ESP Resources, Inc. - Quarter Report: 2013 September (Form 10-Q)

f10q_111413.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, 2013

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.)

1003 South Hugh Wallis Road Suite G-1 Lafayette, Louisiana 70508

(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 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 þ No o

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

As of November 8, 2013, there were 156,230,249 shares of the Registrant’s common stock outstanding.

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, 2013 included 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, 2013				December 31, 2012

ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	52,290		$	70,214
Restricted cash			104,611			136,358
Accounts receivable, net			1,345,623			1,830,090
Inventories			1,012,568			1,924,133
Prepaid expenses			76,498			571,716
Assets held for sale			522,232			-

Total current assets			3,113,822			4,532,511

Property and equipment, net of accumulated depreciation of $1,625,804 and $1,329,724, respectively			2,337,521			3,635,105
Other assets			72,822			105,537

Total assets		$	5,524,165		$	8,273,153

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable		$	3,711,887		$	2,422,470
Factoring payable			990,122			1,315,931
Accrued expenses			1,058,418			478,278
Due to related parties			180,692			137,291
Guarantee liability			120,000			120,000
Current maturities of convertible debentures, net of debt discount			709,682			100,164
Short-term debt			219,203			403,874
Current maturities of long-term debt			700,891			991,112
Current portion of capital lease obligation			240,509			236,043
Derivative liability			269,440			924,243

Total current liabilities			8,200,844			7,129,406

Long-term debt (less current maturities)			1,146,638			1,065,616
Long-term Convertible debentures, net of debt discount			-			12,659
Capital lease obligations (less current maturities)			99,555			277,523
Contingent consideration payable for acquisition of Turf			31,437			31,437
Deferred lease cost			17,000			23,000

Total liabilities			9,495,474			8,539,641

STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - $0.001 par value, 350,000,000 shares authorized, 156,230,249 and 150,830,249 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively			156,230			150,831
Preferred stock - $0.001 par value, 10,000,000 shares authorized in 2011, zero outstanding			-			-
Additional paid-in capital			20,094,735			19,142,847
Subscription receivable			(1,000	)		(1,000	)
Accumulated deficit			(24,221,274	)		(19,559,166	)

Total stockholders' equity (deficit)			(3,971,309	)		(266,488	)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)		$	5,524,165		$	8,273,153

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

ESP Resources, Inc.

Condensed Consolidated Statements of Operations

For the three and nine months ended September 30, 2013 and 2012

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
CONTINUING OPERATIONS

SALES, NET	$	2,382,792		$	4,084,840		$	7,907,292		$	13,578,298
COST OF GOODS SOLD		1,301,543			1,958,848			4,171,200			7,408,716

GROSS PROFIT		1,081,249			2,125,992			3,736,092			6,169,582

General and administrative		1,875,909			2,804,939			6,665,391			7,143,728
Depreciation and amortization		210,000			185,446			653,039			506,998
(Gain) Loss on disposal of assets		3,440			(10,000	)		333,996			(18,415	)

LOSS FROM CONTINUING OPERATIONS		(1,008,100	)		(854,393	)		(3,916,334	)		(1,462,729	)

OTHER INCOME (EXPENSE)
Interest expense		(113,799	)		(51,725	)		(317,135	)		(143,783	)
Factoring fees		(56,978	)		(162,680	)		(218,874	)		(377,032	)
Amortization of debt discount		(209,201	)		(11,128	)		(621,196	)		(65,058	)
Other income, net		4,003			1,648			11,630			4,611
Interest income		2			3,224			14			3,259
Change in derivative liability		72,549			-			654,803			-

Total other expense		(303,424	)		(220,661	)		(490,758	)		(578,003	)

LOSS FROM CONTINUING OPERATIONS		(1,311,524	)		(1,075,054	)		(4,407,092	)		(2,040,732	)

LOSS FROM DISCONTINUED OPERATIONS		(13,578	)		(9,838	)		(255,016	)		(88,664	)

NET LOSS	$	(1,325,102	)	$	(1,084,892	)	$	(4,662,108	)	$	(2,129,396	)


NET LOSS PER SHΑRE (basic and dilutеd) for discontinuеd opеrations	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
NET LOSS PER SHΑRE (basic and dilutеd) for continuеd opеrations	$	(0.01	)	$	(0.01	)	$	(0.03	)	$	(0.02	)
NET LOSS PER SHARE (basic and diluted)	$	(0.01	)	$	(0.01	)	$	(0.03	)	$	(0.02	)

WEIGHTED AVERAGE SHARES OUTSTANDING		153,922,557			125,118,317			152,052,776			119,151,656

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

ESP Resources, Inc.

Condensed Statement of Stockholders’ Equity

For the three and nine months ended September 30, 2013

(Unaudited)

	Common stock
	Number		Par Value		APIC		Subscription Receivable			Accumulated Deficit			Total
Balance, December 31, 2012		150,830,249		150,831		19,142,847		(1,000	)		(19,559,166	)		(266,488	)

Stock based compensation		5,250,000		5,249		939,080					-			944,329


Shares issued with notes payable		150,000		150		12,808								12,958


Net loss		-		-		-		-			(4,662,108	)		(4,662,108	)

Balance September 30, 2013		156,230,249	$	156,230	$	20,094,735	$	(1,000	)	$	(24,221,274	)	$	(3,971,309	)

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, 2013 and 2012

(Unaudited)

	September 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(4,662,108	)	$	(2,129,396	)
Adjustments to reconcile net loss to net cash used for operating activities:
Amortization of debt discount		621,196			65,058
(Gain) Loss on disposal of assets		333,996			(18,415	)
Depreciation and amortization, net disposals		674,457			515,686
Bad debt expense		45,000			43,112
Stock and warrant based compensation		957,287			1,149,925
Change in derivative liability		(654,803	)		-
Changes in operating assets and liabilities:
Accounts receivable		439,467			(708,054	)
Inventory		911,565			(382,557	)
Prepaid expenses		476,253			288,245
Other assets		39,680			(52,075	)
Accounts payable		1,289,722			1,339,589
Accrued expenses		561,079			(14,715	)
Accrued expense to related parties		90,557			(20,744	)

CASH PROVIDED BY (USED) IN OPERATING ACTIVITIES		1,123,348			75,659

CASH FLOWS FROM INVESTING ACTIVITIES
Restricted cash		31,747			(5,108	)
Proceeds from the sale of vehicle and equipment		134,721			12,500
Purchase of fixed assets		(149,390	)		(770,689	)

CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES		17,078			(763,297	)

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing on debt		50,150			130,000
Repayment of long term debt		(494,066	)		(291,950	)
Repayment of capital leases		(203,954	)		(104,045	)
Net factoring advances		(325,809	)		204,105
Borrowing on short-term debt		150,000			-
Repayment of short-term debt		(334,671	)		(219,513	)
Proceeds from sales of units in private placement, net		-			1,063,360
Proceeds from sale of stock		-			125,000

CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(1,158,350	)		906,957

NET CHANGE IN CASH		(17,924	)		219,319
CASH AT BEGINNING OF PERIOD		70,214			126,456

CASH AT END OF PERIOD	$	52,290		$	345,775

Supplemental Disclosures of Cash Flow Information
Cash paid for interest and factoring cost	$	494,130		$	502,058
Non-cash investing and financing transactions:
Notes issued for purchase of property and equipment	$	268,805		$	455,628
Notes issued for settlement of accounts payable		-			350,000
Debt discount on shares issued with convertible debt		-			71,291
Stock issued for accounts payable conversion		-			26,297
Value of capitalize lease issued		30,171			-
Trade-in of equipment		-			18,384
Sales leaseback of equipment		-			304,879

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, 2013

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 consolidated financial statements include the accounts of ESP Resources, Inc. and its wholly owned subsidiaries, ESP Petrochemicals, Inc. of Louisiana (“ESP Petrochemicals”), ESP Ventures, Inc. of Delaware (“ESP Ventures”), ESP Corporation, S.A., a Panamanian corporation (“ESP Corporation”) and ESP Payroll Services, Inc. of Nevada (“ESP Payroll”). On July 11, 2012 the Company formed two partially owned subsidiaries in Delaware, ESP Advanced Technologies, Inc., and ESP Facility & Pipeline Services, Inc. On December 19, 2012 the Company formed a partially owned subsidiary in Nevada, IEM, Inc.

On September 7, 2011, the Company became a 49% partner in a new entity, ESP Marketing, LLC. The Company’s management will direct the operations of the business and the Company will receive 80% of the profits. On July 11, 2012, the Company became a 60% partner in a new entity, ESP Facility and Pipeline Services, Inc. The Company’s management will direct the operations of the business and the Company will receive 60% of the profits. All significant inter-company balances and transactions have been eliminated in the consolidated financial statements.

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 subsidiaries indicated above, unless otherwise indicated.

Nature of the Business

The Company’s current business through its subsidiary ESP Petrochemicals, Inc. sells and blends chemicals for use in the oil and gas industry to customers primarily located in the Gulf of Mexico and Gulf States region. ESP Resources was previously in the business of acquisition and exploration of oil and gas properties in North and South America. ESP Delaware, which was incorporated in Delaware in November 2006, was formed as a holding company for ESP Petrochemicals, Inc. On June 15, 2007, ESP Delaware acquired all the stock of ESP Petrochemicals, Inc.

Use of Estimates

The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of consolidation

The consolidated financial statements include the accounts of ESP Resources and its wholly-owned and partially owned subsidiaries for the nine month period ended September 30, 2013 and the twelve months ended December 31, 2012. All significant inter-company transactions and balances have been eliminated in consolidation.

Restricted Cash

Under the terms of the Factoring payable, the Company may obtain advances of up to 100% of eligible accounts receivable, subject to a factoring fee of 0.75% per 15 days, with 10% held in a restricted cash reserve account, which is released to the Company upon payment of the receivable.

Accounts Receivable and Allowance for Doubtful Accounts

The Company generally does not require collateral, and the majority of its trade receivables are unsecured. The carrying amount for accounts receivable approximates fair value.

Accounts receivable consisted of the following as of September 30, 2013 and December 31, 2012:

	September 30, 2013			December 31, 2012

Trade receivables	$	1,429,623		$	1,868,090
Less: Allowance for doubtful accounts		(84,000	)		(38,000	)
Net accounts receivable	$	1,345,623		$	1,830,090

Accounts receivable are periodically evaluated for collectability based on past credit history with clients. Provisions for losses on accounts receivable are determined on the basis of loss experience, known and inherent risk in the account balance and current economic conditions.

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. During the quarter ended September 30, 2013 the Company evaluated the market value of inventory and reduced inventory approximately $214,000.

As of September 30, 2013 and December 31, 2012, inventory consisted of the following:

	September 30, 2013		December 31, 2012

Raw materials	$	423,785	$	744,149
Finished goods		588,783		1,179,984
Total inventory	$	1,012,568	$	1,924,133

Fair Value Measurements

The valuation of our embedded derivatives and warrant derivatives are determined primarily by the multinomial distribution (Lattice) model. An embedded derivative is a derivative instrument that is embedded within another contract, which under the convertible note (the host contract) includes the right to convert the note by the holder, certain default redemption right premiums and a change of control premium (payable in cash if a fundamental change occurs). In accordance with Accounting Standards Codification ("ASC") 815 “Accounting for Derivative Instruments and Hedging Activities”, as amended, these embedded derivatives are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. A warrant derivative liability is also determined in accordance with ASC 815. Based on ASC 815, warrants which are determined to be classified as derivative liabilities are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. The practical effect of this has been that when our stock price increases so does our derivative liability resulting in a non-cash loss charge that reduces our earnings and earnings per share. When our stock price declines, we record a non-cash gain, increasing our earnings and earnings per share. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, there exists a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

● Level 1

unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

● Level 2

inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

● Level 3

unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

To determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future events. Other factors used to determine fair value include our period end stock price, historical stock volatility, risk free interest rate and derivative term. The fair value recorded for the derivative liability varies from period to period. This variability may result in the actual derivative liability for a period either above or below the estimates recorded on our consolidated financial statements, resulting in significant fluctuations in other income (expense) because of the corresponding non-cash gain or loss recorded.

The following table sets forth the fair value hierarchy within our financial assets and liabilities by level that were accounted for at fair value on a recurring basis as of September 30, 2013.

			Fair Value Measurement at September 30, 2013
	Carrying Value at September 30, 2013		Level 1		Level 2		Level 3
Liabilities:
Derivative convertible debt liability	$	202,319	$	-	$	-	$	202,319
Derivative warrant liability	$	67,121	$	-	$	-	$	67,121
Total derivative liability	$	269,440	$	-	$	-	$	269,440

Concentration

The Company has three major customers that together account for 47% of accounts receivable at September 30, 2013 and 36% of the total revenues earned for the period ended September 30, 2013.

	Accounts Receivable			Revenue

Customer A		21	%		8	%
Customer B		16	%		27	%
Customer C		10	%		1	%
		47	%		36	%

The Company has three vendors that accounted for 16%, 16% and 10% of purchases for the nine months ended September 30, 2013.

The Company has three major customers that together account for 64% of accounts receivable at September 30, 2012 and 78% of the total revenues earned for the period ended September 30, 2012.

	Accounts Receivable			Revenue

Customer A		37	%		38	%
Customer B		17	%		22	%
Customer C		10	%		18	%
		64	%		78	%

The Company has two vendors that accounted for 68% and 13% purchases for the nine months ended September 30, 2012.

Reclassification

Certain accounts in the prior period were reclassified to conform to the current period’s financial statement presentation.

Note 2 – Going Concern

At September 30, 2013, the Company had cash and cash equivalents of $52,290 and deficit working capital of $5,087,022. The Company believes that its existing capital resources may not be adequate to enable it to execute its business plan. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. The Company estimates that it will require additional cash resources during 2013 based on its current operating plan and condition.

The Company expects cash flows from operating activities to improve, primarily as a result of an increase in revenue and a decrease in certain operating expenses, 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 – Factoring Payable

On May 24, 2011, ESP Petrochemicals entered into an accounts receivable financing agreement with Crestmark Commercial Capital Leading, LLC (“Crestmark”) with an initial term of nine months and renewing semi-annually thereafter. The agreement is in the subsequent renewal period. The Company may obtain advances of up to 90% of eligible accounts receivable, subject to a factoring fee of 0.75% per 15 days, with 10% held in a reserve account, which is released to the Company upon payment of the receivable. The agreement is subject to a master note, which limits borrowing to $2,000,000. The master note is payable upon demand, or if no demand is paid, with monthly payments of interest at 1.5%. All outstanding principal plus accrued unpaid interest is due on maturity of the note or when the related invoice is collected. The master note is secured by all inventory, accounts, general intangibles, and equipment of the Company. On March 2, 2012, Crestmark increased the borrowing limit to $3,000,000. On August 1, 2012, Crestmark increased the borrowing limit to $4,000,000. The total borrowing under the agreement at September 30, 2013 and December 31, 2012 was $990,122 and $1,315,931, respectively, with $104,611 and $136,358, respectively, held in restricted cash in the consolidated balance sheets.

Note 4 – Property and Equipment

Property and equipment includes the following at September 30, 2013 and December 31, 2012:

	September 30, 2013			December 31, 2012

Plant, property and equipment	$	1,354,108		$	1,813,884
Vehicles		1,594,305			2,068,292
Equipment under capital lease		955,779			929,466
Office furniture and equipment		59,132			153,187
		3,963,324			4,964,829
Less: accumulated depreciation		(1,625,803	)		(1,329,724	)
Net property and equipment	$	2,337,521		$	3,635,105

Depreciation expense for continuing operations was $653,039 and $506,998 and depreciation expense for discontinued operations was $21,418 and $8,688 for the nine month period ended September 30, 2013 and 2012, respectively.

On or around June 11, 2013, the Board of Directors decided to cease operations of its subsidiaries in the United States including ESP Advance Technologies Inc. and ESP Facilities and Pipeline Services Inc. and in Papua New Guinea including but not limited to operations through the joint venture ESP KUJV Limited. The Board determined that certain activities should be closed and that unused assets, principally vehicles and equipment, be sold. The Company estimated the fair value of those assets to be sold if the fair value was less than the net book value and reflected a loss on disposal of $46,850. The fair value of the remaining assets held for sale at September 30, 2013 is $522,233.

On June 7, 2013 the Company subleased the Company’s Houston Texas office, improvements and certain equipment to a non-related third party. The sublease became effective July 1, 2013 with the term of the sublease coinciding with the original lease by the Company. The Company determined the remaining lease cost plus amortization and depreciation on the remaining leasehold improvements and equipment exceeded the sublease income by $274,555 and reflected a loss on disposal.

On June 27, 2013 the Company relocated the Scott Louisiana office and production facility. The unamortized leasehold improvement cost of $18,152 of the Scott, LA facility was charged to amortization of leasehold improvements in the quarter.

Note 5- Short-Term Debt

On April 8, 2013, the Company executed a demand note for $150,000 with an annual interest rate of 8%. As part of the agreement the Company granted the holder 150,000 shares of Common Stock and warrants to purchase 150,000 shares of common stock at an exercise price of $0.15 per share (the “Warrants”) through April 8, 2014. The Company valued the Common Stock at $10,500 and the Warrants at $2,458 as stock compensation.

Note 6- Long-Term Debt

On February 28, 2013, the Company purchased a vehicle by issuing debt of $40,208 with an annual interest rate of 4.24% and a term of 36 months with payments of $1,194.

On February 1, 2013, the Company purchased vehicles by issuing debt of $71,469 with an annual interest rate of 4.24% and a term of 36 months with payments of $2,122.

On March 1, 2013, the Company purchased a vehicle by issuing debt of $54,256 with an annual interest rate of 4.24% and a term of 36 months with payments of $1,610.

On March 25, 2013, the Company purchased a vehicle by issuing debt of $56,358 with an annual interest rate of 4.24% and a term of 36 months with payments of $1,673.

On April 13, 2013, the Company borrowed $50,150 from a bank with an annual interest rate of 5.80 % and a term of 36 months with payments of $1,170.

On May 16, 2013, the Company purchased a vehicle by issuing debt of $46,514 with an annual interest rate of 4.69% and a term of 36 months with payments of $1,390.

Note 7 – Convertible Debentures

The following reflect the Convertible debentures for September 30, 2013 and December 31, 2012.

	September 30, 2013			December 31, 2012

On January 27, 2012, the Company received proceeds of $130,000 from the sale of 16% Convertible Subordinated Debentures. On March 1, 2013, June 1, 2013 and September 1, 2013, the Company shall redeem one quarter and one quarter and one half, respectively, of the face value of the balance of the Debentures	$	130,000		$	130,000
On November 14, 2012, the Company received proceeds of $1,000,000 from the sale of 16% Convertible Subordinated Debentures. Interest is due March 1, 2013, June 1, 2013 and September 1, 2013.		1,000,000			1,000,000

Total		1,130,000			1,130,000
Less debt discount		(420,318	)		(1,017,177	)
Less current maturities, net of debt discount		(709,682	)		(100,164	)
Total Long-term convertible debentures	$	-		$	12,659

On September 30, 2013 the Company agreed with certain of its convertible debenture holders to amend and restate the November 14, 2012 convertible debenture. The September 1, 2013 payment obligation was extended and deferred to $375,000 on December 1, 2013 and $625,000 on March 1, 2014 plus accrued interest; the conversion price was amended and restated to $0.05 from $0.085; the related Warrants exercise price per share of the Common Stock was amended and restated to $0.075 from $0.09. The Company evaluated the application of ASC 470-50, Modifications and Extinguishments and ASC 470-60, Trouble Debt Restructurings by Debtors and concluded that the revised terms constituted a troubled debt restructuring, rather than a debt extinguishment or debt modification. The amended and restated exercise price of the Warrant and Conversion price were valued as derivative instruments and were revalued at the fair market value of the derivative instruments at September 30, 2013, see Note 8. Pursuant to ASC 470-60, if the remaining debt is continued with a modification of terms, it is necessary to compare the total future cash flows of the restructured debt with the carrying value of original debt. If the total future cash flows of the restructured debt exceed the total carrying amount at the time of restructuring, no adjustment is made to the carrying value of the debt. The Company did not change the carrying amount of the debt as the total future cash payments are greater than the carrying value of the note.

On November 14, 2012, the Company received proceeds of $1,000,000 from the sale of 16% Convertible Subordinated Debentures. The Debentures are due on March 1, 2014. The aggregate principal amount of the combined Debentures is One Million Dollars ($1,000,000) with an interest rate of Sixteen Percent (16%) per annum. The interest is payable quarterly on March 1st, June 1st, September 1st, and December 1st, beginning on March 1, 2013. The Debentures are convertible at any time after the original issue date at a conversion price of $0.085 per share, subject to adjustments. The Company recorded a discount from the relative fair value of the conversion feature and the intrinsic value of the conversion option of $421,715. The Company estimated the fair value of these derivatives using a multinomial Distribution (Lattice) valuation model with the following assumptions: stock price of $0.07 on the measurement date; term of 1.5 years; expected volatility between 112% and 159%; and a discount rate of 0.22% accounted for as debt discount, which will be amortized over the term of the loan which expires March 1, 2014. The Company analyzed the conversion option under ASC 815 and determined and recorded a $449,840 derivative liability. The Company, in its sole discretion, may choose to pay interest in cash, shares of Common Stock, or in combination thereof. At the Company’s election, it may, at any time after the Six (6) month anniversary of the Transaction’s closing date, deliver a notice to the holders to redeem all of the then outstanding principal amount of the Debentures for cash. In the event the Company defaults, the outstanding principal amount of the Debentures, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the debenture holders’ election, immediately due and payable in cash.

In addition, the investors received 100% of the number of shares of common stock that the purchase amount would buy in warrants at the conversion price of $0.09, or a total of 11,764,706 warrants with a 5-year term. The Company recorded a discount from the relative fair value of the warrants and the intrinsic value of the conversion option of $208,685. The Company estimated the fair value of these derivatives using a multinomial Distribution (Lattice) valuation model with the following assumptions: stock price of $0.07 on the measurement date; warrant term of 5 years; expected volatility between 112% and 593%; and a discount rate of 0.63% accounted for as debt discount, which will be amortized over the term of the loan which expires March 1, 2014. The Company analyzed the warrants under ASC 815 and determined and recorded a $222,603 derivative liability.

The Debentures are secured by the remaining unencumbered assets of the Company. The Company’s subsidiary companies guaranteed the security agreement by agreeing to act as surety for the payment of the Debentures.

As further consideration for the Debentures, the Company issued a combined total of 4,000,000 shares of common stock to the investors. The Company recorded $299,600 as a debt discount at issuance and will amortize the debt discount over the term of the debt. For the year ended December 31, 2012, the Company amortized $5,912. The Company shall take all actions necessary to nominate and recommend shareholder approval for the appointment of One (1) director selected by Hillair Capital Management LLC to ESP’s Board of Directors. In conjunction with this debenture the Company paid $70,000 of professional fees and recorded these fees as debt discount to be amortized over the term of the debenture. The Company determined that the Debenture and warrant had derivative features and derivative liabilities were established for each (see Note 8).

Note 8 – Derivative Liability

The November 14, 2012 16% convertible debenture included down-round provisions that reduce the exercise price of a warrant and convertible instrument as required by ASC 815 “Derivatives and Hedging” if the Company either issues equity shares for a price that is lower than the exercise price of those instruments or issues new warrants or convertible instruments that have a lower exercise price. The Company evaluated whether its warrants and convertible debt instruments contain provisions that protect holders from declines in its stock price or otherwise could result in modification of either the exercise price or the shares to be issued under the respective warrant agreements. The Company determined that a portion of its outstanding warrants and conversion instruments contained such provisions thereby concluding they were not indexed to the Company’s own stock and therefore a derivative instrument.

The range of significant assumptions which the Company used to measure the fair value of warrant liabilities (a level 3 input) at September 30, 2013 is as follows:

	Warrant				Debenture

Stock price	$			0.02	$			0.02
Term (Years)				4.1				0.7
Volatility		123%	-	419%		123%	-	419%
Risk-free interest rate				0.22%				0.63%
Exercise prices		$0.075	to	$0.00649		$0.05	to	$0.0208
Dividend yield				0.00%				0.00%

The Company estimated the fair value of these derivatives using a multinomial Distribution (Lattice) valuation model. The fair value of these warrant liabilities at September 30, 2013 was $269,440 and at December 31, 2012 was $924,243. The change in fair value of derivative liabilities of $654,803 was included in the consolidated statement of operations for the nine months ended September 30, 2013.

Note 9 – Stockholders’ Equity

Common stock issued for services

On April 8, 2013, the Company executed a demand note for $150,000 with an annual interest rate of 8%. As part of the agreement the Company granted the holder 150,000 shares of Common Stock and warrants to purchase 150,000 shares of common stock at an exercise price of $0.15 through April 8, 2014. The Company valued the Common stock at $10,500 and the Warrants at $2,458 as stock compensation.

Warrants issued

The following table reflects a summary of Common Stock warrants outstanding and warrant activity during 2013 and for the nine month period ended September 30, 2013:

	Number of warrants		Weighted Average Exercise Price		Weighted Average Term (Years)

Warrants outstanding at December 31, 2012		57,942,278		0.17		1.20
Granted during the period		150,000		0.15		1.00
Exercised during period		-
Forfeited during the period		-		-
Warrants outstanding at September 30, 2013		58,092,278	$	0.17		0.84

The Common Stock warrants expire in years ended December 31 as follows:

Year	Amount

2013		-
2014		2,205,238
2015		43,122,334
2016		1,000,000
2017		11,764,706

Total		58,092,278

In addition to the above and for the nine month period ended September 30, 2013 and 2012 the Company amortized $349,797 and $634,628 of stock based compensation resulting from stock and warrants issued in previous periods.

Stock Option Awards

For the nine month period ended September 30, 2013 the Company did not grant any stock options. The Company has recognized compensation expense of $607,490 and $515,297 on the stock options granted in prior years that vested during the current period for the nine months ended September 30, 2013 and September 30, 2012, respectively. The fair value of the unvested shares is $1,566,328 as of September 30, 2013 with the total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over a weighted-average period of approximately 3 years. The aggregate intrinsic value of these options was $0 at September 30, 2013. Stock based compensation totaled $957,287 and $1,149,925 for the nine months ended September 30, 2013 and 2012, respectively.

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, 2012		52,975,000		$	0.11		6.58
Granted		-		$	-		-
Exercised		-		$	-		-
Expired/Forfeited		(45,000	)	$	0.14		-
Outstanding at September 30, 2013		52,930,000		$	0.11		5.06
Exercisable at September 30, 2013		24,862,000		$	0.11		5.06
Exercisable at December 31, 2012		24,907,000		$	0.11		5.06

Note 10 – Related Party Transactions

As of September 30, 2013 and December 31, 2012, the Company had balances due to related parties as follows:

	September 30, 2013		December 31, 2012
Due to officers	$	124,803	$	81,501
Due to ESP Enterprises	$	55,889	$	55,790

On July 10, 2012 the Company granted a total of 14,000,000 options to members of the Board of Directors, the options have a term of 10 years, an exercise price of $0.10 per share and vest at 20% per year and 250,000 options to a member of the Board of Directors, the option has an exercise price of $0.10 per share and vest immediately and used the Black-Scholes method to determine fair value. For the period from grant to September 30, 2013, $365,554 was recorded as stock based compensation.

On July 10, 2012, the Company granted 6,500,000 shares of restricted stock to the Company’s Chief Executive Officer, the shares were valued at $650,000 on the date of the grant. The restricted stock vests at a rate of 20% per year on the anniversary date of the grant and $162,500 was recorded as stock based compensation for the period from the grant date to September 30, 2013.

On November 23, 2012, the Company granted a total of 13,000,000 options to members of the Board of Directors, the options have a term of 10 years, an exercise price of $0.09 per share and vest at 20% every nine months and 1,000,000 options to a member of the Board of Directors, the option has an exercise price of $0.09 per share and vest immediately and used the Black-Scholes method to determine fair value. For the period from grant to September 30, 2013, $613,961 was recorded as stock based compensation.

On June 1, 2013, the Officers agreed to defer a portion of their salaries until such time as cash flow allowed. As of September 30, 2013, $26,667 has been deferred and reflected as a liability due to related parties.

Note 11 – Guarantee Liability

On November 3, 2008, ESP provided a guarantee to a director of Aurora and Boreal who loaned $120,000 to Aurora and Boreal. ESP provided this guarantee to encourage the director’s continued employment and commitment to the development of the concessions held by Aurora and Boreal, which the Company believed was vital to the future success of Aurora and Boreal. In the event that Aurora and Boreal did not repay the loan by the due date of June 1, 2009, ESP guaranteed it would make the payment in the form of a convertible note due June 1, 2011. The convertible note is non-interest bearing and is convertible into common stock of ESP at $1.20 per share. In exchange for issuing the convertible note to the director, ESP will receive the right to receive payments under the director’s note receivable from Aurora and Boreal.

ESP recorded the fair value of the guarantee liability at $48,000, which represented the fair value of the note receivable from Aurora and Boreal which ESP would take over from the director. On June 1, 2009 when Aurora and Boreal did not make the required payments on their notes payable to the director, ESP determined that the value of the guarantee liability should be increased to the full face amount of the guaranteed note of $120,000, resulting in a loss on guarantee liability of $72,000 during the year ended December 31, 2010. There have been no changes in the matter during 2011 and 2012 and the nine months ended September 30, 2013 hence the balance remains the same.

Note 12 – Discontinued operations

On or around June 11, 2013, the Board of Directors decided to cease operations of its subsidiaries in the United States including ESP Advance Technologies Inc. and ESP Facilities and Pipeline Services Inc. and in Papua New Guinea including but not limited to operations through the joint venture ESP KUJV Limited. The Board determined that certain activities should be closed and that unused assets, principally vehicles and equipment, be sold. The Company determined this action was a discontinued operation and those activities prior to this action were:

	For the three months ended September 30,						For the nine months ended September 30,
	2013			2012			2013			2012
DISCONTINUED OPERATIONS
Sales, net	$			$	376,619		$	258,328		$	773,973
Cost of goods sold		(1,462	)		(289,605	)		(124,761	)		(445,393	)
General and administrative		(12,116	)		(88,164	)		(333,775	)		(408,556	)
Potential loss on assets held								(33,390	)
Depreciation and amortization					(8,688)			(21,418	)		(8,688)

LOSS FROM DISCONTINUED OPERATIONS	$	(13,578	)		(9,838	)	$	(255,016	)	$	(88,664	)

Note 13 – Subsequent event

On October 9, 2013 the Company and one of its trade vendors agreed to convert its existing Accounts Payable balance with that vendor to a secure 5% note in the amount of $ 1,194,979 with monthly payments of $22,551 commencing on October 21, 2013 and continuing to September 21, 2018. The trade vendor agreed to subordinate its position to any provider of new debt, excluding a trade vendor.

On October 21, 2013 the Company and one of its holder of vehicle debt instruments to extend the period by an average of 2 months from the original final monthly payment and will pay $1,343 as extension or late payment penalty fee to the holder of the debt instruments.

The District Court of Caddo Parish, Louisiana entered a judgment in favor of Daniel Spencer and against ESP Advanced Technologies, Inc. on October 17, 2013 for $3,500,000 together with future interest from October 14, 2013, until paid, at a rate of 20% per annum for default after service.

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, 2012 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 1003 South Hugh Wallis Road Suite G-1 Lafayette, Louisiana 70508.

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.” 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.

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” and a new CUSIP number of 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.

Any reference herein to “ESP Resources”, the “Company”, “we”, “our” or “us” is intended to mean ESP Resources, Inc., a Nevada corporation, including our wholly-owned subsidiaries including, ESP Petrochemicals, Inc. of Louisiana (“ESP Petrochemicals”), ESP Ventures, Inc. of Delaware (“ESP Ventures”), ESP Corporation, S.A., a Panamanian corporation (“ESP Corporation”) and ESP Payroll Services, Inc. of Nevada (“ESP Payroll”), unless otherwise indicated and two partially owned subsidiaries, ESP Advanced Technologies, Inc. of Delaware, and ESP Facility & Pipeline Services, Inc. of Delaware.

Our Business

We are a custom formulator of specialty chemicals for the oil and gas industry. We offer analytical services and essential custom-blended chemicals for oil and gas wells, which improve production yields and overall efficiencies. Our 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 at the drilling site or well with a highly complex integration of chemicals and processes to achieve the highest level of quality petroleum output. Management believes our constant management of our chemical applications at the drilling site or well, continuous monitoring of the productivity and outflow levels of oil and gas and listening to our customers and their changing demands and applying our skills as chemical formulators enables us to measure the impact we have in our business.

We act as manufacturer, distributor and marketer of specialty chemicals and supply specialty chemicals for a variety of oil and gas field applications including killing bacteria, separating suspended water and other contaminants from crude oil, separating the oil from the gas, pumping enhancement, pumping cleaning, as well as a variety of fluids and additives used in the drilling and production process. At each well 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 wellhead 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.

Our customers are typically oil and gas exploration customers who plan and finance the well, drill the well and then operate the well through the point of full depletion. Of the various stages involved in the development of an oil and gas well, we offer our products and services in principally two main areas: completion petrochemicals and production petrochemicals.

Completion Petrochemicals

Our completion petrochemicals are primarily used during the completion stage of oil or gas wells that are drilled in various shale formations in the United States. After a well is drilled, we deliver a specialized chemical equipment trailer, or chemical delivery unit, that is used in the pumping of chemicals during the hydraulic fracturing process. Hydraulic fracturing, or fracking, is a technology used to inject a fluid into a well to create fractures in the minerals containing the oil or gas. Usually the fluid is water, sand, and chemical additives. Our chemical delivery units pump chemicals to treat the fluids used in the completion of the oil and gas wells during the fracking process. Each unit consists of a trailer mounted pumping system with associated power generation components, a chemical supply trailer, safety and spill prevention equipment, communication devices, and computerized reporting equipment.

The units pump treatment chemicals to eliminate the bacteria contamination present in the fluids used in the fracking process. We have developed a specialized chemical formulation that is intended to provide for a longer term bacteria-contamination elimination time frame than what is currently supplied by our competitors. The longer term time frame is designed to provide our customers significant cost savings in the removal treatment of contaminants from the oil and gas well-stream once the well has been placed into production.

Once the completion work is concluded at the well, which typically takes between 2-5 days, our chemical delivery units are moved out of the location and sent back to the appropriate district office for the next completion job.

Production Petrochemicals

After a well has been completed and placed into production, we supply production chemicals and services that are designed to be administered throughout the life of the well. Through the utilization of over 100 base chemicals, we replicate well conditions, analyze the properties of the well, determine the precise mix of chemicals to treat the well and then inject the chemicals in small batches via our specialized equipment. Our production petrochemicals include, but are not limited to, 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 wellhead;
●	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 wellhead 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.

Our first goal is to solve our customers’ problem at the well and optimize drilling or production and, secondly, the sale of product. Typically, our service personnel gathers information at a well and enter this data into the analytical system at each of our four (4) respective district offices located in Rayne, Louisiana; Pharr, Texas; Victoria, Texas and Longview, Texas. The analytical 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 period of 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 determined, 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 service, response times and chemical products that the Company strives 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 (a Baker Hughs company), Nalco Energy Services (an Ecolab company), Champion Technologies, Inc. (an Ecolab company), X-Chem, CESI Chemicals, Inc., BJ Services (a Baker Hughes company) and Multi-Chem Group (a Halliburton company). There are also many small to medium sized businesses that are regionally located. To be competitive in the industry, we will need to continually enhance and update our chemical processes and technologies that address the evolving needs of our customers for increased production efficiency. We continue to allocate resources toward the development of new chemical processes to maintain the efficacy of our technology and our ability to compete so that we can continue to grow our business.

Our competitive strategy 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 through the following competitive advantages:

●	Personalized service;
●	Expedited field analysis; and
●	Convenience and access to the best available market rates and products offered by our suppliers that we can produce and supply 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 resources and industry relationships. 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. As we continue to grow we anticipate that we will be able to obtain all necessary licenses and permits to carry on the activities, 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 business development. 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.

Continuing Operations for the Nine Month Period Ended September 30, 2013 Compared to Nine Month Period Ended September 30, 2012

The following table summarizes the results of our operations during the nine months ended September 30, 2013 and 2012, and provides information regarding the dollar and percentage increase or (decrease) from 2012 to 2013:

	Nine months Ended September 30,						$ Increase			% Increase
	2013			2012			(Decrease)			(Decrease)
Sales	$	7,907,292		$	13,578,298		$	(5,671,006	)		(42	)%
Cost of goods sold		4,171,200			7,408,716			(3,237,516	)		(44	)%
Gross profit		3,736,092			6,169,582			(2,433,490	)		(39	)%
Total general and administrative expenses		6,665,391			7,143,728			(478,337	)		(7	)%
Depreciation and amortization expense		653,039			506,998			146,041			29	%
Loss on disposal of assets		333,996			(18,415	)		352,411
Loss from operations		(3,916,334	)		(1,462,729	)		(2,453,605	)		168	%
Total other income (expense)		(490,758	)		(578,003	)		87,245			(15	)%
Net loss from continuing operations	$	(4,407,092	)	$	(2,040,732	)	$	(2,366,360	)		116	%

The following table summarizes the results of our operations during the three months ended September 30, 2013 and 2012, and provides information regarding the dollar and percentage increase or (decrease) from 2012 to 2013:

	Three months ended September 30,						$ Increase			% Increase
	2013			2012			(Decrease)			(Decrease)
Sales	$	2,382,792		$	4,084,840		$	(1,702,048	)		(42	)%
Cost of goods sold		1,301,543			1,958,848			(657,305	)		(34	)%
Gross profit		1,081,249			2,125,992			(1,044,743	)		(49	)%
Total general and administrative expenses		1,875,909			2,804,939			(929,030	)		(33	)%
Depreciation and amortization expense		210,000			185,446			24,554			13	%
Loss from disposal of assets		3,440			(10,000	)		13,440
Loss from operations		(1,008,100	)		(854,393	)		(153,707	)		18	%
Total other income (expense)		(303,424	)		(220,661	)		(82,763	)		38	%
Loss from continuing operations	$	(1,311,524	)	$	(1,075,054	)	$	(236,470	)		22	%

Sales

Sales were $7,907,292 for the nine months ended September 30, 2013, compared to $13,578,298 for the same period in 2012, a decrease of $5,671,006, or 42%. The decrease was mainly due to a $6,794,000 decreased sales volume from completion petrochemical sales and services to customers engaged in the hydraulic fracturing of oil and gas wells. This decrease occurred as a result of a slowdown in fracking activity by certain of the Company’s customers in and around the Company’s district office in Arkansas. In addition, as the Company’s customers shifted their hydraulic fracturing activity to other shale regions where the Company did not have any district offices, the Company was not able to recapture that fracking activity.

Sales were $2,382,792 for the three months ended September 30, 2013, compared to $4,084,840 for the same period in 2012, a decrease of $1,702,048, or 42%. The decrease was mainly due to a $2,550,000 decreased sales volume from completion petrochemical sales and services to customers engaged in the hydraulic fracturing of oil and gas wells. This decrease occurred as a result of a slowdown in fracking activity by certain of the Company’s customers in and around the Company’s district office in Arkansas. In addition, as the Company’s customers shifted their hydraulic fracturing activity to other shale regions where the Company did not have any district offices, the Company was not able to recapture that fracking activity.

Cost of Goods Sold and Gross Profit

Cost of goods sold was $4,171,200, or 53% of net sales, for the nine months ended September 30, 2013, compared to $7,408,716 or 55% of net sales, for the same period in 2012. Gross profit was $3,736,092, or 47% of net sales, for the nine months ended September 30, 2013, compared to $6,169,582, or 45% of net sales, for the same period in 2012. The 2% increase in gross profit for the nine month period in 2013 is the result of a decline in completion petrochemical sales from customers engaged in the hydraulic fracturing of oil and gas wells that has a lower gross profit margin than production petrochemical products sales.

Cost of goods was $1,301,543, or 55% of net sales, for the three months ended September 30, 2013, compared to $1,958,848 or 48% of net sales, for the same period in 2012. Gross profit was $1,081,249, or 45% of net sales, for the three months ended September 30, 2013, compared to $2,125,992, or 52% of net sales, for the same period in 2012.

General and Administrative Expenses

General and administrative expenses decreased by $478,348 for the nine months ended September 30, 2013, compared to the same period in 2012. The decreases were due to the staff and related cost for the Company’s development of an environmental group of approximately $105,000 compared to $0 for the same period in 2013 which operations were discontinued in April 2013, and the expenses related to the Houston office and ESP Facilities and Pipeline Services business compared to the same period in 2012, both of which were discontinued in June 2013.

General and administrative expenses decreased by $929,030 for the three months ended September 30, 2013, compared to the same period in 2012. The decrease in general and administrative expenses was primarily due to a reduction in legal costs related to the intellectual property suit that was settled in the fourth quarter of 2012.

Net loss from continuing operations

The Company’s net loss from continuing operations increased to $4,407,092 the nine months ended September 30, 2013, as compared to a net loss from continued operation of $2,040,732 for the same period in 2012. The primary reason for the increase in the net loss was due to a decrease in sales.

The Company’s net loss from continued operations increased to $1,311,524 for the three months ended September 30, 2013, as compared to a net loss from continued operations of $1,075,054 for the same period in 2012. The primary reason for the increase in the net loss was due to a decrease in sales.

Modified EBITDA

Modified Earnings before interest (including factoring fees), 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 three and nine months ended September 30, 2013 was ($507,478) and ($2,549,394) compared to ($185,827) and $110,130 for the same periods in 2012, changes of ($321,651) and ($2,659,524) respectively.

		Three months ended September 30					Nine months ended September 30,
		2013			2012		2013			2012
Net loss	$	(1,325,102	)	$	(1,084,892	)	$	(4,662,108	)	$	(2,129,396	)
Add back interest and factoring expense, net of interest income		170,773			198,182			535,995			517,545
Add back depreciation and amortization		210,000			185,446			653,039			506,998
Add back amortization debt discount		209,201			11,128			621,196			65,058
Add back stock-based compensation		300,199			504,309			957,287			1,149,925
Add back change in derivative liability		(72,549	)		-			(654,803	)		-
Modified EBITDA	$	(507,478	)	$	(185,827	)	$	(2,549,394	)	$	110,130

Cash Flow Used by Operating Activities

Operating activities provided cash of $1,123,348 for the nine months ended September 30, 2013, compared to cash of $75,632 for the same period in 2012. The increase in cash provided by operations during the nine months ended September 30, 2013 was primarily due to an increase in accounts payable, non-cash charges for amortization of debt discount, depreciation and stock based compensation that were partially offset by increases in accounts receivable and inventory.

Cash Flow Used in Investing Activities

Investing activities provided cash of $17,078 for the nine month period ended September 30, 2013, compared to a use of cash of ($763,297) for the nine month period ended September 30, 2012. The increase in net cash provided in investing activities during the nine months ended September 30, 2013 was a result of the cash provided from vehicle and equipment sales in comparison to the used of cash 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 the prior period.

Cash Flow Provided by Financing Activities

Financing activities used cash of ($1,158,350) for the nine months period ended September 30, 2013, compared to cash provided of $906,957 for the nine months ended September 30, 2012. The net use of cash generated from financing activities during the nine months ended September 30, 2013, was a result of repayment of debt, capital leases and factoring advances.

Liquidity and Capital Resources

As of September 30, 2013, our total assets were $5,524,165 and our total liabilities were $9,495,474. We had cash of $52,290, current assets of $3,113,822, and current liabilities of $8,200,844 as of September 30, 2013. We had working capital of ($5,087,022) on that date. We will require additional capital to fund our losses and working capital deficits and to grow our business to recapture our decline in sales. For this most recent quarter, we remained dependent on our working capital lines and extended credit terms with our vendors to meet our cash requirements. We expect this situation to continue for the foreseeable future until we are able to raise additional capital on acceptable terms. While we anticipate further increases in operating cash flows, we will continue to require additional capital through equity financing and/or debt financing, if available, 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 and/or unable to grow our sales at a level where we can become profitable.

Working Capital

We estimate that our general operating expenses for the next twelve month period will decrease as we focus on reducing expenses and achieving profitability based on our current level of sales. Professional and consulting fees, administrative 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 are expected to remain the same. Any increase in field operating expenses will be due to increases in field operating personnel, travel and other sales support expenses only as the demands from current and new and existing customers increase.

Cash Requirements

Our plan of operations for the next 12 months involves the growth of our production petrochemical business and to recapture our completion petrochemical business through the expansion of regional sales, and the research and development of new chemical and analytical services. As of September 30, 2013, our Company had cash of $52,290 and a working capital deficit of $5,087,022.

We incurred a net loss of $4,662,108 for the nine month period ended September 30, 2013. We estimate that our needs for additional capital to fund our working capital deficits, become current with our vendors and implement our growth plans for the next twelve month period to be $3,000,000 to $5,000,000. However, if any growth and expansion requires more capital and 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 been dependent on debt financing and special payment terms with our vendors 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 additional capital or that actual cash requirements will not exceed our estimates. These funds may be raised through equity financing and/or debt financing 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 and/or unable to grow our sales at a level where we can become profitable.

We can offer no assurance that our company will generate cash flow sufficient to continue our growth, achieve consistently profitable operations or that we can meet or 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 our operations.

Going Concern

Due to our net losses, negative cash flow and negative working capital as of December 31, 2012, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern in their report on our audited financial statements for the year ended December 31, 2012.

Since inception, we have incurred losses and through September 30, 2013 totaling $24,221,274. Because of these historical losses, we will require additional working capital to develop our business operations. We intend to raise additional working capital on the most commercially reasonable terms through private placements, bank financing and/or advances from related parties or shareholder loans.

The continuation of our business is dependent upon obtaining further financing and achieving consistently profitable 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 profitability. To the extent that funds generated from operations and any private placements 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 be able to grow our business and increase cash flow from 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, 2012.

ITEM 3. – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. – 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, 2013, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company’s management, including our President and Chief Executive Officer. Based upon that evaluation, our President and Chief Executive Officer concluded that the company’s disclosure controls and procedures are effective as of 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

Breach of Contract

Alfredo Ledesma and Turf Chemistry, Inc. filed a petition complaining of a breach of contract by ESP Resources, Inc., ESP Petrochemicals, Inc. and Gerard Allen Primeaux (collectively “ESP”) on January 23, 2012 in the District Court of Hidalgo County, Texas for an unknown amount. Plaintiffs claim that ESP failed to satisfy the terms of an acquisition agreement entered into whereby ESP agreed to acquire the assets and liabilities of Plaintiffs. The lawsuit is currently in the discovery phase.

Internal Revenue Service

The Internal Revenue Service (“IRS”) has alleged ESP Ventures, Inc. and ESP Petrochemicals, Inc., the Company’s subsidiaries, have failed to pay certain of their payroll taxes. The subsidiaries are working with the IRS to reach a mutually beneficial agreement.

Judgment

Trade Secret Infringement

On March 2, 2012, the Company filed a trade secret infringement lawsuit to protect its rights against a former employee, a competitor and the officers of the competitor. The petition ESP Petrochemicals, Inc. v. Shane Cottrell, Platinum Chemicals, LLC, Ladd Naquin, Andjoe Lauer was filed in the district court of Victoria County, Texas 24th Judicial District and was amended on April 20, 2012. On October 1, 2012, we settled this suit. As a result of the settlement, the other parties must refrain from contact in specified areas with our customers and employees.

ITEM 2. – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. – MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. – OTHER INFORMATION

None.

ITEM 6. - EXHIBITS

(a)

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		Amended and Restated Bylaws (incorporated by reference from our Proxy Statement filed on Janary 24, 2013)

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)

10.11		Security Purchase Agreement for 16% Subordinated Convertible Debenture Agreement and warrants

10.12		Confidential Private Placement Memorandum for Accredited Investors Only dated May 15, 2012 and Warrant Agreement

10.13		Employment Agreement Robert Geiges as Chief Financial Officer dated January 4, 2013

10.14		Resignation Notification from Robert Geiges as Chief Financial Officer received May 13, 2013, effective May 15, 2013.

10.15		Resignation Notification from William Cox as Board Member received May 13, 2013.

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 18, 2013	By:	/s/ David Dugas
		David Dugas
		Chief Executive Officer and Director
		(Principal Executive Officer)

	ESP RESOURCES, INC.

Date: November 18, 2013	By:	/s/ David Dugas
		David Dugas
		Chief Financial Officer
		(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 18, 2013	By:	/s/ David Dugas
		David Dugas
		Chief Executive Officer and Director
		(Principal Executive Officer)

Date: November 18, 2013	By:	/s/ Tony Primeaux
		Tony Primeaux
		Secretary and Director