ESP Resources, Inc. - Quarter Report: 2010 June (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________to ____________

Commission file number 000-52506

ESP RESOURCES, INC.
(Exact name of registrant as specified in its charter)

1255 Lions Club Road, Scott LA 70583
(Address of principal executive offices) (Zip Code)

(337) 706-7056
(Issuer’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes[ ] No[ ]

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

67,413,956 common shares issued and outstanding as of August 18, 2010.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

     It is the opinion of management that the interim financial statements for the quarter ended June 30, 2010 include all adjustments necessary in order to ensure that the interim financial statements are not misleading.

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

Note 1 – Basis of Presentation, Nature of Operations and Significant Accounting Policies

Basis of Presentation

ESP Resources, Inc. (“ESP Nevada”, and collectively with its subsidiaries, the “Company”) was incorporated in the State of Nevada on October 27, 2004. The accompanying unaudited consolidated financial statements include the accounts of ESP Resources, Inc. and its wholly owned subsidiaries, ESP Petrochemicals, Inc. and ESP Resources, Inc. (“ESP Delaware”). ESP Petrochemicals also owns certain assets and liabilities of Turf Chemistry Inc. (“Turf”), a Texas corporation. All significant inter-company balances and transactions have been eliminated in the consolidation. The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Interim Financial Statements

The condensed unaudited consolidated financial statements presented herein have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) and the accounting policies set forth in its audited consolidated financial statements for the period ended December 31, 2009 as filed with the Securities and Exchange Commission (the “SEC”) in the Company’s Annual Report on Form 10-K and should be read in conjunction with the notes thereto.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) which are necessary to provide a fair presentation of operating results for the interim periods presented. Certain information and footnote disclosures, normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted. The results of operations presented for the six months ended June 30, 2010 are not necessarily indicative of the results to be expected for the year. These condensed consolidated financial statements should be read in connection with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Concentrations

The Company has four major customers that together account for 48% of accounts receivable at June 30, 2010 and four major customers that together account for 44% of the total revenues earned for the six months ended June 30, 2010.

The Company has a published agreed upon price for Customer A which is reviewed and revised annually. Currently, approval of proposed price increases is pending for this customer, thus the second quarter sales have been recorded at the 2010 prices.

The Company has four vendors that accounted for 41% of purchases and 74% of the ending accounts payable at June 30, 2010.

Revenue and Cost Recognition

The Company through its wholly owned subsidiary, ESP Petrochemicals, Inc., is a custom formulator of petrochemicals for the oil & gas industry. Since the products are specific to each location, the receipt of an order or purchase order starts the production process. Once the blending takes place, the order is delivered to the land site or dock. When the containers of blended petrochemicals are offloaded at the dock, or they are stored on the land site, a delivery ticket is obtained, an invoice is generated and Company recognizes revenue. The invoice is generated based on the credit agreement with the customer at the agreed-upon price.

Revenue is recognized when title and risk of loss have transferred to the customer and when contractual terms have been fulfilled. Transfer of title and risk of loss occurs when the product is delivered in accordance with the contractual shipping terms, generally to a land site or dock. Revenue is recognized based on the credit agreement with the customer at the agreed upon price.

Basic and Diluted Loss Per Share

Basic and diluted earnings or loss per share (EPS) amounts in the consolidated financial statements are computed in accordance SFAS No. 128, ASC 260 – 10 “Earnings per Share”, which establishes the requirements for presenting EPS. Basic EPS is based on the weighted average number of common shares outstanding. Diluted EPS is based on the weighted average number of common shares outstanding and dilutive common stock equivalents. Basic EPS is computed by dividing net income/loss available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period.

Potentially dilutive securities were excluded from the calculation of diluted loss per share, because their effect would be anti-dilutive.

Accounts Receivable and Allowance for Doubtful Accounts

The Company generally does not require collateral, and the majority of its trade receivables are unsecured. The Company’s credit terms generally require payment within 30 days from the date of the sale. The carrying amount for accounts receivable approximates fair value.

Accounts receivable consisted of the following as of June 30, 2010 and December 31, 2009:

Purchase of Turf Chemistry, Inc by ESP Resources on November 1, 2009

On November 1, 2009, ESP Resources purchased certain assets and liabilities of Turf Chemistry Inc. (“Turf”), a Texas corporation. The assets and liabilities acquired related to Turf’s activities in the United States. Turf operates in the same industry as ESP Resources and ESP Petrochemicals. The details of the acquisition was disclosed in the Form 10K for December 31, 2009.

As part of the acquisition agreement, there was an earn-out provision that required ESP Resources to issue additional common shares if Turf meets certain sale targets for the periods from January 1, 2010 to December 31, 2012. The Company estimated the fair value of the earn-out provision to be $350,000 at acquisition date and recorded it as contingent liability as of December 31, 2009.

The minimum sale target for the period January 1, 2010 through December 31, 2010 was $1,500,000. As of June 30, 2010, Turf has not reached the target and the contingent liability remained at $350,000.

Unaudited pro forma condensed combined financial statements

The following table reflects the unaudited pro forma results of operations for the three months and six months ended June 30, 2009 as though the Turf Acquisition had occurred on January 1, 2009. The pro forma amounts are not necessarily indicative of the results that may be reported in the future:

Intangible assets

Intangible assets relate to the customer list acquired with the acquisition of Turf described above. Intangible assets are being amortized over their estimated life of five years. The Company recognized amortization expense of $91,506 and $30,490 for the six months ended June 30, 2010 and for the year ended December 31, 2009, respectively.

Recently Issued Accounting Pronouncements

The Company does not expect that the adoption of recently issued accounting pronouncements will have a material impact on its financial position, results of operations, or cash flows.

Note 2 – Going Concern

The Company has net losses for the six months ended June 30, 2010 as well as minimal cash flows from operations and negative working capital.

These factors raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company's ability to continue operations will likely require additional capital. The condition raises substantial doubt about the Company to continue as a going concern. We expect cash flows from operating activities to improve, primarily as a result of an increase in revenue, although there can be no assurance thereof. The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. If we fail to generate positive cash flow or obtain additional financing, when required, we may have to modify, delay, or abandon some or all of our business and expansion plans.

Note 3 – Inventory

Inventory represents raw and blended chemicals and other items valued at the lower of cost or market with cost determined using the first-in first-out method, and with market defined as the lower of replacement cost or realizable value.

Inventory consisted of the following as June 30, 2010 and December 31, 2009:

Note 4 – Long-Term Debt

On February 1, 2010, the Company issued 2,180,857 shares of common stock in connection with the extinguishment of the VM Consulting Debt for $76,330 in principal and interest.

Note 5 – Settlement Agreement

A third party has threatened the Company with a civil action for money damages. The Company does not believe the allegations have merit, but accrued a liability in the amount of $115,000 at March 31, 2010 and December 31, 2009. On June 2, 2010, the Company reached a settlement agreement with the third party to pay $45,000 in cash and issue 1,000,000 shares of ESP’s restricted common stock at a closing price of $0.13 valued at $130,000. As of June 30, 2010, the Company has paid $30,000 in cash and has issued 1,000,000 shares of ESP’s restricted stock and recorded $60,000 as loss on legal settlement which is reflected in other expense.

Note 6 – Stockholders’ Equity

On March 23, 2009, the Company entered into consulting agreements with two individuals to provide services to the Company for a period of one and a half years. The Company issued a total of 2,000,000 shares of common stock to individuals in payment for their services. The shares have a fair value of $800,000 and vest over the service period. The Company valued the shares based on market value on the date of the agreement, and recognized compensation expense of $268,148 and $418,519 as of June 30, 2010 and December 31, 2009. The fair value of the unvested shares is $113,333 as of June 30, 2010.

On May 26, 2009, ESP entered into a five year agreement with a human resources company (the “HR Company”), to provide employment services to screen and select qualified candidates to satisfy the manpower needs of ESP. Either party may terminate this agreement without penalty. ESP is contractually liable to pay the HR Company $100,000 each year in stock. The annual fee is due as a prepayment ten days after the effective date, on May 26, 2009. The number of shares to be issued to the HR Company is determined by dividing $100,000 by the average closing trade price of the stock over the 10 trading days immediately preceding the applicable payment date. The average trading price for the period from May 26, 2009 to June 8, 2009 was $0.240. The number of shares to be issued to the HR Company was calculated to be 335,570. The shares have a fair value of $83,890 and vest over the service period. The Company valued the shares based on market value on the date of agreement, and recognized compensation expense of $49,870 and $34,023 as of June 30, 2010 and December 31, 2009. These shares are fully vested as of June 30, 2010.

During six months ending June 30, 2010, the Company received proceeds of $614,492 from sales of 8,778,573 units in a private placement. Each unit consist of one share of common stock, one warrant for the purchase of share of common stock at an exercise price of $.25 for a period of one year from the date of subscription, and a second warrant for the purchase of a share of common stock at an exercise price of $.75 for a period of one year beginning on the first anniversary of subscription. The warrants were valued using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $.05-$.14; warrant term of 1-2 years; expected volatility of 39.16% -46.24%; and discount rate of .33%-.51%.

During the quarter ended June 30, 2010, the Company issued a total of 8,500,000 shares of common stock for services. The shares were valued at $0.09 which was the trading price of the Company’s stock on the grant date and have a fair value of $765,000. These shares vest over the service period of 3 years. The Company recognized compensation expense of $30,740 as of June 30, 2010. The fair value of the unvested shares is $734,260 as of June 30, 2010.

The Company granted 158,506 shares of common stock to a consultant for the payment of January, February, and March, 2010 fees. The shares were valued at $12,823 based on the fair value of those shares on the 10 days of the month per share average. During the six months ended June 30, 2010, the Company recognized stock compensation expense of $12,823 related to stock issued during 2009 which vested during the period.

In May, 2010, the Company issued 425,000 shares of its common stock to a vendor for services rendered. The shares were valued at $38,250 and recorded as stock based compensation.

Note 7 – Related Party Transactions

As of December 31, 2009, ESP owed shareholders and management a total of $359,010 for accrued salaries and unreimbursed business expenses. During the six months ended June 30, 2010, the Company accrued additional salaries totaling $180,000 and reimbursed the management for the prior year unreimbursed expenses totaling $154,130.

On June 2, 2010, the Company reached an agreement with CEO to cancel $130,000 of the Company’s indebtedness which was accounted for as contributed capital in Additional Paid in Capital as of June 30, 2010.

As of June 30, 2010 and December 31, 2009, the Company had balances due to stockholders and related parties as follows:

Note 8 – Subsequent Events

In July, 2010, the Company entered into various subscription agreements for 1.2 million units from a private placement for total proceeds of $83,000. Each unit consist of one share of common stock, one warrant for the purchase of share of common stock at an exercise price of $.25 for a period of one year from the date of subscription, and a second warrant for the purchase of a share of common stock at an exercise price of $.75 for a period of one year beginning on the first anniversary of subscription.

In July 2010, the Company paid the remaining balance of $15,000 owed on the legal settlement as disclosed in Note 5.

On August 18, 2010, Mr. Chris Metcalf submitted to the Board of Directors of the Company his resignation as an officer, director and any and all other positions of the Company. The resignation of Mr. Metcalf was not the result of any disagreement with the Company on any matter relating to our operations, policies or practices. That same day, the Board of Directors of the Company accepted Mr. Metcalf’s resignation and appointed Mr. David Dugas to serve as the Chief Executive Officer and Chief Financial Officer of the Company

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

     This quarterly report contains forward-looking statements as that term is defined in Section 27A of the United States Securities Act of 1933 and Section 21E of the United States Securities Exchange Act of 1934. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

     Financial information contained in this quarterly report and in our unaudited interim consolidated financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our unaudited interim consolidated financial statements and the related notes that appear elsewhere in this quarterly report.

     As used in this quarterly report, and unless otherwise indicated, the terms “we”, “us” and “our” mean ESP Resources, Inc., unless otherwise indicated.

Recent Development

On August 18, 2010, Mr. Chris Metcalf submitted to the Board of Directors of the Company his resignation as an officer, director and any and all other positions of the Company. The resignation of Mr. Metcalf was not the result of any disagreement with the Company on any matter relating to our operations, policies or practices. That same day, the Board of Directors of the Company accepted Mr. Metcalf’s resignation and appointed Mr. David Dugas to serve as the Chief Executive Officer and Chief Financial Officer of the Company

Corporate History

We were incorporated on October 27, 2004, in the State of Nevada. Our principal offices are located at 1255 Lions Club Road, Scott, LA 70583.

Effective September 28, 2007, we completed a merger with our subsidiary, Pantera Petroleum Inc., a Nevada corporation. As a result, we changed our name from “Arthro Pharmaceuticals, Inc.” to “Pantera Petroleum Inc.” We changed the name of our company to better reflect the direction and business of our company.

In addition, effective September 28, 2007, we effected a sixteen (16) for one (1) forward stock split of our authorized, issued and outstanding common stock. As a result, our authorized capital increased from 75,000,000 common shares to 1,200,000,000 common shares - with the same par value of $0.001. At that time, our issued and outstanding share capital increased from 6,970,909 common shares to 111,534,544 common shares. The name change and forward stock split became effective with the OTC Bulletin Board at the opening for trading on September 28, 2007 under the new stock symbol “PTPE”.

In December 2008, the Company entered into an agreement with ESP Resources, Inc., a Delaware corporation (ESP Delaware), whereby the Company acquired 100% ownership of ESP Delaware in exchange for 292,682,297 common shares. As a result of this acquisition, we changed our name from “Pantera Petroleum, Inc.” to “ESP Resources, Inc.” On January 27, 2009, we effected a one (1) for twenty (20) reverse stock split of our common stock and received a new ticker symbol. The name change and reverse stock split became effective with the OTC Bulletin Board at the opening of trading on January 27, 2009 under the new symbol “ESPI”. Our new CUSIP number is 26913L104.

Our Current Business

     We are a custom formulator of specialty chemicals for the energy industry through our wholly owned subsidiary, ESP Petrochemicals, Inc. (“ESPPI”).

ESP Petrochemicals, Inc.

Through our wholly owned subsidiary, ESP Petrochemicals Inc., we are a custom formulator of specialty chemicals for the energy industry. ESPPI’s more specific mission is to provide applications of surface chemistry to service all facets of the fossil energy business via a high level of innovation. ESPPI is focusing its efforts on solving problems in a highly complex integration of processes to achieve the highest level of quality petroleum output. Listening to its customers with their changing demands and applying its skills as chemical formulators enables ESPPI to measure its success in this endeavor.

ESPPI acts as manufacturer, distributor and marketer of specialty chemicals. ESPPI supplies specialty chemicals for a variety of oil field applications including separating suspended water and other contaminants from crude oil, pumping enhancement, and cleaning, as well as a variety of fluids and additives used in the drilling and production process. At each drilling site or well that is in production, there exist a number of factors that make each site unique. These include the depth of the producing formation, the bottom-hole temperature of the producing well, the size of the well head through which the producing fluids flow, the size and pressure ratings of the production equipment, including the separators, heater-treaters, compression equipment, size of production tubulars in the wellbore, size of the storage tanks on the customers location, and pressure ratings of the sales lines for the oil and gas products. Wells that are operating short distances from each other in the same field can have very different characteristics. This variance in operating conditions, chemical makeup of the oil, and the usage of diverse equipment requires a very specific chemical blend to be used if maximum drilling and production well performance is to be attained.

ESPPI's goal is first, to solve the customer’s problem at the well and optimize drilling or production, and secondly, the sale of product. Typically, the ESPPI team may gather information at a well site and enter this data into the analytical system at the company’s labs in Lafayette, Louisiana. The system provides testing parameters and reproduces conditions at the wellhead. This allows the ESPPI chemist to design and test a new chemical blend in a very short time. In many cases, a new blend may be in service at the well in as little as 24 hours.

Principal Products

Petrochemicals: Through ESPPI, we are a custom formulator of specialty chemicals for the energy industry. ESPPI’s more specific mission is to provide applications of surface chemistry to service all facets of the fossil energy business via a high level of innovation. ESPPI is focusing its efforts on solving problems in a highly complex integration of processes to achieve the highest level of quality petroleum output. Listening to its customers with their changing demands and applying its skills as chemical formulators enables ESPPI to measure its success in this endeavor.

ESPPI acts as manufacturer, distributor and marketer of specialty chemicals. ESPPI supplies specialty chemicals for a variety of oil field applications including separating suspended water and other contaminants from crude oil, pumping enhancement, and cleaning, as well as a variety of fluids and additives used in the drilling and production process.

ESPPI currently offers production chemicals, drilling chemicals, waste remediation chemicals, cleaners and waste treatment chemicals:

• Surfactants that are highly effective in treating production and injection problems at the customer well-head.
• Well completion and work-over chemicals that maximize productivity from new and existing wells. Bactericides that kill water borne bacterial growth, thus preventing corrosion and plugging of the customer well-head and flowline.
• Scale compounds that prevent or treat scale deposits.
• Corrosion inhibitors, which are organic compounds that form a protective film on metal surfaces to insulate the metal from its corrosive environment.
• Antifoams that provide safe economic means of controlling foaming problems.
• ESPPI emulsion breakers, which are chemicals specially formulated for crude oils containing produced waters. Paraffin chemicals that inhibit and/or dissolve paraffin to prevent buildup. Their effectiveness is not diminished when used in conjunction with other chemicals.
• Water Clarifiers that solve any and all of the problems associated with purifying effluent water, improve appearance, efficiency and productivity.

Distribution Methods

ESP Petrochemicals, Inc.: ESPPI's goal is first, to solve the customer’s problem at the well and optimize drilling or production, and secondly, the sale of product. Typically, the ESPPI team may gather information at a well site and enter this data into the analytical system at the company’s labs in Lafayette, Louisiana. The system provides testing parameters and reproduces conditions at the wellhead. This allows the ESPPI chemist to design and test a new chemical blend in a very short time. In many cases, a new blend may be in service at the well in as little as 24 hours.

Once the chemical blend has been formulated and decided, the chemical is placed in service at the wellhead of the customer by delivering a storage tank, called a “day tank”, at the customer’s well-site location and filling the tank with the custom blended chemical. The tank is tied to a pressure pump that provides the pumping capacity to deliver the chemical into the wellhead for the customer.

This unique process shortens the chemical development time frame from what might have been as long as two months or more to a few days or hours. The exceptional service, response times and chemical products that the ESPPI team is able to provide its customers is a differentiating factor within the industry.

RESULTS OF OPERATIONS

     You should read the following discussion of our financial condition and results of operations together with the unaudited interim consolidated financial statements and the notes to the unaudited interim consolidated financial statements included in this quarterly report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.

Three month and six month periods ended June 30, 2010 compared to three month and six months periods ended June 30, 2009

The following table summarizes the results of our operations during the three months ended June 30, 2010 and 2009, and provides information regarding the dollar and percentage increase or (decrease) from 2009 to 2010.

Sales

Sales revenue increased by $621,785 for the three months ended June 30, 2010 and $1,068,268 for the six months ended June 30, 2010. The increase was due to several factors. The customer base expanded due to increased sales coverage in the Southern Louisiana, South Texas and East Texas regions. ESPPI hired additional field service technicians in the East Texas region in the third quarter of 2009 and their sales contacts resulted in a direct increase in sales volumes from this region. We effectively concluded the absorption of the Turf Chemistry business into our South Texas region on November 1, 2009. The sales for the three months ending June 30, 2010 from this region increased by $158,902 and $332,298 for the six months ended June 30, 2010. ESPPI increased sales volume to several of our existing customers through supply of additional petrochemical products at our customer well-sites.

Cost of goods sold and gross profit

Cost of goods sold increased by $56,804 or 8% for the three months ended June 30, 2010 and increased by $213,028 or 28% for the six months ended June 30, 2010. The increase is comparable to the increase in sales for the same periods.

Our gross profit increased by $564,981 or 113% for the three months ended June 30, 2010 and increased by $855,240 or 171% for the six months ended June 30, 2010 as compared to the same periods in 2009.

Gross profit as a percentage of revenue was 69% for the three months ended June 30, 2010 and 59% for the six months ended June 30, 2010. Such increase was mainly contributed by economies of increased purchases of raw materials on a per unit basis used in our blending operations and a greater efficiency in the service of our company delivery team resulting in a reduction in our service delivery cost. In addition, we experienced an increase in sales of higher gross margin chemical blends primarily in our south and east Texas regions.

General and administrative expenses

General and administrative expenses increased by $233,743 for the three months ended June 30, 2010 and increased by $476,270 for the six months ended June 30, 2010. The increase in general and administrative expenses was primarily due to the increase in staff, an increase in facility rental as ESPPI took over the expenses of a larger rental facility in the South Texas after the acquisition of the Turf Chemistry business and assets, and the opening of a sales and blending facility in our Longview, Texas region. The personnel level of ESPPI increased from fourteen (14) employees in 2009 to nineteen (19) employees in 2010 to accommodate the increase in sales.

The stock based compensation included in the general and administrative expenses were $239,691 and $399,830 for the three months and six months ended June 30, 2010, respectively, as compared to $137,566 and $700,458 for the same periods in 2009. The overall decrease was primarily related to temporarily higher costs associated with combining the companies acquired late in 2009 that were paid stock.

Net loss

Our net loss decreased to a loss of $533,914 and $960,899 for the three months and six months ended June 30, 2010 respectively compared to a loss of $1,207,213 and $1,536,023 for the same periods of 2009. The primary reason for the decrease in the net loss was as a result of increase in revenue during the three month and six months ended June 30, 2010.

EBITDA:

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) are a non-GAAP financial measure. We use EBITDA as an unaudited supplemental financial measure to assess the financial performance of its assets without regard to financing methods, capital structures, taxes or historical cost basis; its liquidity and operating performance over time in relation to other companies that own similar assets and that we believe calculate EBITDA in a similar manner; and the ability of our assets to generate cash sufficient for us to pay potential interest costs. We also understand that such data are used by investors to assess our performance. However, the term EBITDA is not defined under generally accepted accounting principles and EBITDA is not a measure of operating income, operating performance or liquidity presented in accordance with generally accepted accounting principles. When assessing our operating performance or liquidity, investors should not consider this data in isolation or as a substitute for net income, cash flow from operating activities, or other cash flow data calculated in accordance with generally accepted accounting principles. EBITDA for the three months and six months ended June 30, 2010 was ($195,271) compared to ($298,252), a decrease of $102,981 from the same prior year period.

Cash Flow Used by Operating Activities

Operating activities used cash of $280,110 for the six months ended June 30, 2010, compared to using $111,559 for the six months ended June 30, 2009. The increase in cash used during the six months ended June 30, 2010, was primarily due to increase in accounts receivable and inventory attributable to increases in revenues and cost of sales.

Cash Flow Used in Investing Activities

Investing activities used cash of $477,629 for the six month period ended June 30, 2010 compared to using $33,223 for the six month period ended June, 2009. The cash used in investing activities was a result of the cash payment for the acquisition of Turf and the purchases of fixed assets.

Cash Flow Provided by Financing Activities

Financing activities generated cash of $790,922 for the six month period ended June 30, 2010 compared to generating $148,984 for the six month period ended June 30, 2009. The cash generated from financing activities was a result of proceeds from the sales of units in a private placement.

Liquidity and Capital Resources

As of June 30, 2010, our total assets were $3,624,926 and our total liabilities were $3,672,270. We had cash of $58,290, current assets of $1,907,761, and current liabilities of $2,729,023 as of June 30, 2010. We had negative working capital of $821,262 on that date.

We will require additional funds to implement our growth strategy. To date, we have had negative cash flows from operations and we have been dependent on sales of our equity securities and debt financing to meet our cash requirements. We expect this situation to continue for the foreseeable future. We anticipate that we will have negative cash flows during the next twelve months. Funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There is still no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock. Further, we may continue to be unprofitable.

Cash Requirements

Our plan of operations for the next 12 months involves the growth of our petrochemical business through the expansion of regional sales, and the research and development of new chemical and analytical services in areas of waste remediation, water treatment and specialty biodegradable cleaning compounds. As of June 30, 2010, our company had cash of $58,290 and a working capital deficit of $821,262.

We estimate that our general operating expenses for the next twelve month period to include at least $2,000,000 for professional fees and general and administrative expenses. Estimated operating expenses include provisions for consulting fees, salaries, travel, telephone, office rent, and ongoing legal, accounting, and audit expenses to comply with our reporting responsibilities as a public company under the United States Exchange Act of 1934, as amended.

We will require additional funds to continue our operations and implement our growth strategy in exploration operations. To date, we have had negative cash flows from operations and we have been dependent on sales of our equity securities and debt financing to meet our cash requirements. We expect this situation to continue for the foreseeable future. We anticipate that we will have negative cash flows during the next twelve month period. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There is still no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock. Further, we may continue to be unprofitable.

We incurred a net loss of $960,899 for the six months ended June 30, 2010. As indicated above, we anticipate that our projected operating expenses for the next twelve months will be $2,000,000. We will be required to raise additional funds through the issuance of equity securities or through debt financing in order to carry-out our plan of operations for the next twelve month period. There can be no assurance that we will be successful in raising the required capital or that actual cash requirements will not exceed our estimates.

Given that we have had limited revenues to date, our cash requirements are subject to numerous contingencies and risk factors beyond our control, including operation and acquisition risks, competition from well-funded competitors, and our ability to manage growth. We can offer no assurance that our company will generate cash flow sufficient to achieve profitable operations or that our expenses will not exceed our projections. If our expenses exceed estimates, we will require additional monies during the next twelve months to execute our business plan.

There are no assurances that we will be able to obtain funds required for our continued operation. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease the operation of our business.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operation are based upon the condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. There have been no changes to our critical accounting policies from those described in our annual report on Form 10-KSB for the year ended December 31, 2009.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

Item 4T. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this quarterly report, being June 30, 2010, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company’s management, including our company’s President and Chief Executive Officer. Based upon that evaluation, our company’s President and Chief Executive Officer concluded that our company’s disclosure controls and procedures are effective as at the end of the period covered by this report. There have been no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our President and Chief Executive Officer, to allow timely decisions regarding required disclosure.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

For the six months ended June 30, 2010, the Company received proceeds of $614,492 from sales of 8,778,573 units in a private placement. Each unit consist of one share of common stock, one warrant for the purchase of share of common stock at an exercise price of $0.25 for a period of one year, and a warrant for the purchase of a share of common stock at an exercise price of $0.75 for a period of one year beginning on the first anniversary of the issuance of the warrant. Each purchaser of the Securities represented to the Company that such purchaser is an “accredited investor” within the meaning of Rule 501 of Regulation D. The Company sold these unregistered securities in accordance with Rule 506 of Regulation D under the Securities Act of 1933, as amended. Proceeds were used for working capital to fund continuing operations.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information

On August 18, 2010, Mr. Chris Metcalf submitted to the Board of Directors of the Company his resignation as an officer, director and any and all other positions of the Company. The resignation of Mr. Metcalf was not the result of any disagreement with the Company on any matter relating to our operations, policies or practices. That same day, the Board of Directors of the Company accepted Mr. Metcalf’s resignation and appointed Mr. David Dugas to serve as the Chief Executive Officer of the Company.

Item 6. Exhibits.

*Filed herewith

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ESP RESOURCES, INC.

By: /s/ David Dugas
David Dugas
Chief Executive Officer and Director
(Principal Executive Officer and Principal
Financial Officer)
Date: August 18, 2010

Pursuant to the requirements of the Securities Exchange Act of 1934, 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/ David Dugas
David Dugas
Chief Executive Officer and Director
(Principal Executive Officer and Principal
Financial Officer)
Date: August 18, 2010

By: /s/ Tony Primeaux
Tony Primeaux
Director
Date: August 18, 2010

By: /s/ William M Cox
William M. Cox
Director
Date: August 18, 2010