UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K





þANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the fiscal year ended December 31, 2010





o    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from________to_______




Commission file number 000-52506





ESP RESOURCES, INC.


(Name of small business issuer in its charter)




Nevada

98-0440762(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)111 Lions Club Road, Scott, LA

70583(Address of principal executive offices)

(Zip Code)





Issuer’s telephone number (337) 706-7056





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 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes þNo o




Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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. þ




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.oNon-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 Act). Yes oNo þ


State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2010: $8,609,670.




Number of the issuer’s Common Stock outstanding as of March 28, 201199,699,271





Documents incorporated by reference: None





Transitional Small Business Disclosure Format (Check One): Yes oNo þ







TABLE OF CONTENTS




PagePart IItem 1
Business


3Item 1A
Risk Factors


6Item 1B
Unresolved Staff Comments


10Item 2
Properties


10Item 3
Legal Proceedings Emulsion breakers, which are chemicals specially formulated for crude oils containing produced waters


10Item 4
Submission of Matters to a Vote of Security Holders


11Part IIItem 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.


12Item 6
Selected Financial Data.


13Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operation


13Item 7A
Quantitative and Qualitative Disclosures about Market Risk


18Item 8
Financial Statements and Supplementary Data


18Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


41Item 9A
Controls and Procedures


41Item 9B
Other Information


42Part IIIItem 10
Directors and Executive Officers and Corporate Governance.


43Item 11
Executive Compensation


46Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


47Item 13
Certain Relationships and Related Transactions, and Director Independence.


48Item 14
Principal Accounting Fees and Services


49Part IVItem 15
Exhibits, Financial Statement Schedules


50Signatures



52





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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 our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.





Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.





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





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





As used in this annual report, the terms “we”, “us” and “our” mean ESP Resources, Inc., unless otherwise indicated.





Corporate History





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





Effective September 28, 2007, we completed a merger with our subsidiary, Pantera Petroleum Inc., a Nevada corporation. As a result, we changed our name from “Arthro Pharmaceuticals, Inc.” to “Pantera Petroleum Inc.”   In addition, effective September 28, 2007, we effected a sixteen (16) for one (1) forward stock split of our authorized, issued and outstanding common stock. As a result, our authorized capital increased from 75,000,000 common shares to 1,200,000,000 common shares - with the same par value of $0.001. At that time, our issued and outstanding share capital increased from 6,970,909 common shares to 111,534,544 common shares.





In December 2008, the Company entered into an agreement with ESP Resources, Inc., a Delaware corporation (ESP Delaware), whereby the Company acquired 100% ownership of ESP Delaware in exchange for 292,682,297 common shares. As a result of this acquisition, we changed our name from “Pantera Petroleum, Inc.” to “ESP Resources, Inc.” On January 27, 2009, we effected a one (1) for twenty (20) reverse stock split of our common stock and received a new ticker symbol. The name change and reverse stock split became effective with the OTC Bulletin Board at the opening of trading on January 27, 2009 under the new symbol “ESPI”. Our new CUSIP number is 26913L104.





Business





We are a custom formulator of specialty chemicals for the energy industry. We were an exploration stage company engaged in the acquisition of prospective oil and gas properties, and through our wholly owned subsidiary,




ESP Petrochemicals, Inc.





Through our wholly owned subsidiary, ESP Petrochemicals Inc.(ESPPI), we are a custom formulator of specialty chemicals for the energy industry. ESPPI’s more specific mission is to provide applications of surface chemistry to service all facets of the fossil energy business via a high level of innovation. ESPPI is focusing its efforts on solving problems in a highly complex integration of processes to achieve the highest level of quality petroleum output. Listening to its customers with their changing demands and applying its skills as chemical formulators enables ESPPI to measure its success in this endeavor.




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ESPPI acts as manufacturer, distributor and marketer of specialty chemicals. ESPPI supplies specialty chemicals for a variety of oil field applications including separating suspended water and other contaminants from crude oil, pumping enhancement, and cleaning, as well as a variety of fluids and additives used in the drilling and production process. At each drilling site or 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.





ESPPI's goal is first, to solve the customer’s problem at the well and optimize drilling or production, and secondly, the sale of product. Typically, the ESPPI team may gather information at a well site and enter this data into the analytical system at the company’s labs in Lafayette, Louisiana. The system provides testing parameters and reproduces conditions at the wellhead. This allows the ESPPI chemist to design and test a new chemical blend in a very short time. In many cases, a new blend may be in service at the well in as little as 24 hours.




Principal Products





ESPPI currently offers production chemicals, drilling chemicals, waste remediation chemicals, cleaners and waste treatment chemicals:





.
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.


.
Water Clarifiers that solve any and all of the problems associated with purifying effluent water, improve appearance.





Distribution Methods





ESP Petrochemicals, Inc.: ESPPI's goal is first, to solve the customer’s problem at the well and optimize drilling or production, and secondly, the sale of product. Typically, the ESPPI team may gather information at a well site and enter this data into the analytical system at the company’s labs in Lafayette, Louisiana. The system provides testing parameters and reproduces conditions at the wellhead. This allows the ESPPI chemist to design and test a new chemical blend in a very short 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 decided, 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 chemical. 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. The exceptional service, response times and chemical products that the ESPPI team is able to provide its customers is a differentiating factor within the industry.





Competition





ESP Petrochemicals, Inc.: Currently, the market distribution is shared by very few large participants, namely, Baker Petrolite, Nalco, and Champion Technologies, Inc. There are several small to medium sized businesses that are regionally located. The area of biggest growth in the Specialty Chemical market is in the area of “Production Treatment Chemicals.” To be competitive in the industry, ESPPI will continually enhance and update its technology. ESPPI has allocated funds to research and development of new technologies to maintain the efficacy of its technology and its ability to compete so it can continue to grow its business.





ESPPI’s strategy for surpassing the competition is to provide better service and response time combined with superior chemical solutions that can be translated into savings for its customers. We believe that ESPPI is 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 it can produce and identify that are currently offered by its suppliers for its customers.





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Additionally, new companies are constantly entering the market. This growth and fragmentation could also have a negative impact on ESPPI’s 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 and other resources. These companies may have greater success in recruiting and retaining qualified employees and in specialty chemical manufacturing and marketing, which may give them a competitive advantage.





Licenses, concessions, royalty agreements or labor contracts





For further details of our agreements and concessions, please see our disclosure under the section entitled “Description of Property” below.





Government Approval and Regulation





We, together with ESPPI, 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. We do not anticipate having to expend significant resources to comply with any governmental regulations applicable to our operations.





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





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





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





Costs and Effects of Compliance with Environmental Laws





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 ESP supplies to their customer base passes from ESP 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.





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In general, our exploration and production activities are subject to certain federal, state and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuance of a given operation. Compliance with these laws and regulations has not had a material effect on our operations or financial condition to date. Specifically, we are subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance. Generally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry.





Number of Employees





On December 31, 2010, we, together with ESPPI, had twenty-three full-time employees.  We currently have thirty-one full time employees. We expect to increase the number of employees as we implement our business objectives and expand our management team. None of our employees are represented by a labor union or covered by a collective bargaining agreement. The management of our company is comprised of a team of highly skilled and experienced professionals, and we focus on training and professional development for all levels of employees and on hiring additional experienced employees. We believe that our relations with our employees are good.





ITEM 1A. RISK FACTORS





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





RISKS RELATED TO OUR BUSINESS





We have had negative cash flows from operations.





To date we have had negative cash flows from operations and we have been dependent on sales of our equity securities and debt financing to meet our cash requirements and have incurred losses totaling $2,271,780 for the year ended December 31, 2010. As of December 31, 2010, we had working capital of $74,453. We do not expect positive cash flow from operations in the near term. 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 drilling and completion costs, or we encounter greater costs associated with general and administrative expenses or offering costs.





The occurrence of any of the aforementioned events could adversely affect our ability to meet our business plans. If adequate additional financing is not available on reasonable terms, we may not be able to fund our future operations and we would have to modify our business plans accordingly. There is no assurance that additional financing will be available to us.





We will depend almost exclusively on outside capital to pay for the continued exploration and development of our properties. 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 these continuing development costs 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.




6





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 have a history of losses and fluctuating operating results.





From inception through to December 31, 2010, we have incurred aggregate losses of $10,151,946. Our net loss for the year ended December 31, 2010 was $2,271,780. 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. If we cannot generate positive cash flows in the future, or raise sufficient financing to continue our normal operations, then we may be forced to scale down or even close our operations.





Until such time as we generate revenues, we expect an increase in development costs and operating costs. Consequently, we expect to incur operating losses and negative cash flow until our properties enter commercial production.





We have a limited operating history upon which to base financial performance, making it difficult for prospective investors to assess the value of our stock, and if we are not successful in continuing to grow our business, then we may have to scale back our operations and may not be able to continue as a going concern.





We have limited history of revenues from operations. Our wholly owned petrochemicals business, ESP Petrochemicals, Inc., was formed in November 2006 and began operations in February 2007 and has limited operating history. Accordingly, our business has very limited operating results and therefore it is impossible for an investor to assess the performance of the company or to determine whether the company will ever become profitable. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably.





Our company’s operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history.  If our business plan is not successful, and we are not able to operate profitably, we may not be able to continue as a going concern and investors may lose some or all of their investment in our company.





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.





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.





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





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





The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States or any other jurisdiction, may be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business.





The 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 extremely 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. Due to our limited operating history and financial resources, we are entirely dependent on the continued service of our President and CEO, David Dugas. Our CEO’s life is insured for the benefit of the Company by key man life insurance. 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.





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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 are dependent on only a few major customers and the loss of any one of these customers could have a material adverse impact on our business.





ESPPI has a total of 82 customers, five of which are major customers that together account for 49% of accounts receivable at December 31, 2010 and 39% of the total revenues earned for the year ended December 31, 2010. The loss of one of our major customers would have a serious material negative economic impact on our company and our ability to continue. There is no guarantee that we could replace one of these customers and if we were able to replace them, there is no guarantee that the revenues would be equal.





Need for additional employees





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





Competition for skilled personnel in the oil and gas 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.





We may never pay any dividends to shareholders.





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





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





RISKS RELATED TO OUR COMMON STOCK





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





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


9





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





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





Our common stock is illiquid and the price of our common stock may be negatively impacted by factors which are unrelated to our operations.





Our common stock currently trades on a limited basis on the OTC Bulletin Board. Trading of our stock through the OTC Bulletin Board is frequently thin and 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.




ITEM 1B. UNRESOLVED STAFF COMMENTS





There are no unresolved staff comments.




ITEM 2. PROPERTIES





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





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





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




ITEM 3. LEGAL PROCEEDINGS





On January 24, 2011, the Securities and Exchange Commission filed a complaint in which the Company, along with Christopher Metcalf and Bozidar Vukovich, was named.  The complaint alleges that the defendants in the complaint violated Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. §78j(b), and Rule 10b-5, 17. C.F.R §§ 240.10b-5.  The only relief sought against the Company is a judgment enjoining the Company from violating those sections of the Securities Act, Exchange Act and Rule 10b-5 in the future. We know of no other material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.





10





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





None.











11





PART II





ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES





Our common shares were approved for quotation on the OTC Bulletin Board on April 16, 2007, and are currently quoted for trading under the symbol “ESPI”. The following quotations obtained from the OTC Bulletin Board reflect the high and low bids for our common stock based on inter-dealer prices, without retail mark-up, mark-down or commission an may not represent actual transactions. The high and low bid prices of our common stock for the periods indicated below are as follows:





OTC Bulletin Board(1)Quarter Ended

High


LowDecember 31, 2010

$
0.18


$
0.10September 30, 2010

$
0.20


$
0.09June 30, 2010

$
0.18


$
0.09March 31, 2010

$
0.17


$
0.05December 31, 2009

$
0.15


$
0.07September 30, 2009

$
0.40


$
0.08June 30, 2009

$
0.69


$
0.19March 31, 2009

$
1.93


$
0.40




(1)
OTC Bulletin Board quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions. Our common shares are issued in registered form. The transfer agent and registrar for our common stock is American Stock Transfer and Trust Company, LLC (Telephone: (718) 921- 8521; Facsimile: (718) 765-8742).




As of the date of this report, the shareholders’ list of our common shares showed 205 registered shareholders and 99,699,271 common shares outstanding.




Dividend Policy





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




Equity Compensation Plan Information




We currently do not have any stock option or equity compensation plans or arrangements.




Purchases of Equity Securities by the Issuer and Affiliated Purchasers





None





12




ITEM 6. SELECTED FINANCIAL DATA





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





Selected Historical Data


December 31,2010


2009Total Assets

$
4,845,901


$
2,933,574Total Liabilities

$
3,913,570


$
3,370,678Total Stockholders' Equity (Deficit)

$
932,331


$
(437,104
)Net Working Capital

$
74,453


$
(1,051,051
)Revenues (1)

$
5,477,359


$
2,738,266Loss from operations (1)

$
(1,935,760
)

$
(4,231,184
)Net Loss (1)

$
(2,271,780
)

$
(4,790,267
)





(1) Information on the results of operations for the years ended December 31, 2010 and 2009.




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





Cautionary Notice Regarding Forward Looking Statements





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





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.





13





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”). 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, 2010 as Compared to Year ended December 31, 2009





The following table summarizes the results of our operations during years ended December 31, 2010 and 2009.


Year Ended


Year EndedDecember 31,


December 31,


Increase


% Increase2010


2009


(Decrease)


(Decrease)Revenue

$
5,477,359


$
2,738,266


$
2,739,093



100.03
%Cost of Goods Sold


2,683,069



1,506,212



1,176,857



78.13
%Gross Profit


2,794,290



1,232,054



1,562,236



126.80
%General and administrative expenses


4,420,820



4,022,523



398,297



9.90
%Depreciation and amortization


309,230



46,963



262,267



558.45
%Impairment of notes receivable


-



326,371



(326,371
)


(100
%)Impairment of oil and gas properties


-



1,067,381



(1,067,381
)


(100
%)Loss from Operations


(1,935,760
)


(4,231,184
)


(2,295,424
)


(54.25
% )Total Other expense


(336,020
)


(559,083
)


(223,063
)


(39.90
% )Net loss

$
(2,271,780
)

$
(4,790,267
)

$
(2,518,487
)


(52.58
% )





Revenues





Revenue for the year-ended December 31, 2010 was $5,477,359, compared to $2,738,266 for the same period in 2009, an increase of $2,739,093, or 100%.  The increase was due to the continued expansion of the Company’s customer base and service coverage in the Southern Louisiana, South Texas and East Texas regions.  In addition, the Company increased revenue to several of its existing customers through supply of additional petrochemical products at its existing customer well-sites.





Gross Profit





The Company’s gross profit, as a percentage of revenue for the year, was 51% compared to 45% for the same period in 2009, an increase of 6%.  This increase is the result of better costing economics from increased purchases of raw materials on a per unit basis used in the Company’s operations and greater efficiency in the delivery of these raw materials resulting in an overall reduction in the Company’s service delivery cost.  In addition, the Company increased sales of higher gross margin chemical blends primarily in its South and East Texas regions.





General and Administrative Expenses





General and administrative expenses, net of amortization and depreciation, increased by $398,297, or 9.9% for the year, compared to the same period in 2009 due to the expansion in the Company’s operating personnel from 14 to 22 employees.  In addition, the Company opened two new district operating offices in Longview, TX and Guy, AR.





The stock based compensation included in the general and administrative expenses was $1,359,785 and $2,252,644 for the years ended December 31, 2010 and 2009, respectively.




14





Net Loss





Net loss for the year ended December 31, 2010 was $2,271,780, a decrease of $2,518,487 compared to a loss of $4,790,267 for the same period in 2009.  The primary reason for the decrease in the net loss was as a result of increase in revenue during the year ended December 31, 2010.





EBITDA





Earnings before interest, taxes, depreciation and amortization (“EBITDA”) are a non-GAAP financial measure.  We use 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 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 EBITDA is not defined under generally accepted accounting principles and 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.  EBITDA increased from a loss of $2,066,226 for the year ended December 31, 2009 to a loss of $370,640 for the year ended December 31, 2010 and is calculated as follows:





Year Ended December 31,


Year ended December 31,2010


2009Net loss

$
(2,271,780
)

$
(4,790,267
)Add back interest expense, net of interest income


161,973



287,944Add back depreciation and amortization


379,382



183,453Add back stock based compensation


1,359,785



2,252,644EBITDA

$
(370,640
)

$
(2,066,226
)




Liquidity and Capital Resources





Cash





As of December 31, 2010, we had $531,290 of cash and cash equivalents, as compared to $25,107 as of December 31, 2009.





Cash Flow





The cash flow for the years ended December 31, 2010 and 2009 are summarized below:





Year Ended December 31,2010


2009Net cash used in operating activities

$
(901,790
)

$
(257,126
)Net cash used in investing activities

$
(820,335
)

$
(202,116
)Net cash provided by financing activities

$
2,228,308


$
456,982Net increase (decrease) in cash

$
506,183


$
(2,260
)





15




Cash outflows from operations during the year ended December 31, 2010 amounted to $901,790 as compared to net cash outflows from operations of $257,126 in the same period of 2009. The increase in cash outflow was due primarily to the increase in inventory and accounts receivable.





Our cash outflows used in investing activities during the year ended December 31, 2010 amounted to $820,335 as compared to $202,116 in the same period of 2009. Cash outflows for the purchase of fixed assets increased to $520,340 for the year ended December 31, 2010 as compared to $108,322 for the same period in 2009. In addition, we used cash of $263,700 for the acquisition of Turf in 2010 compared to $75,530 in 2009.





Our cash inflows from financing activities amounted to $2,228,308 in the year ended December 31, 2010 as compared to $456,982 in the same period of 2009. The increase was principally from net proceeds of private placement amounting to $1,945,100 in 2010 compared to $229,000 in 2009.





Working Capital





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





As of December 31, 2010, our working capital was $74,453.  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.  We expect this situation to continue for the foreseeable future, even though we anticipate our net loss and negative cash flows to less over the coming quarters.  To fund this continued deficit, we may raise funds 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.  Further, we may continue to be unprofitable.





Cash Requirements





Our plan of operations for the next 12 months involves the growth of our petrochemical business through the expansion of regional sales, and the research and development of new chemical and analytical services in areas of waste remediation, water treatment and specialty biodegradable cleaning compounds.  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, 2010, our company had cash of $531,290 and working capital of $74,453.  We incurred a net loss of $2,271,780 for the year ended December 31, 2010.





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





Going Concern





Due to our net losses, negative cash flow and negative working capital, in their report on our audited financial statements for the year ended December 31, 2010, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.





We have historically incurred losses, and through December 31, 2010 have incurred losses of $10,151,946 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.





The continuation of our business is dependent upon obtaining further financing and achieving a break even or profitable level of operations.  The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current or future stockholders.  Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.




16





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





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





Off-Balance Sheet Arrangements





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





Application of Critical Accounting Policies





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





Inventory





Inventory represents raw and blended chemicals and other items valued at the lower of cost or market with cost determined using the first-in first-out method, and with market defined as the lower of replacement cost or realizable value.




Environmental Costs





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





As at December 31, 2010, we have not incurred any environmental expenditures.





Derivatives





The valuation of our embedded derivatives and warrant derivatives are determined primarily by the Black-Scholes option pricing model. An embedded derivative is a derivative instrument that is embedded within another contract, 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 SFAS No. 133, as amended, 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 determined in accordance with EITF 00-19, ASC 815. Based on EITF 00-19, 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.





17





ITEM 7A. QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK





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




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





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





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











18




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Board of Directors


ESP Resources, Inc.


Scott, Louisiana





We have audited the accompanying consolidated balance sheets of ESP Resources, Inc. (“the Company”) as of December 31, 2010 and 2009, and the consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.





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





In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.





The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, The Company has incurred losses and negative cash from operations through December 31, 2010. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 2. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.





/s/MaloneBailey, LLP


www.malone-bailey.com


Houston, Texas





March 31, 2011





19




ESP Resources, Inc.


Consolidated Balance Sheets


December 31, 2010 and 2009




2010


2009ASSETSCURRENT ASSETSCash and cash equivalents

$
531,290


$
25,107Restricted cash


77,434



-Accounts receivable, net


1,580,151



815,703Inventories, net


731,032



290,218Prepaid expenses and other current assets


157,356



166,738Total current assets


3,077,263



1,297,766Property and equipment, net of accumulated depreciation of $419,027 and $219,341, respectively


1,024,123



683,403Restricted cash


-



41,139Intangible assets, net of amortization of $214,186 and $30,490, respectively


700,784



884,480Other assets


43,731



26,786Total assets

$
4,845,901


$
2,933,574LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)CURRENT LIABILITIESAccounts payable

$
1,252,787


$
589,284Factoring payable


749,586



380,724Accrued expenses


436,321



522,776Due to related parties


58,139



126,539Guarantee liability


120,000



120,000Due to Turf shareholders for acquisition


-



263,700Current maturities of long-term debt


357,696



325,170Current portion of capital lease obligation


28,281



20,624Total current liabilities


3,002,810



2,348,817Long-term debt (less current maturities)


484,817



582,636Capital lease obligations (less current maturities)


46,943



56,225Contingent consideration payable for acquisition of Turf


350,000



350,000Deferred lease cost


29,000



33,000Total liabilities


3,913,570



3,370,678STOCKHOLDERS' EQUITY (DEFICIT)Common stock - $0.001 par value, 1,200,000,000 shares authorized, 87,488,558

and 45,185,295 shares issued and outstanding, respectively


87,489



45,185Additional paid-in capital


11,022,788



7,398,877Subscription receivable


(26,000
)


(1,000
)Accumulated deficit


(10,151,946
)


(7,880,166
)Total stockholders' equity (deficit)


932,331



(437,104
)TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

$
4,845,901


$
2,933,574





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





20




ESP Resources, Inc.


Consolidated Statements of Operations


For the years ended December 31, 2010 and 2009





For the year ended December 31,2010


2009SALES, NET

$
5,477,359


$
2,738,266COST OF GOODS SOLD


2,683,069



1,506,212GROSS PROFIT


2,794,290



1,232,054General and administrative


4,420,820



4,022,523Impairment loss on notes receivable


-



326,371Impairment of oil and gas properties


-



1,067,381Depreciation and amortization


309,230



46,963LOSS FROM OPERATIONS


(1,935,760
)


(4,231,184
)OTHER INCOME (EXPENSE)Interest expense


(162,069
)


(288,021
)Factoring fees


(117,139
)


(86,203
)Other Income


3,092



3,000Interest Income


96



77Other Expense


-



(936
)Loss on guarantee of asset


-



(72,000
)Loss on legal settlement


(60,000
)


(115,000
)Total other income (expense)


(336,020
)


(559,083
)NET LOSS

$
(2,271,780
)

$
(4,790,267
)NET LOSS PER SHARE – Basic and diluted

$
(0.03
)

$
(0.19
)WEIGHTED AVERAGE SHARES OUTSTANDING –Basic and diluted


67,058,813



25,632,929





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




21




ESP Resources, Inc.


Statement of Stockholders’ Equity (Deficit)


For the Years Ended December 31, 2010 and 2009





AdditionalCommon stock


Paid-In


Subscription


AccumulatedShares


Par Value


Capital


Receivable


Deficit


TotalBalance, December 31, 2008


19,206,429


$
19,206


$
4,130,012


$
(1,000
)

$
(3,089,899
)

$
1,058,319Stock based compensation


13,437,454



13,437



2,239,207



-



-



2,252,644Common stock and warrants issued

with debt


1,700,000



1,700



92,949



-



-



94,649Fair value of common stock

issued for conversion of

debt


5,570,032



5,570



189,381



-



-



194,951Common stock and warrants

issued in connection with

private placement


3,271,380



3,272



225,728



-



-



229,000Beneficial conversion

feature on advances on loans

to convertible notes.


-



-



243,600



-



-



243,600Shares in connection with acquisition

of Turf


2,000,000



2,000



278,000











280,000Net loss


-



-



-



-



(4,790,267
)


(4,790,267
)Balance, December 31, 2009


45,185,295



45,185



7,398,877



(1,000
)


(7,880,166
)


(437,104
)Stock based compensation


9,701,688



9,702



1,350,083



-



-



1,359,785Shares issued in connection with Contractual Dispute Settlement


1,000,000



1,000



129,000



-



-



130,000Shares issued in connection with note conversion


2,180,857



2,181



74,149



-



-



76,330Forgiveness of Related Party Debt


-



-



130,000



-



-



130,000Shares issued with PPM


29,420,718



29,421



1,940,679



-



-



1,970,100PPM receivable


-



-



-



(25,000
)


-



(25,000
)Net loss


-



-



-



-



(2,271,780
)


(2,271,780
)Balance, December 31, 2010


87,488,558


$
87,489


$
11,022,788


$
(26,000
)

$
(10,151,946
)

$
932,331


The accompanying notes are an integral part of these consolidated financial statements.
  22




ESP Resources, Inc.


Consolidated Statements of Cash Flow




For the year endedDecember 31,2010


2009CASH FLOWS FROM OPERATING ACTIVITIESNet loss

$
(2,271,780
)

$
(4,790,267
)Adjustments to reconcile net loss to net cash used in operating activities:Shares issued for current year loss on settlement of contractual dispute


15,000



-Impairment of oil and gas properties


-



1,067,381Depreciation and amortization (including cost of goods sold component)


379,382



183,453Stock based compensation


1,359,785



2,252,644Allowance for doubtful accounts


36,326



-Amortization of discount on debt


75,000



263,249Impairment loss on notes receivable


-



326,371Loss on guarantee liability


-



72,000Changes in operating assets and liabilities:Accounts receivable


(800,774
)


(364,821
)Inventory


(440,814
)


(51,465
)Prepaid expenses and other current assets


9,382



63,237Other assets


(16,945
)


24,664Accounts payable


662,988



296,562Accrued expenses


159,160



426,460Accrued expenses-related parties


(68,500
)


(26,594
)NET CASH USED IN OPERATING ACTIVITIES


(901,790
)


(257,126
)CASH FLOWS FROM INVESTING ACTIVITIESCash paid for acquisition of Turf


(263,700
)


(75,530
)Restricted cash


(36,295
)


(18,264
)Purchase of fixed assets


(520,340
)


(108,322
)NET CASH USED IN INVESTING ACTIVITIES


(820,335
)


(202,116
)CASH FLOWS FROM FINANCING ACTIVITIESNet proceeds from private placement


1,945,100



229,000Repayment of long term debt


(221,975
)


(219,185
)Repayment of capital lease obligations


(21,692
)


(9,591
)Net factoring advances


368,862



153,856Borrowing on long-term debt


158,013



150,000Loan from investor


-



(41,961
)Repayments of loans from related parties


-



(24,375
)Proceeds from loans from related parties


-



219,238NET CASH PROVIDED BY FINANCING ACTIVITIES


2,228,308



456,982NET INCREASE (DECREASE) IN CASH


506,183



(2,260
)CASH AT BEGINNING OF YEAR


25,107



27,367CASH AT END OF YEAR

$
531,290


$
25,107





Cash paid for interest

Cash paid for taxes

Non-cash investing and financing transactions:

$
76,184


$
1,924Forgiveness of debt from related party

$
130,000


$
-Shares issued for conversion of long-term debt

$
76,330


$
194,951Purchase of fixed assets with notes

$
20,067


$
205,926Stock issued for prior year accrual of contractual dispute settlement

$
115,000


$
-Prepaid insurance issued through issuance of notes

$
-


$
128,071Discount on long-term debt

$
-


$
372,000Guarantee

$
-


$
48,000BCF and Shares issued to modify loan

$
-


$
75,000





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




23




ESP Resources, Inc


Notes to Consolidated Financial Statements


December 31, 2010 and 2009





Note 1 – Basis of Presentation, Nature of Operations and Significant Accounting Policies





Basis of Presentation





ESP Resources, Inc. (“ESP Nevada”, and collectively with its subsidiaries, the “Company”) (formerly Pantera Petroleum, Inc.) was incorporated in 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. and ESP Resources, Inc. (“ESP Delaware”). ESP Petrochemicals, Inc. also owns certain assets and liabilities of Turf Chemistry, Inc. (“Turf”), a Texas corporation.All significant inter-company balances and transactions have been eliminated in the consolidation. The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America.





On June 15, 2007, ESP Delaware purchased all the outstanding shares of ESP Petrochemicals, Inc. The transaction was accounted for as a reverse acquisition with ESP Petrochemicals, Inc. being the continuing entity. The accompanying financial statements for the period of December 31, 2010 and 2009 have been prepared to present the statements of operations and cash flows of ESP Petrochemicals, Inc. for purposes of complying with the rules and regulations of the Securities and Exchange Commission as required by S-X Rule 8-02. The combined results of the two periods in 2010 and 2009 represent the results of operations and cash flows for the continuing operations of ESP Petrochemicals, Inc.





Nature of the Business





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





Reverse Merger





On December 29, 2008, the Company closed an Agreement for Share Exchange with ESP Delaware and ESP Enterprises, Inc. (“Enterprises”), a Colorado corporation and the sole shareholder of ESP Delaware (“Enterprises”) whereby the Company acquired 100% ownership of ESP Delaware in exchange for 14,634,146 shares of common stock of the Company which represented approximately 76% of the Company. Due to the change in control of the Company this transaction was accounted for as a reverse merger in accordance with FASC Topic 805, “Business Combinations,” whereby ESP Delaware was considered the accounting acquirer.





Purchase of Turf Chemistry, Inc by ESP Resources on November 1, 2009





On November 1, 2009, ESP Resources purchased certain assets and liabilities of Turf. The assets and liabilities acquired related to Turf’s activities in the United States. Turf operates in the same industry as ESP Resources and ESP Petrochemicals.





The acquisition of Turf was accounted for using purchase accounting as ESP Resources acquired substantially all of the assets, debts, employees, intangible contracts and business of Turf. Turf’s results of operations and cash flows are included in the accompanying consolidated financial statements from the date of acquisition.





The purchase price of $1,172,972 includes the assumption of bank and other debts of Turf totaling $203,742. On November 1, 2009, ESP Resources paid $75,530 in cash and issued 2,000,000 shares of common stock of ESP Resources Inc. The Company paid Turf an additional $263,700 during 2010. The fair value of the stock on the grant date is $280,000. The purchase included the assumption of debt and assets including inventory, fixed assets, vehicles, and supplies in exchange for cash and shares. The acquisition price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values. The Company determined that assets acquired included an intangible asset associated with the customer list for Turf’s existing customer relationships. The customer list was valued at $914,700 and has an estimated life of five years. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:





24




AmountInventory

$
17,179Property and equipment


176,380Supplies


64,713Intangible assets


914,700Total assets acquired


1,172,972Debt assumed


203,742Net assets acquired

$
969,230Advance payment to Turf

$
75,530Cash payable to Turf


263,700Common stock issued to Turf shareholders


280,000Contingent consideration payable to Turf


350,000Total purchase price

$
969,230





As part of the acquisition agreement, ESP Resources agreed to issue an aggregate number of shares of its common stock to Turf determined as follows:




a)
If the sale of Turf’s products results in at least $1,500,000 in revenue for the one year period beginning on January 1, 2010 (the “First Earnout Period”), not including any revenue from ESP Resources or any of its other affiliates (the “First Revenue Earnout Criteria”), then Turf shall be entitled to receive an aggregate of such number of shares of the Company’s common stock as equals the quotient obtained by dividing (i) the difference between the total revenue from the sale of Turf’s products during the First Earnout Period minus $1,500,000 (ii) the average trading price of the Company’s common stock over the fifteen day period immediately preceding the last day of the First Earnout Period.The First Revenue Earnout Criteria was not achieved.b)
If the sale of Turf’s products for the one year period beginning on the first day following the First Earnout Period and ending on the first anniversary of the First Earnout Period (the “Second Earnout Period”) results in revenue greater than the revenue earned in the First Earnout Period, not including any revenue from ESP Resources or any of its other affiliates (the “Second Revenue Earnout Criteria”), then Seller shall be entitled to receive an aggregate of such number of shares of the Company’s common stock as equals the quotient obtained by dividing (i) the quotient of (A) the difference between the total revenue from the sale of Turf’s products during the Second Earnout Period minus the revenue from the Sale of Turf’s products during the First Earnout Period divided by (B) one and thirty-three one hundredths (1.33), by (ii) the average trading price of the Company’s common stock over the fifteen day period immediately preceding the last day of the Second Earnout Period (the “Second Year Earnout Shares”).c)
If the sale of Turf’s products for the one year period beginning on the first day following the Second Earnout Period and ending on the first anniversary of the Second Earnout Period (the “Third Earnout Period”) results in revenue greater than the revenue earned in the Second Earnout Period, not including any revenue from ESP Resources or any of its other affiliates (the “Third Revenue Earnout Criteria”), then Turf shall be entitled to receive an aggregate of such number of shares of the Company’s common stock as equals the quotient obtained by dividing (i) the quotient of (A) the difference between the total revenue from the sale of Turf’s products during the Third Earnout Period minus the revenue from the sale of Turf’s products during the Second Earnout Period divided by (B) two, by (ii) the average trading price of Parent’s common stock over the fifteen day period immediately preceding the last day of the Third Earnout Period (the “Third Year Earnout Shares”).d)
If the sale of Turf’s products for the one year period beginning on the first day following the Third Earnout Period and ending on the first anniversary of the Third Earnout Period (the “Fourth Earnout Period”) results in revenue greater than the revenue earned in the Third Earnout Period, not including any revenue from the ESP Resources or any of its other affiliates (the “Fourth Revenue Earnout Criteria”), then Turf shall be entitled to receive an aggregate of such number of shares of the Company’s common stock as equals the quotient obtained by dividing (i) the quotient of (A) the difference between the total revenue from the sale of Turf’s products during the Fourth Earnout Period minus the revenue from the sale of Turf’s products during the Third Earnout Period divided by (B) 4, by (ii) the average trading price of the Company’s common stock over the fifteen day period immediately preceding the last day of the Fourth Earnout Period (the “Fourth Year Earnout Shares”).





25





Management estimated the fair value of the earn out provision at $350,000 on the date of acquisition, and this amount is an accrued contingency at December 31, 2010.




Unaudited pro forma condensed combined financial statements




The unaudited pro forma combined condensed financial statements are presented for informational purposes only and are not necessarily indicative of the results of operations that actually would have been achieved had each acquisition been consummated as of that time, nor are they intended to be a projection of future results.




The unaudited condensed combined pro forma results were as follows:




Unaudited Pro Forma Combined Condensed Statement of Operations


For the Year Ended December 31, 2009




Revenues

$
3,126,027Cost of Goods Sold


(1,595,470
)Gross Profit


1,530,557Total Operating Expenses


3,762,723Net loss

$
(2,232,166)





Intangible assets





Intangible assets relate to the customer list acquired with the acquisition of Turf described above. Intangible assets are being amortized over their estimated life of five years. The Company evaluated intangible assets for impairment as of December 31, 2010 and determined that no impairment was indicated. The Company recognized amortization expense of $183,696 and $30,490 during the years ended December 31, 2010 and 2009, respectively.





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 subsidiaries for the years ended December 31, 2010 and 2009.




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 $531,290 and $25,107 cash equivalents at December 31, 2010 or 2009, respectively.




26




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, 2010 and 2009:





2010


2009Trade receivables

$
1,616,477


$
815,703Less: Allowance for doubtful accounts


(36,326
)


-Net accounts receivable

$
1,580,151


$
815,703





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





Inventory





Inventory represents raw and blended chemicals and other items valued at the lower of cost or market with cost determined using the first-in first-out method, and with market defined as the lower of replacement cost or realizable value.





As of December 31, 2010 and 2009, inventory consisted of the following:


2010


2009Raw materials

$
536,351


$
236,129Finished goods


194,681



54,089Total inventory

$
731,032


$
290,218





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.





Oil and Gas Properties





The Company follows the full cost method of accounting for oil and gas operations whereby all costs of exploring for and developing oil and gas reserves are initially capitalized on a country-by-country (cost centre) basis. Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling and overhead charges directly related to acquisition and exploration activities.





Costs capitalized, together with the costs of production equipment, will be depleted and amortized on the unit-of-production method based on the estimated gross proved reserves. Petroleum products and reserves are converted to a common unit of measure, using 6 MCF of natural gas to one barrel of oil.





Costs of acquiring and evaluating unproved properties are initially excluded from depletion calculations. These unevaluated properties are assessed periodically to ascertain whether impairment occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion calculations.





If capitalized costs, less related accumulated amortization and deferred income taxes, exceed the “full cost ceiling” the excess is expensed in the period when such excess occurs. The “full cost ceiling” is determined based on the present value of estimated future net revenues attributed to proved reserves, using current prices less estimated future expenditures plus the lower of cost and fair value of unproven properties within the cost center.





Future net cash flows from proved reserves using period-end, non-escalated prices and costs are discounted to present value and compared to the carrying value of oil and gas properties.





Proceeds from a sale of petroleum and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would alter the rate of depletion by more than 25%. Royalties paid net of any tax credits received are netted with oil and gas sales.




27


Impairment





Unevaluated properties which are excluded from amortization are assessed at least annually to ascertain whether impairment occurred. Unevaluated properties whose costs are individually significant shall be assessed individually. Where it is not practicable to individually assess the amount of impairment of properties for which costs are not individually significant, such properties may be grouped for purposes of assessing impairment. Management considers the following factors in assessing properties for impairment:





Impairment may be estimated by applying factors based on historical experience and other data such as primary lease terms of the properties, average holding periods of unproved properties, and geographic and geologic data to groupings of individually insignificant properties and projects. The amount of impairment assessed under either of these methods shall be added to the costs to be amortized. In addition, management assesses the availability of financing on commercially viable terms in order to finance the development of the property. The Company individually evaluated the Block 83 and 84 Project and the Baker 80 Lease. These are the only unevaluated properties owned by the Company; therefore, no properties were evaluated as a group. See Note 6 for specific discussion of each of the unevaluated properties.





The Company determined that its investments in the Baker 80 Lease and Block 83 84 Project were impaired. As a result, the Company recognized an impairment loss of $1,067,381 for the year ended December 31, 2009. See Note 6 below.





Asset Retirement Obligations





The Company recognizes the fair value of a liability for an asset retirement obligation in the year in which it is incurred when a reasonable estimate of fair value can be made. The carrying amount of the related long-lived asset is increased by the same amount as the liability.





Changes in the liability for an asset retirement obligation due to the passage of time will be measured by applying an interest method of allocation. The amount will be recognized as an increase in the liability and an accretion expense in the statement of operations. Changes resulting from revisions to the timing or the amount of the original estimate of undiscounted cash flows are recognized as an increase or a decrease in the carrying amount of the liability for an asset retirement obligation and the related asset retirement cost capitalized as part of the carrying amount of the related long-lived asset. At December 31, 2010 and 2009, no asset retirement obligation was required to be recorded.





Derivatives





The valuation of our embedded derivatives and warrant derivatives are determined primarily by the Black-Scholes option pricing model. An embedded derivative is a derivative instrument that is embedded within another contract, which under the convertible note (the host contract) includes the right to convert the note by the holder, certain default redemption right premiums and a change of control premium (payable in cash if a fundamental change occurs). In accordance with Statement of Financial Accounting Standards ("SFAS") No. 133, as amended, 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 determined in accordance with Emerging Issues Task Force ("EITF") 00-19, ASC 815. Based on EITF 00-19, ASC 815, warrants which are determined to be classified as derivative liabilities are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. The practical effect of this has been that when our stock price increases so does our derivative liability and resulting in a non-cash loss charge that reduces our earnings and earnings per share. When our stock price declines, we record a non-cash gain, increasing our earnings and earnings per share.





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





Income Taxes





In accordance with SFAS No. 109, ASC 740 “Accounting for Income Taxes”, the provision for income taxes is computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.





28





Concentration





The Company has four major customers that together account for 49% of accounts receivable at December 31, 2010 and five major customers that together account for 39% of the total revenues earned for the year ended December 31, 2010.





Accountsreceivable


RevenueCustomer A


5
%


11
%Customer B


-
%


10
%Customer C


19
%


6
%Customer D


15
%


4
%Customer E


10
%


8
%49
%


39
%





The Company has one vendor that accounted 18% of purchases during 2010.




The Company had three major customers that together accounted for 38% of accounts receivable at December 31, 2009 and four major customers that together accounted for 63% of the total revenues earned for the year ended December 31, 2009.




Accountsreceivable


RevenueCustomer A


17
%


37
%Customer B


10
%


12
%Customer C


-
%


8
%Customer D


11
%


6
%38
%


63
%




The Company had four vendors that accounted for 29%, 14%, 11% and 10%, respectively of purchases during 2009.




The Company places its cash and cash equivalents with financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. From time to time, the Company’s cash balances exceeded FDIC insured limits.  At December 31, 2010, the Company’s uninsured cash balance was $281,290.





Revenue and Cost Recognition





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





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





Advertising





Advertising costs are charged to operations when incurred. Advertising expense for the year ended December 31, 2010 and 2009 were $1,470 and $433, respectively.





29




Basic and Diluted Loss Per Share





Basic and diluted earnings or loss per share (EPS) amounts in the financial statements are computed in accordance SFAS No. 128, ASC 260 – 10 “Earnings per Share ”, which establishes the requirements for presenting EPS. Basic EPS is based on the weighted average number of common shares outstanding. Diluted EPS is based on the weighted average number of common shares outstanding and dilutive common stock equivalents. Basic EPS is computed by dividing net income/loss available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period.





Potentially dilutive securities were excluded from the calculation of diluted loss per share, because their effect would be anti-dilutive.





Business Segments





The Company operates on one segment and therefore segment information is not presented.





Fair Value of Financial Instruments





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





Environmental Costs





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





The Company incurred no environmental expenses during the years ended December 31, 2010 and 2009, respectively.





Reclassification





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





New Accounting Standards





In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162” (“SFAS 168”). The FASB Accounting Standards Codification TM, (“Codification” or “ASC”) became the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of SFAS 168, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative.




Following SFAS 168, the FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue Accounting Standards Updates (ASU’s). The FASB will not consider ASU’s as authoritative in their own right; rather these updates will serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the Codification. SFAS No. 168 is incorporated in ASC Topic 105, Generally Accepted Accounting Principles. The Company adopted SFAS No. 168 in the third quarter of 2009, and the Company will provide reference to both the Codification topic reference and the previously authoritative references related to Codification topics and subtopics, as appropriate.





In June 2009, the FASB issued guidance which amends the consolidation guidance applicable to variable interest entities. This guidance is included in FASB ASC 810, Consolidation. The amendments significantly reduce the previously required quantitative consolidation analysis, and require ongoing reassessments of whether a company is the primary beneficiary of a variable interest entity. This new guidance also requires enhanced disclosures about an enterprise’s involvement with a variable interest entity. This statement is effective for the beginning of the first annual reporting period beginning after November 15, 2009. The Company does not currently expect the adoption of the new guidance in FASB ASC 810 to impact its consolidated financial statements.





30





Note 2 – Going Concern





At December 31, 2010, the company had cash and cash equivalents of $531,290 and working capital of $74,453. The Company believes that its existing capital resources may not be adequate to enable it to execute its business plan. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. The Company estimates that it will require additional cash resources during 2011 based on its current operating plan and condition.





The Company expects cash flows from operating activities to improve, primarily as a result of an increase in revenue, although there can be no assurance thereof. The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. If we fail to generate positive cash flow or obtain additional financing, when required, we may have to modify, delay, or abandon some or all of our business and expansion plans.





Note 3 – Factoring Payable





On February 2, 2007, the Company entered into a combined account factoring and security agreement with Midsouth Bank, which expires June 30, 2011. The Company may obtain advances up to 100 percent of eligible accounts receivable, subject to a three percent factoring fee, and ten percent held in a reserve account, which is released to the Company upon payment of the receivable. The factoring agreement is subject to a revolving line of credit master note, which limits borrowing to $750,000. The line of credit is payable upon demand, or if no demand is paid, with monthly payments of interest at 15%. All outstanding principle plus accrued unpaid interest is due on June 30, 2011. The payment terms of the line of credit will not be enforced while the factoring agreement is in effect. The line of credit is secured by all inventory, accounts, general intangibles, and equipment of the Company and a commercial guarantee of a Company stockholder. The total borrowings under the factoring agreement at December 31, 2010 and 2009 were $749,586 and $380,724, respectively with $77,434 and $41,139 held in restricted cash in the consolidated balance sheets.





Note 4 – Property and equipment





Property and equipment includes the following at December 31, 2010 and 2009:


2010


2009Plant, property and equipment

$
632,159


$
248,722Vehicles


661,768



536,131Equipment under capital lease


97,332



77,265Office furniture and equipment


51,891



40,6261,443,150



902,744Less: accumulated depreciation


(419,027
)


(219,341
)Net property and equipment

$
1,024,123


$
683,403





Depreciation expense was $199,686 and $152,963 for the year ended December 31, 2010 and 2009, respectively. The Company allocated $74,152 and $136,490 of depreciation to cost of goods sold during the year ended December 31, 2010 and 2009, respectively.





Note 5- Notes receivable and investments





The Company wrote off a note receivable from a third party during 2009 in the amount of $326,371.





Note 6 - Oil and Gas Properties - Unproven





Block 83 and 84 Project





On March 6, 2008, the Company acquired a 10% interest in a joint venture formed pursuant to a joint venture agreement, with a third party, as the managing venturer, and certain other joint venturers, in consideration for $800,000. The purpose of the joint venture was securing, reentering, re-opening, managing, cultivating, drilling and operating the Gulf-Baker 83 #1 Well, the Sibley 84 #1 Well and the Sibley 84 #2 Well located in West Gomez oil and gas fields in Pecos County, Texas.





During 2009, the Company determined that the joint venture would not be able to obtain the necessary funding to get the well operational. As a result, the Company recorded an impairment charge of $800,000 during the year ended December 31, 2009.





31





Baker 80 Lease





By an agreement dated August 11, 2008, the Company agreed to acquire a 95% working interest and 71.25% revenue interest, in the Baker 80 Lease located in Pecos County, Texas (the “Property”) from a third party (the “Seller”).  The Company acquired 43.21% of the working interest in the Property in August 2008.  On October 30, 2008, the Company borrowed an additional $87,190 from a private equity drilling fund (the “Investor”) to acquire the remaining 51.79% working interest in the Property.  On October 30, 2008, the Company entered into and closed the definitive documents (collectively the “Agreement”) for the transaction with the Seller and the Investor.  The Company, the Investor and the Seller entered into drilling arrangements whereby the Company and the Sellers granted the Investor an exclusive option to fund drilling, re-entry and completion of certain wells located in the Property.  The Investor was to receive 100% of the cash flows on the initial well until such cash flows exceeded the $87,190 plus interest represented by the promissory note the Company executed in favor of the Investor, then the cash flows would be distributed in accordance with the Agreement.  Due to non-performance by the Investor under the terms of the Agreement, and the Company’s inability to obtain alternate financing to complete the well, the Company elected to write off its $267,381 investment as of December 31, 2009.


Note 7-Long Term Debt





Long term debt consisted of the following at December 31, 2010 and 2009:


2010


2009Note payable to Midsouth Bank dated May 2007. The Note bears interest at 12.0 percent per annum and is payable in monthly installments of $194, maturing May 2012. The note is secured by equipment and deposit accounts.

$
2,984


$
4,835Note payable to Midsouth Bank dated February 2007. The note bears interest at 12.0 percent per annum and is payable in monthly installments of $169, maturing February 2012 The note is secured by equipment and deposit accounts.


2,158



3,818Note payable to FMC dated January 2007. The note bears interest at 2.90 percent per annum and is payable in monthly installments of $945, maturing February 2012. The note is secured by a vehicle.


13,992



23,785Note Payable to FMC dated January 2007. The note bears interest at 2.90 percent per annum and is payable in monthly installments of $902, maturing February 2012. The note is secured by a vehicle.


14,213



23,642Note payable to FMC dated January 2007. The note bears interest at 2.90 percent per annum and is payable in monthly installments of $925 maturing February 2012. The note is secured by a vehicle.


13,706



23,297Note assumed with vehicle purchase, payable to FMC dated December 2006. The note bears interest at 9.90 percent per annum and is payable in installments of $724, maturing December 2011. The notes is secured by a vehicle.


8,981



17,474Note payable dated January 1, 2010.The note bears interest at 12.00 per annum and is payable in installments of $150, maturing January 2013. The note is secured by equipment.


3,240



-Note payable for the purchase of a vehicle dated October 19, 2010. The note bears interest at 9.49 percent per annum and is payable in installments of $1,072 maturing in November 2015. The note is secured by a vehicle.


50,393



-Note payable for the purchase of a vehicle dated April 1, 2010. The note bears interest at 7.5 percent per annum and is payable in installments of $872 maturing in January 2015. The note is secured by a vehicle.


38,229



-Unsecured notes payable. The notes bear interest at 5 percent per annum and are due between September 30, 2012 and July 22, 2013


273,000



273,000Unsecured promissory note payable in connection with the drilling program. The note bears interest at 5 percent per annum and was due April 30, 2009. The note has been extended indefinitely.


86,968



87,190On February 12, 2009, the Company borrowed $41,415 for the purchase of a vehicle. The note bears interest at 6.75% per year, is secured by the vehicle purchased and is payable in 60 monthly payments of $817.


27,767



35,420On February 15, 2009, the Company borrowed $4,343 for the purchase of equipment. The note bears interest at 12% per year, is secured by the equipment purchased and is payable 36 monthly payments of $145


1,866



3,284




32




On November 10, 2009, the Company borrowed $52,186 for the purchase of a vehicle. The note bears interest at 4.90% per year, is secured by the vehicle purchased and is payable in 60 monthly payments of $982.


41,912



51,392On November 10, 2009, the Company borrowed $57,372 for the purchase of a vehicle. The note bears interest at 6.25% per year, is secured by the vehicle purchased and is payable in 60 monthly payments of $1,118.


46,435



56,523Note assumed with the acquisition of Turf Chemicals, Inc. Note assumed with boat purchase, payable to Key Bank dated May 17, 2007. The note bears interest at 10.50% percent per annum and is payable in installments of $481, maturing May 17, 2022. The note is secured by a boat.This note is in default at December 31, 2010 and classified as a current liability.


38,295



39,948Note assumed with the acquisition of Turf Chemicals, Inc. Note assumed with vehicle purchase, payable to FMC dated April 2008. The note bears interest at 7.90 percent per annum and is payable in installments of $992, maturing April 2013. The note is secured by a vehicle.


25,979



36,646Note assumed with the acquisition of Turf Chemicals, Inc. Note assumed with vehicle purchase, payable to FMC dated April 2008. The note bears interest at 7.99 percent per annum and is payable in installments of $614, maturing April 2013. The note is secured by a vehicle.


15,944



22,148Note assumed with the acquisition of Turf Chemicals, Inc. Note assumed with vehicle purchase, payable to FMC dated April 2008. The note bears interest at 7.99 percent per annum and is payable in installments of $458, maturing April 2013. The note is secured by a vehicle.


11,447



16,093Note assumed with the acquisition of Turf Chemicals, Inc. Note assumed with vehicle purchase, payable to FMC dated April 2008. The note bears interest at 7.99 percent per annum and is payable in installments of $693, maturing April 2013. The note is secured by a vehicle.


14,886



21,995Unsecured note payable to Compass Bank. The note bears interest at the Wall Street Journal U.S. prime rate plus 1.50 percent per annum, is payable in monthly installments of $4,050 and is due February 1, 2011.This note was paid in full as of December 31, 2010.


-



51,760Insurance financing and other short term financing, bears interest at 6.45 percent per annum and is payable in monthly installments of $11,340.


110,118



115,556Total


842,513



907,806Less current maturities


(357,696
)


(325,170
)Total long-term debt

$
484,817


$
582,636


Maturities are as follows:


2011

$
357,6962012


164,6832013


260,8092014


45,046thereafter


14,279




On July 21, 2009, the Company borrowed $75,000 from a lender. The note bore interest at 10% per year and had a term of 56 days. The note was collateralized by 3,000,000 shares of common stock which were returned and cancelled upon repayment of the note. In connection with the loan, the Company issued 1,000,000 shares of common stock and warrants to purchase 250,000 shares of common stock at an exercise price of $0.50 per share and warrants to purchase 250,000 shares of common stock at an exercise price of $1.25. The warrants have a term of two years. The Company evaluated the warrants under current accounting pronouncements and determined that they were properly classified as equity on the balance sheet. The warrants were valued using the Black-Scholes option pricing model with the following assumptions:





Stock price on the measurement date

$
0.14Risk-free interest rate


0.96
%Dividend yield


0
%Volatility factor


86
%Expected life (years)


2





33





The common stock was valued based on the trading price of the stock on the date of issuance. The relative fair value of the common stock and warrants was determined to be $46,752 and $2,275, respectively. This resulted in a total discount of $49,027 which was recorded as a discount on the debt and an increase in additional paid in capital. This discount was amortized over the life of the loan. The loan was repaid in September 2009 with the proceeds from the issuance of the note described below.




On September 23, 2009, the Company borrowed $75,000 from a lender. The note bears interest at 5% per year and has a term of 90 days. In connection with the loan, the Company issued 500,000 shares of common stock to the lender. The shares were valued based on the market value of the stock on the date of issuance. The relative fair value of the note and the common stock was determined to be $46,778 and $28,222, respectively. As a result, the Company recorded a discount of $28,222 with a corresponding increase in equity. On December 23, 2009, ESP entered into an agreement with the lender whereby the maturity date of the December 23, 2009 note extended to February 21, 2010 and in which the interest rate on the outstanding principal balance did not change. In addition, the Company agreed to issue the holder 200,000 shares of the Company’s common stock. The shares were valued based on the market value of the stock on the date of issuance. ESP evaluated the application of, ASC 470-50-40/55 (formerly EITF 96-19) “Debtor’s Accounting for a Modification or Exchange of Debt Instruments and concluded that the revised terms constituted a debt modification rather than a debt extinguishment and accordingly, the relative fair value of the common stock on the September 23, 2009 note of $28,222 has been treated as interest expense in the accompanying income statement. As a result, the Company also recorded a discount of $57,600 with a corresponding increase in equity for the December 23, 2009 note. The discount was amortized over the life of the note. On February 1, 2010, the Company issued 2,180,857 shares of common stock in connection with the extinguishment of the Debt for $76,330 in principal and interest.





Note 8 – Income taxes





The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2010 and 2009 are as follows:




2010


2009Deferred tax assets:

$
1,211,000


$
935,000Valuation Asset


(1,211,000
)

$
(935,000
)Total Deferred Tax Asset

$
-


$
-





As of December 31, 2010, the Company has a net operating loss carry forward of approximately $3,460,000 available to offset future taxable income through 2030. The valuation allowance was $1,211,000 and $935,000 at December 31, 2010 and 2009. The net change in the valuation allowance for the year ended December 31, 2010 and 2009 was an increase of $276,000 and $750,000, respectively.





Note 9 – Stockholders’ Equity





During the three months ended March 31, 2010, we received proceeds of $564,500 from the sale of 8,064,287 units in a private placement.  Each unit consists of one share of common stock, one warrant for the purchase of a share of common stock at an exercise price of $0.25 for a period of one year, and one warrant for the purchase of a share of common stock at an exercise price of $0.75 for a period of one year beginning on the first anniversary of the issuance of the warrant.  The warrants were valued using the Black-Scholes option pricing model with the following assumptions:  stock price on the measurement date of $0.05 - $0.14; warrant term of 1 - 2 years; expected volatility of 155% - 158%; and a discount rate of 0.26% - 0.42%.The proceeds were allocated as follows:





Common stock

$
391,583$0.25 warrant


121,850$0.75 warrant


51,067Total proceeds

$
564,500





During the three months ended June 30, 2010, we received proceeds of $50,000 from the sale of 714,286 units in a private placement.  Each unit consists of one share of common stock, one warrant for the purchase of a share of common stock at an exercise price of $0.25 for a period of one year, and one warrant for the purchase of a share of common stock at an exercise price of $0.75 for a period of one year beginning on the first anniversary of the issuance of the warrant.  The warrants were valued using the Black-Scholes option pricing model with the following assumptions:  stock price on the measurement date of $0.10 - $0.12; warrant term of 1 - 2 years; expected volatility of 157%; and a discount rate of 0.43% - 0.44%.The proceeds were allocated as follows:





Common stock

$
32,161$0.25 warrant


12,230$0.75 warrant


5,609Total proceeds

$
50,000




34




During the three months ended September 30, 2010, we received proceeds of $190,999 from the sale of 2,728,582 units in a private placement.  Each unit consists of one share of common stock, one warrant for the purchase of a share of common stock at an exercise price of $0.25 for a period of one year, and one warrant for the purchase of a share of common stock at an exercise price of $0.75 for a period of one year beginning on the first anniversary of the issuance of the warrant.  The warrants were valued using the Black-Scholes option pricing model with the following assumptions:  stock price on the measurement date of $0.11 - $0.17; warrant term of 1 - 2 years; expected volatility of 156% - 158%; and a discount rate of 0.27% - 0.32%.The proceeds were allocated as follows:





Common stock

$
119,811$0.25 warrant


48,296$0.75 warrant


22,892Total proceeds

$
190,999





During the three months ended December 31, 2010, we received proceeds of $1,064,601 from the sale of 16,065,794 units in a private placement, as of December 31, 2010, $25,000 of the proceeds remains uncollected.  Each unit consists of one share of common stock, one warrant for the purchase of a share of common stock at an exercise price of $0.25 for a period of one year, and one warrant for the purchase of a share of common stock at an exercise price of $0.75 for a period of one year beginning on the first anniversary of the issuance of the warrant.  The warrants were valued using the Black-Scholes option pricing model with the following assumptions:  stock price on the measurement date of $0.10 - $0.12; warrant term of 1 - 2 years; expected volatility of 156% - 158%; and discount rate of 0.21% - 0.27%.The proceeds were allocated as follows:





Common stock

$
669,008$0.25 warrant


268,499$0.75 warrant


127,094Total proceeds

$
1,064,601





On November 22, 2010, the Board of the Directors of the Company approved an extension of the $0.25 warrants from a term of one year to a term of 18 months for all of the warrants issued at $0.25 per share in 2010, or 27,572,949 warrants.  The Company valued the warrants using the Black Scholes option pricing model immediately prior to the term extension and immediately after the term extension and determined the value of the term extension at approximately $500,000.





During 2010, we incurred a finder’s fee of $60,000 and, at December 31, 2010, we owe a finder’s fee of approximately 857,143 warrants which have an exercise price of approximately $0.07 and a three year term.





On September 16, 2009, we received proceeds of $40,000 from the sale of 571,429 units in a private placement.Each unit consists of one share of common stock, one warrant for the purchase of a share of common stock at an exercise price of $0.25 for a period of one year, and one warrant for the purchase of a share of common stock at an exercise price of $1.00 for a period of one year beginning on the first anniversary of the issuance of the warrant.The warrants were valued using the Black-Scholes option pricing model with the following assumptions:stock price on the measurement date of $0.10; warrant term of 1 - 2 years; expected volatility of 71%; and a discount rate of 0.38% - 1.01%.The proceeds were allocated as follows:





Common stock

$
37,736$0.25 warrant


1,859$1.00 warrant


405Total proceeds

$
40,000





In October, 2009, the Company received proceeds of $25,000 from sales of 357,143 units in a private placement.Each unit consists of one share of common stock, one warrant for the purchase of a share of common stock at an exercise price of $0.25 for a period of one year, and one warrant for the purchase of a share of common stock at an exercise price of $1.00 for a period of one year beginning on the first anniversary of the issuance of the warrant.The warrants were valued using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $.09; warrant term of 1 - 2 years; expected volatility of 69.10%; and a discount rate of 0.38%.The proceeds were allocated as follows:





Common stock

$
24,480$0.25 warrant


517$1.00 warrant


3Total proceeds

$
25,000




35




In November and December, 2009, the Company received proceeds of $164,000 from sales of 2,342,859 units in a private placement. Each unit consists of one share of common stock, one warrant for the purchase of a share of common stock at an exercise price of $0.25 for a period of one year, and one warrant for the purchase of a share of common stock at an exercise price of $0.75 for a period of one year beginning on the first anniversary of the issuance of the warrant.The warrants were valued using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.09 - $0.13; warrant term of 1 – 2 years; expected volatility of 50.76% - 59.37%; and discount rate of 0.27% -0.40%.The proceeds were allocated as follows:





Common stock

$
160,139$0.25 warrant


3,831$0.75 warrant


30Total proceeds

$
164,000





On December 31, 2009, we issued 5,570,032 shares of common stock in connection with an extinguishment of related party debt for $194,951.See Note 11.





Common stock issued for services





In May, 2010, the Company issued a total of 8,500,000 shares of common stock for services. The shares were valued at $0.09 which was the trading price of the Company’s stock on the grant date and have a fair value of $765,000.  These shares vest over the service period of 3 years.The Company has recognized compensation expense of $159,288 on these shares as of December 31, 2010.The fair value of the unvested shares is $605,712 as of December 31, 2010.





The Company granted 158,506 shares of common stock to a consultant for the payment of January, February, and March, 2010 fees. The shares were valued at $12,823 based on the value of the stock on the grant date. The number of shares issued was based on a 10 day average stock price. During the year ended December 31, 2010, the Company recognized stock compensation expense of $12,823 for these shares.





In May, 2010, the Company issued 425,000 shares of its common stock to a vendor for services rendered.The shares were valued at $38,250 and recorded as stock based compensation.





In August 2010, the Company entered into an agreement with a vendor whereby the vendor was issued 68,182 shares of common stock valued at $7,500 as an initial payment and was recorded as stock compensation.In the event the Company receives capital (debt or equity) which was initially identified by the vendor, the Company will be required to pay the vendor a finder’s fee of 2.5% of the aggregate capital provided which will be offset by this initial payment.In the event the Company receives equity capital which is initially identified by the vendor, the Company will also be required to issue five year warrants for 2.5% of the equity sold with an exercise price of $0.30.





In September, 2010, the Company issued 400,000 shares of its common stock to a vendor for services rendered.  The shares were valued at $55,600 and recorded as stock based compensation.





In December 2010, the Company issued 150,000 shares of its common stock to a vendor for services rendered.  The shares were valued at $21,000 and recorded as stock compensation.





On March 4, 2009, the Company entered into consulting agreements with two individuals to provide strategic planning and financial consulting services for a period of six months. The Company issued a total of 1,653,000 shares of common stock to these individuals in payment for these services. The shares have fair value of $843,030 and vest over the service period.  The Company valued the shares based on market value on the date of the agreement, and recognized compensation expense of $843,030 for the twelve months ended December 31, 2009. All shares were fully vested as of December 31, 2009.





On March 23, 2009, the Company entered into consulting agreements with two individuals to provide services to the Company for a period of one and a half years.The Company issued a total of 2,000,000 shares of common stock to individuals in payment for their services. The shares have a fair value of $800,000 and vest over the service period. The Company valued the shares based on market value on the date of the agreement, and recognized compensation expense of $381,481 and $418,519 during the year ended December 31, 2010 and 2009, respectively. These shares are fully vested as of December 31, 2010.





36





On May 26, 2009, ESP entered into a five year agreement with a human resources company (the “HR Company”), to provide employment services to screen and select qualified candidates to satisfy the manpower needs of ESP.Either party may terminate this agreement without penalty. ESP is contractually liable to pay the HR Company $100,000 each year in stock. The annual fee is due as a prepayment ten days after the effective date, on May 26, 2009. The number of shares to be issued to the HR Company is determined by dividing $100,000 by the average closing trade price of the stock over the 10 trading days immediately preceding the applicable payment date. The average trading price for the period from May 26, 2009 to June 8, 2009 was $0.240. The number of shares to be issued to the HR Company was calculated to be 335,570. The shares have a fair value of $83,890 and vest over the service period. The Company valued the shares based on market value on the date of agreement, and recognized compensation expense of $49,870 and $34,023 during the year ended December 31, 2010 and 2009, respectively. These shares are fully vested as of December 31, 2010.





On July 17, 2009, the Company issued 1,500,000 shares of common stock to each of David Dugas, the Company’s president, and Chris Metcalf, the Company’s former CEO. The shares were valued at $0.14 per share based on the market value of the stock on the date of issuance. The Company recognized compensation expense of $420,000 during the twelve months ended December 31, 2009. These shares are fully vested as of December 31, 2010.





On July 17, 2009, the Company issued 750,000 shares of common stock to an employee. The shares were valued at $0.14 per share based on the market value of the stock on the date of issuance. The Company recognized compensation expense of $105,000 during the twelve months ended December 31, 2009. These shares are fully vested as of December 31, 2010.





On September 10, 2009, the Company entered into a consulting agreement with an individual. Under the terms of the agreement, the Company issued 150,000 shares of common stock upon signing the agreement and will make monthly payments beginning September 30, 2009 of either (i) $5,000 in cash or (ii) $6,000 of common stock determined by the average trading price of the stock over the ten day trading period ending on the 30thof that month at the Company’s option. If, on the date the agreement terminates or expires, the fair market value of the initial 150,000 shares of common stock is less than the fair market value of the date of grant, the Company must issue such additional number of shares of common stock to make the fair market value of all the shares issued equal the fair market value on the date of grant. ESP Resources, Inc evaluated the application of FAS 150, ASC 480-15“Accounting for certain financial instrument with characteristics of both liabilities and equity At December 31, 2009, the fair market value of the initial shares was not below the fair market value on the date of grant. The 150,000 shares of common stock were valued at $16,500 based on the fair market value on the date of grant. This amount was recognized as consulting expense in the twelve months ended December 31, 2009. The Company granted 40,000 shares of common stock to the consultant for the payment of September 2009 fees. The shares were valued at $4,360 based on the fair value of those shares on the measurement date. The Company granted 165,767 shares of common stock to the consultant for the payment of October, November, and December fees. The shares were valued at $17,212 based on the fair value of those shares on the measurement date.





On December 31, 2009, the Company issued 2,000,000 shares of common stock to David Dugas, ESP Resources Inc President, and Tony Primeaux, ESP Petrochemicals, Inc President as a compensation for providing a personal guarantee on the Factoring Line of Credit. The shares vest on the grant date and ESP recognized a fair value of the stock based compensation of $280,000.





On December 31, 2009, the Company issued 200,000 shares of common stock to a consultant as a compensation for services. The shares vest on the grant date and ESP recognized a fair value of the stock based compensation of $34,000.





On December 31, 2009, the Company issued 1,142,857 shares of common to a consultant. The shares vest on the grant date and ESP recognized a fair value of the stock based compensation of $80,000.





On July 21, 2009, the Company issued 1,000,000 shares of common stock in connection with the issuance of debt with a relative fair value of $49,027. On September 23, 2009 and December 23, 2009, respectively, the Company issued 500,000 and 200,000 shares of common stock in connection with the issuance of debt with relative fair values of $28,222 and $17,400, respectively. See Note 7 above.





Stock Option Awards


On September 21, 2010, through the Board of the Directors, the Company granted non-statutory options to purchase 6,000,000 shares each to two directors (one of whom is also the CEO of the Company).These were granted with an exercise price equal to $0.15 per share.The stock price on the grant date was $0.12.These options vest 33.33% on the commencement date, 33.33% on the first anniversary of the vesting commencement date and 33.33% on the second anniversary of the vesting commencement date.





37





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, 2008Granted


-



-



-Exercised


-



-



-Expired/Forfeited


-



-



-Outstanding at December 31, 2009


-



-



-Granted


12,000,000


$
0.15



10.00Exercised


-



-



-Expired/Forfeited


-



-



-Outstanding at December 31, 2010


12,000,000


$
0.15



9.73Exercisable at December 31, 2010


4,000,000


$
0.15



9.73





The 12,000,000 options that were granted had a weighted average grant-date fair value of $0.11 per share.During the year ended December 31, 2010, The Company recognized stock-based compensation expense of $633,973 related to stock options.  As of December 31, 2010, there was approximately $710,255 of total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over a weighted-average period of approximately 1.73 years. The aggregate intrinsic value of these options was $120,000 at December 31, 2010.





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





Market value of stock on grant date

$
0.12Risk-free interest rate (1)


2.61
%Dividend yield


0.00
%Volatility factor


158
%Weighted average expected life (2)

6 yearsExpected forfeiture rate


0
%








(1)
The risk-free interest rate was determined by management using the U.S. Treasury zero-coupon yield over the contractual term of the option on date of grant.(2)
Due to a lack of stock option exercise history, the Company uses the simplified method under SAB 107 to estimate expected term.





LPC Agreement





On September 16, 2010, ESP signed a $5 million purchase agreement with Lincoln Park Capital Fund, LLC (“LPC”), an Illinois limited liability company.Upon signing the agreement, ESP received $100,000 from LPC as an initial purchase under the $5 million commitment in exchange for 666,667 shares of ESP common stock and warrants to purchase 666,667 shares of ESP common stock at an exercise price of $0.20 per share and a five year term.The relative fair value of the 666,667 shares of ESP common stock and warrants was $52,488 and $47,512, respectively and was determined using a volatility of 158%, a risk free interest rate of .26% and a stock measurement price of $0.13.The Company also issued 1,181,102 of shares of common stock as a commitment fee valued at $159,449.





ESP also entered into a registration rights agreement with LPC whereby the Company agreed to file a registration statement related to the transaction with the U.S. Securities & Exchange Commission (“SEC”) covering the shares that may be issued to LPC under the purchase agreement.After the SEC has declared effective the registration statement related to the transaction, the Company has the right, in its sole discretion, over a 30-month period to sell its shares of common stock to LPC in amounts up to $500,000 per sale, depending on certain conditions as set forth in the purchase agreement, up to the aggregate commitment of $5 million.





38




There are no upper limits to the price LPC may pay to purchase the Company’s common stock.The purchase price of the shares related to the $4.9 million of future funding will be based on the prevailing market prices of the Company’s shares immediately preceding the time of sales without any fixed discount, and the Company will control the timing and amount of any future sales of shares to LPC.LPC shall not have the right or the obligation to purchase any shares of common stock on any business day that the price of ESP common stock is below $0.10.





In addition, the Companywill issue to LPC up to 1,181,102 shares pro rata as LPC purchases the remaining $4.9 million as additional consideration for entering into the purchase agreement.The purchase agreement may be terminated by the Company at any time at the Company’s discretion without any cost to the Company.Except for a limitation on variable priced financings, there are no financial or business covenants, restrictions on future fundings, rights of first refusal, participation rights, penalties or liquidated damages in the agreement.








Note 10 – Capital Leases, Commitments and Contingencies





ESP Petrochemicals leases certain offices, facilities, equipment, and vehicles under non-cancelable operating and capital leases at various dates through 2015.





At December 31, 2010, future minimum contractual obligations were as follows:





Capital Leases


Operating LeasesYear ending December 31, 2011

$
30,906


$
150,000Year ending December 31, 2012


25,831



150,000Year ending December 31, 2013


9,413



60,000Year ending December 31, 2014


9,413



-Year ending December 31, 2015


8,629



-Total minimum lease payments


84,192



360,000Less: amount representing interest


(8,968
)


-Present value of minimum lease payments

$
75,224


$
-





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





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





In October 2010, the Company entered into a three year commercial lease of a building requiring monthly payments of $3,750.





The Company accrued a liability in the amount of $115,000 at December 31, 2009 as a result of threatened litigation from a third party.On June 2, 2010, the Company reached a settlement agreement with the third party.To settle the litigation, the Company paid $45,000 in cash and1,000,000 shares of ESP’s restricted common stock at a closing price of $0.13 valued at $130,000, and recorded a loss on legal settlement of $60,000 during the year ended December 31, 2010.





A lawsuit has been filed by the Securities Exchange Commission (“SEC”) against the Company’s former CEO (“Mr. Metcalf”), Bozidar “Bob” Vukovich (“ Mr. Vukovich”) andPantera Petroleum (now known as the “ESP Resources Inc.”, or the “Company”) regarding an alleged kickback scheme between Mr. Metcalf and Mr. Vukovich which occurred in 2008.Although the Company was a named party to the lawsuit, the Company does not believe that it will incur any expenses as a result of this lawsuit. The Company has not recorded any liabilities related to this matter in the consolidated financial statements as of December 31, 2010.





39





Note 11 – Related party transaction





As of December 31, 2010 and December 31, 2009, the Company had balances due to related parties as follows:





December 31,


December 31,2010


2009Due to ESP Enterprises

$
58,139


$
58,039Due to entities owned by President


-



68,500$
58,139


$
126,539





During 2010, the Company reimbursed entities owned by the President by $68,500.





During the year ended December 31, 2009, DDA Corporation LLC, which is wholly owned by the Company’s president, made several advances to the Company totaling $130,000. The advances were unsecured, bore no interest, and were due on demand. On July 1, 2009, the Company issued six convertible notes evidencing the Company’s obligation to repay the advances. The notes bear interest at 5% per year and mature on January 23, 2010.On July 1, 2009, DDA Corporation assigned interest in those notes to third parties. On December 31, 2009, the third parties converted those notes in accordance with their terms and the $146,000 indebtedness in principal and $7,098 accrued interest was thereby satisfied by the issuance of 4,374,244 shares of common stock.





During the year ended December 31, 2009, Diversified Consulting, LLC, which is wholly owned by the Company’s president, advanced the company $40,000 for the Company’s expanding operations. The advance was unsecured, bore no interest, and was due on demand. On July 1, 2009, the Company issued a convertible promissory note to Diversified Consulting, LLC to evidence the debt.





On July 1, 2009, Diversified Consulting, LLC transferred that note to a third party. On December 31, 2009, third party converted the promissory note in accordance with its terms and the $41,853 indebtedness in principal and accrued interest was thereby satisfied by the issuance of 1,195,788 shares of common stock.





During the year ended December 31, 2009, shareholders and management have advanced the company $214,124 for the Company’s expanding operations, and the Company repaid $21,750 in cash due to entities owned by its President. On December 31, 2009, the third party assignees to the promissory notes that were issued to entities owned by President elected to convert the notes to common stock for settlement of the related party payable. The company issued 5,570,032 shares of stock valued $194,951. As a result, the Company evaluated the terms of the notes in accordance with SFAS No. 133, as amended, ASC 815 “Accounting for Derivative Instruments and Hedging Activities ”, and ASC 815EITF Issue 00-19, “Accounting for Derivative Financial Instruments to and Potentially Settled in a Company’s Own Stock .” ESP Resources determined that advance from management should be accounted as convertible note and not as a derivative instruments. ESP resources evaluated the conversion feature under EITF 98-5 and EITF 00-27, ASC 470 and determined that a beneficial conversion feature should be recognized and gave rise to a debt discount of $186,000. The $186,000 in debt discounts was accelerated and recorded as interest expense and has been treated as interest expense in the accompanying income statement during the year ended December 31, 2009.





On July 17, 2009, ESP entered into a three year employment agreement with Chris Metcalf to serve as CEO of the Company. Mr. Metcalf received cash compensation of $15,000 per month and normal employee benefits. In addition, he received a one-time grant of 1,500,000 shares of common stock.In August 2010, this employment agreement was terminated.  As a result amounts previously classified as due to related parties are now classified within accrued expenses in the consolidated balance sheets.





On July 17, 2009, ESP entered into a three year employment agreement with David Dugas to serve as President of the Company. Mr. Dugas will receive cash compensation of $15,000 per month and normal employee benefits. In addition, he received a one-time grant of 1,500,000 shares of common stock, which will vest if he remains with the Company until June 1, 2010.





On July 17, 2009, ESP entered into a three year employment agreement with Tony Primeaux to serve as President of ESP Petrochemicals. Mr. Primeaux will receive cash compensation of $10,000 per month and normal employee benefits. In addition, he received a one-time grant of 750,000 shares of common stock, which will vest if he remains with the Company until June 1, 2010.





On June 2, 2010, the Company reached an agreement with former CEO to cancel $130,000 of the Company’s indebtedness which was accounted for as contributed capital in Additional Paid in Capital.





40





Note 12 – Guarantee liability





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





ESP recorded the fair value of the guarantee liability at $48,000, which represented the fair value of the note receivable from Aurora and Boreal which ESP would take over from the director. On June 1, 2009 when Aurora and Boreal did not make the required payments on their notes payable to the director, ESP determined that the value of the guarantee liability should be increased to the full face amount of the guaranteed note of $120,000, resulting in a loss on guarantee liability of $72,000 during the year ended December 31, 2009.




Note 13 – Subsequent Events
 
 During the three months ended March 31, 2011, we received proceeds of $821,000 from the sale of 11,728,570 units in a private placement.  Each unit consists of one share of common stock, one warrant for the purchase of a share of common stock at an exercise price of $0.25 for a period of eighteen months, and one warrant for the purchase of a share of common stock at an exercise price of $0.75 for a period of one year beginning on the first anniversary of the issuance of the warrant.  The warrants were valued using the Black-Scholes option pricing model with the following assumptions:  stock price on the measurement date of $0.12; warrant term of 1 - 2 years; expected volatility of 158%; and discount rate of 0.22%.The proceeds were allocated as follows:
 
 Common stock

$
473,717$0.25 warrant


254,378$0.75 warrant


92,905Total proceeds

$
821,000
 
 In March 2011, the Company issued 325,000 shares of its common stock to a vendor for services rendered.  The shares were valued at $54,925 and recorded as stock based compensation.





ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE





The Company did not have any changes in or disagreements with its accountants during the previous two fiscal years ended December 31, 2009 and December 31, 2010.





ITEM 9A. CONTROLS AND PROCEDURES





During 2010 the Company’s continued geographic expansion of operations and limited operational support staff created a material weakness in the system of internal controls. The Company has recently increased the quality and quantity of the operational support staff and is implementing formal control procedures for each of its locations. The chief executive and President believe that, once fully implement, these additional staff and procedures will provide reasonable assurance that the Company’s controls and procedures will meet their objectives.





As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this annual report, being December 31, 2010, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company’s management, including our company’s President and Chief Executive Officer. Based upon that evaluation, our company’s Chief Executive Officer and President concluded that our 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.




41





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 1934 Act. Management has assessed the effectiveness of our internal control over financial reporting as at December 31, 2009, 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 at December 31, 2009, 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.





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 our company to provide only management's report in this annual report.





ITEM 9B. OTHER INFORMATION





None.





42





PART III





ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





Directors and Executive Officers, Promoters and Control Persons





All directors of our 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 orName

with the Company

Age

ElectedDavid Dugas

President and Director

54

December 29, 2008Tony Primeaux

Director

55

December 29, 2008William M. Cox

Director

51

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 31 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.





Tony Primeaux-Director





Mr. Primeaux has 33 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 workover chemistry programs.




43





William M. Cox-Director





Mr. Cox is an executive with extensive experience in the Oil and Gas industry having served in various capacities as a geologist and asset manager for 27 years. Mr. Cox currently serves as the Exploration Manager for Stone Energy Corporation, a NYSE listed Oil and Gas Company. His experience as an interpretation and exploration geologist has contributed significantly to the discovery of substantial Oil and Gas reserves in the offshore and deepwater Gulf of Mexico including development of opportunities in the East Breaks, Green Canyon, and Garden Banks regions of the Gulf of Mexico where water depths often exceed 5000 feet.





Mr. Cox received his Bachelor of Science degree in Geology from the University of Louisiana at Lafayette and is a Certified Petroleum Geologist and a Texas Board Certified Licensed Professional Geologist.





Family Relationships





There are no family relationships among our directors or executive officers.





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; or4.
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 Securities Exchange Act 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 fiscal year ended December 31, 2010,, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with, with the exception of the following:




Number ofTransactions NotNumber of Late

Reported on a Timely

Failure to FileName

Reports

Basis

Requested FormsChris Metcalf

1(1)

2(1)

NilScott Tyson

0

Nil

1(2)David Dugas

1(1)

1(4)

1(4)Tony Primeaux

0

2(2)(4)

2(2)(4)William Cox

0

1(2)

1(2)





(1)
The named officer, director or greater than 10% stockholder, as applicable, filed a late Form 3 – Initial Statement of Beneficial Ownership of Securities.(2)
The named officer, director or greater than 10% stockholder, as applicable, did not file a Form 3 – Initial Statement of Beneficial Ownership of Securities as required by applicable law.(3)
The named officer, director or greater than 10% stockholder, as applicable, filed a late Form 4 - Statement of Changes in Beneficial Ownership of Securities.(4)
The named officer, director or greater than 10% stockholder, as applicable, did not file a Form 4 - Statement of Changes in Beneficial Ownership of Securities as required by applicable law.





44





Code of Ethics





Effective August 17, 2007, our company’s board of directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, our 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:




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; and5.
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 our 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 our company’s personnel are to be accorded full access to our 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 our 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 our 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 our company policy to retaliate against any individual who reports in good faith the violation or potential violation of our 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., of 111 Lions Club Rd., Scott, LA 70503.





Nomination Process





As of December 31, 2010, 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 our 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 our 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 our company, as valid and effective as if they had been passed at a meeting of the directors duly called and held.





Our company currently does not have nominating, compensation or audit committees or committees performing similar functions nor does our 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.




45





Our 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. Our 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 our company does not believe that it is necessary to have an audit committee because our 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 ndependent 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 particulars of compensation paid to the following persons:




(a)
our principal executive officer;(b)
each of our two most highly compensated executive officers who were serving as executive officers at the end of the year ended December 31, 2010; and(c)
up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the year ended December 31, 2010,





who we will collectively refer to as the named executive officers of our company for the years ended December 31, 2010 and 2009, are set out in the following summary compensation table, except that no disclosure is provided for any named executive officer, other than our principal executive officer, whose total compensation does not exceed $100,000 for the respective fiscal year:





SUMMARY COMPENSATION TABLEName

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

($)Chris Metcalf

Chief Executive

2010

$
127,500

Nil

$
-

Nil

Nil

Nil

Nil

$
127,500Officer and Director(1)

2009

$
180,000

Nil

$
210,000

Nil

Nil

Nil

Nil

$
390,000David Dugas

President and

2010

$
180,000

Nil


Nil

Nil

Nil

Nil

Nil

$
180,000Director(1)

2009

$
180,000

Nil

$
350,000

Nil

Nil

Nil

Nil

$
530,000




(1)On August 18, 2010, Mr. Chris Metcalf submitted to the Board of Directors of the Company his resignation as an officer, director and any and all other positions of the Company. The resignation of Mr. Metcalf was not the result of any disagreement with the Company on any matter relating to our operations, policies or practices. That same day, the Board of Directors of the Company accepted Mr. Metcalf’s resignation and appointed Mr. David Dugas to serve as the Chief Executive Officer and Chief Financial Officer of the Company




46





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. On March 4, 2010 the board of directors approved the payment of 200,000 shares of the Company’s common stock to William Cox in remuneration for his services as an independent member of the Company’s board of directors.





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 ANDRELATED STOCKHOLDER MATTERS





The following table sets forth, as of December 31, 2010, certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors and executive officers. Each person has sole voting and investment power with respect to the shares of common stock. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated.





Name and Address of Beneficial Owner

Amount and Nature of Beneficial Ownership(1)

Percentage of Class(1)David Dugas

111 Lions Club Road

Lafayette, LA 70598

3,500,000

4%Tony Primeaux

408 Kilbourne Circle

Carencro, LA 70520

3,837,700

4.39%William Cox

1255 Lions Club Rd.

Lafayette, LA 70503

235,583

0.27%Directors and Executive Officers as a Group

7,573,283

8.66%




(1)
Based on 87,488,478 shares of common stock issued and outstanding as of December 31, 2010. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities.





Change in Control





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





Equity Plan Compensation Information





Our company does not currently have a stock option plan or other form of equity plan.





47





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, 2010, in which the amount involved in the transaction exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at the year end for the last three completed fiscal years.





During 2010, the Company reimbursed entities owned by the President by $68,500.





During the year ended December 31, 2009, DDA Corporation LLC, which is wholly owned by the Company’s president, made several advances to the Company totaling $130,000. The advances were unsecured, bore no interest, and were due on demand. On July 1, 2009, the Company issued six convertible notes evidencing the Company’s obligation to repay the advances. The notes bore interest at 5% per year and were to mature on January 23, 2010. On July 1, 2009, DDA Corporation assigned its interest in those notes to various third parties. On December 31, 2009, the third parties converted those notes in accordance with their terms and the $146,000 indebtedness in principal and $7098 accrued interest was thereby satisfied by the issuance of 4,374,244 shares of common stock.





During the year ended December 31, 2009, Diversified Consulting, LLC, which is wholly owned by the Company’s president, advanced the company $40,000 for the Company’s expanding operations. The advance was unsecured, bore no interest, and was due on demand. On July 1, 2009, the Company issued a convertible promissory note to Diversified Consulting, LLC to evidence the debt. On July 1, 2009, Diversified Consulting, LLC transferred that note to a third party. On December 31, 2009, third party converted the promissory note in accordance with its terms and the $41,853 indebtedness in principal and accrued interest was thereby satisfied by the issuance of 1,195,788 shares of common stock.





During the year ended December 31, 2009, shareholders and management have advanced the company $214,624 for the Company’s expanding operations, and the Company repaid $21,750 in cash due to entities owned by its President. On December 31, 2009, the third party assignees to the promissory notes that were issued to entities owned by President elected to convert the notes to common stock for settlement of the related party payable. The company issued 5,570,032 shares of stock valued $194,951. As a result, the Company recorded a discount of $186,000 with a corresponding increase in equity and $186,000 has been treated as interest expense in the accompanying income statement.





On July 17, 2009, ESP entered into a three year employment agreement with Chris Metcalf to serve as CEO of the Company. Under the agreement Mr. Metcalf would receive cash compensation of $15,000 per month and normal employee benefits. In addition, he received a one-time grant of 1,500,000 shares of common stock which are fully vested.This agreement was terminated during 2010.





On July 17, 2009, ESP entered into a three year employment agreement with David Dugas to serve as President of the Company. Mr. Dugas will receive cash compensation of $15,000 per month and normal employee benefits. In addition, he received a one-time grant of 1,500,000 shares of common stock, which are fully vested.





On July 17, 2009, ESP entered into a three year employment agreement with Tony Primeaux to serve as President of ESP Petrochemicals. Mr. Primeaux will receive cash compensation of $10,000 per month and normal employee benefits. In addition, he received a one-time grant of 750,000 shares of common stock, which are fully vested.





Corporate Governance





We currently act with three directors consisting of David Dugas, Tony Primeaux and William M. Cox. Willaim M. Cox is considered an “independent director” as defined by Rule 5605(a)(2) of The NASDAQ Listing Rules.





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 our 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 4200(a)(15) of the Rules of Nasdaq Marketplace 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.





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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES





Audit Fees





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 annual report on Form 10-K for 2009 is $80,000 and for 2010 is $77,525.





Audit Related Fees





The aggregate fees billed or to be billed by MaloneBailey, LLP, for professional services rendered for the audit related fees for 2009 is $0 and for 2010 is $4,590.





Tax Fees





None.





All Other Fees





None.





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 our 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 Malone & Bailey, and believes that the provision of the services for activities unrelated to the audit is compatible with maintaining the independence of the firm.





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PART IV





ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES





Item 6. Exhibits and Reports of Form 8-K.


(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





ExhibitNumber

Description1.1

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

Bylaws (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006)3.3

Articles of Merger filed with the Secretary of State of Nevada on September 19, 2007 and which is effective September 28, 2007 (incorporated by reference from our Current Report on Form 8-K filed on September 28, 2007)3.4

Certificate of Change filed with the Secretary of State of Nevada on September 19, 2007 and which is effective September 28, 2007 (incorporated by reference from our Current Report on Form 8-K filed on September 28, 2007)4.1

Regulation “S” Securities Subscription Agreement (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006)10.1

Share Purchase Agreement dated November 21, 2007 among our company, Pantera Oil and Gas PLC, Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Current Report on Form 8-K filed on November 26, 2007)10.2

Form of Advisory Board Agreement (incorporated by reference from our Current Report on Form 8-K filed on February 4, 2008)10.3

Equity Financing Agreement dated February 12, 2008 with FTS Financial Investments Ltd. (incorporated by reference from our Current Report on Form 8-K filed on February 15, 2008)10.4

Return to Treasury Agreement dated February 26, 2008 with Peter Hughes (incorporated by reference from our Current Report on Form 8-K filed on February 28, 2008)10.5

Amending Agreement dated March 17, 2008 with Artemis Energy PLC, Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Current Report on Form 8- K filed on March 19, 2008)10.6

Subscription Agreement dated February 28, 2008 with Trius Energy, LLC (incorporated by reference from our Quarterly Report on Form 10-QSB filed on April 14, 2008)


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10.7

Joint Venture Agreement dated February 24, 2008 with Trius Energy, LLC (incorporated by reference from our Quarterly Report on Form 10-QSB filed on April 14, 2008)10.8

Second Amending Agreement dated July 30, 2008 among our company, Artemis Energy PLC (formerly Pantera Oil and Gas PLC), Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Current Report on Form 8- K filed on August 5, 2008)10.9

Amended and Restated Share Purchase Agreement dated September 9, 2008 among company, Artemis Energy PLC (formerly Pantera Oil and Gas PLC), Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Annual Report on for 10-KSB filed on September 15, 2008)10.10

Agreement dated October 31, 2008 with Lakehills Production, Inc. and a private equity drilling fund (incorporated by reference from our Current Report on Form 8-K filed on November 5, 2008)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 of1934 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 of1934 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 906of 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 906of the Sarbanes-Oxley Act of 2002.





*Filed herewith





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SIGNATURES





In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.







ESP RESOURCES, INC.By:
/s/ David DugasDavid DugasChief Executive Officer, President and Director

(Principal Executive Officer and Principal

Financial Officer) Date: March 31, 2011





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.




By:
/s/ DavidDugasDavid DugasPresident and Director Date: March 31, 2011
  By:
/s/ Tony PrimeauxTony PrimeauxDirector


Date: March 31, 2011





By:
/s/ William M CoxWilliam M. CoxDirector Date: March 31, 2011








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