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EX-32.1 - EXHIBIT 32.1 - ESP Resources, Inc.exh_321.htm
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EX-32.2 - EXHIBIT 32.2 - ESP Resources, Inc.exh_322.htm
EX-31.2 - EXHIBIT 31.2 - ESP Resources, Inc.exh_312.htm
EXCEL - IDEA: XBRL DOCUMENT - ESP Resources, Inc.Financial_Report.xls
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, 2014
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.)
     
 
1003 South Hugh Wallis Road, Suite G-1
Lafayette, Louisiana 70508
 
70508
(Address of principal executive offices)
 
(Zip Code)

(832) 342-9131
(Issuer’s telephone number)

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

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

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 was $2,602,659.

There were 237,830,249 shares of the Company’s common stock outstanding as of April 13, 2015.

Documents incorporated by reference: None

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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 the 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 (USD) and are prepared in accordance with United States generally accepted accounting principles (GAAP).

Any reference herein to “ESP Resources,” the “Company,” “we,” “our” or “us” is intended to mean ESP Resources, Inc., a Nevada corporation, including our subsidiaries unless otherwise indicated.

In this Annual Report, unless otherwise specified, all references to “common shares” refer to the common shares of our capital stock, having a par value of $0.001 per share.

Corporate History

We were incorporated on October 27, 2004, in the State of Nevada. Our principal offices are located at 1003 South Hugh Wallis Road, Suite G-1, Lafayette, Louisiana 70508.

Effective September 28, 2007, we completed a merger with our subsidiary, Pantera Petroleum Inc., a Nevada corporation. As a result, we changed our name from “Arthro Pharmaceuticals, Inc.” to “Pantera Petroleum, Inc.” In addition, effective September 28, 2007, we effected a sixteen-for-one 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-for-twenty 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 Venture Stage Marketplace (OTCQB) 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.

 
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Our Business

Through our subsidiaries, we manufacture, blend, distribute and market specialty chemicals and analytical services to the oil and gas industry and provide services for the upstream, midstream and downstream sectors of the energy industry, including new construction, major modifications to operational support for onshore and offshore production, gathering, refining facilities and pipelines designed to optimize performance and increase operators’ return on investment.
 
ESP Petrochemicals, Inc.

Through our wholly owned subsidiary ESP Petrochemicals, Inc. (“ESP Petro”), 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 complex integration of chemicals and methods 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 and gas, responding to customers’ changing demands and applying our skills as chemical formulators enable us to measure the impact we have in our business.

ESP Petro acts as a 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 customer base is generally comprised of oil and gas exploration companies that plan, finance, drill and operate wells 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.

 
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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

Our first goal is to solve our customers’ problem at the well and optimize drilling or production and, secondly, the sale of our products. Typically, our service personnel gather information at a well and enter the data into the analytical system at each of our five respective district offices located in Rayne, Louisiana; Pharr, Texas; Victoria, Texas and Center, 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.

Discontinued operations

On June 11, 2013, the board of directors resolved to discontinue operations of various subsidiaries, including ESP Facility and Pipeline Services, Inc., ESP Advanced Technologies, Inc., ESP KUJV Limited Joint Venture and ESP Marketing Group LLC (collectively, the “Discontinued Subsidiaries”). The Discontinued Subsidiaries were not wholly-owned by the Company and, in accordance with the decision to discontinue operations, no longer receive financial or management support. The Company reflected 100% of the losses related to the subsidiaries in its results from discontinued operations.

 
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Competition

The Company currently shares market distribution with several, significantly larger participants, including 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 need to continually enhance and update our chemical processes and technologies to 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 for our customers that are currently offered by our suppliers.

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 (collectively, “Environmental Laws”). The operation of the Company’s facilities and the distribution of chemical products entail risks under Environmental Laws, many of which provide for substantial remediation costs in the event of discharges of contaminants and fines and sanctions for violations. Violations of Environmental Laws could result in the imposition of substantial criminal fines and penalties against the Company and their officers and employees in certain circumstances. The costs associated with responding to civil or criminal matters can be substantial. Also, significant civil or criminal violations could adversely impact the Company’s marketing ability in the region served by the Company. Compliance with existing and future Environmental Laws may require significant capital expenditures by the Company, although we do not anticipate having to expend significant resources to comply with any governmental regulations applicable to our current operations.

We are required to obtain licenses and permits from various governmental authorities in connection with our operations. 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 are subject to federal and state laws and regulations that 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 subject to federal and state laws and regulations concerning 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.

 
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We are also subject to the laws and regulations that 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 our 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, 2014, we had 38 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 the 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.

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.

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.

 
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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.

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 that this insurance will be adequate to cover all losses or liabilities the Company may incur in its operations or that the Company will be able to maintain insurance of the types or at levels that are adequate or at reasonable rates.

 
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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 the 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, 2014, we had a total of 83 customers, four of which were major customers that together accounted for 68% of accounts receivable and 59% of the total revenues earned for the year ended December 31, 2014. The loss of one or more of our major customers would have a serious material negative economic impact on the 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.

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.

 
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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.

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.

We may never pay any dividends to shareholders.

We have never declared nor 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.

 
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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 that 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 3a51-1, 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, including Rule 15g-9 promulgated under the Securities Act of 1934, 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 that 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.

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

Our common stock currently trades on a limited basis on the OTC Venture Stage Marketplace (OTCQB). Trading of our stock through the OTCQB is highly volatile. There is no assurance that a sufficient market will 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.

 
9

 
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, requires 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.

As of December 31, 2014 and 2013, the Company did not have an independent directors. We do not currently have independent audit or compensation committees. Currently, our bylaws only allow for a total of three directors. 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.

ITEM 1B - UNRESOLVED STAFF COMMENTS

There are no unresolved staff comments.

 
10

 
ITEM 2 - PROPERTIES

We currently own no real property and lease our office space and production facilities.

Our principal executive offices are located at 1003 South Hugh Wallis Road Suite G-1 Lafayette, Louisiana 70508. Our telephone number is (832) 342-9131. Currently, we service our customers out of four district offices, which are all under lease. We have long-term leases for various district offices in Center Texas and Rayne, Louisiana. These leases have remaining terms from January 2018 to June 2023 with monthly rent ranging from $1,500 to $8,750, with an aggregate monthly rent of $14,850.

On June 1, 2013 the Company entered into a ten-year lease requiring monthly payment of $8,750 for our primary production facility in Rayne, Louisiana. The Company has the option to purchase the property for five years commencing one year after lease execution. The purchase option price will be for $100,000 above the lessor’s full cost of ownership for the first two years of the option, and increase by $50,000 per year for the third through fifth year of the option term.

On January 26, 2015 the Company entered into a three-year lease requiring monthly payment of $1,500 for our 4,000 square foot facility in Center, Texas.

On August 15, 2012 the Company entered into a five-year lease requiring a monthly payment ranging from $11,083 to $11,775 for our office in The Woodlands, Texas. On June 7, 2013 the Company subleased the Company’s Houston, Texas office, improvements and certain equipment to a non-related third party for monthly payments of $12,939. The sublease became effective July 1, 2013, with the term of the sublease coinciding with the original lease by the Company. The Company determined the remaining lease cost plus amortization and depreciation on the remaining leasehold improvements and equipment exceeded the sublease income by $274,555 and reflected a loss on disposal.

ITEM 3 - LEGAL PROCEEDINGS

Daniel A. Spencer v. ESP Advanced Technologies, Inc.

The District Court of Caddo Parish, Louisiana entered a default judgment in favor of Daniel Spencer and against ESP Advanced Technologies, Inc. on October 17, 2013 for $3,500,000, together with future interest from October 14, 2013, until paid, at a rate of 20% per annum for default after service. All of the operations of ESP Advanced Technologies, Inc. were discontinued on June 11, 2013. The Company believes this judgment is without merit and will vigorously pursue post-judgment remedies to set aside the judgment and have it annulled under Louisiana law. Management does not consider the potential for loss to be probable. Accordingly, the judgment amount was not accrued.
 
ESP Petrochemicals, Inc. v. Shane Cottrell, Platinum Chemicals, LLC, Ladd Naquin, Joe Lauer, Patrick Williams, Ralph McClelland and Ronald Walling

On March 2, 2012, the Company filed a trade secret infringement lawsuit to protect its rights against a former employee, a competitor and officers of the competitor. On November 21, 2012, an Agreed Final Judgment was entered in the lawsuit against the Defendants. Under the terms of the Agreed Final Judgment, the Defendants cannot offer or sell any chemical product or related services to a number of entities or in conjunction with any operations within designated Texas Railroad Commission districts for specified periods of time as long as ESP Petrochemicals is in conformance with the terms of the Agreed Final Judgment. The name of the entities, the lists of designated districts and the specific time periods are delineated in the Agreed Final Judgment. Additionally, the Defendants are not to solicit or recruit any ESP Petrochemical employees, they must turn over any “ESP Information” (as that term is described in the Agreed Final Judgment) and they cannot directly or indirectly, offer, market, advertise, promote or otherwise describe in any way a product to a customer, prospective customer or third party, as being derived from ESP Petrochemical formula or an equivalent.
 
 
11

 
Alfredo Ledesma and Turf Chemistry, Inc. v. ESP Resources, Inc., ESP Petrochemicals, Inc.and Gerard Allen Primeaux

On June 16, 2011, Alfredo Ledesma and Turf Chemistry, Inc. filed their original Petition against ESP Resources, Inc., ESP Petrochemicals, Inc. and Gerard Allen Primeaux in the District Court, 93rd Judicial District, Hidalgo County, Texas. On August 19, 2011, ESP Resources, Inc. filed its Original Answer to the Original Petition. On January 23, 2012, Alfredo Ledesma and Turf Chemistry, Inc. filed their First Amended Original Petition. On April 11, 2012, Gerard Primeaux filed his Original Answer. On May 10, 2012, Alfredo Ledesma and Turf Chemistry, Inc. filed their Second Amended Original Petition. On January 17, 2014, Alfredo Ledesma and Turf Chemistry, Inc. filed their Third Amended Original Petition. The Petition alleged that ESP had breached, by failing to satisfy the terms of the agreement and pay the agreed upon amounts, the letter of intent to enter into an Asset Purchase Agreement between ESP and Ledesma and Turf, whereby ESP agreed to acquire the assets and liabilities of Turf and relieve Ledesma of certain debt obligations. On February 14, 2014, ESP Resources, Inc., ESP Petrochemicals, Inc. and Gerard Allen Primeaux filed their First Answer, Special Exceptions, Affirmative Defenses and Counterclaims. On or about April 25, 2014, all parties, without admitting liability, entered into and executed a Settlement Agreement and Release of Claims.

Madoff Energy Holdings, LLC v. ESP Resources, Inc.

On September 4, 2013, Madoff Energy Holdings, LLC filed its Original Petition against ESP Resources, Inc. in the District Court, 295th Judicial District, Harris County, Texas. On October 1, 2013, ESP filed its Answer. On November 25, 2013, Madoff filed its First Amended Petition alleging that ESP failed to repay a Promissory Note, executed on April 30, 2009, in sum of $87,190.00, plus interest on any unpaid balance owed at the rates of 5% per annum from October 30, 2008 to April 30, 2009, and 18% per annum after April 30, 2009.  On or about March 19, 2014, Madoff filed a Motion for Summary Judgment. On or about March 24, 2014, ESP filed its Response. On April 7, 2014, the Court issued an Order Granting Madoff’s Motion for Summary Judgment and granting damages in the principal sum of $122,939.68; attorneys fees in the amount of $12,860.70, plus $10,000.00 should the judgment be appealed to the Texas Court of Appeals, plus $7,500.00 should the judgment be appealed to the Texas Supreme Court; costs of court; and post-judgment interest at 5% per annum on the total amount of the judgment from the date immediately following entry of the judgment until paid. On April 15, 2014, ESP filed its Notice of Appeal of the Final Judgment with the First Court of Appeals, Houston, Texas. On June 30, 2014, ESP filed its Brief for the Appellant. On July 30, 2014, Madoff filed its Brief for the Appellee. On August 18, 2014, ESP filed its Reply Brief for the Appellant. In August 2014, Madoff and ESP, in order to avoid the further expense of litigation, jointly prepared a Forbearance and Payment Agreement, effective August 11, 2014, whereby ESP agreed to pay Madoff $130,000.00 pursuant to a payment schedule of $30,000.00 per month for eleven months. On September 3, 2014, Andrew Madoff, CEO of Madoff Energy Holdings, Inc., died. On September 18, 2014, Madoff and ESP filed with the First Court of Appeals a Joint Appellant and Appellee Motion to Abate the Appeal to preserve the rights of both parties until such time as the Forbearance and Payment Agreement could be executed. On September 23, 2014, the Court issued a Writ granting the Motion to Abate the Appeal. On or about March 9, 2015, the Executor of Mr. Madoff’s Estate executed the Forbearance and Payment Agreement on behalf of the Estate. To date, ESP Resources, Inc. is making payments pursuant to the agreed upon Payment Schedule in accordance with the terms of the Forbearance and Payment Agreement.

BWC Management, Inc. v. ESP Resources, Inc. (f/k/a Pantera Petroleum, Inc.)

On April 25, 2013, BWC Management, Inc. filed its Original Petition against ESP Resources, Inc. in the District Court, 113th Judicial District, Harris County, Texas. On May 31, 2013, ESP Resources, Inc. filed its Original Answer. On August 5, 2014, BWC filed its Motion for Partial Summary Judgment against ESP. On August 21, 2014, BWC filed its First Amended Petition against ESP alleging that ESP had defaulted on three promissory notes documenting a series of loans with BWC as lender: a promissory note in sum of $73,006.00, due on September 30, 2012; and two promissory notes in sum of $100,000.00, each, due on September 30, 2012 when ESP allegedly failed to pay the $73,006.00 note. On August 25, 2014, ESP filed its Response to BWC’s Motion for Partial Summary Judgment. On August 25, 2014, BWC filed its Reply to ESP’s Response to BWC’s Motion for Partial Summary Judgment. On August 27, 2014, ESP filed its Sur Reply to BWC’s Reply to ESP’s Response to BWC’s Motion for Partial Summary Judgment. On August 28, 2014, ESP filed a No-Evidence Motion for Summary Judgment against BWC. On September 4, 2014, BWC filed its Response to ESP’s No-Evidence Motion for Summary Judgment. On September 12, 2014, ESP filed its Reply to BWC’s Response to ESP’s No-Evidence Motion for Summary Judgment. On September 15, 2014, the Court issued an Order denying BWC’s Motion for Summary Judgment. On October 27, 2014, the Court issued an Order denying final Summary Judgment. Trial of this action was held on March 30 and March 31, 2015 resulting in a verdict for BWC Management, Inc.

 
12

 
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
None
 
PART II

ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common shares were approved for quotation on the OTC Venture Stage Marketplace (OTCQB) (we were formerly quoted on the OTC Bulletin Board) on April 16, 2007, and are currently quoted for trading on the OTCQB under the symbol “ESPI.” The following quotations obtained from the OTCQB 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:

   
OTCQB(1)
 
Quarter Ended
 
High
   
Low
 
December 31, 2014
 
$
0.0175
   
$
0.005
 
September 30, 2014
 
$
0.013
   
$
0.004
 
June 30, 2014
 
$
0.0229
   
$
0.009
 
March 31, 2014
 
$
0.078
   
$
0.0103
 
                 
December 31, 2013
 
$
0.0279
   
$
0.012
 
September 30, 2013
 
$
0.023
   
$
0.01
 
June 30, 2013
 
$
0.08
   
$
0.01
 
March 31, 2013
 
$
0.10
   
$
0.0554
 
___________
(1)
OTCQB 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 212 shareholders of record, not including those common shares held in street name.

Dividend Policy

As of the date of this filing, the Company has paid no cash dividends to holders of our common stock. We anticipate that the 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 the 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 the Company.

Stock Option Awards

We did not grant any options during the years ended December 31, 2014 and 2013.

On July 29, 2011 shareholders approved the 2011 STOCK OPTION AND INCENTIVE PLAN which authorized up to 5,000,000 options shares. Under the plan the exercise price per share for the Stock covered by a Stock Option granted pursuant shall not be less than 100% of the Fair Market Value on the date of grant. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the option price of such Incentive Stock Option shall be not less than 110% of the Fair Market Value on the grant date. The term of each Stock Option shall be fixed but no Stock Option shall be exercisable more than ten years after the date the Stock Option is granted. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the date of grant. 

 
13

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

   
Number of
Shares
   
Weighted-
average
Exercise
Price
   
Weighted-
average
Remaining
Contractual
Term (years)
 
                         
Outstanding at December 31, 2012
   
52,975,000
     
0.12
     
8.9
 
  Granted
   
-
     
-
     
-
 
  Exercised
   
-
     
-
     
-
 
  Expired/Forfeited
   
(45,000
)
   
0.14
     
7.6
 
Outstanding at December 31, 2013
   
52,930,000
   
$
0.12
     
7.9
 
  Granted
   
-
     
-
     
-
 
  Exercised
   
-
     
-
     
-
 
  Expired/Forfeited
   
(35,000
)
   
0.14
     
6.6
 
Outstanding at December 31, 2014
   
52,895,000
   
$
0.12
     
6.9
 
Exercisable at December 31, 2014
   
50,095,000
   
$
0.12
     
6.9
 
Exercisable at December 31, 2013
   
34,530,000
   
$
0.13
     
7.6
 
 
During the year ended December 31, 2013, the Company recognized stock-based compensation expense of $783,815 related to stock options. As of December 31, 2013, there was approximately $1,390,003 of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over the remaining vesting period. The aggregate intrinsic value of these options was $0 at December 31, 2013.

During the year ended December 31, 2014, the Company recognized stock-based compensation expense of $705,680 related to stock options. As of December 31, 2014, there was approximately $684,323 of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over the remaining vesting period. The aggregate intrinsic value of these options was $0 at December 31, 2014.
 
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. 
 
 
14

 
EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of December 31, 2014 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
   
40,250,000
   
$
0.12
     
-
 
2011 Stock Incentive Plan approved by security holders on July 29, 2011
   
-
     
-
     
5,000,000
 
Total
   
40,250,000
   
$
0.12
     
5,000,000
 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None

ITEM 6 - SELECTED FINANCIAL DATA

This selected financial data should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 of this Annual Report on Form 10-K, which includes information concerning significant trends in the financial condition and results of operations.

Selected Historical Data
   
December 31,
 
   
2014
   
2013
 
Total Assets
 
$
5,782,496
   
$
6,010,938
 
Total Liabilities
 
$
10,322,283
   
$
10,321,548
 
Total Stockholders’ Deficit
 
$
(4,539,787
)
 
$
(4,313,610
)
Working Capital Deficit
 
$
(6,264,530
)
 
$
(5,331,030
)
Revenues (1)
 
$
11,912,045
   
$
10,591,111
 
Loss from Continuing Operations (1)
 
$
(2,061,441
)
 
$
(4,872,356
)
Net Loss
 
$
(2,061,441
)
 
$
(5,237,777
)
 
(1) Reflects the results from continuing operations for each of the years ended December 31, 2014 and 2013.

ITEM 7 – MANAGEMENT’S 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. 
 
 
15

 
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, 2014 as Compared to Year ended December 31, 2013

The following table summarizes the results of our operations during years ended December 31, 2014 and 2013.

 
16

 
   
Year Ended
December 31,
   
Year Ended
December 31,
   
Increase
   
%
Increase
 
   
2014
   
2013
   
(Decrease)
   
(Decrease)
 
Continuing operations:
                       
Revenue
 
$
11,912,045
   
$
10,591,111
   
$
1,320,934
     
12
%
Cost of goods sold
   
4,096,444
     
5,186,517
     
(1,090,073
)
   
(21)
%
Gross profit
   
7,815,601
     
5,404,594
     
2,411,007
     
45
%
General and administrative expenses
   
8,039,514
     
8,016,259
     
23,255
     
0
%
Depreciation
   
787,632
     
831,642
     
(44,010
)
   
(5
)%
Loss (Gain) on disposal of assets
   
(2,953
   
327,174
 
   
(330,127
   
(101
)%
Impairment on assets held for sale
   
2,049
     
133,556
     
(131,507
)
   
(98
)%
Loss from operations
   
(1,010,641
)
   
(3,904,037
)
   
2,893,396
     
(74
)%
Total other expense
   
(1,050,800
)
   
(968,319
)
   
(82,481
   
9
%
Net loss from continuing operations
   
(2,061,441
)
   
(4,872,356
)
   
2,965,537
     
61
%
Net loss from discontinued operations
   
-
     
(365,421
)
   
365,421
     
100
%
Net loss
 
$
(2,061,441
)
 
$
(5,237,777
)
 
$
3,330,958
     
64
%
 
Revenues

Revenue from continuing operations for the year ended December 31, 2014 was $11,912,045, compared to $10,591,111 for the same period in 2013, an increase of $1,320,934, or 12%. The increase was primarily due to a increase in sales volume petrochemical sales and services to new customers engaged production petrochemicals in the South-East Texas regions.

Gross Profit

The Company’s gross profit from continuing operations, as a percentage of revenue for the year, was 66% compared to 51% for the same period in 2013, an increase of 15%. The increase in gross margin results from of an increased portion of our business from production petrochemical sales which have a higher gross profit margin of 65% compared to completion chemicals 54% gross profit margin.

General and Administrative Expenses

General and administrative expenses increased by $23,255, or 0% for the year, compared to the same period in 2013. The increase in expenses for the year is primarily due to the increase of $649,567 in stock compensation from $1,177,697 in year ended December 31, 2013 to $1,827,265 in the year ended December 31, 2014, and reduction in legal and professional fees.

The Company recognized a gain on disposal of certain assets in 2014 of $155,526 and in the period ended December 31, 2013 a loss on disposal of certain assets of $327,174 and impairment loss on assets held for sale of $133,556, representing the closure cost of the former corporate offices in The Woodlands, Texas and anticipated loss on assets held for sale. There were no comparable amounts in the prior fiscal year.

Net Loss

Net loss for the year ended December 31, 2014 was $2,061,441, a decrease of $3,176,336 compared to a loss of $5,237,777 for the same period in 2013. The primary reason for the decrease in the net loss was as a result of an increase gross profit gain on sales of equipment versus a loss of sales of equipment and impairment of assets in 2013; in change in loss from discontinued operations of $365,421 compared to $0 for the years ended December 31, 2013 and December 2014, respectively.
  
Modified EBITDA

Modified Earnings before interest (including factoring fees), taxes, depreciation amortization and stock-based compensation (“Modified EBITDA”) is a non-GAAP financial measure. We use Modified EBITDA as an unaudited supplemental financial measure to assess the financial performance of our assets without regard to financing methods, capital structures, taxes or historical cost basis; our liquidity and operating performance over time in relation to other companies that own similar assets and that we believe calculate Modified EBITDA in a similar manner; and the ability of our assets to generate cash sufficient for us to pay potential interest costs. We also understand that such data are used by investors to assess our performance. However, the term Modified EBITDA is not defined under generally accepted accounting principles and Modified EBITDA is not a measure of operating income, operating performance or liquidity presented in accordance with generally accepted accounting principles. When assessing our operating performance or liquidity, investors should not consider this data in isolation or as a substitute for net income, cash flow from operating activities, or other cash flow data calculated in accordance with generally accepted accounting principles. Modified EBITDA increased from a loss of $2,396,630 for the year ended December 31, 2013 to a gain of $1,630,780 for the year ended December 31, 2014 and is calculated as follows:
 
 
17

 
   
Year
Ended
December 31,
2014
   
Year
Ended
December 31,
2013
 
             
Net loss
 
$
(2,061,441
)
 
$
(5,237,777
)
Add back interest expense and factoring fees, net of interest income
   
819,791
     
1,287,964
 
Add back depreciation
   
787,632
     
831,642
 
Add back amortization debt discount
   
266,241
     
-
 
Add back stock-based compensation
   
1,827,264
     
1,177,697
 
(Deduct) change in fair value of derivative liabilities
   
(8,707
)
   
(766,923
)
Add back loss on extinguishment of debt
   
-
     
310,767
 
Modified EBITDA
 
$
1,630,780
   
$
(2,396,630
)

Liquidity and Capital Resources

Cash

As of December 31, 2014, we had $121,880 of cash and cash equivalents, as compared to $5,757 as of December 31, 2013.

Cash Flow

The cash flow for the years ended December 31, 2014 and 2013 are summarized below:
 
   
Years Ended December 31,
 
   
2014
   
2013
 
             
Net cash provided by (used in) operating activities
 
$
1,198,358
   
$
1,308,182
 
Net cash used in investing activities
   
(350,009
)
   
(47,472
)
Net cash (used in) provided by financing activities
   
(732,226
)
   
(1,325,167
)
Net decrease in cash
 
$
116,123
   
$
(64,457
)

Cash inflow from operations during the year ended December 31, 2014 amounted to $1,198,358 as compared to net cash inflows from operations of $1,308,182 in the same period of 2013. The decrease in cash inflow was due primarily to the increase in accounts receivable, accounts payable and accrued expenses; decreases in inventory and prepaid expenses.

Our cash outflows used in investing activities during the year ended December 31, 2014 amounted to $350,009 as compared to $47,472 in the same period of 2013. Cash outflows for the proceeds from the sale of vehicles and equipment the proceeds from the sale of vehicles and equipment for the year ended December 31, 2014 decreased to $21,477 compared to $131,533 for the same period in 2013.

Our cash outflows from financing activities amounted to $732,226 in the year ended December 31, 2014 as compared to a cash outflow of $1,325,167 in the same period of 2013.  The primary change was due to the increase in factoring advances and reduction in payment of debt; offset by the payment of settlement on contingent liabilities. 
 
 
18

 
Working Capital

We estimate that our general operating expenses for the next twelve month period will remain the same as compared to the levels of 2014 for such items as 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.

As of December 31, 2014, we had a working capital deficit of $6,264,530. 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, 2014, the Company had cash of $121,880 and a working capital deficit of $6,264,530. We incurred a net loss of $2,061,441 for the year ended December 31, 2014.

We can offer no assurance that the 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, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern in their report on our audited financial statements for the year ended December 31, 2014.

We have historically incurred losses, and through December 31, 2014 have incurred losses of $26,858,384 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.

 
19

 
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

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

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 the Company. Although these estimates are based on management’s knowledge of current events and actions that the 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 the Company’s commitments to a plan of action based on the then known facts.

As of December 31, 2014, we have not incurred any environmental expenditures.

Derivatives

The valuation of our embedded derivatives and warrant derivatives are determined primarily by the multinomial distribution (Lattice) model. An embedded derivative is a derivative instrument that is embedded within another contract. 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.

 
20

 
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. 
 
ITEM 7A - QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company, as that term is defined in Rule 12b-2 of the Exchange Act of 1934, 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.
 

 
 
 
21

 
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The Company did decided to change auditors on October 17, 2014. The Company did not have any disagreements with its accountants during the previous two fiscal years ended December 31, 2014 and December 31, 2013.

ITEM 9A - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this annual report, we have carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures in accordance with Rule 13a-15 under the Securities Exchange Act of 1934. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as at the end of the period covered by this report. There have been no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our President and Chief Executive Officer, to allow timely decisions regarding required disclosure.

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Management’s report on internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act of 1934. Management has assessed the effectiveness of our internal control over financial reporting as at December 31, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles; providing reasonable assurance that receipts and expenditures are made in accordance with authorizations of management and our directors; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. As a result of this assessment, management concluded that, as of December 31, 2014, our internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. However, because of its inherent limitations, internal control over financial reporting may not provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

 
22

 
This annual report does not include an attestation report of our independent auditors regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent auditors pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
 
ITEM 9B - OTHER INFORMATION

None.
 
PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers, Promoters and Control Persons

All directors of the Company hold office until the next annual meeting of our shareholders and until such director’s successor is elected and has been qualified, or until such director’s earlier death, resignation or removal. The following table sets forth the names, positions and ages of our executive officers and directors. Our board of directors elects officers and their terms of office are at the discretion of our board of directors.
 
   
Position Held
     
Appointed or
Name
 
with the Company
 
Age
 
Elected
             
David Dugas
 
President and Director
 
58
 
December 29, 2008
Tony Primeaux
 
Director
 
59
 
December 29, 2008
 
Business Experience

The following is a brief account of the education and business experience during at least the past five years of our directors and executive officers, indicating their principal occupations during that period, and the name and principal business of the organizations in which such occupation and employment were carried out.

David Dugas- President and Director

Mr. Dugas has 36 years of professional engineering and management experience. Early in his career, Mr. Dugas gained petroleum engineering and senior management experience in the oil and gas industry holding positions of increasing responsibility in the areas of production, drilling and reservoir exploitation along with property and acquisition evaluations, operations management and completion design with Chevron and Texas Pacific Oil and Gas. Mr. Dugas continued his management and engineering development as an owner and operator of several service companies supplying equipment, goods and consulting services to the oil and gas industry in North and South America, West Africa, and the Far East. Mr. Dugas was a founding member and co-owner of the company that became Ocean Energy, a NYSE listed company with a multi-billion dollar market capitalization. Mr. Dugas was the Executive Vice-President of the company with responsibility for the property acquisition, management, production and reservoir engineering functions of the company. In November, 2006, Mr. Dugas founded ESP Resources, Inc. to provide petrochemicals and related services to the Oil and Gas industry in the Gulf of Mexico, Louisiana, Texas, Mississippi, and Oklahoma regions through a wholly owned subsidiary, ESP Petrochemicals, Inc.

Mr. Dugas received his B.S. degree in Petroleum Engineering from the University of Louisiana at Lafayette, graduating with highest honors. He is a member of the Society of Petroleum Engineers, a lifetime member of Phi Beta Kappa, a member of Tau Beta Pi National Engineering Society and is a licensed professional petroleum engineer in the state of Louisiana.

 
23

 
Tony Primeaux-Director

Mr. Primeaux has 38 years of professional experience in the value-added specialty chemical market. Mr. Primeaux began his career as a service and sales technician for Oilfield Chemicals, Inc., a large petrochemical supplier to oil and gas companies along the Gulf Coast and was subsequently promoted to Operations Manager of the Company. Mr. Primeaux became an owner/operator of Chemical Control, Inc., a specialty chemical company, in the 1980’s that was sold to Coastal Chemicals, a larger competitor, after 11 years of successful operations. Mr. Primeaux has expertise in advanced interpretation and application petrochemical technologies having designed chemical programs to achieve maximum effectiveness in some of the most hostile environments in the operating world of production operations for the oil and gas industry. 
 
Mr. Primeaux founded ESP Petrochemicals, Inc. in March 2007 and currently serves as President of the organization. ESP Petrochemicals became a wholly owned subsidiary of ESP Resources in June 2007. Mr. Primeaux received a degree in Business Management from the University of Louisiana at Lafayette and has furthered his education attending numerous industry-sponsored courses in quality control and implementation, strategic planning and marketing, and drilling, production and work-over chemistry programs.

Family Relationships

There are no family relationships among any directors or executive officers of the Company.

Involvement in Certain Legal Proceedings

Our directors, executive officers and control persons have not been involved in any of the following events during the past five years:

1.
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
   
2.
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
   
3.
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
   
4.
being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Section 16(a) Beneficial Ownership Compliance

Section 16(a) of the Exchange Act of 1934 requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the year ended December 31, 2014, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners complied with such regulations.

Code of Ethics

Effective August 17, 2007, the Company’s board of directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, the Company’s President (being our principal executive officer, principal financial officer and principal accounting officer), as well as persons performing similar functions. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:

 
24

 
1.
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
2.
full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us;
3.
compliance with applicable governmental laws, rules and regulations;
4.
the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and
5.
accountability for adherence to the Code of Business Conduct and Ethics.

Our Code of Business Conduct and Ethics requires, among other things, that all of the Company’s personnel shall be accorded full access to our President with respect to any matter which may arise relating to the Code of Business Conduct and Ethics. Further, all of the Company’s personnel are to be accorded full access to the Company’s board of directors if any such matter involves an alleged breach of the Code of Business Conduct and Ethics by our President. 
 
In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within the Company, consistent with generally accepted accounting principles, and federal, provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to the Company’s President. If the incident involves an alleged breach of the Code of Business Conduct and Ethics by the President, the incident must be reported to any member of our board of directors. Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against the Company policy to retaliate against any individual who reports in good faith the violation or potential violation of the Company’s Code of Business Conduct and Ethics.

Our Code of Business Conduct and Ethics was filed as an exhibit with our annual report on Form 10-KSB filed with the Securities and Exchange Commission on August 28, 2007. We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to: ESP Resources Inc., 1003 South Hugh Wallis Road, Suite G-1, Lafayette, Louisiana 70508.

Nomination Process

As of December 31, 2014, we did not effect any material changes to the procedures by which our shareholders may recommend nominees to our board of directors. Our board of directors does not have a policy with regards to the consideration of any director candidates recommended by our shareholders. Our board of directors has determined that it is in the best position to evaluate the Company’s requirements as well as the qualifications of each candidate when the board considers a nominee for a position on our board of directors. If shareholders wish to recommend candidates directly to our board, they may do so by sending communications to the President of the Company at the address on the cover of this annual report.

Committees of the Board

All proceedings of our board of directors were conducted by resolutions consented to in writing by all the directors and filed with the minutes of the proceedings of the directors. Such resolutions consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the corporate laws of the State of Nevada and the bylaws of the Company, as valid and effective as if they had been passed at a meeting of the directors duly called and held.

The Company currently does not have nominating, compensation or audit committees or committees performing similar functions nor does the Company have a written nominating, compensation or audit committee charter. Our board of directors does not believe that it is necessary to have such committees because it believes that the functions of such committees can be adequately performed by our board of directors.

 
25

 
The Company does not have any defined policy or procedure requirements for shareholders to submit recommendations or nominations for directors. The board of directors believes that, given the early stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. The Company does not currently have any specific or minimum criteria for the election of nominees to the board of directors and we do not have any specific process or procedure for evaluating such nominees. The board of directors assesses all candidates, whether submitted by management or shareholders, and makes recommendations for election or appointment.

A shareholder who wishes to communicate with our board of directors may do so by directing a written request addressed to our President, at the address appearing on the first page of this annual report.
 
Audit Committee Financial Expert

Our board of directors has determined that we do not have a board member that qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-B.

We believe that our board of directors is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of the Company does not believe that it is necessary to have an audit committee because the Company believes that the functions of an audit committee can be adequately performed by our board of directors. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development.

ITEM 11 - EXECUTIVE COMPENSATION

Executive Compensation

The following table summarizes the compensation of each name executive for the fiscal years ended December 31, 2014 and 2013 awarded to or earned by (i) each individual serving as our principal executive officer and principal financial officer of the Company and (ii) each individual that served as an executive officer of the Company at the end of such fiscal years who received compensation in excess of $100,000.
 
 
26

 
SUMMARY COMPENSATION TABLE

Name and Principal Position
 
Year
 
Salary
($)
   
Bonus
($)
   
Stock
Awards
($)
   
Option
($)
   
Non-
Equity
Incentive
Plan
Compensation
($)
   
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
   
All
Other
Compensation
($)
   
Total
($)
 
                                                     
David Dugas
President and Director
 
2013
 
$
176,167
     
-
   
$
-
   
$
-
     
-
   
 $
25,667
     
-
   
$
176,167
 
David Dugas
President and Director
 
2014
 
$
156,000
     
-
   
$
280,000
     
-
     
-
   
 $
44,000
     
-
   
$
480,000
 
Tony Primeaux
Vice President and Director
 
2013
 
$
160,500
     
-
     
-
     
-
     
-
   
 $
21,000
     
-
   
$
160,500
 
Tony Primeaux
Vice President and Director
 
2014
 
$
138,711
     
-
   
$
280,000
     
-
     
-
   
 $
36,000
     
-
   
$
454,711
 
William Cox (2)
 
2013
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Jack Trotti,
Executive International Sales (1)
 
2013
 
$
82,135
     
-
     
-
     
-
     
-
     
-
     
-
   
$
82,135
 

(1)
Mr. Trotti’s employment was terminated on May 15, 2013.
(2)
Mr. Cox resigned on May 15, 2013

Equity Compensation Plan Information and Stock Options

We do not currently have any equity compensation plans or any outstanding stock options. 
 
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 of directors. Our board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director.

 
27

 
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 of directors or a committee thereof.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table shows ownership of our common stock on December 31, 2014, based on 237,830,249 shares of common stock outstanding, (i) by each Director and Named Executive Officer; (ii) all of our Directors and Named Executive Officers as a group and (iii) each person or entity known to us to own beneficially more than 5% of our capital stock. Except to the extent indicated in the footnotes to the following table, the person or entity listed has sole voting and dispositive power with respect to the shares that are deemed beneficially owned by such person or entity, subject to community property laws, where applicable:
 
Name
 
Shares of
Common
Stock(2)
   
Rights to
Acquire
Common
Stock (3)
   
Total
Shares
Beneficially
Owned
   
Percentage of
Outstanding
Common
Stock(4)
 
Directors and Named Executive Officers
                       
David Dugas (1)(5)
   
45,971,880
     
19,800,000
     
65,771,880
     
27.7
%
Tony Primeaux (1)(5)
   
31,837,700
     
26,400,000
     
58,237,700
     
24.5
%
All current executive officers and directors as a group (4) persons)
   
77,809,580
     
45,200,000
     
124,009,580
     
52.2
%
5% Beneficial Owners
                               
None
   
-
     
-
     
-
     
-
 

(1)
The address for purposes of this table is the Company’s address: 1003 South Hugh Wallis Road, Suite G-1, Lafayette, Louisiana 70508.
(2)
This number includes shares the Officer or Director is deemed to be the “beneficial owner” of under Rule 16a-1 of the Securities Exchange Act of 1934, which includes the shares owned by a spouse and/or child(ren) living in the same household.
(3)
Unless otherwise indicated, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of the common stock beneficially owned by them. A person is deemed to be the beneficial owner of securities which may be acquired by such person within 60 days from the date indicated above upon the exercise of options, warrants or convertible securities. Each beneficial owner’s percentage ownership is determined by assuming that options, warrants or convertible securities that are held by such person (but not those held by any other person) and which are exercisable within 60 days of the date indicated above, have been exercised.
(4)
Based the number of shares of our common stock outstanding on or around the filing date, shares of common stock subject to options, which are currently exercisable and able to be included for the purposes of computing the percentage of ownership of such person but are not treated as outstanding for the purposes of computing the percentage of any other person.
(5)
On August 15, 2014 the Company granted 28,000,000 shares of restricted stock to David Dugas, Chief Executive Officer and 28,000,000 shares of restricted stock to Tony Primeaux Vice President for their provision of personal guarantees on the Transfac financing agreement.
 
 
Change in Control

We are not aware of any arrangement that might result in a change in control of the Company in the future.

 
28

 
Equity Plan Compensation Information

The Company does not currently have a stock option plan or other form of equity plan.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Except as described below, no director, executive officer, principal shareholder holding at least 5% of our common shares, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction, during the year ended December 31, 2014, in which the amount involved in the transaction exceeded or exceeds the lesser of $120,000 or 1% of the average of our total assets at the yearend for the last three completed fiscal years.

As of December 31, 2014 and December 31, 2013, the Company had balances due to related parties as follows;
 
   
December 31,
 
   
2014
   
2013
 
Due to officer
 
$
356,583
   
$
419,382
 
Due to ESP Enterprises
 
$
55,790
   
$
55,790
 
 
Corporate Governance

We currently act with two directors consisting of David Dugas and Tony Primeaux. We do not have an “independent director” as that term is defined under Rule 5605(a)(2) of the NASDAQ Listing Rules. As we are not presently required to comply with the NASDAQ Listing Rules, the Company has elected to avoid incurring the substantial costs associated with adopting such measures.

We do not have a standing audit, compensation or nominating committee, but our entire board of directors’ acts in such capacities. We believe that the members of our board of directors are capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of the Company does not believe that it is necessary to have a standing audit, compensation or nominating committee because we believe that the functions of such committees can be adequately performed by the board of directors. In addition, we believe that retaining one or more additional directors who would qualify as independent as defined in Rule 5605(a)(2) of the NASDAQ Listing Rules would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact the we have not generated any revenues from operations to date.
 
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES

The aggregate fees billed or to be billed Turner Stone & Company, LLP for professional services rendered for the audit of our annual financial statements included in our Form 10-K during the fiscal years ended December 31, 2014 were $60,000. The aggregate fees billed or to be billed by MaloneBailey, LLP for professional services rendered for the audit of our annual financial statements included in our Form 10-K during the fiscal years ended December 31, 2013 were $86,000 are as follows:
 
Type of Fees
 
Year Ended
2014
   
Year Ended
2013
 
                 
Audit Fees
 
$
60,000
   
$
86,000
 
Audit-Related Fees
   
-
     
-
 
Tax Fees
   
-
     
-
 
All Other Fees
   
-
     
-
 
Total
 
$
60,000
   
$
86,000
 
 
 
29

 
Audit Fees
This category includes fees associated with our annual audit and the reviews of our quarterly reports on Form 10-Q. This category also includes fees associated with advice on audit and accounting matters that arose during, or as a result of, the audit or the review of our interim financial statements, statutory audits, the assistance with the review of our SEC registration statements and the audit of our internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002.

Audit-Related Fees

There were no fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the Company's financial statements.

Tax Fees

This category includes fees for tax planning for merger and acquisition activities, tax consultations, the review of income tax returns and assistance with state tax examinations. We did not engage Turner Stone & Company, LLP or MaloneBailey, LLP to provide any tax services for the years ended December 31, 2014 and 2013.

All Other Fees

Our board of directors, who acts as our audit committee, has adopted a policy governing the pre-approval by the board of directors of all services, audit and non-audit, to be provided to the Company by our independent auditors. Under the policy, the board or directors has pre-approved the provision by our independent auditors of specific audit, audit related, tax and other non-audit services as being consistent with auditor independence. Requests or applications to provide services that require the specific pre-approval of the board of directors must be submitted the board of directors by the independent auditors, and the independent auditors must advise the board of directors as to whether, in the independent auditor’s view, the request or application is consistent with the Securities and Exchange Commission’s rules on auditor independence.

The board of directors has considered the nature and amount of the fees billed by Turner Stone & Company, LLP or MaloneBailey, LLP and believes that the provision of the services for activities unrelated to the audit is compatible with maintaining the independence of the firm.

 
 
PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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

 
30

 
 
Exhibit
Number
 
Description
     
1.1
 
Licensing Agreement with Peter Hughes (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006)
     
3.1
 
Articles of Incorporation (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006)
     
3.2
 
Amended and Restated Bylaws (incorporated by reference from our Proxy Statement filed on January 24, 2013)
     
3.3
 
Articles of Merger filed with the Secretary of State of Nevada on September 19, 2007 and which is effective September 28, 2007 (incorporated by reference from our Current Report on Form 8-K filed on September 28, 2007)
     
3.4
 
Certificate of Change filed with the Secretary of State of Nevada on September 19, 2007 and which is effective September 28, 2007 (incorporated by reference from our Current Report on Form 8-K filed on September 28, 2007)
     
4.1
 
Regulation “S” Securities Subscription Agreement (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006)
     
10.1
 
Share Purchase Agreement dated November 21, 2007 among the Company, Pantera Oil and Gas PLC, Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Current Report on Form 8-K filed on November 26, 2007)
     
10.2
 
Form of Advisory Board Agreement (incorporated by reference from our Current Report on Form 8-K filed on February 4, 2008)
     
10.3
 
Equity Financing Agreement dated February 12, 2008 with FTS Financial Investments Ltd. (incorporated by reference from our Current Report on Form 8-K filed on February 15, 2008)
     
10.4
 
Return to Treasury Agreement dated February 26, 2008 with Peter Hughes (incorporated by reference from our Current Report on Form 8-K filed on February 28, 2008)
     
10.5
 
Amending Agreement dated March 17, 2008 with Artemis Energy PLC, Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Current Report on Form 8- K filed on March 19, 2008)
     
10.6
 
Subscription Agreement dated February 28, 2008 with Trius Energy, LLC (incorporated by reference from our Quarterly Report on Form 10-QSB filed on April 14, 2008)
     
10.7
 
Joint Venture Agreement dated February 24, 2008 with Trius Energy, LLC (incorporated by reference from our Quarterly Report on Form 10-QSB filed on April 14, 2008)
 
10.8
 
Second Amending Agreement dated July 30, 2008 among the Company, Artemis Energy PLC (formerly Pantera Oil and Gas PLC), Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Current Report on Form 8- K filed on August 5, 2008)
     
10.9
 
Amended and Restated Share Purchase Agreement dated September 9, 2008 among company, Artemis Energy PLC (formerly Pantera Oil and Gas PLC), Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Annual Report on for 10-KSB filed on September 15, 2008)
 
 
31

 
 
10.10
 
Agreement dated October 31, 2008 with Lakehills Production, Inc. and a private equity drilling fund (incorporated by reference from our Current Report on Form 8-K filed on November 5, 2008)
     
10.11
 
Security Purchase Agreement for 16% Subordinated Convertible Debenture Agreement and warrants
     
10.12
 
Confidential Private Placement Memorandum for Accredited Investors Only dated May 15, 2012 and Warrant Agreement
     
10.13
 
Employment Agreement Robert Geiges as Chief Financial Officer dated January 4, 2013
     
14.1
 
Code of Ethics (incorporated by reference from our Annual Report on Form 10-KSB filed on August 28, 2007)
     
31.1*
 
Certification of Principal Executive Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2*
 
Certification of Principal Financial Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1*
 
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2*
 
Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS*
 
XBRL Instance Document
     
101.SCH*
 
XBRL Taxonomy Extension Schema
     
101.CAL*
 
XBRL Taxonomy Extension Calculation
     
101.DEF*
 
XBRL Taxonomy Extension Definition
     
101.LAB*
 
XBRL Taxonomy Extension Label
     
101.PRE*
 
XBRL Taxonomy Extension Presentation
_______
*Filed herewith
 
 
32

 
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
ESP RESOURCES, INC.
 
       
Date: April 15, 2015
By:
/s/ David Dugas
 
   
David Dugas
 
   
Chief Executive Officer, President,
Chief Financial Officer and Director
 
   
(Principal Executive Officer)
 


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: April 15, 2015
By:
/s/ David Dugas
 
   
David Dugas
 
   
President and Director
 

Date: April 15, 2015
By:
/s/ Tony Primeaux
 
   
Tony Primeaux
 
   
Director
 

 
 
 
33

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
ESP Resources, Inc.
Lafayette, Louisiana

We have audited the accompanying consolidated balance sheet of ESP Resources, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2014 and the consolidated statement of operations, stockholders’ deficit, and cash flows for the year 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 audit.

We conducted our audit 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. 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 audit provides 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, 2014, and the results of their operations and their cash flows for the year 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 net losses through December 31, 2014 and has a working capital deficit as of December 31, 2014. 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/Turner, Stone & Company, LLP

www.turnerstone.com
Dallas, Texas
April 15, 2015
 
 
 
34

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
ESP Resources, Inc.
The Woodlands, Texas
  
We have audited the accompanying consolidated balance sheet of ESP Resources, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2013, and the consolidated statement of operations, stockholders’ equity (deficit), and cash flows for the year 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 audit 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 statement referred to above present fairly, in all material respects, the financial position of ESP Resources, Inc. and its subsidiaries as of December 31, 2013, and the results of their operations and their cash flows for each of the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statement 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 net losses through December 31, 2013 and has a working capital deficit as of December 31, 2013. 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
April 24, 2014
 
 
35

 
ESP Resources, Inc.
Consolidated Balance Sheets
 
   
December 31,
2014
   
December 31,
2013
 
             
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
  $ 121,880     $ 5,757  
Restricted cash
    283,392       113,589  
Accounts receivable, net
    2,110,534       1,747,712  
Inventories
    987,734       1,170,900  
Prepaid expenses
    358,856       360,378  
                 
                 
Total current assets
    3,862,396       3,398,336  
                 
Assets held for sale
    160,378       216,092  
Property and equipment, net of accumulated depreciation of $2,253,686 and  $1,836,493, December 31, 2014 and  2013
    1,709,845       2,330,638  
Other assets
    49,877       65,872  
                 
Total assets
  $ 5,782,496     $ 6,010,938  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
               
                 
CURRENT LIABILITIES
               
Accounts payable
  $ 2,785,041     $ 2,662,087  
Net liabilities from discontinued operations
    78,095       90,792  
Factoring payable
    1,339,653       1,093,593  
Accrued expenses
   
1,540,409
      1,153,455  
Due to related parties
    412,373       475,172  
Contingent consideration payable
    38,937       181,437  
Guarantee liability
    120,000       120,000  
Short-term debt
    361,477       376,265  
Current maturities of convertible debentures, net of debt discount
   
1,142,000
      875,760  
Current maturities of debt - vendor deferred payment
    1,285,528       348,466  
Current maturities of long-term debt
    669,005       858,002  
Current portion of capital lease obligation
    99,240       230,462  
Derivative liability
    255,168       263,875  
                 
Total current liabilities
    10,126,926       8,729,366  
                 
Long-term debt (less current maturities)
    111,038       463,168  
Long-term debt - vendor deferred payment (less current maturities
    -       1,064,954  
Capital lease obligations (less current maturities)
    84,319       50,060  
Deferred lease cost
    -       17,000  
                 
Total liabilities
    10,322,283       10,324,548  
                 
Commitments and Contingencies (Note 15)
               
                 
STOCKHOLDERS' DEFICIT
               
Preferred stock - $0.001 par value, 10,000,000 shares authorized, none outstanding
    -       -  
Common stock - $0.001 par value, 350,000,000 shares authorized, 237,830,249 and 156,230,249 shares issued and outstanding as of December 31, 2014 and 2013, respectively
    237,831       156,231  
Additional paid-in capital
    22,081,766       20,328,102  
Subscription receivable
    (1,000 )     (1,000 )
Accumulated deficit
    (26,858,384 )     (24,796,943 )
                 
Total stockholders' deficit
    (4,539,787 )     (4,313,610 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 5,782,496     $ 6,010,938  

The accompanying notes are an integral part of these consolidated financial statements.
 
 
36

 
ESP Resources, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2014 and 2013
 
   
Years ended December 31,
 
   
2014
   
2013
 
CONTINUING OPERATIONS
           
             
SALES, NET
  $ 11,912,045     $ 10,591,111  
COST OF GOODS SOLD
    4,096,444       5,186,517  
                 
GROSS PROFIT
    7,815,601       5,404,594  
                 
General and administrative:
    8,039,514       8,016,259  
Depreciation and amortization
    787,632       831,642  
Loss (gain) on disposal of assets
   
(2,953
)     327,174  
Impairment on assets held for sale
    2,049       133,556  
                 
LOSS FROM OPERATIONS
    (1,010,641 )     (3,904,037 )
                 
OTHER INCOME (EXPENSE):
               
Interest expense
    (538,502 )     (1,030,718 )
Factoring fees
    (281,289 )     (257,260 )
Amortization of debt discount
    (266,241 )     -  
Other income, net
    26,525       13,489  
Interest income
    -       14  
Change in derivative liability
    8,707       766,923  
Contingent cost of Turf settlement
    -       (150,000 )
Loss on extinguishment of debt
    -       (310,767 )
                 
Total other expense
    (1,050,800 )     (968,319 )
Income tax provision       -        -  
LOSS FROM CONTINUING OPERATIONS
    (2,061,441 )     (4,872,356 )
                 
LOSS FROM DISCONTINUED OPERATIONS
    -       (365,421 )
                 
NET LOSS
  $ (2,061,441 )   $ (5,237,777 )
                 
                 
NET LOSS PER SHΑRE (basic and dilutеd) for discontinuеd opеrations
  $ -     $ (0.00 )
NET LOSS PER SHΑRE (basic and dilutеd) for continuеd opеrations
  $ (0.01 )   $ (0.03 )
NET LOSS PER SHARE (basic and diluted)
  $ (0.01 )   $ (0.03 )
                 
WEIGHTED AVERAGE SHARES OUTSTANDING
    186,210,523       153,105,728  

The accompanying notes are an integral part of these consolidated financial statements.
 
 
37

 
ESP Resources, Inc.
Consolidated Statement of Stockholders’ Deficit
For the Years Ended December 31, 2014 and 2013

   
Common stock
         
 
   
 
       
   
Number
   
Par Value
   
APIC
   
Subscription
Receivable
   
Accumulated
Deficit
   
Total
 
                                     
Balance, December 31, 2012
    150,830,249       150,831       19,142,847       (1,000 )     (19,559,166 )     (266,488 )
                                                 
Stock based compensation
    5,250,000       5,250       1,172,447               -       1,177,697  
                                                 
Shares and warrants issued with notes payable
    150,000       150       12,808        -       -       12,958  
                                                 
Net loss
    -       -       -       -       (5,237,777 )     (5,237,777 )
                                                 
Balance, December 31, 2013
    156,230,249       156,231       20,328,102       (1,000 )     (24,796,943 )     (4,313,610 )
                                                 
Stock based compensation
     -        -       1,015,264        -       -       1,015,264  
                                                 
Shares issued for services
    25,200,000       25,200       226,800        -        -       252,000  
                                                 
Shares issued to employees
    56,000,000       56,000       504,000        -        -       560,000  
                                                 
Shares issued with settlement of lawsuit
    400,000       400       7,600        -       -       8,000  
                                                 
Net loss
    -       -       -       -       (2,061,441 )     (2,061,441 )
                                                 
Balance December 31, 2014
    237,830,249     $ 237,831     $ 22,081,766     $ (1,000 )   $ (26,858,384 )   $ (4,539,787 )

The accompanying notes are an integral part of these consolidated financial statements.
 
 
38

 
ESP Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years ended December 31, 2014 and 2013
   
December 31,
 
   
2014
   
2013
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
  $ (2,061,441 )   $ (5,237,777 )
Adjustments to reconcile net loss to net cash provided by operating activities:
         
                 
Amortization of debt discount
    266,241       585,142  
Impairment of assets held for sale
    2,049       133,556  
(Gain) Loss on disposal of assets
    (2,953 )     327,174  
Depreciation and amortization, net disposals
    787,632       831,642  
Bad debt expense
    60,000       60,000  
Stock and warrant based compensation
    1,827,264       1,177,697  
Stock issued in settlement of lawsuit
    8,000       -  
Change in derivative liability
    (8,707 )     (766,923 )
Loss on Extinguishment of debt
    -       310,767  
                 
Changes in operating assets and liabilities:
               
Accounts receivable
    (422,822     22,047  
Inventory
    183,166       753,233  
Prepaid expenses
    126,522       503,565  
Other assets
    (1,005 )     8,068  
Accounts payable
    122,954       1,430,933  
Accrued expenses
    386,954       681,177  
Accrued expense to related parties
    (62,799 )     337,881  
Contingent consideration payable
    -       150,000  
Net liabilities from discontinued operations
    (12,697 )        
                 
CASH PROVIDED BY OPERATING ACTIVITIES
    1,198,358       1,308,182  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Restricted cash
    (169,803 )     22,769  
Proceeds from the sale of vehicles and equipment
    21,477       131,533  
Purchase of fixed assets
    (201,683 )     (201,774 )
                 
CASH USED IN INVESTING ACTIVITIES
    (350,009 )     (47,472 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Borrowing on Long-term debt
    -       50,150  
Borrowing on short-term debt
    265,486       150,000  
Repayment of long term debt
    (557,264 )     (569,934 )
Repayment of capital leases
    (263,735 )     (263,209 )
Repayment of short-term debt
    (280,273 )     (469,836 )
Net factoring advances
    246,060       (222,338 )
Payment of settlement on contingent liabilities
    (142,500 )        
                 
CASH USED IN  FINANCING ACTIVITIES
    (732,226 )     (1,325,167 )
                 
NET CHANGE IN CASH
    116,123       (64,457 )
CASH AT BEGINNING OF YEAR
    5,757       70,214  
                 
CASH AT END OF YEAR
  $ 121,880     $ 5,757  
                 
Supplemental Disclosures of Cash Flow Information
               
Cash paid for interest and factoring cost
  $ 614,721     $ 663,833  
Non-cash investing and financing transactions:
               
Notes issued for purchase of property and equipment
  $ -     $ 268,805  
Debt issued for insurance financing
    -       292,227  
debt issued for settlement of accounts payable
    -       1,104,293  
Capital lease obligations
    166,772       105,021  
Assets returned to service
    143,042       -  
Capital lease expired
    116,139       -  
Shares issued on settlement of lawsuit
    8,000       -  
Deferred leasing cost
    17,000       -  
Debt discount due to shares and warrants issued with debt
    -       12,958  
Derivative liability on warrants  related  to notes payable at issuance
    -       172,007  
debt discount from derivative liabilities
    -       12,000  
Accrued interest capitalized as debt
    -       90,792  
Net liabilities from discountinued operations
    -       426,919  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
39

 
ESP Resources, Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
 
Note 1 – Basis of Presentation, Nature of Operations and Significant Accounting Policies

Basis of Presentation

ESP Resources, Inc. (“ESP Resources”, and collectively with its subsidiaries, “we”, “our” or the “Company”) was incorporated in the State of Nevada on October 27, 2004. The accompanying consolidated financial statements include the accounts of ESP Resources, Inc. and its wholly owned subsidiaries, ESP Petrochemicals, Inc. of Louisiana (“ESP Petrochemicals”), ESP Ventures, Inc. of Delaware (“ESP Ventures”), ESP Corporation, S.A., a Panamanian corporation (“ESP Corporation”) and ESP Payroll Services, Inc. of Nevada (“ESP Payroll”). On July 11, 2012 the Company formed two partially owned subsidiaries in Delaware, ESP Advanced Technologies, Inc., and ESP Facility & Pipeline Services, Inc. On December 19, 2012 the Company formed a partially owned subsidiary in Nevada, IEM, Inc.

On June 11, 2013, the board of directors resolved to discontinue operations of various subsidiaries, including ESP Facility and Pipeline Services, Inc., ESP Advanced Technologies, Inc., ESP KUJV Limited Joint Venture and ESP Marketing Group LLC (collectively, the “Discontinued Subsidiaries”). The Discontinued Subsidiaries were not wholly-owned by the Company and, in accordance with the decision to discontinue operations, no longer receive financial or management support. The Company reflected 100% of the losses related to the subsidiaries in its results from discontinued operations.

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America. Any reference herein to “ESP Resources”, the “Company”, “we”, “our” or “us” is intended to mean ESP Resources, Inc. including the subsidiaries indicated above, unless otherwise indicated.

Nature of the Business

By and through its subsidiary ESP Petrochemicals Inc., the Company’s current business 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.

 
40

 
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, 2013, the Company recognized an impairment loss of $133,556 on assets held for sale.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 
 
Principles of consolidation

The consolidated financial statements include the accounts of ESP Resources and its wholly owned and partially owned subsidiaries for the years ended December 31, 2014 and 2013. 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 $121,880 and $5,757 cash and cash equivalents at December 31, 2014 and 2013, respectively.

Restricted Cash

Under the terms of the Factoring payable, the Company may obtain advances up to 100% of eligible accounts receivable, subject to a 0.75% per 15 days factoring fee, with 10% held in a restricted cash reserve account, which is released to the Company upon payment of the receivable. As of December 31, 2014 and 2013, restricted cash totaled $283,392 and $113,589, respectively.

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, 2014 and 2013:

   
2014
   
2013
 
Trade receivables
 
$
2,265,534
   
$
1,842,712
 
Less: Allowance for doubtful accounts
   
(155,000
)
   
(95,000
)
Net accounts receivable
 
$
2,110,534
   
$
1,747,712
 

 
41

 
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.

Inventories

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, 2014 and 2013, inventory consisted of the following:
 
     
2014
     
2013
 
Raw materials
 
$
412,978
   
$
500,824
 
Finished goods
   
574,756
     
670,076
 
Total inventory
 
$
987,734
   
$
1,170,900
 

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.

Derivatives

The valuation of our embedded derivatives and warrant derivatives are determined primarily by the multinomial distribution (Lattice) model. An embedded derivative is a derivative instrument that is embedded within another contract, which under the convertible note (the host contract) includes the right to convert the note by the holder, certain default redemption right premiums and a change of control premium (payable in cash if a fundamental change occurs). In accordance with Accounting Standards Codification (“ASC”) 815 “Accounting for Derivative Instruments and Hedging Activities’, as amended, these embedded derivatives are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. A warrant derivative liability is also determined in accordance with ASC 815. Based on ASC 815, warrants which are determined to be classified as derivative liabilities are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. The practical effect of this has been that when our stock price increases so does our derivative liability and resulting in a non-cash loss charge that reduces our earnings and earnings per share. When our stock price declines, we record a non-cash gain, increasing our earnings and earnings per share. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, there exists a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
 
Level 1 -
unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.
Level 2 -
inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
Level 3 -
unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.
 
 
42

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

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

The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2014.

   
Carrying Value at
   
Fair Value Measurement at December 31, 2014
 
   
December 31, 2014
   
Level 1
   
Level 2
   
Level 3
 
Liabilities
                       
Derivative convertible debt liability
 
$
181,165
   
$
-
   
$
-
   
$
181,165
 
Derivative warrant liability
 
$
74,003
   
$
-
   
$
-
   
$
74,003
 
Total derivative liability
 
$
255,168
   
$
-
   
$
-
   
$
255,168
 
 
 
The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2013.

   
Carrying Value at
   
Fair Value Measurement at December 31, 2013
 
   
December 31, 2013