ESP Resources, Inc. - Quarter Report: 2011 September (Form 10-Q)

espi_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

o 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)

Nevada		98-0440762
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

111 Lions Club Road, Scott LA 70583

(Address of principal executive offices) (Zip Code)

(337) 706-7056 (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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 o No þ

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):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ
(Do not check if a smaller reporting company.)

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

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: 108,859,378 common shares issued and outstanding as of November 11, 2011.

PART I - FINANCIAL INFORMATION

ITEM 1. – FINANCIAL STATEMENTS

It is the opinion of management that the interim financial statements for the quarter ended September 30, 2011 includes all adjustments necessary in order to ensure that the interim financial statements are not misleading.

ESP Resources, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

	September 30, 2011			December 31, 2010
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	264,312		$	531,290
Restricted cash		143,728			77,434
Accounts receivable, net		1,831,636			1,580,151
Inventories, net		1,663,956			731,032
Prepaid expenses and other current assets		91,733			157,356

Total current assets		3,995,365			3,077,263

Property and equipment, net of accumulated depreciation of $703,335 and $419,027, respectively		2,373,063			1,024,123
Intangible assets, net of amortization of $320,145 and $214,186, respectively		564,335			700,784
Other assets		33,883			43,731

Total assets	$	6,966,646		$	4,845,901

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable	$	1,891,961		$	1,252,787
Factoring payable		1,416,850			749,586
Accrued expenses		414,181			436,321
Due to related parties		58,114			58,139
Guarantee liability		120,000			120,000
Current maturities of long-term debt		574,826			357,696
Current portion of capital lease obligation		82,999			28,281

Total current liabilities		4,558,931			3,002,810

Long-term debt (less current maturities)		961,286			484,817
Capital lease obligations (less current maturities)		142,527			46,943
Contingent consideration payable for acquisition of Turf		361,437			350,000
Deferred lease cost		26,000			29,000

Total liabilities		6,050,181			3,913,570

STOCKHOLDERS' EQUITY
Common stock - $0.001 par value, 350,000,000 shares authorized, 103,939,378 and 87,488,558 shares issued and outstanding, respectively		103,940			87,489
Preferred stock - $0.001 par value, 10,000,000 shares authorized in 2011, zero outstanding		-			-
Additional paid-in capital		13,715,771			11,022,788
Subscription receivable		(1,000	)		(26,000	)
Accumulated deficit		(12,902,246	)		(10,151,946	)

Total stockholders' equity		916,465			932,331

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	6,966,646		$	4,845,901

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

ESP Resources, Inc.

Condensed Consolidated Statements of Operations

For the nine and three months ended September 30, 2011 and 2010

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010

SALES, NET	$	3,425,518		$	1,309,326		$	7,535,739		$	3,627,972
COST OF GOODS SOLD		1,626,194			721,988			3,589,977			1,684,029

GROSS PROFIT		1,799,324			587,338			3,945,762			1,943,943

General and administrative		2,219,746			1,219,033			5,951,297			3,162,221
Depreciation and amortization		182,030			90,308			472,659			245,543

LOSS FROM OPERATIONS		(602,452	)		(722,003	)		(2,478,194	)		(1,463,821	)

OTHER EXPENSE
Interest expense		(25,004	)		(28,349	)		(103,295	)		(135,984	)
Factoring fees		(70,268	)		(26,253	)		(159,760	)		(80,732	)
Amortization of debt discount		(5,224	)		-			(5,224	)		-
Other income		-			92			-			3,092
Interest income		-			39			57			72
Loss on legal settlement		-			-			-			(60,000	)
Other expense		(3,161	)		-			(3,884	)		-

Total other expense		(103,657	)		(54,471	)		(272,106	)		(273,552	)

NET LOSS	$	(706,109	)	$	(776,474	)	$	(2,750,300	)	$	(1,737,373	)


NET LOSS PER SHARE (basic and diluted)	$	(0.01	)	$	(0.01	)	$	(0.03	)	$	(0.03	)

WEIGHTED AVERAGE SHARES OUTSTANDING		103,791,810			67,516,786			99,972,348			60,115,289

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

ESP Resources, Inc.

Condensed Statement of Stockholders’ Equity

For the nine months ended September 30, 2011

(Unaudited)

	Common stock						Subscription			Accumulated
	Number		Par Value		APIC		Receivable			Deficit			Total
Balance, December 31, 2010		87,488,558	$	87,489	$	11,022,788	$	(26,000	)	$	(10,151,946	)	$	932,331

Stock based compensation		2,940,000		2,940		1,723,394		-			-			1,726,334

Shares issued in connection with accounts payable conversion		1,086,111		1,086		147,324		-			-			148,410

Shares issued in connection with note payable		345,000		345		43,905								44,250

Shares issued with private placement		12,079,709		12,080		778,360		25,000			-			815,440

Net loss		-		-		-		-			(2,750,300	)		(2,750,300	)

Balance September 30, 2011		103,939,378		103,940		13,715,771		(1,000	)		(12,902,246	)		916,465

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

ESP Resources, Inc.

Condensed Consolidated Statements of Cash Flow

For the nine months ended September 30, 2011 and 2010

(Unaudited)

	For the nine months ended
	September 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2,750,300	)	$	(1,737,373	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common shares issued for current year loss on settlement of contractual dispute		-			15,000
Amortization of debt discount		5,224			75,000
Depreciation and amortization, including amounts included in cost of goods sold		531,274			267,204
Stock based compensation		1,726,334			1,105,179
Changes in operating assets and liabilities:
Accounts receivable		(251,485	)		(106,478	)
Inventory		(932,924	)		(494,747	)
Prepaid expenses and other current assets		65,623			128,910
Other assets		9,848			(13,979	)
Accounts payable		639,172			299,983
Accrued expenses		126,271			(27,933	)
Accrued salaries to related parties		-			225,100
Accounts payable - related parties		(25	)		-
CASH USED IN OPERATING ACTIVITIES		(830,988	)		(264,134	)

CASH FLOWS FROM INVESTING ACTIVITIES
Restricted cash		(66,294	)		(23,648	)
Cash payment for acquisition of Turf		-			(263,700	)
Purchase of fixed assets		(769,983	)		(247,641	)

CASH USED IN INVESTING ACTIVITIES		(836,277	)		(534,989	)

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing on debt		233,799			4,082
Repayment of long term debt		(261,282	)		(108,747	)
Repayment of capital leases		(54,934	)		(11,854	)
Payments on insurance financing		-			(102,379	)
Net factoring advances		667,264			209,722
Proceeds from sales of units in private placement, net		765,440			905,499
Proceeds from sale of stock		25,000			-
Collection on subscription receivable		25,000
CASH PROVIDED BY FINANCING ACTIVITIES		1,400,287			896,323

NET INCREASE IN CASH		(266,978	)		97,200
CASH AT BEGINNING OF PERIOD		531,290			25,107

CASH AT END OF PERIOD	$	264,312		$	122,307

Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	62,202		$	49,231
Non-cash investing and financing transactions:
Forgiveness of debt from related party	$	-		$	130,000
Notes issued for purchase of property and equipment		864,248			63,467
Stock issued for accounts payable conversion		148,411			-
Assets returned and release of notes payable		59,463			-
Purchase capital lease		205,236			-
Discount recorded on note for shares issued		44,250			-
Trade-in of equipment		44,676
Stock issued for debt conversion		-			76,330
Shares issued for prior year accrual of contractual dispute settlement		-			115,000

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

ESP Resources, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2011

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

Basis of Presentation

ESP Resources, Inc. (“ESP Resources”, and collectively with its subsidiaries, “we, “our” or the “Company”) was incorporated in the State of Nevada on October 27, 2004. The accompanying unaudited condensed consolidated financial statements include the accounts of ESP Resources, Inc. and its wholly owned subsidiaries, ESP Petrochemicals, Inc. (“ESP Petrochemicals”) and ESP Resources, Inc. of Delaware (“ESP Delaware”). ESP Petrochemicals also owns certain assets and liabilities of Turf Chemistry Inc. (“Turf”), a Texas corporation. On September 7, 2011 the Company became a 49% partner in a new entity. The Company management will direct the operations of the business and the company will receive 80% of the profits. 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. Any reference herein to “ESP Resources”, the “Company”, “we”, “our” or “us” is intended to mean ESP Resources, Inc. including the wholly-owned subsidiaries indicated above, unless otherwise indicated.

Use of Estimates

The preparation of the unaudited condensed 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, 2010 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 three and nine months ended September 30, 2011 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, 2010.

Concentrations

The Company has four major customers that together account for 58% of accounts receivable at September 30, 2011 and 61% of the total revenues earned for the nine months ended September 30, 2011 as follows:

	Accounts Receivable			Revenue
Customer A		26	%		26	%
Customer B		14	%		22	%
Customer C		9	%		2	%
Customer D		9	%		11	%
Totals:		58	%		61	%

The Company has two vendors that accounted for 72% of chemical purchases during the nine months ended September 30, 2011 and 48% of the ending accounts payable at September 30, 2011 as follows:

	Accounts Payable			Purchases
Vendor A		53	%		38	%
Vendor B		19	%		10	%
Totals:		72	%		48	%

Revenue and Cost Recognition

The Company 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 off-loaded 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.

Rent

On February 28, 2011 the Company canceled its lease for its Southeast Texas facility and initiated a new lease for approximately 6,000 square feet of office and warehouse space for its Southeast Texas facility. The lease is $2,400 per month with an initial term of 3 years.

On September 20, 2011 the Company initiated a new lease in Dubai, UAE for approximately 1,564 square feet of office space for its international operations, the lease is $3,549 per month with an initial term of 1 year.

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 Accounting Standard Codification (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 or 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 September 30, 2011 and December 31, 2010:

	September 30, 2011		December 31, 2010
Trade receivables	$	1,922,804	$	1,616,477
Less: Allowance for doubtful accounts		91,168		36,326
Net accounts receivable	$	1,831,636	$	1,580,151

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. The details of the acquisition were disclosed in the Form 10K for December 31, 2010. 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, 2011 through December 31, 2011 was $1,500,000. As of September 30, 2011, Turf has not reached the target and the contingent liability remained at $350,000.

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 $136,449 and $137,246 for the nine months ended September 30, 2011 and 2010, 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 nine months ended September 30, 2011 as well as negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. The unaudited 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. This condition raises substantial doubt about the Company’s ability 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 unaudited 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 September 30, 2011 and December 31, 2010:

	September 30, 2011		December 31, 2010
Raw materials	$	857,800	$	536,351
Finished goods		806,156		194,681
Total inventory	$	1,663,956	$	731,032

Note 4 – Long-Term Debt

On February 15, 2011, the Company purchased certain vehicles by issuing debt of $102,402 with an annual interest rate of 7.9% and a term of 48 months. On March 11, 2011 the Company purchased certain vehicles by issuing debt of $166,387 with an implied interest rate of 3.0% and a term of 48 months. On March 15, 2011 the Company purchased a vehicle by issuing debt of $62,067 with an implied interest rate of 3.0% and a term of 60 months.

In April, 2011the Company purchased certain vehicles by issuing debt of $118,792 with annual interest ranges of 3% to 7.9% and a term of 60 months. In September, 2011 the Company purchased vehicles by issuing debt of $95,074 with an annual interest rate of 3% and a term of 60 months.

In May 2011 the Company terminated an employee who was also a former shareholder in Turf. At that time the Company allowed the employee to retain certain vehicles which were acquired by the Company from Turf however the registration remained in the name of Turf. The associated bank loans on those vehicles also remained in the name of Turf. At the time of termination the Company canceled the remaining debt and recognized a contingent liability of approximately $11,000 for the difference between the fair value of the vehicles and the debt.

On June 3, 2011 the Company issued debt of $75,000 with an annual interest rate of 10% and a term of 24 months. The debt is secured by the specific assets acquired with the debt. As part of the consideration for making the loan the Company issued 225,000 shares of its common stock with a value of $29,250 which has been treated as a debt discount to the loan and is being amortized over the term of the loan.

On July 14, 2011 the Company purchased certain vehicles by issuing debt of $75,000 with an annual interest rate of 10% and a term of 24 months. The debt is secured by the specific assets acquired with the debt.

On July 15, 2011 the Company purchased certain vehicles by issuing debt of $75,000 with an annual interest rate of 10% and a term of 24 months. The debt is secured by the specific assets acquired with the debt.

On July 20, 2011 the Company purchased certain equipment by issuing debt of $31,690 with an annual interest rate ranges of 10.5% and 12.0% and a term of 36 months.

On July 28, 2011 the Company purchased certain vehicles by issuing debt of $116,416 with an annual interest rate of 6.74% and a term of 36 months.

On August 13, 2011 the Company purchased certain vehicles by issuing debt of $60,229 with an annual interest rate of 7.74% and a term of 60 months.

On September 13, 2011 the Company purchased certain vehicles and equipment by issuing debt of $120,000 with an annual interest rate of 10% and a term of 24 months. The debt is secured by the specific assets acquired with the debt. As part of the consideration for making the loan the Company issued 120,000 shares of its common stock with a value of $15,000 which has been treated as a debt discount to the loan and is being amortized over the term of the loan.

Note 5 – Stockholders’ Equity

Private Placement

During the nine months ended September 30, 2011, we received proceeds of $765,440, net of $66,560 in cash placement costs, from the sale of 11,885,713 units in a private placement. Each unit consisted of one share of common stock, one warrant for the purchase of a share of common stock at an exercise price of $0.25 for a period of eighteen months, and one 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. The warrants were valued using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.05-$0.17; warrant term of 1-2 years; expected volatility of 156%-158% and discount rate of .33%-2.61%. We issued finder fee warrant of 1,721,905 with a fair value of $239,847. This warrant has an exercise price of $0.0735 and a term of 3 years. The warrant was valued using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.12; warrant term of 3 years; expected volatility of 158%; and discount rate of 0.22%. The proceeds were allocated as follows:

Common stock	$	278,274
$0.0735 warrant		239,847
$0.25 warrant		212,266
$0.75 warrant		101,613
Total Proceeds	$	832,000

Common stock issued for services

In May 2010, the Company issued a total of 8,500,000 shares of common stock for services. The shares were valued at $0.09, 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 has recognized compensation expense of $191,250 on these shares as of September 30, 2011. The fair value of the unvested shares is $573,750 as of September 30, 2011.

In March 2011, the Company issued 325,000 shares of its common stock to a vendor. The shares were valued at $51,750 and recorded as a release of the Company’s accounts payable.

On June 1, 2011 the Company entered into a 3 year consulting agreement. Per the terms of the agreement, the Company is to pay $3,250 per month and issued 1,500,000 shares of common stock and 2,000,000 warrants. The shares had a fair value of $187,500 and the warrants had a fair value using the Black Sholes valuation model of $98,289 and have recognized these amount as stock based compensation expense.

On June 24, 2011 the Company entered into a 3 month consulting agreement. The company issued 230,000 shares of common stock with a fair value of $27,600 and has recognized this amount as stock based compensation expense

On June 27, 2011 the company entered into a 1 year consulting agreement. Per the terms of the agreement, the Company is to pay a monthly fee of $7,500 and issue 810,000 shares of common stock which are fair valued at $97,200. Of the 810,000 shares 405,000 shares vested immediately and the remaining shares will vest in December 2011. The Company has recognized compensation expense of $48,600 on these shares as of September 30, 2011.

In June 2011, the Company issued 400,000 shares of its common stock to vendors and certain employees for services rendered. The shares were valued at $48,000 and recorded as stock compensation expense.

On July 6, 2011 the Company agreed with a vendor to convert $55,000 of payables by issuing 761,111 shares of the Company stock and incurring a loss on extinguishment of debt of $18,741, the fair value of the shares on conversion was $96,991.

Stock Option Awards

On June 1, 2011, through the Board of Directors, the Company granted non-statutory options to purchase 5,000,000 shares each to two directors (one of whom is also the CEO of the Company). These options were granted with an exercise price equal to $0.14 per share. The stock price on the grant date was $0.125 per share. The options have a fair value of $1,183,300. The options were valued using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.125; warrant term of 6 years; expected volatility of 158% and discount rate of 1.65%. These options vest 20% on the commencement date, 20% on December 1, 2011 and 20% on the remaining 2 years anniversary of the vesting commencement date.

On September 21, 2010, through the Board of Directors, the Company granted non-statutory options to purchase 6,000,000 shares each to two directors (one of whom is also the CEO of the Company). These options were granted with an exercise price equal to $0.15 per share. The stock price on the grant date was $0.12 per share. The options have a fair value of $1,344,228. The options were valued using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.12; warrant term of 5.5 years; expected volatility of 158% and discount rate of 2.61%. These options vest 33.33% on the commencement date, 33.33% on the first anniversary of the vesting commencement date and 33.33% on the second anniversary of the vesting commencement date.

On June 25, 2011, through the Board of Directors, the Company granted non-statutory options to purchase 1,200,000 shares each to two employees. These options were granted with an exercise price equal to $0.15 per share. The options have a fair value of $128,912. The options were valued using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.12; term of 5 years; expected volatility of 167% and discount rate of 0.57%. The stock price on the grant date was $0.12 per share. These options vest 25% each year on the anniversary of the grant date.

On July 29, 2011 the Board of Directors approved the issuance of 400,000 stock options to various employees of the Company. The stock options have an expiration of ten years from the grant date and an exercise price of $0.14 which was the market price of the Company’s common stock on the grant date. The options have a fair value of $49,719 . The options were valued using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.14; term of 10 years; expected volatility of 154% and discount rate of 2.82%. The stock price on the grant date was $0.14 per share. The options vest immediately.

The Company has recognized compensation expense of $1,125,095 on the stock options granted above and stock options granted in prior years that vested during the current period for the nine months ended September 30, 2011. The fair value of the unvested shares is $1,581,064 as of September 30, 2011.

Stock option activity summary covering options is presented in the table below:

	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)
Outstanding at December 31, 2010		12,000,000	$	0.15		9.98
Granted		11,600,000	$	0.14		9.06
Exercised		-		-		-
Expired/Forfeited		-		-		-
Outstanding at September 30, 2011		23,600,000	$	0.15		9.02
Exercisable at September 30 2011		6,700,000	$	0.15		9.00

LPC Agreement

On September 16, 2010, the Company signed a $5 million purchase agreement with Lincoln Park Capital Fund, LLC (“LPC”), an Illinois limited liability company. Upon signing the agreement, we received $100,000 from LPC as an initial purchase under the $5 million commitment in exchange for 666,667 shares of our common stock and warrants to purchase 666,667 shares of our common stock at an exercise price of $0.20 per share. The Company also issued 1,181,102 of shares of common stock as a commitment fee valued at $159,449.

The Company also entered into a registration rights agreement with LPC whereby the Company agreed to file a registration statement related to the transaction with the U.S. Securities & Exchange Commission (“SEC”) covering the shares that may be issued to LPC under the purchase agreement. After the SEC had declared effective the registration statement related to the transaction on December 22, 2010, the Company has the right, in its sole discretion, over a 30-month period to sell its shares of common stock to LPC in amounts up to $500,000 per sale, depending on certain conditions as set forth in the purchase agreement, up to the aggregate commitment of $5 million.

There are no upper limits to the price LPC may pay to purchase the Company’s common stock. The purchase price of the shares related to the $4.9 million of future funding will be based on the prevailing market prices of the Company’s shares immediately preceding the time of sales without any fixed discount, and the Company will control the timing and amount of any future sales of shares to LPC. LPC shall not have the right or the obligation to purchase any shares of common stock on any business day that the price of ESP common stock is below $0.10. In addition, the Company will issue to LPC up to 1,181,102 shares pro rata as LPC purchases the remaining $4.9 million as additional consideration for entering into the purchase agreement. The purchase agreement may be terminated by the Company at any time at the Company’s discretion without any cost to the Company. Except for a limitation on variable priced financings, there are no financial or business covenants, restrictions on future fundings, rights of first refusal, participation rights, penalties or liquidated damages in the agreement.

On April 20, 2011, pursuant to the LPC agreement described herein, the Company delivered a regular purchase notice to LPC to purchase $25,000 of the Company’s common stock, or 193,996 shares. Subsequent to this transaction, there are remaining 14,812,030 additional shares that the Company may sell to LPC, 1,181,102 shares already issued as a commitment fee, and 1,175,076 additional commitment shares that the Company may issue on a pro rata basis as up to an additional $4,875,000 of the Company’s stock is purchased by LPC.

Note 6 – Related Party Transactions

As of December 31, 2010, ESP Resources owed shareholders and management a total of $58,139. As of September 30, 2011, the Company had balances due to shareholders and management a total of $58,114

Note 7 – Subsequent Events

On October 1, 2011, the Company entered into new employment agreements with its president and CEO, David Dugas and with its vice-president Tony Primeaux. Both agreements provided for stock options at the discretion of the Board of Directors.

On October 1, 2011, the Company entered into a consulting agreement with a vendor and issued 2,500,000 common shares as consideration.

On October 1, 2011, the Company issued 2,540,000 shares and 2,000,000 options to officers and lenders.

On October 28, 2011 the Company purchased certain vehicles and equipment by issuing debt of $120,000 with an annual interest rate of 10% and a term of 24 months. As part of the consideration for making the loan the Company issued 120,000 shares of its common stock with a value of $22,200 which has been treated as a debt discount to the loan and is being amortized over the term of the loan.

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” in the Company’s Form 10-K, 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 is prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our audited consolidated financial results on Form 10-K for December 31, 2010 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.

Corporate History

We were incorporated on October 27, 2004, in the State of Nevada. Our principal offices are located at 111 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 nineteen (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.

On July 29, 2011 the shareholders decreased the authorized shares of our common stock from 1,200,000,000 shares to 350,000,000 shares and authorized a new class of stock, preferred stock having 10,000,000 shares of stock authorized at $.001 par value.

Our Business

We are a custom formulator of specialty chemicals for the energy industry. Our 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. We focus our efforts on solving problems in a highly complex integration of processes to achieve the highest level of quality petroleum output. Listening to our customers with their changing demands and applying its skills as chemical formulators enables us to measure our success in this endeavor.

We act as manufacturer, distributor and marketer of specialty chemicals and supply 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.

Principal Products

We currently offer production chemicals, drilling chemicals, waste remediation chemicals, cleaners and waste treatment chemicals as follows:

●	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;

●	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); and

●	Water clarifiers that solve any and all of the problems associated with purifying effluent water and that improve appearance

Distribution Methods

Our first goal is to solve the customer’s problem at the well and optimize drilling or production and, secondly, the sale of product. Typically, our team may gather information at a well site and enter this data into the analytical system at our labs in Lafayette, Louisiana. The system provides testing parameters and reproduces conditions at the wellhead. This allows our technical team and chemists 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 chemicals. 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. Management believes that the exceptional service, response times and chemical products that the Company is able to provide its customers is a differentiating factor within the industry.

Competition

Currently, the market distribution is shared by very few large participants, namely, Baker Petrolite, Nalco, and Champion Technologies, Inc. There are also many small to medium sized businesses that are regionally located. The area of biggest growth in the specialty chemical market is in the area of “Production Treatment Chemicals.” To be competitive in the industry, we will need to continually enhance and update our technology. We have allocated funds to research and development of new technologies to maintain the efficacy of our technology and our ability to compete so that we can continue to grow our business.

Our strategy for surpassing the competition is to provide better service and response times combined with superior chemical solutions that can be translated into savings for our customers. We believe that we are able to solve these problems due to the following competitive advantages:

●	Personalized service;

●	Expedited field analysis; and

●	Convenience and access to the best available market rates and products that we can produce and identify that are currently offered by our suppliers for our customers.

Additionally, new companies are constantly entering the market. This growth and fragmentation could also have a negative impact on our ability to obtain additional market share. Larger companies which have been engaged in this business for substantially longer periods of time may have access to greater financial and other resources. These companies may have greater success in recruiting and retaining qualified employees in specialty chemical manufacturing and marketing, which may give them a competitive advantage.

Government Approval and Regulation

We are subject to federal, state and local environmental laws, rules, regulations, and ordinances, including those concerning emissions and discharges, and the generation, handling, storage, transportation, treatment, disposal and import and export of hazardous materials (“Environmental Laws”). The operation of the Company's facilities and the distribution of chemical products entail risks under Environmental Laws, many of which provide for substantial remediation costs in the event of discharges of contaminants and fines and sanctions for violations. Violations of Environmental Laws could result in the imposition of substantial criminal fines and penalties against the Company and their officers and employees in certain circumstances. The costs associated with responding to civil or criminal matters can be substantial. Also, significant civil or criminal violations could adversely impact the Company's marketing ability in the region served by the Company. Compliance with existing and future Environmental Laws may require significant capital expenditures by the Company, although we do not anticipate having to expend significant resources to comply with any governmental regulations applicable to our current operations.

We are required to obtain licenses and permits from various governmental authorities. We anticipate that we will be able to obtain all necessary licenses and permits to carry on the activities which we intend to conduct, and that we intend to comply in all material respects with the terms of such licenses and permits. However, there can be no guarantee that we will be able to obtain and maintain, at all times, all necessary licenses and permits required to undertake our proposed exploration and development or to place our properties into commercial production. In the event that we proceed with our operation without necessary licenses and permits, we may be subject to large fines and possibly even court orders and injunctions to cease operations.

Oil and gas operations in United States and elsewhere are also subject to federal and state laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Furthermore oil and gas operations in the United States are also subject to federal and state laws and regulations including, but not limited to: the construction and operation of facilities; the use of water in industrial processes; the removal of natural resources from the ground; and the discharge/release of materials into the environment.

We are also subject to the laws and regulations which are generally applicable to business operations, such as business licensing requirements, income taxes and payroll taxes.

There can be no assurance that past or future operations will not result in the Company incurring material environmental liabilities and costs or that compliance with Environmental Laws will not require material capital expenditures by the Company, each of which could have a material adverse effect on the Company's results of operations and financial condition.

The Company knows of no existing contamination sites where the company supplies petrochemicals for their current customer locations. The title for the chemicals that we supply to our customer base passes from us to the customer upon delivery of the chemical to the customer location. We have insurance that covers accidental spillage and cleanup at our blending location and for transportation to the customer location; however, the customer is responsible for the integrity of the chemical once the chemical blend is delivered to the receiving point of the customer.

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.

Nine Month and Three Month Periods Ended September 30, 2011 Compared to Nine Month and Three Month Periods Ended September 30, 2010

The following table summarizes the results of our operations during the nine months ended September 30, 2011 and 2010, and provides information regarding the dollar and percentage increase or (decrease) from 2010 to 2011:

	Nine Months Ended September 30,						$ Increase			% Increase
	2011			2010			(Decrease)			(Decrease)
Sales	$	7,535,739		$	3,627,972		$	3,907,767			108	%
Cost of goods sold		3,589,977			1,684,029			1,905,948			113	%
Gross profit		3,945,762			1,943,943			2,001,819			103	%
Total general and administrative expenses		5,951,297			3,162,221			2,789,076			88	%
Depreciation and amortization expense		472,659			245,543			227,116			92	%
Loss from operations		(2,478,194	)		(1,463,821	)		1,014,37	3		69	%
Total other income (expense)		(272,106	)		(273,552	)		(1,446)			(1	%)
Net loss	$	(2,750,300	)	$	(1,737,373	)	$	1,012,927			58	%

The following table summarizes the results of our operations during the three months ended September 30, 2011 and 2010, and provides information regarding the dollar and percentage increase or (decrease) from 2010 to 2011:

	Three Months Ended September 30,						$ Increase			% Increase
	2011			2010			(Decrease)			(Decrease)
Sales	$	3,425,518		$	1,309,326		$	2,116,192			162	%
Cost of goods sold		1,626,194			721,988			904,206			125	%
Gross profit		1,799,324			587,338			1,211,986			206	%
Total general and administrative expenses		2,219,746			1,219,033			1,000,713			82	%
Depreciation and amortization expense		182,030			90,308			91,722			102	%
Loss from operations		(602,452	)		(722,003	)		(119,551	)		(17	)%
Total other income (expense)		(103,657	)		(54,471	)		49,186			90	%
Net loss	$	(706,109	)	$	(776,474	)	$	(70,365)			(9	)%

Sales

Sales were $7,535,739 for the nine months ended September 30, 2011, compared to $3,627,972 for the same period in 2010, an increase of $3,907,767or 108%. The increase was due to several factors including the expanded customer base from increased sales coverage in the Southern Louisiana, South Texas, Southeastern Texas and Arkansas regions and sales volume increased from petrochemical sales and services to customers engaged in the hydraulic fracturing of oil and gas wells. The addition of field service technicians in the South Texas and Arkansas regions in previous quarters and their sales contacts resulted in a direct increase in sales volumes from these regions.

Sales were $3,425,518 for the three months ended September 30, 2011, compared to $1,309,326 for the same period in 2010, an increase of $2,116,192, or 162%. The increase was mainly due to increased sales volume from petrochemical sales and services to customers engaged in the hydraulic fracturing of oil and gas wells. In addition, sales increased from the expanded customer base from increased sales coverage in the Southern Louisiana, South Texas, Southeastern Texas and Arkansas regions. The addition of field service technicians in the South Texas and Arkansas regions in previous quarters and their sales contacts resulted in a direct increase in sales volumes from these regions.

Cost of goods sold and gross profit

Cost of goods was $3,589,977, or 47.6% of net sales, for the nine months ended September 30, 2011, compared to $1,684,029, or 46.4% of net sales, for the same period in 2010. Gross profit was $3,945,762, or 52.4% of net sales, for the nine months ended September 30, 2011, compared to $1,943,943, or 53.6% of net sales, for the same period in 2010. The decrease of 1.2 percentage points in gross profit margin for the nine month period in 2011 is the result of lower costs for certain petrochemical components used to service the Company’s customers engaged in the hydraulic fracturing of oil and gas wells, compared to the same period in 2010.

Cost of goods was $1,626,194, or 47.5% of net sales, for the three months ended September 30, 2011, compared to $721,988, or 55.1% of net sales, for the same period in 2010. Gross profit was $1,799,324, or 52.5% of net sales, for the three months ended September 30, 2011, compared to $587,338, or 44.9% of net sales, for the same period in 2010. The increase of 7.6 percentage points in gross profit for the three month period in 2011 is the result of decrease in costs as a percentage of sales for certain petrochemical components used to service the Company’s customers engaged in the hydraulic fracturing of oil and gas wells, compared to the same period in 2010.

General and administrative expenses

General and administrative expenses increased by $2,789,076 for the nine months ended September 30, 2011, compared to the same period in 2010. The increase in general and administrative expenses was primarily due to the increase in stock compensation, increase in staff and additions of new facilities in our Longview and Victoria, Texas and Guy, Arkansas regions and cost of development of international operations. The Company’s personnel level increased from twenty-two (22) employees in 2010 to thirty-five (35) employees in 2011 to accommodate the increase in sales. The stock-based compensation included in the general and administrative expenses was $1,726,334 for the nine months ended September 30, 2011, compared to $1,105,179 for the same period in 2010. Costs associated with the development of international operations including travel, personnel, corporate development and legal was $226,269 for the nine months ended September 30, 2011 and zero in the same period in 2010.

General and administrative expenses increased by $1,000,713 for the three months ended September 30, 2011, compared to the same period in 2010. The increase in general and administrative expenses was primarily due increase in staff and additions in the Company’s facilities in Longview and Victoria, Texas and Guy, Arkansas regions and development of international operations. The development of international operations included in the general and administrative expenses was $226,269 for the three months ended September 30, 2011, compared to zero for the same period in 2010.

Net loss

The Company’s net loss increased to $2,750,300 for the nine months ended September 30, 2011, as compared to a net loss of $1,737,373 for the same period in 2010. The primary reason for the increase in the net loss was due to an increase in general and administrative expenses relating to the expansion of our sales from our existing facilities, stock compensation expense, the cost of additional infrastructure to support higher levels of sales in future periods and development of international operations.

Modified EBITDA

Modified Earnings before interest, taxes, depreciation amortization and stock-based compensation (“Modified EBITDA”) is a non-GAAP financial measure. We use Modified EBITDA as an unaudited supplemental financial measure to assess the financial performance of our assets without regard to financing methods, capital structures, taxes or historical cost basis; our liquidity and operating performance over time in relation to other companies that own similar assets and that we believe calculate Modified 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 Modified EBITDA is not defined under generally accepted accounting principles and Modified 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. Modified EBITDA for the nine months ended September 30, 2011 was $(448,069) compared to ($250,739) for the same period in 2010, an increase of $197,330. Modified EBITDA for the three months ended September 30, 2011 was $33,373 compared to $47,493 for the same period in 2010, an decrease of $14,120.

	Three Months Ended September 30, 2011			Three Months Ended September 30, 2010			Nine Months Ended September 30, 2011			Nine Months Ended September 30, 2010
Net loss	$	(706,109	)	$	(776,474	)	$	(2,750,300	)	$	(1,737,373	)
Add back interest expense, net of interest income		25,004			28,310			103,238			135,912
Add back depreciation and amortization		182,030			90,308			472,659			245,543
Add back stock-based compensation		532,448			705,349			1,726,334			1,105,179
Modified EBITDA	$	33,373		$	47,493		$	(448,069	)	$	(250,739	)

Cash Flow Used by Operating Activities

Operating activities used cash of $830,988 for the nine months ended September 30, 2011, compared to use of cash of $264,134 for the same period in 2010. The increase in cash used during the nine months ended September 30, 2011 was primarily due to an increase in accounts receivable and chemical inventory to service the increased sales and the net loss.

Cash Flow Used in Investing Activities

Investing activities used cash of $836,277 for the nine month period ended September 30, 2011, compared to a use of cash of $534,989 for the nine month period ended September 30, 2010. The cash used in investing activities was a result of the cash used for the acquisition of new delivery and field service vehicles and the purchase of additional field equipment including storage tanks, containment storage devices, and chemical delivery pumps in 2011.

Cash Flow Provided by Financing Activities

Financing activities generated cash of $1,400,287 for the nine month period ended September 30, 2011, compared to $896,323 for the nine month period ended September 30, 2010. The increase in cash generated from financing activities during the nine months ended September 30, 2011, was a result of proceeds from the sales of units in a private placement of $815,440, net of fees and borrowing to acquire new vehicles.

Liquidity and Capital Resources

As of September 30, 2011, our total assets were $6,966,646 and our total liabilities were $6,050,181. We had cash of $264,312, current assets of $3,995,365, and current liabilities of $4,558,931 as of September 30, 2011. We had negative working capital of $563,566 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 six 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. Furthermore, we may continue to be unprofitable.

Working Capital

We estimate that our general operating expenses for the next twelve month period will remain at their current levels of 2011 for professional and consulting fees, salaries, telephone, office and warehouse rent, and ongoing legal, accounting, and audit expenses to comply with our reporting responsibilities as a public company under the Securities Exchange Act of 1934, as amended. Any increase in general operating expenses will be due to increases in field operating personnel, travel and international expenses as the demands from current and new customers increase. Specifically, we expect to continue to increase the size of our operating personnel during 2011 as we increase our presence in the East and South Texas regions as well as expansion plans in place for increases in sales in the Southeast Oklahoma and Arkansas regions.

Cash Requirements

Our plan of operations for the next 12 months involves the growth of our production and completion 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 September 30, 2011, our company had cash of $264,312 and a working capital deficit of ($563,566).

We incurred a net loss of $2,750,300 and $706,109 for the nine and three month periods ended September 30, 2011, respectively. We estimate that our needs for additional capital for the next twelve month period to be $3,000,000 to $5,000,000. However, if our operating expenses or capital expenditures exceed estimates, we will require additional monies during the next twelve months to execute our business plan. 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. 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. 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 in the foreseeable future.

We can offer no assurance that our company will generate cash flow sufficient to achieve profitable operations or that our expenses will not continue to 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.

Going Concern

Due to our net losses, negative cash flow and negative working capital, in their report on our audited financial statements for the year ended December 31, 2010 our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.

We have historically incurred losses and through September 30, 2011 these losses total $12,902,246 since our inception. Because of these historical losses, we will require additional working capital to develop our business operations. We intend to raise additional working capital through private placements, public offerings, bank financing and/or advances from related parties or shareholder loans.

The continuation of our business is dependent upon obtaining further financing and achieving a break even or profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current or future stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

There are no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to us. If adequate working capital is not available we may not increase our operations.

These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Off-Balance Sheet Arrangements

Our company has no outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. Our company does not engage in trading activities involving non-exchange traded contracts.

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-K for the year ended December 31, 2010.

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 September 30, 2011, 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 nine months ended September 30, 2011, we received proceeds of $765,439 from sales of 11,507,155 units in a private placement. Each unit consisted 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. We 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. – (REMOVED AND RESERVED)

ITEM 5. – OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit Number		Description

1.1		Licensing Agreement with Peter Hughes (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006)

3.1		Articles of Incorporation (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006)

3.2		Bylaws (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006)

3.3		Articles of Merger filed with the Secretary of State of Nevada on September 19, 2007 and which is effective September 28, 2007 (incorporated by reference from our Current Report on Form 8-K filed on September 28, 2007)

3.4		Certificate of Change filed with the Secretary of State of Nevada on September 19, 2007 and which is effective September 28, 2007 (incorporated by reference from our Current Report on Form 8-K filed on September 28, 2007)

4.1		Regulation “S” Securities Subscription Agreement (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006)

10.1		Share Purchase Agreement dated November 21, 2007 among our company, Pantera Oil and Gas PLC, Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Current Report on Form 8-K filed on November 26, 2007)

10.2		Form of Advisory Board Agreement (incorporated by reference from our Current Report on Form 8-K filed on February 4, 2008)

10.3		Equity Financing Agreement dated February 12, 2008 with FTS Financial Investments Ltd. (incorporated by reference from our Current Report on Form 8-K filed on February 15, 2008)

10.4		Return to Treasury Agreement dated February 26, 2008 with Peter Hughes (incorporated by reference from our Current Report on Form 8-K filed on February 28, 2008)

10.5		Amending Agreement dated March 17, 2008 with Artemis Energy PLC, Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Current Report on Form 8- K filed on March 19, 2008)

10.6		Subscription Agreement dated February 28, 2008 with Trius Energy, LLC (incorporated by reference from our Quarterly Report on Form 10-QSB filed on April 14, 2008)

10.7		Joint Venture Agreement dated February 24, 2008 with Trius Energy, LLC (incorporated by reference from our Quarterly Report on Form 10-QSB filed on April 14, 2008)

10.8		Second Amending Agreement dated July 30, 2008 among our company, Artemis Energy PLC (formerly Pantera Oil and Gas PLC), Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Current Report on Form 8- K filed on August 5, 2008)

10.9		Amended and Restated Share Purchase Agreement dated September 9, 2008 among company, Artemis Energy PLC (formerly Pantera Oil and Gas PLC), Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Annual Report on for 10-KSB filed on September 15, 2008)

10.10		Agreement dated October 31, 2008 with Lakehills Production, Inc. and a private equity drilling fund (incorporated by reference from our Current Report on Form 8-K filed on November 5, 2008)

14.1		Code of Ethics (incorporated by reference from our Annual Report on Form 10-KSB filed on August 28, 2007)

31.1*		Certification of Principal Executive Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

__________

*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.

Date: November 14, 2011	By:	/s/ David Dugas
		David Dugas
		Chief Executive Officer and Director
		(Principal Executive Officer and Principal Financial Officer)

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.

	ESP RESOURCES, INC.

Date: November 14, 2011	By:	/s/ David Dugas
		David Dugas
		Chief Executive Officer and Director
		(Principal Executive Officer and Principal Financial Officer)

Date: November 14, 2011	By:	/s/ Tony Primeaux
		Tony Primeaux
		Director

Date: November 14, 2011	By:	/s/ William M Cox
		William M. Cox
		Director