for up to the next three years
unless we are able to complete several acquisitions or generate substantial
revenues from inspection and membership services. We cannot be certain whether
or when we will be able to achieve profitability because of the significant
uncertainties with respect to our business.
-16-
OUR CURRENT CAPITALIZATION IS INADEQUATE AND WE MAY NOT BE ABLE TO RAISE THE
REQUIRED CAPITAL TO CONDUCT OUR OPERATIONS.
We have incurred substantial indebtedness through short-term bridge
loans and other short term loans made to us during the past 12 months by
investors and lenders. These loans have maturity dates occurring in the second
quarter of 2008. We must raise substantial equity capital in order to refinance
these short-term loans because our businesses do not have sufficient revenue to
service the debt. We cannot assure that we will be able to raise the necessary
capital to repay our debt. If we default on the debt, a significant portion of
which is secured by our assets, then we could lose our businesses and related
assets, causing investors to lose their entire investment in us. Furthermore, we
cannot assure that we will not incur debt in the future, that we will have
sufficient funds to repay our indebtedness, or that we will not default on our
debt, jeopardizing our business viability. We may not be able to borrow or raise
additional capital in the future to meet our needs or to otherwise provide the
capital necessary to conduct our business.
We will require additional capital resources including, but not limited
to, exercise of outstanding warrants, in order to conduct our operations and
raise sufficient working capital, as well as in order to grow and expand our
business. Future events may lead to increased costs that could make it difficult
for us to succeed. To raise additional capital, we may be required to sell
additional equity securities, or accept debt financing or obtain financing
through a bank or other entity. If additional funds are raised through the
issuance of additional stock, there may be a significant dilution in the value
of our outstanding common stock. We may not have binding arrangements with
respect to additional financings, even though we have signed investment and
financing commitments. If we so require, future financing may not be available
to us on commercially reasonable terms, or at all. We cannot assure that any
additional financings will be available to us, which we will be able to obtain
additional loans, or that adequate funds for our operations will otherwise be
available when needed or on terms that are acceptable to us. The inability to
secure additional financing would prevent us from achieving profitability and
would have a material adverse effect upon us, which may result in the loss of
your investment in ESP.
OUR INDUSTRY IS SUBJECT TO REGULATION THAT COULD ADVERSELY IMPACT OUR BUSINESS.
Our business is subject to various federal, state and local laws that
govern indoor air quality assessors and hygienists, business licensing, and
those governing health, safety, the rights of employees, employment
discrimination, wrongful termination, wages, hours, taxes, quality of service,
and other matters. A failure by us or our independent environmental inspectors
to comply with applicable government regulations or insurance company
requirements could have a material adverse effect on our financial condition and
business operations.
OUR FINANCIAL STATEMENTS HAVE BEEN PREPARED ASSUMING THAT WE WILL CONTINUE AS A
GOING CONCERN.
The accompanying financial statements to this filing have been prepared
assuming that we will continue as a going concern. As discussed in Note 10 to
the financial statements, we generated net losses of $31,237,703 during the
period from September 29, 1992 (inception) through December 31, 2008. These
conditions raise substantial doubt about our ability to continue as a going
concern. Our continuation as a going concern is dependent on our ability to meet
our obligations, to obtain additional financing as may be required, and
ultimately to attain profitability. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Management plans to raise additional funds through debt or equity offerings. We
are insolvent unless and until we raise adequate capital to repay our short-term
indebtedness which is in default. There is no guarantee that we will be able to
raise any capital through any type of offerings.
WE ARE CURRENTLY IN DEFAULT ON OUR BRIDGE LOANS.
We have failed to repay our bridge loans on a timely basis. Currently,
our bridge loan lenders are exercising forbearance on a voluntary day-to-day
basis. We cannot assure that our lenders will continue to refrain from
enforcement and foreclosure on their loans. If we are not able to repay or
refinance bridge loans, we may experience foreclosure on our assets and a
cessation of our business. In such circumstances you may lose your entire
investment in ESP.
-17-
WE HAVE AN OBLIGATION TO REPURCHASE STOCK ISSUED TO CERTAIN BRIDGE LOAN LENDERS.
We have an obligation to repurchase stock issued to certain bridge loan
lenders. We cannot assure that we will have sufficient funds to repurchase the
stock and we may default on this obligation. Currently, we have an obligation to
repurchase 215,321 shares of our common stock at a price of $1.00 per share.
OUR BUSINESS MAY BE SUBJECT TO FLUCTUATIONS IN THE ECONOMY AND GEOPOLITICAL
EVENTS.
Our business could be affected by general economic conditions and those
specific to the inspection, real-estate and energy management industries. In
addition, our business could be affected by geopolitical events such as war,
threat of war or terrorist actions. Such an economic downturn or geopolitical
event could materially and adversely affect our business and financial
condition.
IF WE WERE TO LOSE THE SERVICES OF OUR KEY PERSONNEL, WE MAY NOT BE ABLE TO
EXECUTE OUR BUSINESS STRATEGY.
Our success is substantially dependent on the performance of our
executive officers and key employees. Given our early stage of operation, we are
dependent on our ability to retain and motivate high quality personnel. Although
we believe we will be able to engage qualified personnel for such purposes, an
inability to do so could materially adversely affect our ability to market and
perform our services. The loss of one or more of our key employees or our
inability to hire and retain other qualified employees could have a material
adverse effect on our business
IF WE ARE UNABLE TO HIRE, RETAIN OR MOTIVATE QUALIFIED PERSONNEL, CONSULTANTS,
INDEPENDENT CONTRACTORS AND ADVISORS, WE MAY NOT BE ABLE TO GROW EFFECTIVELY.
Our performance will be largely dependent on the talents and efforts of
highly skilled individuals. Our future success depends on our continuing ability
to identify, hire, develop, motivate and retain highly qualified personnel for
all areas of our organization. Competition for such qualified employees is
intense. If we do not succeed in attracting excellent personnel or in retaining
or motivating them, we may be unable to grow effectively. In addition, our
future success will depend in large part on our ability to retain key
consultants and advisors. We cannot assure that any skilled individuals will
agree to become an employee, consultant or independent contractor of ESP. Our
inability to retain their services could negatively impact our business and our
ability to execute our business strategy.
DIRECTORS AND OFFICERS HAVE LIMITED LIABILITY.
As permitted by the Nevada General Corporation Law, our certificate of
incorporation and by-laws limit the personal liability of our directors and
stockholders for monetary damages for breach of fiduciary duty as a director or
stockholder, but such provision does not eliminate or limit the liability of a
director in certain circumstances, such as for: (i) any breach of the director's
duty of loyalty to the corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Nevada General Corporate Law;
or (iv) for any transaction from which the director derived an improper personal
benefit. If we were called upon to perform under our indemnification agreement,
then the portion of our assets expended for such purpose would reduce the amount
otherwise available for our business.
UNTIL OCTOBER 2006, WE WERE A PUBLIC SHELL COMPANY. THERE ARE CERTAIN RISKS
ASSOCIATED WITH TRANSACTIONS WITH PUBLIC SHELL COMPANIES GENERALLY, INCLUDING
INCREASED SECURITIES AND EXCHANGE COMMISSION SCRUTINY AND REGULATION AND LACK OF
ANALYST COVERAGE.
Prior to October 2006, we were effectively a public shell company with
no material assets or operations and our only value was that we maintained
current filings with the Securities and Exchange Commission ("SEC") and a class
of securities that was traded on the OTC Bulletin Board. Substantial additional
risks are associated with a public shell merger transaction such as the absence
of accurate or adequate public information concerning the public shell;
undisclosed liabilities; improper accounting; claims or litigation from former
officers, directors, employees or stockholders; contractual obligations;
regulatory requirements and others. Although management performed due diligence
on the public shell company, there can be no assurance that such risks do not
-18-
occur. The occurrence of any such risk could materially adversely affect our
results of operations, financial condition and stock price. Security analysts of
major brokerage firms may not provide coverage of us. No assurance can be given
that brokerage firms will want to conduct any secondary public offerings on our
behalf or make a market in our stock in the future.
OUR COMMON STOCK MAY BE CONSIDERED A "PENNY STOCK" AND MAY BE DIFFICULT TO SELL.
The SEC has adopted regulations which generally define "penny stock" to
be an equity security that has a market price of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to specific exemptions. The
market price of our common stock is less than $5.00 per share and therefore may
be designated as a "penny stock" according to SEC rules. This designation
requires any broker or dealer selling these securities to disclose certain
information concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable to purchase
the securities. These rules may restrict the ability of brokers or dealers to
sell our common stock and may affect the ability of investors to sell their
shares. In addition, since our common stock is currently traded on the NASD's
OTC Bulletin Board, investors may find it difficult to obtain accurate
quotations of our common stock and may experience a lack of buyers to purchase
such stock or a lack of market makers to support the stock price.
OUR PRINCIPAL SHAREHOLDERS HAVE SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS
THAT MAY NOT BE IN THE BEST INTEREST OF OTHER SHAREHOLDERS.
As of March 31, 2009, our executive officers, directors, and principal
shareholders who hold 5% or more of our outstanding common stock beneficially
owned, in the aggregate, approximately 57% of our outstanding common stock.
These shareholders are able to exercise significant control over all matters
requiring shareholder approval, including the election of directors and approval
of significant corporate transactions. This concentration of ownership may have
the effect of delaying or preventing a change in control and might adversely
affect the market price of our common stock. This concentration of ownership may
not be in the best interests of all our shareholders.
WE CAN PROVIDE NO ASSURANCE THAT OUR INTERNAL CONTROL OVER OUR FINANCIAL
REPORTING WILL BE EFFECTIVE UNDER SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002.
Given the complexities and inherent risks associated with the operation
of internal control over financial reporting, we can provide no assurance that
our internal control over financial reporting will be effective under Section
404 of the Sarbanes-Oxley Act of 2002 ("SOX"). Moreover, we can provide no
assurance as to any matters that might be reported in our management's
assessment of our internal control over financial reporting or our independent
registered public accounting firm's audit report. If we are not able to
implement the requirements relating to internal controls and all other
provisions of Section 404 in a timely fashion or achieve adequate compliance
with these requirements or other requirements of SOX, we might become subject to
sanctions or investigation by regulatory authorities such as the SEC or the
Financial Industry Regulatory Authority, Inc. ("FINRA"). Any such action may
materially adversely affect our reputation, financial condition and the value of
our securities, including our common stock. Additionally, ineffective internal
control over financial reporting could cause investors to lose confidence in our
reported financial information and could result in a lower trading price for our
securities.
THE TRADING PRICE OF OUR COMMON STOCK HAS BEEN, AND IS LIKELY TO CONTINUE TO BE,
VOLATILE WITH LIMITED LIQUIDITY.
The trading prices of our common stock and the securities of service
companies generally have been highly volatile. Trading volume has been extremely
light and may not increase, resulting in limited liquidity for stockholders. The
trading price of our common stock may decline or fail to appreciate. Factors
affecting the trading price of our common stock will include:
o variations in our operating results;
o announcements of technological innovations, new services or service
enhancements, strategic alliances or significant agreements by us or by
our competitors;
o recruitment or departure of key personnel;
-19-
o changes in the estimates of our operating results or changes in
recommendations by any securities analysts that elect to follow our
common stock;
o developments or disputes concerning our intellectual property or other
proprietary rights;
o the gain or loss of significant customers;
o market conditions in the inspection industry, the industries of our
customers, and the economy as a whole; and
o adoption or modification of regulations, policies, procedures or
programs applicable to our business.
In addition, if the market for service company stocks or the stock
market in general experiences loss of investor confidence, the trading price of
our common stock could decline for reasons unrelated to our business, operating
results or financial condition. The trading price of our common stock might also
decline in reaction to events that affect other companies in our industry even
if these events do not directly affect us.
THERE IS NO ASSURANCE OF AN ESTABLISHED PUBLIC TRADING MARKET, AND THE FAILURE
TO ESTABLISH ONE WOULD ADVERSELY AFFECT THE ABILITY OF OUR INVESTORS TO SELL
THEIR SECURITIES IN THE PUBLIC MARKET.
At present, there is minimal trading of our securities, and there can
be no assurance that an active trading market will develop. Our common stock is
traded on the OTC Bulletin Board. The OTC Bulletin Board is an inter-dealer,
over-the-counter market that provides significantly less liquidity than FINRA's
automated quotation system, or NASDAQ Stock Market. Quotes for stocks included
on the OTC Bulletin Board are not listed in the financial sections of newspapers
as are those for the NASDAQ Stock Market. Therefore, prices for securities
traded solely on the OTC Bulletin Board may be difficult to obtain and holders
of common stock may be unable to resell their securities at or near their
original price or at any price.
TRADING ON THE OTC BULLETIN BOARD MAY BE DETRIMENTAL TO INVESTORS.
Securities traded on the OTC Bulletin Board generally have limited
trading volume and exhibit a wide spread between the bid/ask quotations. We
cannot predict whether a more active market for our common stock will develop in
the future. In the absence of an active trading market, investors may have
difficulty buying and selling our common stock or obtaining market quotations,
market visibility for our common stock may be limited, and a lack of visibility
for our common stock may have a depressive effect on the market price for our
common stock.
IF WE FAIL TO MAINTAIN EFFECTIVE INTERNAL CONTROLS OVER FINANCIAL REPORTING, THE
PRICE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED.
We are required to establish and maintain appropriate internal controls
over financial reporting. Failure to establish those controls, or any failure of
those controls once established, could adversely impact our public disclosures
regarding our business, financial condition or results of operations. In
addition, management's assessment of internal controls over financial reporting
may identify weaknesses and conditions that need to be addressed in our internal
controls over financial reporting or other matters that may raise concerns for
investors. Any actual or perceived weaknesses and conditions that need to be
addressed in our internal control over financial reporting, disclosure of
management's assessment of our internal controls over financial reporting or
disclosure of our public accounting firm's attestation to or report on
management's assessment of our internal controls over financial reporting may
have an adverse impact on the price of our common stock.
WE DO NOT FORESEE PAYING CASH DIVIDENDS IN THE FORESEEABLE FUTURE.
We have not paid cash dividends on our stock and do not plan to pay
cash dividends on our common stock in the foreseeable future.
WE MAY USE OUR PREFERRED STOCK AS AN ANTI-TAKEOVER DEVICE.
We are authorized to issue up to 5,000,000 shares of preferred stock,
$0.001 par value. The preferred stock may be issued in series from time to time
with such designation, voting and other rights, preferences and limitations as
our Board of Directors may determine by resolution. Unless the nature of a
particular transaction and applicable statutes require such approval, the Board
-20-
of Directors has the authority to issue these shares without stockholder
approval subject to approval of the holders of our preferred stock. The issuance
of preferred stock may have the effect of delaying or preventing a change in
control of ESP without any further action by our stockholders.
WE ARE SUBJECT TO CRITICAL ACCOUNTING POLICIES, AND WE MAY INTERPRET OR
IMPLEMENT REQUIRED POLICIES INCORRECTLY.
We will follow generally accepted accounting principles for the U.S. in
preparing our financial statements. As part of this process, we must make many
estimates and judgments about future events. These affect the value of the
assets and liabilities, contingent assets and liabilities, and revenue and
expenses that we report in our financial statements. We believe these estimates
and judgments are reasonable, and we make them in accordance with our accounting
policies based on information available at the time. However, actual results
could differ from our estimates, and this could require us to record adjustments
to expenses or revenues that could be material to our financial position and
results of operations in future periods.
FUTURE POTENTIAL LITIGATION
The Company and its affiliates may in the future become involved in
litigation. The results of litigation, if any, could have a material adverse
impact on the Company and its business, operating results, and financial
condition. There is no assurance that the Company will not be subject to
litigation or will prevail in any litigation, or that the litigation will not
result in a material loss to the Company.
INADEQUACY OF COMPANY FUNDS
The Company has limited capital available to it. If the Company's
entire capital is fully expended and additional costs cannot be funded from
borrowings or capital from other sources, then the Company's financial
condition, results of operations and business performance would be materially
adversely affected. There is no assurance that the Company will have adequate
capital to conduct its business.
NO ASSURANCE OF PROFIT
The Company's business is speculative and dependent upon the Company's
ability to market and sell its environmental inspection services and related
products and services, of which there is no assurance. The Company has incurred
operating losses since inception and may incur operating losses in the future.
There is no assurance as to whether the Company will be successful or earn
profits. There is no assurance that the Company will earn significant revenues.
DETERMINATION OF CONSIDERATION TO MANAGEMENT
The Common Stock and cash consideration being paid by the Company to
its management and its affiliates has not been determined based on arms length
negotiation. While management believes that the consideration is fair for the
work being performed, there is no assurance that the consideration to management
reflects the true market value of its services.
OPERATIONS - POSSIBLE LIENS
If the Company fails to pay for materials and services for its business
on a timely basis, the Company's assets could be subject to material men and
workmen's liens. The Company may also be subject to bank liens in the event that
it defaults on loans from banks, if any.
CONFLICTS OF INTEREST
The relationship of management and its affiliates to the Company could
create conflicts of interest. While management has a fiduciary duty to the
Company, it also determines its compensation from the Company. Management
believes that it will have the resources necessary to fulfill its management
obligations to all entities for which it is responsible. Management's
compensation from the Company has not been determined pursuant to arm's-length
negotiation.
-21-
RISKS ASSOCIATED WITH POSSIBLE NONCOMPLIANCE WITH SECURITIES LAWS
There is no assurance that in the course of prior offerings of
securities made by the Company, inadvertent noncompliance with applicable
federal or state securities laws has not occurred. If a security holder in the
Company asserts a claim based on an alleged violation of securities laws, or if
a government agency makes such a charge, the Company may not have the necessary
resources to repurchase the security, if a right of rescission is involved, or
to otherwise settle the claim.
WE MUST RESTATE CERTAIN OF OUR FINANCIAL STATEMENTS, WHICH MAY ADVERSELY AFFECT
THE TRADING PRICE OF OUR COMMON STOCK.
We must restate our financial statements for the fiscal years ended
December 31, 2006 and 2007, as well as for the three months ended March 31,
2007, June 30, 2007, September 30, 2007, March 31, 2008, June 30, 2008,
September 30, 2008 to reflect the Security and Exchange Commission's concerns
regarding our prior accountant's treatment of our business combination which
closed in October 2006. We do not anticipate that the changes to our financial
statements will be material or that they will have a material adverse effect on
our business, but we cannot assure that the changes will not adversely affect
the trading price of our common stock.
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. PROPERTIES
ESP currently leases approximately 4,433 square feet of office space at
a rental rate of approximately $6,000 per month pursuant to a month-to-month
lease, which commenced in August 2006 at 1111 E. Tahquitz Canyon Way, Suite 110,
Palm Springs, California 92262.
As of March 31, 2009, the Company has consolidated all of its
operations into its headquarters at 1111 E. Tahquitz Canyon Way, Suite 110, Palm
Springs, California 92262.
ITEM 3. LEGAL PROCEEDINGS
The Company may be involved in legal actions and claims arising in the
ordinary course of business, from time to time, none of which at this time is
considered to be material to the Company's business or financial condition.
JOHN COOLEY V. PACIFIC ENVIRONMENTAL SAMPLING, INC. ETC., ET AL. On
December 6, 2006, John Cooley filed a civil complaint in Ventura County alleging
breach of fiduciary duty and fraud regarding the restructuring of Pacific
Environmental Sampling, Inc. on March 25, 2006. On December 12, 2006, a hearing
before the Court was held on the application for injunctive relief and for
appointment of a receiver. Both of Cooley's requests were denied by the Court.
ESP and its affiliates subsequently filed a demurrer challenging the legal
sufficiency of the fraud claim and the demurrer was sustained. Cooley was
permitted by the Court to file a First Amended Complaint to attempt to correct
deficiencies. With an extension, the First Amended Complaint was filed on March
-22-
27, 2007. Subsequently, this First Amended Compliant was rejected as was the
Second Amended Complaint. On April 4, 2008 a hearing for a Third Amended
Complaint was held before the court and we were granted all submitted demurrers
and Motions to Strike. On April 25, 2008, Cooley submitted a Fourth Amended
Complaint. A tentative hearing date has been set for May 30, 2008. 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 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.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
Effective on February 19, 2009, holders of 31,541,483 shares of the
Company's common stock, or approximately 60.0% of the total issued and
outstanding common stock of the Company, voted to amend the Company's
Certificate of Incorporation in order to increase the number of authorized
shares of common stock from 100,000,000, par value $0.001 per share, to
295,000,000, par value $0.001 per share and to increase the number of authorized
shares of preferred stock from 1,000,000, par value $0.01 per share, to
5,000,000, par value $0.001 per share. The Board of Directors of the Company
voted unanimously to implement this shareholder action.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
The Company's common stock trades on the OTC Bulletin Board Market
under the symbol "EVSP." The range of high and low bid quotations for each
fiscal quarter within the last two fiscal years as reported by Yahoo! Finance
was as follows.
------------------ -------- ---------- ------------------- ------------ --------
2007 HIGH LOW 2008 HIGH LOW
------------------ -------- ---------- ------------------- ------------ --------
First Quarter $1.25 $0.52 First Quarter $0.25 $0.14
Second Quarter $1.40 $0.51 Second Quarter $0.23 $0.08
Third Quarter $2.20 $0.40 Third Quarter $0.15 $0.06
Fourth Quarter $0.76 $0.15 Fourth Quarter $0.08 $0.01
------------------ -------- ---------- ------------------- ------------ --------
---------------------------------
|
The above quotations reflect inter-dealer prices, without retail
markup, mark-down, or commission and may not necessarily represent actual
transactions.
-23-
There is currently minimal trading volume for the Company's securities.
During the period from January 1, 2007 through March 31, 2009, ESP's common
stock traded at a high of $2.20 and a low of $0.01.
As of March 31, 2009, there were approximately 250 record holders of
the Company's common stock, not including shares held in "street name" in
brokerage accounts, which is unknown. As of March 31, 2009, there were
approximately 57,310,345 shares of common stock outstanding on record.
As of March 31, 2008, 3,127,678 shares of outstanding common stock were
cancelled for non-performance of various consultants and termination of
negotiations of additional debt or equity.
PURCHASES OF THE COMPANY'S SECURITIES BY ESP OR ITS AFFILIATES
None of the Company's shares of common stock were purchased by ESP or
its affiliates during the fiscal year ended December 31, 2008.
DIVIDENDS
The Company has not declared or paid any cash dividends on its common
stock and does not anticipate paying dividends for the foreseeable future.
EQUITY COMPENSATION PLAN INFORMATION
See "Executive Compensation-- Employee Benefit Plans."
WARRANTS
During the fiscal year ended December 31, 2008, ESP issued warrants to
purchase a total of 2,745,400 shares of common stock, of which 950,000 were
issued for Services at an exercise price of $0.17 per share and expire 3 years
from the date of issuance, 1,183,331 were issued for Services at an exercise
price of $0.25 per share and expire 3 years from the date of issuance, 100,000
were issued for Services at an exercise price of $0.50 per share and expire 3
years from the date of issuance, 300,000 were issued for Services at an exercise
price of $0.58 per share and expire 3 years from the date of issuance, 212,069
were issued for Services at an exercise price of $0.75 per share and expire 3
years from the date of issuance.
As of March 31, 2009, none of these warrants have been exercised.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENTS
This Form 10-K contains financial projections and other
"forward-looking statements," as that term is used in federal securities laws,
about ESP Inc.'s ("ESP," "we," "us," 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-K. 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-K. 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;
-24-
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital to continue the business and barriers to
raising the additional capital or to obtaining the financing
needed to implement its business plans;
(e) failure to commercialize the Company's technology or to make
sales;
(f) changes in 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;
(i) insufficient revenues to cover operating costs;
(j) failure to obtain FDA approval for the Company's new medical
scanning device, which is still in its prototype stage.
There is no assurance that we will be profitable. We may not be able to
develop, manage or market our products and services successfully. We may not be
able to attract or retain qualified executives and technology personnel. We may
not be able to obtain customers for our products or services. Our products and
services may become obsolete. Government regulation may hinder our business.
Additional dilution in outstanding stock ownership may be incurred due to the
issuance of more shares, warrants and stock options, or the exercise of
outstanding warrants and stock options.
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-K. 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 may 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-K or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with our
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.
CURRENT OVERVIEW
Our efforts have been to establish ESP in the various local, state and
federal governmental agencies responsible for creating policies related to the
residential and commercial building industry and associated health and energy
efficiency needs. The Company's holistic approach to providing inspection
services has been accepted as a primary industry representative by a number of
these agencies. ESP continues to make its resources available to assist in
information exchange with the Housing and Urban Development, Department of
Defense, Veterans Affairs, the Federal Housing Authority, Fannie Mae, Freddie
Mac, Ginnie Mae agencies including their associated consultants while upcoming
policies are being decided.
The Company has continued to develop and implement its inspection
protocols, training and certification with ConSol, Allied Business Schools and
the Environmental Assessment Association. Our progress on optimizing the entire
on-line inspection process has continued based on the outcomes of the proof of
concept conducted in 2008.
Our test-marketing of the CEHI(TM) program and related services
conducted in 2008 has now finished and additional refinements are in progress.
-25-
The sales and revenues from service are either from our proof of
concept and test-marketing phase of applicants enrolling into the CEHI(TM)
program or end-customers requesting inspections.
Our test-marketing efforts through WEB site advertising, broadcast
facsimile and broadcast email to thousands of potential customers throughout the
United States generated leads of potential customers desiring to purchase
services either immediately or in the course of one month. Management expects
that when the additional refinements to the marketing program are completed it
will eventually help stabilize the amount of services sold on a monthly basis
with immediate sales leads. The greater the number of leads generated, whether
immediate or long term, the greater the opportunity to eventually create a
consistent number of sales.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations are based upon our 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 us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. We monitor our estimates on an on-going basis for changes in facts
and circumstances, and material changes in these estimates could occur in the
future. Changes in estimates are recorded in the period in which they become
known. We base our estimates on historical experience and other assumptions that
we believe to be reasonable under the circumstances. Actual results may differ
from our estimates if past experience or other assumptions do not turn out to be
substantially accurate.
We have identified the policies below as critical to our business
operations and the understanding of our results of operations.
REVENUE RECOGNITION
We recognize revenue in accordance with the Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin No. 104, "Revenue Recognition in
Financial Statements" ("SAB 104"). We recognize revenue upon delivery, provided
that evidence of an arrangement exists, title, and risk of loss have passed to
the customer, fees are fixed or determinable, and collection of the related
receivable is reasonably assured. We record revenue net of estimated service
refunds, which is based upon our refund policy. We accrue the subscription based
HLMP fees for future service delivery and other allowances based on our
experience. We will record interest income on the accrued HLMP fees as earned
income on a quarterly basis. Generally, if we extend credit to our customers we
do not require collateral. We perform ongoing credit evaluations of our
customers and historic credit losses have been within our expectations. We do
not provide services until we have either a purchase agreement or service
agreement signed by the customer with a payment arrangement. This is a critical
policy, because we want our accounting to show only sales that are "final" with
a payment arrangement. We do not make consignment sales or inventory sales
subject to a "buy back" or return arrangement from customers.
As of January 1, 2007, the Company ceased offering new franchises and
did not renew any franchise registration or make any franchise sales for the
year ending December 31, 2007 or the year ending December 31, 2008. All
franchisees have either been incorporated into the CEHI program or released for
non-performance. All franchisees that have been incorporated into the CEHI
program or released for non-performance have executed mutual releases for their
previously owned franchises.
-26-
COST OF REVENUE
Cost of revenue generated by Safeguard consists of costs related to
cost of goods sold for providing CEHI inspection services. Costs related to the
CEHI services include contractor fees, laboratory fees, related supplies, and
materials.
Cost of revenue generated by the interest on the accrual of the
subscription based HLMP fees consists of costs related to trust fund manager,
bank fees, and affinity programs.
Cost of revenue generated by NPS consists of costs related to cost of
providing membership services. Costs related to the membership services includes
postage, industry related information literature, related supplies and
materials.
Cost of revenue generated by Porter Valley Software consists of costs
related to cost of providing application support and upgrade services. Costs
related to the application support service include application hosting, postage,
telephone long distance, industry related information literature, related
supplies and materials. Costs related to application upgrade services include
on-going development and programmer consultant fees,
OTHER ACCOUNTING FACTORS
The effects of inflation have not had a material impact on our
operation, nor are they expected to in the immediate future.
Although we are unaware of any major seasonal aspect that would have a
material effect on the financial condition or results of operation, other than
the current economic environment,
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2008 AS COMPARED TO THE
YEAR ENDED DECEMBER 31, 2007.
REVENUE
Total revenue for the period ended December 31, 2008 increased by
$689,035 to $1,270,838 from $581,803 in the prior year ended December 31, 2007,
which represented an increase of 118%. The increase in sales was attributed
directly to higher volume of contractors and clients.
Several employees were let go and offices in Arizona, California. The
Company consolidated the National Professionals Services, Inc., and Porter
Valley Software, Inc., offices into the main office in Palm Springs and was
subsequently closed, which lowered administrative expenses. Although the Company
has made significant strides in implementing its strategy the economic downtown
has contributed significantly to the lower than expected revenue.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased by $3,247,322, down from
$9,658,867 in 2007, to $6,411,545 for the year ended December 31, 2008. This
decrease in general and administrative expenses was the result of decreased
commissions from the prior period and decreased finance fees from the prior
period.
NET LOSS
There can be no assurance that the Company will generate positive
revenues from its operating activities, or that it will achieve and sustain a
profit during any future period, particularly if operations remain at current
levels. Failure to achieve significant revenues or profitability would
materially and adversely affect the Company's business, financial condition, and
results of operations. For the fiscal year ended December 31, 2007, the Company
incurred a net pre-tax loss from continuing operations of $7,212,194. This was a
decrease of $14,255,912 or 151% compared to the prior year. 74% of the net
pre-tax loss for the fiscal year ended December 31, 2007 was the result of a
write down of $11,444,378 in goodwill, $4,407,663 in finance fees, and $359,218
in assets (training materials) attributable to the AHI acquisition.
-27-
We expect the trend of operating losses by the Company to continue into
the future at the current or greater rate as we spend money on product
development and marketing. There is no assurance we can achieve significant
profitable sales to overcome losses. We do not expect litigation against us to
expand as we have secured an agreement from an equity investor, pursuant to the
Form 8K filed on March 2, 2009, to purchase the entire value of the currently
released private placement, so our feeling is that the trend is away from
increasing litigation, although we can give no assurances in relation to future
litigation.
LIQUIDITY AND CAPITAL RESOURCES
ESP had net cash of $8,744 at December 31, 2008, as compared to $-0- at
December 31, 2007.
During the year ended December 31, 2008, ESP used $1,371,031 of cash
for operating activities, as compared to $5,051,668 during the year ended
December 31, 2007. The decrease in the use of cash for operating activities was
a result of finance fees, accounts payable, and other general and administrative
expenses.
Cash provided by financing activities relating to the issuance of
shares of common stock during the year ended December 31, 2008 was $1,011,139,
as compared to $2,046,416 during the year ended December 31, 2007. Since January
1, 2008, ESP's capital needs have primarily been met from the proceeds of
private placements, loans and, to a lesser extent, sales.
The Company's $8,744 cash balance at December 31, 2008, would not be
adequate to fund the Company's operations for more than a short period if the
Company were to continue to use cash in operating activities at the same rate as
in prior months. The Company will need to rely upon continued borrowing and/or
sales of additional equity instruments to support its continued growth. The
Company's management believes it will be able to obtain sufficient cash
resources and working capital to meet the Company's present cash requirements
through debt and/or equity-based fund raising. Following the fiscal year ended
December 31, 2008; the Company has been successful in closing additional funds
as described under the Convertible Notes and through the sale of unregistered
common stock (see "ITEM 8, Financial Statements, Events Subsequent to Fiscal
Year Ended December 31, 2008" below). The Company contemplates additional sales
of debt instruments and unregistered common stock during the current year,
although whether it will be successful in doing so, and the additional amounts
it will receive as a result, cannot be assumed or predicted.
Our total assets decreased from $1,789,245 as of December 31, 2007 to
$997,208 as of December 31, 2008, a difference of $792,037 or 44%.
Our total liabilities increased from $5,224,682 as of December 31, 2007
to $7,214,601 as of December 31, 2008. This increase is due in large part to new
financing and increase in accounts payable.
Primarily in connection with the non-performance of two equity
investors, the Company has had three judgments imposed: Palm Desert National
Bank for $284,761.89, David Reichman for $95,463.00 and BOCA funding for
$741,839.00. These amounts are included in our current financials and negatively
impact the liquidity of the Company.
GOING CONCERN QUALIFICATION
The Company has incurred significant losses from operations, and such
losses are expected to continue. The Company's auditors have included a "Going
Concern Qualification" in their report for the year ended December 31, 2008. In
addition, the Company has limited working capital. The foregoing raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans include seeking additional capital and/or debt financing.
There is no guarantee that additional capital and/or debt financing will be
available when and to the extent required, or that if available, it will be on
terms acceptable to the Company. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty. The "Going
Concern Qualification" may make it substantially more difficult to raise
capital.
OFF-BALANCE SHEET ARRANGEMENTS
None.
-28-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF ENVIRONMENTAL SERVICE
PROFESSIONALS, INC.
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CONTENTS
Report of Independent Registered Public Accounting Firm ................. F-2
Balance Sheets as of December 31, 2008 and 2007.......................... F-3
Statement of Operations for the years ended December 31, 2008 and 2007... F-4
Statement of Changes in Stockholders' Deficit for the years ended
December 31, 2008 and 2007.............................................. F-5
Statement of Cash Flows for the years ended December 31, 2008 and 2007 .. F-6
Notes to Financial Statements ........................................... F-7
|
-29-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
STAN J.H. LEE, CPA, CMA
2160 North Central Rd. Suite 203 Fort Lee t NJ 07024
P.O. Box 436402 San Ysidro CA 92143-9402
619.623.7799, FAX: 619-564-3408 E-MAIL: STAN2U@GMAIL.COM
To the Board of Directors and Stockholders
Environmental Service Professionals, Inc.
We have audited the accompanying balance sheets of Environmental
Service Professionals, Inc. as of December 31, 2008 and 2007, the related
statements of operations, stockholders' equity, and cash flows for the two-year
period ended December 31, 2008. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Environmental
Service Professionals, Inc. as of December 31, 2008 and 2007 and the results of
its operations and its cash flows for the two year period ended December 31,
2008, in conformity with accounting principles generally accepted in the United
States of America.
The Company's financial statements are prepared using the 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 Company has deficit accumulated at December 31, 2008 of
$31,237,713 including a net loss of $7,212,194 for the year ended December 31,
2008. These factors as discussed in Note 10 to the financial statements, raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 10. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Stan J.H. Lee, CPA, CMA
------------------------
Fort Lee, New Jersey
April 15, 2009
May 8, 2008 (for December 31, 2007)
|
Registered with the Public Company Accounting Oversight Board
Member of New Jersey Society of Certified Public Accountants
F-2
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
-------------------------------------------------------------------------------------------------------------
ASSETS
AS OF AS OF
DECEMBER 31, DECEMBER 31,
2008 2007
------------------ -----------------
CURRENT ASSETS
Cash & cash equivalents $ 8,744 $ -
Accounts receivable 79,814 138,180
Receivable - other 9,199 9,868
Prepaid expense - 926,254
------------------ -----------------
TOTAL CURRENT ASSETS 97,757 1,074,301
NET PROPERTY & EQUIPMENT 54,637 72,972
OTHER ASSETS
Deposits 2,120 2,120
Net - association membership list 751,750 639,852
Employee Advances 90,944 -
TOTAL OTHER ASSETS 844,814 641,972
------------------ -----------------
TOTAL ASSETS $ 997,208 $ 1,789,245
================== =================
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 2,081,707 $ 1,308,814
Bankoverdraft 83,758 336,369
Line of credit 583,461 220,417
Accrued liabilities 233,212 144,502
Taxes payable 1,151 -
Loans payable 2,958,885 1,947,746
Loans payable - related party 28,493 22,900
------------------ -----------------
TOTAL CURRENT LIABILITIES 5,970,667 3,980,748
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 7,214,601 5,224,682
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, (par value $.001 per share, 100,000,000 shares
authorized: 55,398,595 and 21,783,375 shares issued and
outstanding as of December 31, 2008 and 2007, respectively) 55,599 21,783
Paid-in capital 24,964,721 20,568,299
Retained earnings (Deficit) (31,237,713) (24,025,519)
------------------ -----------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (6,217,393) (3,435,437)
------------------ -----------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY (DEFICIT) $ 997,208 $ 1,789,245
================== =================
|
See Notes to the Consolidated Financial Statements
F-3
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
--------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2008 2007
-------------------- -------------------
REVENUES
Income $ 1,270,838 $ 581,803
-------------------- -------------------
NET REVENUE 1,270,838 581,803
COST OF GOODS SOLD
Cost of goods sold 463,669 57,104
-------------------- -------------------
TOTAL COST OF GOODS SOLD 463,669 57,104
-------------------- -------------------
GROSS PROFIT 807,169 524,699
OPERATING EXPENSES
Depreciation 18,335 13,281
Finance fee 409 4,407,663
Directors fees 3,750,000 -
Professional fees 1,002,503 1,975,798
General and administrative 1,640,298 3,262,125
-------------------- -------------------
TOTAL OPERATING EXPENSES 6,411,545 9,658,867
-------------------- -------------------
LOSS FROM OPERATIONS (5,604,376) (9,134,168)
OTHER INCOME (EXPENSES)
Interest income - 366
Interest expense (1,607,444) (209,099)
Impairment of goodwill - (11,444,378)
Other income 54 234,019
Other expenses (428) (914,846)
-------------------- -------------------
TOTAL OTHER INCOME (EXPENSES) (1,607,818) (12,333,938)
-------------------- -------------------
NET INCOME (LOSS) $ (7,212,194) $ (21,468,106)
==================== ===================
BASIC EARNING (LOSS) PER SHARE $ (0.16) $ (1.18)
-------------------- -------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES - BASIC AND DILUTED 43,748,777 18,250,793
==================== ===================
|
See Notes to the Consolidated Financial Statements
F-4
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholder Equity (Deficit)
As of December 31, 2008
------------------------------------------------------------------------------------------------
ADDITIONAL
COMMON COMMON PAID-IN RETAINED TOTAL
SHARES STOCK CAPITAL EARNINGS
(DEFICIT)
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2006 13,973,546 13,973 11,323,035 (2,557,413) 8,779,595
------------------------------------------------------------------------------------------------
Shares Issued on January 25, 2007 39,266 39 64,161 64,200
Shares Issued On February 16, 2007 200,000 200 19,800 20,000
Shares Issued On February 20, 2007 1,000,000 1,000 579,000 580,000
Shares Issued on March 16, 2007 122,917 123 188,980 189,103
Shares Issued on April 16, 2007 153,000 153 519,647 519,800
Shares Issued on May 18, 2007 1,795,000 1,795 1,090,047 1,091,842
Shares Issued on June 7, 2007 404,742 405 78,945 79,350
Shares Issued On June 26, 2007 900,000 900 1,491,600 1,492,500
Shares Issued on July 7, 2007 381,035 381 2,340,136 2,340,517
Shares Issued on July 17, 2007 892,300 892 891,408 892,300
Shares Issued On August 1, 2007 50,000 50 28,950 29,000
Shares Issued on September 11, 2007 806,051 806 79,799 80,605
Shares Issued on October 2, 2007 515,518 516 1,818,341 1,818,857
Shares Issued on October 2, 2007 550,000 550 54,450 55,000
Net loss for the year ended
December 31, 2007 (21,468,106) (21,468,106)
-------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2007 21,783,375 21,783 20,568,299 (24,025,519) (3,435,437)
-------------------------------------------------------------------------------------------------
Shares Issued on February 21, 2008 100,000 100 13,900 14,000
Shares Issued on March 17, 2008 100,000 100 14,900 15,000
Shares Issued on March 19, 2008 25,000 25 3,725 3,750
Shares Issued on June 7, 2008 2,179,504 2,180 197,620 199,800
Shares Issued on June 10, 2008 25,000,000 25,000 3,725,000 3,750,000
Shares Issued on June 10, 2008 800,000 800 119,200 120,000
Shares Issued on June 20, 2008 500,000 500 74,500 75,000
Shares Issued on July 29, 2008 110,000 110 9,790 9,900
Shares Issued on August 15, 2008 438,965 439 28,094 28,533
Shares Issued on August 21, 2008 98,324 98 7,768 7,866
Shares Issued on September 23, 2008 200,000 200 11,800 12,000
Shares Issued on September 24, 2008 545,000 545 32,155 32,700
Shares Issued on September 24, 2008 200,000 200 11,800 12,000
Shares Issued on October 29, 2008 311,615 312 18,385 18,697
Shares Issued on November 21, 2008 1,000,000 1,000 49,000 50,000
Shares Issued on November 24, 2008 235,000 235 9,165 9,400
Shares Issued on November 24, 2008 125,000 125 4,875 5,000
Shares Issued on December 15, 2008 1,464,812 1,647 56,945 58,592
Shares Issued on December 23, 2008 200,000 200 7,800 8,000
Net loss for the year ended
December 31, 2008 (7,212,194) (7,212,194)
-------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2008 55,416,595 $ 55,599 $24,964,721 $(31,237,713) $(6,217,393)
=================================================================================================
|
See Notes to the Consolidated Financial Statements
F-5
ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
---------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2008 2007
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (7,212,194) $ (21,468,106)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 18,335 13,281
Amortization - 19,711
Common stock 4,430,238 2,284,458
(Increase) decrease in goodwill - 9,340,570
(Increase) decrease in finance fee - 4,407,663
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 58,366 120,809
(Increase) decrease in other receivable 669 (9,868)
(Increase) decrease in prepaid expenses 926,254 (513,758)
(Increase) decrease in employee advances (90,944) -
(Increase) decrease in security deposits - 69,906
(Increase) decrease in business areas - 15,779
(Increase) decrease in accounts payable and accrued expenses 861,603 1,026,018
(Increase) decrease in bank overdraft (252,611) 336,369
(Increase) decrease in association membership list (111,898) (659,000)
(Increase) decrease in income tax payable 1,151 (35,500)
--------------- ---------------
NET CASH USED BY OPERATING ACTIVITIES (1,371,031) (5,051,668)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment - (47,433)
Increase in loan payable 1,011,139 2,093,849
--------------- ---------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,011,139 2,046,416
CASH FLOWS FROM FINANCING ACTIVITIES
Line of credit 363,044 118,455
Increase in loan payable - related party 5,593 22,900
Proceeds from stock issuances - 2,560,954
--------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 368,637 2,702,309
--------------- ---------------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 8,744 (302,943)
CASH AT BEGINNING OF YEAR - 302,943
--------------- ---------------
CASH AT END OF YEAR $ 8,744 $ -
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 1,607,444 $ 209,098
=============== ===============
Income taxes paid $ 800 $ 800
=============== ===============
SUPPLEMENTAL DISCLOSURES OF NON-CASH FLOW
INFORMATION:
Common stock issued for acquisition subsidiary $ 525,000 $ 1,475,000
|
See Notes to the Consolidated Financial Statements
F-6
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
Notes to the Consolidated Financial Statements
December 31, 2008 and 2007
1. ORGANIZATIONS AND DESCRIPTION OF BUSINESS
Environmental Service Professionals, Inc. (the "Company") is a Nevada
corporation, incorporated on September 29, 1992 as Glass-Aired Industries Group,
LTD. The Company filed a certificate of amendment of articles of incorporation
on September 18, 2006 to change its name to Environmental Service Professionals,
Inc. effective October 11, 2006.
The Company's primary business is to offer various inspection services through
its subsidiary Environmental Safeguard Professionals, Inc. ("Safeguard"), to
address mandated energy certification, construction defects, moisture or other
environmental issues that impact 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial statements
follows:
The Company must restate its financial statements for the fiscal years ended
December 31, 2006 and 2007, as well as for the three months ended March 31,
2007, June 30, 2007, September 30, 2007, March 31, 2008, June 30, 2008,
September 30, 2008 to reflect the Security and Exchange Commission's concerns
regarding the Company's prior accountant's treatment of the business combination
which closed in October 2006. We do not anticipate that the changes to the
Company's financial statements will be material or that they will have a
material adverse effect on its business, but we cannot assure that the changes
will not adversely affect the trading price of Environmental Service
Professionals, Inc., Common Stock.
ACCOUNTING METHOD
The Company's policy is to use the accrual method of accounting to prepare and
present financial statements, which conforms to generally accepted accounting
principles ("GAAP"). The Company has elected a December 31, year-end.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles ("GAAP"), management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates. In accordance with FASB 16 all adjustments
are normal and recurring.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with a maturity of three months or
less from the date of purchase that are readily convertible into cash to be cash
equivalents. The Company maintains its cash in bank deposit accounts that may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
F-7
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
Notes to the Consolidated Financial Statements
December 31, 2008 and 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE
The Company's customer base consists of a geographically dispersed customer
base. Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate the
adequacy of these reserves. Reserves (if any) are recorded primarily on a
specific identification basis.
CONCENTRATION OF CREDIT RISK
The Company maintains their cash in bank deposit accounts that at times may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. Management believes that they are not exposed to any significant
credit risk related to cash.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Environmental
Service Professionals, Inc., the parent Company, and National Professional
Service Inc., a Delaware Corporation, Allstate Home Inspection & Household
Environmental Testing, Ltd, a Delaware corporation, which subsequently changed
its name to Environmental Safeguard Professionals, Inc. on February 1, 2008,
International Association Managers, Inc., a Minnesota corporation, National
Professional Services, Inc., a Delaware corporation, and Porter Valley Software,
Inc. a California corporation, the Company's wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
PROPERTY & EQUIPMENT
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expenses as incurred and additions, renewals and
betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for substantially all assets with estimated lives of three to eight
years.
F-8
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
Notes to the Consolidated Financial Statements
December 31, 2008 and 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The Company applies the provisions of Statement of Financial Accounting Standard
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
No. 144"), issued by the Financial Accounting Standards Board ("FASB"). FAS No.
144 requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable through the estimated undiscounted cash flows expected to
result from the use and eventual disposition of the assets. Whenever any such
impairment exists, an impairment loss will be recognized for the amount by which
the carrying value exceeds the fair value.
The Company tests long-lived assets, including property, plant and equipment and
intangible assets subject to periodic amortization, for recoverability at least
annually or more frequently upon the occurrence of an event or when
circumstances indicate that the net carrying amount is greater than its fair
value. Assets are grouped and evaluated at the lowest level for their
identifiable cash flows that are largely independent of the cash flows of other
groups of assets. The Company considers historical performance and future
estimated results in its evaluation of potential impairment and then compares
the carrying amount of the asset to the future estimated cash flows expected to
result from the use of the asset. If the carrying amount of the asset exceeds
estimated expected undiscounted future cash flows, the Company measures the
amount of impairment by comparing the carrying amount of the asset to its fair
value. The estimation of fair value is generally measured by discounting
expected future cash flows as the rate the Company utilizes to evaluate
potential investments. The Company estimates fair value based on the information
available in making whatever estimates, judgments and projections are considered
necessary. There was no impairment of long-lived assets in the year ended
December 31, 2008.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of financial accounting standard No. 107, Disclosures about fair value
of financial instruments, requires that the Company disclose estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying, as
financial instruments are a reasonable estimate of fair value. The carrying
amounts related to cash equivalents, accounts receivable, other current assets
and accounts payable approximate fair value due to the relatively short maturity
of such instruments. The fair value of long-term debt is estimated by
discounting the future cash flows of each instrument at rates currently
available to the Company for similar debt instruments of comparable maturities.
The Company's financial instruments primarily consist of cash and cash
equivalents, accounts receivable, advances to employees, accounts payable,
equipment deposits, and related party advances and borrowings.
As of the balance sheet dates, the estimated fair values of the financial
instruments were not materially different from their carrying values as
presented on the balance sheet. This is attributed to the short maturities of
the instruments and that interest rates on the borrowings approximate those that
would have been available for loans of similar remaining maturity and risk
profile at respective balance sheet dates.
F-9
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
Notes to the Consolidated Financial Statements
December 31, 2008 and 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company recognizes its revenue in accordance with the Securities and
Exchange Commissions ("SEC") Staff Accounting Bulletin No. 104 "Revenue
Recognition in Financial Statements" ("SAB 104"). SAB 104 revises or rescinds
portions of the interpretative guidance included in Topic 13 of the codification
of staff accounting bulletins in order to make this interpretive guidance
consistent with current authoritative accounting and auditing guidance and SEC
rules and regulations
Revenue recognized is revenue upon delivery, provided that evidence of an
arrangement exists, title, and risk of loss have passed to the customer, fees
are fixed or determinable, and collection of the related receivable is
reasonably assured.
The Company records revenue net of estimated service refunds, which is based
upon our refund policy.
The Company accrues the subscription based HLMP fees for future service delivery
and other allowances based on our experience.
Generally, if credited is extended to customers the Company does not require
collateral. The Company performs ongoing credit evaluations of our customers and
historic credit losses have been within their expectations.
The Company does not provide services until it has either a purchase agreement
or service agreement signed by the customer with a payment arrangement. This is
a critical policy, because management wishes the accounting to show only sales
that are "final" with a payment arrangement.
The Company does not make consignment sales, service sales or inventory sales
subject to a "buy back" or return arrangement from customers.
As of January 1, 2007, the Company ceased offering new franchises and did not
renew any franchise registration or make any franchise sales for the year ending
December 31, 2007 or the year ending December 31, 2008. All franchisees have
either been incorporated into the CEHI program or released for non-performance.
All franchisees that have been incorporated into the CEHI program or released
for non-performance have executed mutual releases for their previously owned
franchises.
COST OF REVENUE
Cost of revenue generated by Safeguard consists of costs related to cost of
goods sold for providing CEHI inspection services. Costs related to the CEHI
services include contractor fees, laboratory fees, related supplies, and
materials.
Cost of revenue generated by the interest on the accrual of the subscription
based HLMP fees consists of costs related to trust fund manager, bank fees, and
affinity programs.
Cost of revenue generated by NPS consists of costs related to cost of providing
membership services. Costs related to the membership services includes postage,
industry related information literature, related supplies and materials.
Cost of revenue generated by Porter Valley Software consists of costs related to
cost of providing application support and upgrade services. Costs related to the
application support service include application hosting, postage, telephone long
distance, industry related information literature, related supplies and
materials. Costs related to application upgrade services include on-going
development and programmer consultant fees.
F-10
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
Notes to the Consolidated Financial Statements
December 31, 2008 and 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
The Company expenses the cost of advertising as incurred or, as appropriate, the
first time the advertising takes place. Advertising costs for the years ended
December 31, 2008 and 2007 were $19,389 and $159,479, respectively.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The Company uses the intrinsic value method prescribed by APB 25 and has
opted for the disclosure provisions of SFAS No.123.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 (SFAS 109). Under SFAS 109, deferred income taxes are reported
using the liability method. Deferred tax assets are recognized for deductible
temporary differences and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is calculated in accordance with the Statement of financial
accounting standards No. 128 (SFAS No. 128), "Earnings per share." SFAS No. 128
superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per
share for all periods presented has been restated to reflect the adoption of
SFAS No. 128. Basic net loss per share is based upon the weighted average number
of common shares outstanding. Diluted net loss per share is based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure
About Segments of an Enterprise and Related Information" requires use of the
"management approach" model for segment reporting. The management approach model
is based on the way a company's management organizes segments within the company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a company. SFAS
131 has no effect on the Company's financial statements as substantially all of
the Company's operations are conducted in one industry segment.
F-11
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
Notes to the Consolidated Financial Statements
December 31, 2008 and 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT PRONOUNCEMENTS
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business
Combinations." The objective of this statement is to significantly change the
accounting for business combinations. Under Statement 141R, an acquiring entity
will be required to recognize all the assets acquired and liabilities assumed in
a transaction at the acquisition-date fair value with limited exceptions.
Statement 141 applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company does not expect the
adoption of SFAS No. 141R to have a material impact on the Company's financial
statements.
In December 2007, FASB issued FASB Statement No. 160, "Noncontrolling Interests
in Consolidated Financial Statements--an amendment of ARB No. 51." This
Statement applies to all entities that prepare consolidated financial
statements, except not-for-profit organizations, but will affect only those
entities that have an outstanding non-controlling interest in one or more
subsidiaries or that deconsolidate a subsidiary. Not-for-profit organizations
should continue to apply the guidance in Accounting Research Bulletin No. 51,
"Consolidated Financial Statements," before the amendments made by this
Statement, and any other applicable standards, until the Board issues
interpretative guidance. This Statement is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008 (that is, January 1, 2009, for entities with calendar year-ends). Earlier
adoption is prohibited. The effective date of this Statement is the same as that
of the related Statement 141(R). This Statement shall be applied prospectively
as of the beginning of the fiscal year in which this Statement is initially
applied, except for the presentation and disclosure requirements. The
presentation and disclosure requirements shall be applied retrospectively for
all periods presented. This statement has no effect on the financial statements
as the Company does not have any outstanding non-controlling interest.
In March 2008, the FASB issued FASB Statement No. 161, "Disclosures about
Derivative Instruments and Hedging Activities." The new standard is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity's financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity's financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows. FASB Statement
No. 161 achieves these improvements by requiring disclosure of the fair values
of derivative instruments and their gains and losses in a tabular format. It
also provides more information about an entity's liquidity by requiring
disclosure of derivative features that are credit risk-related. Finally, it
requires cross-referencing within footnotes to enable financial statement users
to locate important. Based on current conditions, the Company does not expect
the adoption of SFAS 161 to have a significant impact on its results of
operations or financial position.
3. ACCOUNTS RECEIVABLE
All accounts receivable are trade related. These receivables are current and
management believes are collectible except for which a reserve has been
provided. The balance of accounts receivable as of December 31, 2008 and 2007
were $79,814 and $138,180. The reserve amount for uncollectible accounts was
zero as of December 31, 2008 and 2007, respectively.
F-12
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
Notes to the Consolidated Financial Statements
December 31, 2008 and 2007
4. NOTES PAYABLE & LONG TERM LIBILITIES
Notes payable as of December 31, 2008 consist of the following:
December 31, 2008
---------------------------------------- --------------------------------------
Unsecured loans, with annual interest
of (various) $ 2,958,885
Unsecured notes, with annual interest
of 10% 1,243,934
---------------------------------------- --------------------------------------
$ 4,202,819
======================================== ======================================
|
The Company has various lines of credit. These lines of credit are in an
adjustable rate loan. The loans are open revolving lines of credit with annual
interest rates. There are no restrictions on the use of this line of credit.
There was an outstanding balance of $583,461 and $220,417, as of December 31,
2008 and 2007, respectively.
5. ACCRUED EXPENSES
Accrued expenses consisted of the following:
December 31, 2008 December 31, 2007
Accrued wages $ 45,342 $ 0
Other accrued expenses 188,407 144,502
--------------------- ----------------------
Total $ 233,749 $ 144,502
===================== ======================
|
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.
December 31, 2008 December 31, 2007
-------------------- -----------------------
Basic income / (loss) per share $ (0.16) $ (1.18)
==================== =======================
Weighted average number of shares
outstanding 43,748,777 18,250,793
==================== =======================
|
F-13
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
Notes to the Consolidated Financial Statements
December 31, 2008 and 2007
7. INCOME TAXES
No provision was made for Federal income tax for the year ended December 31,
2006 and 2005, since the Company had significant net operating loss. As of
December 31, 2008, the Company incurred net operating losses for tax purposes of
approximately $32,409,171. The net operating loss carry forwards may be used to
reduce taxable income through the year 2028. The availability of the Company's
net operating loss carry forwards are subject to limitation if there is a 50% or
more positive change in the ownership of the Company's stock. The provision for
income taxes consists of the state minimum tax imposed on corporations.
December 31, 2008 December 31, 2007
------------------------------- ---------------------- ----------------------
Accumulated deficit as of: $ (32,409,171) $ (21,468,106)
Gross income tax benefit 11,019,118 7,513,837
Valuation allowance (11,019,118) (7,513,837)
------------------------------- ---------------------- ----------------------
Net income tax benefit $ - $ -
=============================== ====================== ======================
|
8. STOCKHOLDERS' EQUITY
The stockholders' equity section of the Company contains the following classes
of capital stock as of December 31, 2008:
o Common stock, $ 0.001 par value
o Authorized: 100,000,000
o Issued: 55,398,595
COMMON STOCK
On February 21, 2008 the Company issued 100,000 shares for services rendered @
$0.14 per share.
On March 17, 2008 the Company issued 100,000 shares for services rendered @
$0.15 per share.
|
On March 19, 2008 the Company issued 25,000 shares for services rendered @ $0.15
per share.
On June 7, 2008 the Company issued 2,179,504 shares for services rendered @
$0.09 per share.
On June 10, 2008 the Company issued 25,000,000 shares for director fees rendered
@ $0.15 per share.
On June 10, 2008 the Company issued 800,000 shares for services rendered @ $0.15
per share.
On June 20, 2008 the Company issued 500,000 shares for services rendered @ $0.15
per share.
On July 29, 2008 the Company issued 110,000 shares for services rendered @ $0.09
per share.
On August 15, 2008 the Company issued 438,965 shares for services rendered @
$0.06 per share.
On August 21, 2008 the Company issued 98,324 shares for services rendered @
$0.08 per share.
|
On September 23, 2008 the Company issued 200,000 shares for services rendered @
$0.06 per share.
On September 24, 2008 the Company issued 545,000 shares for services rendered @
$0.06 per share.
F-14
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
Notes to the Consolidated Financial Statements
December 31, 2008 and 2007
8. STOCKHOLDERS' EQUITY (CONTINUED)
On September 24, 2008 the Company issued 200,000 shares to employees @ $0.06 per
share.
On October 29, 2008 the Company issued 311,615 shares for services rendered @
$0.06 per share.
On November 21, 2008 the Company issued 1,000,000 shares for services rendered @
$0.05 per share.
On November 24, 2008 the Company issued 235,000 shares for services rendered @
$0.04 per share.
On November 24, 2008 the Company issued 125,000 shares for cash @ $0.04 per
share.
On December 15, 2008 the Company issued 1,446,812 shares for services rendered @
$0.04 per share.
On December 23, 2008 the Company issued 200,000 shares in acquisition of Porter
Valley @ $0.04 per share.
At December 31, 2008 the Company had 55,398,595 shares of common stock
outstanding.
WARRANTS
During the year ended December 31, 2008, the Company issued 1,500,000 warrants
to purchase 1,500,000 shares of common stock with an exercise price of $0.17
exercisable for a period of three years from the date of issuance pursuant to a
private placement for cash. These warrants have a fair value of $255,000
determined using the Black Scholes pricing model.
During the year ended December 31, 2008, the Company issued warrants to purchase
1,399,997 shares of common stock with an exercise price of $0.25 exercisable for
a period of three years from the date of issuance in conjunction with loans made
to the Company. The warrants have a fair value of $349,999 determined using the
Black Scholes pricing model.
During the year ended December 31, 2008, the Company issued 600,000 warrants to
purchase 600,000 shares of common stock with an exercise price of $0.58
exercisable for a period of three years from the date of issuance for penalties
on loans with a fair value of $348,000 determined using the Black Scholes
pricing model.
During the year ended December 31, 2008, the Company issued 600,000 warrants to
purchase 600,000 shares of common stock with an exercise price of $0.75
exercisable for a period of three years from the date of issuance for consulting
services with a fair value of $450,000 determined using the Black Scholes
pricing model.
During the year ended December 31, 2007, the Company issued 350,000 warrants to
purchase 350,000 shares of common stock with an exercise price of $0.01
exercisable for a period of three years from the date of issuance for
key-personal retention with a fair value of $3,500 determined using the Black
Scholes pricing model.
During the year ended December 31, 2007, the Company issued 1,311,245 warrants
to purchase 1,311,245 shares of common stock with an exercise price of $0.25
exercisable for a period of three years from the date of issuance pursuant to a
private placement for cash. These warrants have a fair value of $327,811
determined using the Black Scholes pricing model.
F-15
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
Notes to the Consolidated Financial Statements
December 31, 2008 and 2007
8. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
During the year ended December 31, 2007, the Company issued 86,000 warrants to
purchase 86,000 shares of common stock with an exercise price of $0.58
exercisable for a period of three years from the date of issuance in conjunction
with loans made to the Company. The warrants have a fair value of $49,880
determined using the Black Scholes pricing model.
During the year ended December 31, 2007, the Company issued 125,000 warrants to
purchase 125,000 shares of common stock with an exercise price of $0.75
exercisable for a period of three years from the date of issuance for penalties
on loans with a fair value of $156,250 determined using the Black Scholes
pricing model.
During the year ended December 31, 2007, the Company issued 367,400 warrants to
purchase 367,400 shares of common stock with an exercise price of $1.25
exercisable for a period of three years from the date of issuance for consulting
services with a fair value of $551,100 determined using the Black Scholes
pricing model.
OPTIONS
In April 2008, the Company issued stock options to purchase 800,000 shares of
our common stock at an exercise price of $0.10 per share to two independent
directors. In October 2008, the Company issued stock options to purchase 250,000
shares of our common stock at an exercise price of $0.10 per share to one
independent director. On March 2, 2009, the Company issued options to purchase
900,000 shares of our common stock at an exercise price of $0.05 per share to
our three independent directors.
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect method as
defined under the Financial Accounting Standard No. 95.
The Company paid income taxes of $800 and interest of $1,607,444 during the year
2008. The Company paid income taxes of $800 and interest of $209,099 during the
year 2007.
10. GOING CONCERN
The Company's financial statements are prepared using the 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. In the years ended December 31, 2008 and 2007, the Company had
incurred losses of $7,212,194 and $21,468,106, respectively. The Company has
accumulated deficit of $31,237,713 on December 31, 2008. In addition, the
Company had minimum cash flow from operating activities amounting of $8,744
during the year ended December 31, 2008. The continuing losses have adversely
affected the liquidity of the Company.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to raise additional capital, obtain
financing and to succeed in its future operations. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
F-16
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
Notes to the Consolidated Financial Statements
December 31, 2008 and 2007
10. GOING CONCERN (CONTINUED)
Management has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue as a going concern. Management devoted considerable effort
during the years ended December 31, 2007 and 2008, toward (i) obtaining
additional equity financing and in that regard, the Company is in the process of
offering to sell more shares in private placements to accredited investors, (ii)
controlling of salaries and general and administrative expenses, (iii)
management of accounts payable, (iv) evaluation of its distribution and
marketing methods, and (v) increasing marketing and sales. In order to control
general and administrative expenses, the Company has established internal
financial controls in all areas, specifically in hiring and overhead cost. The
Company has also established a hiring policy under which the Company will
refrain from hiring additional employees unless approved by the CEO and CFO.
Accounts payable are reviewed and approved or challenged on a daily basis and
the sales staff is questioned as to the validity of any expense on a monthly
basis. Senior management reviews the annual budget to ascertain and question any
variance from plan, on a quarterly basis, and to anticipate and make adjustments
as may be feasible.
11. COMMITTMENTS
The Company is on a month to months lease agreement. The Company had no future
minimum lease commitments, including property taxes and insurance, payable at
December 31, 2008.
Rent expenses for leased facility was $142,756 for the year ended December 31,
2008. It is anticipated that the company will consolidate and re-located to a
new central main office in Palm Springs during the second quarter of 2009.
12. ACQUISITIONS
On or about June 19, 2008, the "Closing"), Environmental Service Professionals,
Inc. (the "Company"), Porter Valley Software, Inc., a California corporation
("PVS"), and Keith Swift, Jackie Swift and Lorne Steiner, an individual and 100
% shareholders of PVS ("Sellers"), completed the closing of a stock purchase
agreement (the "SPA") pursuant to which the Company acquired 100% of the total
issued and outstanding stock of PVS in exchange for 650,000 shares of the
Company's common stock issuable in installments over time (the "Stock Payment"),
plus $400,000 in cash, payable in installments over time (the "Cash Payment").
As a result of the Closing, PVS is a wholly owned subsidiary of the Company.
13. CONTINGENCIES & LITIGATION
Primarily in connection with the non-performance of two equity investors, the
Company became engaged in litigation in several courts. JOHN COOLEY V. PACIFIC
ENVIRONMENTAL SAMPLING, INC. ETC., ET AL and STEINER V. KEITH SWIFT, JACKI
SWIFT, INDIVIDUALS, ENVIRONMENTAL SERVICE PROFESSIONALS, INC. as a
cross-defendant, which are still in litigation and none have reached judgment or
been settled or dismissed. The company has retained appropriate counsel and all
retainer fees are reflected in the liability section of the Company's balance
sheet and total $7,500.
Primarily in connection with the non-performance of two equity investors, the
Company has had three judgments imposed; Palm Desert National Bank for
$284,761.89, David Reichman for $95,463.00 and BOCA funding for $741,839.00.
These amounts are included in our current financials and negatively impact the
liquidity of the Company.
The Company has an obligation to re-purchase 215,321 shares of its common stock
at a price of $1.00 per share (129,310 shares issued to Pacific Image Connect,
Inc. and 86,011 shares issued to Niv Benshalom.
F-17
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
Notes to the Consolidated Financial Statements
December 31, 2008 and 2007
14. RELATED PARTY TRANSACTION
The Company has a consulting agreement with one of the independent Directors of
the Company under which he receives fees of $5,000 per month plus expenses. This
independent Director provides marketing, and financial services to the Company
pursuant to the consulting agreement, which is terminable on 30 days, notice by
either party. The consulting agreement commenced on July 1, 2007, and will
continue until such time as the Company terminates the agreement or the
independent Director elects to cease providing the consulting services. The
compensation has been included in accrued expenses.
The Company has a consulting agreement with the Chief Operating Officer of the
Company under which he currently receives fees of $14,550 per month plus
expenses. The Chief Operating Officer provides management, administrative,
marketing, and financial services to the Company pursuant to the consulting
agreement, which is terminable on 30 days notice by either party. The consulting
agreement commenced on April 1, 2006 and will continue until such time as the
Company terminates the agreement or the Chief Executive Officer resigns. The
accrued un-paid fees and expenses to Chief Operating Officer of $29,840.24 for
the period ending December 31, 2007, $139,259.59 for the period ending December
31, 2008, and $43,864.20 for the period ending March 31, 2009 for a combined
total of $212,964.03 has been included in due to consultants.
During the normal course of business, the Chief Executive Officer authorized the
advancement of funds to the Company. These advances are recorded as due to
Pro-Active Business Services, Inc. As of February 27, 2007 the Company has a
loan payable to Pro-Active Business Services, Inc. in the amount of $192,086.99
plus $48,038.36 of interest. This is an unsecured loan with an interest rate of
5%. Interest is currently being waived.
As of December 31, 2008 the Company has a loan payable due to Joseph Leone, a
former director and current stockholder of the Company in the amount of $22,900.
This is an unsecured loan with an interest rate of 3% per annum. As of June
2007, Mr. Leone has agreed to waive all accrued interest.
15. SUBSEQUENT EVENTS
Effective on February 19, 2009, holders of 31,541,483 shares of the Company's
common stock, or approximately 60.0% of the total issued and outstanding common
stock of the Company, voted to amend the Company's Certificate of Incorporation
in order to increase the number of authorized shares of common stock from
100,000,000, par value $0.001 per share, to 295,000,000, par value $0.001 per
share and to increase the number of authorized shares of preferred stock from
1,000,000, par value $0.01 per share, to 5,000,000, par value $0.001 per share.
The Board of Directors of the Company voted unanimously to implement this
shareholder action. On January 27, 2009, the Company filed a Certificate of
Designation to authorize 3,000,000 shares of Series A Preferred Stock, none of
which have been issued.
Each share of Series A Preferred Stock has no voting rights.
Shares of Series A Preferred Stock converted into shares of Common
Stock will have the same voting rights of other Common Stock. At the
time of conversion each share of Series A Preferred Stock shall be
converted at a rate of 40 shares of Common Stock for each share of
Series A Preferred Stock. The Company has reserved an aggregate of up
to 120,000,000 shares of Common Stock for issuance upon the conversion
of the Series A Preferred Stock. The Series A Preferred Stock will
participate with the Common Stock on an as-converted basis with respect
to any dividends, which may be declared by the Board of Directors. The
terms of the Series A Preferred Stock are more fully described in the
Certificate of Designation filed with the Secretary of State of the
State of Nevada on January 27, 2009, establishing the preferences,
limitations and relative rights of the Series B Preferred Stock.
A copy of the Certificate of Designation for the Series A
Preferred Stock is filed as Exhibit A to Form 14-C and is incorporated
herein by reference.
F-18
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
Notes to the Consolidated Financial Statements
December 31, 2008 and 2007
15. SUBSEQUENT EVENTS (CONTINUED)
On February 20, 2009, the Company filed a Certificate of Designation to
authorize 3,000 shares of Series B Preferred Stock, of which 3,000 shares have
been issued to the Chief Executive Officer of the Company.
Each share of Series B Preferred Shares has 50,000 votes and
will vote with the holders of the Common Stock as one class. The
liquidation preference of Series B Preferred Stock is hundredth of a
cent ($0.001) per share of Series B Preferred Stock. The Series B
Preferred Stock will not participate with respect to any dividends,
which may be declared by the Board of Directors. The terms of the
Series B Preferred Stock are more fully described in the Certificate of
Designation filed with the Secretary of State of the State of Nevada on
February 24, 2009, establishing the preferences, limitations and
relative rights of the Series B Preferred Stock.
A copy of the Certificate of Designation for the Series B
Preferred Stock is filed as Exhibit 3.1 to Form 8-K and is incorporated
herein by reference.
On January 27, 2009, the Company issued a private placement memorandum to raise
$30,000,000.
F-19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A(T). 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 December 31, 2008 (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.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and
maintaining adequate internal control over financial reporting, (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934). The Company'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.
Furthermore, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate due to change in
conditions, or the degree of compliance with the policies or procedures may
deteriorate.
Under the supervision and with the participation of the Company's Chief
Executive Officer and Acting Chief Financial Officer, the Company conducted an
evaluation of the effectiveness of its control over financial reporting as of
-30-
December 31, 2008. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO") in internal control-integrated framework. 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.
AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
This annual report does not include an attestation report of the
Company's registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
Company's registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management's report in this annual report.
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 fourth
quarter, ESP completed procedures to achieve Sarbanes-Oxley 404 compliance,
which were tested during and since the fourth quarter.
INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
The Company's management does not expect that its disclosure controls
or its internal control over financial reporting will prevent or detect all
error and all fraud. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control system's
objectives will be met. The design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the individual acts of
some persons, by collusion of two or more people, or management override of the
controls. The design of any system of controls is based in part on certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Projections of any evaluation of controls effectiveness to
future periods are subject to risks. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of compliance
with policies or procedures.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
BOARD OF DIRECTORS
Our Board of Directors currently consists of five directors. Messrs.
Moyer, August, and Iger are "independent" as defined in Rule 4200 of FINRA's
listing standards. Mr. Torres, who is our President and Chief Executive Officer,
and Mr. Watkins, who is our Chief Operating Officer and Corporate Secretary, are
not independent.
The following table sets forth the directors, executive officers, and
key consultants of ESP as of March 31, 2009:
-31-
------------------------ --------- -------------------------------------------------------------- --------------------
NAME AGE POSITION SINCE
------------------------ --------- -------------------------------------------------------------- --------------------
Edward L. Torres 50 Chairman, Chief Executive Officer, President and Acting October 11, 2006
Chief Financial Officer
Lyle Watkins 48 Director, Chief Operating Officer, and Corporate Secretary October 11, 2006
Leroy Moyer (1)(2) 66 Director April 1, 2007
S. Robert August(2) 60 Director May 31, 2007
Robert S. Iger(2) 68 Director August 29, 2008
------------------------ --------- -------------------------------------------------------------- --------------------
(1) Member of Audit Committee
(2) Independent member of the board of directors
|
EDWARD TORRES, age 50, has been the Chairman, Chief Executive Officer,
and President of ESP since October 2006 and of Safeguard since February 2007.
Mr. Torres has over 25 years of business development experience as an
entrepreneur in several professional industries. Mr. Torres graduated with a
Bachelor's Degree in Business Development, and established a national
manufacturing service business with Priority Sales and Service. After several
years with that company, Mr. Torres merged the company with Sandelos USA, a
national company known for its kitchen and bath products. He oversaw
international production and distribution of the products for the U.S. market,
as well as participated in the acquisition of Sandelos, USA during the mid
1990's. In 1996, he participated in the acquisition of Commercial Labor
Management, Inc., a public entity, and arranged its reverse merger with Zeros &
Ones, Inc., a technology company currently traded on Pink Sheets. During 1996
Mr. Torres also participated in the formation of Joint Employers Group, a
California based professional employer organization. Overseeing the company's
marketing and sales division, he was instrumental in increasing its revenue from
$100,000 in 1995 to $65 million in 2001. In 2003 Mr. Torres arranged the sale of
Joint Employers Group, Inc. to ITEC, a publicly traded company in the human
resource industry. In 2003 Mr. Torres, through Pro-Active Business Services,
founded Contempo Homes and was instrumental in obtaining 71 acres for the
development of 130 homes. All of the homes built by Contempo Homes, Inc.
incorporate distinct architectural design, modern conveniences, and Green
Technology, also known as ContempoGREEN and EcoModern. The combination of these
various elements makes Contempo homes unique and desirable. In 2005, Pro-Active
and Mr. Torres sold their holdings in Contempo Homes and currently provide land
development and entitlement procurement consulting services to clients in the
City of Palm Springs and in the Coachella Valley communities. Mr. Torres serves
on several local task forces and on a variety of building industry
organizations, which have helped to establish his influence in many Coachella
Valley cities. He sits on the Building Industry Association Board of Directors
as Immediate Past President of the Desert Chapter, Senior Officer of the
Southern California Building Industry Association, President of the Palm Springs
Economic Development Corporation (PSEDC), and has served or serving is a member
of the City Task Force for establishing new development standards for the City
of Palm Springs and business retention guidelines.
LYLE WATKINS, age 48, has been a Director and Corporate Secretary of
ESP since October 2006. He has been the Chief Operating Officer of ESP since
October 2006 and of each of its wholly owned subsidiaries (Environmental
Safeguard Professionals, Inc., Porter Valley Software, Inc. and National
Professional Services, Inc.) as they were acquired. Mr. Watkins has an Applied
Science Degree - Telecommunications, and received a Masters Degree in Business
Administration in 1996. He has served as Chief Financial Officer of Pacific
Image Connect, Inc. in Thousand Oaks, California. He served as Director of
Systems Engineering of Rhythms NetConnections, Inc. in Englewood, Colorado, and
a Manager of Business Development for GTE International. As Manager of Business
Development, he directed the operations of engineering and sales support for a
strategic business unit with a sales support staff including engineers, market
development managers, program and project managers, trainers, database analysts,
contract administrators and field operations desk staff. During his tenure, top
line revenue of his strategic business unit increased 275% to $250 million, the
department expanded from 22 personnel to 159 personnel, he managed assets and
administered an $18 million annual expense budget, expenses were reduced by 15%
and profitability increased by $3 million. Mr. Watkins has also managed the
review of cash flow and value statement analysis, developed and launched a fiber
based metropolitan ATM service, and negotiated technology and exclusive
marketing agreements with property developers in Canada, the United States, Hong
Kong and the Philippines. Mr. Watkins has developed joint ventures between
telecommunications companies and property developers including design,
implementation and service delivery of advanced CATV networks. He has performed
market development and new business implementation throughout North America and
Southeast Asia.
-32-
LEROY MOYER, age 66, has been a Director of ESP since April 2007. Mr.
Moyer is a Certified Public Accountant and currently is the Director of Business
Development for Dimensional Insight, a business intelligence and corporate
performance management company that delivers software and services that help
companies drive, monitor and understand corporate performance. Mr. Moyer began
his career with Deloitte, Haskins & Sells (subsequently Deloitte and hereinafter
referred to as "Deloitte") where he was responsible for multiple clients who
ranged from recently funded start-up companies to multinational Global 1000
corporations. In 1980 he was elected a Partner of Deloitte. His career with
Deloitte included over 22 years serving the unique and complex needs of emerging
technology businesses, international experience in Deloitte's Paris office and
Deloitte's New York executive office where he provided expert technical advice
on SEC matters, mergers and acquisitions. In Mr. Moyer's SEC department role, he
worked extensively with Deloitte clients, underwriters and investment bankers on
significant reporting, filing and disclosure matters. Mr. Moyer has also served
as a Vice President of Finance, as well as Chief Financial Officer of both
private and public companies focused on high technology, telecommunications,
software, hardware, and manufacturing. Mr. Moyer has been both an inside and
independent member of various Boards of Directors, and has experience in
information technology systems, contracts, treasury, legal, tax, risk
management, pricing and sales and strategic planning.
S. ROBERT AUGUST, age 60 has been a Director of ESP since May 31, 2007.
Mr. August is the President and founder of S. Robert August & Company, Inc., a
national marketing and management firm specializing in servicing real estate
builders, developers, realtors, economic development councils, suppliers,
manufacturers, and related businesses. The company, located in Denver, Colorado,
was founded by Mr. August in 1983. Mr. August is also the founder of
RealtyWorks, Inc., a real estate firm founded in 1995 in Denver, Colorado,
specializing in land and new home sales, which operated until 2006. From 1983 to
1995, Mr. August was the founder and President of S. Robert August Realty
Corporation in Denver, Colorado, specializing in land and new home sales. Mr.
August was the Vice President of Marketing and Sales for Stuart R. Scott &
Associates, Inc. from 1982 to 1983, where he trained, supervised and motivated a
real estate sales force for six residential communities. Mr. August has also
served as a Director of Marketing for The Ranch in Denver, Colorado, from 1978
to 1982, a Project Manager for Tollin-Grayboyes from 1976 to 1978, and other
positions in real estate sales and consulting. Mr. August has a Bachelor of Arts
Degree in Labor Management Relations from Pennsylvania State University and a
Masters of International Management from the American Graduate School of
International Management (1976). Mr. August is also active in fund raising for
Children's Hospital, Multiple Sclerosis, Hospice of Metro Denver, Colorado
Easter Seal Society, Show Home for Hope, Bridge Project, Colorado AIDS Project,
Colorado Pediatric Aids Foundation, Home Builders Foundation, and National
Association of Home Builders' ("NAHB") Home Builders Care. Mr. August serves as
a Past Chairman of the NAHB's National Sales and Marketing Council.
ROBERT IGER, age 68, has been a Director of ESP since August 29, 2008.
Mr. Iger is a founder of Iger & Associates, which, 2003, has represented local
and national clients before local, state, and federal public officials providing
political leadership in complex government matters. He works closely with
elected and appointed public officials on public finance, transportation,
airport, land use, and healthcare matters. He advises clients on business
development opportunities. He also provides timely information on any legal,
regulatory, and legislative changes impacting clients. He has an extensive
business background in corporate governance, legal support, and corporate
financing. From 1989 to 1990, Mr. Iger was the Chief Executive Officer, of
ColorMax, a public company. Also from 1982 to 1994, he was a Senior Vice
President for Oxford First Corporation. From 1994 to 1996, he ran LAR Holdings &
Eventide Capital, a venture capital firm. From 1979 to 1981, he was General
Manager of Candle Corporation, a start-up computer software company. From 1969
to 1977, Mr. Iger was with Xerox Corporation and when he left he was in charge
of strategic planning for the largest division of Xerox. He is an active member
of the California Bar and holds a Juris Doctor Degree from Western State
University. He earned a Bachelor's Degree in Economics and a Masters Degree in
Econometrics from the State University of New York at Buffalo. He also taught an
Economics course at the State University of New York at Buffalo, Millard
Fillmore College, and University of Phoenix. As an officer of the United States
Air Force, Mr. Iger was commissioned at the age of 20 years old.
No officer or director is required to make any specific amount or
percentage of his business time available to us. Each of our officers intends to
devote such amount of his or her time to our affairs as is required or deemed
appropriate by us.
-33-
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Nevada General Corporation Law and ESP's Articles of
Incorporation, ESP's directors will have no personal liability to ESP's
stockholders for monetary damages incurred as the result of the breach or
alleged breach by a director of his "duty of care." This provision does not
apply to the directors' (i) acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) acts or omissions
that a director believes to be contrary to the best interests of the corporation
or its shareholders or that involve the absence of good faith on the part of the
director, (iii) approval of any transaction from which a director derives an
improper personal benefit, (iv) acts or omissions that show a reckless disregard
for the director's duty to the corporation or its shareholders in circumstances
in which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of serious injury to the
corporation or its shareholders, (v) acts or omissions that constituted an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation or its shareholders, or (vi) approval of an unlawful
dividend, distribution, stock repurchase or redemption. This provision would
generally absolve directors of personal liability for negligence in the
performance of duties, including gross negligence.
The effect of this provision in ESP's Articles of Incorporation is to
eliminate the rights of ESP's stockholders (through stockholder's derivative
suits on behalf of ESP) to recover monetary damages against a director for
breach of his fiduciary duty of care as a director (including breaches resulting
from negligent or grossly negligent behavior) except in the situations described
in clauses (i) through (vi) above. This provision does not limit nor eliminate
the rights of ESP or any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
In addition, ESP's Articles of Incorporation provide that if Nevada law is
amended to authorize the future elimination or limitation of the liability of a
director, then the liability of the directors will be eliminated or limited to
the fullest extent permitted by the law, as amended. Nevada General Corporation
Law grants corporations the right to indemnify their directors, officers,
employees and agents in accordance with applicable law. ESP's Bylaws provide for
indemnification of such persons to the full extent allowable under applicable
law. These provisions will not alter the liability of the directors under
federal securities laws.
Furthermore, management has entered into agreements to indemnify ESP's
directors and officers, in addition to the indemnification provided for in ESP's
Bylaws. These agreements, among other things, indemnify ESP's directors and
officers for certain expenses (including attorneys' fees), judgments, fines, and
settlement amounts incurred by any such person in any action or proceeding,
including any action by or in the right of ESP, arising out of such person's
services as a director or officer of ESP, any subsidiary of ESP or any other
company or enterprise to which the person provides services at the request of
ESP. We believe that these provisions and agreements are necessary to attract
and retain qualified directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling ESP pursuant
to the foregoing provisions, ESP has been informed that in the opinion of the
SEC, such indemnification is against public policy as expressed in the Act and
is therefore unenforceable.
BOARD COMMITTEES
Our Board of Directors currently has a standing Audit Committee and a
Compensation Committee. We plan to establish a Nominating and Governance
Committee. Until such committee is established, matters otherwise addressed by
such committee will be acted upon by the majority of independent directors. The
following is a brief description of our committees and contemplated committee.
AUDIT COMMITTEE
Mr. Moyer is the sole member of our Audit Committee. Mr. Moyer meets
the applicable FINRA listing standards for designation as an "Audit Committee
Financial Expert." The Board of Directors has adopted a written charter of the
Audit Committee. The Audit Committee is authorized by the Board of Directors to
review, with our independent accountants, the annual financial statements of ESP
prior to publication, and to review the work of, and approve non-audit services
preformed by, such independent accountants. The Audit Committee will make annual
-34-
recommendations to the Board for the appointment of independent public
accountants for the ensuing year. The Audit Committee will also review the
effectiveness of the financial and accounting functions and the organization,
operations and management of ESP. The Audit Committee was formed April 2007.
Pursuant to the Audit Committee charter, the functions of our Audit
Committee include:
o meeting with our management periodically to consider the
adequacy of our internal controls and the objectivity of our
financial reporting;
o engaging and pre-approving audit and non-audit services to be
rendered by our independent auditors;
o recommending to our Board of Directors the engagement of our
independent auditors and oversight of the work of our
independent auditors;
o reviewing our financial statements and periodic reports and
discussing the statements and reports with our management,
including any significant adjustments, management judgments
and estimates, new accounting policies and disagreements with
management;
o establishing procedures for the receipt, retention and
treatment of complaints received by us regarding accounting,
internal accounting controls and auditing matters;
o administering and discussing with management and our
independent auditors our code of ethics; and
o reviewing and approving all related-party transactions in
accordance with applicable listing exchange rules.
COMPENSATION COMMITTEE
The Company established a Compensation Committee on August 31, 2008,
which consists of one director, S. Robert August. The Compensation Committee is
responsible for reviewing general policy matters relating to compensation and
benefits of directors and officers, determining the total compensation of our
officers and directors. The Board of Directors does not have a nominating
committee. Therefore, the selection of persons or election to the Board of
Directors was neither independently made nor negotiated at arm's length.
The functions of our compensation committee will include:
o reviewing and, as it deems appropriate, recommending to our
board of directors, policies, practices and procedures
relating to the compensation of our directors and executive
officers and the establishment and administration of certain
of our employee benefit plans;
o exercising authority under certain of our employee benefit
plans; and
o reviewing and approving executive officer and director
indemnification and insurance matters.
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
We plan to establish a corporate governance and nominating committee.
The functions of our corporate governance and nominating committee will include:
o developing and recommending to our board of directors our
corporate governance guidelines;
o overseeing the evaluation of our board of directors;
o identifying qualified candidates to become members of our
board of directors;
o selecting nominees for election of directors at the next
annual meeting of shareholders (or special meeting of
shareholders at which directors are to be elected); and
o selecting candidates to fill vacancies on our board of
directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our compensation committee will serve as a member of the
board of directors or the compensation committee of any entity that has one or
more executive officers who serve on our board of directors or compensation
-35-
committee. No interlocking relationship exists between our board of directors
and the board of directors or compensation committee of any other company, nor
has any interlocking relationship existed in the past.
REPORT OF THE AUDIT COMMITTEE
The Company's Audit Committee has reviewed and discussed the Company's
audited financial statements for the fiscal year ended December 31, 2008 with
senior management. The Audit Committee has reviewed and discussed with
management the Company's audited financial statements. The Audit Committee has
also discussed with Stan Lee, Certified Public Accountants ("SL"), the Company's
independent auditors, the matters required to be discussed by the statement on
Auditing Standards No. 61 (Communication with Audit Committees) and received the
written disclosures and the letter from SL required by Independence Standards
Board Standard No. 1 (Independence Discussion with Audit Committees). The Audit
Committee has discussed with SL the independence of SL as auditors of the
Company. Finally, the Audit Committee has considered whether the independent
auditors provision of non-audit services to the Company is compatible with the
auditors' independence. Based on the foregoing, the Company's Audit Committee
has recommended to the Board of Directors that the audited financial statements
of the Company be included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2008 for filing with the United States Securities
and Exchange Commission ("SEC"). The Company's Audit Committee did not submit a
formal report regarding its findings.
AUDIT COMMITTEE
LEROY MOYER
Notwithstanding anything to the contrary set forth in any of the
Company's previous or future filings under the Securities Act of 1933, as
amended (the "Securities Act"), or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that might incorporate this report in future
filings with the Securities and Exchange Commission, in whole or in part, the
foregoing report shall not be deemed to be incorporated by reference into any
such filing.
CODE OF CONDUCT
ESP has adopted a Code of Conduct that applies to all of our directors,
officers and employees. The text of the Code of Conduct has been posted on ESP's
Internet website and can be viewed at http://www.evsp.com. Any waiver of the
provisions of the Code of Conduct for executive officers and directors may be
made only by the Audit Committee and, in the case of a waiver for members of the
Audit Committee, by the Board of Directors. Any such waivers will be promptly
disclosed to ESP's shareholders.
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and certain persons who own more than 10% of a registered class of
the Company's equity securities (collectively, "Reporting Persons"), to file
reports of ownership and changes in ownership ("Section 16 Reports") with the
Securities and Exchange Commission (the "SEC"). Reporting Persons are required
by the SEC to furnish the Company with copies of all Section 16 Reports they
file.
Based solely on its review of the copies of such Section 16 Reports
received by it, or written representations received from certain Reporting
Persons, all Section 16(a) filing requirements applicable to the Company's
Reporting Persons during and with respect to the fiscal year ended December 31,
2008 have been complied with on a timely basis, except that Edward Torres and
Lyle Watkins may have been late on their initial Form 3 filings.
-36-
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE OFFICER COMPENSATION
The following table summarizes the compensation paid or accrued by ESP
for the year ended December 31, 2008 and for the year ended December 31, 2007
for services rendered in all capacities, by the Company's chief executive
officer and chief operating officer during the fiscal years ended December 31,
2008 and December 31, 2007.
SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------------------------------------------------
NAME AND OPTION
PRINCIPAL POSITION AWARDS ALL OTHER
(1) YEAR SALARY BONUS STOCK AWARDS ($) ($) COMPENSATION TOTAL
----------------------------------------------------------------------------------------------------------------------
Edward L. Torres, 2008 $165,375 0 $ 1,020,000 0 0 $ 1,185,375
Chief Executive
Officer(2) 2007 $120,000 0 0 0 0 $ 120,000
----------------------------------------------------------------------------------------------------------------------
Lyle A. Watkins, 2008 0 0 $ 480,000 0 $135,977 $ 615,977
Chief Operating
Officer(3) 2007 0 0 0 0 $114,680 $ 114,680
----------------------------------------------------------------------------------------------------------------------
OFFICERS AS A GROUP 2008 $165,375 0 $ 1,500,000 0 $135,977 $ 1,801,352
2007 $120,000 0 $ 0 0 $114,680 $ 234,680
----------------------------------------------------------------------------------------------------------------------
--------------------------------------------------
(1) All officers serve at will without employment contracts except that
Lyle Watkins is employed under a consulting agreement. See "Certain
Relationships and Transactions - Item 13."
(2) The Company has accrued un-paid salary and expenses to Mr. Torres of
$13,750.00 for the period ending December 31, 2007, $135,750.12 for the
period ending December 31, 2008, and $34,453.15 for the period ending
March 31, 2009 for a combined total of $183,953.27. In consideration
for his continued services to the Company, on or about April 28, 2008,
the Company authorized the issuance of 17,000,000 shares of the
Company's common stock to Mr. Edward Torres, the Chief Executive
Officer and Acting Chief Financial Officer of the Company.
(3) The Company has accrued un-paid fees and expenses to Mr. Watkins of
$29,840.24 for the period ending December 31, 2007, $139,259.59 for the
period ending December 31, 2008, and $43,864.20 for the period ending
March 31, 2009 for a combined total of $212,964.03. In consideration
for his continued services to the Company, on or about April 28, 2008,
the Company authorized the issuance of 8,000,000 shares of the
Company's common stock to Mr. Lyle Watkins, the Chief Operating Officer
and Corporate Secretary of the Company.
|
EMPLOYMENT AGREEMENTS
The Company has not entered into any employment agreements with its
executive officers to date. The Company may enter into employment agreements
with them in the future.
Lyle A. Watkins, the Company's Chief Operating Officer, is engaged
pursuant to a consulting agreement. See "Certain Relationships and Transactions
- Item 13."
OUTSTANDING EQUITY AWARDS
None of the Company's executive officers received any stock options or
unvested stock awards during the year ended December 31, 2008.
OPTION EXERCISES AND STOCK VESTED
The following table summarizes the equity compensation paid by ESP for
the year ended December 31, 2008 to the Company's chief executive officer and
chief operating officer.
-37-
DIRECTOR COMPENSATION
The following table summarizes the compensation paid or accrued by us
for the year ended December 31, 2008 to ESP's directors who are not also
executive officers of the Company and who were serving as directors of ESP on
December 31, 2008.
DIRECTOR COMPENSATION
--------------------------------------------------------------------------------------------------------------------
NAME FEES EARNED STOCK OPTION NON-EQUITY ALL OTHER
OR PAID IN AWARDS ($) AWARDS ($) INCENTIVE PLAN COMPENSATION
CASH COMPENSATION ($) TOTAL ($)
--------------------------------------------------------------------------------------------------------------------
S. Robert August, - 0 - - 0 - $ 35,000 (1) - 0 - $ 70,264 $ 105,264
Director
Leroy Moyer, Director - 0 - - 0 - $ 45,000 (2) - 0 - $ -0- $ 45,000
Robert Iger, Director - 0 - - 0 - $ 25,000 (3) - 0 - $ -0- $ 25,000
--------------------------------------------------------------------------------------------------------------------
(1) The Company granted 350,000 options to purchase 350,000 shares of the
Company's common stock to Mr. August on April 28, 2008. These options have
an exercise price of $0.10 per share and are exercisable for a period of 5
years from April 28, 2008.
(2) The Company granted 450,000 options to purchase 450,000 shares of the
Company's common stock to Mr. Moyer on April 28, 2008. These options have
an exercise price of $0.10 per share and are exercisable for a period of 5
years from April 28, 2008.
(3) The Company granted 250,000 options to purchase 250,000 shares of the
Company's common stock to Mr. Iger on October 10, 2008. These options have
an exercise price of $0.10 per share and are exercisable for a period of 5
years from October 10, 2008.
|
EMPLOYEE BENEFIT PLANS
On or about April 28, 2008, our Board of Directors approved the 2008
ESP Stock and Incentive Plan (the "2008 Plan") for directors, officers,
employees, and consultants. We anticipate that our shareholders will ratify the
2008 Plan on or before April 28, 2009. The 2008 Plan allows any of the following
types of awards, to be granted alone or in tandem with other awards: (1) Stock
options which may be either incentive stock options ("ISOs"), which are intended
to satisfy the requirements of Section 422 of the Internal Revenue Code of 1986,
as amended, or non-statutory stock options ("NSOs"), which are not intended to
meet those requirements; (2) restricted stock which is common stock that is
subject to restrictions, including a prohibition against transfer and a
substantial risk of forfeiture, until the end of a "restricted period" during
which the grantee must satisfy certain vesting conditions; (3) restricted stock
units which entitle the grantee to receive common stock, or cash (or other
property) based on the value of common stock, after a "restricted period" during
which the grantee must satisfy certain vesting conditions or the restricted
stock unit is forfeited; (4) stock appreciation rights which entitle the grantee
to receive, with respect to a specified number of shares of common stock, any
increase in the value of the shares from the date the award is granted to the
date the right is exercised; and (5) other types of equity-based compensation
which may include shares of common stock granted upon the achievement of
performance objectives.
The 2008 Plan will be administered by the Compensation Committee, which
will at all times be composed of two or more members of the Board of Directors
who are not our employees or consultants. Any employee or director of, or
consultant for, us or any of our subsidiaries or other affiliates will be
eligible to receive awards under the 2008 Plan. We have reserved 10,000,000
shares of common stock for awards under the 2008 Plan. In addition, on each
anniversary of the 2008 Plan's effective date on or before the fifth anniversary
of the effective date, the aggregate number of shares of our common stock
available for issuance under the 2008 Plan will be increased by the lesser of
(a) 5% of the total number of shares of our common stock outstanding as of the
-38-
December 31 immediately preceding the anniversary, (b) 500,000 shares, or (c) a
lesser number of shares of our common stock that our board, in its sole
discretion, determines. In general, shares reserved for awards that lapse or are
canceled will be added back to the pool of shares available for awards under the
2008 Plan.
Awards under the 2008 Plan are forfeitable until they become vested. An
award will become vested only if the vesting conditions set forth in the award
agreement (as determined by the Compensation Committee) are satisfied. The
vesting conditions may include performance of services for a specified period,
achievement of performance objectives, or a combination of both. The
Compensation Committee also has authority to provide for accelerated vesting
upon occurrence of an event such as a change in control. The 2008 Plan
specifically prohibits the Compensation Committee from re-pricing any stock
options or stock appreciation rights. In general, awards under the 2008 Plan may
not be assigned or transferred except by will or the laws of descent and
distribution. However, the Compensation Committee may allow the transfer of NSOs
to members of a 2008 Plan participant's immediate family or to a trust,
partnership, or corporation in which the parties in interest are limited to the
participant and members of the participant's immediate family.
The Board of Directors or the Compensation Committee may amend, alter,
suspend, or terminate the 2008 Plan at any time. If necessary to comply with any
applicable law (including stock exchange rules), we will first obtain
stockholder approval. Amendments, alterations, suspensions, and termination of
the 2008 Plan generally may not impair a participant's (or a beneficiary's)
rights under an outstanding award. However, rights may be impaired if necessary
to comply with an applicable law or accounting principles (including a change in
the law or accounting principles) pursuant to a written agreement with the
participant. Unless it is terminated sooner, the 2008 Plan will terminate upon
the earlier of April 28, 2018 or the date all shares available for issuance
under the 2008 Plan have been issued and vested.
In April 2008, the Company issued stock options to purchase 800,000
shares of our common stock at an average exercise price of $0.10 per share to
two independent directors. In October 2008, the Company issued stock options to
purchase 250,000 shares of our common stock at an average exercise price of
$0.10 per share to one independent director.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth the names of our executive officers and
directors and all persons known by us to beneficially own 5% or more of the
issued and outstanding common stock of ESP at March 31, 2009. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned by a
person and the percentage of ownership of that person, shares of common stock
subject to options held by that person that are currently exercisable or become
exercisable within 60 days of March 31, 2009 are deemed outstanding even if they
have not actually been exercised. Those shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any other
person. The percentage ownership of each beneficial owner is based on 57,310,345
outstanding shares of common stock. Except as otherwise listed below, the
address of each person is c/o Environmental Service Professionals, Inc., 1111
East Tahquitz Canyon Way, Suite 110, Palm Springs, California 92262. Except as
indicated, each person listed below has sole voting and investment power with
respect to the shares set forth opposite such person's name.
-39-
---------------------------------------------------------------- --------------------------------
NAME AND POSITION OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED (1)
NUMBER (2) PERCENT
---------------------------------------------------------------- --------------- ----------------
Edward Torres, Chief Executive Officer, President, Acting 23,324,000 40.1%
Chief Financial Officer (3)(9)
Lyle Watkins, Chief Operating Officer, Corporate Secretary, 9,554,483 16.5%
and Director (4)(9)
S. Robert August, Director (5) 1,100,000 1.9%
Leroy Moyer, Director (6) 870,000 1.5%
Robert Iger, Director (7) 560,000 1.0%
---------------------------------------------------------------- --------------- ----------------
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (FIVE PERSONS) 35,408,483 58.2%
(8)
---------------------------------------------------------------- --------------- ----------------
---------------------
|
(1) Unless otherwise indicated and subject to applicable community property
laws, to our knowledge each stockholder named in the table possesses sole
voting and investment power with respect to all shares of Common Stock,
except for those owned jointly with that person's spouse.
(2) Calculation of beneficial ownership assumes the exercise of all warrants
and options exercisable within 60 days of March 31, 2009, only by the
respective named stockholder.
(3) Includes 500,000 shares, which may be purchased pursuant to warrants that
are exercisable within 60 days of March 31, 2009. Also includes 3,207,000
shares which are owned by Pro-Active Retirement Trust of which Mr. Torres
is the Trustee, and 317,000 shares which may be purchased pursuant to
warrants that are exercisable within 60 days of March 31, 2009 which are
owned by Pro-Active Business Services, Inc. of which Mr. Torres is the
President.
(4) Includes 500,000 shares, which may be purchased pursuant to warrants and
stock options that are exercisable within 60 days of March 31, 2009. Also
includes 34,483 shares and 20,000 shares which may be purchased pursuant to
warrants that are exercisable within 60 days of March 31, 2009 which are
owned by Northcom Consulting, Inc. of which Mr. Watkins is the President.
(5) Includes 650,000 shares, which may be purchased pursuant to stock options
that are exercisable within 60 days of March 31, 2009. Also includes
450,000 shares and 250,000 shares which may be purchased pursuant to
warrants that are exercisable within 60 days of March 31, 2009 which are
owned by S. Robert August & Associates of which Mr. August is the
President.
(6) Includes 750,000 shares, which may be purchased pursuant to stock options
that are exercisable within 60 days of March 31, 2009. Includes 10,000
shares, which may be purchased pursuant to warrants that are exercisable
within 60 days of March 31, 2009.
(7) Includes 550,000 shares, which may be purchased pursuant to stock options
that are exercisable within 60 days of March 31, 2009. Includes 10,000
shares, which may be purchased pursuant to warrants that are exercisable
within 60 days of March 31, 2009.
(8) See footnotes (3) through (7). Includes an aggregate of 4,207,000 shares of
Common Stock issuable upon the exercise of warrants and stock options that
are exercisable within 60 days of March 31, 2009.
(9) Includes shares subject to lock-up and vesting provisions. On November 1,
2006, ESP entered into a Redemption, Lock-up and Vesting Agreement (the
"Agreement") with certain shareholders of ESP, including Edward Torres and
Lyle Watkins (collectively, the "Executive"). The purpose of the agreement
was to provide for redemption of a portion of their shares, and to lock-up
the balance of their shares in order to facilitate ESP's ability to raise
capital. According to the Agreement, in consideration for permitting ESP to
redeem and lock-up the shares, ESP conferred piggyback registration rights
to the shares for the Executive as the shares are released from lock-up.
ESP has a right of first refusal to purchase the shares covered by the
Agreement. This right specifies that before there can be any valid sale or
transfer of any of the shares by the Executive, the Executive must first
-40-
offer his shares to ESP. The Executive has agreed that he will not directly
or indirectly sell or otherwise transfer or dispose of any of the shares
during the lock-up period. Furthermore, during the Executive's employment
with ESP, he has agreed that he will not sell, transfer, or assign more
than 8% of the released shares per month. Similarly, the Executive has also
agreed that after the termination of his employment with ESP for any
reason, he will not sell, transfer or assign more than 4% of the released
shares per month. If, however, the Executive is terminated for cause, all
unvested shares on the date of such termination will immediately be
cancelled. The following table lists the number of shares subject to
lock-up and the scheduled release dates:
---------------------------------------------- -------------------------------------------- -------------------------
NAME OF EXECUTIVE NUMBER OF SHARES LOCK-UP PERIOD AND
SUBJECT TO LOCK-UP RELEASE SCHEDULE
---------------------------------------------- -------------------------------------------- -------------------------
Edward L. Torres 4,007,000 11/1/06: 801,400
11/1/07: 801,400
11/1/08: 801,400
11/1/09: 801,400
11/1/10: 801,400
11/1/06: 200,000
11/1/07: 200,000
Lyle A. Watkins 11/1/08: 200,000
1,000,000 11/1/09: 200,000
11/1/10: 200,000
---------------------------------------------- -------------------------------------------- -------------------------
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The following table sets forth certain information regarding loans made
by Pro-Active Land Development, LLC. to us pursuant to promissory notes bearing
simple interest at a rate of 5% per annum payable on all principal and accrued
but unpaid interest on or before June 30, 2009. Mr. Edward Torres, our Chief
Executive Officer, is the President of Pro-Active Business Services, Inc. Mr.
Torres agreed to cease all accruing interest as of February 27, 2007.
------------------ ----------------- --------------- ----------------- ---------------- --------------
DATE PRINCIPAL INTEREST DATE PRINCIPAL INTEREST
------------------ ----------------- --------------- ----------------- ---------------- --------------
4/27/2006 $15,000.00 1,633.56 7/26/2006 $50,000.00 4,828.77
6/6/2006 $10,000.00 1,034.25 7/31/2006 $25,000.00 2,397.26
6/13/2006 $10,000.00 1,024.66 12/1/2006 $10,000.00 790.41
7/14/2006 $30,000.00 2,946.58 2/20/2007 $25,000.00 1,698.63
7/21/2006 $25,000.00 2,431.51 2/27/2007 $20,000.00 1,339.73
---------------------------------------------------- ----------------- -------------------------------
TOTAL PRINCIPAL AND INTEREST (1) $220,000.00 $20,125.36
---------------------------------------------------- ----------------- -------------------------------
-----------------
(1) As of December 31, 2008
|
S. Robert August, one of the Company's independent directors, has been
engaged pursuant to a consulting agreement for $ 5000 per month plus expenses.
The Agreement is terminable by either party on 30 days written notice. The
Company owes Mr. August $ 70,264.66 under the consulting agreement inclusive of
all prior years ending December 31, 2008.
Lyle A. Watkins, the Company's Chief Operating Officer, is employed
pursuant to a consulting agreement currently at a fixed fee of $14,550 per month
plus expenses. The Agreement is terminable by either party on 30 days written
notice. The Company owes Mr. Watkins $169,099.83 under the consulting agreement
inclusive of all prior years ending December 31, 2008.
-41-
As of December 31, 2008 the Company has a loan payable due to Joseph
Leone, a former director and current stockholder of the Company in the amount of
$22,900. This is an unsecured loan with an interest rate of 3% per annum. As of
June 2007, Mr. Leone has agreed to waive all accrued interest.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Stan J.H. Lee, CPA, CMA, Inc., Certified Public Accountants ("SL") is
the Company's principal auditing accountant firm. SL has also provided other
non-audit services to the Company. The Audit Committee approved the engagement
of SL before SL rendered audit and non-audit services to the Company.
Each year the independent auditor's retention to audit our financial
statements, including the associated fee, is approved by the Board before the
filing of the previous year's Annual Report on Form 10-K.
STAN J.H. LEE, CPA, CMA FEES
2008 2007
------------------------
Audit Fees (1) $31,000 $ 26,700
Audit Related Fees 15,000 12,000
Tax Fees (2)
All Other Fees -0- - 0 -
------------------------
$46,000 $38,700
========================
---------------------------
|
(1) Audit Fees consist of fees for the audit of our financial statements and
review of the financial statements included in our quarterly reports.
(2) Tax fees consist of fees for the preparation of original federal and state
income tax returns and fees for miscellaneous tax consulting services.
PRE-APPROVAL POLICIES AND PROCEDURES OF AUDIT AND NON-AUDIT SERVICES OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee's policy is to pre-approve, typically at the
beginning of our fiscal year, all audit and non-audit services, other than de
minimul non-audit services, to be provided by an independent registered public
accounting firm. These services may include, among others, audit services,
audit-related services, tax services and other services and such services are
generally subject to a specific budget. The independent registered public
accounting firm and management are required to periodically report to the full
Board regarding the extent of services provided by the independent registered
public accounting firm in accordance with this pre-approval, and the fees for
the services performed to date. As part of the Board's review, the Board will
evaluate other known potential engagements of the independent auditor, including
the scope of work proposed to be performed and the proposed fees, and approve or
reject each service, taking into account whether the services are permissible
under applicable law and the possible impact of each non-audit service on the
independent auditor's independence from management. At Audit Committee meetings
throughout the year, the auditor and management may present subsequent services
for approval. Typically, these would be services such as due diligence for an
acquisition, that would not have been known at the beginning of the year.
The Audit Committee has considered the provision of non-audit services
provided by our independent registered public accounting firm to be compatible
with maintaining their independence. The Audit Committee will continue to
approve all audit and permissible non-audit services provided by our independent
registered public accounting firm.
-42-
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibits
EXHIBIT DESCRIPTION
------------ ---------------------------------------------------------------------------------------
3.1 Articles of Incorporation (1)
3.2 Amendment to Articles of Incorporation (1)
3.3 Change to Articles of Incorporation, effective October 10, 2006
3.4 Amendment to Articles of Incorporation, effective October 11, 2006
3.5 Bylaws (1)
4.1 Specimen Certificate for Common Stock (1)
4.2 Security Agreement with BOCA Funding, LLC, dated June 18, 2007 (2)
4.3 Senior Secured Convertible Note with BOCA Funding, LLC, dated June 18, 2007 (2)
4.4 Guaranty among BOCA Funding, LLC, National Professional Services Inc., Pacific
Environmental Sampling, Inc., and Allstate Home Inspection & Environmental Testing,
Ltd., dated June 18, 2007 (2)
4.5 Warrant to Purchase Shares of Common Stock with BOCA Funding, LLC (2)
4.6 Form of Warrant to Purchase Shares of Common Stock
4.7 Form of Warrant to Purchase Shares of Common Stock
4.8 Form of Warrant to Purchase Shares of Common Stock
5.1 Opinion of Richardson & Associates as to the legality of the securities being
registered
10.1 Stock Purchase Agreement with Allstate Home Inspection & Household Environmental
Testing, Ltd., dated January 31, 2007 (3)
10.2 Redemption, Lock-Up and Vesting Agreement, dated November 1, 2006 (4)
10.3 Plan of Reorganization and Stock Purchase Agreement with Pacific Environmental
Sampling, Inc., dated as of July 1, 2006 (5)
10.4 Stock Purchase Agreement with Hugh Dallas for sale of Pacific Environmental Sampling,
Inc., dated September 29, 2007 (6)
10.5 Asset Purchase Agreement with Robert Johnson and IAMI, Inc., dated April 4, 2007 (7)
10.6 Loan and Security Agreement with Siena Investment Resources, LLC, dated May 1, 2008 (8)
10.7 Promissory Note with Siena Investment Resources, LLC, dated May 1, 2008 (8)
10.8 2008 ESP Stock and Incentive Plan
10.9 Form of Stock Option Agreement
10.10 Stock Purchase Agreement with Porter Valley Software, Inc., dated effective May 1,
2008 (9)
------------------------
(1) Incorporated by reference from prior public reports filed by
Glass-Aire Industries Group, Ltd. with the Securities and
Exchange Commission.
(2) Incorporated by reference from the Report on Form 8-K filed
with the Securities and Exchange Commission on June 20, 2007.
(3) Incorporated by reference from the Report on Form 8-K filed
with the Securities and Exchange Commission on February 23,
2007.
(4) Incorporated by reference from the Report on Form 8-K filed
with the Securities and Exchange Commission on January 4,
2007.
(5) Incorporated by reference from the Report on Form 8-K filed
with the Securities and Exchange Commission on October 16,
2006.
(6) Incorporated by reference from the Report on Form 8-K filed
with the Securities and Exchange Commission on July 6, 2007.
(7) Incorporated by reference from the Report on Form 8-K/A filed
with the Securities and Exchange Commission on July 25, 2007.
(8) Incorporated by reference from the Report on Form 8-K filed
with the Securities and Exchange Commission on May 15, 2008.
(9) Incorporated by reference from the Report on Form 8-K filed
with the Securities and Exchange Commission on June 16, 2008.
(10) Incorporated by reference from the Report on Form 14C filed
with the Securities and Exchange Commission on January 27,
2009.
(11) Incorporated by reference from the Report on Form 8-K filed
with the Securities and Exchange Commission on February 20,
2009.
|
-43-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: April 15, 2009 ENVIRONMENTAL SERVICE PROFESSIONALS, INC.
By: /s/ Edward L. Torres
-----------------------------
Edward Torres, Chairman of
the Board and Chief Executive
Officer (Principal Executive
Officer)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
By: /s/ Edward L. Torres Dated: April 15, 2009
-------------------------------------------------
Edward Torres, Chairman of the Board and Chief
Executive Officer (Principal Executive Officer)
By: /s/ Edward L. Torres Dated: April 15, 2009
-------------------------------------------------
Edward Torres, Acting Chief Financial
Officer/Treasurer (Principal
Financial/Accounting Officer)
By: /s/ Lyle A. Watkins Dated: April 15, 2009
-------------------------------------------------
Lyle Watkins, Chief Operating Officer, Corporate
Secretary and Director
By: /s/ Leroy Moyer Dated: April 15, 2009
-------------------------------------------------
Leroy Moyer, Director and Audit Committee
Chairperson
By: /s/ S. Robert August Dated: April 15, 2009
-------------------------------------------------
S. Robert August, Director
By: /s/ Robert Iger Dated: April 15, 2009
-------------------------------------------------
Robert Iger, Director
|
-44-
Environmental Service Pr... (CE) (USOTC:EVSP)
Historical Stock Chart
From Jun 2024 to Jul 2024
Environmental Service Pr... (CE) (USOTC:EVSP)
Historical Stock Chart
From Jul 2023 to Jul 2024