ESP Resources, Inc. - Quarter Report: 2013 March (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 March 31, 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.)

9595 Six Pines Drive Suite 6305 The Woodlands, Texas 77380

(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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 151,080,249 common shares issued and outstanding as of May 10, 2013.

PART I - FINANCIAL INFORMATION

ITEM 1. – FINANCIAL STATEMENTS

It is the opinion of management that the interim financial statements for the quarter ended March 31, 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)

	March 31,			December 31,
	2013			2012
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	202,344		$	70,214
Restricted cash		166,384			136,358
Accounts receivable, net		1,983,978			1,830,090
Inventories		1,797,202			1,924,133
Prepaid expenses		321,560			571,716

Total current assets		4,471,468			4,532,511

Property and equipment, net of accumulated depreciation of $1,568,986 and $1,329,724, respectively		3,836,797			3,635,105
Other assets		99,032			105,537

Total assets	$	8,407,297		$	8,273,153

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	3,166,621		$	2,422,470
Factoring payable		1,593,928			1,315,931
Accrued expenses		535,991			478,278
Due to related parties		121,589			137,291
Guarantee liability		120,000			120,000
Current matutities of Convertible debentures, net of debt discount		312,932			100,164
Short-term debt		289,733			403,874
Current maturities of long-term debt		1,069,031			991,112
Current portion of capital lease obligation		254,669			236,043
Derivative liability		688,175			924,243

Total current liabilities		8,152,669			7,129,406

Long-term debt (less current maturities)		1,062,554			1,065,616
Long-term Convertible debentures, net of debt discount		-			12,659
Capital lease obligations (less current maturities)		299,836			277,523
Contingent consideration payable for acquisition of Turf		31,437			31,437
Deferred lease cost		18,000			23,000

Total liabilities		9,564,496			8,539,641

STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - $0.001 par value, 350,000,000 shares authorized, 151,580,249 and 150,830,249 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively		151,581			150,831
Preferred stock - $0.001 par value, 10,000,000 shares authorized in 2011, zero outstanding		-			-
Additional paid-in capital		19,539,779			19,142,847
Subscription receivable		(1,000	)		(1,000	)
Accumulated deficit		(20,847,559	)		(19,559,166	)

Total stockholders' equity (deficit)		(1,157,199	)		(266,488	)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	8,407,297		$	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 months ended March 31, 2013 and 2012

(Unaudited)

	March 31,
	2013			2012

SALES, NET	$	3,720,447		$	4,289,985
COST OF GOODS SOLD		1,867,226			2,226,523

GROSS PROFIT		1,853,221			2,063,462

General and administrative		2,750,784			2,141,820
Depreciation and amortization		239,262			151,580
(Gain) Loss on disposal of assets		-			4,085

LOSS FROM OPERATIONS		(1,136,825	)		(234,023	)

OTHER INCOME (EXPENSE)
Interest expense		(98,226	)		(42,641	)
Factoring fees		(86,778	)		(109,731	)
Amortization of debt discount		(205,886	)		(10,479	)
Other income, net		3,245			1,473
Interest income		9			21
Change in derivative liability		236,068

Total other expense		(151,568	)		(161,357	)

NET LOSS	$	(1,288,393	)	$	(395,380	)


NET LOSS PER SHARE (basic and diluted)	$	(0.01	)	$	(0.00	)

WEIGHTED AVERAGE SHARES OUTSTANDING		151,494,138			110,151,678

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 months ended March 31, 2013

(Unaudited)

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

Stock based compensation		750,000		750		396,932					-			397,682

Net loss		-		-		-		-			(1,288,393	)		(1,288,393	)

Balance March 31, 2013		151,580,249	$	151,581	$	19,539,779	$	(1,000	)	$	(20,847,559	)	$	(1,157,199	)

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 three months ended March 31, 2013 and 2012

(Unaudited)

	March 31,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,288,393	)	$	(395,380	)
Adjustments to reconcile net loss to net cash
used for operating activities:
Amortization of debt discount		205,886			10,479
(Gain) Loss on disposal of assets		-			4,085
Depreciation and amortization, net disposals		239,262			151,580
Bad debt expense		21,000			9,000
Stock and warrant based compensation		397,682			314,746
Change in derivative liability		(236,068	)		-

Changes in operating assets and liabilities:
Accounts receivable		(174,888	)		(130,286	)
Inventory		126,931			(109,627	)
Prepaid expenses		250,156			119,097
Other assets		505			(30,144	)
Accounts payable		744,151			215,512
Accrued expenses		52,715			(8,314	)
Accrued expense to related parties		(15,703	)		(18,272	)

CASH PROVIDED BY OPERATING ACTIVITIES		323,236			132,476

CASH FLOWS FROM INVESTING ACTIVITIES
Restricted cash		(30,026	)		33,521
Purchase of fixed assets		(113,643	)		(105,673	)

CASH USED IN INVESTING ACTIVITIES		(143,669	)		(72,152	)

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing on debt		-			130,000
Repayment of long term debt		(147,211	)		(208,414	)
Repayment of capital leases		(64,082	)		(27,126	)
Repayment of short-term debt		(114,141	)		-
Net factoring advances		277,997			(55,515	)
Proceeds from sales of units in private placement, net		-			125,000

CASH USED IN FINANCING ACTIVITIES		(47,437	)		(36,055	)

NET INCREASE IN CASH		132,131			24,269
CASH AT BEGINNING OF PERIOD		70,214			126,456

CASH AT END OF PERIOD	$	202,344		$	150,725

Supplemental Disclosures of Cash Flow Information
Cash paid for interest and factoring cost	$	180,504		$	138,847
Non-cash investing and financing transactions:
Notes issued for purchase of property and equipment	$	222,291		$	91,668
Debt discount on shares issued with convertible debt		-			71,291
Stock issued for accounts payable conversion		-			26,297
Value of capitalize lease issued		105,021			-

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

ESP Resources, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 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 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 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 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 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 previously was 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 of 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 three month period ended March 31, 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 up to 100 percent of eligible accounts receivable, subject to a 0.75 percent per 15 days factoring fee, with ten percent 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 March 31, 2013 and December 31, 2012:

	As of March 31, 2013			As of December 31, 2012

Trade receivables	$	2,042,978		$	1,868,090
Less: Allowance for doubtful accounts		(59,000	)		(38,000	)
Net accounts receivable	$	1,983,978		$	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.

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

	As of March 31, 2013		As of December 31, 2012

Raw materials	$	860,177	$	744,149
Finished goods		937,025		1,179,984
Total inventory	$	1,797,202	$	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 and 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 by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2013.

	Carrying Value at		Fair Value Measurement at March 31, 2013
	March 31, 2013		Level 1		Level 2		Level 3
Liabilities:
Derivative convertible debt liability	$	437,332	$	-	$	-	$	437,332
Derivative warrant liability	$	250,843	$	-	$	-	$	250,843
Total derivative liability	$	688,175	$	-	$	-	$	688,175

Concentration

The Company has three major customers that together account for 47% of accounts receivable at March 31, 2013 and 59% of the total revenues earned for the period ended March 31, 2013.

	Accounts
	receivable			Revenue

Customer A		24	%		17	%
Customer B		13	%		21	%
Customer C		10	%		21	%
		47	%		59	%

The Company has two vendors that accounted for 36% and 18% of purchases for the three months ended March 31, 2013.

The Company has three major customers that together account for 53% of accounts receivable at March 31, 2012 and 73% of the total revenues earned for the period ended March 31, 2012.

	Accounts
	receivable			Revenue

Customer A		24	%		20	%
Customer B		22	%		27	%
Customer C		7	%		26	%
		53	%		73	%

The Company has two vendors that accounted for 61% and 16% purchases for the three months ended March 31, 2012.

Reclassification

Certain accounts in the prior period were reclassified to conform to the current period financial statements presentation.

Note 2 – Going Concern

At March 31, 2013, the Company had cash and cash equivalents of $202,344 and deficit working capital of $3,681,201. 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 six months and renewing semi-annually thereafter. The agreement is in the subsequent renewal period. The Company may obtain advances up to 90 percent of eligible accounts receivable, subject to a 0.75 percent per 15 days factoring fee, 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 March 31, 2013 and December 31, 2012 was $1,593,928 and $1,315,931, respectively, with $166,384 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 March 31, 2013 and December 31, 2012:

	As of March 31, 2013			As of December 31, 2012

Plant, property and equipment	$	1,882,816		$	1,813,884
Vehicles		2,335,393			2,068,292
Equipment under capital lease		1,034,487			929,466
Office furniture and equipment		153,187			153,187
		5,405,883			4,964,829
Less: accumulated depreciation		(1,569,086	)		(1,329,724	)
Net property and equipment	$	3,836,797		$	3,635,105

Depreciation expense was $239,262 and $151,580 for the three month period ended March 31, 2013 and 2012, respectively.

Note 5- Long Term Debt

Long term debt consisted of the following at March 31, 2013 and December 31, 2012:

	As of March 31, 2013		As of December 31, 2012
Note payable dated January 1, 2010.The note bears interest at 12.00 per annum and is payable in installments of $150, maturing January 2013. The note is secured by equipment.	$	0	$	89
Note payable for the purchase of a vehicle dated October 19, 2010. The note bears interest at 9.49 percent per annum and is payable in installments of $1,072 maturing in November 2015. The note is secured by a vehicle.		30,212		32,672
Note payable for the purchase of a vehicle dated April 1, 2010. The note bears interest at 7.5 percent per annum and is payable in installments of $872 maturing in January 2015. The note is secured by a vehicle.		19,745		21,959
Unsecured notes payable. The notes bear interest at 5 percent per annum and are due between September 30, 2012 and July 22, 2013		273,000		273,000
Unsecured promissory note payable in connection with the drilling program. The note bears interest at 5 percent per annum and was due April 30, 2009. The note has been extended indefinitely.		86,968		86,968
On November 10, 2009, the Company borrowed $52,186 for the purchase of a vehicle. The note bears interest at 4.90% per year, is secured by the vehicle purchased and is payable in 60 monthly payments of $982.		18,806		21,501
On November 10, 2009, the Company borrowed $57,372 for the purchase of a vehicle. The note bears interest at 6.25% per year, is secured by the vehicle purchased and is payable in 60 monthly payments of $1,118.		21,057		24,214
On February 15, 2011, the Company borrowed $102,402 for the purchase of a vehicle. The note bears interest at 7.9% per year, is secured by the vehicle purchased and is payable in 48 monthly payments of $1,214.		51,222		57,652
On March 11, 2011, the Company borrowed $166,387 for the purchase of a vehicle. The note has an implied interest at 3.0% per year, is secured by the vehicle purchased and is payable in 48 monthly payments of $3,466.		83,081		93,480
On March 15, 2011, the Company borrowed $62,067 for the purchase of a vehicle. The note has an implied interest at 3.0% per year, is secured by the vehicle purchased and is payable in 60 monthly payments of $1,035.		37,240		40,344
On April 9, 2011, the Company borrowed $76,507 for the purchase of a vehicle. The notes has an implied interest at 3.0% per year, is secured by the vehicle purchased and is payable in 60 monthly payments of $1,376.		49,833		53,570
On April 30, 2011, the Company borrowed $42,275 for the purchase of a vehicle. The note bears interest at 7.9% per year, is secured by the vehicle purchased and is payable in 60 monthly payments of $858.		28,760		30,740

On May 24 and May 29, 2011, the Company borrowed $95,074 for the purchase of vehicles. The notes bear interest at 3.0% per year, is secured by the vehicles purchased and is payable in 60 Monthly payments of $1,705.	63,317	67,947
On July 20, 2011 the Company borrowed $31,690 for the purchase of equipment. The notes bear interest at a range of 10.5% to 12.0% per year, is secured by the equipment purchased and is payable in 36 monthly payments of $1,039.	15,302	17,953
On July 28, 2011, the Company borrowed $116,416 for the purchase of vehicle. The note bear interest at 6.74% per year, is secured by the vehicle purchased and is payable in 36 monthly payments of $3,581.	54,652	64,376
On August 13, 2011, the Company borrowed $60,229 for the purchase of vehicle. The note bear interest at 7.74% per year, is secured by the vehicle purchased and is payable in 60 monthly payments of $1,217.	43,733	46,515
On October 4, 2011, the Company borrowed $40,225 for the purchase of a vehicle. The note bears interest at 5.9% per year, is secured by the vehicle purchased and is payable in 36 monthly payments of $1,224.	22,063	25,378
On October 28, 2011, the Company borrowed $38,733 for the purchase of a vehicle. The note has an implied interest of 3.0% per year, is secured by the vehicle purchased and is payable in 36 monthly payments of $1,076.	21,518	24,746
On November 2, 2011, the Company borrowed $34,058 for the purchase of a vehicle. The note bears interest at 6.4% per year, is secured by the vehicle purchased and is payable in 36 monthly payments of $1,045.	19,678	22,468
On November 30, 2011, the Company borrowed $62,684 for the purchase of a vehicle. The note bears interest at 6.4% per year, is secured by the vehicle purchased and is payable in 36 monthly payments of $1,923.	37,941	43,049
On November 21, 2011, the Company borrowed $39,540 for the purchase of a vehicle. The note has an implied interest of 3.0% per year, is secured by the vehicle purchased and is payable in 36 monthly payments of $1,098.	23,065	26,360
On January 30, 2012, the Company purchased a vehicle by issuing debt of $59,744 with an annual interest rate of 6.4% and a term of 36 months.	39,412	44,229
On March 19, 2012 the Company purchased a vehicle by issuing debt of $50,328 with an annual interest rate of 5.9% and a term of 36 months and payments of 1,532.	35,839	39,868
On May 7, 2012, the Company purchased vehicles by issuing debt of $ 106,253 with an annual interest rate of 6.4% and a term of 36 months and payments of $3,260.	81,486	89,874
On May 29, 2012, the Company purchased a vehicle by issuing debt of $49,004 with an annual interest rate of 6.4% and a term of 36 months with payments of $1,500.	37,609	41,468

On May 25, 2012, the Company reach agreement with a Vendor to exchange payable for a term debenture of $450,000 with an annual interest rate of prime plus 1.5% payable monthly of $10,000 plus interest.		374,751			394,751
On June 15, 2012, the Company purchased a vehicle by issuing debt of $46,115 with an annual interest rate of 4.74% and a term of 36 months with payments of $1,379.		36,403			40,081
On July 14, 2012, the Company purchased a vehicle by issuing debt of $57,082 with an annual interest rate of 5.89% and a term of 36 months with payments of $1,738.		46,729			51,210
On August 17, 2012, the Company purchased a vehicle by issuing debt of $46,651 with an annual interest rate of 4.74% and a term of 36 months with payments of $1,395.		38,071			41,777
On September 4, 2012, the Company purchased a vehicle by issuing debt of $40,451 with an annual interest rate of 5.89% and a term of 36 months with payments of $1,094.		31,317			34,111
On October 24, 2012, the Company purchased a vehicle by issuing debt of $40,248 with an annual interest rate of 4.24% and a term of 36 months with payments of $1,067.		32,169			35,008
On October 20, 2012, the Company purchased equipment by issuing debt of $101,448 with an annual interest rate of 7.15% and a term of 36 months with payments of $2,522.		73,203			79,385
On November 24, 2012, the Company purchased a vehicle by issuing debt of $43,539 with an annual interest rate of 4.24% and a term of 36 months with payments of $1,159.		35,967			39,039
On December 5, 2012, the Company purchased a vehicle by issuing debt of $56,822 with an annual interest rate of 4.24% and a term of 36 months with payments of $1,505.		48,065			50,945
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		39,156			-
On February1, 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.		69,600			-
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.		54,256			-
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.		56,357			-

Total		2,131,585			2,056,728
Less current maturities		(1,069,031	)		(991,112	)
Total long-term debt	$	1,062,554		$	1,065,616

Maturities are as follows:

2014	$	1,069,031
2015		662,056
2016		385,069
2017		15,429

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.

Note 6 – Capitalized leases

ESP Petrochemicals leases certain office equipment, warehouse equipment special purpose equipment and vehicles under capital leases. Long term capitalize lease consisted of the following at March 31, 2013:

	Year		Borrowing		Term in months		Monthly payment			As of March 31, 2013

Warehouse equipment	2013		$	26,313		36		$	731		25,242
Vehicles		2009-2011	$	368,766		21-72	$	$	887-1,905		110,782
Office equipment		2011	$	10,140		24		$	260		5,720
Special purpose equipment		2011-2012	$	483,092		36		$	1,692-3,702		337,905
Special purpose equipment		2013	$	78,708		48		$	1,534		74,856

Total capital lease											554,505
less current portion											(254,669	)
Total long-term capital lease										$	299,836

The future payments under the capital lease are as follows:

2014	$	254,669
2015	$	207,480
2016	$	56,920
2017	$	35,436

Note 7 – Convertible debentures

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

	As of March 31, 2013			As of 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, 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		(817,068	)		(1,017,177	)
Less current maturities, net of debt discount		(312,932	)		(100,164
Total Long-term convertible debentures	$	-		$	12,659

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 on the measurement date of $0.07; term of 1.5 years; expected volatility between 112% 159%; and discount rate of 0.22% and accounted for them 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 $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 on the measurement date of $0.07; warrant term of 5 years; expected volatility between 112%-593%; and discount rate of 0.63% and accounted for them 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 as a debt discount $299,600 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 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 instrument 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 March 31, 2013 is as follows:

	Warrant			Debenture

Stock price	$	0.10		$	0.10
Term	4.6 Years			1.2Years
Volatility		115%-419	%		115% -156	%
Risk-free interest rate		0.22	%		0.63.	%
Exercise prices	$	0.085 to $0.00336		$	0.085 to $0.0645
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 March 31, 2013 was $688,175 and at December 31, 2012 was $924,243. The change in fair value of derivative liabilities of $236,068 was included in the consolidated statement of operations for the three months ended March 31, 2013.

Note 9 – Stockholders’ Equity

Common stock issued for services

On January 4, 2013, the Board of Directors appointed Robert Geiges, as Chief Financial Officer of ESP Resources, Inc. Mr. Geiges’s employment agreement commences on January 21, 2013 and will last for One (1) year with an option to renew. During the first year of his contract Mr. Geiges will receive 500,000 shares of restricted common stock and an additional 500,000 shares of restricted common stock for each year the employment agreement is renewed for up to three additional one-year terms. If the Company does not renew his employment agreement, Mr. Geiges will receive 500,000 shares of restricted common stock upon the fulfillment of the employment term. These shares were valued at $50,000 and were recorded as stock based compensation.

On January 23, 2013, the Company issued 250,000 shares of its common stock to a vendor for settlement of accrued expenses related to services rendered. These shares were valued at $20,000 and were recorded as stock based compensation.

Warrants issued

The following table reflects a summary of Common Stock warrants outstanding and warrant activity during 2012 and for the three month period ended March 31, 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		-			-		-
Exercised during period		-
Forfeited during the period		(-	)		-
Warrants outstanding at March 31, 2013		57,942,278		$	0.17		1.00

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

Year	Amount

2013		-
2014		2,055,238
2015		43,122,334
2016		1,000,000
2017		11,764,706

Total		57,942,278

Stock Option Awards

For the three month period ended March 31, 2013 the Company did not grant any stock options. The Company has recognized compensation expense of $206,890 and $199,696 on the stock options granted in prior years that vested during the current period for the three months ended March 31, 2013 and March 31, 2012, respectively. The fair value of the unvested shares is $1,966,928 as of March 31, 2013. In addition to the above and for the three month period ended March 31, 2013 and 2012 the Company amortized $120,792 and $115,050 of stock based compensation resulting from stock and warrants issued in previous periods.

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		(20,000	)		0.14		-
Outstanding at March 31, 2013		52,955,000			0.11		6.33
Exercisable at March 31, 2013		24,907,000		$	0.13		6.33
Exercisable at December 31, 2012		24,907,000		$	0.13		6.33

As of March 31, 2013, there was approximately $1,966,928 of 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 March 31, 2013.

Note 10 – Related Party Transactions

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

	March 31,		December 31,
	2013		2012
Due to officer	$	65,799	$	81,501
Due to ESP Enterprises	$	55,790	$	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 March 31, 2013 $205,008 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 $$32,500 was recorded as stock based compensation for the period from the grant date to March 31, 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 six 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 March 31, 2013 $319,691 was recorded as stock based compensation.

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 to 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 three months ended March 31, 2013 hence the balance remains same.

Note 12 – Subsequent event

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.

On May 13, 2013, the Company received notice that our Chief Financial Officer, Robert Geiges is resigning effective May 15, 2013. A copy of his resignation notice is included as an exhibit and filed herewith. His resignation is not due to any disputes with the Company. David Dugas will fulfill the duties of Chief Financial Officer.

On May 13, 2013, the Company received notice that William Cox, a member of the Board of Directors resigned. A copy of his resignation notice is included as an exhibit and filed herewith. His resignation is not due to any disputes with the Company.

ITEM 2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements as that term is defined in Section 27A of the United States Securities Act of 1933 and Section 21E of the United States Securities Exchange Act of 1934. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” 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 9595 Six Pines Drive, Suite 6305, The Woodlands, TX 77380.

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 exists 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 six (6) respective district offices located in Scott, Louisiana; Pharr, Texas; Victoria, Texas; Guy, Arkansas; Longview, Texas; and Marlow, Oklahoma. 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.

Three Month Period Ended March 31, 2013 Compared to Three Month Period Ended March 31, 2012

The following table summarizes the results of our operations during the three months ended March 31, 2013 and 2012, and provides information regarding the dollar and percentage increase or (decrease) from 2012 to 2013:

	Three months Ended March 31,						$ Increase			% Increase
	2013			2012			(Decrease)			(Decrease)
Sales	$	3,720,447		$	4,289,985		$	(569,538	)		(13)	%
Cost of goods sold		1,867,226			2,226,523			(359,297	)		(16)	%
Gross profit		1,853,221			2,063,462			(210,241	)		(10)	%
Total general and administrative expenses		2,750,784			2,141,820			608,964			28	%
Depreciation and amortization expense		239,262			151,580			87,682			58	%
Gain on
Loss from operations		(1,136,825	)		(234,023	)		(902,802	)		386	%
Total other income (expense)		(151,568	)		(161,357	)		9,789			(6)	%
Net loss	$	(1,288,393	)	$	(395,380	)	$	(893,013	)		226	%

Sales

Sales were $3,720,447 for the three months ended March 31, 2013, compared to $4,289,985 for the same period in 2012, a decrease of $569,538, or 13%. The decrease was mainly due to a $635,000 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 Arkansas. The decrease was partially offset by an sales from a new subsidiary Facilities and Pipeline Services which commenced business in the period ended June 30, 2012.

Cost of goods sold and gross profit

Cost of goods was $1,867,226, or 50% of net sales, for the three months ended March 31, 2013, compared to $2,226,523, or 52% of net sales, for the same period in 2012. Gross profit was $1,853,221, or 50% of net sales, for the three months ended March 31, 2013, compared to $2,063,462, or 48% of net sales, for the same period in 2012. The 2% increase in gross profit for the three month period in 2013 is the result of 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.

General and administrative expenses

General and administrative expenses increased by $608,964 for the three months ended March 31, 2013, compared to the same period in 2012. The increase in general and administrative expenses was primarily due to increases in staff and related cost for the Company’s development of international operations of approximately $295,000 compared to $178,000 for the same period in 2012. In addition, the increases were due to the staff and related cost for the Company’s development of an environmental group of approximately $45,000 compared to $0 for the same period in 2012. which operation discontinued in April 2013, and the expenses related to the Houston office and ESP Facilities and Pipeline Service business compared to the same period in 2012.

Net loss

The Company’s net loss increased to ($1,288,393) for the three months ended March 31, 2013, as compared to a net loss of ($395,380) for the same period in 2012. The primary reason for the increase in the net loss was due to a decrease in sales and an increase in general and administrative expenses.

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 months ended March 31, 2013 was ($496,447) compared to $233,776 for the same periods in 2012, a change of ($730,223).

	Three months ended March 31,
	2013			2012
Net loss	$	(1,288,393	)	$	(395,380	)
Add back interest and factoring expense, net of interest income		185,185			152,351
Add back depreciation and amortization		239,262			151,580
Add back amortization debt discount		205,886			10,479
Add back stock-based compensation		397,682			314,746
Addback change in derivative liability		(236,068	)		-
Modified EBITDA	$	(496,446	)	$	233,776

Cash Flow Used by Operating Activities

Operating activities provided cash of $323,236 for the three months ended March 31, 2013, compared to provided cash of $132,476 for the same period in 2012. The increase in cash used for operations during the three months ended March 31, 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.

Cash Flow Used in Investing Activities

Investing activities used cash of $143,669 for the three month period ended March 31, 2013, compared to a use of cash of $72,152 for the three month period ended March 31, 2012. The increase in net cash used in investing activities during the three months ended March 31, 2013 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.

Cash Flow Provided by Financing Activities

Financing activities used cash of $47,437 for the three months period ended March 31, 2013, compared to $36,055 for the three month periods ended March 31, 2012. The net use of cash generated from financing activities during the three months ended March 31, 2013, was a result of repayment of debt and capital leases and was offset by the proceeds from the factoring advances.

Liquidity and Capital Resources

As of March 31, 2013, our total assets were $8,407,297 and our total liabilities were $9,564,496. We had cash of $202,344, current assets of $4,471,468, and current liabilities of $8,152,669 as of March 31, 2013. We had negative working capital of $3,681,201 on that date. We will require additional funds to implement our growth strategy. 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. 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.

Working Capital

We estimate that our general operating expenses for the next twelve month period will decrease as we focus on achieving profitability based on a what our current level of sales can support. As reported on our results for the three months period ended March 31, 2013, 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 international 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 and completion petrochemical business through the expansion of regional sales, and the research and development of new chemical and analytical services. As of March 31, 2013, our Company had cash of $202,344 and a working capital deficit of $3,681,201.

We incurred a net loss of $1,288,393 for the three month period ended March 31, 2013. We estimate that our needs for additional capital to implement our growth plans for the next twelve month period to be $5,000,000 to $6,000,000. However, if our expansion efforts require 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 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 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. 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 continue our growth, achieve consistently 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 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 March 31, 2013 totaling $20,847,559. 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 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 March 31, 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

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

In April 2013, the Company shuttered its environmental group that was being developed in the first quarter of 2013.

On May 13, 2013, the Company received notice that our Chief Financial Officer, Robert Geiges is resigning effective May 15, 2013. David Dugas will fulfill the duties of the office of Chief Financial Officer.

On May 13, 2013, the Company received notice that William Cox, a member of the Board of Directors resigned.

ITEM 6. - EXHIBITS

(a)	During the quarter ending December 31, 2008, the Company filed the following Exhibits and Form 8Ks:
	October 17, 2008, filed an 8K for: Item 1.02, Termination of a Material Definitive Agreement November 5, 2008,filed an 8K for: Item 1.01 Entry into a Material Definitive Agreement, Item 2.01 Completion of Acquisition of Disposition of Assets, Item 9.01Agreement December 15, 2008, filed an 8K for: Item 8.01 Other Events, Item 9.01 Letter of Intent December 29, 2009, filed an 8K for: Item 4.01 Changes in Registrant’s Certifying Accountant, Item 9.01 Letter January 6, 2009, filed an 8K for: Item 1.01 Entry into a Material Definitive Agreement, Item 2.01 Completion of Acquisition of Disposition of Assets, Item 5.01 Changes in Control of the Registrant, Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Officers, Item 9.01 Stock Purchase Agreements

(b)	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: May 15, 2013	By:	/s/ David Dugas
		David Dugas
		Chief Executive Officer and Director
		(Principal Executive Officer)

	ESP RESOURCES, INC.

Date: May 15, 2013	By:	/s/ Robert Geiges
		Robert Geiges
		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: May 15, 2013	By:	/s/ David Dugas
		David Dugas
		Chief Executive Officer and Director
		(Principal Executive Officer)

Date: May 15, 2013	By:	/s/ Tony Primeaux
		Tony Primeaux
		Secretary and Director