Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - ESP Resources, Inc.Financial_Report.xls
EX-31.1 - CERTIFICATION - ESP Resources, Inc.espi_ex311.htm
EX-10.1 - EXHIBIT 10.1 - ESP Resources, Inc.espi_ex1011.htm
EX-32.1 - CERTIFICATION - ESP Resources, Inc.espi_ex321.htm
EX-31.2 - CERTIFICATION - ESP Resources, Inc.espi_ex312.htm
EX-32.2 - CERTIFICATION - ESP Resources, Inc.espi_ex322.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
þ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2011
 
o TRANSITION REPORT UNDER 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.
(Name of small business issuer in its charter)
 
Nevada
 
98-0440762
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
111 Lions Club Street, Scott, LA
 
70583
(Address of principal executive offices)
 
(Zip Code)
 
Issuer’s telephone number (337) 706-7056
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes  o    No  þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  o    No  þ
  
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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12-months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ   No  o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  o
 
Accelerated filer £
Non-Accelerated filer  o  (Do not check if a smaller reporting company)
 
Smaller reporting company  þ
 
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
 
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2011: $11,458,198.
 
Number of the issuer’s Common Stock outstanding as of March 16, 2012: 111,362,067
 
Documents incorporated by reference: None
 


 
 

 
TABLE OF CONTENTS
 
     
Page
 
Part I
     
         
Item 1
Business
    3  
Item 1A
Risk Factors
    6  
Item 1B
Unresolved Staff Comments
    12  
Item 2
Properties
    12  
Item 3
Legal Proceedings Emulsion breakers, which are chemicals specially formulated for crude oils containing produced waters
    12  
Item 4
Submission of Matters to a Vote of Security Holders
    12  
           
Part II
       
           
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
    13  
Item 6
Selected Financial Data.
    16  
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operation
    16  
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
    24  
Item 8
Financial Statements and Supplementary Data
    24  
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    49  
Item 9A
Controls and Procedures
    49  
Item 9B
Other Information
    50  
           
Part III
       
           
Item 10
Directors and Executive Officers and Corporate Governance.
    51  
Item 11
Executive Compensation
    55  
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    56  
Item 13
Certain Relationships and Related Transactions, and Director Independence.
    57  
Item 14
Principal Accounting Fees and Services
    58  
           
Part IV
       
           
Item 15
Exhibits, Financial Statement Schedules
    59  
Signatures
       
 
 
2

 
 
PART I
 
ITEM 1 - BUSINESS

This annual report contains forward-looking statements as that term is defined under applicable securities laws.  These statements relate to future events or our future financial performance.  In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology.  These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our company’s 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.

Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States generally accepted accounting principles.

In this annual report, unless otherwise specified, all references to “common shares” refer to the common shares of our capital stock.
 
Corporate History

We were incorporated on October 27, 2004, in the State of Nevada.  Our principal offices are located at 111 Lions Club Street, Scott, LA  70583.

Effective September 28, 2007, we completed a merger with our subsidiary, Pantera Petroleum Inc., a Nevada corporation.  As a result, we changed our name from “Arthro Pharmaceuticals, Inc.” to “Pantera Petroleum Inc.” 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”.  Our new CUSIP number is 26913L104.

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

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 subsidiary, ESP Petrochemicals, Inc., unless otherwise indicated.

Our Business

We are a custom formulator of specialty chemicals for the oil and gas industry.  We offer analytical services and essential custom-blended oil and gas well chemicals 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.  Constant management of our chemical applications at the drilling site or well, continuous monitoring of the productivity and outflow levels of oil & gas and listening to our customers with their changing demands and applying our skills as chemical formulators enables us to measure the impact we have in our business.
 
 
3

 
 
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 that is in production, there exist a number of factors that make each site unique.  These include the depth of the producing formation, the bottom-hole temperature of the producing well, the size of the well head through which the producing fluids flow, the size and pressure ratings of the production equipment, including the separators, heater-treaters, compression equipment, size of production tubulars in the wellbore, size of the storage tanks on the customers’ location, and pressure ratings of the sales lines for the oil and gas products.  Wells that are operating short distances from each other in the same field can have very different characteristics.  This variance in operating conditions, chemical makeup of the oil, and the usage of diverse equipment requires a very specific chemical blend to be used if maximum drilling and production well performance is to be attained.

Our customers are typically the 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 to our customers 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 works 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 well- head;
Well completion and work-over chemicals that maximize productivity from new and existing wells;
Bactericides that kill water borne bacterial growth, thus preventing corrosion and plugging of the customer well-head and flowline;
Scale compounds that prevent or treat scale deposits;
Corrosion inhibitors, which are organic compounds that form a protective film on metal surfaces to insulate the metal from its corrosive environment;
Antifoams that provide safe economic means of controlling foaming problems;
Emulsion breakers, which are chemicals specially formulated for crude oils containing produced waters;
Paraffin chemicals that inhibit and/or dissolve paraffin to prevent buildup (their effectiveness is not diminished when used in conjunction with other chemicals); and
Water clarifiers that solve any and all of the problems associated with purifying effluent water and that improve appearance
 
 
4

 
 
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 may gather information at a well and enter this data into the analytical system at each of our five (5) respective district offices located in Scott, Louisiana; Pharr, Texas; Victoria, Texas; Guy, Arkansas or 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., 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 due to the following competitive advantages:

Personalized service;
Expedited field analysis; and
Convenience and access to the best available market rates and products that we can produce and identify that are currently offered by our suppliers for our customers.

Additionally, new companies are constantly entering the market.  This growth and fragmentation could also have a negative impact on our ability to obtain additional market share.  Larger companies which have been engaged in this business for substantially longer periods of time may have access to greater financial 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.
 
 
5

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

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

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

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

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

Number of Employees

On December 31, 2011, we had 43 full-time employees.  We expect to increase the number of employees as we implement our business objectives and expand our management team.  None of our employees are represented by a labor union or covered by a collective bargaining agreement.  The management of our company is comprised of a team of highly skilled and experienced professionals, and we focus on training and professional development for all levels of employees and on hiring additional experienced employees.  We believe that our relations with our employees are good.

ITEM 1A - RISK FACTORS

The shares of our common stock are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in the common stock. You should carefully consider the risks described below and the other information in this annual report before investing in our common stock. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, the trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

Our specialty chemical business will be dependent on the oil and gas industry which has historically been volatile and could negatively affect our results of operations.

Demand for our oil and gas field specialty chemical products and services depends in large part upon the level of exploration and production of oil and gas and the industry's willingness to spend capital on environmental and oil and gas field services, which in turn depends on oil and gas prices, expectations about future prices, the cost of exploring for, producing and delivering oil and gas, the discovery rate of new oil and gas reserves and the ability of oil and gas companies to raise capital. Domestic and international political, military, regulatory and economic conditions also affect the industry.

 
6

 
 
Prices for oil and gas historically have been volatile and have reacted to changes in the supply of and the demand for oil and natural gas, domestic and worldwide economic conditions and political instability in oil producing countries. No assurance can be given that current levels of oil and gas activities will be maintained or that demand for our services will reflect the level of such activities. Prices for oil and natural gas are expected to continue to be volatile and affect the demand for specialty chemical products and services such as ours. A material decline in oil or natural gas prices or activities could materially affect the demand for our products and services and, therefore, our financial condition.

Competition in the oil and gas services industry is very intense and there is no assurance that we will be successful in acquiring new customers over our competitors.

The oil and gas service industry is very competitive. We compete with numerous companies, including companies that are much larger and have substantially greater technical, financial and operational resources and staff. We are required to obtain licenses and permits from various governmental authorities. We anticipate that we will be able to obtain all necessary licenses and permits to carry on the activities which we intend to conduct, and that we intend to comply in all material respects with the terms of such licenses and permits. However, there can be no guarantee that we will be able to obtain and maintain, at all times, all necessary licenses and permits required to continually operate our business.

The potential costs of environmental compliance in our petrochemical business could have a material negative economic impact on our operations and financial condition.

Our specialty chemical business is 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.

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.

The Company intends to conduct appropriate due diligence with respect to environmental matters in connection with future acquisitions, there can be no assurance that the Company will be able to identify or be indemnified for all potential environmental liabilities relating to any acquired business. Although the Company has obtained insurance and indemnities for certain contamination conditions, such insurance and indemnities are limited.

Operating hazards in our petrochemical business could have a material adverse impact on our operations and financial condition.

Our specialty chemicals operations are subject to the numerous hazards associated with the handling, transportation, blending, storage, sale, ownership and other activities relating to chemicals. These hazards include, but are not limited to, storage tank or pipeline leaks and ruptures, explosions, fires, chemical spills, discharges or releases of toxic substances or gases, mechanical failures, transportation accidents, any of which could materially and adversely affect the Company. These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment, environmental damage and may result in suspension of operations.

 
7

 
 
The Company will maintain insurance coverage in the amounts and against the risks it believes are in accordance with industry practice, but this insurance will not cover all types or amounts of liabilities. The Company currently has spillage, transportation, and handling insurance. No assurance can be given either that (i) this insurance will be adequate to cover all losses or liabilities the Company may incur in its operations or (ii) the Company will be able to maintain insurance of the types or at levels that are adequate or at reasonable rates.

Any change to government regulation/administrative practices may have a negative impact on our ability to operate and/or our profitability.

The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States or any other jurisdiction, may be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business.  The continued media attention toward the use of hydraulic fracturing of oil & gas wells by our customers could adversely impact governmental regulations in the states in which we provide our fracking chemicals and have a negative impact on our business.

The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate and/or our profitably.

We may be unable to retain key personnel and there is no guarantee that we could find a comparable replacement.

We may be unable to retain key employees or consultants or recruit additional qualified personnel. Our limited personnel means that we would be required to spend significant sums of money to locate and train new employees in the event any of our employees resign or terminate their employment with us for any reason.  We are largely dependent on the continued service of our President and CEO, David Dugas.  We may not have the financial resources to hire a replacement if we lost the services of Mr. Dugas.  The loss of service of Mr. Dugas could therefore significantly and adversely affect our operations.

The specialty chemicals business is highly competitive and the competition may adversely affect our results of operations.

Our business faces significant competition from major international producers as well as smaller regional competitors. Our most significant competitors include major chemicals and materials manufacturers and diversified companies, a number of which have revenues and capital resources far exceeding ours. Substitute products also exist for many of our products. Therefore, we face substantial risk that certain events, such as new product development by our competitors, changing customer needs, production advances for competing products, price changes in raw materials, could result in declining demand for our products as our customers switch to substitute products or undertake manufacturing of such products on their own. If we are unable to develop and produce or market our products to effectively compete against our competitors, our results of operations may materially suffer.

We have certain concentrations within our customer base, and the loss certain customers could have a material adverse impact on our business.

As of December 31, 2011, we had a total of 73 customers, three of which are major customers that together account for 61% of accounts receivable at December 31, 2011 and 57% of the total revenues earned for the year ended December 31, 2011.  The loss of one of our major customers would have a serious material negative economic impact on our company and our ability to continue. There is no guarantee that we could replace one of these customers and if we were able to replace them, there is no guarantee that the revenues would be equal.

 
8

 
 
Need for additional employees

The Company’s future success also depends upon its continuing ability to attract and retain highly qualified personnel. Expansion of the Company’s business and the management and operation of the Company will require additional managers and employees with industry experience, and the success of the Company will be highly dependent on the Company’s ability to attract and retain skilled management personnel and other employees. Competition for such personnel is intense. There can be no assurance that the Company will be able to attract or retain highly qualified personnel.

Competition for skilled personnel in the oil and gas services industry is significant. This competition may make it more difficult and expensive to attract, hire and retain qualified managers and employees. The Company’s inability to attract skilled management personnel and other employees as needed could have a material adverse effect on the Company’s business, operating results and financial condition. The Company’s arrangement with its current employees is at will, meaning its employees may voluntarily terminate their employment at any time. The Company anticipates that the use of stock options, restricted stock grants, stock appreciation rights, and phantom stock awards will be valuable in attracting and retaining qualified personnel. However, the effects of such plan cannot be certain.

At the current time, our consolidated operations are not profitable.

From inception through to December 31, 2011, we have incurred aggregate losses of $14,447,660.  To date we have had negative cash flows from operations and we have been dependent on sales of our equity securities and debt financing to meet our cash requirements and have incurred losses totaling $4,325,514 for the year ended December 31, 2011. As of December 31, 2011, we had negative working capital of $713,501.  There is no assurance that we will operate profitably or will generate positive cash flow in the future. In addition, our operating results in the future may be subject to significant fluctuations due to many factors not within our control, such as the general economic cycle, the market price of oil and gas and exploration and development costs.  There is no assurance that actual cash requirements will not exceed our estimates.  In particular, additional capital may be required in the event that costs increase beyond our expectations, such as cost of products sold or research and development cost, or we encounter greater costs associated with general and administrative expenses or offering costs.

We are dependent on outside capital to continuously fund any cash flow deficits and expect this to continue until we are profitable.

Until we can reach a significant level of profitability, we will depend almost exclusively on outside capital to pay for the continued growth of our business. Such outside capital may include the sale of additional stock and/or commercial borrowing. Capital may not continue to be available if necessary to meet our continuing operational needs or, if the capital is available, that it will be on terms acceptable to us.  Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing shareholders. In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to our common stock. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.

If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business and as a result may be required to scale back or cease operations of our business, the result of which would be that our stockholders would lose some or all of their investment.

A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our operations.

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because our operations have been primarily financed through the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our liquidity and our continued operations. Any reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and would have a significant negative effect on our business plans and operations, including our ability to continue our current operations. If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations.

 
9

 
 
We may never pay any dividends to shareholders.

We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.

RISKS RELATED TO OUR COMMON STOCK

Our stock is a penny stock. Trading of our stock may be restricted by the Securities and Exchange Commission’s penny stock regulations which may limit a stockholder’s ability to buy and sell our stock.

Our stock is a penny stock.  The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a stockholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 
10

 
 
Our common stock may be negatively impacted by factors which are unrelated to our operations.

Our common stock currently trades on a limited basis on the OTC Bulletin Board. Trading of our stock through the OTC Bulletin Board is highly volatile. There is no assurance that a sufficient market will continue develop in our stock, in which case it could be difficult for shareholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.

The market for penny stocks has experienced numerous frauds and abuses that could inadvertently and adversely impact investors in our stock.

The Company is aware that that the market for penny stocks has suffered from patterns of fraud and abuse.  Such patterns include:

Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
"Boiler room" practices involving high pressure sales tactics and unrealistic price projections by sales persons;
Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.

Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our stockholders have limited protection against interested director transactions, conflicts of interest and similar matters.

The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance.  These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the Nasdaq Stock Market.  Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than legally required, we have not yet adopted these measures.

Only one of our directors is an independent director.  We do not currently have independent audit or compensation committees.  As a result, these directors have the ability, among other things, to determine their own level of compensation.  Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.

We intend to comply with all corporate governance measures relating to director independence as and when required.  However, we may find it very difficult or be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of Sarbanes-Oxley Act of 2002.  The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers.  The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.

For all of the foregoing reasons and others set forth herein, an investment in our securities in any market that may develop in the future involves a high degree of risk.
 
 
11

 
 
ITEM 1B - UNRESOLVED STAFF COMMENTS

There are no unresolved staff comments.

ITEM 2 - PROPERTIES

We own no real property and currently lease our office space. Our principal executive offices are located at 111 Lions Club Street, Scott, LA 70583.  Our telephone number is (337) 706-7056.

In March 2008, the Company entered into a five-year lease requiring monthly payments of $8,750. The Company has the option to renew the lease for a subsequent five-year term with monthly rent of $9,500. The Company also had the option to buy the facilities during the second year of the lease for the consideration of $900,000 which it had not exercised.  The Company has the option to purchase the building during the remainder of the initial term of the lease for an increased amount.

The landlord agreed to construct a laboratory building on the premises and a tank filling area and the Company agreed to pay the landlord an additional $20,000 at the end of the initial five year lease period if it does not renew the lease for the second five year term. The Company amortized the additional costs over the initial period of the lease.

We also have long-term lease for various district offices in Pharr Texas, Longview Texas and Guy Arkansas. These leases have remaining terms from February 2013 to March 2014 with monthly rent of $2,400 to $4,000 or an aggregate monthly rent of $10,150.

ITEM 3 - LEGAL PROCEEDINGS

On January 24, 2011, the Securities and Exchange Commission filed a complaint in which the Company, along with Christopher Metcalf and Bozidar Vukovich, was named. The complaint alleges that the defendants in the complaint violated Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. §78j(b), and Rule 10b-5, 17. C.F.R §§ 240.10b-5.  The only relief sought against the Company is a judgment enjoining the Company from violating those sections of the Securities Act, Exchange Act and Rule 10b-5 in the future.  On October 18, 2011, the Company entered into a consent with the Securities and Exchange Commission which resolves any claims asserted in the complaint.

On June 11, 2011, a former employee and shareholder in Turf Chemical filed a wrongful dismissal suit against the Company in United State District court for South district of Texas McAllen Division.  The Company believes the suit is without merit and will defend the suit.

We know of no other material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

ITEM 4.- SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.
 
12

 

PART II

ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES
 
Our common shares were approved for quotation on the OTC Bulletin Board on April 16, 2007, and are currently quoted for trading under the symbol “ESPI”.  The following quotations obtained from the OTC Bulletin Board reflect the high and low bids for our common stock based on inter-dealer prices, without retail mark-up, mark-down or commission an may not represent actual transactions.  The high and low bid prices of our common stock for the periods indicated below are as follows:
 
   
OTC Bulletin Board (1)
 
Quarter Ended
 
High
   
Low
 
December 31, 2011
 
$
0.20
   
$
0.11
 
September 30, 2011
 
$
0.14
   
$
0.11
 
June 30, 2011
 
$
0.18
   
$
0.10
 
March 31, 2011
 
$
0.23
   
$
0.13
 
___________
(1)
OTC Bulletin Board quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.  The transfer agent and registrar for our common stock is American Stock Transfer and Trust Company, LLC.  As of the date of this report, we had approximately 200 shareholders of record, not including those common shares held in street name.

Dividend Policy

No cash dividends have been paid by our company on our common stock.  We anticipate that our company’s future earnings will be retained to finance the continuing development of our business.  The payment of any future dividends will be at the discretion of our company’s board of directors and will depend upon, among other things, future earnings, any contractual restrictions, the success of business activity, regulatory and corporate law requirements and the general financial condition of our company.

Equity Compensation Plan Information and Stock Options

Stock Option Awards

On June 1, 2011, through the Board of Directors, the Company granted non-statutory options to purchase 5,000,000 shares each to two directors (one of whom is also the CEO of the Company). These options were granted with an exercise price equal to $0.14 per share. The stock price on the grant date was $0.125 per share. The options have a fair value of $1,211,305. The options were valued using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.125; warrant term of 6 years; expected volatility of 185% and discount rate of 1.60%. These options vest 20% on the commencement date, 20% on December 1, 2011 and 20% on the remaining 2 years anniversary of the vesting commencement date.

On June 24, 2011, through the Board of Directors, the Company granted non-statutory options to purchase 1,200,000 shares to two employees. These options were granted with an exercise price equal to $0.15 per share. The options have a fair value of $122,557. The options were valued using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.12; term of 5 years; expected volatility of 162%-189%% and discount rate of 0.74%. The stock price on the grant date was $0.12 per share. These options vest 25% each year on the anniversary of the grant date.

 
13

 
 
On July 29, 2011 the Board of Directors approved the issuance of 400,000 stock options to various employees of the Company. The stock options have an expiration of ten years from the grant date and an exercise price of $0.14 which was the market price of the Company’s common stock on the grant date. The options have a fair value of $51,899 . The options were valued using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.14; term of 10 years; expected volatility of 184% and discount rate of 1.50%. The stock price on the grant date was $0.14 per share. The options vest immediately.

On October 1, 2011, through the Board of Directors, the Company granted non-statutory options to purchase 2,000,000 shares to a director/officer of the Company as part of a new employment agreement. These options were granted with an exercise price equal to $0.12 per share and vest immediately. The stock price on the grant date was $0.115 per share. The options have a fair value of $220,880. The options were valued using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.115; warrant term of 5 years using the SEC safe harbor rules; expected volatility of 184% and discount rate of 0.87%.

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, 2008
                       
Granted
   
12,000,000
   
$
0.15
     
10.00
 
Exercised
   
-
     
-
     
-
 
Expired/Forfeited
   
-
     
-
     
-
 
Outstanding at December 31, 2010
   
12,000,000
   
$
0.15
     
9.73
 
Granted
   
13,600,000
   
$
0.14
     
8.95
 
Exercised
   
-
     
-
     
-
 
Expired/Forfeited
   
-
     
-
     
-
 
Outstanding at December 31, 2011
   
25,600,000
   
$
0.14
     
8.85
 
Exercisable at December 31, 2011
   
14,700,000
   
$
0.14
     
8.97
 

The 13,600,000 options that were granted during year 2011 had a weighted average grant-date fair value of $0.14 per share. During the year ended December 31, 2011, The Company recognized stock-based compensation expense of $1,616,676 related to stock options. As of December 31, 2011, there was approximately $698,041 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 $71,459 at December 31, 2011.

The 12,000,000 options that were granted during year 2010 had a weighted average grant-date fair value of $0.11 per share. During the year ended December 31, 2010, The Company recognized stock-based compensation expense of $633,973 related to stock options. As of December 31, 2010, there was approximately $710,255 of total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over a weighted-average period of approximately 2 years.
 
 
14

 
 
The fair value of the options granted during the years ended December 31, 2011 and 2010 was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

    2011    
2010
 
Market value of stock on grant date
  $ 0.12 - 0.14     $ 0.12  
Risk-free interest rate (1)
    0.74% - 1.60 %     2.61 %
Dividend yield
    0.00 %     0.00 %
Volatility factor
    162% - 189 %     158 %
Weighted average expected life (2)
 
55 years
   
6 years
 
Expected forfeiture rate
    0.00 %     0.00 %
 
(1)
The risk-free interest rate was determined by management using the U.S. Treasury zero-coupon yield over the contractual term of the option on date of grant.
(2)
Due to a lack of stock option exercise history, the Company uses the simplified method under SAB 107 to estimate expected term.
 
DIRECTOR COMPENSATION
 
Compensation of Directors

We currently have no formal plan for compensating our directors for their services in their capacity as directors, although we may elect to issue stock options to such persons from time to time.  Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our Board.  Our Board may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director.

Pension, Retirement or Similar Benefit Plans

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.  We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board or a committee thereof.

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of December 31, 2011 about the securities issued, or authorized for future issuance, under our equity compensation plans, including the 2011 Stock Option and Incentive Plan:

Plan Category
 
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options
(a)
   
Weighted-Average
Exercise Price
of Outstanding
Options
(b)
   
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column
(a))
(c)
 
Equity compensation plans approved by security holders
    -       -       -  
Equity compensation plans not approved by security holders
    12,000,000     $ 0.15       -  
2011 Stock Incentive Plan approved by security holders on July 29, 2011
    -       -       5,000,000  
Total
    12,000,000     $ 0.15       5,000,000  
 
 
15

 
 
Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None

ITEM 6 - SELECTED FINANCIAL DATA

The following financial data is derived from, and should be read in conjunction with, the “Financial Statements” and notes thereto. Information concerning significant trends in the financial condition and results of operations is contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Selected Historical Data
 
   
December 31,
 
   
2011
   
2010
 
Total Assets
 
$
6,912,385
   
$
4,845,901
 
Total Liabilities
 
$
6,165,393
   
$
3,913,570
 
Total Stockholders' Equity
 
$
746,992
   
$
932,331
 
Net Working Capital
 
$
(713,501)
   
$
74,453
 
Revenues (1)
 
$
11,132,243
   
$
5,477,359
 
Loss from operations (1)
 
$
(3,924,885
)
 
$
(1,935,760
)
Net Loss (1)
 
$
(4,325,514
)
 
$
(2,271,780
)

(1) Information on the results of operations for the years ended December 31, 2011 and 2010.

ITEM 7 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Notice Regarding Forward Looking Statements
 
The information contained in Item 7 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

 
16

 
 
We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.

Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to, the risks to be discussed in our Annual Report on form 10-K and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Use of Generally Accepted Accounting Principles (“GAAP”) Financial Measures

We use GAAP financial measures in the section of this report captioned “Management’s Discussion and Analysis or Plan of Operation” (MD&A), unless otherwise noted.  All of the GAAP financial measures used by us in this report relate to the inclusion of financial information.  This discussion and analysis should be read in conjunction with our financial statements and the notes thereto included elsewhere in this annual report.  All references to dollar amounts in this section are in United States dollars, unless expressly stated otherwise.  Please see our “Risk Factors” for a list of our risk factors.

Overview

This subsection of MD&A provides an overview of the important factors that management focuses on in evaluating our businesses, financial condition and operating performance, our overall business strategy and our earnings for the periods covered.

Result of Operations

Year ended December 31, 2011 as Compared to Year ended December 31, 2010
 
 
17

 
 
The following table summarizes the results of our operations during years ended December 31, 2011 and 2010.
 
   
Year Ended
December 31,
   
Year Ended
December 31,
   
Increase
   
%
Increase
 
   
2011
   
2010
   
(Decrease)
    (Decrease)  
                         
Revenue
  $ 11,132,243     $ 5,477,359     $ 5,654,884       103 %
Cost of Goods Sold
    5,302,840       2,683,069       2,619,771       98 %
Gross Profit
    5,829,403       2,794,290       3,035,113       109 %
                                 
General and administrative expenses
    8,926,659       4,420,820       4,505,839       102 %
Depreciation and amortization
    639,027       309,230       329,797       107 %
                                 
                                 
Impairment of Turf Customer list
    518,600       -       518,600       100 %
Gain on de-recognition of contingent liability
    (330,000 )             330,000       100 %
Loss from Operations
    (3,924,883 )     (1,935,760 )     (1,989,123 )     103 %
Total Other expense
    (400,631 )     (336,020 )     (64,611 )     19 %
Net loss
  $ (4,325,514 )   $ (2,271,780 )   $ (2,053,734 )     90 %

The following table summarizes the results of our operations during three months ended December 31, 2011 and 2010.
 
   
Quarter Ended
December 31,
   
Quarter Ended
December 31,
   
Increase
   
%
 Increase
 
   
2011
   
2010
   
(Decrease)
   
(Decrease)
 
                         
Revenue
  $ 3,596,504     $ 1,849,387     $ 1,747,117       94 %
Cost of Goods Sold
    1,712,863       999,040       713,823       71 %
Gross Profit
    1,883,641       850,347       1,033,294       122 %
General and administrative expenses
    2,975,362       1,258,599       1,716,763       136 %
Depreciation and amortization
    166,368       63,687       102,681       161 %
                                 
Impairment of Turf Customer list
    518,600       -       518,600       100 %
                                 
Gain on de-recognition of contingent liability
    (330,000 )             (330,000 )     100 %
Loss from Operations
    (1,446,689 )     (471,939 )     (974,750 )     207 %
                                 
Total Other expense
    (128,525 )     (62,468 )     (66,057 )     106 %
Net loss
  $ (1,575,214 )   $ (534,407 )   $ (1,040,807 )     195 %
 
 
18

 
 
Revenues

Revenue for the year-ended December 31, 2011 was $11,132,243, compared to $5,477,359 for the same period in 2010, an increase of $5,654,884, or 103%.  The increase was due to several factors including an expanded customer base in the Southern Louisiana, South Texas, Southeastern Texas and Arkansas regions and an increase in sales volume as a result of increased demand for petrochemical sales and services to customers engaged in the hydraulic fracturing of oil and gas wells.  In addition, the Company increased revenue to several of its existing customers through supply of additional production petrochemical products at its existing customer well-sites.

Revenue for the quarter-ended December 31, 2011 was $3,596,504, compared to $1,849,387 for the same period in 2010, an increase of $1,747,117, or 94%. The increase was due to expanded sales coverage in each of the Company’s districts as well as increased sales volume from the addition of completion petrochemical sales and services to customers engaged in the hydraulic fracturing of oil and gas wells.  In addition, the Company increased revenue to several of its existing customers through supply of additional production petrochemical products at its existing customer well-sites.

Gross Profit

The Company’s gross profit, as a percentage of revenue for the year, was 52.0% compared to 51.0% for the same period in 2010, an increase of 1%.  The increase in gross margin was a result of an increase in purchases of raw materials used in the Company’s operations which reduced cost on a per unit basis and added greater efficiency in the delivery of these raw materials resulting in an overall reduction in the Company’s service delivery cost.  In addition, gross margin was higher for certain petrochemical components used to service the Company’s customers engaged in the hydraulic fracturing of oil and gas wells, as compared to other products.  These certain petrochemical components made up a greater percentage of sales in 2011, as compared to same period in 2010.

The Company’s gross profit, as a percentage of revenue for the quarter, was 52% compared to 46% for the same period in 2010, an increase of 6%. This increase is the result of better costing economics from increased purchases of raw materials on a per unit basis used in the Company’s operations and greater efficiency in the delivery of these raw materials resulting in an overall reduction in the Company’s service delivery cost.  In addition, the increase in gross margin was a result of increased sales for certain petrochemical components used to service the Company’s customers engaged in the hydraulic fracturing of oil and gas wells, which have a higher gross margin than other petrochemical products.  This service was not offered in the same period in 2010.

General and Administrative Expenses

General and administrative expenses, net of amortization and depreciation, impairment of Turf Customer list and gain on de-recognition of contingent liability increased by $4,505,839, or 102% for the year, compared to the same period in 2010.  The increase in expenses for the year is primarily due to the expansion of the Company’s operating personnel from 22 to 43 employees and the cost of international business development of $377,600 that the company spent on evaluating and developing certain international opportunities.  In addition, the Company opened one new district operating office in Victoria, TX.

The stock based compensation included in the general and administrative expenses was $2,960,428 and $1,359,785 for the years ended December 31, 2011 and 2010, respectively.

The Company recognized an impairment of Turf Customer list in 2011 of $518,600, representing the decline in the revenues generated from the Turf Customer list and the Turf earn out.  The Company recognized a gain on the de-recognition of contingent liability of $330,000.

General and administrative expenses, net of amortization and depreciation, impairment of Turf Customer list and gain on de-recognition of contingent liability, increased by $1,716,763, or 136%, for the quarter ended December 31, 2011, compared to the same period in 2010 due to the expansion in the Company’s operating personnel from 35 to 43 employees and the cost of international business development of $151,331 in evaluating and developing certain international opportunities.

 
19

 
 
The stock based compensation included in the general and administrative expenses was $1,234,094 and $254,606 for the quarter ended December 31, 2011 and 2010, respectively.

For the quarter ended December 31, 2011 the Company recognized an impairment of Turf Customer list of $518,600, representing the decline in the revenues generated from the Turf Customer list and a Turf earn out.  The Company recognized a gain on the de-recognition of contingent liability of $330,000.

Net Loss

Net loss for the year ended December 31, 2011 was $4,325,514, an increase of $2,053,734 compared to a loss of $2,271,780 for the same period in 2010. The primary reason for the increase in the net loss was as a result of increase in stock based compensation and additional district offices during the year ended December 31, 2011.

Net loss for the quarter ended December 31, 2011 was $1,575,214, an increase of $1,040,807 compared to a loss of $534,407 for the same period in 2010. The primary reason for the increase in the net loss was as a result of increase in stock based compensation and the net change resulting from lower revenues from the Turf Customer list during the year ended December 31, 2011.

Modified EBITDA

Modified Earnings before interest, taxes, depreciation and amortization and impairment of Turf Customer list (“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 and shareholders 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 decreased from $190,029 for the three months ended December 31, 2010 to $60,944 for the three months ended December 31, 2011.  Modified EBITDA decreased from a loss of $440,696 for the year ended December 31, 2010 to a loss of $381,901 for the year ended December 31, 2011 and is calculated as follows:

 
Three
 
Three
         
 
Months
 
Months
 
Year
 
Year
 
 
Ended
 
Ended
 
Ended
 
Ended
 
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2011
 
2010
 
2011
 
2010
 
Net loss
  $ (1,575,214 )   $ (534,407 )   $ (4,325,514 )   $ (2,271,780 )
Add back interest expense, net of interest income
    39,946       26,085       143,184       162,069  
Add back depreciation and amortization
    166,368       63,687       639,027       309,230  
Add back impairment of Turf Customer list
    518,600       -       518,600       -  
Add back amortization debt discount
    7,150       -       12,374       -  
Add back stock-based compensation
    1,234,094       254,606       2,960,428       1,359,785  
Deduct gain on de-recognition of contingent liability - Turf
    (330,000 )             (330,000 )        
Modified EBITDA
  $ 60,944     $ 190,029     $ (381,901 )   $ (440,696 )
 
 
20

 
 
Liquidity and Capital Resources

Cash

As of December 31, 2011, we had $126,456 of cash and cash equivalents, as compared to $531,290 as of December 31, 2010.

Cash Flow

The cash flow for the years ended December 31, 2011 and 2010 are summarized below:

   
Year Ended December 31,
 
   
2011
   
2010
 
             
Net cash used in operating activities
 
$
(1,012,766
)
 
$
(901,790
)
Net cash used in investing activities
   
(672,572
)
   
(820,335
)
Net cash provided by financing activities
   
1,280,504
     
2,228,308
 
Net increase (decrease) in cash
 
$
(404,834)
   
$
506,183
 

Cash outflows from operations during the year ended December 31, 2011 amounted to $1,012,766 as compared to net cash outflows from operations of $901,790 in the same period of 2010. The increase in cash outflow was due primarily to the increase in inventory, accounts receivable and prepaid expenses.

Our cash outflows used in investing activities during the year ended December 31, 2011 amounted to $672,572 as compared to $820,335 in the same period of 2010.  Cash outflows for the purchase of fixed assets increased to $557,808 for the year ended December 31, 2011 as compared to $520,340 for the same period in 2010.

Our cash inflows from financing activities amounted to $1,280,504 in the year ended December 31, 2011 as compared to $2,228,308 in the same period of 2010. The decrease was principally from net proceeds of private placements amounting to $765,440 in 2011 compared to $1,945,100 in 2010.

Working Capital

We estimate that our general operating expenses for the next twelve month period will remain at their current levels of 2011 for professional and consulting fees, salaries, travel, telephone, office and warehouse rent, and ongoing legal, accounting, and audit expenses to comply with our reporting responsibilities as a public company under the United States Exchange Act of 1934, as amended.  Any increase in general operating expenses will be due to increases in field operating personnel as the demands from current and new customers increase.  Specifically, we will be increasing the size of our operating personnel during 2012 as we increase our presence in the East and South Texas regions as well as expansion plans in place for increases in sales in the Southeast Oklahoma and Arkansas regions.

 
21

 
 
As of December 31, 2011, our working capital was $(713,501).  We will require additional funds to implement our growth strategy.  To date, we have had negative cash flows from operations and we have been dependent on sales of our equity securities and debt financing to meet our cash requirements.  Even though we anticipate our net loss and negative cash flows to lessen over the coming quarters, we anticipate that we will have to continue to fund our net loss through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares.  There is still no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock.  Furthermore, we may continue to be unprofitable.

Cash Requirements

Our plan of operations for the next 12 months involves the growth of our completion and production petrochemical business through the expansion of district offices, regional sales and analytical services to new and existing customers.  We estimate that our needs for additional capital for the next twelve month period to be $3,000,000.  However, if our operating expenses or capital expenditures exceed estimates, we will require additional monies during the next twelve months to execute our business plan.  As of December 31, 2011, our company had cash of $126,456 and working capital of $(713,501).  We incurred a net loss of $4,325,514 for the year ended December 31, 2011.

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

Going Concern

Due to our net losses, negative cash flow and negative working capital, in their report on our audited financial statements for the year ended December 31, 2011, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.

We have historically incurred losses, and through December 31, 2011 have incurred losses of $14,477,460 since our inception.  Because of these historical losses, we will require additional working capital to develop our business operations.  We intend to raise additional working capital through private placements, public offerings, bank financing and/or advances from related parties or shareholder loans.

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

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

Off-Balance Sheet Arrangements

Our company has no outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. Our company does not engage in trading activities involving non-exchange traded contracts.
 
 
22

 

Application of Critical Accounting Policies

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures of our company.  Although these estimates are based on management’s knowledge of current events and actions that our company may undertake in the future, actual results may differ from such estimates.

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.

Environmental Costs

Environmental expenditures that relate to current operations are expensed or capitalized as appropriate.  Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed.  Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated.  Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or our company’s commitments to a plan of action based on the then known facts.

As of December 31, 2011, we have not incurred any environmental expenditures.

Derivatives

The valuation of our embedded derivatives and warrant derivatives are determined primarily by the Black-Scholes option pricing model.  An embedded derivative is a derivative instrument that is embedded within another contract.  In the case of a convertible note payable (the host contract), any 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) are each embedded derivative instruments.  In accordance with 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.

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.
 
 
23

 
 
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
 
The Company reviews its long-lived assets and identifiable finite-lived intangibles for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  The first step of the impairment test, used to identify potential impairment, compares undiscounted future cash flows of the asset or asset group with the related carrying amount. If the undiscounted future cash flows of the asset or asset group exceed its carrying amount, the asset or asset group is not considered to be impaired and the second step is unnecessary. If such assets were considered to be impaired, the impairment to be recognized would be measured by the amount by which the carrying amount of the assets exceeds the fair market value of the assets.  Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the year ended December 31, 2011, we determined that the uncertainty surrounding the revenue stream of those assets acquired in the Turf acquisition was sufficient to trigger an impairment analysis. The undiscounted future cash flows of the customer list acquired in the Turf acquisition did not exceed its carrying value.  Therefore, we completed a discounted cash flow model derived from internal budgets in assuming fair values for the impairment testing. Factors that could change the result of our impairment test include, but are not limited to, different assumptions used to forecast future net sales, expenses, capital expenditures and resources, and liquidity and working capital requirements used in our cash flow models. In addition, selection of a risk-adjusted discount rate on the estimated undiscounted cash flow is susceptible to future changes in market conditions, and when unfavorable, can adversely affect our original estimates of fair value. We have concluded that impairment had existed at December 31, 2011 and has recorded an impairment charge, measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value, of $518,600 for the year ended December 31, 2011.
 
ITEM 7A - QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company, as defined by Rule 229.10(f)(1) and are not required to provide the information required by this Item.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.

The following financial statements are filed as part of this annual report:

 
24

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors
ESP Resources, Inc.
Scott, Louisiana

We have audited the accompanying consolidated balance sheets of ESP Resources, Inc. and its subsidiaries (collectively, the“Company”) as of December 31, 2011 and 2010, and the consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ESP Resources, Inc. and its subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, The Company has incurred losses and negative cash from operations through December 31, 2011. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 2. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

/s/MaloneBailey, LLP
www.malone-bailey.com
Houston, Texas

March 21, 2012

 
25

 
 
ESP Resources, Inc.
Consolidated Balance Sheets
December 31, 2011 and 2010
 
   
December 31,
   
December 31,
 
   
2011
   
2010
 
                 
ASSETS
CURRENT ASSETS
               
Cash and cash equivalents
 
$
        126,456
   
$
531,290
 
Restricted cash
   
        192,198
     
77,434
 
Accounts receivable, net
   
     1,920,933
     
1,580,151
 
Inventories
   
     1,571,889
     
731,032
 
Prepaid expenses and other current assets
   
        360,525
     
157,356
 
                 
Total current assets
   
     4,172,001
     
3,077,263
 
                 
Property and equipment, net of accumulated depreciation of $750,519 and $419,027, respectively
     2,690,122
     
1,024,123
 
Intangible assets, net of amortization of $397,180 and $214,186 respectively and impairment in 2011 of $518,600
                  -
     
700,784
 
Other assets
   
          50,262
     
43,731
 
                 
Total assets
 
$
     6,912,385
   
$
4,845,901
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES
               
Accounts payable
 
$
     1,574,521
   
$
1,252,787
 
Factoring payable
   
     1,642,285
     
749,586
 
Accrued expenses
   
        387,465
     
436,321
 
Due to related parties
   
          76,286
     
58,139
 
Guarantee liability
   
        120,000
     
120,000
 
Short-term debt
   
        270,528
     
110,118
 
Current maturities of long-term debt
   
        701,016
     
247,578
 
Current portion of capital lease obligation
   
        113,401
     
28,281
 
                 
Total current liabilities
   
     4,885,502
     
3,002,810
 
                 
Long-term debt (less current maturities)
   
     1,032,135
     
484,817
 
Capital lease obligations (less current maturities)
   
        191,319
     
46,943
 
Contingent consideration payable for acquisition of Turf
          31,437
     
350,000
 
Deferred lease cost
   
          25,000
     
29,000
 
                 
Total liabilities
   
     6,165,393
     
3,913,570
 
                 
STOCKHOLDERS' EQUITY
               
Common stock - $0.001 par value, 350,000,000 shares authorized, 110,000,008 and 87,488,558 shares issued and outstanding, respectively
        110,000
     
            87,489
 
Preferred stock - $0.001 par value, 10,000,000 shares authorized in 2011, zero outstanding
                  -
     
                   -
 
Additional paid-in capital
   
   15,115,452
     
     11,022,788
 
Subscription receivable
   
           (1,000)
     
          (26,000)
 
Accumulated deficit
   
  (14,477,460)
     
   (10,151,946)
 
                 
Total stockholders' equity
   
        746,992
     
          932,331
 
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
     6,912,385
   
$
4,845,901
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
26

 
 
ESP Resources, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2011 and 2010
 
   
December 31,
 
   
2011
   
2010
 
             
SALES, NET
  $ 11,132,243     $ 5,477,359  
COST OF GOODS SOLD
    5,302,840       2,683,069  
                 
GROSS PROFIT
    5,829,403       2,794,290  
                 
General and administrative
    8,926,659       4,420,820  
Depreciation and amortization
    639,027       309,230  
Impairment of Turf Customer list
    518,600       -  
Gain on de-recognition of contingent liability Turf
    (330,000 )     -  
                 
LOSS FROM OPERATIONS
    (3,924,883 )     (1,935,760 )
                 
OTHER INCOME (EXPENSE)
               
Interest expense
    (143,241 )     (162,069 )
Factoring fees
    (243,855 )     (117,139 )
Amortization of debt discount
    (12,374 )     -  
Other expense, net
    (1,218 )     (56,908 )
Interest income
    57       96  
                 
                 
                 
Total other expense
    (400,631 )     (336,020 )
                 
NET LOSS
  $ (4,325,514 )   $ (2,271,780 )
                 
                 
NET LOSS PER SHARE (basic and diluted)
  $ (0.04 )   $ (0.03 )
                 
WEIGHTED AVERAGE SHARES OUTSTANDING
    102,393,813       67,058,813  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
27

 
 
ESP Resources, Inc.
Statement of Stockholders’ Equity (Deficit)
For the Years Ended December 31, 2011 and 2010
 
   
Common stock
         
Subscription
   
Accumulated
         
   
Number
   
Par Value
     
APIC
   
Receivable
   
Deficit
     
Total
 
Balance, December 31, 2009
   
   45,185,295
   
$
      45,185
   
$
     7,398,877
   
$
       (1,000)
   
$
         (7,880,166)
   
$
        (437,104)
 
                                                 
Stock based compensation
   
      9,701,688
     
        9,702
     
      1,350,083
      -       -      
      1,359,785
 
                                                 
Shares issued in connection with contractual dispute setlement
      1,000,000
     
         1,000
     
          129,000
      -       -      
          130,000
 
                                                 
Shares issued in connection with note payable conversion
      2,180,857
     
          2,181
     
             74,149
      -       -      
            76,330
 
                                                 
Forgiveness of Related Party Debt
                   
          130,000
      -       -      
          130,000
 
                                                 
Shares issued with private placement
   
   29,420,718
     
      29,421
     
      1,940,679
      -       -      
       1,970,100
 
                                                 
Private placement memorandum receivable
                           
   (25,000)
      -      
          (25,000)
 
                                                 
Net loss
    -       -       -       -      
         (2,271,780)
     
    (2,271,780)
 
                                                 
Balance, December 31, 2010
   
87,488,558
     
87,489
     
11,022,788
     
   (26,000)
     
        (10,151,946)
     
932,331
 
                                                 
Stock based compensation
   
7,685,000
     
        7,685
     
     2,952,743
        -      
 -
     
     2,960,428
 
                                                 
Shares issued for legal services
   
1,801,495
     
          1,801
     
         248,706
        -      
 -
     
         250,507
 
                                                 
Shares issued with private placement
   
11,885,713
     
       11,886
     
         753,554
        -      
 -
     
         765,440
 
                                                 
Shares issued in connection with note payable
   
          515,000
     
              515
     
            63,285
        -         -      
            63,800
 
                                                 
Shares issued for cash
   
624,242
     
             624
     
            74,376
        -         -      
            75,000
 
                                                 
Subscription receivable
      -         -         -      
     25,000
        -      
            25,000
 
                                                 
Net loss
   
                         -
     
                  -
     
                         -
     
                  -
     
         (4,325,514)
     
    (4,325,514)
 
                                                 
Balance december 31, 2011
   
110,000,008
     
110,000
     
15,115,452
     
       (1,000)
     
      (14,477,460)
     
746,992
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
28

 
 
ESP Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flow
For the Years Ended December 31, 2011 and 2010
 
   
December 31,
 
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES
         
Net loss
 
$
       (4,325,514)
   
$
       (2,271,780)
 
Adjustments to reconcile net loss to net cash
             
used for operating activities:
               
Stock issued for legal services
   
           250,507
     
                     -
 
Common shares issued for current year loss on settlement of contractual dispute
 -
     
             15,000
 
Amortization of debt discount
   
             12,374
     
             75,000
 
Loss on disposal of assets
   
             97,932
     
                     -
 
Depreciation and amortization, net disposals
           639,027
     
           379,382
 
Bad debt expense
   
           161,567
     
             36,326
 
Impairment of Turf customer list
   
           518,600
     
 -
 
Stock based compensation
   
        2,960,428
     
        1,359,785
 
Reduction in Turf contingency
   
          (330,000)
     
 -
 
Changes in operating assets and liabilities:
         
Accounts receivable
   
          (502,349)
     
          (800,774)
 
Inventory
   
          (840,857)
     
          (440,814)
 
Prepaid expenses and other current assets
   
             91,930
     
               9,382
 
Other assets
   
              (6,531)
     
            (16,945)
 
Accounts payable
   
           308,978
     
           662,988
 
Accrued expenses
   
            (48,858)
     
           159,160
 
Accrued expense to related parties
   
                     -
     
            (68,500)
 
                 
CASH USED IN OPERATING ACTIVITIES
   
       (1,012,766)
     
          (901,790)
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES
           
Restricted cash
   
          (114,764)
     
            (36,295)
 
Cash payment for acquisition of Turf
   
                     -
     
          (263,700)
 
Purchase of fixed assets
   
          (557,808)
     
          (520,340)
 
                 
CASH USED IN INVESTING ACTIVITIES
   
          (672,572)
     
          (820,335)
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES
         
Borrowing on debt
   
                     -
     
           158,013
 
Repayment of long term debt
   
       (1,024,309)
     
          (221,975)
 
Repayment of capital leases
   
            (86,347)
     
            (21,692)
 
Repayment of short-term debt
   
          (134,712)
     
                     -
 
Advances- Related party
   
             18,147
     
 -
 
Net factoring advances
   
        1,642,285
     
           368,862
 
Proceeds from sales of units in private placement, net
           765,440
     
        1,945,100
 
Proceeds from sale of stock
   
             75,000
     
 -
 
Collecton on subscription receivable
   
             25,000
     
 -
 
                 
CASH PROVIDED BY FINANCING ACTIVITIES     1,280,504       2,228,308  
                 
NET INCREASE IN CASH
   
          (404,834)
     
506,183
 
CASH AT BEGINNING OF PERIOD
   
531,290
     
25,107
 
                 
CASH AT END OF PERIOD
 
$
126,456
   
$
531,290
 
                 
Supplemental Disclosures of Cash Flow Information
       
Cash paid for interest
 
$
120,561
   
$
             76,184
 
Non-cash investing and financing transactions:
         
Forgiveness of debt from related party
$
-
   
$
130,000
 
Notes issued for purchase of property and equipment
1,433,288
     
20,067
 
Assets returned and release of notes payable
 
102,111
     
-
 
Value of capitalize lease issued
   
323,033
     
-
 
Debt discount on shares issued with note payable
63,800
     
-
 
Stock issued for debt conversion
   
-
     
76,330
 
Shares issued for prior year accural of contractual dispute settlement
-
     
115,000
 
Debt issued for insurance
   
295,122
     
                     -
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
29

 
 
ESP Resources, Inc
Notes to Consolidated Financial Statements
December 31, 2011 and 2010
 
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. (“ESP Petrochemicals”) and ESP Resources, Inc. of Delaware (“ESP Delaware”). ESP Petrochemicals also owns certain assets and liabilities of Turf Chemistry Inc. (“Turf”), a Texas corporation. On September 7, 2011 the Company became a 49% partner in a new entity, ESP Marketing LLC. The Company management will direct the operations of the business and the company will receive 80% of the profits. All significant inter-company balances and transactions have been eliminated in the consolidation. The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America.  Any reference herein to “ESP Resources”, the “Company”, “we”, “our” or “us” is intended to mean ESP Resources, Inc. including the wholly-owned subsidiaries indicated above, unless otherwise indicated.

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.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed

The Company reviews its long-lived assets and identifiable finite-lived intangibles for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  The first step of the impairment test, used to identify potential impairment, compares undiscounted future cash flows of the asset or asset group with the related carrying amount. If the undiscounted future cash flows of the asset or asset group exceed its carrying amount, the asset or asset group is not considered to be impaired and the second step is unnecessary. If such assets were considered to be impaired, the impairment to be recognized would be measured by the amount by which the carrying amount of the assets exceeds the fair market value of the assets.  Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the year ended December 31, 2011, the Company determined that the uncertainty surrounding the revenue stream of those assets acquired in the Turf acquisition was sufficient to trigger an impairment analysis. The undiscounted future cash flows of the customer list acquired in the Turf acquisition did not exceed its carrying value.  Therefore, the Company completed a discounted cash flow model derived from internal budgets in assuming fair values for the impairment testing. Factors that could change the result of our impairment test include, but are not limited to, different assumptions used to forecast future net sales, expenses, capital expenditures and resources, and liquidity and working capital requirements used in our cash flow models. In addition, selection of a risk-adjusted discount rate on the estimated undiscounted cash flow is susceptible to future changes in market conditions, and when unfavorable, can adversely affect our original estimates of fair value. The Company has concluded that impairment had existed at December 31, 2011 and has recorded an impairment charge, measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value, of $518,600 for the year ended December 31, 2011.

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.

 
30

 
 
Principles of consolidation

The consolidated financial statements include the accounts of ESP Resources and its wholly-owned subsidiaries for the years ended December 31, 2011 and 2010. All significant inter-company transactions and balances have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company had $126,456 and $531,290 cash and cash equivalents at December 31, 2011 or 2010, respectively.

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 December 31, 2011 and 2010:

   
2011
   
2010
 
Trade receivables
 
$
2,070,334
   
$
1,616,477
 
Less: Allowance for doubtful accounts
   
(149,401
)
   
(36,326)
 
Net accounts receivable
 
$
1,920,933
   
$
1,580,151
 

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 December 31, 2011 and 2010, inventory consisted of the following:
 
   
2011
   
2010
 
Raw materials
  $ 831,504     $ 536,351  
Finished goods
    740,385       194,681  
Total inventory
  $ 1,571,889     $ 731,032  

 
31

 
 
Property and equipment

Property and equipment of the Company is stated at cost. Expenditures for property and equipment which substantially increase the useful lives of existing assets are capitalized at cost and depreciated. Routine expenditures for repairs and maintenance are expensed as incurred.

Depreciation is provided principally on the straight-line method over the estimated useful lives ranging from five to ten years for financial reporting purposes.
 
Intangible assets – Customer list

The Customer list carrying values are being amortized over a five-year period. Amortization expense for the years ended December 31, 2011 and 2010 was $182,940 and $183,476, respectively.  Additionally, the asset was impaired during the year ended December 31, 2011, see the discussion of Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed above.

Derivatives

The valuation of our embedded derivatives and warrant derivatives are determined primarily by the Black-Scholes option pricing 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.

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.

Income Taxes

In accordance with ASC 740 “Accounting for Income Taxes”, the provision for income taxes is computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
 
Concentration

The Company has three major customers that together account for 61% of accounts receivable at December 31, 2011 and 57% of the total revenues earned for the year ended December 31, 2011.

   
Accounts
       
   
receivable
   
Revenue
 
Customer A
   
31
%
   
8
%
Customer B
   
15
%
   
21
%
Customer C
   
15
%
   
28
%
     
61
%
   
57
%

 
32

 
 
The Company has two vendors that accounted for 53% and 16% of purchases during 2011.

The Company had four major customers that together accounted for 49% of accounts receivable at December 31, 2010 and four major customers that together accounted for 39% of the total revenues earned for the year ended December 31, 2010.
 
   
Accounts
       
   
receivable
   
Revenue
 
Customer A
   
5
%
   
11
%
Customer B
   
-
%
   
10
%
Customer C
   
19
%
   
6
%
Customer D
   
15
%
   
4
%
Customer E
   
10
%
   
8
%
     
49
%
   
39
%
 
The Company has one vendor that accounted 18% of purchases during 2010.

The Company places its cash and cash equivalents with financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. From time to time, the Company’s cash balances exceeded FDIC insured limits. At December 31, 2011, the Company’s uninsured cash balance was $170,000.

Revenue and Cost Recognition

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

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

Advertising

Advertising costs are charged to operations when incurred. Advertising expense for the year ended December 31, 2011 and 2009 were $8,330 and $1,470, respectively.
 
 
33

 
 
Basic and Diluted Loss Per Share

Basic and diluted earnings or loss per share (“EPS”) amounts in the consolidated financial statements are computed in accordance Accounting Standard Codification (ASC) 260 – 10 “Earnings per Share”, which establishes the requirements for presenting EPS. Basic EPS is based on the weighted average number of common shares outstanding. Diluted EPS is based on the weighted average number of common shares outstanding and dilutive common stock equivalents. Basic EPS is computed by dividing net income or loss available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Potentially dilutive securities were excluded from the calculation of diluted loss per share, because their effect would be anti-dilutive.

Business Segments

The Company operates on one segment in one geographic location the United States of America and therefore segment information is not presented.

Fair Value of Financial Instruments

The carrying amounts of the company’s financial instruments including accounts payable, accrued expenses, and notes payable approximate fair value due to the relative short period for maturity these instruments.

Environmental Costs

Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or the Company’s commitments to a plan of action based on the then known facts.

The Company incurred no environmental expenses during the years ended December 31, 2011 and 2010, respectively.

Reclassification

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

Note 2 – Going Concern

At December 31, 2011, the company had cash and cash equivalents of $126,456 and deficit working capital of $713,501. 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 2011 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, 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.

 
34

 
 
Note 3 – Factoring Payable

On May 24, 2011, ESP Petrochemical Inc. (EPPI) entered into a Account Receivable Financing agreement with Crestmark Commercial Capital Leading LLC, 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 100 percent of eligible accounts receivable, subject to a 0.75 percent per 15 days factoring fee, with ten percent 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 principle 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 EPPI. The total borrowing under the agreement at December 31, 2011 was $1,642,285 with $192,198 held in restricted cash in the consolidated balance sheets.

On February 2, 2007, the EPPI entered into a combined account factoring and security agreement with Midsouth Bank, which was terminated by the Company on June 8, 2011. The line of credit was secured by all inventory, accounts, general intangibles, and equipment of the Company and a commercial guarantee of a Company stockholder. The total borrowings under the factoring agreement at December 31, 2010 was $749,586 with $77,434 held in restricted cash in the consolidated balance sheets.

Note 4 – Property and equipment
 
Property and equipment includes the following at December 31, 2011 and 2010:
 
   
2011
   
2010
 
Plant, property and equipment
 
$
1,389,621
   
$
632,159
 
Vehicles
   
1,601,003
     
661,768
 
Equipment under capital lease
   
385,806
     
97,332
 
Office furniture and equipment
   
64,211
     
51,891
 
     
3,440,641
     
1,443,150
 
Less: accumulated depreciation
   
(750,519
)
   
(419,027
)
Net property and equipment
 
$
2,690,122
   
$
1,024,123
 

Depreciation expense was $456,087 and $199,686 for the year ended December 31, 2011 and 2010, respectively. The Company allocated $23,368 and $74,152 of depreciation to cost of goods sold during the year ended December 31, 2011 and 2010, respectively.
 
 
35

 
 
Note 5-   Long Term Debt

Long term debt consisted of the following at December 31, 2011 and 2010:

   
2011
   
2010
 
Note payable to Midsouth Bank dated May 2007. The Note bears interest at 12.0 percent per annum and is payable in monthly installments of $194, maturing May 2012. The note is secured by equipment and deposit accounts.
 
$
898
   
$
2,984
 
Note payable to Midsouth Bank dated February 2007. The note bears interest at 12.0 percent per annum and is payable in monthly installments of $169, maturing February 2012 The note is secured by equipment and deposit accounts.
   
-
     
2,158
 
Note payable to FMC dated January 2007. The note bears interest at 2.90 percent per annum and is payable in monthly installments of $945, maturing February 2012. The note is secured by a vehicle.
   
2,837
     
13,992
 
Note Payable to FMC dated January 2007. The note bears interest at 2.90 percent per annum and is payable in monthly installments of $902, maturing February 2012. The note is secured by a vehicle.
   
-
     
14,213
 
Note payable to FMC dated January 2007. The note bears interest at 2.90 percent per annum and is payable in monthly installments of $925 maturing February 2012. The note is secured by a vehicle.
   
2,779
     
13,706
 
Note assumed with vehicle purchase, payable to FMC dated December 2006. The note bears interest at 9.90 percent per annum and is payable in installments of $724, maturing December 2011. The notes is secured by a vehicle.
   
-
     
8,981
 
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.
   
1,759
     
3,240
 
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.
   
41,951
     
50,393
 
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.
   
30,403
     
38,229
 
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 February 12, 2009, the Company borrowed $41,415 for the purchase of a vehicle. The note bears interest at 6.75% per year, is secured by the vehicle purchased and is payable in 60 monthly payments of $817.
   
19,581
     
27,767
 
On February 15, 2009, the Company borrowed $4,343 for the purchase of equipment. The note bears interest at 12% per year, is secured by the equipment purchased and is payable 36 monthly payments of $145
   
269
     
1,866
 
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.
   
31,956
     
41,912
 
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.
   
35,671
     
46,435
 
Note assumed with the acquisition of Turf Chemicals, Inc. Note assumed with boat purchase, payable to Key Bank dated May 17, 2007. The note bears interest at 10.50% percent per annum and is payable in installments of $481, maturing May 17, 2022. The note is secured by a boat.This note is in default at December 31, 2011 and classified as a current liability.
   
-
     
38,295
 
Note assumed with the acquisition of Turf Chemicals, Inc. Note assumed with vehicle purchase, payable to FMC dated April 2008. The note bears interest at 7.90 percent per annum and is payable in installments of $992, maturing April 2013. The note is secured by a vehicle.
   
-
     
25,979
 
Note assumed with the acquisition of Turf Chemicals, Inc. Note assumed with vehicle purchase, payable to FMC dated April 2008. The note bears interest at 7.99 percent per annum and is payable in installments of $614, maturing April 2013. The note is secured by a vehicle.
   
-
     
15,944
 
Note assumed with the acquisition of Turf Chemicals, Inc. Note assumed with vehicle purchase, payable to FMC dated April 2008. The note bears interest at 7.99 percent per annum and is payable in installments of $458, maturing April 2013. The note is secured by a vehicle.
   
-
     
11,447
 
Note assumed with the acquisition of Turf Chemicals, Inc. Note assumed with vehicle purchase, payable to FMC dated April 2008. The note bears interest at 7.99 percent per annum and is payable in installments of $693, maturing April 2013. The note is secured by a vehicle.
   
-
     
14,886
 
 
 
 
36

 
 
 
On November 1st and January 24th, 2011, the Company borrowed $49,675 and $52,727 for the purchase of vehicles. The notes bears interest at 7.9% per year, is secured by the vehicle purchased and is payable in 48 monthly payments of $1,214 and $1,289, respectively.
   
82,163
     
-
 
On March 11, 2011, the Company borrowed $166,387 for the purchase of vehicles. The notes has an implied interest at 3.0% per year, is secured by the vehicles purchased and are payable in 48 monthly payments of $3,466.
   
135,190
     
-
 
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.
   
52,757
     
-
 
On April 25 and 27, 2011, the Company borrowed $76,507 for the purchase of a vehicles. The notes has an implied interest at 3.0% per year, is secured by the vehicles purchased and are payable in 60 monthly payments of $1,376.
   
68,239
     
-
 
On April 18, 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.
   
38,280
     
-
 
On June 9 and June 29, 2011, the Company borrowed $95,074 for the purchase of vehicles. The notes bear interest at 3.0% & 0 % per year, is secured by the vehicles purchased and is payable in 60 Monthly payments of $1,705.
   
86,133
     
-
 
On June 3, 2011 the Company borrowed $75,000 for the purchase of a vehicle. The note bear interest at 10% per year, is secured by the vehicle purchased and is payable in 24 monthly payments of $4,361. In addition the Company issued 225,000 shares of its common stock with a value of $29,250 which has been treated as a debt discount to the loan and is being amortized over the term of the loan.
   
57,626
     
-
 
On July 14 and July 15, 2011 the Company borrowed $150,000 for the purchase of vehicles. The notes bear interest at 10% per year, is secured by the vehicles purchased and is payable in 24 monthly payments of $6,921
   
121,165
     
-
 
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.
   
27,867
     
-
 
On July 28, 2011, the Company borrowed $116,416 for the purchase of vehicles. The notes bear interest at 6.74% per year, is secured by the vehicles purchased and is payable in 36 monthly payments of $3,581.
   
101,615
     
-
 
On July 30, 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.
   
57,067
     
-
 
On September 13, 2011 the Company borrowed $120,000 for the purchase of a vehicle. The note bear interest at 10% per year, is secured by the vehicle purchased and is payable in 24 monthly payments of $5,537. In addition the Company issued 120,000 shares of its common stock with a value of $15,000 which has been treated as a debt discount to the loan and is being amortized over the term of the loan.
   
106,274
     
-
 
On October 28, 2011 the Company borrowed $120,000 for the purchase of a vehicle. The note bear interest at 10% per year, is secured by the vehicle purchased and is payable in 24 monthly payments of $5,537. In addition the Company issued 120,000 shares of its common stock with a value of $19,550 which has been treated as a debt discount to the loan and is being amortized over the term of the loan.
   
110,887
     
-
 
 
 
37

 
 
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.
   
38,166
     
-
 
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.
   
37,657
     
-
 
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.
   
33,195
     
-
 
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.
   
62,684
     
-
 
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.
   
39,540
     
-
 
                 
Total
   
1,784,577
     
732,395
 
Less debt discount
   
(51,426
)
   
-
 
Less current maturities
   
(701,016
)
   
(247,578
)
Total long-term debt
 
$
1,032,135
   
$
484,817
 

Maturities are as follows:
 
2012
 
$
701,016
 
2013
   
666,360
 
2014
   
285,345
 
2015
   
98,179
 
thereafter
   
33,677
 

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

In April, 2011the Company purchased certain vehicles by issuing secured debt of $118,782 with annual interest ranges of 3% to 7.9% and a term of 60 months. In May, 2011 the Company purchased vehicles by issuing debt of $95,074 with an annual interest rate of 3% and a term of 60 months.

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

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

 
38

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

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

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

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

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

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

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.

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.

On October 28, 2011 the Company purchased certain vehicles and equipment by issuing secured debt of $120,000 with an annual interest rate of 10% and a term of 24 months. As part of the consideration for making the loan the Company issued 120,000 shares of its common stock with a value of $19,500 which has been treated as a debt discount to the loan and is being amortized over the term of the loan.

On November 2, 2011, the Company purchased a vehicle by issuing secured debt of $34,058 with an annual interest rate of 6.4% and a term of 36 months.

On November 21, 2011, the Company purchased a vehicle by issuing secured debt of $39,540 with an implied interest of 3.0% and a term of 36 months.

On November 30, 2011, the Company purchased a vehicle by issuing secured debt of $62,684 with an annual interest of 6.4% and a term of 36 months.

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 December 31, 2011:

   
Year
   
Borrowing
   
Term in months
   
Monthly payment
   
2011
 
Warehouse equipment
 
2008
    $ 41,591       58     $ 819     $ 10,256  
Vehicles
    2009-2011     $ 368,766       21-72     $ 887-$1,905       175,990  
Office equipment
    2011     $ 10,140       24     $ 260       9,620  
Special purpose equipment
    2011     $ 108,853       36     $ 3,702       108,854  
                                         
                                      304,720  
less current portion
                                    (113,401 )
Total long-term capital lease
                            $ 191,319