FORM 10-K/A




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.)





810 NORTH FARRELL DRIVE, PALM SPRINGS, CALIFORNIA 92262(Exact name of registrant as specified in its charter)





(760) 327-5284(Registrant's telephone number, including area code)





SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:





TITLE OF EACH CLASS

NAME OF EACH EXCHANGE ON

WHICH REGISTEREDCOMMON 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 file 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 |_| No |X|














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/A or any amendment to this Form 10-K/A.|_|





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                                                                |_|None-accelerated filer                                                      |_|

(Do not check if a smaller reporting company)

Smaller reporting company                                               |X|





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 $169,564 as of June 30, 2008 (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).For the purposes of this disclosure only, the registrant has assumed that its directors, executive officers and beneficial owners of 5% or more of the registrant’s common stock are affiliates of the registrant.





There were 285,831,673 shares outstanding of the registrant's Common Stock as of March 31, 2011.


























TABLE OF CONTENTS







PART IItem 1
Business
4Item 1A
Risk Factors
12Item 2
Properties
21Item 3
Legal Proceedings
21Item 4
[Removed and Reserved]
22PART IIItem 5
Market for Registrant's Common Stock and Related Stockholder Matters, and Issuer Purchases of Equity Securities
23Item 6
Selected Financial Data
25Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
25Item 8
Financial Statements and Supplementary Data Of Environmental Service Professionals, Inc.
31Item 9
Changes In And Disagreements with Accountants On Accounting and Financial Disclosure
54Item 9A
Controls and Procedures
54Item 9B
Other Information
55PART IIIItem 10
Directors, Executive Officers, and Corporate Governance
55Item 11
Executive Compensation
61Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
65Item 13
Certain Relationships and Related Transactions, and Director Independence
67Item 14
Principal Accountant Fees and Services
67Item 15
Exhibits, Financial Statement Schedules
69SIGNATURES

69


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PART I





This Annual Report on Form 10-K/A 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/A. 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/A 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/A to conform forward-looking statements to actual results.





ITEM 1.  BUSINESS





GENERAL





Environmental Services Professionals, Inc. (formerly Glass-Aire Industries Group Ltd.), a Nevada corporation ("ESP," "we," "us," or the “Company"), was incorporated on September 29, 1992.  Prior to ceasing business in March 2004, the Company manufactured and distributed wind deflector products to automobile manufacturers in the United States, Canada and Japan.  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, which form the foundation of a suite of services that together comprise: “The Industry’s Best in Class Inspection.”  The brand name of this program is ESP’s Certified Environmental Home InspectorTM (“CEHITM”) and is operating under ESP’s Environmental Safeguard Professionals Business Unit.  This Business Unit will also provide the annual subscription-based moisture maintenance programs to both residential and commercial clients under the Healthy Living Maintenance ProgramTM (“HLMPTM”), and EcoCheck InspectionTM programs. Through ESP’s wholly owned subsidiary, National Professional Services, Inc. (“NPSI”), the Company offers annual trade memberships and management services for industry related associations.  Porter Valley Software, Inc. (“PVS”) 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 InspectionTM.  The EcoCheck InspectionTM 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 CEHITM.  One of the programs the Company provides by the CEHITM program is the Healthy Green Living CertificationTM (“HGLCTM”).  After a EcoCheck InspectionTM has been conducted by one of ESP’s CEHIs; a subject property that passes inspection receives a HGLCTM.  The HGLCTM 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.





NPSI, a wholly-owned business unit, is currently a conglomerate of seven individual associations and maintains 8,200 annual paying members.  The focus of this Business Unit is to establish cross-training on CEHITM Programs and to provide information concerning residential environmental issues, establish training for underwriters, loan officers and appraisers to educate these groups about CEHITM inspection protocols. These training programs for insurance companies, underwriters, loss control and risk management personnel educate and emphasize the benefits of using a CEHITM on the initial inspection and then establishing annual inspections.






4











PVS has developed various software programs, which have been designed specifically for detailed data searching and data retention under the name InspectVueTM. InspectVueTM is the core component of ESP’s automated on-line EcoCheck InspectionTM 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 InspectionTM") 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 InspectorTM program ("CEHITM program"). The Company believes that the CEHITM 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 InspectionTM 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 CEHITM 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 CEHITM program is ESP's Healthy Assurance CertificationTM ("HAC").  After an EcoCheck InspectionTM 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 ProgramTM ("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 HLMPTM.  Every 12 months, a new EcoCheck InspectionTM is conducted and after any issues, if required, are corrected a new HAC is issued.  The Company believes that the HLMPTM 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 CEHITM program, has engaged in working relationships with industry participants: the National Association of Moisture Management ("NAMM"), Porter Valley Software, Inc., and Homesafe Inspections, Inc.





Safeguard's CEHITM program, which includes the Certified Moisture Inspection and MoldScoreTM 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 CEHITM program, Safeguard has partnered with Allied Business Schools to enhance and deliver the required curriculum for the CEHITM 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 CEHITM while providing consistent quality of instruction to all participants.  The CEHITM 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.








5








SERVICE DESCRIPTION. The services included in the CEHITM 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, Porter Valley Software, and Homesafe Inspections, Inc.  It is a requirement that all CEHIs utilize the on-line system when delivering any of the CEHITM 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 CEHITM program has obtained the industries' best training, certifications and equipment required to provide the CEHIs program's services.





Management believes that the CEHITM program also benefits the individual inspector. Approved vendors of Safeguard who deliver CEHITM 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. NPSI 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. NPSI currently provides comprehensive management services for seven different membership organizations of which four are both National and International Organizations and one is non-profit.





NPSI 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.





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 and 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 InspectorTM" 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 CEHITM certification as it identifies experts capable of providing the EcoCheck InspectionTM 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.





6








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.





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 InspectVueTM Report-Writers. InspectVueTM Report-Writers is a software application used by CEHIs for both residential and commercial structural, moisture, environmental and fireplace inspections. InspectVueTM Report-Writers uses PVS' PVS Inspection PlatformTM 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 InspectVueTM 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 Homesafe Inspections, Inc. and other industry participants. Based on the continuing housing slump and economic environment, compounded by the Company’s cash shortfalls which delayed much needed updates in the software, management impaired the full value of the asset at December 31, 2008 totaling approximately $609,000.  The InspectVue software was adequate in the past but it needs to be upgraded and due to the company’s limited financial ability we were unable to make investments to upgrade it on a current basis, however the Company intends to in the future.








7








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 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 $795 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 ESP’s inspection programs 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:





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 Healthy Home Mortgage, issuing a Healthy Green Living certification seal.




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 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").








8








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."





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 information 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."


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 surged, and this has led to rising concern about mold-related health effects. Mold spores primarily cause health problems when they are present in large numbers and people inhale an unusually high number of them.  This occurs primarily when there is active mold growth within a home, office, or school where people live or work. People can also be exposed to mold by touching contaminated materials and by eating contaminated foods.  The most serious health effects of indoor mold chiefly include inflammation of the mucous membranes or respiratory tract and infection; however, allergic symptoms are the most common following mold exposure. Typical symptoms that mold-exposed persons report (alone or in combination) include: respiratory problems, such as wheezing, difficulty  breathing, and shortness of breath; nasal and sinus congestion; eye irritation (burning, watery, or reddened eyes); dry, hacking cough; nose or throat irritation; and skin rashes or irritation. The Institute of Medicine reviewed the literature and found evidence that mold exacerbates asthma.
AGE

AVERAGE PERCENT OF TIME SPENT 1, 2INSIDE THE HOME

OTHER INDOORS

OUTDOORS

INSIDE A VEHICLECHILDREN 0-2

85

4

7

43-5

76

9

10

56-11

71

12

13

4ADULTS & TEENS

62

25

6

71)From: STUDY OF CHILDREN'S ACTIVITY PATTERNS (Wiley ET AL., 1991a, ARB Contract no. A733-149; Phillips ET AL., 1991).

2)From: ACTIVITY PATTERNS OF CALIFORNIA RESIDENTS (Wiley ET AL., 1991b, ARB Contract no. A6-177-33; Jenkins ET AL., 1992a).





HEALTH END POINT

ESTIMATED ANNUAL COSTS OF INDOOR AIR POLLUTION IN CALIFORNIA ALONE
As an example, a key reason indoor pollution is so critical to health is that Californians, like others from industrialized nations, spend most of their time indoors-about 87%, on average.  So, if pollutants are present indoors, there is a high likelihood that people will be exposed to them.  The home is a critical exposure microenvironment for all, and especially for children.



Dampness, mold, dirty carpeting, and pest infestations are often components of substandard housing, each leading to associated health problems, especially allergy symptoms and exacerbation of asthma attacks in asthmatics.  Homes with moisture and dampness contributing to mold growth are more likely to be older, poorly insulated buildings.HEALTH VALUATION: PREMATURE DEATH 1, 2

($ BILLIONS/YR)

MEDICAL

COSTS 1, 2

($ BILLIONS/YR)

LOST PRODUCTIVITY COST 1, 2

($ BILLIONS/YR)

EMold and moisture: asthma and allergies

0.031

0.19

NA

0.22Sick building syndrome

NA

NA

8.5

8.5TOTAL 3

0.031

0.19

8.5

8.721)Estimates are based on average or mid-point of incidence rates of mortality and morbidity from sources discussed in the main report.  Values are rounded to 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.






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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 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 its competition is currently represented by 5,000 indoor air quality experts who conduct residential environmental screenings and about 20,000 home inspectors (about 10,000 conduct environmental testing, as well). Approximately 10,000 consultants nationwide conduct residential environmental testing.





ESP believes with the exception of a handful of inspection franchisors with between 100 and 300 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 for each aspect of the client account from initial call, to the dispatch, through completion of every inspection.



In an effort to ensure profitability, the Company has standardized each of its process and has documented a standardized training program, which all employees/contractors must pass.  New CEHI’s (including Veteran’s) are required to learn the Company’s processes, while developing working relationships with administrative personnel at HQ under simulated, low-stress conditions.  Teamwork is built by fostering an understanding of all aspects of the business.

KEY INTERNAL PROGRAM FEATURES·Standardized Training

·Standardized Certification Process

·Standardized Inspection & Report Process

·Standardized Result Analysis

·Proprietary dispatch process

·Scripted needs assessment

·Standardized rate card

·Database driven trends analysis

·Scalable CEHI support systems

·Veteran Affairs approved educational institution








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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 ten full-time individuals, all of who are working at the Company's offices at 810 N. Farrell Road, Palm Springs, California 92262.  Of those ten full-time employees, six 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.





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.








11








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 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:





Ø
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,




Ø
Amelioration of financial risks to lending institutions across the nation,




Ø
Annual inspections assist in preventing moisture related issues thereby protecting the value of the property and the health of the occupant.




Ø
Reduction in insurance claims and lawsuits for construction defects and accidental property damage,




Ø
Elimination of uninhabitable, uninsurable, and unsalable or condemned properties,




Ø
Stabilization and subsequent growth of the local property tax base in all states and communities,




Ø
Creation of 200,000 to 300,000 jobs industry related nationwide with an emphasis on providing job training for veterans




Ø
Establishment and maintenance of environmentally healthy buildings for employees, families, and visitors.




Ø
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:





·
Maintain and expand our current relationships, and develop new relationships with state, federal and environmental regulatory bodies




·
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




·
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




·
Continue to grow our revenue and meet anticipated growth targets






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·
Manage our expanding operations and implement and improve our operational, financial, and management controls o Respond effectively to competition




·
Implement ESP's national marketing campaign




·
Attract and retain qualified management and employees




·
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.





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.





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.






13








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.





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.






14








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.








15








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.





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 have generated net losses of approximately $23.2 million 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.








16








WE ARE CURRENTLY IN DEFAULT ON OUR TERM LOANS.





We have failed to repay our term loans on a timely basis.  Several of our lenders have initiated legal action against the Company.  We cannot assure that our remaining lenders will continue to refrain from enforcement and foreclosure on their loans.  If we are not able to repay or refinance our 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.





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.








17








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 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, 20011 our executive officers, directors, and principal shareholders who hold 5% or more of our outstanding common stock beneficially owned, in the aggregate, approximately 36% 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.








18








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:




·
variations in our operating results;




·
announcements of technological innovations, new services or service enhancements, strategic alliances or significant agreements by us or by our competitors;




·
recruitment or departure of key personnel;




·
changes in the estimates of our operating results or changes in recommendations by any securities analysts that elect to follow our common stock;




·
developments or disputes concerning our intellectual property or other proprietary rights;




·
the gain or loss of significant customers;




·
market conditions in the inspection industry, the industries of our customers, and the economy as a whole; and 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.






19











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 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.







20








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.





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, 2007 and 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-K FOR THE FISCAL YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010.





We did not timely file with the SEC our Form 10-Ks and Form 10Qs for the fiscal years ended December 31, 2008, 2009 and 2010.  As a result of the delayed filing of our Form 10-Ks, 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 14,000 square feet of office space at a rental rate of approximately $15,000 per month pursuant to a month-to-month lease, which commenced in July 2009 at 810 N. Farrell Drive, Palm Springs, California 92262.





As of March 31, 2011 the Company has consolidated all of its operations into its headquarters at 810 N. Farrell Drive, 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., 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.  The Company 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.  In January 2010, without admitting liability, the Company entered into a settlement agreement with Mr. Cooley pursuant to which Mr. Cooley agreed to dismiss this case with prejudice in consideration for $40,000 plus 100,000 shares of our Common Stock.  The $40,000 settlement is reflected in the 2008 financial statements.






21











Bakai v. Environmental Service Professionals, Inc., et. al.:


In July 17, 2008, Mr. Bakai filed a civil action against the Company for failure to pay on a promissory note. The Company elected not to defend against the claim and a default Judgment was entered on September 18, 2008 which is now valued at $23,548. We estimate that we incurred approximately $1,000 in legal costs to defend this case.  The value of this settlement has been accrued in the 2008 financial statements.





Palm Desert National Bank v. Environmental Service Professionals, Inc., et. al.:


On October 22, 2008, Palm Desert National Bank filed a civil action against the Company for failure to pay on a promissory note. The Company elected not to defend against the claim and a default Judgment was entered on January 26, 2009. We estimate that we incurred approximately $4,000 in legal costs to defend this case.  On December 3, 2010 Palm Desert National Bank was sold to Bank of Southern California. The value of $289,269 has been accrued in the 2008 financial statements.





Keith Swift, et. al. v. Lorne Steiner:


On December 9, 2008, Lorne Steiner filed a cross complaint in Los Angeles County naming the Company 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. Lorne Steiner filed a Cross-Complaint against the Company for breach of contract based upon claims that the Company failed to pay the amounts required by a settlement agreement relating to the purchase of Porter Valley Software. A Judgment was entered on December 1, 2009. We estimate that we incurred approximately $125,000 in legal costs to defend this case. The value of $500,000 has been accrued in the 2008 financial statements.





Jerry Thompson v. Environmental Service Professionals, Inc., et. al.:


On, July 17, 2009, Mr. Thompson filed a civil action against the Company for failure to pay on a promissory note. The Company elected not to defend against the claim and a Default Judgment was entered on April 2, 2010 which is now valued at $123,262. We estimate that we incurred approximately $2,500 in legal costs to defend this case. The value of $130,000 has been accrued in the 2008 financial statements.





Lyle Watkins v. Environmental Service Professionals, Inc., et. al.:


On May 14, 2010, Lyle Watkins filed a civil action against the Company and other based upon a settlement agreement entered into between Mr. Watkins and the Company. Mr. Watkins claims that he is owed either $397,000 or that he is entitled to keep 9 million shares of the Company’s common stock. The Company has filed a Demurrer to the First Amended Complaint which is set for hearing in January 2011.  The Company will defend against Mr. Watkins’ claims as management feels that many such claims are frivolous and unwarranted. the Company feels that it will prevail against all of Mr. Watkins claims but that it may be required to pay Mr. Watkins $397,000 plus interest based upon the previous settlement agreement (less substantial amounts for off-sets, credits and reimbursements based upon claims that the Company has against Mr. Watkins). Mr. Watkins is seeking damages in the amount of $397,000 or 9 million shares of the Company’s stock. We estimate that we incurred approximately $65,000 in legal costs to defend this case.





Tatro & Zamoyski, LLP v. Environmental Service Professionals, Inc.:


On July 9, 2010, Tatro & Zamoyski, LLP filed a claim against the Company seeking $4,508 for breach of contract. The Company is defending this claim and will continue to work with Tatro & Zamoyski to reach a settlement . We estimate that we incurred approximately $500 in legal costs to defend this case.





Niv Benshalom v. Environmental Service Professionals, Inc.:


On July 9, 2010, Niv Benshalom has asserted a claim against the Company seeking $100,749 for breach of contract. The Company defended this claim and reached a settlement on November 18, 2010.  We estimate that we incurred approximately $500 in legal costs to defend this case. The value of $100,749 will be accrued in the 2009 financial statements.





Environmental Service Professionals, Inc., ESP Settlement, LLC v. Lion Share Capital, LLC:


In October 2010 the Company filed a civil action against Lion Share Capital for breach of contract based upon Lion Share Capital’s failure to comply with the terms of an equity contract. The Company seeks damages in an amount in excess of $25,000 plus the cancellation of 5 million common stock warrants and the return of 5 million shares of its common stock.  The Complaint has been filed and is in the process of being served upon the Defendant. The Company is prosecuting this case vigorously and believes that it has a meritorious case and that Lion Share will be required to pay damages as well as return the 5 million shares of ESP stock, the Company cancelled the 5 million warrants at $ 0.75 per share. There are no claims asserted against ESP in this litigation.




ITEM 4.  [REMOVED AND RESERVED]






22







PART II





ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES





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

LOWFirst Quarter

$1.25

$0.52

First Quarter

$0.25

$0.14Second Quarter

$1.40

$0.51

Second Quarter

$0.23

$0.08Third Quarter

$2.20

$0.40

Third Quarter

$0.15

$0.06Fourth 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.





There is currently minimal trading volume for the Company's securities.  During the period from January 1, 2007 through December 31, 2008, ESP's common stock traded at a high of $2.20 and a low of $0.01.





As of March 31, 2011 there were approximately 259 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, 2011, there were approximately 285,831,673 shares of common stock outstanding on record.





As of December 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





Effective April 28, 2008, our board of directors adopted the 2008 ESP Stock and Incentive Plan (the "2008 Plan") for Directors, Officers, Employees, and Consultants under which a total of 10,000,000 shares of our common stock have been reserved for issuance as restricted stock or pursuant to the grant and exercise of stock options.  Our 2008 Plan has been approved by the holders of a majority of our outstanding shares.  The following table sets forth certain information regarding our 2008 Plan as of December 31, 2008:  The Company issued 1,062,003 restricted stock to employees under the 2008 plan.







23




Number of securities to be issued upon exercise of outstanding stock options
Weighted-average exercise price of outstanding stock options
Number of securities remaining available for future issuance under equity compensation plans1,050,000
$0.10
7,887,997





WARRANTS





During the fiscal year ended December 31, 2008, the Company issued warrants to purchase 625,000 shares of the Company's common stock at an exercise price of $0.01 exercisable for a period of three years from the date of issuance, warrants to purchase 1,500,000 shares of the Company’s common stock at an exercise price of $0.17 exercisable for a period of three years from the date of issuance, warrants to purchase 2,711,242 shares of the Company's common stock at an exercise price of $0.25 exercisable for a period of three years from the date of issuance, warrants to purchase 50,000 shares of the Company's common stock at an exercise price of $0.50 exercisable for a period of three years from the date of issuance, warrants to purchase 686,206 shares of the Company's common stock at an exercise price of $0.58 exercisable for a period of three years from the date of issuance, warrants to purchase 8, 229,835shares of the Company's common stock at an exercise price of $0.75 exercisable for a period of three years, warrants to purchase 125,000 shares of the Company's common stock at an exercise price of $1.25 exercisable for a period of three years from the date of issuance, and warrants to purchase 737,420 shares of the Company's common stock at an exercise price of $1.50 exercisable for a period of three years from the date of issuance





During the fiscal year ended December 31, 2008, no warrants were cancelled and no warrants were exercised.





UNREGISTERED ISSUANCE OF EQUITY SECURITIES





The following is a list of the issuance of securities by us during the fiscal year ending December 31, 2008 in transactions exempt from registration that were not previously included in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K, the proceeds of which were generally used for working capital:




Number of


Dollar Amount/Value

Services or Other

Exemption fromShares


of Consideration

Consideration
Date of Sale
Registration100,000


$
58,000

Loans
Febuary 21, 2008
Rule 506125,000


$
72,550

Loans
March 17, 2008
Rule 5061,000,000


$
140,000

Loans
April 3, 2008
Rule 50625,000,000


$
3,500,000

Director fees
April 7, 2008
Rule 506400,000


$
100,000

Loans
April 8, 2008
Rule 506357,000


$
35,700

Services
April 8, 2008
Rule 506450,000


$
40,500

Services
May 1, 2008
Rule 506505,000


$
70,700

Services
May 15, 2008
Rule 506800,000


$
128,000

Services
May 22, 2008
Rule 50630,000


$
10,000

Loans
June 6, 2008
Rule 506200,000


$
30,000

Acquisition
June 18, 2008
Rule 50650,000


$
7,500

Acquisition
June 20, 2008
Rule 50640,000


$
23,200

Loans
June 30, 2008
Rule 50650,000


$
4,500

Loans
July 29, 2008
Rule 50620,000


$
1,800

Services
July 29, 2008
Rule 506112,069


$
65,000

Cash
August 12, 2008
Rule 506326,896


$
21,248

Loans
August 12, 2008
Rule 50698,324


$
5,166

Services
August 21, 2008
Rule 506525,000


$
155,000

Loans
September 18, 2008
Rule 506200,000


$
30,000

Acquisition
September 23, 2008
Rule 506200,000


$
12,000

Services
October 2, 2008
Rule 506311,615


$
18,697

Services
October 29, 2008
Rule 5061,000,000


$
50,000

Services
November 7, 2008
Rule 506200,000


$
7,000

Loans
November 12, 2008
Rule 506160,000


$
45,300

Loans
November 12, 2008
Rule 506200,000


$
30,000

Acquisition
November 25, 2008
Rule 50650,000


$
2,000

Services
November 25, 2008
Rule 506250,000


$
10,000

Services
December 3, 2008
Rule 5061,000,000


$
40,000

Services
December 5, 2008
Rule 50647,620


$
1,904

Services
December 15, 2008
Rule 506149,192


$
5,969

Services
December 15, 2008
Rule 506






24








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/A 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/A. 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/A. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause the Company's actual results to be materially different from any future results expressed or implied by the Company in those statements. The most important facts that could prevent the Company from achieving its stated goals include, but are not limited to, the following:




a.
volatility or decline of the Company's stock price;




b.
potential fluctuation in quarterly results;




c.
failure of the Company to earn revenues or profits;




d.
inadequate capital 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/A. 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/A 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.








25








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 CEHITM program and related services conducted in 2008 has now finished and additional refinements are in progress.





The sales and revenues from service are either from our proof of concept and test-marketing phase of applicants enrolling into the CEHITM program or end-customers requesting inspections.





Our test-marketing efforts through website 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,





IMPAIRMENT OF LONG-LIVED ASSETS





We review the recoverability of the carrying value of long-lived assets using the methodology prescribed in ASC 360, "Accounting for the Impairment and Disposal of Long-Lived Assets" whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Upon such an occurrence, recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows to which the assets relate, to the carrying amount. If the asset is determined to be unable to recover its carrying value, it is written down to fair value. Fair value is determined based on discounted cash flows, appraised values or other information available in the market, depending on the nature of the assets. Methodologies for determining fair value are inherently based on estimates that may change, such as the useful lives of assets and our cash flow forecasts associated with certain assets. A change in these estimates may result in impairment charges, which would impact our operating results. We have had significant impairment of our long-lived assets in 2007 and 2008.





ACCOUNTING FOR STOCK BASED COMPENSATION





In accordance with FASB ASC 718 the Company calculates compensation costs for all share-based awards to employees based on the grant date fair value of those awards and recognized over the period during which the employee is required to perform services in exchange for the award (generally over the vesting period of the award).





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.








27








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 $409,768 to $1,034,141 from $624,373 in the prior year ended December 31, 2007, which represented an increase of 66%.  The increase in sales was attributed directly to higher revenue from dues and fees from our associations.





Due to the Company’s consolidation of offices and services, several employees were let go in Arizona.  The Company consolidated the National Professionals Services, Inc., and Porter Valley Software, Inc., offices into the main office in Palm Springs, which lowered administrative expenses.  Although the Company has made significant strides in implementing its strategy, the economic downturn has contributed significantly to the lower than expected revenue.





COST OF GOODS SOLD





Total cost of goods for the period ended December 31, 2008 increased by $391,148 to $474,266 from $83,118 in the prior year ended December 31, 2007, which represents an increase of 471%.  The increase in cost of goods was attributed directly to higher cost based on increases from lab fees and a percentage paid to independent inspectors.





DEPRECIATION AND AMORTIZATION





Total depreciation and amortization for the period ended December 31, 2008 increased by $185,877 to $202,364 from $16,487 in the prior year ended December 31, 2007, which represents an increase of 113%.  The increase in depreciation and amortization was attributed directly to a higher amortization rate for membership lists and $64,000 related to Porter Valley Software amortization.





FINANCE FEE





Total finance fee for the period ended December 31, 2008 increased by $89,994 to $221,994 from $132,000 in the prior year ended December 31, 2007, which represents an increase of 68%.  The increase in finance fee was attributed directly to the increase of the Company obtaining additional short term loans.





CONSULTING





Total consulting for the period ended December 31, 2008 decreased by $1,517,889 to $890,449 from $2,408,338 in the prior year ended December 31, 2007, which represents a decrease of 63%.  The decrease in consulting was attributed directly to restructuring the Company’s public relation and investor relation focus.





COMMISSION





Total commission for the period ended December 31, 2008 decreased by $280,445 to $2,500 from $282,959 in the prior year ended December 31, 2007, which represents a decrease of 99%.  The decrease in commission was attributed directly to the Company electing to raise its own capital from the efforts of its senior management rather than independent brokers.





PROFESSIONAL FEES





Total professional fees for the period ended December 31, 2008 decreased by $581,354 to $507,762 from $1,089,116 in the prior year ended December 31, 2007, which represents a decrease of 53%.  The decrease in professional fees was attributed directly to 2007 including larger legal fees related to the reverse merger and startup legal expenses.





GENERAL AND ADMINISTRATIVE EXPENSES





General and administrative expenses increased by $3,766,457, up from $2,181,501 in 2007, to $5,947,958 for the year ended December 31, 2008.  This increase in general and administrative expenses was primarily the result of the issuance of options and stock for services which totaled approximately $3,900,000 in 2008.






28









IMPAIRMENT LOSS





Total impairment loss for the period ended December 31, 2008 decreased by $971,871 to $608,833 from $1,580,704 in the prior year ended December 31, 2007, which represents a decrease of 61%.  The decrease in impairment loss was attributed directly to the company’s 2007 write-off of all the remaining investment capitalized from the Allstate Home Inspection acquisition.  In 2008, the Company wrote-off all of the remaining investment capitalized from the Porter Valley Software acquisition.





INTEREST EXPENSE





Total interest expense for the period ended December 31, 2008 decreased by $1,431,502 to $1,564,112 from $2,995,614 in the prior year ended December 31, 2007, which represents a decrease of 48%.  The decrease in interest expense was attributed directly to the discount on notes from the Black-Scholes calculations.





OTHER INCOME





Total other income for the period ended December 31, 2008 decreased by $268,800 to $2,675 from $271,475 in the prior year ended December 31, 2007, which represents a decrease of 99%.  The decrease in other income was attributed directly to the gain on warrant derivatives in 2007 which the Company did not have in 2008.





OTHER EXPENSES





Total other expenses for the period ended December 31, 2008 decreased by $543,263 to $28,194 from $571,457 in the prior year ended December 31, 2007, which represents a decrease of 95%.  The decrease in other expenses was attributed directly to an acquisition deposit in the amount of $250,000 that was forfeited and the $293,263 was the result of bad debt of the Allstate Home Inspection acquisition due to the economic down turn in the real estate market which began in 2007.





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 $9,409,944. This was a decrease of $1,025,050 or 10% compared to the prior year pre-tax loss in 2007 of $10,434,994.  The decrease resulted primarily to decreases in consulting, professional fees and impairment loss which was offset by the $3,900,000 increase in general and administrative expenses.





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, marketing and due to the current economic downturn of the real estate market.  There is no assurance we can achieve significant profitable sales to overcome losses.





LIQUIDITY AND CAPITAL RESOURCES





ESP had net cash of $4,600 at December 31, 2008, as compared to $8,504 at December 31, 2007.





During the year ended December 31, 2008, ESP used $1,287,667 of cash for operating activities, as compared to $2,189,870 during the year ended December 31, 2007. The decrease in the use of cash for operating activities was a result of finance fees, impairment of acquisitions, 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 $1,408,183, as compared to $2,709,616 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.








29








The Company's $4,600 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.  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 $602,900 as of December 31, 2007 to $450,220 as of December 31, 2008, a difference of $152,680 or 25%.  The decrease is primarily related to the amortization of membership lists.





Our total liabilities increased from $5,130,742 as of December 31, 2007 to $9,252,858 as of December 31, 2008. This increase is due in large part to new financing and increase in accounts payable and accrued expenses.





It is the intent of the Company to address the litigation concerns by continuing to seek additional funding that will accommodate all outstanding liabilities on the company’s balance sheet which would include current matters described under the Litigation Note 13 Contingencies and Litigation of this filing.





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.








30





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
32Consolidated Balance Sheets as of December 31, 2008 and 2007
33Consolidated Statements of Operations for the years ended December 31, 2008 and 2007
34Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2008 and 2007
35Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007
36Notes to Consolidated Financial Statements
37








31







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




































/s/ Farber Hass Hurley LLP

















32







ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES(Formerly Glass-Aire Industries Group, Ltd.)Consolidated Balance SheetsDecember 31, 2008 and 2007 (As Restated)ASSETS2008


2007Current AssetsCash & cash equivalents

$
4,600


$
8,504Accounts receivable


26,415



50,409Total Current Assets


31,015



58,913Net Property & Equipment


9,815



18,597Other AssetsDeposits


3,390



3,390Membership list, net of accumulated amortization


406,000



522,000Total Other Assets


409,390



525,390TOTAL ASSETS

$
450,220


$
602,900LIABILITIES & STOCKHOLDERS' DEFICITCurrent LiabilitiesAccounts payable

$
2,218,507


$
940,844Line of credit


210,600



95,417Accrued expenses


640,932



38,460Accrued expenses- related party


-



22,500Deferred income


336,057



57,506Interest payable


673,960



58,672Loans - related party


1,214,000



925,000Convertible loans payable


975,000



975,000Loans payable


2,983,802



2,017,344Total Current Liabilities


9,252,858



5,130,742Stockholders' DeficitPreferred stock, (par value $.001 per share,5,000,000 shares authorized: no shares issued


-



-Common stock, (par value $.001 per share,295,000,000 shares authorized: 55,578,594 and21,620,879 shares issued and outstnading


55,580



21,623Paid-in capital


14,344,963



9,243,772Retained earnings


(23,203,181
)


(13,793,237
)Total Stockholders' Deficit


(8,802,638
)


(4,527,842
)TOTAL LIABILITIES &STOCKHOLDERS' DEFICIT

$
450,220


$
602,900




See Notes to the Consolidated Financial Statements




33


ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES(Formerly Glass-Aire Industries Group, Ltd.)Consolidated Statements of OperationsFor the Years Ended December 31, 2008 and 2007 (As Restated)2008


2007RevenuesSafeguard Inspections

$
604,635


$
585,589Association Dues and Fees


391,748



38,784PVS Software & Tech Support


37,758



-Net Revenue


1,034,141



624,373Cost of Goods Sold


(474,266
)


(83,118
)Gross Profit


559,875



541,255Operating ExpensesDepreciation and amortization


202,364



16,487Finance fee


221,994



132,000Consulting


890,449



2,408,338Commission


2,500



282,959Professional fees


507,762



1,089,116General and administrative


5,947,958



2,181,501Impairment loss


608,833



1,580,704Total Operating Expenses


8,381,861



7,691,105Loss from operations


(7,821,986
)


(7,149,850
)Other Income (Expenses)Interest income


1,673



452Interest expense


(1,564,112
)


(2,995,614
)Other income


2,675



271,475Sales of asset


-



10,000Other expenses


(28,194
)


(571,457
)Total Other income (Expenses)


(1,587,958
)


(3,285,144
)NET LOSS

$
(9,409,944
)

$
(10,434,994
)Basic and diluted loss per share

$
(0.22
)

$
(0.58
)Weighted average number ofcommon shares - basic and diluted


43,726,677



18,080,033




See Notes to the Consolidated Financial Statements










34







ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES(Formerly Glas-Aire Industries Group, Ltd.)Consolidated Statement of Stockholders' Equity (Deficit)For the Years Ended December 31, 2008 and 2007 (As Restated)AdditionalCommon


Common


Paid-in


RetainedShares


Stock


Capital


Earnings


Total(Deficit)Balance,  December 31, 2006, As Restated


14,741,118


$
14,741


$
2,890,011


$
(3,358,243
)

$
(453,491
)Shares issued for Acquisition of AHI


1,000,000



1,000



549,000







550,000Shares issued for Acquisition of IAMI


50,000



50



54,950







55,000Shares issued for Cash


844,051



844



488,707







489,551Shares issued for Employee Compensation


226,000



226



236,174







236,400Shares issued for Services


1,892,743



1,895



2,569,931







2,571,826Shares issued with Loans


2,866,967



2,867



1,489,751







1,492,618Warrant issued with Loans


-



-



232,170







232,170Warrants Issued to Consultants


-



-



733,078







733,078Net loss for the year ending  December 31, 2007














(10,434,994
)


(10,434,994
)Balance,  December 31, 2007, As Restated


21,620,879



21,623



9,243,772



(13,793,237
)


(4,527,842
)Shares issued for Acquisition of PVS


650,000



650



96,850







97,500Shares issued for Cash


112,069



112



64,888







65,000Shares issued to Directors


25,000,000



25,000



3,475,000







3,500,000Shares issued for Employee Compensation


1,099,190



1,099



138,869







139,968Shares issued for Services


4,139,560



4,139



278,328







282,467Shares issued with Loans


2,956,896



2,957



587,891







590,848Debt discount


-



-



374,077







374,077Warrants Issued for services


-



-



61,020







61,020Stock options issued to Directors


-



-



24,268







24,268Net loss for the year ending December 31, 2008














(9,409,944
)


(9,409,944
)Balance,  December 31, 2008, As Restated


55,578,594


$
55,580


$
14,344,963


$
(23,203,181
)

$
(8,802,638
)




See Notes to the Consolidated Financial Statements







35










ENVIRONMENTAL SERVICE PROFESSIONALS, INC. AND SUBSIDIARIES(Formerly Glass-Aire Industries Group, Ltd.)Consolidated Statement of Cash FlowsFor the Years Ended December 31, 2008 and 2007 (As Restated)2008


2007CASH FLOWS FROM OPERATING ACTIVITIESNet loss

$
(9,409,944
)

$
(10,434,994
)Adjustments to reconcile net loss to net cashused by operating activities:Depreciation


22,202



16,487Amortization


180,162



74,343Gain on sale of fixed assets


-



(10,000
)Derivative gain


-



(235,480
)Amortization of debt discount


527,888



2,117,899Common stock for compensation and services


3,922,435



2,808,226Warrants and options issued for services


85,288



733,078Impairment of acquisition


608,833



1,580,704Changes in operating assets and liabilities:






-Accounts receivable


23,994



285,072Other assets


-



68,636Accounts payable


1,277,663



665,953Accrued expenses


579,972



24,028Deferred income


278,551



57,506Interest payable


615,288



58,672Net cash used by operating activities


(1,287,667
)


(2,189,870
)CASH FLOWS FROM INVESTING ACTIVITIESSale (purchase) of fixed assets


(13,420
)


10,000Acquisition of intangible asset


(111,000
)


(825,000
)Net cash used in investing activities


(124,420
)


(815,000
)CASH FLOWS FROM FINANCING ACTIVITIESLine of credit, net


115,183



(6,545
)Borrowings (repayments) on loan payable - related party


289,000



(15,435
)Borrowings on loan payable


949,000



2,242,045Repayments on loans payable


(10,000
)Proceeds from sale of common stock


65,000



489,551Net cash provided by financing activities


1,408,183



2,709,616Net decrease in cash & cash equivalents


(3,904
)


(295,254
)Cash at beginning of year


8,504



303,758Cash at end of year

$
4,600


$
8,504SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid for Interest

$
124,316


$
117,896Income taxes paid

$
-


$
-SUPPLEMENTAL DISCLOSURES OF NON CASH ACTIVITIES:Common stock issued on debt

$
590,848


$
1,492,618Common stock issued for acquisition subsidiary

$
97,500


$
605,000See Notes to the Consolidated Financial Statements







36
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007


NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION





Business Description and Presentation





Environmental Services Professionals, Inc. (formerly Glass-Aire Industries Group Ltd.), a Nevada corporation ("ESP" or the “Company") was incorporated on September 29, 1992.  Prior to ceasing business in March 2004, the Company manufactured and distributed wind deflector products to automobile manufacturers in the United States, Canada and Japan.  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, which form the foundation of a suite of services that together comprise: “The Industry’s Best in Class Inspection”. The brand name of this program is ESP’s Certified Environmental Home InspectorTM (“CEHITM”) and is operating under ESP’s Environmental Safeguard Professionals Business Unit. This Business Unit will also provide the annual subscription-based moisture maintenance programs to both residential and commercial clients under the Healthy Living Maintenance ProgramTM (“HLMPTM”), and EcoCheck InspectionTM programs. Through ESP’s wholly owned subsidiary, National Professional Services, Inc. (“NPSI”), the Company offers annual trade memberships and management services for industry related associations.  Porter Valley Software, Inc. (“PVS”), a leading 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 InspectionTM.  The EcoCheck InspectionTM 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 CEHITM.  One of the programs the Company provides by the CEHITM program is the Healthy Green Living CertificationTM (“HGLCTM”).  After a EcoCheck InspectionTM has been conducted by one of ESP’s CEHIs, a subject property that passes inspection receives a HGLCTM.  The HGLCTM 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.





National Professional Services, Inc. (“NPSI”), a wholly-owned business unit, is currently a conglomerate of seven individual associations and maintains 8,200 annual paying members. The focus of this Business Unit is to establish cross-training on CEHITM Programs and to provide information concerning residential environmental issues, establish training for Underwriters, Loan Officers and Appraisers to educate these groups about CEHITM inspection protocols. These training programs for Insurance Companies, Underwriters, Loss Control and Risk Management personnel educate and emphasize the benefits of using a CEHITM 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 InspectVueTM. InspectVueTM is the core component of ESP’s automated on-line EcoCheck InspectionTM protocols that include the new energy inspection requirements that are being developed in concert with other industry leading participants.





Going Concern and Management Plans





These financial statements are presented on the basis that the Company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. The Company has incurred a loss of approximately 9,410,000in the current period and has a  working capital deficit of approximately $9.222.000and is in default on substantially all of its term debt of approximately $5,173,000.  These matters raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The


37
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007


NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION - Continued





Going Concern and Management Plans - Continued





Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing or refinancing as may be required and, ultimately, to attain profitable operations. Management’s plan to eliminate the going concern situation include, but are not limited to, the raise of additional capital through issuance of debt and equity, improved cash flow management, aggressive cost reductions, and the creation of additional sales and profits across its product lines.





Restatement





The Company identified errors in previously issued financial statements as of and for the years ended December 31, 2007 and 2008.  It evaluated and corrected these errors through adjustments reflected in the restated historical Consolidated Financial Statements in accordance with Accounting Standards Codification (“ASC”) No. 250, “Accounting Changes and Error Corrections.”





The consolidated financial statements for the year ended December 31, 2008 and December 31, 2007 have been restated to correct certain errors in the financial statements and notes thereto.  The errors primarily relate to the recording of the reverse merger in 2006, revenue recognition, purchase allocations for acquisitions, debt discount for warrants issued with debt, errors related to common stock issued dates and errors in common stock valuations.





The following financial statement line items for fiscal years 2008 were affected by the corrections.





Statement of Operations

2008
As Reported

As Adjusted

Effect ofChangeGross Profit

$
807,169


$
559,875


$
(247,294
)Expenses


6,411,545



9,969,819



3,558,274Net Loss

$
(5,604,376
)

$
(9,409,944
)

$
(3,805,568
)Basic and Diluted Loss Per Share

$
(0.16
)

$
(0.22
)

$
(0.06
)Balance Sheet

2008
As Reported
As Adjusted

Effect of

ChangeTotal Assets

$
997,208


$
450,220


$
(546,988
)Total Liabilities

$
7,214,601


$
9,252,858


$
2,038,257Common Stock


55,599



55,580



19Additional Paid-In Capital

$
24,964,721


$
14,344,963


$
(10,619,758
)Accumulated Deficit

$
(31,237,713
)

$
(23,203,181
)

$
8,034,532Total Shareholders’ Equity

$
(6,217,393
)

$
(8,802,638
)

$
(2,585,245
)





The following financial statement line items for fiscal year 2007 were affected by the corrections:





Statement of Operations

2007

As Reported


As Adjusted


Effect of ChangeGross Profit

$
524,699


$
541,255


$
16,556Expenses


(21,992,805
)


(10,976,249
)


11,016,556Net Loss

$
(21,468,106
)

$
(10,434,994
)

$
11,033,112Basic and Diluted Loss Per Share

$
(1.18
)

$
(0.58
)

$
0.60Balance Sheet

2007Total Assets

$
1,789,245


$
602,900


$
(1,186,345
)Total Liabilities

$
5,224,682


$
5,130,742


$
(93,940
)Common Stock

$
21,783


$
21,623


$
(160
)Additional Paid-In Capital

$
20,568,299


$
9,243,772


$
(11,324,527
)Accumulated Deficit

$
(24,025,519
)

$
(13,793,237
)

$
10,232,282Total Shareholders’

$
(3,435,437
)

$
(4,527,842
)

$
(1,092,405
)













38
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007
 NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION - Continued





Principles of Consolidation and Reporting





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, and International Association Managers, Inc. (“IAMI”), a Minnesota corporation, the Company’s wholly owned subsidiaries.  All significant intercompany balances and transactions have been eliminated in consolidation.





Fair Value of Financial Instruments





Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2008 and 2007. The respective carrying value of certain on-balance-sheet financial instruments, approximate their fair values. These financial instruments include cash, accounts receivable, accounts payable, accrued expenses and notes payable. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.





The Company adopted ASC 820, “Fair Value Measurements” on January 1, 2008. ASC 820 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:





·
Level 1
inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.·
Level 2
inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.·
Level 3
inputs to the valuation methodology are unobservable and significant to the fair value.





The Company also analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815, “Derivatives and Hedging”.





Carrying Value

December 31,

2008


Fair Value Measurements

December 31, 2008

Using Fair Value HierarchyLevel 1


Level 2


Level 3Convertible debt

$
975,000


$
-


$
-


$
975,000





There was no change in the Company’s convertible debt in 2008. Based on facts and circumstance and the lack of any determinable market for raising debt for a company in its poor financial condition, management estimates that cost is the best estimate of fair value.





Use of Estimates





The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods.  Actual results could materially differ from those estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.


39
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007


NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION - Continued





Cash and Cash Equivalents





The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.





Accounts Receivable





Accounts receivable are not collateralized and interest is not accrued on past due accounts. Periodically, management reviews the adequacy of its provision for doubtful accounts based on historical bad debt expense results and current economic conditions using factors based on the aging of its accounts receivable. After management has exhausted all collection efforts, management writes off receivables and the related reserve.  Additionally, the Company may identify additional allowance requirements based on indications that a specific customer may be experiencing financial difficulties.  Actual bad debt results could differ materially from these estimates.





Concentration of Credit Risk





Credit risk concentration with respect to receivables is limited due to the geographic dispersion of our customer base. We conduct ongoing credit evaluations but do not obtain collateral or other forms of security. We believe our credit policies do not result in significant adverse risk and historically have not experienced significant credit-related losses. We had no customers whose balances due at December 31, 2008 and December 31, 2007 exceeded 10% of gross accounts receivable.





Intangibles





Intangibles represent primarily costs incurred in connection with our trademarks, service marks and membership lists.  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.  As part of the Acquisition of IAMI the Company received the association’s membership lists, which consisted approximately of 8,200 members and each member pays annual dues of $200 per year. There are a total of seven independent associations that represents various industries within the Real Estate Industry, such as Inspectors, Mortgage Underwriters, Real Estate Appraisers and Meeting Planners.





In 2007 the Company recorded $580,000 in an intangible asset.  This amount is to be amortized over 5 years.  Amortization for the years ended December 31, 2007 and December 31, 2008 was $58,000 and $116,000, respectively.  Such costs are amortized using the straight-line method over the useful life of the membership list.





In 2008 the Company recorded $672,995 in an intangible asset from the acquisition of PVS.  This amount is to be amortized over 5 years.  Amortization for the year ended December 31, 2008 was $64,162.  Such costs are amortized using the straight-line method over the estimated useful life of the software. The amortization is based on 60 months. At December 31, 2008, the Company evaluated this asset for impairment and determined its value to be negligible. See Impairment of Long-Lived Assets below.





Impairment of Long-Lived Assets





The carrying value of long-lived assets, including amortizable intangibles and property and equipment, are evaluated whenever events or changes in circumstances indicate that a potential impairment has occurred relative to a given asset or assets. Impairment is deemed to have occurred if projected undiscounted cash flows associated with an asset are less than the carrying value of the asset. The estimated cash flows include management’s assumptions of cash inflows and outflows directly resulting from the use of that asset in operations. The amount of the impairment loss recognized is equal to the excess of the carrying value of the asset over its then estimated fair value.





Intangible assets that are not subject to amortization shall be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test shall consist of a comparison of the fair value of the intangible asset with its carrying amount, as defined. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess. The impairment losses recognized in 2008 and 2007 were $608,883 and $1,580,704, respectively.


40
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007


NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION - Continued





Revenue Recognition and Franchise Fees





Revenue includes the following services:




·
Certified Environmental Home Inspector (CEHI)




·
Annual Membership Dues and Fees (seven associations)





The Company recognizes revenue when services on contracts are provided.





The Company ceased offering franchises and did not renew any franchise registration or make any franchise sales for the year 2007. All existing franchises were converted into independent contracts as approved vendors under the CEHI program of Environmental Safeguard Professionals, Inc. (“Safeguard”).





The vendor approval process is a two-step process for independent contractors to be able to provide CEHI Program Services.   The contractor must submit a completed vendor approval form to validate their eligibility and specifically verify that the contractor has the necessary training, certifications and equipment. The applicant must show that they are in good standing. Based on this verification, the contractor must obtain the required instruction and equipment to operate ESP’s proprietary on-line systems and to deliver the program of services. There is a fee to the contractor to receive this equipment and instruction. The contractor can either purchase the sampling kit from ESP or preferably order it directly from the supplier. Once the contractor has obtained the necessary approved vendor status, they must execute a standardized independent contractor agreement.  Each independent contractor is provided leads by ESP; the contractor enters all customer data into the ESP portal for pricing, billing and receipt of payment.





Association membership dues and fees are paid by individual persons or entities that have requested an association designation to receive training, education and other industry information as to the industry that the association represents. The membership dues are amortized over 12 months.  The seven associations are managed by National Professional Services, Inc. (“NPSI”).  Deferred Revenue is recorded when the dues are received and the dues are recognized as revenue over a twelve month period.





Income Taxes





The Company accounts for income taxes under the provisions of ASC 740, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between bases used for financial reporting and income tax purposes. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.





Stock-Based Compensation





In accordance with  ASC 718 the Company calculates compensation costs for all share-based awards to employees based on the grant date fair value of those awards and recognized over the period during which the employee is required to perform services in exchange for the award (generally over the vesting period of the award).





Basic and Diluted Income / (Loss) per Share





Basic income / (loss) per common share is computed by dividing net income / (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted income / (loss) per common share is computed similar to basic income per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of December 31, 2008, the Company had debt instruments, options and warrants outstanding that can potentially be converted into approximately 14,552,634 shares of common stock. Inclusion of these shares is not incorporated in the computation as their effect would be anti-dilutive.


41
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007


NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION - Continued





Recent Accounting Pronouncements





The Company adopted the “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles.  This guidance establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and non-authoritative. The Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (the “Codification”) became the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification became non-authoritative. This new guidance is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The adoption of this guidance has changed how we reference various elements of GAAP when preparing our financial statement disclosures, but did not have an impact on the Company’s financial statements.





In January 2010, the FASB issued ASU 2010-06, an update that improves the requirements related to Fair Value Measurements and Disclosures Subtopic 820-10 of the FASB Accounting Standards Codification originally issued as FASB Statement 157. This update requires disclosures about transfers between Level 1, Level 2 and Level 3 assets and the disaggregated activity in the roll forward for level 3 Fair Value measurements. These new disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company does not expect the adoption of ASU 2010-06 to have a material impact on its consolidated financial statements.





In October 2009, the FASB issued Accounting Standards Update ("ASU") No. 2009-13, "Multiple-Deliverable Revenue Arrangements - a consensus of the FASB Emerging Issues Task Force," ("ASU 2009-13"). This update provides amendments to the criteria of ASC 605, "Revenue Recognition," for separating consideration in multiple-deliverable arrangements. The amendments to this update establish a selling price hierarchy for determining the selling price of a deliverable. This Accounting Standards Update will be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. Alternatively, an entity can elect to adopt this standard on a retrospective basis. The Company is currently evaluating the potential impact this standard may have on its financial position and results of operations upon adoption.





In September 2009, the Company adopted new accounting guidance on derivatives and hedging, which changes the disclosure requirements for derivative instruments and hedging activities. This new guidance requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. The Company has applied the provisions of this new guidance to its financial statement disclosures beginning in the third quarter of 2009. The impact of adopting this new guidance is not expected have a material effect on the Company’s results of operations or financial position.





In June 2009, the Company adopted new accounting guidance on the accounting for transfers of financial assets.  The new standard eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. The new guidance is effective for fiscal years beginning after November 15, 2009. The adoption of the new guidance is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.





In May 2009, the Company adopted new accounting guidance on subsequent events. The objective of this guidance is to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This new accounting guidance was effective for interim and annual periods ending after June 15, 2009. The impact of adopting this new guidance is not expected have a material effect on the Company’s results of operations or financial position.





42
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007


NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION - Continued





Recent Accounting Pronouncements - Continued





In April 2009, the Company adopted new accounting guidance on fair value measurements. The new guidance impacts certain aspects of fair value measurement and related disclosures. The new guidance was effective beginning in the second quarter of 2009. The impact of adopting this new guidance is not expected have a material effect on the Company’s results of operations or financial position.





In January 2009, the Company adopted new accounting guidance on business combinations. The new guidance retains the underlying concepts of previously issued accounting guidance in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting (formerly known as the purchase method of accounting), but this new guidance changes the method of applying the acquisition method in a number of significant aspects. Under the new guidance, acquisition costs are generally to be expensed as incurred; non-controlling interests are valued at fair value at the acquisition date; in-process research and development is recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination are generally expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally affect income tax expense. These changes are effective on a prospective basis for all business combinations for which the acquisition date is on or after January 1, 2009, with an exception related to the accounting for valuation allowances on deferred taxes and acquired tax contingencies related to acquisitions completed before that date. This new guidance amends the accounting guidance for income taxes to require adjustments, made after the effective date of this statement, to valuation allowances for acquired deferred tax assets and uncertain income tax positions to be recognized as income tax expense. The adoption of this new guidance as of January 1, 2009 did not have an effect on the accompanying financial statements.





NOTE 2 CONTRACTS RECEIVABLE – FRANCHISE FEES





All but 15 existing franchisees have been incorporated into the CEHI program and franchisees have executed mutual releases for their previously owned franchise. Of these 15 only 5 have existing financing agreements for the initial franchise fee. The Company ceased offering franchises and did not renew any franchise registration or make any franchise sales for the year 2008. The Company continues to transition all remaining franchises to the standard CEHI program.





NOTE 3 PROPERTY & EQUIPMENT





Property is stated at cost.  Additions, renovations, and improvements are capitalized.  Maintenance and repairs, which do not extend asset lives, are expensed as incurred. Depreciation is provided on a straight-line basis over the estimated useful lives ranging, five years for tenant improvements, and five to seven years on furniture and equipment.





Equipment consisted of the following:





December 31,


December 31,2008


2007Fixed AssetsMachinery & equipment

$
33,142


$
24,442Furniture and fixtures


22,303



17,583Computers


55,854



55,854Total Fixed Assets


111,299



97,879Less: Accumulated Depreciation


(101,484
)


(79,282
)Net Property & Equipment

$
9,815


$
18,597





Depreciation expense for the years ended December 31, 2008 and 2007 was $22,202 and $16,487, respectively.





43
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007


NOTE 4 INTANGIBLE ASSETS





Intangible assets consist of association membership lists. As part of the acquisition of IAMI in 2007 the Company received the association’s membership lists.  The Company recorded $580,000 of intangible assets.  This amount is being amortized over 5 years.  Amortization for the years ended December 31, 2008 and 2007 was $116,000 and $58,000, respectively.





Membership list amortization is as follows:





2009
$116,0002010
$116,0002011
$116,0002012
$  58,000





As part of the acquisition of PVS in early 2008, the Company was to pay $400,000 in cash, issue 650,000 shares of common stock (valued at $0.15 per share) and assume $175,500 in debt. The only asset PVS had was a software program used by home inspectors. Based on historical and projected cash flows, the value of the acquisition, $673,000, was assigned to the software. At December 31, 2008, the Company conducted an evaluation for impairment of this asset and determined the value was negligible. See Note 8.





NOTE 5 LINES OF CREDIT





The Company has four lines of credit; the lines of credit are for $30,000 and $75,000 and $20,000 and $100,000.  These lines of credit are in an adjustable rate loan (Index + 4.25%, Prime + 5.74%, at December 31, 2008, respectively). 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 $30,015 and $61,690 and $18,722 and $100,172 (respectively), as of December 31, 2007 and 2008.





NOTE 6 LOANS PAYABLE





Loans payable consist of the following at December 31, 2008:





Convertible note payable, annual interest rate of 12%, due March 31, 2008 with 100,000 warrants convertible into stock at $0.17 per share, and 100,000 warrants convertible into stock at $0.58 per share, both exercisable through February 19, 2011.  Note has matured and is now in default.
$
975,000Various notes due to individuals and estates with interest rates ranging from 3.0% to 18.0%. Notes have matured and are in default.

2,983,802$
3,958,802





For the notes that were issued with warrants and stock attached, the Company originally valued these instruments using the “Relative Fair Value” approach. A total of 2,866,967 shares of common stock were issued with the loans. All notes are past maturity and currently in default. Accordingly, the Company amortized all but $6,432 of the remaining discount in the year ended December 31, 2008.





Related Party Debt





There is $220,000 in loans due to Pro-Active (a company owned by Enda M. Fair and the Company’s CEO), $55,000 due to Richard LaPierre (prior owner of National Professional Services, Inc.), $289,000 due to Keith Swift, et al (prior owner of Porter Valley Software) and $650,000 Francis Finnigan (prior owner of Allstate Home Inspections). Total interest accrued through 12/31/08 on these loans represents $121,856. Shares issued in connection with the acquisitions. In addition, the Company has an accrued expense due to Pro-Active for $22,550 for management fees from 2007.  In 2008, Ed Torres became an employee of the Company; thus, cancelling the Pro-Active management agreement.





44
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007
  NOTE 7 LEASE AGREEMENTS





The Company signed a lease agreement for its corporate offices in Palm Springs commencing August 1, 2006 with the option of renewal for an additional three years at a 5% increase each year.





The base rent is currently $6,206 per month.  The following is a schedule of payments under the above operating lease:





YEAR ENDINGDECEMBER 31,

AMOUNT2009

$
43,442





The Company signed a two-year lease agreement for its NPSI office in Arizona commencing April 12, 2007 through April 30, 2009. The first year rent is $1,095 per month and increases to $1,128 per month for the second year.  The Company terminated the agreement in October 2008 to have all operations moved to corporate headquarters in Palm Springs, California.





YEAR ENDINGDECEMBER 31,

AMOUNT2009

$
4,613





NOTE 8 ACQUISITIONS





On February 20, 2007 (the “Closing"), the Company, Allstate Home Inspection & Household Environmental Testing, Ltd., a Delaware corporation ("AHI"), and Francis X. Finnigan ("Finnigan"), an individual and sole shareholder of AHI, completed the closing of a stock purchase agreement (the "SPA") pursuant to which the Company acquired 100% of the total issued and outstanding stock of AHI from Finnigan. Pursuant to the SPA, the Company issued 1,000,000 shares of the Company’s common stock issuable in installments over time (the "Stock Payment"), 250,000 warrants issuable 275 days after the Closing entitling Finnigan to purchase 250,000 additional shares of the Company's common stock at a purchase price of $0.75 per share exercisable for a period of five years from the date of the Closing, assumed liabilities of approximately $30,000 plus $950,000 in cash, payable in installments over time (the "Cash Payment").  As a result of the Closing, AHI became a wholly owned subsidiary of the Company; subsequently the division name was changed to Environmental Safeguard Professionals, Inc.  The total value of this acquisition was approximately $1,581,000.





All shares of the Company’s common stock and all of the warrants issuable to Finnigan by the Company under the SPA must be held by Finnigan for a period of at least one year from the date of the Closing.  Furthermore, Finnigan will have piggyback registration rights with respect to the shares and the shares underlying the warrants, subject to potential adjustment by the Underwriter for such registration statement, if any.





Subsequent to the Closing, it was determined that there was no value to the net assets acquired and the Company attempted to rescind and unwind the transaction. The Company has been pursuing legal remedies to this acquisition but as of the date of this report, it has been unable to rescind the transaction. Accordingly, the Company has expensed the value of the acquisition in 2007. The Company still has $650,000 due and payable under the agreement but will pursue all legal recourse to have this debt dismissed and unwind the transaction.





On July 23, 2007, the Company, Robert G. Johnson, an individual (the "Seller"), and International Association Managers, Inc., a Minnesota corporation (the "Manager") closed the acquisition of all of the tangible and intangible assets (the "Acquired Assets") of International Association Managers, Inc. The acquired assets included the following associations: National Association of Real Estate Appraisers, Environmental Assessment Association, Association of Construction Inspectors, Housing Inspection Foundation, International Real Estate Institute, International Society of Meeting Planners, and National Association of Review Appraisers & Mortgage Underwriters, a non-profit association.





Pursuant to the Asset Purchase Agreement, dated April 3, 2007 (the "APA") covering the acquisition, in consideration for the transfer of the Acquired Assets, the Company paid the Seller a total amount of $525,000 in cash and issued 50,000 shares of its common stock.  Upon closing of the APA, the Company took control of the day-to-day management responsibilities of the associations. The total value of this acquisition was $580,000.




45
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007


NOTE 8 ACQUISITIONS





In early 2008, 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”), began negotiations for the acquisition of PVS. The Company completed the closing of a stock purchase agreement (the “SPA”) in June 2008 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 (valued at $0.15 per share) issuable in installments over time (the “Stock Payment”), $400,000 in cash, payable in installments over time (the “Cash Payment”) and assumption of debt amounting to $174,500.  The total value was assigned to the software. As a result of the Closing, PVS is a wholly owned subsidiary of the Company. In December 2008, the Company conducted an evaluation for possible impairment of the intangible asset. The revenues from the use of the PVS software had average approximately $1.0 million per year over the prior 3 years. Based on the severe downturn in the housing industry and the general economy, the Company realized less than $40,000 in revenues in 2008. Based on the continuing housing slump and economic environment, compounded by the Company’s cash shortfalls which delayed much needed updates in the software, management impaired the full value of the asset at December 31, 2008 totaling approximately $609,000. See litigation involving PVS in Note 13.





NOTE 9 STOCK WARRANTS AND OPTIONS





Warrants





At December 31, 2006, the Company had 4,936,895 warrants issued.  During 2007, the Company issued 5,115,742 warrants with debt and for services. During 2008, the Company issued 4,612,066 warrants with debt and for services.  No warrants were exercised or cancelled in 2008 or 2007.





The outstanding warrants for the purchase of the Company’s Common Stock as of December 31, 2008, are listed below.





Strike Price

Number of Warrants

Exercise Period$
0.01

625,000

June 2007 through June 2011$
0.17

1,500,000

Feb -June2008 through Feb-June 2011$
0.25

2,711,242

June  2007  thru Dec 2008 through June 2011 thru Dec 2012$
0.50

50,000

Oct 2007-Sep 2008 through Oct 2010-Aug 2011$
0.58

686,206

October 2007-May 2008 through Oct2010-May 2011$
0.75

8,229,835

June 2006-May 2008 through Feb2010-Aug 2016$
1.25

125,000

April 2007 through March 2010$
1.50

737,420

June 2006 through December 201214,664,703





Options





ESP, Inc. 2008 Equity Incentive Plan





On February 26, 2008, the Company’s Board of Directors adopted the Environmental Service Professionals, Inc. 2008 Stock and Incentive Plan (the “2008 Plan”).   Under the 2008 Plan, a total of 10,000,000 common shares will be available for issuance through the grant of a variety of common share-based awards under the plan. Types of awards that may be granted under the 2008 Plan include stock awards, restricted stock awards and non-qualified and incentive stock options. Option vesting terms are determined at the Grant Date, but in no event may the term exceed ten years. During 2008, the Company granted 1,050,000 options to its three independent members on the Board. All options were immediately vested. As of December 31, 2008, there were 1,050,000 outstanding options under the 2008 Plan, and 8,950,000 options are available for issuance.





46
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007


NOTE 9 STOCK WARRANTS AND OPTIONS





Options





The Company uses the Black-Scholes option-pricing model to estimate the fair value of share-based awards under ASC 505 and 718. The Black-Scholes option-pricing model incorporates various and highly subjective assumptions, including expected term and expected volatility.





Additionally, SFAS No. 123(R) requires the Company to estimate pre-vesting option forfeitures at the time of grant and periodically revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company records stock-based compensation expense for only those awards expected to vest. As of December 31, 2008, no options were forfeited due to terminations.





The following table shows the Company’s assumptions used to compute the stock-based compensation expense and the weighted average grant-date fair value of the stock options granted during the years ended December 31, 2008:





2008Weighted-average risk-free rate of interest

1.7% to  2.5%Expected volatility

53.6% to 59.0%Weighted-average expected life

2.5 yearsDividend yield

noneWeighted-average fair value

$.08





The information set forth in the following table covers options granted under the Company’s stock option plan:





Options Granted


Weighted Average Exercise PriceBalance, December 31, 2007


0


$
0.00Granted


1,050,000



0.10Cancelled


0



0ExercisedBalance, December 31, 2008


1,050,000


$
0.10Exercisable, December 31, 2008


1,050,000


$
0.10





The intrinsic value for stock options outstanding and exercisable is calculated as the difference between the fair market value as the end of the period and the exercise price of the shares. At December 31, 2008, there was no intrinsic value.





The following table summarizes information about stock options outstanding and exercisable at December 31, 2008.





OPTIONS OUTSTANDING

OPTIONS EXERCISABLERange of

Exercise Prices


Number Outstanding


Weighted-Average

Remaining Contractual Life


Weighted-Average

Exercise

Price


Number

Exercisable


Weighted-Average

Exercise PriceAt December 31, 2008$0.10

$
1,050,000

$
4.5 years

$
0.10

$
1,050,000

$
0.10





47
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007


NOTE 10 BASIC & DILUTED LOSS PER COMMON SHARE





Basic and diluted 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,

2007Net Income/(Loss) From Operations

$
9,409,994


$
(10,434,994
)Weighted Average Number of Shares Outstanding


43,726,677



18,080,033Basic Income/(Loss) Per Share


(0.22
)


(0.58
)





NOTE 11 STOCK TRANSACTIONS





During 2008, the Company issued stock as follows:





Employee Compensation


A total of 1,199,190 shares were issued for employee compensation at values ranging from $0.04 to $0.16 per share.





Loans


A total of 2,956,896 shares were issued with loans at values ranging from $0.065 to $0.58 per share.





Services


A total of 4,139,560 shares were issued for services at values ranging from $0.04 to $0.14 per share.





Cash


A total of 112,069 shares were issued for cash at $0.065 per share.





Acquisitions


A total of 650,000 shares were issued for acquisitions at values ranging from $0.15 to $0.15 per share.





Directors


A total of 25,000,000 shares were issued for directors at values ranging from $0.04 to $0.16 per share.





During 2007, the Company issued stock as follows:





Employee Compensation


A total of 226,000 shares were issued for employee compensation at values ranging from $1.00 to $1.40 per share.





Loans


A total of 2,866,967 shares were issued with loans at values ranging from $0.065 to $0.58 per share.





Services


A total of 1,782,743 shares were issued for services at values ranging from $0.75 to $1.91 per share.





Cash


A total of 844,051 shares were issued for cash at values ranging from $0.38 to $1.02 per share.





Acquisitions


A total of 1,050,000 shares were issued for acquisitions at values ranging from $0.55 to $1.10 per share.





48
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007


NOTE 12 INCOME TAXES





Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax bases of assets and liabilities. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to reverse.  Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amounts expected to be realized.  Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred income tax assets and liabilities.





In assessing the reliability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Management considers the projected future taxable income and tax planning strategies in making this assessment.  Based upon the level of historical taxable income, management has chosen not to compute a deferred income tax benefit at this time.





2007





No provision was made for Federal income taxes for the year ended December 31, 2007 since the company had a significant net operating loss. As of December 31, 2007, the Company had accumulated Federal net operating loss carry forwards totaling approximately $10,163,800 which may be used to reduce Federal taxable income through 2027.The accumulated California net operating loss carry forwards totaling approximately $11,149,000 may be used to reduce California taxable income through 2021.  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 in the amount of $800.





2008





No provision was made for Federal income tax for the years ended December 31, 2008 and 2007 since the Company had a significant net operating loss. As of December 31, 2008, the Company had accumulated Federal net operating loss carry forwards totaling approximately $18,110,000 which may be used to reduce Federal taxable income through 2028.The accumulated California net operating loss carry forwards totaling approximately $19,866,000 may be used to reduce California taxable income through 2021. 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 in the amount of $800 for 2007 and 2008.





December 31, 2008


December 31, 2007Deferred income tax benefit

$
7,922,800


$
4,431,000Valuation allowance


(7,922,800
)


(4,431,000
)Net income tax benefit

$
-


$
-





NOTE 13 CONTINGENCIES AND LITIGATION





Litigation





John Cooley v. Pacific Environmental Sampling, Inc., 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.  The Company 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.  In January 2010, without admitting liability, the Company entered into a settlement agreement with Mr. Cooley pursuant to which Mr. Cooley agreed to dismiss this case with prejudice in consideration for $40,000 plus 100,000 shares of our Common Stock.  The $40,000 settlement is reflected in the 2008 financial statements.


49
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007


NOTE 13 CONTINGENCIES AND LITIGATION - Continued





Litigation - Continued





Bakai v. Environmental Service Professionals, Inc., et. al.:


In July 17, 2008, Mr. Bakai filed a civil action against the Company for failure to pay on a promissory note. The Company elected not to defend against the claim and a default Judgment was entered on September 18, 2008 which is now valued at $23,548. We estimate that we incurred approximately $1,000 in legal costs to defend this case.  The value of this settlement has been accrued in the 2008 financial statements.





Palm Desert National Bank v. Environmental Service Professionals, Inc., et. al.:


On October 22, 2008, Palm Desert National Bank filed a civil action against the Company for failure to pay on a promissory note. The Company elected not to defend against the claim and a default Judgment was entered on January 26, 2009. We estimate that we incurred approximately $4,000 in legal costs to defend this case.  On December 3, 2010 Palm Desert National Bank was sold to Bank of Southern California. The value of $289,269 has been accrued in the 2008 financial statements.





Keith Swift, et. al. v. Lorne Steiner:


On December 9, 2008, Lorne Steiner filed a cross complaint in Los Angeles County naming the Company 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. Lorne Steiner filed a Cross-Complaint against the Company for breach of contract based upon claims that the Company failed to pay the amounts required by a settlement agreement relating to the purchase of Porter Valley Software. A Judgment was entered on December 1, 2009. We estimate that we incurred approximately $125,000 in legal costs to defend this case. The value of $500,000 has been accrued in the 2008 financial statements.





NOTE 14 SUBSEQUENT EVENTS (UNAUDITED)





Jerry Thompson v. Environmental Service Professionals, Inc., et. al.:


On, July 17, 2009, Mr. Thompson filed a civil action against the Company for failure to pay on a promissory note. The Company elected not to defend against the claim and a Default Judgment was entered on April 2, 2010 which is now valued at $123,262. We estimate that we incurred approximately $2,500 in legal costs to defend this case. The value of $130,000 has been accrued in the 2008 financial statements.





Lyle Watkins v. Environmental Service Professionals, Inc., et. al.:


On May 14, 2010, Lyle Watkins filed a civil action against the Company and other based upon a settlement agreement entered into between Mr. Watkins and the Company. Mr. Watkins claims that he is owed either $397,000 or that he is entitled to keep 9 million shares of the Company’s common stock. The Company has filed a Demurrer to the First Amended Complaint which is set for hearing in January 2011.  The Company will defend against Mr. Watkins’ claims as management feels that many such claims are frivolous and unwarranted. the Company feels that it will prevail against all of Mr. Watkins claims but that it may be required to pay Mr. Watkins $397,000 plus interest based upon the previous settlement agreement (less substantial amounts for off-sets, credits and reimbursements based upon claims that the Company has against Mr. Watkins). Mr. Watkins is seeking damages in the amount of $397,000 or 9 million shares of the Company’s stock. We estimate that we incurred approximately $65,000 in legal costs to defend this case.





Tatro & Zamoyski, LLP v. Environmental Service Professionals, Inc.:


On July 9, 2010, Tatro & Zamoyski, LLP filed a claim against the Company seeking $4,508 for breach of contract. The Company is defending this claim and will continue to work with Tatro & Zamoyski to reach a settlement . We estimate that we incurred approximately $500 in legal costs to defend this case.





50
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007


NOTE 14 SUBSEQUENT EVENTS (UNAUDITED) - Continued





Niv Benshalom v. Environmental Service Professionals, Inc.:


On July 9, 2010, Niv Benshalom has asserted a claim against the Company seeking $100,749 for breach of contract. The Company defended this claim and reached a settlement on November 18, 2010.  We estimate that we incurred approximately $500 in legal costs to defend this case. The value of $100,749 will be accrued in the 2009 financial statements.





Environmental Service Professionals, Inc., ESP Settlement, LLC v. Lion Share Capital, LLC:


In October 2010 the Company filed a civil action against Lion Share Capital for breach of contract based upon Lion Share Capital’s failure to comply with the terms of an equity contract. The Company seeks damages in an amount in excess of $25,000 plus the cancellation of 5 million common stock warrants and the return of 5 million shares of its common stock.  The Complaint has been filed and is in the process of being served upon the Defendant. The Company is prosecuting this case vigorously and believes that it has a meritorious case and that Lion Share will be required to pay damages as well as return the 5 million shares of ESP stock , the Company cancelled the 5 million warrants at $ 0.75 per share. There are no claims asserted against ESP in this litigation.





Acquisitions





Leverage Alternative Solutions (LAS):


On October 1, 2009 the Company signed and closed a Stock Purchase Agreement (SPA) with United Capitalists, Inc dba Leverage Alternative Solutions (LAS).  The Company acquired from United Capitalists, Inc 100% of the total issued and outstanding stock of UCI in exchange for 1,000,000 shares of the Company’s common stock plus $ 300,000 in cash.  LAS is working on becoming the nation’s leading green builder for the residential space. LAS will be focused on developing zero energy homes, by maximizing solar, wind and geothermal technologies. In addition Leverage will work with municipalities to develop state programs that help fund green training, and green job development.





National Indoor Environmental Quality Institute (NIEQI):


On January 25, 2010 the Company signed a Stock Purchase Agreement (SPA) with National Indoor Environmental Quality Institute (NIEQI). The Company acquired from NIEQI 100% of the total issued and outstanding stock of NIEQI in exchange for 1,000,000 shares of the Company’s common stock plus $1,000,000 in cash. The closing of the purchase under the SPA would be completed on or before June 1, 2011 or upon completion of funding. NIEQI is the Master Distributor of Bio Sciences’ TM100 Products throughout the United States and Canada.  NIEQI will remain as a key division of training and establishing Bio-Remediation end users through the Veterans new American Workforce Jobs program of the Company. NIEQI will also be used to assist in the implementation of the Company’s European operations scheduled for the 3rd and 4th quarter of 2011.





Bio Science:


On January 27, 2010 the Company signed a Stock Purchase Agreement (SPA) with Bioscience Environmental Services and Laboratory, Inc. The Company acquired from the Seller 100% of the total issued and outstanding stock of BioScience in exchange for 4,000,000 shares of the Company’s common stock plus $4,000,000 in cash. The estimated closing of the purchase under the SPA would be completed on or before June 1, 2011 or upon completion of funding. Bioscience is a manufacture of the TM-100 remediation process dedicated to reducing microbial growth indoors in structures to acceptable levels according to the standards set by the National Allergy Bureau. TM-100 is designed to be used in various applications other than structures. TM-100 is structures to implement solutions for producing standardized industry remediation protocols to provide industry professionals with a remediation method to confront the environmental and safety issues faced by property owners, inspectors, remediation experts, and all other related industry personnel in the United States and Canada.





51
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007


NOTE 14 SUBSEQUENT EVENTS (UNAUDITED) - Continued





Acquisitions - Continued





Great Water, Inc.:


On February 19, 2010 the Company signed a Stock Purchase Agreement (SPA) with Great Water, Inc. and Aqua Pure International, Inc. The Company acquired from the seller 100% of the total issued and outstanding stock of GR8 WATER AND AQUA PURE in exchange for 4,500,000 shares of the Company’s common stock and 4,750,000 in five (5) year warrants at Twenty-Five cents ($0.25). The estimated closing of the purchase under the SPA would be completed on or before June 1, 2011 or upon completion of funding.  GR8 WATER AND AQUA PURE builds and sells unique water production products for local, national and international markets. Using the Moisture present in the atmosphere, each company is creating unique appliances that resolve the need for fresh drinking water while cooling and dehumidifying at the same time. Aqua Pure International, Inc. markets Large Scale Atmospheric Water Generators for industrial, commercial, community and institutional applications. The Companies call their products “Water Factories because they make water, harvesting it directly from ambient air. The Aqua Pure Water Factory produces the finest drinking water available anywhere, completely free from any foreign matter, bacterial, organic or other impurities. With over 20 models, the family of Water Factories creates volumes of pure drinking water to satisfy virtually any application or need. GR8 Water and Aqua Pure will remain as a key division of training and establishing US based manufacturing Green Jobs through the Veterans new American Workforce Jobs program of the Company.





HomeSafe:


On February 19, 2010 the Company signed a Stock Purchase Agreement (SPA) with HomeSafe Inspection, Inc.  The Company acquired 100% of the HomeSafe preferred and common stock in exchange for 5,000,000 shares of the Company’s common stock and 5,000,000 shares in five (5) year warrants at Twenty-Five cents ($0.25) and 5,000,000 shares in one (1) year warrants at One Cent ($.01). The estimated closing of the purchase under the SPA would be completed on or before June 1, 2011 or upon completion of funding.  HomeSafe's new infrared imaging technology, customized especially for infrared home inspections, is the next best thing to X-ray vision: Infrared detects tiny but crucial differences in temperature throughout a house, including behind the walls, beneath the floors and beyond ceilings. These temperature variations often reveal "invisible" problems concealed from the naked eye, including hidden moisture intrusion, roof and plumbing leaks, faulty wiring, and energy loss, missing insulation, ventilation problems, structural concerns and moisture related to termite infestations. Most of these problems will go undetected in an ordinary visual inspection. But with a HomeSafe infrared home inspection, inspectors can easily and quickly scan the house and pinpoint these concerns, providing clients with additional vital information those competitors simply can't offer. HomeSafe is a unique business as to the Patent Ownership of unique Infrared and acoustic technology used to conduct building inspections such as energy audits, air quality inspections, real estate/home inspections and termite inspections.





Other 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.


52
 Environmental Service Professionals, Inc. and Subsidiaries
 Notes to the Consolidated Financial Statements
 As of December 31, 2008 and 2007


NOTE 14 SUBSEQUENT EVENTS (UNAUDITED) - Continued





Other Events - Continued





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.





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 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.





53


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.





On or about March 30, 2010, we engaged Farber Hass Hurley LLP (“Farber Hass)”to audit and review our financial statements for the fiscal year ending December 31, 2007, December 31, 2008 and December 31, 2009.  Farber Hass has been engaged for general audit and review services and not because of any particular transaction or accounting principle, or because of any disagreement with our former accountant, Stan J. Lee, Certified Public Accountant.





On May 12, 2010, we received a letter from the Stan J. Lee, Certified Public Accountant, dated May 12, 2010, a copy of which is attached to our Report on Form 8K, dated May 12, 2010.  The letter indicates that Mr. Lee disagrees with the contents of our Report on Form 8-K, dated April 5, 2010, relating to our change of certifying accountants.  In his letter, he states that effective December 21, 2009, he disclaims his audit opinions for our financial statements dated as of and for the fiscal years ending December 31, 2007 and 2008.  He also states that he resigned as our certifying accountant on December 21, 2009, rather than being dismissed by us on March 30, 2010.





We disagree with Mr. Lee regarding the effective date of his disclaimers and resignation.  Even though he notified us by email correspondence on December 21, 2009 that he resigned and “disclaimed” his prior audit opinions for the Company’s fiscal years 2007 and 2008, we believe that subsequent correspondence (i.e. December 22, 2009 and thereafter) from Mr. Lee to the Company indicated that he had changed his mind.  Mr. Lee disagrees with our interpretation of the subsequent correspondence.  We finally dismissed him and engaged Farber Hass on March 30, 2010.  As stated in our Report on Form 8-K, dated April 5, 2010, we have engaged Farber Hass to re-audit and enable us to restate our financial statements for those fiscal years, as well as to audit our fiscal year 2009 and 2010 financial statements.





ITEM 9A.  CONTROLS AND PROCEDURES





EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES





We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)).  Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.





Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, 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.  Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.  To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles.  Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.





MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING





Our 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, as amended.  Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008.  In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.  A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.  We have identified the following material weaknesses:






54







1.
As of December 31, 2008, we did not maintain effective controls over financial statement disclosure.  Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements.  We do not have any employees that are knowledgeable in SEC Reporting and Disclosure and must rely on outside consultants for this service. Accordingly, management has determined that this control deficiency constitutes a material weakness.





2.
As of December 31, 2008, we did not maintain adequate segregation of duties.  Accordingly, management has determined that this control deficiently constitutes a material weakness.





Because of this material weakness, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2008, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO.





NO ATTESTATION REPORT BY INDEPENDENT REGISTERED ACCOUNTANT





The effectiveness of our internal control over financial reporting as of December 31, 2008 has not been audited by our independent registered public accounting firm by virtue of our exemption from such requirement as a smaller reporting company.





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.





CORRECTIVE ACTION





Management plans to make future investments in the continuing education of our accounting and financial staff.  Specifically, we plan to seek specific public company accounting training during 2011.  Improvements in our disclosure controls and procedures and in our internal control over financial reporting will, however, depend on our ability to add additional financial personnel and independent directors to provide more internal checks and balances, and to provide qualified independence for our audit committee.  We believe we will be able to commence achieving these goals once our sales and cash flow grow and our financial condition improves.





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 Nasdaq’s listing standards. Mr. Torres, who is our chief executive officer and corporate secretary and Mr. McMillan, who is our president, are not independent.





55


The following table sets forth the directors, executive officers, and key consultants of ESP as of March 15, 2011:





NAME

AGE

POSITION

SINCEEdward L. Torres

52

Chairman, Chief Executive Officer, Corporate Secretary and Acting Chief Financial Officer

October 11, 2006Sam McMillan

50

President

July 1, 2010Leroy Moyer (1) (2)

68

Director

April 1, 2007S. Robert August (2)

62

Director

May 31, 2007Robert S. Iger (2)

70

Director

August 29, 2008(1) Member of Audit Committee

(2) Independent member of the board of directors





EDWARD TORRES, age 52, has been the chairman and chief executive officer 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 the 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 helped to increase 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 helped to obtain 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.  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 Desert Valley Builders Association as a director, was past board director of the Building Industry Association Board of Directors as immediate past president of the Desert Chapter, was past senior officer of the Southern California Building Industry Association, was past president of the Palm Springs Economic Development Corporation, 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.





Mr. Torres’s qualifications:


·
Leadership experience – Mr. Torres has been our chairman and chief executive officer since October 2006 and he is the chairman and chief executive officer of Safeguard, Inc.


·
Finance experience – Mr. Torres has been CEO and Partner of several private and public companies over the past 20 years. During this time he has been involved in establishing debt financing, expansion of revenue, and improving P&L statements.


·
Industry experience – Mr. Torres has worked in various companies that had complex operations and environments dealing with complex problems for expansion and development.


·
Education experience - Mr. Torres graduated with a bachelor's degree in business development from South Bay University, Pomona, California in 1981.





SAM McMILLAN, age 50, has been the president of ESP since July 1, 2010.  Mr. McMillan has held numerous positions in senior management and sales for more than twenty two years.  He has extensive experience in the management of business operations, technical sales, and consulting delivery with responsibility exceeding $100MM in revenue.  Mr. McMillan comes to ESP from his most recent position with CompuCom Systems, Inc, San Ramon, California where he served for 11 years as senior director, business development strategic markets.  There he developed business strategies and complex solutions and opportunities for the company’s Fortune 1000 clients as well as private equity client relationships.  He created and led a team of Senior Business Analysts, Solution Architects, and Program Executives responsible for crafting and presentation of compelling solutions for large enterprise clients that leverage solutions with the greatest return on investment, to accelerate specific business objectives.  Prior to his position with CompuCom, he spent eleven years in senior management, including seven years as president and chief operating officer of Maryland Technology Management Inc. and four years as senior director/senior program officer for CACI at the U.S. Department of Education’s Wide Area Network known as EDNET.  Mr. McMillan attended Columbia Union College majoring in information systems/business administration.  He also holds certificates in Labor Relations, Real Estate Law and was a Real Estate Broker.  In addition to his corporate management experience and training, he is also a PADI certified scuba diver and a licensed private pilot.






56







Mr. McMillan’s qualifications:


·
Leadership experience – Mr. McMillan has been our president since July 2010. His strong leadership skills have been evidenced in building and motivating diverse corporate internal resources and external partner teams that consistently produce innovative solutions that exceed expectations.


·
Finance experience – Mr. McMillan’s extensive experience with structuring funding solutions within Private Equity, Commercial, State and Federal Government sector environments. His experience spans several industry verticals. Most recently he has been highly focused in the areas of finance for merger, acquisition and ongoing operations for managed service companies.


·
Industry experience – Mr. McMillan’s long and dynamic career leading solutions for complex global, multi-divisional, Fortune 1000 and government clients in cutting edge industries is but a small representation of the talents and business acumen that he brings to the Presidency of ESP.


·
Education experience - Mr. McMillan attended Columbia Union College majoring in information systems/business administration.





LEROY MOYER, age 68, 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,  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.





Mr. Moyer’s qualifications:


§
Leadership experience – Mr. Moyer is currently the director of business development for Dimensional Insight.


·
Finance experience – Mr. Moyer is a certified public accountant and was a partner of Deloitte for eight years.  He 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.


·
Industry experience - Mr. Moyer has participated as an independent director in several firms and organizations in a variety of industries.


·
Education experience - Mr. Moyer has a Bachelors of Accounting in finance from Eastern Washington University and an MBA from the University of Oregon, and he is also a CPA.





S. ROBERT AUGUST, age 62, 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 master’s degree in 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.






57







Mr. Augusts’ qualifications:


§
Leadership experience – Mr. August is the president and founder of S. Robert August & Company, Inc.


·
Industry experience - Mr. August has participated as an independent director in several firms and organizations in a variety of industries.


·
Education experience - Mr. August holds a Bachelor of Arts degree in labor management relations from Pennsylvania State University and a master’s degree in international management from the American Graduate School of International Management.





ROBERT IGER, age 70, has been a director of ESP since August 29, 2008.  Mr. Iger co-founded Iger & Associates in 2003, which 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.  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 from Western State University. He earned a bachelor's degree in economics and a master’s 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.





Mr. Iger’s qualifications:


§
Leadership experience – Mr. Iger is a founder of Iger & Associates.


·
Industry experience - Mr. Iger has participated as an independent director in several firms and organizations in a variety of industries.


·
Education experience - Mr. Iger holds a juris doctor from Western State University and a bachelor's degree in economics and a master’s degree in econometrics from the State University of New York at Buffalo.





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.





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.






58








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 is considered to be independent as defined in Rule 4200 of Nasdaq’s listing standards and Mr. Moyer meets the definition of an “Audit Committee Financial Expert” as set forth in Item 407(d)(5)(ii) of Regulation S-K.  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 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:





·
meeting with our management periodically to consider the adequacy of our internal controls and the objectivity of our financial reporting;




·
engaging and pre-approving audit and non-audit services to be rendered by our independent auditors;




·
recommending to our board of directors the engagement of our independent auditors and oversight of the work of our independent auditors;




·
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;






59








·
establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls and auditing matters;




·
administering and discussing with management and our independent auditors our code of ethics; and




·
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, Robert Iger.  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:





·
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;




·
exercising authority under certain of our employee benefit plans; and




·
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:





·
developing and recommending to our board of directors our corporate governance guidelines;




·
overseeing the evaluation of our board of directors;




·
identifying qualified candidates to become members of our board of directors;




·
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




·
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 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 Farber Hass Hurley  LLP, Certified Public Accountants, 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 Farber Hass required by Independence Standards Board Standard No. 1 (Independence Discussion with Audit Committees). The audit committee has discussed with Farber Hass the independence of Farber Hass 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-K/A for the fiscal year ended December 31, 2008 for filing with the United States Securities and Exchange Commission.  The Company's audit committee did not submit a formal report regarding its findings.






60











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, or the Securities Exchange Act of 1934, as amended, 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. 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.





ITEM 11.  EXECUTIVE COMPENSATION





COMPENSATION DISCUSSION AND ANALYSIS





The following Compensation Discussion and Analysis describes the material elements of compensation for our executive officers identified in the Summary Compensation Table (“Named Executive Officers”), and executive officers that we may hire in the future.  As more fully described below, our board’s compensation committee reviews and recommends policies, practices, and procedures relating to the total direct compensation of our executive officers, including the Named Executive Officers, and the establishment and administration of certain of our employee benefit plans to our board of directors.





COMPENSATION PROGRAM OBJECTIVES AND REWARDS





Our compensation philosophy is based on the premise of attracting, retaining, and motivating exceptional leaders, setting high goals, working toward the common objectives of meeting the expectations of customers and stockholders, and rewarding outstanding performance.  Following this philosophy, we consider all relevant factors in determining executive compensation, including the competition for talent, our desire to link pay with performance, the use of equity to align executive interests with those of our stockholders, individual contributions, teamwork, and each executive’s total compensation package.  We strive to accomplish these objectives by compensating all executives with compensation packages consisting of a combination of competitive base salary and incentive compensation.





The compensation received by our Named Executive Officers is based primarily on the levels at which we can afford to retain them and their responsibilities and individual contributions.  Our compensation policy also reflects our strategy of minimizing general and administration expenses and utilizing independent professional consultants.  To date, we have not applied a formal compensation program to determine the compensation of the Named Executives Officers.  In the future, our compensation committee and board of directors expect to apply the compensation philosophy and policies described in this section of our annual report.






61








The primary purpose of the compensation and benefits we consider is to attract, retain, and motivate highly talented individuals who will engage in the behavior necessary to enable us to succeed in our mission, while upholding our values in a highly competitive marketplace.  Different elements are designed to engender different behaviors, and the actual incentive amounts which may be awarded to each Named Executive Officer are subject to the annual review of our compensation committee who will make recommendations regarding compensation to our board of directors.  The following is a brief description of the key elements of our planned executive compensation structure.





·
Base salary and benefits are designed to attract and retain employees over time.


·
Incentive compensation awards are designed to focus employees on the business objectives for a particular year.


·
Equity incentive awards, such as stock options and non-vested stock, focus executives’ efforts on the behaviors within the recipients’ control that they believe are designed to ensure our long-term success as reflected in increases to our stock prices over a period of several years, growth in our profitability and other elements.


·
Severance and change in control plans are designed to facilitate a company’s ability to attract and retain executives as we compete for talented employees in a marketplace where such protections are commonly offered.  We currently have not given separation benefits to any of our Name Executive Officers.





BENCHMARKING





We have not yet adopted benchmarking but may do so in the future.  When making compensation decisions, our compensation committee and board of directors may compare each element of compensation paid to our Named Executive Officers against a report showing comparable compensation metrics from a group that includes both publicly-traded and privately-held companies.  Our board believes that while such peer group benchmarks are a point of reference for measurement, they are not necessarily a determining factor in setting executive compensation.  Each executive officer’s compensation relative to the benchmark varies based on the scope of responsibility and time in the position.  We have not yet formally established our peer group for this purpose.





THE ELEMENTS OF ESP’S COMPENSATION PROGRAM





BASE SALARY





Executive officer base salaries are based on job responsibilities and individual contribution.  Our compensation committee and board of directors review the base salaries of our executive officers, including our Named Executive Officers, considering factors such as corporate progress toward achieving objectives (without reference to any specific performance-related targets) and individual performance experience and expertise.  None of our Named Executive Officers have employment agreements with us.  Additional factors reviewed by our compensation committee and board of directors in determining appropriate base salary levels and raises include subjective factors related to corporate and individual performance.  For the year ended December 31, 2008, all executive officer base salary decisions were approved by the board of directors.





Our compensation committee determines and then recommends to the whole board base salaries for the Named Executive Officers at the beginning of each fiscal year.  The compensation committee proposes new base salary amounts, if appropriate, based on its evaluation of individual performance and expected future contributions.  The board of directors then approves base salary amounts for the fiscal year.  We do not have a 401(k) Plan, but if we adopt one in the future, base salary would be the only element of compensation that would be used in determining the amount of contributions permitted under the 401(k) Plan.





INCENTIVE COMPENSATION AWARDS





The Named Executives have not been paid bonuses and our compensation committee has not yet recommended a formal compensation policy for the determination of bonuses.  If our revenue grows and bonuses become affordable and justifiable, we expect to use the following parameters in justifying and quantifying bonuses for our Named Executive Officers and other officers of Ante5: (1) the growth in our revenue, (2) the growth in our earnings before interest, taxes, depreciation and amortization, as adjusted (“EBITDA”), and (3) our stock price.  The board has not adopted specific performance goals and target bonus amounts, but may do so in the future.





62





EQUITY INCENTIVE AWARDS





Effective April 28, 2008, our board of directors adopted the 2008 ESP Stock and Incentive Plan (the "2008 Plan") for Directors, Officers, Employees, and Consultants under which a total of 10,000,000 shares of our common stock have been reserved for issuance as restricted stock or pursuant to the grant and exercise of stock options.  Our 2008 Plan has been approved by the holders of a majority of our outstanding shares.  We believe equity incentive awards motivate our employees to work to improve our business and stock price performance, thereby further linking the interests of our senior management and our stockholders.  The board considers several factors in determining whether awards are granted to an executive officer, including those previously described, as well as the executive’s position, his or her performance and responsibilities, and the amount of options or other awards, if any, currently held by the officer and their vesting schedule.  Our policy prohibits backdating options or granting them retroactively.





BENEFITS AND PREREQUISITES





At this stage of our business we have limited benefits and no prerequisites for our employees other than health insurance and vacation benefits that are generally comparable to those offered by other small private and public companies or as may be required by applicable state employment laws.  We do not have a 401(k) Plan or any other retirement plan for our Named Executive Officers.  We may adopt these plans and confer other fringe benefits for our executive officers in the future.





SEPARATION AND CHANGE IN CONTROL ARRANGEMENTS





We do not have any employment agreements with our Named Executive Officers or any other executive officer or employee of ESP.  None of them are eligible for specific benefits or payments if their employment or engagement terminates in a separation or if there is a change of control.





EXECUTIVE OFFICER COMPENSATION





The following table summarizes the compensation paid or accrued by the Company for the years ended, December 31, 2008 and December 31, 2007 for services rendered in all capacities, by the Company's chief executive officer, president, and chief operating officer.





SUMMARY COMPENSATION TABLENAME AND PRINCIPAL POSITION

YEAR

SALARY


BONUS


STOCK AWARDS ($)


OPTION AWARDS ($)


ALL OTHER COMPENSATION


TOTALEdward L. Torres, ChiefExecutive Officer (2)2008

$
166,375


$
0


$
2,390,000


$
0


$
0


$
2,556,3752007

$
120,000


$
0


$
0


$
0


$
0


$
120,000Lyle Watkins (1), (3)2008

$
0


$
0


$
72,000


$
0


$
114,680


$
186,6802007

$
0


$
0


$
0


$
0


$
114,680


$
114,680OFFICERS AS A GROUP2008

$
166,375


$
0


$
2,462,000


$
0


$
114,680


$
2,743,0552007

$
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 for the period ending December 31, 2007, $135,750 for the period ending December 31, 2008, $34,453 for the period ending December 31, 2009, and for the period ending December 31, 2010 for a combined total of $883,953 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. On or about December 3, 2008, the Company authorized the issuance of 250,000 shares of the Company's common stock to Mr. Edward Torres, the chief executive officer and acting chief financial officer of the Company. On or about September 20, 2010, the Company authorized the issuance of 50,000,000 shares of the Company's common stock to Mr. Edward Torres, the chief executive officer and acting chief financial officer of the Company.











63







(3)  The Company has accrued un-paid consulting fees and expenses to Mr. Watkins of $29,840 for the period ending December 31, 2007, $139,259 for the period ending December 31, 2008, and $43,864 for the period ending March 31, 2009 for a combined total of $212,964.00. 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. As of July 1, 2009 Mr. Watkins had resigned as ESP corporate secretary, director and chief operating officer 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.





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 the Company for the two years ended December 31, 2008 to the Company's chief executive officer and chief operating officer.





DIRECTOR COMPENSATION





The following table summarizes the compensation paid or accrued by the Company for the two years ended December 31, 2008 to the Company’s directors who are not also executive officers of the Company and who were serving as directors of the Company on December 31, 2008.






SUMMARY COMPENSATION TABLENAME AND PRINCIPLE POSITION

YEAR

FEES EARNED OR PAID IN CASH


STOCK AWARDS

($)


OPTION AWARDS

($)


NON-EQUITY INCENTIVE PLAN COMPENSATION


ALL OTHER COMPENSATION


TOTALS. Robert August, Director (1)

2008

$
0


$
0


$
9,876


$
0


$
104,047


$
113,923Leroy Moyer, Director (2)

2008

$
0


$
0


$
12,698


$
0


$
0


$
12,698Robert Iger (3)

2008

$
0


$
0


$
1,694


$
0


$
0


$
1,694







(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.






64





EMPLOYEE BENEFIT PLANS





On February 26, 2008, our board of directors approved the 2008 ESP Stock and Incentive Plan (the "2008 Plan") for Directors, Officers, Employees, and Consultants.  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, the Company 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 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.





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 the Company as of March 31, 2011.  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, 2011 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 285,831.673 outstanding shares of common stock. Except as otherwise listed below, the address of each person is c/o Environmental Service Professionals, Inc., 810 N. Farrell Drive, 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.






65


SHARES BENEFICIALLY OWNED (1)NAME AND POSITION OF BENEFICIAL OWNER

NUMBER (2)


PERCENTEdward Torres, Chief Executive Officer, Corporate Secretary , Acting Chief Financial Officer (3)(9)(10)


73,324,000



27.44
%Sam McMillan, President (4)


17,870,000



6.69
%S. Robert August, Director (5)


2,000,647



0.75
%Leroy Moyer, Director (6)


1,853,333



0.62
%Robert Iger, Director (7)


1,450,000



0.54
%ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (FIVE PERSONS) (8)


96,497,980



36.04
%





(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, 2011, 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, 2011. 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, 2011 which are owned by Pro-Active Business Services, Inc. of which Mr. Torres is the President up until January 2007.
 
 (4)
Includes 1,310,000 shares, which may be purchased pursuant to warrants that are exercisable within 60 days of March 31, 2011.
 
 (5)
Includes 1,550,000 shares, which may be purchased pursuant to stock options that are exercisable within 60 days of March 31, 2011. Also includes 250,000 shares which may be purchased pursuant to warrants that are exercisable within 60 days of March 31, 2011 which are owned by S. Robert August & Associates of which Mr. August is the President.
 
 (6)
Includes 1,753,333 shares, which may be purchased pursuant to stock options that are exercisable within 60 days of March 31, 2011. Includes 10,000 shares, which may be purchased pursuant to warrants that are exercisable within 60 days of March 31, 2011.  Includes 83,333 shares which were purchased and an additional of 100,000 warrants with an exercise price of $ 0.25 per share with a vesting period of five years.
 
 (7)
Includes 1,450,000 shares, which may be purchased pursuant to stock options that are exercisable within 60 days of March 31, 2011.
 
 (8)
See footnotes (3) through (7). Includes an aggregate of 6,537,000 shares of Common Stock issuable upon the exercise of warrants and stock options that are exercisable within 60 days of March 31, 2011.
 
 (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 a certain shareholder of ESP, Edward Torres (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 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 As of 12/31/2010 the lock-up period has been met and the shares have been release to the appropriate officers:
 
 NAME OF EXECUTIVE

NUMBER OF SHARES SUBJECT TO LOCK-UP

LOCK-UP PERIOD AND RELEASE SCHEDULEEdward L. Torres

4,007,000

11/01/06
801,40011/01/07
801,40011/01/08
801,40011/01/09
801,40011/01/10
801,400
 
 66
  (10)
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.


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, Inc. to ESP, Inc. 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


INTEREST04/27/2006

$
15,000.00



1,633.56

07/26/2006

$
50,000.00



4,828.7706/06/2006

$
10,000.00



1,034.25

07/31/2006

$
25,000.00



2,397.2606/13/2006

$
10,000.00



1,024.66

12/01/2006

$
10,000.00



790.4107/14/2006

$
30,000.00



2,946.58

02/20/2007

$
25,000.00



1,698.6307/21/2006

$
25,000.00



2,431.51

02/27/2007

$
20,000.00



1,339.73TOTAL 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 $5,000 per month plus expenses. The Agreement is terminable by either party on 30 days written notice. The Company owes Mr. August $77,251.90 under the consulting agreement inclusive of all prior years ending December 31, 2008. The consulting agreement was terminated as of December 31, 2008.





ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES





Farber Hass Hurley LLP is the Company's principal auditing accountant firm.  Farber Hass did not provide any other non-audit services to the Company for the fiscal years ended December 31, 2007 and 2008.


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.





The following is a summary of the fees billed to the Company by Farber Hass LLP for professional services rendered for the fiscal years ended December 31, 2007 and 2008:





FARBER HASS HURLEY, LLP FEES





2008


2007Audit Fees (1)

$
69,000


$
92,000Audit Related Fees


-



-Tax Fees


-



-All Other Fees


-



-$
69,000


$
92,000





(1)
Audit fees consist of fees for the audit of our financial statements.







67











Stan J. H. Lee, CPA, CMA, Inc., Certified Public Accountants, is the Company’s former principal accounting firm.  Stan J. H. Lee also provided other non-audit services to the Company for the fiscal years ended December 31, 2007 and 2008.  The audit committee approved the engagement of Stan J. H. H. Lee before Stan J. H. Lee rendered audit and non-audit services to the Company for the fiscal years ended December 31, 2007 and 2008.





The following is a summary of the fees billed to the Company by Stan J. H. Lee, CPA, CMA, Inc., Certified Public Accountants, for professional services rendered for the fiscal years ended December 31, 2007 and 2008:





STAN J. H. LEE, CPA, CMA, INC. FEES





2008


2007Audit Fees (1)

$
31,000


$
26,700Audit Related Fees


15,000



12,000Tax Fees (2)


0



0All 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 minimus 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.








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ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES





EXHIBIT

DESCRIPTION3.1

Articles of Incorporation (1)3.2

Amendment to Articles of Incorporation (1)3.3

Change to Articles of Incorporation, effective October 10, 20063.4

Amendment to Articles of Incorporation, effective October 11, 20063.5

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 Stock4.7

Form of Warrant to Purchase Shares of Common Stock4.8

Form of Warrant to Purchase Shares of Common Stock5.1

Opinion of Richardson & Associates as to the legality of the securities being registered10.1

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 Plan10.9

Form of Stock Option Agreement10.10

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.





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 1, 2011
ENVIRONMENTAL SERVICE PROFESSIONALS, INC.



By:  /s/ Edward Torres

Edward Torres, Chairman of the Board and Chief

Executive Officer (Principal Executive Officer)

















(intentionally left blank)





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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 Torres

Edward Torres, Acting Chief Financial Officer

(Principal Financial/Accounting Officer)
Dated:  April 1, 2011By:   /s/ Edward Torres

Edward Torres, Acting Chief Financial Officer/Treasurer

(Principal Financial/Accounting Officer)
Dated:  April 1, 2011By:   /s/ Edward L. Torres

Edward L. Torres,, Corporate Secretary
Dated:  April 1, 2011By:   /s/ Leroy Moyer

Leroy Moyer, Director and Audit Committee Chairperson
Dated:  April 1, 2011By:   /s/ S. Robert August

S. Robert August, Director
Dated:  April 1, 2011By:   /s/ Robert Iger

Robert Iger, Director
Dated:  April 1, 2011


















































(intentionally left blank)





70