ESP Resources, Inc. - Quarter Report: 2014 March (Form 10-Q)

f10q_051514.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, 2014

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)

(832) 342-9131

(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 May 9, 2014, there were 156,230,249 shares of the Registrant’s common stock outstanding.

PART I - FINANCIAL INFORMATION

ITEM 1. – FINANCIAL STATEMENTS

ESP Resources, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31, 2014			December 31, 2013

ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	134,042		$	5,757
Restricted cash		167,905			113,589
Accounts receivable, net		2,279,491			1,747,712
Inventories		1,078,325			1,170,900
Prepaid expenses		212,335			360,378


Total current assets		3,872,098			3,398,336

Assets held for sale		127,228			216,092
Property and equipment, net of accumulated depreciation of $2,005,438 and $1,836,493, respectively		2,274,398			2,330,638
Other assets		65,872			65,872

Total assets	$	6,339,596		$	6,010,938

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	2,757,140		$	2,662,087
Net liabilities from discontinued operations		88,823			90,792
Factoring payable		1,525,480			1,093,593
Accrued expenses		1,389,215			1,153,455
Due to related parties		722,809			475,172
Contingent consideration payable		181,437			181,437
Guarantee liability		120,000			120,000
Short-term debt		299,511			376,265
Current maturities of convertible debentures, net of unamortized discounts		1,027,884			875,760
Current maturities of debt - vendor deferred payment		356,867			348,466
Current maturities of long-term Debt		806,957			858,002
Current portion of capital lease obligation		198,837			230,462
Derivative liability		329,701			263,875

Total current liabilities		9,804,661			8,729,366

Long-term debt (less current maturities)		323,294			463,168
Long-term debt - vendor deferred payment (less current maturities		978,748			1,064,954
Capital lease obligations (less current maturities)		52,743			50,060
Deferred lease cost		17,000			17,000

Total liabilities		11,176,446			10,324,548

STOCKHOLDERS' DEFICIT
Preferred stock - $0.001 par value, 10,000,000 shares authorized in 2011, zero outstanding		-			-
Common stock - $0.001 par value, 350,000,000 shares authorized, 156,230,249 shares issued and outstanding		156,231			156,231
Additional paid-in capital		20,561,171			20,328,102
Subscription receivable		(1,000	)		(1,000	)
Accumulated deficit		(25,553,252	)		(24,796,943	)

Total stockholders' deficit		(4,836,850	)		(4,313,610	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	6,339,596		$	6,010,938

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

ESP Resources, Inc.

Condensed Consolidated Statements of Operations

Three Months Ended March 31, 2014 and 2013

(Unaudited)

	Three Months Ended March 31,
	2014				2013

SALES, NET		$	3,152,765		$	3,454,957
COST OF GOODS SOLD			1,470,343			1,756,871

GROSS PROFIT			1,682,422			1,698,086

OPERATING EXPENSES
General and administrative			1,858,104			2,437,040
Depreciation and amortization			180,000			231,800
Loss on disposal of assets			16,169			-

LOSS FROM OPERATIONS			(371,851	)		(970,754	)

OTHER INCOME (EXPENSE)
Interest expense			(108,569	)		(97,507	)
Factoring fees			(67,327	)		(80,656	)
Amortization of debt discount			(152,124	)		(205,886	)
Other income, net			9,388			3,245
Interest income			-			9
Change in derivative liability			(65,826	)		236,068

Total other expense			(384,458	)		(144,727	)

NET LOSS FROM CONTINUING OPERATIONS			(756,309	)		(1,115,481	)

LOSS FROM DISCONTINUED OPERATIONS			-			(172,912	)

NET LOSS		$	(756,309	)	$	(1,288,393	)


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

WEIGHTED AVERAGE SHARES OUTSTANDING			156,230,249			151,494,138

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

ESP Resources, Inc.

Condensed Consolidated Statements of Cash Flow

Three Months Ended March 31, 2014 and 2013

(Unaudited)

	Three Months Ended March 31,
	2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(756,309	)	$	(1,288,393	)
Adjustments to reconcile net loss to net cash provided by operating activities:

Amortization of debt discount			152,124			205,886
Loss on disposal of assets			16,169			-
Depreciation and amortization, net disposals			180,000			239,262
Bad debt expense			15,000			21,000
Stock and warrant based compensation			233,069			397,682
Change in derivative liability			65,826			(236,068	)

Changes in operating assets and liabilities:
Accounts receivable			(546,779	)		(174,888	)
Inventory			92,575			126,931
Prepaid expenses			148,043			250,156
Other assets			-			505
Assets held for sale			42,314			-
Accounts payable			95,052			744,151
Accrued expenses			233,793			52,715
Accrued expense to related parties			247,637			(15,703	)

NET CASH PROVIDED BY OPERATING ACTIVITIES			218,514			323,236

CASH FLOWS FROM INVESTING ACTIVITIES
Restricted cash			(54,316	)		(30,026	)
Purchase of fixed assets			(125,885	)		(113,643	)

NET CASH USED IN INVESTING ACTIVITIES			(180,201	)		(143,669	)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long term debt			(204,938	)		(147,211	)
Repayment of capital leases			(60,224	)		(64,082	)
Repayment of short-term debt			(76,753	)		(114,141	)
Net factoring advances			431,887			277,997

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			89,972			(47,437	)

NET CHANGE IN CASH			128,285			132,130
CASH AT BEGINNING OF PERIOD			5,757			70,214

CASH AT END OF PERIOD		$	134,042		$	202,344

Supplemental Disclosures of Cash Flow Information:
Cash paid for interest and factoring cost		$	120,424		$	180,504
Cash paid for income taxes			-			-
Non-cash investing and financing transactions:
Notes issued for purchase of property and equipment		$	-		$	222,291
Value of capitalize lease issued		$	31,282		$	105,021
Debt extinguished with sale of assets		$	33,406		$	-

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, 2014

Note 1 – Organization and Basis of Presentation

Organization

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.

On June 11, 2013, the board of directors decided to cease operations of various subsidiaries, including ESP Facility and Pipeline Services, Inc., ESP Advanced Technologies, Inc., ESP KUJV Limited Joint Venture and ESP Marketing Group LLC. The Board determined that certain activities should be closed and that unused assets, principally vehicles and equipment, be sold.

Basis of Presentation

The accompanying unaudited condensed interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America and with the rules and regulations of the Securities and Exchange Commission to Form 10-Q and Article 8 of Regulation S-X. These unaudited condensed interim consolidated financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2013 and notes thereto contained in the information as part of the Company’s Annual Report on Form 10-K filed with the SEC. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2013 as reported in the Form 10-K have been omitted. In the opinion of management, the unaudited interim consolidated financial statements furnished reflect all adjustments (consisting of normal recurring adjustments) which are necessary to present fairly the financial position and the results of operations for the interim periods presented herein. Unaudited interim results are not necessarily indicative of the results for the full year. 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.

Note 2 – Going Concern

At March 31, 2014, the Company had cash and cash equivalents of $134,042 and deficit working capital of $5,932,563. 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 2014 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 March 31, 2014 and December 31, 2013 was $1,525,480 and $1,093,593, respectively, with $167,905 and $113,589, respectively, held in restricted cash in the consolidated balance sheets.

Note 4 – Property and Equipment

Property and equipment includes the following at March 31, 2014 and December 31, 2013:

	March 31, 2014			December 31, 2013

Plant, property and equipment	$	1,530,618		$	1,406,517
Vehicles		1,703,028			1,745,704
Equipment under capital lease		987,060			955,779
Office furniture and equipment		59,130			59,131
		4,279,836			4,167,131
Less: accumulated depreciation		(2,005,438	)		(1,836,493	)
Net property and equipment	$	2,274,398		$	2,330,638

For the three month period ended March 31, 2014 and 2013, depreciation expense for continuing operations was $180,000 and $231,800, respectively, and depreciation expense for discontinued operations was $0 and $7,462, respectively.

On or around June 11, 2013, the Board of Directors decided to cease operations of its subsidiaries in the United States including ESP Advanced 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 carrying value of the remaining assets held for sale at March 31, 2014 is $127,228.

During the quarter ended March 31, 2014 the Company sold three vehicles with a net carrying value of $79,957, two of which were classified as assets held for sales with a net carrying value of $46,551, in exchange for the payment of related long-term debt of $63,788 resulting in a loss from disposal of assets of $16,169.

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 through April 8, 2014. The Company determined the fair value of the common stock and warrants to be $10,500 and $2,458, respectively. The aggregate fair value of $12,958 was recognized as a debt discount which is being amortized to interest expense over the life of the debt. During the year ended December 31, 2013, the entire discount of $12,958 was amortized to interest expense. The Short-term debt on the demand note as of March 31 2014 and December 31, 2013 was $150,000 and $150,000 respectively.

During the year ended December 31, 2013, the Company issued notes payable to finance its insurance with an aggregate principal amount of $292,227. The notes mature in 1 year, bear interest of 5.70% per annum and require equal monthly payments. The Short-term debt on the notes payable to finance insurance as of March 31, 2014 and December 31, 2013 was $149,511 and $226,265 respectively.

The Company made aggregate repayments on its short-term debt of $76,753 and $114,141 during the three month period ended March 31, 2014 and 2013, respectively.

Note 6- Long-Term Debt - Vendor Deferred Payment

Long-term debt on vendor deferred payments consisted of the following at March 31, 2014 and December 31, 2013:

	March 31, 2014			December 31, 2013
The Company reached agreement with certain Vendors to exchange payables for term debentures with annual interest rates of 5% or prime plus 1.5% with month payments between $22,551 and $10,000 and maturing between October 2014 and September 2018	$	1,335,615		$	1,413,420
Less current maturities		(356,867	)		(348,466	)
Total long-term debt	$	978,748		$	1,064,954

During 2013 the Company and certain of its trade vendors agreed to convert existing accounts payable balances totaling $1,104,407 to 5% notes in the aggregate principal amount of $1,104,407 with monthly payments ranging from $1,409 to $22,551 continuing to between October 15, 2014 and September 21, 2018. The trade vendors agreed to subordinate its position to any provider of new debt, excluding a trade vendor.

Note 7- Long-Term Debt

Long term debt consisted of the following at March 31, 2014 and December 31, 2013:

	March 31, 2014			December 31, 2013
Equipment secured notes payable - the notes bear interest at rates between 12.0% and 7.5% per annum, are payable in monthly installments between $274 and $2,522 and mature at various dates between July 2014 and January 2015.	$	61,751		$	73,733
Vehicle secured notes payable - the notes bear interest at rates between 9.49% and 0.0% per annum, are payable in monthly installments between $698 and $1,832 and mature between July 2014 and August 2016.		667,866			843,910
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		40,666			43,559
Unsecured notes payable. The notes bear interest at 5% per annum and are due between April 2009 and July 2013.		359,968			359,968
Total		1,130,251			1,321,170
Less current maturities		(806,957	)		(858,002	)
Total long-term debt	$	323,294		$	463,168

Note 8 – Capital Lease Obligations

ESP Petrochemicals leases certain office equipment, warehouse equipment special purpose equipment and vehicles under capital leases. Long term capitalized leases consisted of the following at March 31, 2014:

	Year			Borrowing		Term in months			Monthly payment			March 31, 2014			December 31, 2013

Warehouse equipment		2013		$	26,313		36			$731		$	16,856			21,097
Vehicles	2009	-	2011	$	368,766	21	-	72	$887	-	1,905		76,986			52,564
Office equipment		2012		$	10,140		24			$260			2,196			3,380
Special purpose equipment	2011	-	2012	$	483,092		36		$1,692	-	3,702		155,542			203,481

Total capital lease													251,580			280,522
less current portion													(198,837	)		(230,462	)
Total long-term capital lease												$	52,743		$	50,060

Note 9 – Convertible debentures

The following reflect the Convertible Debentures for the period ended March 31, 2014 and December 31, 2013.

	March 31, 2014			December 31, 2013
On January 27, 2012, the Company received proceeds of $130,000 from the sale of 16% Convertible Subordinated Debentures. The Company is in default.	$	130,000		$	130,000
On December 20, 2013, the Company amended the debenture initially issued November 14, 2012 in which it received proceeds of $750,000 from the sale of 16% Convertible Subordinated Debentures. Interest is due June 1, 2014 and September 1, 2013.		762,000			762,000
On November 14, 2012, the Company received proceeds of $250,000 from the sale of 16% Convertible Subordinated Debentures. Interest is due March 1, 2013, June 1, 2013 and September 1, 2013. The Company is in default.		250,000			250,000

Total		1,142,000			1,142,000
Less unamortized debt discounts		(114,116	)		(266,240	)
Less current maturities		(1,027,884	)		(875,760	)
Total Long-term convertible debentures	$	-		$	-

On November 14, 2012, the Company received proceeds of $1,000,000 from the sale of 16% Convertible Subordinated Debentures (the “November 2012 Debentures”). The November 2012 Debentures were due on March 1, 2014. The aggregate principal amount of the combined November 2012 Debentures is $1,000,000 with an interest rate of 16% per annum. The interest is payable quarterly on March 1st, June 1st, September 1st, and December 1st, beginning on March 1, 2013. The November 2012 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 expired 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-month anniversary of the transaction’s closing date, deliver a notice to the holders to redeem the then-outstanding principal amount of the November 2012 Debentures for cash. In the event the Company defaults, the outstanding principal amount of the November 2012 Debentures, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the 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 November 2012 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 November 2012 Debentures. As further consideration, the Company issued a combined total of 4,000,000 shares of common stock to the investors, which the Company recorded as a debt discount of $299,600 at issuance and will amortize the debt discount over the term of the debt. For the year ended December 31, 2013, the Company amortized $5,912. The Company shall take all actions necessary to nominate and recommend shareholder approval for the appointment of one 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 a 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.

On September 30, 2013 the Company agreed with its convertible debenture holders to amend and restate the November 2012 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 warrant 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 did not constitute a substantial modification or a troubled debt restructuring. 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.

On December 20, 2013 the Company agreed with one convertible debenture holder to amend and restate the November 2012 Debenture amended previously on September 30, 2013. The December 1, 2013 payment obligation was extended and deferred to $281,250 on June 1, 2014 and $468,750 on September 1, 2014 plus accrued interest. The Company issued 5,000,000 common stock purchase warrants with an exercise price per share of $0.075 and a term of 5 years. 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 December 20, 2013 as debt discount. 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 123% - 143% and accounted for them as debt discount, which will be amortized over the term of the loan which expires September 1, 2014. The Company analyzed the conversion option under ASC 815 and determined and recorded a derivative liability for these warrants at $13,365 and included them in debt discount. The Company estimated the conversion option of this debt conversion feature at $158,612 and included it in debt discount. 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 substantial modification which resulted in a debt extinguishment. The Company recognized a loss on the extinguishment of $310,767 during 2013. Accrued interest of $12,000 was incorporated into the reissued convertible debenture principal amount.

On December 1, 2013 and March 1, 2014 the Company failed to make the amended principle payment on one if its convertible debentures dated November 14, 2012 and amended on September 30, 2013. This convertible debenture is now in default. Under the terms of the convertible debenture all principle payments are now due and reflected as current and the interest rate increased to 18%.

Note 10 – Derivative liability

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 November 14, 2012 16% convertible debenture and associated warrants included down-round provisions which reduce the exercise price of the warrants and the conversion price of the convertible instrument 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 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 in accordance with ASC 815 “Derivatives and Hedging”.

The range of significant assumptions which the Company used to measure the fair value of the derivative liabilities (a level 3 input) at December 31, 2013 is as follows:

	Warrants			Debentures

Stock price		$0.02			$0.02
Term (years)	3.9	-	5		.75
Volatility	123%	-	143%	123%	-	143%
Risk-free interest rate		1.75%			0.13%
Exercise prices	$0.075	-	0.002	$0.05	-	0.02
Dividend yield		0.00%			0.00%

The range of significant assumptions which the Company used to measure the fair value of the derivative liabilities (a level 3 input) at March 31, 2014 is as follows:

	Warrants			Debentures

Stock price		$0.02			$0.02
Term (years)	3.7	-	5		.50
Volatility	143%	-	162%	143%	-	162%
Risk-free interest rate		1.75%			0.13%
Exercise prices	$0.075	-	0.002	$0.05	to	0.02
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 derivative liabilities at March 31, 2014 was $329,701, and at December 31, 2013 was $263,875. The change in the fair value of derivative liabilities resulted in a loss of $65,826 for the three months ended March 31, 2014.

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 March 31, 2014.

			Fair Value Measurement at March 31, 2014
	Carrying Value at March 31, 2014		Level 1		Level 2		Level 3
Liabilities:
Derivative convertible debt liability	$	238,011	$	-	$	-	$	238,011
Derivative warrant liability	$	91,690	$	-	$	-	$	91,690
Total derivative liability	$	329,701	$	-	$	-	$	329,701

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 December 31, 2013.

			Fair Value Measurement at December 31, 2013
	Carrying Value at December 31, 2013		Level 1		Level 2		Level 3
Liabilities:
Derivative convertible debt liability	$	188,827	$	-	$	-	$	188,827
Derivative warrant liability	$	75,048	$	-	$	-	$	75,048
Total derivative liability	$	263,875	$	-	$	-	$	263,875

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 three months ended March 31, 2014, hence the balance remains the same.

Note 12 – Stockholders’ Equity

Warrants issued

The following table reflects a summary of common stock warrants outstanding and warrant activity during the three months ended March 31, 2014:

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

Warrants outstanding at December 31, 2013		63,092,278	$	0.16		1.26
Granted during the period		-		-		-
Exercised during period		-		-		-
Forfeited during the period		-		-		-
Warrants outstanding at March 31, 2014		63,092,278	$	0.16		1.26

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

Year	Amount

2014		2,205,238
2015		43,122,334
2016		1,000,000
2017		11,764,706
2018		5,000,000
Total		63,092,278

Stock Option Awards

During the three month period ended March 31, 2014 and 2013 the Company did not grant any stock options.

The following table reflects a summary of common stock options outstanding and option activity during the three months ended March 31, 2014:

	Number of Shares			Weighted- average Exercise Price		Weighted- average Remaining Contractual Term (years)

Outstanding at December 31, 2013		52,930,000			0.12		4.77
Granted		-			-		-
Exercised		-			-		-
Expired/Forfeited		(8,000	)		0.14		6.58
Outstanding at March 31, 2014		52,922,000		$	0.11		4.51
Exercisable at March 31, 2014		34,390,000		$	0.11		4.51
Exercisable at March 31, 2013		24,907,000		$	0.13		6.33

During the three month period ended March 31, 2014, the Company recognized stock-based compensation expense of $176,027 related to stock options. As of March 31, 2014, there was approximately $1,213,976 of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over the remaining vesting period. The aggregate intrinsic value of these options was $0 at March 31, 2014.

During the three month period ended March 31, 2013, the Company recognized stock-based compensation expense of $206,890 related to stock options. 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 the remaining vesting period. The aggregate intrinsic value of these options was $0 at March 31, 2013. In addition to the above and for the three month period ended March 31, 2014 and 2013, the Company amortized $57,042 and $120,792 of stock based compensation resulting from stock and warrants issued in previous periods.

Note 13 – Discontinued Operations

	Three Months Ended March 31,
	2014		2013
DISCONTINUED OPERATIONS
Sales, net	$	-	$	265,490
Cost of goods sold		-		(110,355	)
General and administrative		-		(313744	)
Depreciation		-		(7,462	)
Other income and expense				(6,841	)
LOSS FROM DISCONTINUED OPERATIONS	$	-	$	(172,912	)

The Company estimated the fair value of those assets to be sold and if the fair value was less than the net book value, an impairment loss was recognized. The book value of the remaining assets held for sale at December 31, 2013 was $216,092. Additionally, at March 31, 2014 and December 31, 2013 the company has remaining liabilities associated with the discontinued operations of $88,823 and $90,792, respectively.

Note 14 – Commitments and Contingencies

Contingent payable – Turf Chemistry

On April 25, 2014 the Company reached an agreement with the former owner of Turf Chemistry, Inc., Alfredo Ledesma. As part of the settlement agreement, the Company agreed to pay consideration of $150,000 to Mr. Ledesma of which $75,000 was paid on April 25, 2014, the remaining payments will be made in monthly installments of $7,500 beginning May 1, 2014. In addition, the Company agreed to pay the remaining amount of a loan on one of the Turf assets, net of proceeds from the eventual sale of that same asset and up to $5,000 for closure costs of the Turf entity. The Company estimates a net contingent payable of $181,437 and has recorded a settlement of lawsuit cost of $150,000 for the period ended December 31, 2013.

Legal proceedings

The District Court of Caddo Parish, Louisiana entered a default 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. All of the operations of ESP Advanced Technologies, Inc. were discontinued on June 11, 2013. The Company believes this judgment is without merit and will vigorously pursue post-judgment remedies to set aside the judgment and have it annulled under Louisiana law. Management does not consider the potential for loss to be probable. Accordingly, the judgment amount was not accrued as of March 31, 2014.

Platinum Chemicals LLC

On March 2, 2012, the Company filed a trade secret infringement lawsuit to protect its rights against a former employee, a competitor and officers of the competitor. On November 21, 2012, an Agreed Final Judgment was entered in the lawsuit ESP Petrochemicals, Inc. (“ESP Petro”), v. Shane Cottrell, Platinum Chemicals, LLC, Ladd Naquin, Joe Lauer, Patrick Williams, Ralph McClelland and Ronald Walling (the “Defendants”) against the Defendants. Under the terms of the Agreed Final Judgment, the Defendants cannot offer or sell any chemical product or related services to a number of entities or in conjunction with any operations within designated Texas Railroad Commission districts for specified periods of time as long as ESP Petro is in conformance with the terms of the Agreed Final Judgment. The name of the entities, the lists of designated districts and the specific time periods are delineated in the Agreed Final Judgment. Additionally, the Defendants are not to solicit or recruit any ESP Petro employees, they must turn over any “ESP Information” (as that term is described in the Agreed Final Judgment) and they cannot directly or indirectly, offer, market, advertise, promote or otherwise describe in any way a product to a customer, prospective customer or third party, as being derived from ESP Petro’s formula or an equivalent ESP Petro product.

Note 15 – Related Party Transactions

As of March 31, 2014 and December 31, 2013, the Company had balances due to related parties as follows:

	March 31, 2014		December 31, 2013
Due to officer	$	667,019	$	419,382
Due to ESP Enterprises	$	55,790	$	55,790
Total due to related parties	$	722,809	$	475,172

The above balances are unsecured, due on demand and bear no interest.

On June 1, 2013, the Officers agreed to defer a portion of their salaries until such time as cash flow allowed. As of March 31, 2014, $66,667 has been deferred and reflected as a liability due to related parties.

Note 16 – Subsequent Events

On April 25, 2014 the Company reached an agreement with the former owner of Turf Chemistry, Inc. (see Note 14), and pursuant to the agreement, made payments of $75,000 on April 25, 2014 and $7,500 on May 1, 2014.

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, 2013 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 16 for 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 1 for 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 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 of which the Company ceased operations on June 11, 2013, 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’ problems 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 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 three month period ended March 31, 2014 compared to three month period ended March 31, 2013

The following table summarizes the results of our operations during the three months ended March 31, 2014 and 2013, and provides information regarding the dollar and percentage increase or (decrease) from 2014 to 2013:

	Three months ended March 31,						$ Increase			% Increase
	2014			2013			(Decrease)			(Decrease)
Sales	$	3,152,765		$	3,454,957		$	(302,192	)		(9	)%
Cost of goods sold		1,470,343			1,756,871			(286,528	)		(16	)%
Gross profit		1,682,422			1,698,086			(15,664	)		(1	)%
Total general and administrative expenses		1,858,104			2,437,040			(578,936	)		(24	)%
Depreciation and amortization expense		180,000			231,800			(51,800	)		(22	)%
Loss from disposal of assets		16,169						16,169
Loss from operations		(371,851	)		(970,754	)		598,903			(62	)%
Total other income (expense)		(384,458	)		(144,727	)		(239,731	)		166	%
Loss from continuing operations	$	(756,309	)	$	(1,115,481	)	$	359,172			(32	)%

Sales

Sales were $3,152,765 for the three months ended March 31, 2014, compared to $3,454,957 for the same period in 2013, a decrease of $302,192, or 9%. The decrease was mainly due to a $1,357,000 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 and closure of 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 was $1,470,343, or 47% of net sales, for the three months ended March 31, 2014, compared to $1,756,871 or 51% of net sales, for the same period in 2013. Gross profit was $1,682,422, or 53% of net sales, for the three months ended March 31, 2014, compared to $1698,086, or 49% of net sales, for the same period in 2013. The 2% increase in gross profit for the three month period in 2014 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 product sales.

General and Administrative Expenses

General and administrative expenses decreased by $578,936 for the three months ended March 31, 2014, compared to the same period in 2013. 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, the closure of the Houston office in June 2013 and the approximately $165,000 reduction in stock compensation.

Net loss from continuing operations

The Company’s net loss from continued operations decreased to $756,309 for the three months ended March 31, 2014, as compared to a net loss from continued operations of $1,115,481 for the same period in 2013. The primary reason for the decrease in the net loss was due to a cost reduction initiated by the Company in the second half of 2013.

Concentration

The Company has five major customers that together account for 63% of accounts receivable at March 31, 2014 and 58% of the total revenues earned for the period ended March 31, 2014.

	Accounts Receivable			Revenue

Customer A		19	%		13	%
Customer B		15	%		25	%
Customer C		10	%		6	%
Customer D		10	%		6	%
Customer E		9	%		8	%
		63	%		58	%

The Company has three vendors that accounted for 54%, 13% and 12% of purchases for the three months ended March 31, 2014.

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% purchases for the three months ended March 31, 2013.

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 is 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, 2014 was $50,606 compared to ($503,477) for the same periods in 2013, with a change of $554,083.

		Three months ended March 31
		2014			2013
Net loss	$	(756,309	)	$	(1,288,393	)
Add back interest and factoring expense, net of interest income		175,896			185,185
Add back depreciation and amortization		180,000			239,262
Add back amortization debt discount		152,124			205,886
Add back stock-based compensation		233,069			397,682
Add back change in derivative liability		65,826			(236,068	)
Modified EBITDA	$	50,606		$	(496,466	)

Cash Flow Used by Operating Activities

Operating activities provided cash of $218,514 for the three months ended March 31, 2014, compared to cash provided of $323,236 for the same period in 2013. The increase in cash provided by operations during the three months ended March 31, 2014 was primarily due to an increase in accrued expenses from related parties, accrued expenses, non-cash charges for change in derivative liability, and stock based compensation that were partially offset by increases in accounts receivable and inventory.

Cash Flow Used in Investing Activities

Investing activities used cash of $180,201 for the three month period ended March 31, 2014, compared to a use of cash of $143,669 for the three month period ended March 31, 2013. The increase in net cash used in investing activities during the three months ended March 31, 2014 was a result of the cash to acquire vehicle and equipment driven by the purchase of additional field equipment including storage tanks, containment storage devices, and chemical delivery pumps in the prior period for new customers.

Cash Flow Provided by Financing Activities

Financing activities provided cash of $89,972 for the three months ended March 31, 2014, compared to cash use of ($47,437) for the three months ended March 31, 2013. The net cash provided was generated from financing activities during the three months ended March 31, 2014 and was a result of net factoring advances reduced by repayment of debt and capital leases.

Liquidity and Capital Resources

As of March 31, 2014, our total assets were $6,339,596 and our total liabilities were $11,176,444. We had cash of $134,042, current assets of $3,872,098, and current liabilities of $9,804,661 as of March 31, 2014. We had working capital of ($5,932,563) 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 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 March 31, 2014, our Company had cash of $134,042 and a working capital deficit of $5,932,563.

We incurred a net loss of $756,309 for the three month period ended March 31, 2014. 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, 2013, 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, 2013.

Since inception and through March 31, 2014, we have incurred losses totaling $25,553,252. 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 are available, will increase our liabilities and future cash commitments.

There are no assurances that we will be able to achieve a level of revenue 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 generally accepted accounting principles 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, 2013.

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, 2014, 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. We have reached an agreement on this lawsuit effective April 25, 2014. As part of the settlement agreement, the Company agreed to pay consideration of $150,000 to Mr. Ledesma of which $75,000 was paid on April 25, 2014, the remaining payments will be made in monthly installments of $7,500 beginning May 1, 2014. In addition, the Company agreed to pay the remaining amount of a loan on one of the Turf Chemistry, Inc. assets, net of proceeds from the eventual sale of that same asset and up to $5,000 for costs arising from winding down Turf Chemistry, Inc.

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

The District Court of Caddo Parish, Louisiana entered a default 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. All of the operations of ESP Advanced Technologies, Inc. were discontinued on June 11, 2013. The Company believes this judgment is without merit and will vigorously pursue post-judgment remedies to set aside the judgment and have it annulled under Louisiana law. The Company does not consider the potential for loss to be probable. Accordingly, the judgment amount was not accrued as of March 31, 2014.

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: May 15, 2014	By:	/s/ David Dugas
		David Dugas
		Chief Executive Officer and Director
		(Principal Executive Officer)

	ESP RESOURCES, INC.

Date: May 15, 2014	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: May 15, 2014	By:	/s/ David Dugas
		David Dugas
		Chief Executive Officer and Director
		(Principal Executive Officer)

Date: May 15, 2014	By:	/s/ Tony Primeaux
		Tony Primeaux
		Secretary and Director