ITEM 1 -1. DESCRIPTION OF BUSINESS
As used in this annual report, the terms “we”, “us”, “our”, “the Company”, mean ESP RESOURCES, INC. unless otherwise indicated.
Cautionary Note Regarding Forward-Looking Statements
This annual report contains forward-looking statements. These statements relate to future events or our future financial performance. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties, and risks that may cause actual results to differ materially from these forward-looking statements include those described in Item 1A. – Risk Factors. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events, or otherwise.
Description of Business
This annual report contains forward-looking statements as that term is defined under applicable securities laws. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors,” that may cause the Company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in United States dollars (USD) and are prepared in accordance with United States generally accepted accounting principles (GAAP).
Any reference herein to “ESP Resources,” the “Company,” “we,” “our” or “us” is intended to mean ESP Resources, Inc., a Nevada corporation, including our subsidiaries unless otherwise indicated.
In this Annual Report, unless otherwise specified, all references to “common shares” refer to the common shares of our capital stock, havinghaving a par value of $0.001 per share.
We wereESP Resources, Inc. (“ESP Resources” the “Company”) was incorporated on October 27, 2004, in the State of Nevada. Our principal offices are located at 1003 South Hugh Wallis Road, Suite G-1, Lafayette, Louisiana 70508.
Effective September 28, 2007, we completed a merger with our subsidiary, Pantera Petroleum Inc., a Nevada corporation. As a result, we changed our name from “Arthro Pharmaceuticals, Inc.” to “Pantera Petroleum, Inc.” In addition, effective September 28, 2007, we effected a sixteen-for-one forward stock split of our authorized, issued and outstanding common stock. As a result, our authorized capital increased from 75,000,000 common shares to 1,200,000,000 common shares with the same par value of $0.001. At that time, our issued and outstanding share capital increased from 6,970,909 common shares to 111,534,544 common shares.
In December 2008, the Company entered into an agreement withon October 27, 2004.On March 10, 2016, ESP Resources, Inc., (the “Company” and/or the “Debtor”) filed a Delaware corporation (“ESP Delaware”voluntary petition (the “Voluntary Petition”), whereby the Company acquired 100% ownership of ESP Delaware in exchange for 292,682,297 common shares. As a result of this acquisition, we changed our name from “Pantera Petroleum, Inc.” to “ESP Resources, Inc.” On January 27, 2009, we effected a one-for-twenty reverse stock split of our common stock and received a new ticker symbol. The name change and reverse stock split became effective with the OTC Venture Stage Marketplace (OTCQB) at the opening of trading on January 27, 2009 under the new symbol “ESPI”. Our new CUSIP number is 26913L104.
On July 29, 2011 the shareholders decreased the authorized shares of our common stock from 1,200,000,000 shares to 350,000,000 shares and authorized a new class of stock, preferred stock having 10,000,000 shares of stock authorized at $.001 par value.
Our Business
Through our subsidiaries, we manufacture, blend, distribute and market specialty chemicals and analytical services to the oil and gas industry and provide services for the upstream, midstream and downstream sectors of the energy industry, including new construction, major modifications to operational support for onshore and offshore production, gathering, refining facilities and pipelines designed to optimize performance and increase operators’ return on investment.
ESP Petrochemicals, Inc.
Through our wholly owned subsidiary ESP Petrochemicals, Inc. (“ESP Petro”), we offer analytical services and essential custom-blended oil and gas well chemicals which improve production yields and overall efficiencies. Our mission is to provide applications of surface chemistry to service all facets of the fossil energy business via a high level of innovation. We focus our efforts on solving problems at the drilling site or well with a complex integration of chemicals and methods to achieve the highest level of quality petroleum output. Constant management of our chemical applications at the drilling site or well, continuous monitoring of the productivity and outflow levels of oil and gas, responding to customers’ changing demands and applying our skills as chemical formulators enable us to measure the impact we have in our business.
ESP Petro acts as a manufacturer, distributor and marketer of specialty chemicals and supply specialty chemicals for a variety of oil and gas field applications including killing bacteria, separating suspended water and other contaminants from crude oil, separating the oil from the gas, pumping enhancement, pumping cleaning, as well as a variety of fluids and additives used in the drilling and production process. At each well that is in production, there exist a number of factors that make each site unique. These include the depth of the producing formation, the bottom-hole temperature of the producing well, the size of the well head through which the producing fluids flow, the size and pressure ratings of the production equipment, including the separators, heater-treaters, compression equipment, size of production tubulars in the wellbore, size of the storage tanks on the customers’ location, and pressure ratings of the sales lines for the oil and gas products. Wells that are operating short distances from each other in the same field can have very different characteristics. This variance in operating conditions, chemical makeup of the oil, and the usage of diverse equipment requires a very specific chemical blend to be used if maximum drilling and production well performance is to be attained.
Our customer base is generally comprised of oil and gas exploration companies that plan, finance, drill and operate wells through the point of full depletion. Of the various stages involved in the development of an oil and gas well, we offer our products and services to our customers in principally two main areas: completion petrochemicals and production petrochemicals.
Completion Petrochemicals
Our completion petrochemicals are primarily used during the completion stage of oil or gas wells that are drilled in various shale formations in the United States. After a well is drilled, we deliver a specialized chemical equipment trailer, or chemical delivery unit, that is used in the pumping of chemicals during the hydraulic fracturing process. Hydraulic fracturing, or fracking, is a technology used to inject a fluid into a well to create fractures in the minerals containing the oil or gas. Usually the fluid is water, sand, and chemical additives. Our chemical delivery units pump chemicals to treat the fluids used in the completion of the oil and gas wells during the fracking process. Each unit consists of a trailer mounted pumping system with associated power generation components, a chemical supply trailer, safety and spill prevention equipment, communication devices, and computerized reporting equipment.
The units pump treatment chemicals to eliminate the bacteria contamination present in the fluids used in the fracking process. We have developed a specialized chemical formulation that is intended to provide for a longer term bacteria-contamination elimination time frame than what is currently supplied by our competitors. The longer term time frame is designed to provide our customers significant cost savings in the removal treatment of contaminants from the oil and gas well-stream once the well has been placed into production.
Once the completion works is concluded at the well, which typically takes between 2-5 days, our chemical delivery units are moved out of the location and sent back to the appropriate district office for the next completion job.
Production Petrochemicals
After a well has been completed and placed into production, we supply production chemicals and services that are designed to be administered throughout the life of the well. Through the utilization of over 100 base chemicals, we replicate well conditions, analyze the properties of the well, determine the precise mix of chemicals to treat the well and then inject the chemicals in small batches via our specialized equipment. Our production petrochemicals include, but are not limited to, drilling chemicals, waste remediation chemicals, cleaners and waste treatment chemicals as follows:
● | Surfactants that are highly effective in treating production and injection problems at the customer well- head; |
● | Well completion and work-over chemicals that maximize productivity from new and existing wells; |
● | Bactericides that kill water borne bacterial growth, thus preventing corrosion and plugging of the customer well-head and flowline; |
● | Scale compounds that prevent or treat scale deposits; |
● | Corrosion inhibitors, which are organic compounds that form a protective film on metal surfaces to insulate the metal from its corrosive environment; |
● | Antifoams that provide safe economic means of controlling foaming problems; |
● | Emulsion breakers, which are chemicals specially formulated for crude oils containing produced waters; |
● | Paraffin chemicals that inhibit and/or dissolve paraffin to prevent buildup (their effectiveness is not diminished when used in conjunction with other chemicals); and |
● | Water clarifiers that solve any and all of the problems associated with purifying effluent water and that improve appearance |
Our first goal is to solve our customers’ problem at the well and optimize drilling or production and, secondly, the sale of our products. Typically, our service personnel gather information at a well and enter the data into the analytical system at each of our five respective district offices located in Rayne, Louisiana; Pharr, Texas; Victoria, Texas and Center, Texas. The analytical system provides testing parameters and reproduces conditions at the wellhead. This allows our technical team and chemists to design and test a new chemical blend in a very short period of time. In many cases, a new blend may be in service at the well in as little as 24 hours.
Once the chemical blend has been formulated and determined, the chemical is placed in service at the wellhead of the customer by delivering a storage tank, called a “day tank,” at the customer’s well-site location and filling the tank with the custom blended chemicals. The tank is tied to a pressure pump that provides the pumping capacity to deliver the chemical into the wellhead for the customer. This unique process shortens the chemical development time frame from what might have been as long as two months or more to a few days or hours. Management believes that the service, response times and chemical products that the Company strives to provide its customers is a differentiating factor within the industry.
Discontinued operations
On June 11, 2013, the board of directors resolved to discontinue operations of various subsidiaries, including ESP Facility and Pipeline Services, Inc., ESP Advanced Technologies, Inc., ESP KUJV Limited Joint Venture and ESP Marketing Group LLC (collectively, the “Discontinued Subsidiaries”). The Discontinued Subsidiaries were not wholly-owned by the Company and, in accordance with the decision to discontinue operations, no longer receive financial or management support. The Company reflected 100% of the losses related to the subsidiaries in its results from discontinued operations.
Competition
The Company currently shares market distribution with several, significantly larger participants, including Baker Petrolite (a Baker Hughs company), Nalco Energy Services (an Ecolab company), Champion Technologies, Inc., X-Chem, CESI Chemicals, Inc., BJ Services (a Baker Hughes company) and Multi-Chem Group (a Halliburton company). There are also many small to medium sized businesses that are regionally located. To be competitive in the industry, we need to continually enhance and update our chemical processes and technologies to address the evolving needs of our customers for increased production efficiency. We continue to allocate resources toward the development of new chemical processes to maintain the efficacy of our technology and our ability to compete so that we can continue to grow our business.
Our competitive strategy is to provide better service and response times, combined with superior chemical solutions that can be translated into savings for our customers. We believe that we are able to solve these problems due to the following competitive advantages:
● | Personalized service; |
● | Expedited field analysis; and |
● | Convenience and access to the best available market rates and products that we can produce and identify for our customers that are currently offered by our suppliers. |
Additionally, new companies are constantly entering the market. This growth and fragmentation could also have a negative impact on our ability to obtain additional market share. Larger companies, which have been engaged in this business for substantially longer periods of time, may have access to greater financial resources and industry relationships. These companies may have greater success in recruiting and retaining qualified employees in specialty chemical manufacturing and marketing, which may give them a competitive advantage.
Government Approval and Regulation
We are subject to federal, state and local environmental laws, rules, regulations, and ordinances, including those concerning emissions and discharges, and the generation, handling, storage, transportation, treatment, disposal and import and export of hazardous materials (collectively, “Environmental Laws”). The operation of the Company’s facilities and the distribution of chemical products entail risks under Environmental Laws, many of which provide for substantial remediation costs in the event of discharges of contaminants and fines and sanctions for violations. Violations of Environmental Laws could result in the imposition of substantial criminal fines and penalties against the Company and their officers and employees in certain circumstances. The costs associated with responding to civil or criminal matters can be substantial. Also, significant civil or criminal violations could adversely impact the Company’s marketing ability in the region served by the Company. Compliance with existing and future Environmental Laws may require significant capital expenditures by the Company, although we do not anticipate having to expend significant resources to comply with any governmental regulations applicable to our current operations.
We are required to obtain licenses and permits from various governmental authorities in connection with our operations. We anticipate that we will be able to obtain all necessary licenses and permits to carry on the activities which we intend to conduct, and that we intend to comply in all material respects with the terms of such licenses and permits. However, there can be no guarantee that we will be able to obtain and maintain, at all times, all necessary licenses and permits required to undertake our proposed exploration and development or to place our properties into commercial production. In the event that we proceed with our operation without necessary licenses and permits, we may be subject to large fines and possibly even court orders and injunctions to cease operations.
Oil and gas operations are subject to federal and state laws and regulations that seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Furthermore, oil and gas operations in the United States
Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) Case No. 16-60021-H2-11 seeking relief under the provisions of Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”). The Company’s bankruptcy case is being jointly administered with that of ESP Petrochemicals, Inc. under Case No. 16-60020-H2-11.
On January 7, 2021, as a result of a custodianship in Clark County, Nevada, Case Number: A-20-825339-B, Custodian Ventures LLC (“Custodian”) was appointed custodian of (the “Company”). David Lazar is the managing director of Custodian
On January 7, 2021, Custodian appointed David Lazar as the Company’s Chief Executive Officer, President, Secretary, Chief Financial Officer, Chief Executive Officer and Chairman of the Board of Directors.
David Lazar, 31, has been CEO and Chairman of the Company since July 14, 2020. David Lazar is a private investor. Mr. Lazar has been a partner at Zenith Partners International since 2013, where he specializes in research and development, sales and marketing. From 2014 through 2015, David was the Chief Executive Officer of Dico, Inc., which was then sold to Peekay Boutiques. Since February of 2018, Mr. Lazar has been the managing member of Custodian Ventures LLC, where he specializes in assisting distressed public companies. Since March 2018, David has acted as the managing member of Activist Investing LLC, which specializes in active investing in distressed public companies. David has a diverse knowledge of financial, legal and operations management; public company management, accounting, audit preparation, due diligence reviews and SEC regulations.
Competition and Market Conditions
We will face substantial competition in our efforts to identify and pursue a business venture. The primary source of competition is expected to be from other companies organized and funded for similar purposes, including small venture capital firms, blank check companies, and wealthy investors, many of which may have substantially greater financial and other resources than we do. In light of our limited financial and human resources, we are at a competitive disadvantage compared to many of our competitors in our efforts to obtain an operating business or assets necessary to commence our operations in a new field. Additionally, with the economic downturn caused by the coronavirus pandemic, many venture capital firms and similar firms and individuals have been seeking to acquire businesses at discounted rates, and we therefore currently face additional competition and resultant difficulty obtaining a business. We expect these conditions to persist at least until the economy recovers. Further, even if we are successful in obtaining a business or assets for new operations, we expect there to be enhanced barriers to entry in the marketplace in which we decide to operate as a result of reduced demand and/or increased raw material costs caused by the pandemic and other economic forces that are beyond our control.
Regulation
As of the date of this Report, we are required to file reports with the Securities and Exchange Commission (the “SEC”) by Section 13 of the Securities Exchange Act of 1934 (the “Exchange Act”).
Depending on the direction management decides to take and a business or businesses we may acquire in the future, we may become subject to federalother laws or regulations that require us to make material expenditures on compliance including the increasing state-level regulation of privacy. Any such requirements could require us to divert significant human and state lawscapital resources on compliance, which could have an adverse effect on our future operating results.
Employees
As of the date of this Report, we do not have employees. However, an entity controlled by our Chief Executive Officer provides part-time consulting services to us without compensation.
ITEM 1A. RISK FACTORS
Risks Relating to Our Business and regulationsFinancial Condition
We currently have no operations, and investors therefore have no basis on which to evaluate the Company’s future prospects.
We currently have no operations and will be reliant upon a merger with or acquisition of an operating business to commence operations and generate revenue. Because we have no operations and have not generated revenues, investors have no basis upon which to evaluate our ability to achieve our business objective of locating and completing a business combination with a target business. We have no current arrangements or understandings with any prospective target business concerning a business combination and may be unable to complete a business combination in a reasonable timeframe, on reasonable terms, or at all. If we fail to complete a business combination as planned, we will never generate any operating revenues.
We may face difficulties or delays in our search for a business combination, and we may not have access to sufficient capital to consummate a business combination.
We may face difficulty identifying a viable business opportunity or negotiating or paying for any resulting business combination. Economic factors that are beyond our control, including the constructionCOVID-19 pandemic and operationconsequent economic downturn, as well as increased competition for acquisitions of facilities, the useoperating entities that we expect to encounter as a result thereof, may hinder our efforts to locate and/or obtain a business that is suitable for our business goals at a price we can afford and on terms that will enable us to sufficiently grow our business to generate value to our shareholders. We have limited capital, and we may not be able to take advantage 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 subjectany available business opportunities on favorable terms or at all due to the laws and regulations that are generally applicable to business operations, such as business licensing requirements, income taxes and payroll taxes.
limited availability of capital. There can be no assurance that
pastwe will have sufficient capital to provide us with the necessary funds to successfully develop and implement our plan of operation or
future operations will not resultacquire a business we deem to be appropriate or necessary to accomplish our objectives, in which case we may be forced to terminate our business plan and your investment in the Company
incurringcould become worthless.If we are not successful in acquiring a new business and generating material environmental liabilitiesrevenues, investors will likely lose their investment.
If we are not successful in developing a viable business plan and costsacquiring a new business through which to implement it, our investors’ entire investment in the Company could become worthless. Even if we are successful in combining with or acquiring the assets of an operating entity, we can provide no assurances that the Company will be able to generate significant revenue therefrom in the short-term or at all or that investors will derive a profit from their investment. If we are not successful, our investors will likely lose their entire investment.
If we cannot manage our growth effectively, we may not become profitable.
Businesses, including development-stage companies such as ours and/or any operating business or businesses we may acquire, often grow rapidly and tend to have difficulty managing their growth. If we are able to acquire an operating business, we will likely need to expand our management team and other key personnel by recruiting and employing experienced executives and key employees and/or consultants capable of providing the necessary support.
We cannot assure you that our management will be able to manage our growth effectively or successfully. Our failure to meet these challenges could cause us to lose money, and your investment could be lost.
Because we have limited capital, we may need to raise additional capital in the future by issuing debt or equity securities, the terms of which may dilute our current investors and/or reduce or limit their liquidation or other rights.
We may require additional capital to acquire a business. We may not be able to obtain additional capital when required. Future business development activities, as well as administrative expenses such as salaries, insurance, general overhead, legal and compliance expenses, and accounting expenses will require a substantial amount of additional capital. The terms of securities we issue in future capital raising transactions may be more favorable to new investors, and may include liquidation preferences, superior voting rights or the issuance of other derivative securities, which could have a further dilutive effect on or subordinate the rights of our current investors. Any additional capital raised through the sale of equity securities will likely dilute the ownership percentage of our shareholders. Additionally, any debt securities we issue would likely create a liquidation preference superior that of our current investors and, if convertible into shares of Common Stock, would also pose the risk of dilution.
We may be unable to obtain necessary financing if and when required.
Our ability to obtain financing, if and when necessary, may be impaired by such factors as the capital markets (both in general and in the particular industry or industries in which we may choose to operate), our limited operating history and current lack of operations, the national and global economies, and the condition of the market for microcap securities. Further, economic downturns such as the current global depression caused by the COVID-19 pandemic may increase our requirements for capital, particularly if such economic downturn persists for an extended period of time or after we have acquired an operating entity, and may limit or hinder our ability to obtain the funding we require. If the amount of capital we are able to raise from financing activities, together with Environmental Lawsany revenues we may generate from future operations, is not sufficient to satisfy our capital needs, we may be required to discontinue our development or implementation of a business plan, cancel our search for business opportunities, cease our operations, divest our assets at unattractive prices or obtain financing on unattractive terms. If any of the foregoing should happen, our shareholders could lose some or all of their investment.
Because we are still developing our business plan, we do not have any agreement for a business combination.
We have no current arrangement, agreement or understanding with respect to engaging in a business combination with any specific entity. We may not be successful in identifying and evaluating a suitable acquisition candidate or in consummating a business combination. We are neutral as to what industry or segment for any target company. We have not established specific metrics and criteria we will look for in a target company, and if and when we do we may face difficulty reaching a mutual agreement with any such entity, including in light of market trends and forces beyond our control. Given our early-stage status, there is considerable uncertainty and therefore inherent risk to investors that we will not requiresucceed in developing and implementing a viable business plan.
The COVID-19 pandemic could materially adversely affect our financial condition, future plans and results of operations.
This COVID-19 pandemic has had a significant adverse effect on the economy in the United States and on most businesses. The Company is not able to predict the ultimate impact that COVID -19 will have on its business; however, if the pandemic and government action in response thereto impose limitations on our operations or result in a prolonged economic recession or depression, the Company’s development and implementation of its business plan and our ability to commence and grow our operations, as well as our ability to generate material capital expenditures byrevenue therefrom, will be hindered, which would have a material negative impact on the Company’s financial condition and results of operations.
Because we are dependent upon David Lazar, our Chief Executive Officer and sole director to manage and oversee our Company, the loss of him could adversely affect our plan and results of operations.
We currently have a sole director and officer, David Lazar, who manages the Company eachand is presently evaluating a viable plan for our future operations. We will rely solely on his judgment in connection with selecting a target company and the terms and structure of any resulting business combination. The loss of our Chief Executive Officer could delay or prevent the achievement of our business objectives, which could have a material adverse effect on the Company’supon our results of operations and financial condition.
position. Further, because Mr. Lazar serves as Chief Executive Officer and sole director and also holds a controlling interest in the Company’s Common Stock, our other shareholders will have limited ability to influence the Company’s direction or management.In addition, although not likely, the officers and directors of an acquisition candidate may resign upon completion of a combination with their business. The Company knowsdeparture of no existing contamination sites wherea target’s key personnel could negatively impact the Company supplies petrochemicals foroperations and prospects of our current customer locations.post-combination business. The title forrole of a target’s key personnel upon the chemicals that we supply to our customer base passes from us to the customer upon deliverycompletion of the chemical to the customer location. We have insurancetransaction cannot be ascertained at this time. Although we contemplate that covers accidental spillage and cleanup at our blending location and for transportation to the customer location; however, the customer is responsible for the integrity of the chemical once the chemical blend is delivered to the receiving point of the customer.
Number of Employees
On December 31, 2014, we had 38 full-time employees. We expect to increase the number of employees as we implement our business objectives and expand our management team. None of our employees are represented by a labor unioncertain or covered by a collective bargaining agreement. The management of the Company is comprisedall members of a target’s management 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.
The shares of our common stock are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in the common stock. You should carefully consider the risks described below and the other information in this annual report before investing in our common stock. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, the trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
Our specialty chemical business will be dependent on the oil and gas industry which has historically been volatile and could negatively affect our results of operations.
Demand for our oil and gas field specialty chemical products and services depends in large part upon the level of exploration and production of oil and gas and the industry’s willingness to spend capital on environmental and oil and gas field services, which in turn depends on oil and gas prices, expectations about future prices, the cost of exploring for, producing and delivering oil and gas, the discovery rate of new oil and gas reserves and the ability of oil and gas companies to raise capital. Domestic and international political, military, regulatory and economic conditions also affect the industry.
Prices for oil and gas historically have been volatile and have reacted to changes in the supply of and the demand for oil and natural gas, domestic and worldwide economic conditions and political instability in oil producing countries. No assurance can be given that current levels of oil and gas activities will be maintained or that demand for our services will reflect the level of such activities. Prices for oil and natural gas are expected to continue to be volatile and affect the demand for specialty chemical products and services such as ours. A material decline in oil or natural gas prices or activities could materially affect the demand for our products and services and, therefore, our financial condition.
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 respectsremain associated with the termstarget following a change of such licenses and permits. However,control thereof, there can be no guarantee that we will be able to obtain and maintain, at all times, all necessary licenses and permits required to continually operate our business.
The potential costs of environmental compliance in our petrochemical business could have a material negative economic impact on our operations and financial condition.
Our specialty chemical business is subject to federal, state and local environmental laws, rules, regulations, and ordinances, including those concerning emissions and discharges, and the generation, handling, storage, transportation, treatment, disposal and import and export of hazardous materials (“Environmental Laws”). The operation of the Company’s facilities and the distribution of chemical products entail risks under Environmental Laws, many of which provide for substantial remediation costs in the event of discharges of contaminants and fines and sanctions for violations. Violations of Environmental Laws could result in the imposition of substantial criminal fines and penalties against the Company and their officers and employees in certain circumstances. The costs associated with responding to civil or criminal matters can be substantial. Also, significant civil or criminal violations could adversely impact the Company’s marketing ability in the region served by the Company. Compliance with existing and future Environmental Laws may require significant capital expenditures by the Company.
There can be no assurance that
pastall of such target’s management team will decide to remain in place. The loss of key personnel, either before or
futureafter a business combination and including management of either us or a combined entity could negatively impact the operations
will notand profitability of our business.Risks Related to a Potential Business Acquisition
We may encounter difficulty locating and consummating a business combination, including as a result of the competitive disadvantages we have.
We expect to face intense competition in our search for a revenue-producing business to combine with or acquire. Given the Company incurring material environmental liabilitiescurrent economic climate, venture capital firms, larger companies, blank check companies such as special purpose acquisition companies and costsother investors are purchasing operating entities or that compliance with Environmental Laws will not require materialthe assets thereof in high volumes and at relatively discounted prices. These parties may have greater capital expendituresor human resources than we do and/or more experience in a particular industry within which we choose to search. Most of these competitors have a certain amount of liquid cash available to take advantage of favorable market conditions for prospective business purchaser such as those caused by the Company, eachrecent pandemic. Any delay or inability to locate, negotiate and enter into a business combination as a result of the relative illiquidity of our current asset or other disadvantages we have relative to our competitors could cause us to lose valuable business opportunities to our competitors, which couldwould have a material adverse effect on the Company’s resultsour business.
We may expend significant time and capital on a prospective business combination that is not ultimately consummated.
The investigation of operationseach specific target business and financial condition. The Company knowsany subsequent negotiation and drafting 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 deliveryrelated agreements, SEC disclosure and other documents will require substantial amounts of the chemical to the customer location. We have insurance that covers accidental spillagemanagement’s time and cleanup at our blending locationattention 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 mattersmaterial additional costs in connection with future acquisitions, there can be no assuranceoutsourced services from accountants, attorneys, and other professionals. We will likely expend significant time and resources searching for, conducting due diligence on, and negotiating transaction terms in connection with a proposed business combination that may not ultimately come to fruition. In such event, all of the time and capital resources expended by the Company willin such a pursuit may be able to identify or be indemnified for all potential environmental liabilities relating to any acquired business. Althoughlost and unrecoverable by the Company has obtained insurance and indemnities for certain contamination conditions,or its shareholders. Unanticipated issues which may be beyond our control or that of the seller of the applicable business may arise that force us to terminate discussions with a target company, such insurance and indemnities are limited.
Operating hazardsas the target’s failure or inability to provide adequate documentation to assist in our petrochemical business could haveinvestigation, a material adverse impact on our operationsparty’s failure to obtain required waivers or consents to consummate the transaction as required by the inability to obtain the required audits, applicable laws, charter documents and financial condition.
Our specialty chemicals operations are subjectagreements, the appearance of a competitive bid from another prospective purchaser, or the seller’s inability to the numerous hazards associated with the handling, transportation, blending, storage, sale, ownership and other activities relating to chemicals. These hazards include, but are not limited to, storage tank or pipeline leaks and ruptures, explosions, fires, chemical spills, discharges or releases of toxic substances or gases, mechanical failures, transportation accidents, any of which could materially and adversely affect the Company. These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment, environmental damage and may result in suspension of operations.
The Company will maintain
insurance coverage in the amounts and against the risks it believes are in accordance with industry practice, but this insurance will not cover all types or amounts of liabilities. The Company currently has spillage, transportation, and handling insurance. No assurance can be given that this insurance will be adequate to cover all losses or liabilities the Company may incur in its operations
for a sufficient time to allow the transaction to close. Such risks are inherent in any search for a new business and investors should be aware of them before investing in an enterprise such as ours.Conflicts of interest may arise between us and our shareholders, directors, or that 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 practicesmanagement, which may have a negative impact on our ability to
operate and/consummate a business combination or
favorable terms or generate revenue.Our Chief Executive Officer, Mr. Lazar, is not required to commit his full time to our profitability.
The laws, regulations, policiesaffairs, which may result in a conflict of interest in allocating his time between managing the Company and other businesses in which he is 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 interpretedinvolved. We do not intend to have any employees prior to the consummation of a business combination. Mr. Lazar is not obligated to contribute any specific number of hours to our affairs, and he may engage in a mannerother business endeavors while he provides consulting services to the Company. If any of his other business affairs require him to devote substantial amounts of time to such matters, it could materially limit his ability to devote his time and attention to our business which will fundamentally alter the ability of the Company to carry on our business. The continued media attention toward the use of hydraulic fracturing of oil & gas wells by our customers could adversely impact governmental regulations in the states in which we provide our fracking chemicals and have a negative impact on our business.
The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate and/consummate a business combination or our profitably.
We may be unable to retain key personnel and theregenerate revenue.It is no guaranteepossible that we could findobtain an operating company in which a comparable replacement.
We may be unable to retain key employeesdirector or consultants or recruit additional qualified personnel. Our limited personnel means that we would be required to spend significant sums of money to locate and train new employees in the event any of our employees resign or terminate their employment with us for any reason. We are largely dependent on the continued service of our President and CEO, David Dugas. We may not have the financial resources to hire a replacement if we lost the services of Mr. Dugas. The loss of service of Mr. Dugas could therefore significantly and adversely affect our operations.
The specialty chemicals business is highly competitive and the competition may adversely affect our results of operations.
Our business faces significant competition from major international producers as well as smaller regional competitors. Our most significant competitors include major chemicals and materials manufacturers and diversified companies, a number of which have revenues and capital resources far exceeding ours. Substitute products also exist for many of our products. Therefore, we face substantial risk that certain events, such as new product development by our competitors, changing customer needs, production advances for competing products, price changes in raw materials, could result in declining demand for our products as our customers switch to substitute products or undertake manufacturing of such products on their own. If we are unable to develop and produce or market our products to effectively compete against our competitors, our results of operations may materially suffer.
We have certain concentrations within our customer base, and the loss certain customers could have a material adverse impact on our business.
As of December 31, 2014, we had a total of 83 customers, four of which were major customers that together accounted for 68% of accounts receivable and 59% of the total revenues earned for the year ended December 31, 2014. The loss of one or more of our major customers would have a serious material negative economic impact on the Company and our ability to continue. There is no guarantee that we could replace one of these customers and if we were able to replace them, there is no guarantee that the revenues would be equal.
Need for additional employees
The Company’s future success also depends upon its continuing ability to attract and retain highly qualified personnel. Expansion of the Company’s business and the management and operationofficer of the Company
will require additional managers and employeeshas an ownership interest in or that he or she is an officer, director, or employee of. If we do obtain any business affiliated with
industry experience, and the successan officer or director, such business combination may be on terms other than what would be arrived at in an arms-length transaction. If any conflict of interest arises, it could adversely affect a business combination or subsequent operations of the Company,
in which case our shareholders may see diminished value relative to what would have been available through a transaction with an independent third party.We may engage in a business combination that causes tax consequences to us and our shareholders.
Federal and state tax consequences will, in all likelihood, be highly dependent ona significant factor in considering any business combination that we may undertake. Under current federal law, such transactions may be subject to significant taxation to the Company’s abilitybuyer and its shareholders under applicable federal and state tax laws. While we intend to attractstructure any business combination so as to minimize the federal and retain skilled management personnel and other employees. Competition for such personnel is intense. Therestate tax consequences to the extent practicable in accordance with our business objectives, there can be no assurance that any business combination we undertake will meet the statutory or regulatory requirements of a tax-free reorganization or similar favorable treatment or that the parties to such a transaction will obtain the tax treatment intended or expected upon a transfer of equity interests or assets. A non-qualifying reorganization, combination or similar transaction could result in the imposition of significant taxation, both at the federal and state levels, which may have an adverse effect on both parties to the transaction, including our shareholders.
It is unlikely that our shareholders will be afforded any opportunity to evaluate or approve a business combination.
It is unlikely that our shareholders will be afforded the opportunity to evaluate and approve a proposed business combination. In most cases, business combinations do not require shareholder approval under applicable law, and our Articles of Incorporation and Bylaws do not afford our shareholders with the right to approve such a transaction. Further, Mr. Lazar, our Chief Executive Officer and sole director, owns the vast majority of our outstanding Common Stock. Accordingly, our shareholders will be relying almost exclusively on the judgement of our board of directors (“Board”) and Chief Executive Officer and any persons on whom they may rely with respect to a potential business combination. In order to develop and implement our business plan, may in the future hire lawyers, accountants, technical experts, appraisers, or other consultants to assist with determining the Company’s direction and consummating any transactions contemplated thereby. We may rely on such persons in making difficult decisions in connection with the Company’s future business and prospects. The selection of any such persons will be made by our Board, and any expenses incurred, or decisions made based on any of the foregoing could prove to be adverse to the Company in hindsight, the result of which could be diminished value to our shareholders.
Because our search for a business combination is not presently limited to a particular industry, sector or any specific target businesses, prospective investors will be unable to evaluate the merits or risks of any particular target business’s operations until such time as they are identified and disclosed.
We are still determining the Company’s business plan, and we may seek to complete a business combination with an operating entity in any number of industries or sectors. Because we have not yet entered into any letter of intent or agreement to acquire a particular business, prospective investors currently have no basis to evaluate the possible merits or risks of any particular target business’s operations, results of operations, cash flows, liquidity, financial condition, prospects or other metrics or qualities they deem appropriate in considering investing in the Company. Further, if we complete a business combination, we may be affected by numerous risks inherent in the operations of the business we acquire. For example, if we acquire a financially unstable business or an entity lacking an established operating history, we may be affected by the risks inherent in the business and operations of a new business or a development stage entity. Although our management intends to evaluate and weigh the merits and risks inherent in a particular target business and make a decision based on the Company and its shareholders’ interests, there can be no assurance that we will properly ascertain or assess all the significant risks inherent in a target business, that we will have adequate time to complete due diligence or that we will ultimately acquire a viable business and generate material revenue therefrom. Furthermore, some of these risks may be outside of our control and leave us with no ability to reduce the likelihood that those risks will adversely impact a target business or mitigate any harm to the Company caused thereby. Should we select a course of action, or fail to select a course of action, that ultimately exposes us to unknown or unidentified risks, our business will be harmed and you could lose some or all of your investment.
Past performance by our management and their affiliates may not be indicative of future performance of an investment in us.
While our Chief Executive Officer has prior experience in advising businesses, his past performance, the performance of other entities or persons with which he is involved, or the performance of any other personnel we may retain in the future will not necessarily be an indication of either (i) that we will be able to attractlocate a suitable candidate for our initial business combination or retain highly qualified personnel.
Competition for skilled(ii) the future operating results of the Company including with respect to any business combination we may consummate. You should not rely on the historical record of him or any other of our personnel
or their affiliates’ performance as indicative of our future performance or that an investment in us will be profitable. In addition, an investment in the
oilCompany is not an investment in any entities affiliated with our management or other personnel. While management intends to endeavor to locate a viable business opportunity and
gas services industrygenerate shareholder value, there can be no assurance that we will succeed in this endeavor.
We may seek business combination opportunities in industries or sectors that are outside of our management’s area of expertise.
We will consider a business combination outside of our management’s area of expertise if a business combination candidate is significant. This competitionpresented to us and we determine that such candidate offers an attractive opportunity for the Company. Although management intends to endeavor to evaluate the risks inherent in any particular business combination candidate, we cannot assure you that we will adequately ascertain or assess all the significant risks, or that we will accurately determine the actual value of a prospective operating entity to acquire. In the event we elect to pursue an acquisition outside of the areas of our management’s expertise, our management’s ability to evaluate and make decisions on behalf of the Company may be limited, or we may make itmaterial expenditures on additional personnel or consultants to assist management in the Company’s operations. Investors should be aware that the information contained herein regarding the areas of our management’s expertise will not necessarily be relevant to an understanding of the business that we ultimately elect to acquire. As a result, our management may not be able to adequately ascertain or assess all the significant risks or strategic opportunities that may arise. Accordingly, any shareholders in the Company following a business combination could suffer a reduction in the value of their shares, and any resulting loss will likely not be recoverable.
We may attempt to complete a business combination with a private target company about which little information is available, and such target entity may not generate revenue as expected or otherwise by compatible with us as expected.
In pursuing our search for a business to acquire, we will likely seek to complete a business combination with a privately held company. Very little public information generally exists about private companies, and the only information available to us prior to making a decision may be from documents and information provided directly to us by the target company in connection with the transaction. Such documents or information or the conclusions we draw therefrom could prove to be inaccurate or misleading. As such, we may be required to make our decision on whether to pursue a potential business combination based on limited, incomplete, or faulty information, which may result in our subsequent operations generating less revenue than expected, which could materially harm our financial condition and results of operations.
Our ability to assess the management of a prospective target business may be limited and, as a result, we may acquire a target business whose management does not have the skills, qualifications, or abilities to enable a seamless transition, which could, in turn, negatively impact our results of operations.
When evaluating the desirability of a potential business combination, our ability to assess the target business’s management may be limited due to a lack of time, resources, or information. Our management’s assessment of the capabilities of the target’s management, therefore, may prove to be incorrect and such management may lack the skills, qualifications or abilities expected. Further, in most cases the target’s management may be expected to want to manage us and replace our Chief Executive Officer. Should the target’s management not possess the skills, qualifications, or abilities necessary to manage a public company or assist with their former entity’s merger or combination into ours, the operations and profitability of the post-acquisition business may be negatively impacted, and our shareholders could suffer a reduction in the value of their shares.
Any business we acquire will likely lack diversity of operations or geographical reach, and in such case we will be subject to risks associated with dependence on a single industry or region.
Our search for a business will likely be focused on entities with a single or limited business activity and/or that operate in a limited geographic area. While larger companies have the ability to manage their risk by diversifying their operations among different industries and regions, smaller companies such as ours and the entities we anticipate reviewing for a potential business combination generally lack diversification, in terms of both the nature and geographic scope of their business. As a result, we will likely be impacted more difficult and expensiveacutely by risks affecting the industry or the region in which we operate than we would if our business were more diversified. In addition to attract, hire and retain qualified managers and employees. The Company’s inabilitygeneral economic risks, we could be exposed to attract skilled management personnelnatural disasters, civil unrest, technological advances, and other employees as neededuncontrollable developments that will threaten our viability if and to the extent our future operations are limited to a single industry or region. If we do not diversify our operations, our financial condition and results of operations will be at risk.
Changes in laws or regulations, or a failure to comply with the laws and regulations applicable to us, may adversely affect our business, ability to negotiate and complete a business combination, and results of operations.
We are subject to laws and regulations enacted by federal, state, and local governments. In addition to SEC regulations, any business we acquire in the future may be subject to substantial legal or regulatory oversight and restrictions, which could hinder our growth and expend material amounts on compliance. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application by courts and administrative judges may also change from time to time, and any such changes could be unfavorable to us and could have a material adverse effect on the Company’sour business, operatinginvestments, and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could result in material defense or remedial costs and/or damages have a material adverse effect on our financial condition. The Company’s arrangement with its current employees is at will, meaning its employees
Risks Related to Our Common Stock
Due to factors beyond our control, our stock price may voluntarily terminate their employment at any time. The Company anticipates that the use of stock options, restricted stock grants, stock appreciation rights, and phantom stock awards will be valuable in attracting and retaining qualified personnel. However, the effects of such plan cannot be certain.
At the current time, our consolidated operations are not profitable.
volatile.There is currently a limited market for our Common Stock, and there can be no assuranceguarantee that an active market for our Common Stock will develop, even if we are successful in consummating a business combination. Recently, the price of our Common Stock has been volatile for no reason. Further, even if an active market for our Common Stock develops, it will operate profitably or will generate positive cash flow in the future. In addition, our operating results in the future maylikely be subject to by significant fluctuations dueprice volatility when compared to many factors not within our control, such asmore seasoned issuers. We expect that the general economic cycle, the market price of oil and gas and exploration and development costs. There is no assurance that actual cash requirementsour Common Stock will not exceed our estimates. In particular, additional capital may be required in the event that costs increase beyond our expectations, such as cost of products sold or research and development cost, or we encounter greater costs associated with general and administrative expenses or offering costs.
We are dependent on outside capital to continuously fund any cash flow deficits and expect this to continue until we are profitable.
Until we can reach a significant level of profitability, we will depend almost exclusively on outside capital to pay for the continued growth of our business. Such outside capital may include the sale of additional stock and/or commercial borrowing. Capital may not continue to be available if necessary to meet our continuing operational needs or, ifmore volatile than more seasoned issuers for the capital is available, that it will be on terms acceptable to us. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing shareholders. In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to our common stock. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.
If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business and as a result may be required to scale back or cease operations of our business, the result of which would be that our stockholders would lose some or all of their investment.
A declineforeseeable future. Fluctuations in the price of our common stock could affect our abilityCommon Stock can be based on various factors in addition to raise further working capital and adversely impact our operations.
A prolongedthose otherwise described in this Report, including: | ● | General speculative fever; |
| ● | A prospective business combination and the terms and conditions thereof; |
| ● | The operating performance of any business we acquire, including any failure to achieve material revenues therefrom; |
| ● | The performance of our competitors in the marketplace, both pre- and post-combination; |
| ● | The public’s reaction to our press releases, SEC filings, website content and other public announcements and information; |
| ● | Changes in earnings estimates of any business that we acquire or recommendations by any research analysts who may follow us or other companies in the industry of a business that we acquire; |
| ● | Variations in general economic conditions, including as may be caused by uncontrollable events such as the COVID-19 pandemic and the resulting decline in the economy; |
| ● | The public disclosure of the terms of any financing we disclose in the future; |
| ● | The number of shares of our Common Stock that are publicly traded in the future; |
| ● | Actions of our existing shareholders, including sales of Common Stock by our then directors and then executive officers or by significant investors; and |
| ● | The employment or termination of key personnel. |
Many of these factors are beyond our control and may decrease the market price of our common stockCommon Stock, regardless of whether we can consummate a business combination and of our current or subsequent operating performance and financial condition. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert our management’s time and attention, which would otherwise be used to benefit our business.
Because trading in our Common Stock is so limited, investors who purchase our Common Stock may depress the market if they sell Common Stock.
Our Common Stock trades on the OTC Pink Market, the successor to the pink sheets. The OTC Pink Market generally is illiquid, and most stocks traded there are of companies that are not required to file reports with the SEC under the Exchange Act. Our Common Stock itself infrequently trades.
The market price of our Common Stock may decline if a reductionsubstantial number of shares of our Common Stock are sold at once or in large blocks.
Presently the market for our Common Stock is limited. If an active market for our shares develops in the liquidityfuture, some or all of our common stockshareholders may sell their shares of our Common Stock which may depress the market price. Any sale of a substantial number of these shares in the public market, or the perception that such a sale could occur, could cause the market price of our Common Stock to decline, which could reduce the value of the shares held by our other shareholders.
Future issuance of our Common Stock could dilute the interests of our existing shareholders, particularly in connection with an acquisition and any resulting financing.
We may issue additional shares of our Common Stock in the future. The issuance of a reduction insubstantial amount of our ability to raise capital. BecauseCommon Stock could substantially dilute the interests of our operations have been primarily financed throughshareholders. In addition, the sale of equity securities, a declinesubstantial amount of Common Stock 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 capitalpublic market, either in the future would force us to reallocate funds from other planned uses and would haveinitial issuance or in a significant negative effect on our business plans and operations, including our ability to continue our current operations. If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations.
We may never pay any dividends to shareholders.
We have never declared nor paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
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 restrictedsubsequent resale by the Securities and Exchange Commission’s penny stock regulations that may limit a stockholder’s ability to buy and sell our stock.
Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 3a51-1, which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, including Rule 15g-9 promulgated under the Securities Act of 1934, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transactiontarget company in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form preparedbusiness combination which received our Common Stock as consideration or by the Securities and Exchange Commission which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
The Financial Industry Regulatory Authority, or FINRA,investors who has adopted sales practice requirements that may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock andpreviously acquired such Common Stock could have an adverse effect on the market forprice of our shares.
Common Stock.
Our commonDue to recent changes to Rule 15c2-11 under the Securities Exchange Act of 1934, our Common Stock may become subject to limitations or reductions on stock may be negatively impactedprice, liquidity, or volume.
On September 16, 2020, the SEC adopted amendments to Rule 15c2-11 under the Securities Exchange Act of 1934 (the “Exchange Act”). This Rule applies to broker-dealers who quote securities listed on over-the-counter markets such as our Common Stock. The Rule as amended prohibits broker-dealers from publishing quotations on OTC markets for an issuer’s securities unless they are based on current publicly available information about the issuer. When it becomes effective, the amended Rule will also limit the Rule’s “piggyback” exception, which allows broker-dealers to publish quotations for a security in reliance on the quotations of a broker-dealer that initially performed the information review required by factorsthe Rule, to issuers with current publicly available information or issuers that are unrelated to our operations
.
Our common stock currently tradesup-to-date in their Exchange Act reports. As of this date, we are uncertain as what actual effect the Rule may have on
a limited basis onus.The Rule changes could harm the OTC Venture Stage Marketplace (OTCQB). Trading of our stock through the OTCQB is highly volatile. There is no assurance that a sufficient market will develop in our stock, in which case it could be difficult for shareholders to sell their stock. Theliquidity and/or market price of our common stock could fluctuate substantially due to a varietyCommon Stock by either preventing our shares from being quoted or driving up our costs of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
The market for penny stocks has experienced numerous frauds and abuses that could inadvertently and adversely impact investors in our stock.
The Company is aware that that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
● | Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; |
● | Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; |
● | “Boiler room” practices involving high pressure sales tactics and unrealistic price projections by sales persons; |
● | Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and |
● | Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. |
compliance. Because we are a voluntary filer under Section 15(d) of the Exchange Act and not subjecta public reporting company, the practical impact of these changes is to compliance with rules requiring the adoptionrequire us to maintain a level of certain corporate governance measures, our stockholders have limited protection against interested director transactions, conflicts of interest and similar matters.
The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and the NASDAQ Stock Market, requires the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the NASDAQ Stock Market. Becauseperiodic disclosure we are not presently required to comply with many of the corporate governance provisions and becausemaintain, which would cause us to incur material additional expenses. Further, if we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than legally required, we have not yet adopted these measures.
As of December 31, 2014 and 2013, the Company did not have an independent directors. Wecannot or do not currently have independent auditprovide or compensation committees. Currently,maintain current public information about our bylaws only allow for a total of three directors. As a result, these directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leavecompany, our stockholders without protections against interested director transactions, conflictsmay face difficulties in selling their shares of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.
We intend to comply withCommon Stock at desired prices, quantities, or times, or at all,
corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of
Sarbanes-Oxley Act of 2002. the amendments to the Rule.ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES
The enactmentCompany’s principal business and corporate address is 1185 Avenue of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.
For all of the foregoing reasons and others set forth herein, an investment in our securitiesAmericas, 3rd Floor New York, New York 10036.ITEM 3. LEGAL PROCEEDINGS
We are not currently involved in any market that may develop in the future involves a high degree of risk.
ITEM 1B - UNRESOLVED STAFF COMMENTS
There are no unresolved staff comments.
We currently own no real propertylegal proceedings and lease our office space and production facilities.
Our principal executive offices are located at 1003 South Hugh Wallis Road Suite G-1 Lafayette, Louisiana 70508. Our telephone number is (832) 342-9131. Currently, we service our customers out of four district offices, which are all under lease. We have long-term leases for various district offices in Center Texas and Rayne, Louisiana. These leases have remaining terms from January 2018 to June 2023 with monthly rent ranging from $1,500 to $8,750, with an aggregate monthly rent of $14,850.
On June 1, 2013 the Company entered into a ten-year lease requiring monthly payment of $8,750 for our primary production facility in Rayne, Louisiana. The Company has the option to purchase the property for five years commencing one year after lease execution. The purchase option price will be for $100,000 above the lessor’s full cost of ownership for the first two years of the option, and increase by $50,000 per year for the third through fifth year of the option term.
On January 26, 2015 the Company entered into a three-year lease requiring monthly payment of $1,500 for our 4,000 square foot facility in Center, Texas.
On August 15, 2012 the Company entered into a five-year lease requiring a monthly payment ranging from $11,083 to $11,775 for our office in The Woodlands, Texas. On June 7, 2013 the Company subleased the Company’s Houston, Texas office, improvements and certain equipment to a non-related third party for monthly payments of $12,939. The sublease became effective July 1, 2013, with the term of the sublease coinciding with the original lease by the Company. The Company determined the remaining lease cost plus amortization and depreciation on the remaining leasehold improvements and equipment exceeded the sublease income by $274,555 and reflected a loss on disposal.
ITEM 3 - LEGAL PROCEEDINGS
Daniel A. Spencer v. ESP Advanced Technologies, Inc.
The District Court of Caddo Parish, Louisiana entered a default judgment in favor of Daniel Spencer and against ESP Advanced Technologies, Inc. on October 17, 2013 for $3,500,000, together with future interest from October 14, 2013, until paid, at a rate of 20% per annum for default after service. All of the operations of ESP Advanced Technologies, Inc. were discontinued on June 11, 2013. The Company believes this judgment is without merit and will vigorously pursue post-judgment remedies to set aside the judgment and have it annulled under Louisiana law. Management does not consider the potential for loss to be probable. Accordingly, the judgment amount was not accrued.
ESP Petrochemicals, Inc. v. Shane Cottrell, Platinum Chemicals, LLC, Ladd Naquin, Joe Lauer, Patrick Williams, Ralph McClelland and Ronald Walling
On March 2, 2012, the Company filed a trade secret infringement lawsuit to protect its rights against a former employee, a competitor and officers of the competitor. On November 21, 2012, an Agreed Final Judgment was entered in the lawsuit against the Defendants. Under the terms of the Agreed Final Judgment, the Defendants cannot offer or sell any chemical product or related services to a number of entities or in conjunction with any operations within designated Texas Railroad Commission districts for specified periods of time as long as ESP Petrochemicals is in conformance with the terms of the Agreed Final Judgment. The name of the entities, the lists of designated districts and the specific time periods are delineated in the Agreed Final Judgment. Additionally, the Defendants are not to solicitaware of any pending or recruit any ESP Petrochemical employees, they must turn over any “ESP Information” (as that term is described in the Agreed Final Judgment) and they cannot directly or indirectly, offer, market, advertise, promote or otherwise describe in any way a product to a customer, prospective customer or third party, as being derived from ESP Petrochemical formula or an equivalent.
Alfredo Ledesma and Turf Chemistry, Inc. v. ESP Resources, Inc., ESP Petrochemicals, Inc.and Gerard Allen Primeaux
potential legal actions.ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
On June 16, 2011, Alfredo Ledesma and Turf Chemistry, Inc. filed their original Petition against ESP Resources, Inc., ESP Petrochemicals, Inc. and Gerard Allen Primeaux in the District Court, 93rd Judicial District, Hidalgo County, Texas. On August 19, 2011, ESP Resources, Inc. filed its Original Answer to the Original Petition. On January 23, 2012, Alfredo Ledesma and Turf Chemistry, Inc. filed their First Amended Original Petition. On April 11, 2012, Gerard Primeaux filed his Original Answer. On May 10, 2012, Alfredo Ledesma and Turf Chemistry, Inc. filed their Second Amended Original Petition. On January 17, 2014, Alfredo Ledesma and Turf Chemistry, Inc. filed their Third Amended Original Petition. The Petition alleged that ESP had breached, by failing to satisfy the terms of the agreement and pay the agreed upon amounts, the letter of intent to enter into an Asset Purchase Agreement between ESP and Ledesma and Turf, whereby ESP agreed to acquire the assets and liabilities of Turf and relieve Ledesma of certain debt obligations. On February 14, 2014, ESP Resources, Inc., ESP Petrochemicals, Inc. and Gerard Allen Primeaux filed their First Answer, Special Exceptions, Affirmative Defenses and Counterclaims. On or about April 25, 2014, all parties, without admitting liability, entered into and executed a Settlement Agreement and Release of Claims.
Madoff Energy Holdings, LLC v. ESP Resources, Inc.
On September 4, 2013, Madoff Energy Holdings, LLC filed its Original Petition against ESP Resources, Inc. in the District Court, 295th Judicial District, Harris County, Texas. On October 1, 2013, ESP filed its Answer. On November 25, 2013, Madoff filed its First Amended Petition alleging that ESP failed to repay a Promissory Note, executed on April 30, 2009, in sum of $87,190.00, plus interest on any unpaid balance owed at the rates of 5% per annum from October 30, 2008 to April 30, 2009, and 18% per annum after April 30, 2009. On or about March 19, 2014, Madoff filed a Motion for Summary Judgment. On or about March 24, 2014, ESP filed its Response. On April 7, 2014, the Court issued an Order Granting Madoff’s Motion for Summary Judgment and granting damages in the principal sum of $122,939.68; attorneys fees in the amount of $12,860.70, plus $10,000.00 should the judgment be appealed to the Texas Court of Appeals, plus $7,500.00 should the judgment be appealed to the Texas Supreme Court; costs of court; and post-judgment interest at 5% per annum on the total amount of the judgment from the date immediately following entry of the judgment until paid. On April 15, 2014, ESP filed its Notice of Appeal of the Final Judgment with the First Court of Appeals, Houston, Texas. On June 30, 2014, ESP filed its Brief for the Appellant. On July 30, 2014, Madoff filed its Brief for the Appellee. On August 18, 2014, ESP filed its Reply Brief for the Appellant. In August 2014, Madoff and ESP, in order to avoid the further expense of litigation, jointly prepared a Forbearance and Payment Agreement, effective August 11, 2014, whereby ESP agreed to pay Madoff $130,000.00 pursuant to a payment schedule of $30,000.00 per month for eleven months. On September 3, 2014, Andrew Madoff, CEO of Madoff Energy Holdings, Inc., died. On September 18, 2014, Madoff and ESP filed with the First Court of Appeals a Joint Appellant and Appellee Motion to Abate the Appeal to preserve the rights of both parties until such time as the Forbearance and Payment Agreement could be executed. On September 23, 2014, the Court issued a Writ granting the Motion to Abate the Appeal. On or about March 9, 2015, the Executor of Mr. Madoff’s Estate executed the Forbearance and Payment Agreement on behalf of the Estate. To date, ESP Resources, Inc. is making payments pursuant to the agreed upon Payment Schedule in accordance with the terms of the Forbearance and Payment Agreement.
BWC Management, Inc. v. ESP Resources, Inc. (f/k/a Pantera Petroleum, Inc.)
On April 25, 2013, BWC Management, Inc. filed its Original Petition against ESP Resources, Inc. in the District Court, 113th Judicial District, Harris County, Texas. On May 31, 2013, ESP Resources, Inc. filed its Original Answer. On August 5, 2014, BWC filed its Motion for Partial Summary Judgment against ESP. On August 21, 2014, BWC filed its First Amended Petition against ESP alleging that ESP had defaulted on three promissory notes documenting a series of loans with BWC as lender: a promissory note in sum of $73,006.00, due on September 30, 2012; and two promissory notes in sum of $100,000.00, each, due on September 30, 2012 when ESP allegedly failed to pay the $73,006.00 note. On August 25, 2014, ESP filed its Response to BWC’s Motion for Partial Summary Judgment. On August 25, 2014, BWC filed its Reply to ESP’s Response to BWC’s Motion for Partial Summary Judgment. On August 27, 2014, ESP filed its Sur Reply to BWC’s Reply to ESP’s Response to BWC’s Motion for Partial Summary Judgment. On August 28, 2014, ESP filed a No-Evidence Motion for Summary Judgment against BWC. On September 4, 2014, BWC filed its Response to ESP’s No-Evidence Motion for Summary Judgment. On September 12, 2014, ESP filed its Reply to BWC’s Response to ESP’s No-Evidence Motion for Summary Judgment. On September 15, 2014, the Court issued an Order denying BWC’s Motion for Summary Judgment. On October 27, 2014, the Court issued an Order denying final Summary Judgment. Trial of this action was held on March 30 and March 31, 2015 resulting in a verdict for BWC Management, Inc.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSNone
ITEM 5 -5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common shares were approved for quotationCommon Stock is not listed on the OTC Venture Stage Marketplace (OTCQB) (we were formerlyany securities exchange and is quoted on the OTC Bulletin Board) on April 16, 2007, and are currently quoted for trading on the OTCQBPink Market under the symbol “ESPI.” “ESPIQ” because our Common Stock is not listed on a securities exchange and its quotations on OTC Pink are limited and sporadic. There is currently no established public trading market for our Common Stock.
The following quotations obtained from the OTCQB reflecttable reflects the high and low bidsclosing sales information for our common stock based onCommon Stock for each fiscal quarter during the fiscal years ended December 31, 2020, and December 31, 2020. This information was obtained from OTC Pink and reflects inter-dealer prices without retail mark-up, mark-down, or commission anand may not necessarily represent actual transactions. The high and low bid prices
| | | COMMON STOCK MARKET PRICE | |
| | | HIGH | | | LOW | |
| FISCAL YEAR ENDED DECEMBER 31, 2020: | | | | | | | | |
| First Quarter | | $ | 0.0038 | | | $ | 0.0004 | |
| Second Quarter | | $ | 0.0009 | | | $ | 0.0002 | |
| Third Quarter | | $ | 0.0045 | | | $ | 0.0002 | |
| Fourth Quarter | | $ | 0.0009 | | | $ | 0.0002 | |
| | | COMMON STOCK MARKET PRICE | |
| | | HIGH | | | LOW | |
| FISCAL YEAR ENDED DECEMBER 31, 2019: | | | | | | | | |
| First Quarter | | $ | 0.0010 | | | $ | 0.0005 | |
| Second Quarter | | $ | 0.0017 | | | $ | 0.0005 | |
| Third Quarter | | $ | 0.0014 | | | $ | 0.0006 | |
| Fourth Quarter | | $ | 0.0009 | | | $ | 0.0005 | |
Holders
As of our common stock for the periods indicated below are as follows:
| | | OTCQB(1) | |
| Quarter Ended | | High | | | Low | |
| December 31, 2014 | | $ | 0.0175 | | | $ | 0.005 | |
| September 30, 2014 | | $ | 0.013 | | | $ | 0.004 | |
| June 30, 2014 | | $ | 0.0229 | | | $ | 0.009 | |
| March 31, 2014 | | $ | 0.078 | | | $ | 0.0103 | |
| | | | | | | | | |
| December 31, 2013 | | $ | 0.0279 | | | $ | 0.012 | |
| September 30, 2013 | | $ | 0.023 | | | $ | 0.01 | |
| June 30, 2013 | | $ | 0.08 | | | $ | 0.01 | |
| March 31, 2013 | | $ | 0.10 | | | $ | 0.0554 | |
___________
(1) | OTCQB quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions. The transfer agent and registrar for our common stock is American Stock Transfer and Trust Company, LLC. As of the date of this report, we had approximately 212June 2, there were 239 shareholders of record not including those common shares held in street name. |
Dividend Policy
As of the date of this filing, the Company has paid no cash dividends to holders of our common stock. We anticipate that the Company’s future earnings will be retained to finance the continuing development of our business. The payment of any future dividends will be at the discretion of the Company’s board of directors and will dependCommon Stock based upon among other things, future earnings, any contractual restrictions, the success of business activity, regulatory and corporate law requirements and the general financial conditionrecords of the Company.
shareholders provided by the Company’s transfer agent. The Company’s transfer agent is VStock Transfer, 18 Lafayette Place Woodmere, NY 11598 - Phone: 212.828.8436Dividends
We have never paid or declared any dividends on our Common Stock Option Awards
We didand do not grant any options during the years ended December 31, 2014 and 2013.
On July 29, 2011 shareholders approved the 2011 STOCK OPTION AND INCENTIVE PLAN which authorized up to 5,000,000 options shares. Under the plan the exercise price per share for the Stock covered by a Stock Option granted pursuant shall not be less than 100% of the Fair Market Value on the date of grant. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the option price of such Incentive Stock Option shall be not less than 110% of the Fair Market Value on the grant date. The term of each Stock Option shall be fixed but no Stock Option shall be exercisable more than ten years after the date the Stock Option is granted. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the date of grant.
Stock option activity summary covering options is presentedanticipate paying cash dividends in the table below:
| | | Number of Shares | | | Weighted- average Exercise Price | | | Weighted- average Remaining Contractual Term (years) | |
| | | | | | | | | | | | | |
| Outstanding at December 31, 2012 | | | 52,975,000 | | | | 0.12 | | | | 8.9 | |
| Granted | | | - | | | | - | | | | - | |
| Exercised | | | - | | | | - | | | | - | |
| Expired/Forfeited | | | (45,000 | ) | | | 0.14 | | | | 7.6 | |
| Outstanding at December 31, 2013 | | | 52,930,000 | | | $ | 0.12 | | | | 7.9 | |
| Granted | | | - | | | | - | | | | - | |
| Exercised | | | - | | | | - | | | | - | |
| Expired/Forfeited | | | (35,000 | ) | | | 0.14 | | | | 6.6 | |
| Outstanding at December 31, 2014 | | | 52,895,000 | | | $ | 0.12 | | | | 6.9 | |
| Exercisable at December 31, 2014 | | | 50,095,000 | | | $ | 0.12 | | | | 6.9 | |
| Exercisable at December 31, 2013 | | | 34,530,000 | | | $ | 0.13 | | | | 7.6 | |
During the year ended December 31, 2013, the Company recognized stock-based compensation expense of $783,815 related to stock options. As of December 31, 2013, there was approximately $1,390,003 of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over the remaining vesting period. The aggregate intrinsic value of these options was $0 at December 31, 2013.
During the year ended December 31, 2014, the Company recognized stock-based compensation expense of $705,680 related to stock options. As of December 31, 2014, there was approximately $684,323 of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over the remaining vesting period. The aggregate intrinsic value of these options was $0 at December 31, 2014.
DIRECTOR COMPENSATION
foreseeable future.Securities Authorized For Issuance Under Equity Compensation of Directors
PlansWe currently do not have no formal plan for compensating our directors for their services in their capacity as directors, although we may elect to issue stock options to such persons from time to time. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our Board. Our Board may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board or a committee thereof.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2014 about the securities issued, or authorized for future issuance, under our equity compensation plans, including the 2011 Stock Option and Incentive Plan:
| Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options (a) | | | Weighted-Average Exercise Price of Outstanding Options (b) | | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) | |
| | | | | | | | | | | | | |
| Equity compensation plans approved by security holders | | | - | | | | - | | | | - | |
| Equity compensation plans not approved by security holders | | | 40,250,000 | | | $ | 0.12 | | | | - | |
| 2011 Stock Incentive Plan approved by security holders on July 29, 2011 | | | - | | | | - | | | | 5,000,000 | |
| Total | | | 40,250,000 | | | $ | 0.12 | | | | 5,000,000 | |
Purchasesplans.Unregistered Sales of Equity Securities by
We have previously disclosed all sales of securities without registration under the Issuer and Affiliated Purchasers
None
Securities Act of 1933.ITEM 6 -6. SELECTED FINANCIAL DATA
Not Applicable.
This selected financial data should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 of this Annual Report on Form 10-K, which includes information concerning significant trends in the financial condition and results of operations.
Selected Historical Data
| | | December 31, | |
| | | 2014 | | | 2013 | |
| Total Assets | | $ | 5,782,496 | | | $ | 6,010,938 | |
| Total Liabilities | | $ | 10,322,283 | | | $ | 10,321,548 | |
| Total Stockholders’ Deficit | | $ | (4,539,787 | ) | | $ | (4,313,610 | ) |
| Working Capital Deficit | | $ | (6,264,530 | ) | | $ | (5,331,030 | ) |
| Revenues (1) | | $ | 11,912,045 | | | $ | 10,591,111 | |
| Loss from Continuing Operations (1) | | $ | (2,061,441 | ) | | $ | (4,872,356 | ) |
| Net Loss | | $ | (2,061,441 | ) | | $ | (5,237,777 | ) |
(1) Reflects the results from continuing operations for each of the years ended December 31, 2014 and 2013.
ITEM 7 –7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSRESULT 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 isCompany has no assurance that the underlying assumptions will, in fact, prove to be correctoperations 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 onlyrevenue as of the date of this
filing.Report. We are currently in the process of developing a business plan. Management intends to explore and identify viable business opportunities within the U.S. including seeking to acquire a business in a reverse merger. Our
actual results, performanceability to effectively identify, develop and implement a viable plan for our business may be hindered by risks and uncertainties which are beyond our control, including without limitation, the continued negative effects of the coronavirus pandemic on the U.S. and global economies. For more information about the risk of Covid-19 on our business, see Item 1.A. - “Risk Factors”.Plan of Operation
The Company has no operations from a continuing business other than the expenditures related to running the Company and has no revenue from continuing operations as of the date of this Report.
Management intends to explore and identify business opportunities within the U.S., including a potential acquisition of an operating entity through a reverse merger, asset purchase or achievements could differ materiallysimilar transaction. Our Chief Executive Officer has experience in business consulting, although no assurances can be given that he can identify and implement a viable business strategy or that any such strategy will result in profits. Our ability to effectively identify, develop and implement a viable plan for our business may be hindered by risks and uncertainties which are beyond our control, including without limitation, the continued negative effects of the coronavirus pandemic on the U.S. and global economies. For more information about the risk of coronavirus on our business, see Item 1A “Risk Factors.”
We do not currently engage in any business activities that provide revenue or cash flow. During the next 12-month period we anticipate incurring costs in connection with investigating, evaluating, and negotiating potential business combinations, filing SEC reports, and consummating an acquisition of an operating business.
Given our limited capital resources, we may consider a business combination with an entity which has recently commenced operations, is a developing company or is otherwise in need of additional funds for the development of new products or services or expansion into new markets, or is an established business experiencing financial or operating difficulties and is in need of additional capital. Alternatively, a business combination may involve the acquisition of, or merger with, an entity which desires access to the U.S. capital markets.
As of the date of this Report, our management has not had any discussions with any representative of any other entity regarding a potential business combination. Any target business that is selected may be financially unstable or in the early stages of development. In such event, we expect to be subject to numerous risks inherent in the business and operations of a financially unstable or early-stage entity. In addition, we may effect a business combination with an entity in an industry characterized by a high level of risk or in which our management has limited experience, and, although our management will endeavor to evaluate the risks inherent in a particular target business, there can be no assurance that we will properly ascertain or assess all significant risks.
Our management anticipates that we will likely only be able to effect one business combination due to our limited capital. This lack of diversification will likely pose a substantial risk in investing in the Company for the indefinite future because it will not permit us to offset potential losses from one venture or operating territory against gains from another. The risks we face will likely be heightened to the results expressedextent we acquire a business operating in a single industry or impliedgeographical region.
We anticipate that the selection of a business combination will be a complex and risk-prone process. Because of general economic conditions, including unfavorable conditions caused by these forward-looking statements. Factorsthe coronavirus pandemic, rapid technological advances being made in some industries and shortages of available capital, management believes that there are a number of firms seeking business opportunities at this time at discounted rates with which we will compete. We expect that any potentially available business combinations may appear in a variety of different industries or regions and at various stages of development, all of which will likely render the task of comparative investigation and analysis of such business opportunities extremely difficult and complicated. Once we have developed and begun to implement our business plan, management intends to fund our working capital requirements through a combination of our existing funds and future issuances of debt or equity securities. Our working capital requirements are expected to increase in line with the implementation of a business plan and commencement of operations.
Based upon our current operations, we do not have sufficient working capital to fund our operations over the next 12 months. If we are able to close a reverse merger, it is likely we will need capital as a condition of closing that acquisition. Because of the uncertainties, we cannot be certain as to how much capital we need to raise or the type of securities we will be required to issue. In connection with a reverse merger, we will be required to issue a controlling block of our securities to the target’s shareholders which will be very dilutive.
Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences, or privileges senior to our Common Stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could cause or contributesignificantly and materially restrict our business operations.
We anticipate that we will incur operating losses in the next 12 months, principally costs related to such differencesour being obligated to file reports with the SEC. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development. Such risks for us include, but are not limited to, the risks to be discussed in our Annual Report on Form 10-Kan evolving and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested partiesunpredictable business model, recognition of the risks and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Use of Generally Accepted Accounting Principles (“GAAP”) Financial Measures
We use GAAP financial measures in the section of this report captioned “Management’s Discussion and Analysis or Plan of Operation” (MD&A), unless otherwise noted. All of the GAAP financial measures used by us in this report relate to the inclusion of financial information. This discussion and analysis should be read in conjunction with our financial statementsrevenue sources, 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 listmanagement 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 conditiongrowth. To address these risks, we must, among other things, develop, implement, and operating performance, our overall business strategy and our earnings for the periods covered.
Result of Operations
Year ended December 31, 2014 as Compared to Year ended December 31, 2013
The following table summarizes the results of our operations during years ended December 31, 2014 and 2013.
| | | Year Ended December 31, | | | Year Ended December 31, | | | Increase | | | % Increase | |
| | | 2014 | | | 2013 | | | (Decrease) | | | (Decrease) | |
| Continuing operations: | | | | | | | | | | | | |
| Revenue | | $ | 11,912,045 | | | $ | 10,591,111 | | | $ | 1,320,934 | | | | 12 | % |
| Cost of goods sold | | | 4,096,444 | | | | 5,186,517 | | | | (1,090,073 | ) | | | (21) | % |
| Gross profit | | | 7,815,601 | | | | 5,404,594 | | | | 2,411,007 | | | | 45 | % |
| General and administrative expenses | | | 8,039,514 | | | | 8,016,259 | | | | 23,255 | | | | 0 | % |
| Depreciation | | | 787,632 | | | | 831,642 | | | | (44,010 | ) | | | (5 | )% |
| Loss (Gain) on disposal of assets | | | (2,953 | ) | | | 327,174 | | | | (330,127 | ) | | | (101 | )% |
| Impairment on assets held for sale | | | 2,049 | | | | 133,556 | | | | (131,507 | ) | | | (98 | )% |
| Loss from operations | | | (1,010,641 | ) | | | (3,904,037 | ) | | | 2,893,396 | | | | (74 | )% |
| Total other expense | | | (1,050,800 | ) | | | (968,319 | ) | | | (82,481 | ) | | | 9 | % |
| Net loss from continuing operations | | | (2,061,441 | ) | | | (4,872,356 | ) | | | 2,965,537 | | | | 61 | % |
| Net loss from discontinued operations | | | - | | | | (365,421 | ) | | | 365,421 | | | | 100 | % |
| Net loss | | $ | (2,061,441 | ) | | $ | (5,237,777 | ) | | $ | 3,330,958 | | | | 64 | % |
Revenues
Revenue from continuing operations for the year ended December 31, 2014 was $11,912,045, compared to $10,591,111 for the same period in 2013, an increase of $1,320,934, or 12%. The increase was primarily due to a increase in sales volume petrochemical sales and services to new customers engaged production petrochemicals in the South-East Texas regions.
Gross Profit
The Company’s gross profit from continuing operations, as a percentage of revenue for the year, was 66% compared to 51% for the same period in 2013, an increase of 15%. The increase in gross margin results from of an increased portion ofsuccessfully execute our business from production petrochemical sales which have a higher gross profit margin of 65% comparedand marketing strategy, respond to completion chemicals 54% gross profit margin.
Generalcompetitive developments, and Administrative Expenses
Generalattract, retain, and administrative expenses increased by $23,255, or 0% for the year, compared to the same period in 2013. The increase in expenses for the year is primarily due to the increase of $649,567 in stock compensation from $1,177,697 in year ended December 31, 2013 to $1,827,265 in the year ended December 31, 2014, and reduction in legal and professional fees.
The Company recognized a gain on disposal of certain assets in 2014 of $155,526 and in the period ended December 31, 2013 a loss on disposal of certain assets of $327,174 and impairment loss on assets held for sale of $133,556, representing the closure cost of the former corporate offices in The Woodlands, Texas and anticipated loss on assets held for sale.motivate qualified personnel. There were no comparable amounts in the prior fiscal year.
Net Loss
Net loss for the year ended December 31, 2014 was $2,061,441, a decrease of $3,176,336 compared to a loss of $5,237,777 for the same period in 2013. The primary reason for the decrease in the net loss was as a result of an increase gross profit gain on sales of equipment versus a loss of sales of equipment and impairment of assets in 2013; in change in loss from discontinued operations of $365,421 compared to $0 for the years ended December 31, 2013 and December 2014, respectively.
Modified EBITDA
Modified Earnings before interest (including factoring fees), taxes, depreciation amortization and stock-based compensation (“Modified EBITDA”) is a non-GAAP financial measure. We use Modified EBITDA as an unaudited supplemental financial measure to assess the financial performance of our assets without regard to financing methods, capital structures, taxes or historical cost basis; our liquidity and operating performance over time in relation to other companies that own similar assets and that we believe calculate Modified EBITDA in a similar manner; and the ability of our assets to generate cash sufficient for us to pay potential interest costs. We also understand that such data are used by investors to assess our performance. However, the term Modified EBITDA is not defined under generally accepted accounting principles and Modified EBITDA is not a measure of operating income, operating performance or liquidity presented in accordance with generally accepted accounting principles. When assessing our operating performance or liquidity, investors should not consider this data in isolation or as a substitute for net income, cash flow from operating activities, or other cash flow data calculated in accordance with generally accepted accounting principles. Modified EBITDA increased from a loss of $2,396,630 for the year ended December 31, 2013 to a gain of $1,630,780 for the year ended December 31, 2014 and is calculated as follows:
| | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | |
| | | | | | | |
| Net loss | | $ | | ) | | $ | (5,237,777 | ) |
| Add back interest expense and factoring fees, net of interest income | | | 819,791 | | | | 1,287,964 | |
| Add back depreciation | | | 787,632 | | | | 831,642 | |
| Add back amortization debt discount | | | 266,241 | | | | | |
| Add back stock-based compensation | | | 1,827,264 | | | | 1,177,697 | |
| (Deduct) change in fair value of derivative liabilities | | | (8,707 | ) | | | (766,923 | ) |
| Add back loss on extinguishment of debt | | | - | | | | 310,767 | |
| Modified EBITDA | | $ | | | | $ | | ) |
Liquidity and Capital Resources
Cash
As of December 31, 2014, we had $121,880 of cash and cash equivalents, as compared to $5,757 as of December 31, 2013.
Cash Flow
The cash flow for the years ended December 31, 2014 and 2013 are summarized below:
| | | Years Ended December 31, | |
| | | 2014 | | | 2013 | |
| | | | | | | |
| Net cash provided by (used in) operating activities | | $ | 1,198,358 | | | $ | 1,308,182 | |
| Net cash used in investing activities | | | (350,009 | ) | | | (47,472 | ) |
| Net cash (used in) provided by financing activities | | | (732,226 | ) | | | (1,325,167 | ) |
| Net decrease in cash | | $ | 116,123 | | | $ | (64,457 | ) |
Cash inflow from operations during the year ended December 31, 2014 amounted to $1,198,358 as compared to net cash inflows from operations of $1,308,182 in the same period of 2013. The decrease in cash inflow was due primarily to the increase in accounts receivable, accounts payable and accrued expenses; decreases in inventory and prepaid expenses.
Our cash outflows used in investing activities during the year ended December 31, 2014 amounted to $350,009 as compared to $47,472 in the same period of 2013. Cash outflows for the proceeds from the sale of vehicles and equipment the proceeds from the sale of vehicles and equipment for the year ended December 31, 2014 decreased to $21,477 compared to $131,533 for the same period in 2013.
Our cash outflows from financing activities amounted to $732,226 in the year ended December 31, 2014 as compared to a cash outflow of $1,325,167 in the same period of 2013. The primary change was due to the increase in factoring advances and reduction in payment of debt; offset by the payment of settlement on contingent liabilities.
Working Capital
We estimate that our general operating expenses for the next twelve month period will remain the same as compared to the levels of 2014 for such items as professional and consulting fees, salaries, travel, telephone, office and warehouse rent, and ongoing legal, accounting, and audit expenses to comply with our reporting responsibilities as a public company under the United States Exchange Act of 1934, as amended. Any increase in general operating expenses willcan be due to increases in field operating personnel as the demands from current and new customers increase.
As of December 31, 2014, we had a working capital deficit of $6,264,530. We will require additional funds to implement our growth strategy. To date, we have had negative cash flows from operations and we have been dependent on sales of our equity securities and debt financing to meet our cash requirements. Even though we anticipate our net loss and negative cash flows to lessen over the coming quarters, we anticipate that we will have to continue to fund our net loss through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There is still no assurance that we will be
ablesuccessful in addressing such risks, and the failure to
maintain operations atdo so could have a
level sufficientmaterial adverse effect on our business prospects, financial condition, and results of operations.COVID-19 Update
To date, the COVID-19 pandemic has not had a material impact on the Company, particularly due to our current lack of operations. The pandemic may, however, have an impact on our ability to evaluate and acquire an operating entity through a reverse merger or otherwise. See Item 1A “Risk Factors” for an investormore information.
Off Balance Sheet Arrangements
As of the date of this Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to obtainhave a returncurrent or future effect on his investmentour financial condition, changes in our common stock. Furthermore, we may continue to be unprofitable.
Cash Requirements
Our planfinancial condition, revenues or expenses, results of operations,
for the next 12 months involves the growth of our completion and production petrochemical business through the expansion of district offices, regional sales and analytical services to new and existing customers. We estimate that our needs for additionalliquidity, capital
for the next twelve month period to be $3,000,000. However, if our operating expensesexpenditures or capital
expenditures exceed estimates, we will require additional monies during the next twelve monthsresources that are material to
executeinvestors.Going Concern
The independent registered public accounting firm auditors’ report accompanying our business plan. As of December 31, 2014, the Company had cash of $121,880 and a working capital deficit of $6,264,530. We incurred a net loss of $2,061,441 for the year ended December 31, 2014.
We can offer no assurance that the Company will generate cash flow sufficient to achieve profitable operations or that our expenses will not exceed our projections. There are no assurances that we will be able to obtain funds required for our continued operation. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease the operation of our business.
Going Concern
Due to our net losses, negative cash flow and negative working capital, our independent auditors included2020 financial statements contained an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern in their report on our audited financial statements for the year ended December 31, 2014.
We have historically incurred losses, and through December 31, 2014 have incurred losses of $26,858,384 since our inception. Because of these historical losses, we will require additional working capital to develop our business operations. We intend to raise additional working capital through private placements, public offerings, bank financing and/or advances from related parties or shareholder loans.
There are no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to us. If adequate working capital is not available we may not increase our operations.
These conditions raiseexpressing 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 liabilitieshave been prepared “assuming that might be necessary should we be unable towill continue as a going concern.
Off-Balance Sheet Arrangements
The Company has no outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. The Company does not engage in trading activities involving non-exchange traded contracts.
Application of Critical Accounting Policies
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimatesconcern,” which contemplates that we will realize our assets and assumptions that affect the amounts reportedsatisfy our liabilities and commitments in the financial statements and accompanying disclosuresordinary course of the Company. Although these estimates are based on management’s knowledge of current events and actions that the Company may undertake in the future, actual results may differ from such estimates.
Inventory
Inventory represents raw and blended chemicals and other items valued at the lower of cost or market with cost determined using the first-in first-out method, and with market defined as the lower of replacement cost or realizable value.
Environmental Costs
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or the Company’s commitments to a plan of action based on the then known facts.
As of December 31, 2014, we have not incurred any environmental expenditures.
Derivatives
The valuation of our embedded derivatives and warrant derivatives are determined primarily by the multinomial distribution (Lattice) model. An embedded derivative is a derivative instrument that is embedded within another contract. In the case of a convertible note payable (the host contract), any right to convert the note by the holder, certain default redemption right premiums and a change of control premium (payable in cash if a fundamental change occurs) are each embedded derivative instruments. In accordance with ASC 815 “Accounting for Derivative Instruments and Hedging Activities,” as amended, these embedded derivatives are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. A warrant derivative liability is also determined in accordance with ASC 815. Based on ASC 815, warrants which are determined to be classified as derivative liabilities are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. The practical effect of this has been that when our stock price increases so does our derivative liability and resulting in a non-cash loss charge that reduces our earnings and earnings per share. When our stock price declines, we record a non-cash gain, increasing our earnings and earnings per share.
To determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future events. Other factors used to determine fair value include our period end stock price, historical stock volatility, risk free interest rate and derivative term. The fair value recorded for the derivative liability varies from period to period. This variability may result in the actual derivative liability for a period either above or below the estimates recorded on our consolidated financial statements, resulting in significant fluctuations in other income (expense) because of the corresponding non-cash gain or loss recorded.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
The Company reviews its long-lived assets and identifiable finite-lived intangibles for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The first step of the impairment test, used to identify potential impairment, compares undiscounted future cash flows of the asset or asset group with the related carrying amount. If the undiscounted future cash flows of the asset or asset group exceed its carrying amount, the asset or asset group is not considered to be impaired and the second step is unnecessary. If such assets were considered to be impaired, the impairment to be recognized would be measured by the amount by which the carrying amount of the assets exceeds the fair market value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
business.ITEM 7A -7A. QUANTITATIVE AND QUALITIATIVEQUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
We are a smaller reporting company, as that term is defined in Rule 12b-2 of the Exchange Act of 1934, and are not required to provide the information required by this Item.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company did decided to change auditors on October 17, 2014. The Company did not have any disagreements with its accountants during the previous two fiscal years ended ESP RESOURCES, INC.December 31, 20142020, and December 31, 2013.
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this annual report, we have carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures in accordance with Rule 13a-15 under the Securities Exchange Act of 1934. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as at the end of the period covered by this report. There have been no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our President and Chief Executive Officer, to allow timely decisions regarding required disclosure.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Management’s report on internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act of 1934. Management has assessed the effectiveness of our internal control over financial reporting as at December 31, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles; providing reasonable assurance that receipts and expenditures are made in accordance with authorizations of management and our directors; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. As a result of this assessment, management concluded that, as of December 31, 2014, our internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. However, because of its inherent limitations, internal control over financial reporting may not provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
This annual report does not include an attestation report of our independent auditors regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent auditors pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
ITEM 9B - OTHER INFORMATION
None.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers, Promoters and Control Persons
All directors of the Company hold office until the next annual meeting of our shareholders and until such director’s successor is elected and has been qualified, or until such director’s earlier death, resignation or removal. The following table sets forth the names, positions and ages of our executive officers and directors. Our board of directors elects officers and their terms of office are at the discretion of our board of directors.
2019Business Experience
The following is a brief accountReport of Independent Registered Public Accounting Firm
To the education and business experience during at least the past five years of our directors and executive officers, indicating their principal occupations during that period, and the name and principal business of the organizations in which such occupation and employment were carried out.
David Dugas- President and Director
Mr. Dugas has 36 years of professional engineering and management experience. Early in his career, Mr. Dugas gained petroleum engineering and senior management experience in the oil and gas industry holding positions of increasing responsibility in the areas of production, drilling and reservoir exploitation along with property and acquisition evaluations, operations management and completion design with Chevron and Texas Pacific Oil and Gas. Mr. Dugas continued his management and engineering development as an owner and operator of several service companies supplying equipment, goods and consulting services to the oil and gas industry in North and South America, West Africa, and the Far East. Mr. Dugas was a founding member and co-owner of the company that became Ocean Energy, a NYSE listed company with a multi-billion dollar market capitalization. Mr. Dugas was the Executive Vice-President of the company with responsibility for the property acquisition, management, production and reservoir engineering functions of the company. In November, 2006, Mr. Dugas founded ESP Resources, Inc. to provide petrochemicals and related services to the Oil and Gas industry in the Gulf of Mexico, Louisiana, Texas, Mississippi, and Oklahoma regions through a wholly owned subsidiary, ESP Petrochemicals, Inc.
Mr. Dugas received his B.S. degree in Petroleum Engineering from the University of Louisiana at Lafayette, graduating with highest honors. He is a member of the Society of Petroleum Engineers, a lifetime member of Phi Beta Kappa, a member of Tau Beta Pi National Engineering Society and is a licensed professional petroleum engineer in the state of Louisiana.
Tony Primeaux-Director
Mr. Primeaux has 38 years of professional experience in the value-added specialty chemical market. Mr. Primeaux began his career as a service and sales technician for Oilfield Chemicals, Inc., a large petrochemical supplier to oil and gas companies along the Gulf Coast and was subsequently promoted to Operations Manager of the Company. Mr. Primeaux became an owner/operator of Chemical Control, Inc., a specialty chemical company, in the 1980’s that was sold to Coastal Chemicals, a larger competitor, after 11 years of successful operations. Mr. Primeaux has expertise in advanced interpretation and application petrochemical technologies having designed chemical programs to achieve maximum effectiveness in some of the most hostile environments in the operating world of production operations for the oil and gas industry.
Mr. Primeaux founded ESP Petrochemicals, Inc. in March 2007 and currently serves as President of the organization. ESP Petrochemicals became a wholly owned subsidiary of ESP Resources in June 2007. Mr. Primeaux received a degree in Business Management from the University of Louisiana at Lafayette and has furthered his education attending numerous industry-sponsored courses in quality control and implementation, strategic planning and marketing, and drilling, production and work-over chemistry programs.
Family Relationships
There are no family relationships among any directors or executive officers of the Company.
Involvement in Certain Legal Proceedings
Our directors, executive officers and control persons have not been involved in any of the following events during the past five years:
1. | any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
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2. | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
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3. | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or |
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4. | being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. |
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Exchange Act of 1934 requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the year ended December 31, 2014, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners complied with such regulations.
Code of Ethics
Effective August 17, 2007, the Company’s board of directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, the Company’s President (being our principal executive officer, principal financial officer and principal accounting officer), as well as persons performing similar functions. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:
1. | honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
2. | full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us; |
3. | compliance with applicable governmental laws, rules and regulations; |
4. | the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and |
5. | accountability for adherence to the Code of Business Conduct and Ethics. |
Our Code of Business Conduct and Ethics requires, among other things, that all of the Company’s personnel shall be accorded full access to our President with respect to any matter which may arise relating to the Code of Business Conduct and Ethics. Further, all of the Company’s personnel are to be accorded full access to the Company’s board of directors if any such matter involves an alleged breach of the Code of Business Conduct and Ethics by our President.
In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within the Company, consistent with generally accepted accounting principles, and federal, provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to the Company’s President. If the incident involves an alleged breach of the Code of Business Conduct and Ethics by the President, the incident must be reported to any member of our board of directors. Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against the Company policy to retaliate against any individual who reports in good faith the violation or potential violation of the Company’s Code of Business Conduct and Ethics.
Our Code of Business Conduct and Ethics was filed as an exhibit with our annual report on Form 10-KSB filed with the Securities and Exchange Commission on August 28, 2007. We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to: ESP Resources Inc., 1003 South Hugh Wallis Road, Suite G-1, Lafayette, Louisiana 70508.
Nomination Process
As of December 31, 2014, we did not effect any material changes to the procedures by which our shareholders may recommend nominees to our board of directors. Our board of directors does not have a policy with regards to the consideration of any director candidates recommended by our shareholders. Our board of directors has determined that it is in the best position to evaluate the Company’s requirements as well as the qualifications of each candidate when the board considers a nominee for a position on our board of directors. If shareholders wish to recommend candidates directly to our board, they may do so by sending communications to the President of the Company at the address on the cover of this annual report.
Committees of the Board
All proceedings of our board of directors were conducted by resolutions consented to in writing by all the directors and filed with the minutes of the proceedings of the directors. Such resolutions consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the corporate laws of the State of Nevada and the bylaws of the Company, as valid and effective as if they had been passed at a meeting of the directors duly called and held.
The Company currently does not have nominating, compensation or audit committees or committees performing similar functions nor does the Company have a written nominating, compensation or audit committee charter. Our board of directors does not believe that it is necessary to have such committees because it believes that the functions of such committees can be adequately performed by our board of directors.
The Company does not have any defined policy or procedure requirements for shareholders to submit recommendations or nominations for directors. The board of directors believes that, given the early stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. The Company does not currently have any specific or minimum criteria for the election of nominees to the board of directors and we do not have any specific process or procedure for evaluating such nominees. The board of directors assesses all candidates, whether submitted by management or shareholders and makes recommendations for election or appointment.
A shareholder who wishes to communicate with our board of directors may do so by directing a written request addressed to our President, at the address appearing on the first page of this annual report.
Audit Committee Financial Expert
Our board of directors has determined that we do not have a board member that qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-B.
We believe that our board of directors is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of the Company does not believe that it is necessary to have an audit committee because the Company believes that the functions of an audit committee can be adequately performed by our board of directors. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development.
ITEM 11 - EXECUTIVE COMPENSATION
Executive Compensation
The following table summarizes the compensation of each name executive for the fiscal years ended December 31, 2014 and 2013 awarded to or earned by (i) each individual serving as our principal executive officer and principal financial officer of the Company and (ii) each individual that served as an executive officer of the Company at the end of such fiscal years who received compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
| Name and Principal Position | | Year | | Salary ($) | | | Bonus ($) | | | Stock Awards ($) | | | Option ($) | | | Non- Equity Incentive Plan Compensation ($) | | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | | | All Other Compensation ($) | | | Total ($) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
David Dugas President and Director | | 2013 | | $ | 176,167 | | | | - | | | $ | - | | | $ | - | | | | - | | | $ | 25,667 | | | | - | | | $ | 176,167 | |
David Dugas President and Director | | 2014 | | $ | 156,000 | | | | - | | | $ | 280,000 | | | | - | | | | - | | | $ | 44,000 | | | | - | | | $ | 480,000 | |
Tony Primeaux Vice President and Director | | 2013 | | $ | 160,500 | | | | - | | | | - | | | | - | | | | - | | | $ | 21,000 | | | | - | | | $ | 160,500 | |
Tony Primeaux Vice President and Director | | 2014 | | $ | 138,711 | | | | - | | | $ | 280,000 | | | | - | | | | - | | | $ | 36,000 | | | | - | | | $ | 454,711 | |
| William Cox (2) | | 2013 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Jack Trotti, Executive International Sales (1) | | 2013 | | $ | 82,135 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | $ | 82,135 | |
(1) | Mr. Trotti’s employment was terminated on May 15, 2013. |
(2) | Mr. Cox resigned on May 15, 2013 |
Equity Compensation Plan Information and Stock Options
We do not currently have any equity compensation plans or any outstanding stock options.
Compensation of Directors
We currently have no formal plan for compensating our directors for their services in their capacity as directors, although we may elect to issue stock options to such persons from time to time. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the board of directors or a committee thereof.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table shows ownership of our common stock on December 31, 2014, based on 237,830,249 shares of common stock outstanding, (i) by each Director and Named Executive Officer; (ii) all of our Directors and Named Executive Officers as a group and (iii) each person or entity known to us to own beneficially more than 5% of our capital stock. Except to the extent indicated in the footnotes to the following table, the person or entity listed has sole voting and dispositive power with respect to the shares that are deemed beneficially owned by such person or entity, subject to community property laws, where applicable:
| Name | | Shares of Common Stock(2) | | | Rights to Acquire Common Stock (3) | | | Total Shares Beneficially Owned | | | Percentage of Outstanding Common Stock(4) | |
| Directors and Named Executive Officers | | | | | | | | | | | | |
David Dugas (1)(5) | | | 45,971,880 | | | | 19,800,000 | | | | 65,771,880 | | | | 27.7 | % |
Tony Primeaux (1)(5) | | | 31,837,700 | | | | 26,400,000 | | | | 58,237,700 | | | | 24.5 | % |
All current executive officers and directors as a group (4) persons) | | | 77,809,580 | | | | 45,200,000 | | | | 124,009,580 | | | | 52.2 | % |
| 5% Beneficial Owners | | | | | | | | | | | | | | | | |
| None | | | - | | | | - | | | | - | | | | - | |
(1) | The address for purposes of this table is the Company’s address: 1003 South Hugh Wallis Road, Suite G-1, Lafayette, Louisiana 70508. |
(2) | This number includes shares the Officer or Director is deemed to be the “beneficial owner” of under Rule 16a-1 of the Securities Exchange Act of 1934, which includes the shares owned by a spouse and/or child(ren) living in the same household. |
(3) | Unless otherwise indicated, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of the common stock beneficially owned by them. A person is deemed to be the beneficial owner of securities which may be acquired by such person within 60 days from the date indicated above upon the exercise of options, warrants or convertible securities. Each beneficial owner’s percentage ownership is determined by assuming that options, warrants or convertible securities that are held by such person (but not those held by any other person) and which are exercisable within 60 days of the date indicated above, have been exercised. |
(4) | Based the number of shares of our common stock outstanding on or around the filing date, shares of common stock subject to options, which are currently exercisable and able to be included for the purposes of computing the percentage of ownership of such person but are not treated as outstanding for the purposes of computing the percentage of any other person. |
(5) | On August 15, 2014 the Company granted 28,000,000 shares of restricted stock to David Dugas, Chief Executive Officer and 28,000,000 shares of restricted stock to Tony Primeaux Vice President for their provision of personal guarantees on the Transfac financing agreement. |
Change in Control
We are not aware of any arrangement that might result in a change in control of the Company in the future.
Equity Plan Compensation Information
The Company does not currently have a stock option plan or other form of equity plan.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Except as described below, no director, executive officer, principal shareholder holding at least 5% of our common shares, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction, during the year ended December 31, 2014, in which the amount involved in the transaction exceeded or exceeds the lesser of $120,000 or 1% of the average of our total assets at the yearend for the last three completed fiscal years.
As of December 31, 2014 and December 31, 2013, the Company had balances due to related parties as follows;
| | | December 31, | |
| | | 2014 | | | 2013 | |
| Due to officer | | $ | 356,583 | | | $ | 419,382 | |
| Due to ESP Enterprises | | $ | 55,790 | | | $ | 55,790 | |
Corporate Governance
We currently act with two directors consisting of David Dugas and Tony Primeaux. We do not have an “independent director” as that term is defined under Rule 5605(a)(2) of the NASDAQ Listing Rules. As we are not presently required to comply with the NASDAQ Listing Rules, the Company has elected to avoid incurring the substantial costs associated with adopting such measures.
We do not have a standing audit, compensation or nominating committee, but our entire board of directors’ acts in such capacities. We believe that the members of our board of directors are capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of the Company does not believe that it is necessary to have a standing audit, compensation or nominating committee because we believe that the functions of such committees can be adequately performed by the board of directors. In addition, we believe that retaining one or more additional directors who would qualify as independent as defined in Rule 5605(a)(2) of the NASDAQ Listing Rules would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact the we have not generated any revenues from operations to date.
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
The aggregate fees billed or to be billed Turner Stone & Company, LLP for professional services rendered for the audit of our annual financial statements included in our Form 10-K during the fiscal years ended December 31, 2014 were $60,000. The aggregate fees billed or to be billed by MaloneBailey, LLP for professional services rendered for the audit of our annual financial statements included in our Form 10-K during the fiscal years ended December 31, 2013 were $86,000 are as follows:
| Type of Fees | | | | | | |
| | | | | | | | | |
| Audit Fees | | $ | 60,000 | | | $ | 86,000 | |
| Audit-Related Fees | | | - | | | | - | |
| Tax Fees | | | - | | | | - | |
| All Other Fees | | | - | | | | - | |
| Total | | $ | 60,000 | | | $ | 86,000 | |
Audit Fees
This category includes fees associated with our annual audit and the reviews of our quarterly reports on Form 10-Q. This category also includes fees associated with advice on audit and accounting matters that arose during, or as a result of, the audit or the review of our interim financial statements, statutory audits, the assistance with the review of our SEC registration statements and the audit of our internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002.
Audit-Related Fees
There were no fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the Company's financial statements.
Tax Fees
This category includes fees for tax planning for merger and acquisition activities, tax consultations, the review of income tax returns and assistance with state tax examinations. We did not engage Turner Stone & Company, LLP or MaloneBailey, LLP to provide any tax services for the years ended December 31, 2014 and 2013.
All Other Fees
Our board of directors, who acts as our audit committee, has adopted a policy governing the pre-approval by the board of directors of all services, audit and non-audit, to be provided to the Company by our independent auditors. Under the policy, the board or directors has pre-approved the provision by our independent auditors of specific audit, audit related, tax and other non-audit services as being consistent with auditor independence. Requests or applications to provide services that require the specific pre-approval of the board of directors must be submitted the board of directors by the independent auditors, and the independent auditors must advise the board of directors as to whether, in the independent auditor’s view, the request or application is consistent with the Securities and Exchange Commission’s rules on auditor independence.
The board of directors has considered the nature and amount of the fees billed by Turner Stone & Company, LLP or MaloneBailey, LLP and believes that the provision of the services for activities unrelated to the audit is compatible with maintaining the independence of the firm.
ESP Resources, Inc.PART IV
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) | During the quarter ending December 31, 2008, the Company filed the following Exhibits and Form 8Ks: |
| October 17, 2008, filed an 8K for: Item 1.02, Termination of a Material Definitive Agreement November 5, 2008,filed an 8K for: Item 1.01 Entry into a Material Definitive Agreement, Item 2.01 Completion of Acquisition of Disposition of Assets, Item 9.01Agreement December 15, 2008, filed an 8K for: Item 8.01 Other Events, Item 9.01 Letter of Intent December 29, 2009, filed an 8K for: Item 4.01 Changes in Registrant’s Certifying Accountant, Item 9.01 Letter January 6, 2009, filed an 8K for: Item 1.01 Entry into a Material Definitive Agreement, Item 2.01 Completion of Acquisition of Disposition of Assets, Item 5.01 Changes in Control of the Registrant, Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Officers, Item 9.01 Stock Purchase Agreements |
| | Description |
| | |
1.1 | | Licensing Agreement with Peter Hughes (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006) |
| | |
3.1 | | Articles of Incorporation (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006) |
| | |
3.2 | | Amended and Restated Bylaws (incorporated by reference from our Proxy Statement filed on January 24, 2013) |
| | |
3.3 | | Articles of Merger filed with the Secretary of State of Nevada on September 19, 2007 and which is effective September 28, 2007 (incorporated by reference from our Current Report on Form 8-K filed on September 28, 2007) |
| | |
3.4 | | Certificate of Change filed with the Secretary of State of Nevada on September 19, 2007 and which is effective September 28, 2007 (incorporated by reference from our Current Report on Form 8-K filed on September 28, 2007) |
| | |
4.1 | | Regulation “S” Securities Subscription Agreement (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006) |
| | |
10.1 | | Share Purchase Agreement dated November 21, 2007 among the Company, Pantera Oil and Gas PLC, Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Current Report on Form 8-K filed on November 26, 2007) |
| | |
10.2 | | Form of Advisory Board Agreement (incorporated by reference from our Current Report on Form 8-K filed on February 4, 2008) |
| | |
10.3 | | Equity Financing Agreement dated February 12, 2008 with FTS Financial Investments Ltd. (incorporated by reference from our Current Report on Form 8-K filed on February 15, 2008) |
| | |
10.4 | | Return to Treasury Agreement dated February 26, 2008 with Peter Hughes (incorporated by reference from our Current Report on Form 8-K filed on February 28, 2008) |
| | |
10.5 | | Amending Agreement dated March 17, 2008 with Artemis Energy PLC, Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Current Report on Form 8- K filed on March 19, 2008) |
| | |
10.6 | | Subscription Agreement dated February 28, 2008 with Trius Energy, LLC (incorporated by reference from our Quarterly Report on Form 10-QSB filed on April 14, 2008) |
| | |
10.7 | | Joint Venture Agreement dated February 24, 2008 with Trius Energy, LLC (incorporated by reference from our Quarterly Report on Form 10-QSB filed on April 14, 2008) |
10.8 | | Second Amending Agreement dated July 30, 2008 among the Company, Artemis Energy PLC (formerly Pantera Oil and Gas PLC), Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Current Report on Form 8- K filed on August 5, 2008) |
| | |
10.9 | | Amended and Restated Share Purchase Agreement dated September 9, 2008 among company, Artemis Energy PLC (formerly Pantera Oil and Gas PLC), Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Annual Report on for 10-KSB filed on September 15, 2008) |
10.10 | | Agreement dated October 31, 2008 with Lakehills Production, Inc. and a private equity drilling fund (incorporated by reference from our Current Report on Form 8-K filed on November 5, 2008) |
| | |
10.11 | | Security Purchase Agreement for 16% Subordinated Convertible Debenture Agreement and warrants |
| | |
10.12 | | Confidential Private Placement Memorandum for Accredited Investors Only dated May 15, 2012 and Warrant Agreement |
| | |
10.13 | | Employment Agreement Robert Geiges as Chief Financial Officer dated January 4, 2013 |
| | |
14.1 | | Code of Ethics (incorporated by reference from our Annual Report on Form 10-KSB filed on August 28, 2007) |
| | |
31.1* | | Certification of Principal Executive Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
31.2* | | Certification of Principal Financial Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
32.1* | | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
32.2* | | Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
101.INS* | | XBRL Instance Document |
| | |
101.SCH* | | XBRL Taxonomy Extension Schema |
| | |
101.CAL* | | XBRL Taxonomy Extension Calculation |
| | |
101.DEF* | | XBRL Taxonomy Extension Definition |
| | |
101.LAB* | | XBRL Taxonomy Extension Label |
| | |
101.PRE* | | XBRL Taxonomy Extension Presentation |
_______
*Filed herewith
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ESP RESOURCES, INC. | |
| | | |
Date: April 15, 2015 | By: | /s/ David Dugas
| |
| | David Dugas | |
| | Chief Executive Officer, President,
Chief Financial Officer and Director | |
| | (Principal Executive Officer) | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities andOpinion on the dates indicated.
Date: April 15, 2015 | By: | /s/ David Dugas | |
| | David Dugas | |
| | President and Director | |
Date: April 15, 2015 | By:
| /s/ Tony Primeaux | |
| | Tony Primeaux | |
| | Director | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
ESP Resources, Inc.
Lafayette, Louisiana
Financial StatementsWe have audited the accompanying consolidated balance sheet of ESP Resources, Inc. and its subsidiaries (collectively, the(the “Company”) as of December 31, 2014 and2020, the consolidatedrelated statement of operations, stockholders’ deficit,equity (deficit), and cash flows for the year then ended. These consolidated financial statements areended, and the responsibility ofrelated notes (collectively referred to as the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States)“financial statements”). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ESP Resources, Inc. and its subsidiariesthe Company as of December 31, 2014,2020, and the results of theirits operations and theirits cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
States.Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 23 to the consolidated financial statements, the Company has incurred netCompany’s significant operating losses through December 31, 2014 and has a working capital deficit as of December 31, 2014. These conditions raise substantial doubt about the Company’sits ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note 2. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
/s/Turner, Stone & Company, LLP
www.turnerstone.com
Dallas, Texas
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
ESP Resources, Inc.
this uncertainty.The Woodlands, Texas
We have audited the accompanying consolidated balance sheet of ESP Resources, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2013, and the consolidated statement of operations, stockholders’ equity (deficit), and cash flowsBasis for
the year then ended. OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedthe Company’s financial statements based on our audits.
audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform anthe audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.misstatement, whether due to error or fraud. 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 considerationAs part of our audits we are required to obtain an understanding 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
Our audit also includesincluded performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above present fairly, in all material respects, the financial position of ESP Resources, Inc. and its subsidiaries/s BF Borgers CPA PC
BF Borgers CPA PC
We have served as of December 31, 2013, and the results of their operations and their cash flows for each of the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statement have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, The Company has incurred net losses through December 31, 2013 and has a working capital deficit as of December 31, 2013. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note 2. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.auditor since 2021Lakewood, CO
July 29, 2021
/s/MaloneBailey, LLP
www.malone-bailey.com
Houston, Texas
Consolidated RESOURCES, INC.Balance Sheets
| | | | | | | |
| | | | | | | |
| ASSETS | | | | | | |
| CURRENT ASSETS | | | | | | |
| Cash and cash equivalents | | $ | 121,880 | | | $ | 5,757 | |
| Restricted cash | | | 283,392 | | | | 113,589 | |
| Accounts receivable, net | | | 2,110,534 | | | | 1,747,712 | |
| Inventories | | | 987,734 | | | | 1,170,900 | |
| Prepaid expenses | | | 358,856 | | | | 360,378 | |
| | | | | | | | | |
| | | | | | | | | |
| Total current assets | | | 3,862,396 | | | | 3,398,336 | |
| | | | | | | | | |
| Assets held for sale | | | 160,378 | | | | 216,092 | |
Property and equipment, net of accumulated depreciation of $2,253,686 and $1,836,493, December 31, 2014 and 2013 | | | 1,709,845 | | | | 2,330,638 | |
| Other assets | | | 49,877 | | | | 65,872 | |
| | | | | | | | | |
| Total assets | | $ | 5,782,496 | | | $ | 6,010,938 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | | | | | | | |
| | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | |
| Accounts payable | | $ | 2,785,041 | | | $ | 2,662,087 | |
Net liabilities from discontinued operations | | | 78,095 | | | | 90,792 | |
| Factoring payable | | | 1,339,653 | | | | 1,093,593 | |
| Accrued expenses | | | 1,540,409 | | | | 1,153,455 | |
| Due to related parties | | | 412,373 | | | | 475,172 | |
| Contingent consideration payable | | | 38,937 | | | | 181,437 | |
| Guarantee liability | | | 120,000 | | | | 120,000 | |
| Short-term debt | | | 361,477 | | | | 376,265 | |
| Current maturities of convertible debentures, net of debt discount | | | 1,142,000 | | | | 875,760 | |
| Current maturities of debt - vendor deferred payment | | | 1,285,528 | | | | 348,466 | |
Current maturities of long-term debt | | | 669,005 | | | | 858,002 | |
| Current portion of capital lease obligation | | | 99,240 | | | | 230,462 | |
| Derivative liability | | | 255,168 | | | | 263,875 | |
| | | | | | | | | |
| Total current liabilities | | | 10,126,926 | | | | 8,729,366 | |
| | | | | | | | | |
| Long-term debt (less current maturities) | | | 111,038 | | | | 463,168 | |
| Long-term debt - vendor deferred payment (less current maturities | | | - | | | | 1,064,954 | |
| Capital lease obligations (less current maturities) | | | 84,319 | | | | 50,060 | |
| Deferred lease cost | | | - | | | | 17,000 | |
| | | | | | | | | |
| Total liabilities | | | 10,322,283 | | | | 10,324,548 | |
| | | | | | | | | |
Commitments and Contingencies (Note 15) | | | | | | | | |
| | | | | | | | | |
| STOCKHOLDERS' DEFICIT | | | | | | | | |
Preferred stock - $0.001 par value, 10,000,000 shares authorized, none outstanding | | | - | | | | - | |
Common stock - $0.001 par value, 350,000,000 shares authorized, 237,830,249 and 156,230,249 shares issued and outstanding as of December 31, 2014 and 2013, respectively | | | 237,831 | | | | 156,231 | |
| Additional paid-in capital | | | 22,081,766 | | | | 20,328,102 | |
| Subscription receivable | | | (1,000 | ) | | | (1,000 | ) |
| Accumulated deficit | | | (26,858,384 | ) | | | (24,796,943 | ) |
| | | | | | | | | |
| Total stockholders' deficit | | | (4,539,787 | ) | | | (4,313,610 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | | $ | 5,782,496 | | | $ | 6,010,938 | |
Sheet| | | December 31, | |
| | | 2020 | |
| Assets | | | | |
| Total assets | | $ | - | |
| | | | | |
| Liabilities and Stockholders’ Deficit | | | | |
| Current Liabilities | | | | |
| Due to related parties | | $ | 9,546 | |
| Total current liabilities | | | 9,546 | |
| | | | | |
| Total liabilities | | | 9,546 | |
| | | | | |
| Stockholders’ Deficit | | | | |
| Preferred stock - $0.001 par value, 10,000,000 shares authorized, none outstanding | | | - | |
| Common Stock - $0.001 par value, 350,000,000 shares authorized, 237,830,249 shares issued and outstanding as of December 31, 2020 and 2019 | | | 237,831 | |
| Additional paid in capital | | | 26,620,553 | |
| Accumulated deficit | | | (26,867,930 | ) |
| Total stockholders’ deficit | | | (9,546 | ) |
| | | | | |
| Total liabilities and stockholders’ deficit | | $ | - | |
The accompanying notes are an integral part of these consolidated financial statements.statements
Consolidated RESOURCES, INC.Statements of Operations
For the Years Ended December 31, 2014 and 2013
| | | Years ended December 31, | |
| | | 2014 | | | 2013 | |
| CONTINUING OPERATIONS | | | | | | |
| | | | | | | |
| SALES, NET | | $ | 11,912,045 | | | $ | 10,591,111 | |
| COST OF GOODS SOLD | | | 4,096,444 | | | | 5,186,517 | |
| | | | | | | | | |
| GROSS PROFIT | | | 7,815,601 | | | | 5,404,594 | |
| | | | �� | | | | | |
| General and administrative: | | | 8,039,514 | | | | 8,016,259 | |
| Depreciation and amortization | | | 787,632 | | | | 831,642 | |
| Loss (gain) on disposal of assets | | | (2,953 | ) | | | 327,174 | |
| Impairment on assets held for sale | | | 2,049 | | | | 133,556 | |
| | | | | | | | | |
| LOSS FROM OPERATIONS | | | (1,010,641 | ) | | | (3,904,037 | ) |
| | | | | | | | | |
| OTHER INCOME (EXPENSE): | | | | | | | | |
| Interest expense | | | (538,502 | ) | | | (1,030,718 | ) |
| Factoring fees | | | (281,289 | ) | | | (257,260 | ) |
| Amortization of debt discount | | | (266,241 | ) | | | - | |
| Other income, net | | | 26,525 | | | | 13,489 | |
| Interest income | | | - | | | | 14 | |
| Change in derivative liability | | | 8,707 | | | | 766,923 | |
| Contingent cost of Turf settlement | | | - | | | | (150,000 | ) |
| Loss on extinguishment of debt | | | - | | | | (310,767 | ) |
| | | | | | | | | |
| Total other expense | | | (1,050,800 | ) | | | (968,319 | ) |
| Income tax provision | | | - | | | | - | |
| LOSS FROM CONTINUING OPERATIONS | | | (2,061,441 | ) | | | (4,872,356 | ) |
| | | | | | | | | |
| LOSS FROM DISCONTINUED OPERATIONS | | | - | | | | (365,421 | ) |
| | | | | | | | | |
| NET LOSS | | $ | (2,061,441 | ) | | $ | (5,237,777 | ) |
| | | | | | | | | |
| | | | | | | | | |
| NET LOSS PER SHΑRE (basic and dilutеd) for discontinuеd opеrations | | $ | - | | | $ | (0.00 | ) |
| NET LOSS PER SHΑRE (basic and dilutеd) for continuеd opеrations | | $ | (0.01 | ) | | $ | (0.03 | ) |
| NET LOSS PER SHARE (basic and diluted) | | $ | (0.01 | ) | | $ | (0.03 | ) |
| | | | | | | | | |
| WEIGHTED AVERAGE SHARES OUTSTANDING | | | 186,210,523 | | | | 153,105,728 | |
| | | Year ended | |
| | | December 31, | |
| | | 2020 | |
| | | | |
| Revenue | | | | |
| Total revenue, net | | $ | - | |
| | | | | |
| Operating expenses | | | | |
| General and administrative expenses | | | 9,546 | |
| Total operating expenses | | | 9,546 | |
| | | | | |
| Loss from Operations | | | (9,546 | ) |
| | | | | |
| Other income (expenses) | | | | |
| Total other income (expenses), net | | | - | |
| | | | | |
| Loss from operations before income taxes | | | (9,546 | ) |
| Income tax expense | | | - | |
| Net Loss | | $ | (9,546 | ) |
| | | | | |
| Earnings per share | | | | |
| Basic and diluted | | $ | - | |
| | | | | |
| Weighted average number of ordinary shares | | | | |
| Basic and diluted | | | 237,830,249 | |
The accompanying notes are an integral part of these consolidated financial statements.statements
Consolidated RESOURCES, INC.Statement of Stockholders’Changes in Shareholders’ Deficit
For the Years Ended December 31, 2014 and 2013
| | | Common stock | | | | | | | | | | | | | |
| | | Number | | | Par Value | | | APIC | | | | | | | | | Total | |
| | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2012 | | | 150,830,249 | | | | 150,831 | | | | 19,142,847 | | | | (1,000 | ) | | | (19,559,166 | ) | | | (266,488 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock based compensation | | | 5,250,000 | | | | 5,250 | | | | 1,172,447 | | | | | | | | - | | | | 1,177,697 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Shares and warrants issued with notes payable | | | 150,000 | | | | 150 | | | | 12,808 | | | | - | | | | - | | | | 12,958 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | (5,237,777 | ) | | | (5,237,777 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2013 | | | 156,230,249 | | | | 156,231 | | | | 20,328,102 | | | | (1,000 | ) | | | (24,796,943 | ) | | | (4,313,610 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock based compensation | | | - | | | | - | | | | 1,015,264 | | | | - | | | | - | | | | 1,015,264 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services | | | 25,200,000 | | | | 25,200 | | | | 226,800 | | | | - | | | | - | | | | 252,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued to employees | | | 56,000,000 | | | | 56,000 | | | | 504,000 | | | | - | | | | - | | | | 560,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued with settlement of lawsuit | | | 400,000 | | | | 400 | | | | 7,600 | | | | - | | | | - | | | | 8,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | (2,061,441 | ) | | | (2,061,441 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance December 31, 2014 | | | 237,830,249 | | | $ | 237,831 | | | $ | 22,081,766 | | | $ | (1,000 | ) | | $ | (26,858,384 | ) | | $ | (4,539,787 | ) |
| | | Common Stock | | | Additional paid in | | | Accumulated | | | | |
| | | Shares | | | Amount | | | capital | | | Deficit | | | Total | |
| Balance, January 1, 2020 | | | 237,830,249 | | | $ | 237,831 | | | $ | 26,620,553 | | | $ | (26,858,384 | ) | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | (9,546 | ) | | | (9,546 | ) |
| Balance, December 31, 2020 | | | 237,830,249 | | | $ | 237,831 | | | $ | 26,620,553 | | | $ | (26,867,930 | ) | | $ | (9,546 | ) |
The accompanying notes are an integral part of these consolidated financial statements.statements
ESP Resources, Inc. and Subsidiaries
Consolidated StatementsRESOURCES, INC.Statement of Cash Flows
For the Years ended December 31, 2014 and 2013
| | | December 31, | |
| | | 2014 | | | 2013 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
| Net loss | | $ | (2,061,441 | ) | | $ | (5,237,777 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | |
| | | | | | | | | |
| Amortization of debt discount | | | 266,241 | | | | 585,142 | |
| Impairment of assets held for sale | | | 2,049 | | | | 133,556 | |
(Gain) Loss on disposal of assets | | | (2,953 | ) | | | 327,174 | |
| Depreciation and amortization, net disposals | | | 787,632 | | | | 831,642 | |
| Bad debt expense | | | 60,000 | | | | 60,000 | |
| Stock and warrant based compensation | | | 1,827,264 | | | | 1,177,697 | |
| Stock issued in settlement of lawsuit | | | 8,000 | | | | - | |
| Change in derivative liability | | | (8,707 | ) | | | (766,923 | ) |
| Loss on Extinguishment of debt | | | - | | | | 310,767 | |
| | | | | | | | | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | (422,822 | ) | | | 22,047 | |
| Inventory | | | 183,166 | | | | 753,233 | |
| Prepaid expenses | | | 126,522 | | | | 503,565 | |
| Other assets | | | (1,005 | ) | | | 8,068 | |
| Accounts payable | | | 122,954 | | | | 1,430,933 | |
| Accrued expenses | | | 386,954 | | | | 681,177 | |
| Accrued expense to related parties | | | (62,799 | ) | | | 337,881 | |
| Contingent consideration payable | | | - | | | | 150,000 | |
Net liabilities from discontinued operations | | | (12,697 | ) | | | | |
| | | | | | | | | |
| CASH PROVIDED BY OPERATING ACTIVITIES | | | 1,198,358 | | | | 1,308,182 | |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | |
| Restricted cash | | | (169,803 | ) | | | 22,769 | |
| Proceeds from the sale of vehicles and equipment | | | 21,477 | | | | 131,533 | |
| Purchase of fixed assets | | | (201,683 | ) | | | (201,774 | ) |
| | | | | | | | | |
CASH USED IN INVESTING ACTIVITIES | | | (350,009 | ) | | | (47,472 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
| Borrowing on Long-term debt | | | - | | | | 50,150 | |
| Borrowing on short-term debt | | | 265,486 | | | | 150,000 | |
| Repayment of long term debt | | | (557,264 | ) | | | (569,934 | ) |
| Repayment of capital leases | | | (263,735 | ) | | | (263,209 | ) |
| Repayment of short-term debt | | | (280,273 | ) | | | (469,836 | ) |
| Net factoring advances | | | 246,060 | | | | (222,338 | ) |
| Payment of settlement on contingent liabilities | | | (142,500 | ) | | | | |
| | | | | | | | | |
| CASH USED IN FINANCING ACTIVITIES | | | (732,226 | ) | | | (1,325,167 | ) |
| | | | | | | | | |
| NET CHANGE IN CASH | | | 116,123 | | | | (64,457 | ) |
| CASH AT BEGINNING OF YEAR | | | 5,757 | | | | 70,214 | |
| | | | | | | | | |
| CASH AT END OF YEAR | | $ | 121,880 | | | $ | 5,757 | |
| | | | | | | | | |
| Supplemental Disclosures of Cash Flow Information | | | | | | | | |
| Cash paid for interest and factoring cost | | $ | 614,721 | | | $ | 663,833 | |
| Non-cash investing and financing transactions: | | | | | | | | |
| Notes issued for purchase of property and equipment | | $ | - | | | $ | 268,805 | |
| Debt issued for insurance financing | | | - | | | | 292,227 | |
| debt issued for settlement of accounts payable | | | - | | | | 1,104,293 | |
| Capital lease obligations | | | 166,772 | | | | 105,021 | |
| Assets returned to service | | | 143,042 | | | | - | |
| Capital lease expired | | | 116,139 | | | | - | |
| Shares issued on settlement of lawsuit | | | 8,000 | | | | - | |
| Deferred leasing cost | | | 17,000 | | | | - | |
| Debt discount due to shares and warrants issued with debt | | | - | | | | 12,958 | |
| Derivative liability on warrants related to notes payable at issuance | | | - | | | | 172,007 | |
| debt discount from derivative liabilities | | | - | | | | 12,000 | |
| Accrued interest capitalized as debt | | | - | | | | 90,792 | |
| Net liabilities from discountinued operations | | | - | | | | 426,919 | |
| | | Year Ended | |
| | | December 31, | |
| | | 2020 | |
| Cash Flows From Operating Activities | | | | |
| Net loss | | $ | (9,546 | ) |
| Changes in operating assets and liabilities | | | - | |
| Net cash provided by (used in) operating activities | | | (9,546 | ) |
| | | | | |
| Cash Flows From Investing Activities | | | | |
| Net cash provided by (used in) investing activities | | | - | |
| | | | - | |
| Cash Flows From Financing Activities | | | | |
| Proceeds from related party loans | | | 9,546 | |
| Net cash provided by (used in) financing activities | | | 9,546 | |
| | | | | |
| Net change in cash | | | - | |
| Cash , beginning of year | | | - | |
| Cash, end of year | | $ | - | |
| | | | | |
| Supplemental disclosure of cash flow information | | | | |
| Cash paid for income tax expense | | $ | - | |
| Cash paid for interest expense | | $ | - | |
The accompanying notes are an integral part of these consolidated financial statements
ESP RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
This annual report contains forward-looking statements as that term is defined under applicable securities laws. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors,” that may cause the Company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. Our financial statements are stated in United States dollars (USD) and are prepared in accordance with United States generally accepted accounting principles (GAAP).
Any reference herein to “ESP Resources,” the “Company,” “we,” “our” or “us” is intended to mean ESP Resources, Inc.
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
Note 1 – Basis of Presentation, Nature of Operations and Significant Accounting Policies
Basis of Presentation
, a Nevada corporation, including our subsidiaries unless otherwise indicated.Corporate History
ESP Resources, Inc. (“ESP Resources”, and collectively with its subsidiaries, “we”, “our” or the “Company”) was incorporated in the State of Nevada on October 27, 2004. The accompanying consolidated financial statements include the accounts of
On March 10, 2016, ESP Resources, Inc. and its wholly owned subsidiaries,(the “Company” and/or the “Debtor”) filed a voluntary petition (the “Voluntary Petition”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) Case No. 16-60021-H2-11 seeking relief under the provisions of Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”). The Company’s bankruptcy case is being jointly administered with that of ESP Petrochemicals, Inc. under Case No. 16-60020-H2-11.
On January 7, 2021, as a result of Louisianaa custodianship in Clark County, Nevada, Case Number: A-20-825339-B, Custodian Ventures LLC (“ESP Petrochemicals”Custodian”), ESP Ventures, Inc. was appointed custodian of Delaware (“ESP Ventures”), ESP Corporation, S.A., a Panamanian corporation (“ESP Corporation”) and ESP Payroll Services, Inc. of Nevada (“ESP Payroll”(the “Company”). David Lazar is the managing director of Custodian.
On July 11, 2012January 7, 2021, Custodian appointed David Lazar as the Company formed two partially owned subsidiaries in Delaware, ESP Advanced Technologies, Inc.,Company’s Chief Executive Officer, President, Secretary, Chief Financial Officer, Chief Executive Officer and ESP Facility & Pipeline Services, Inc. On December 19, 2012 the Company formed a partially owned subsidiary in Nevada, IEM, Inc.
On June 11, 2013, the board of directors resolved to discontinue operations of various subsidiaries, including ESP Facility and Pipeline Services, Inc., ESP Advanced Technologies, Inc., ESP KUJV Limited Joint Venture and ESP Marketing Group LLC (collectively, the “Discontinued Subsidiaries”). The Discontinued Subsidiaries were not wholly-owned by the Company and, in accordance with the decision to discontinue operations, no longer receive financial or management support. The Company reflected 100%Chairman of the losses related to the subsidiaries in its results from discontinued operations.
Board of Directors.The Company’s year-end is December 31.
ESP RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidatedaccompanying financial statements of the Company have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) “FASB Accounting Standard Codification™” (the “Codification”) which is the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America. Any reference herein to “ESP Resources”, the “Company”, “we”, “our” or “us” is intended to mean ESP Resources, Inc. including the subsidiaries indicated above, unless otherwise indicated.
Nature of the Business
By and through its subsidiary ESP Petrochemicals Inc., the Company’s current business sells and blends chemicals for use in the oil and gas industry to customers primarily located in the Gulf of Mexico and Gulf States region. ESP Resources previously was in the business of acquisition and exploration of oil and gas properties in North and South America. ESP Delaware, which was incorporated in Delaware in November, 2006, was formed as a holding company for ESP Petrochemicals, Inc. On June 15, 2007, ESP Delaware acquired all of the stock of ESP Petrochemicals Inc.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
The Company reviews its long-lived assets and identifiable finite-lived intangibles for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The first step of the impairment test, used to identify potential impairment, compares undiscounted future cash flows of the asset or asset group with the related carrying amount. If the undiscounted future cash flows of the asset or asset group exceed its carrying amount, the asset or asset group is not considered to be impaired and the second step is unnecessary. If such assets were considered to be impaired, the impairment to be recognized would be measured by the amount by which the carrying amount of the assets exceeds the fair market value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the year ended December 31, 2013, the Company recognized an impairment loss of $133,556 on assets held for sale.
estimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of AmericaU.S. GAAP 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 revenuesrevenue and expenses during the reporting period. ActualManagement makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates.
Principles of consolidation
The consolidated financial statements include the accounts of ESP Resources and its wholly owned and partially owned subsidiaries for the years ended December 31, 2014 and 2013. All significant inter-company transactions and balances have been eliminated in consolidation.
Cash and cash equivalents
Cash Equivalents
The Company considers alland cash equivalents consist of cash on hand, cash in bank with no restrictions, as well as highly liquid
debt instruments purchased with an original maturityinvestments which are unrestricted as to withdrawal or use, and which have remaining maturities of three months or less
to be cash equivalents. when initially purchased.
Income taxes
The Company had $121,880 and $5,757 cash and cash equivalents at December 31, 2014 and 2013, respectively.
Restricted Cash
Under the terms of the Factoring payable, the Company may obtain advances up to 100% of eligible accounts receivable, subject to a 0.75% per 15 days factoring fee, with 10% held in a restricted cash reserve account, which is released to the Company upon payment of the receivable. As of December 31, 2014 and 2013, restricted cash totaled $283,392 and $113,589, respectively.
Accounts Receivable and Allowance for Doubtful Accounts
The Company generally does not require collateral, and the majority of its trade receivables are unsecured. The carrying amount for accounts receivable approximates fair value.
Accounts receivable consisted of the following as of December 31, 2014 and 2013:
| | | 2014 | | | 2013 | |
| Trade receivables | | $ | | | | $ | 1,842,712 | |
| Less: Allowance for doubtful accounts | | | (155,000 | ) | | | (95,000 | ) |
| Net accounts receivable | | $ | | | | $ | 1,747,712 | |
Accounts receivable are periodically evaluated for collectability based on past credit history with clients. Provisions for losses on accounts receivable are determined on the basis of loss experience, known and inherent risk in the account balance and current economic conditions.
Inventories
Inventory represents raw and blended chemicals and other items valued at the lower of cost or market with cost determined using the first-in first-out method, and with market defined as the lower of replacement cost or realizable value.
As of December 31, 2014 and 2013, inventory consisted of the following:
| | | | 2014 | | | | 2013 | |
| Raw materials | | $ | 412,978 | | | $ | 500,824 | |
| Finished goods | | | 574,756 | | | | 670,076 | |
| Total inventory | | $ | 987,734 | | | $ | 1,170,900 | |
Property and equipment
Property and equipment of the Company is stated at cost. Expenditures for property and equipment which substantially increase the useful lives of existing assets are capitalized at cost and depreciated. Routine expenditures for repairs and maintenance are expensed as incurred.
Depreciation is provided principally on the straight-line method over the estimated useful lives ranging from five to ten years for financial reporting purposes.
Derivatives
The valuation of our embedded derivatives and warrant derivatives are determined primarily by the multinomial distribution (Lattice) model. An embedded derivative is a derivative instrument that is embedded within another contract, whichincome taxes under the convertible note (the host contract) includes the right to convert the note by the holder, certain default redemption right premiums and a change of control premium (payable in cash if a fundamental change occurs). In accordance with Accounting Standards Codification (“ASC”) 815 “Accounting for Derivative Instruments and Hedging Activities’, as amended, these embedded derivatives are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. A warrant derivative liability is also determined in accordance with ASC 815. Based on ASC 815, warrants which are determined to be classified as derivative liabilities are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. The practical effect of this has been that when our stock price increases so does our derivative liability and resulting in a non-cash loss charge that reduces our earnings and earnings per share. When our stock price declines, we record a non-cash gain, increasing our earnings and earnings per share. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, there exists a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
● | Level 1 - | unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. |
● | Level 2 - | inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. |
● | Level 3 - | unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. |
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
To determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future events. Other factors used to determine fair value include our period end stock price, historical stock volatility, risk free interest rate and derivative term. The fair value recorded for the derivative liability varies from period to period. This variability may result in the actual derivative liability for a period either above or below the estimates recorded on our consolidated financial statements, resulting in significant fluctuations in other income (expense) because of the corresponding non-cash gain or loss recorded.
The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2014.
| | | Carrying Value at | | | Fair Value Measurement at December 31, 2014 | |
| | | December 31, 2014 | | | Level 1 | | | Level 2 | | | Level 3 | |
| Liabilities | | | | | | | | | | | | |
| Derivative convertible debt liability | | $ | 181,165 | | | $ | - | | | $ | - | | | $ | 181,165 | |
| Derivative warrant liability | | $ | 74,003 | | | $ | - | | | $ | - | | | $ | 74,003 | |
| Total derivative liability | | $ | 255,168 | | | $ | - | | | $ | - | | | $ | 255,168 | |
The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2013.
| | | Carrying Value at | | | Fair Value Measurement at December 31, 2013 | |
| | | December 31, 2013 | | | Level 1 | | | Level 2 | | | Level 3 | |
| Liabilities | | | | | | | | | | | | |
| Derivative convertible debt liability | | $ | 188,827 | | | $ | - | | | $ | - | | | $ | 188,827 | |
| Derivative warrant liability | | $ | 75,048 | | | $ | - | | | $ | - | | | $ | 75,048 | |
| Total derivative liability | | $ | 263,875 | | | $ | - | | | $ | - | | | $ | 263,875 | |
Income Taxes
In accordance withFASB ASC 740, “Accounting for Income Taxes”, the provision for income taxes is computed using the asset and liability method.Taxes”. Under the asset and liability method,FASB ASC 740, deferred income tax assets and liabilities are determined based onrecognized for the future tax consequences attributable to differences between the financial reporting and tax basesstatement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. A valuation allowance is provided forexpected to apply to taxable income in the amount ofyears in which those temporary differences are expected to be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that based on available evidence, are notincludes the enactment date. FASB ASC 740-10-05, “Accounting for Uncertainty in Income Taxes” prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be realized.
Concentration
taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company has four major customersassesses the validity of its conclusions regarding uncertain tax positions quarterly to determine if facts or circumstances have arisen that together account for 68%might cause it to change its judgment regarding the likelihood of accounts receivable at December 31, 2014 and 59% of the total revenues earned for the year ended December 31, 2014.
| | | Accounts receivable | | | Revenue | |
| | | | | | | | | |
| Customer A | | | 25 | % | | | 13 | % |
| Customer B | | | 16 | % | | | 11 | % |
| Customer C | | | 16 | % | | | 6 | % |
| Customer D | | | 11 | % | | | 29 | % |
| | | | 68 | % | | | 59 | % |
The Company has four vendors that accounted for 37%, 16%, 16% and 11% of purchases during 2014.
The Company has three major customers that together account for 50% of accounts receivable at December 31, 2013 and 47% of the total revenues earned for the year ended December 31, 2013.
| | | Accounts receivable | | | Revenue | |
| | | | | | | | | |
| Customer A | | | 21 | % | | | 11 | % |
| Customer B | | | 16 | % | | | 26 | % |
| Customer C | | | 13 | % | | | 10 | % |
| | | | 50 | % | | | 47 | % |
The Company has four vendors that accounted for 40%, 24%, 13% and 13% of purchases during 2013.
The Company places its cash and cash equivalents with financial institutions that are insureda tax position’s sustainability under audit.
Net Loss per Share
Net loss per common share is computed by dividing net loss by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per depositor per bank. From time to time, the Company’s cash balances exceeded FDIC insured limits. At December 31, 2014, the Company’s uninsured cash balance was $0.
Revenue and Cost Recognition
The Company through its wholly owned subsidiary, ESP Petrochemicals, Inc., is a custom formulator of petrochemicals for the oil and 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. ESP Facilities and Pipeline Services, Inc. is a pressure test service provider for the oil and gas industry. The Company provides labor and equipment to pressure test and service pipes and values. The Company invoices the Customer based on the hours provided and invoices the customer for those hoursweighted average common shares outstanding during the service period and recognizes the revenue at the time of service.
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.
Stock-based Compensation
The Company accounts for stock-based compensation to employees in accordance with FASBas defined by Financial Accounting Standards, ASC 718. Stock-based compensation to employees is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite employee service period. The Company accounts for stock-based compensation to other than employees in accordance with FASB ASC 505-50. Equity instruments issued to other than employees are valued at the earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments and is recognized as expense over the service period. The Company estimates the fair value of stock-based payments using the Black-Scholes option-pricing model forTopic 260, “Earnings per Share.” Basic earnings per common stock options and warrants and the closing price of the Company’s common stock for common share issuances.
Advertising
Advertising costs are charged to operations when incurred. Advertising expense for the years ended December 31, 2014 and 2013 were $2,062and $1,021, respectively.
Basic and Diluted Loss Per Share
Basic and diluted earnings or loss per share (“EPS”) amounts in the consolidated financial statementscalculations are computed in accordance Accounting Standard Codification (ASC) 260 – 10 “Earnings per Share”, which establishes the requirements for presenting EPS. Basic EPS is based ondetermined by dividing net income by the weighted average number of common shares outstanding. Diluted EPS is based on the weighted average number of common sharesstock outstanding and dilutiveduring the year. Diluted earnings per common stock equivalents. Basic EPS is computedshare calculations are determined by dividing net income or loss available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) duringand dilutive common share equivalents outstanding.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that impact the period. Potentially dilutive securities were excluded fromCompany’s operations.
ESP RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - GOING CONCERN
As of December 31, 2020, the calculation of diluted loss per share, because their effect would be anti-dilutive.
Business Segments
Company had $-0- in cash and cash equivalents. The Company operates in one segment in one geographic location the United Stateshas net loss of America and, therefore, segment information is not presented.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments including accounts payable, accrued expenses, and notes payable approximate fair value due to the relative short period$9,546 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, 2014 and 2013, respectively.
Reclassification
Certain accounts in the prior period were reclassified to conform to the current period financial statements presentation.
Recently Issued Accounting Pronouncements
During the year ended December 31, 20142020 and through April 15, 2015, there were several new accounting pronouncements issuedhas negative working capital of $9,546 and accumulated deficit of $26,867,930 at December 31, 2020. The Company’s principal sources of liquidity have been cash provided by operating activities, as well as financial support from related parties. The Company’s operating results for future periods are subject to numerous uncertainties and it is uncertain if the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been orCompany will be adopted byable to maintain profitability and continue growth for the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements — Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” Continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. Previously, there was no guidance under US GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this Update provide that guidance. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. The amendments requireforeseeable future. If management
to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not
alleviated, and (6) require an assessment for a period of one year afterable to increase revenue and/or manage operating expenses in line with revenue forecasts, the
date that the financial statements are issued (or availableCompany may not be able to
be issued). For the year ended December 31, 2014, management evaluated the Company’s ability to continue as a going concern and concluded thatmaintain profitability. These factors raise substantial doubt
has not been alleviated about the Company’s ability to continue as a going concern.
WhileThe Company will focus on improving operation efficiency and cost reduction, developing core cash-generating business, and enhancing marketing function. Actions include developing more customers, as well as creating synergy using the Company’s resources.
The Company continues to explore further significant sources of financing, management’s assessment was based on the uncertainty related to the amount and nature of such financing over the next twelve months.
Note 2 – Going Concern
At December 31, 2014, the Company hadbelieves that available cash and cash equivalents,
the cash provided by operating activities, together with actions as developing more customers and create synergy of
$121,880the Company’s resources, should enable the Company to meet presently anticipated cash needs for at least the next 12 months after the date that the financial statements are issued and
the Company has prepared the financial statements on a
workinggoing concern basis. If the Company encounters unforeseen circumstances that place constraints on its capital
deficitresources, management will be required to take various measures to conserve liquidity, which could include, but not necessarily be limited to, obtaining financial support from related parties and controlling overhead expenses. Management cannot provide any assurance that the Company’s efforts will be successful. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of
$6,264,530. assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.NOTE 4 – EQUITY
Common Stock
The Company believeshas authorized 350,000,000 shares of $0.001 par value, common stock. As of December 31, 2020, there were 237,830,249 shares of Common Stock issued and outstanding.
ESP RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5– RELATED PARTY NOTES PAYABLE
All of the Company’s financing has come from its Court appointed custodian, Custodian Ventures, LLC. As of December 31, 2020 the Company’s court appointed custodian, Custodian Ventures had loaned the Company $9,546 on an interest free basis.
NOTE 6 – COMMITMENTS AND CONTINGENCIES
The Company did not have any contractual commitments as of December 31, 2020.
NOTE 7– SUBSEQUENT EVENTS
In accordance with SFAS 165 (ASC 855-10) management has performed an evaluation of subsequent events through the date that the financial statements were available to be issued and has determined that it does not have any material subsequent events to disclose in these financial statements except as follows:
On July 2, 2021 the Company’s Board of Directors designated a class of 10,000,000 shares of Series A Preferred stock was a par value of $0.001. On July 16, 2021 the Board of Directors hereby approves issuing to Custodian Ventures LLC, a Wyoming limited-liability company,10,000,000 shares of Series A Preferred Stock in the Corporation for par value, as repayment of funds loaned to the Company by Custodian Ventures, LLC, and for services performed. As of June 30, 2021 the loans amounted to $9,620.
The holders of the Series A Preferred Stock, shall have conversion rights as follows (the “Conversion Rights”), the holder of issued and outstanding shares of Series A Preferred Stock shall be entitled to convert the Series A Preferred Stock, at the option of the holder(s) thereof, at any time after the date of issuance of such shares, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock that are equal to ninety percent (90%), post conversion, of the total number of issued and outstanding shares of Common Stock of the Corporation, if all Series A Preferred Stock are converted (the “Conversion Shares”), with each share of Series A Preferred Stock so converted to be converted into the number of common shares equal to the Conversion Shares multiplied by the quotient of the number of the shares of Series A Preferred Stock converted by a holder divided by the number of all Series A Preferred Stock issued and outstanding.
Based on the conversion formula described above, each share of Series A Preferred Stock is convertible into 214.05 shares of common stock as of July 16, 2021
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
Our management is responsible for establishing and maintaining a system of “disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its existing capital resourcesprincipal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
| ● | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; |
| | |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| | |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting based on the parameters set forth above and has concluded that as of December 31, 2020, our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles as a result of the following material weaknesses:
| ● | The Company does not have sufficient segregation of duties within accounting functions due to only having one officer and limited resources. |
| | |
| ● | The Company does not have an independent board of directors or an audit committee. |
| | |
| ● | The Company does not have written documentation of our internal control policies and procedures. |
| | |
| ● | All of the Company’s financial reporting is carried out by a financial consultant. |
We plan to rectify these weaknesses by implementing an independent board of directors, establishing written policies and procedures for our internal control of financial reporting, and hiring additional accounting personnel at such time as we complete a reverse merger or similar business acquisition.
Changes in Internal Control over Financial Reporting.
There have been no change in our internal control over financial reporting during the year December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth the names and positions of our executive officers and directors. Directors will be adequateelected at our annual meeting of stockholders and serve for one year or until their successors are elected and qualify. Officers are elected by the Board and their terms of office are, except to enable itthe extent governed by employment contract, at the discretion of the Board.
| Name | | Age | | Positions |
| David Lazar | | 31 | | Director, Chief Executive Officer, Treasurer, and Secretary |
David Lazar, 31, has been CEO and Chairman of the Company since January 7, 2021. David Lazar is a private investor. Mr. Lazar has been a partner at Zenith Partners International since 2013, where he specializes in research and development, sales, and marketing. From 2014 through 2015, David was the Chief Executive Officer of Dico, Inc., which was then sold to execute itsPeekay Boutiques. Since February of 2018, Mr. Lazar has been the managing member of Custodian Ventures LLC, where he specializes in assisting distressed public companies. Since March 2018, David has acted as the managing member of Activist Investing LLC, which specializes in active investing in distressed public companies. David has a diverse knowledge of financial, legal and operations management; public company management, accounting, audit preparation, due diligence reviews and SEC regulations.
| MARKET | | | | | | FROM | | | TO | |
| NAME OF ISSUER | | TRADED ON | | POSITION(S) HELD | | MM | | | YYYY | | | MM | | | YYYY | |
| Rarus Technologies, Inc. (RARS) | | OTCBB | | CEO, Director | | 01 | | | 2018 | | | 05 | | | 2018 | |
| DRS, Inc. (DRSX) | | | | CEO, Director | | 07 | | | 2018 | | | 11 | | | 2018 | |
| Energenx, Inc. (EENX) | | OTC | | CEO | | 03 | | | 2018 | | | 07 | | | 2018 | |
| Melt, Inc. (MLTC) | | OTC | | Director | | 10 | | | 2018 | | | 03 | | | 2019 | |
| Nevtah Capital Management Corporation (NTAH) | | OTC – US | | President, Chief Executive Officer & Secretary | | 03 | | | 2019 | | | 05 | | | 2020 | |
| Mediashift, Inc. (MSHFQ) | | OTC | | Chairman, President, CEO, CFO & Secretary | | 03 | | | 2019 | | | 09 | | | 2019 | |
| Sollensys Corp. (SOLS) | | OTC Market | | President, CEO, Secretary & Director | | 12 | | | 2019 | | | 08 | | | 2020 | |
| Foru Holdings, Inc (FORU) | | OTC Markets | | Chairman, President, CEO, CFO & Secretary | | 03 | | | 2020 | | | Current | | | | |
| Superbox, Inc (SBOX) | | OTC Markets | | Chairman, President, CEO, CFO & Secretary | | 03 | | | 2020 | | | Current | | | | |
| Petrone Worldwide, Inc (PFWIQ) | | OTC Markets | | Chairman, President, CEO, CFO & Secretary | | 03 | | | 2020 | | | Current | | | | |
| Gushen, Inc (GSHN) | | OTC – US | | Chairman, President, CEO, CFO & Secretary | | 03 | | | 2020 | | | 12 | | | 2020 | |
| Reliance Global Group Inc. (RELI) | | OTC | | Director | | 03 | | | 2020 | | | Current | | | | |
| GHAR, Inc. (GHAR) | | OTC Markets | | Chairman, President, CEO, CFO & Secretary | | 03 | | | 2020 | | | Current | | | | |
| PhoneBrasil (PHBR) | | OTC Markets | | Chairman, President, CEO, CFO & Secretary | | 08 | | | 2020 | | | 12 | | | 2020 | |
| XXStream Entertainment, Inc. | | OTC Markets | | Chairman, President, CEO, CFO & Secretary | | 07 | | | 2020 | | | 12 | | | 2020 | |
| Adorbs Inc. | | N/A | | Chairman, President, CEO, CFO & Secretary | | 07 | | | 2020 | | | Current | | | | |
| China Botanic Pharmaceutical, Inc(CBPI) | | OTC Markets | | Chairman, President, CEO, CFO & Secretary | | 02 | | | 2021 | | | Current | | | | |
| C2E Energy Inc. (OOGI) | | OTC Markets | | Chairman, President, CEO, CFO & Secretary | | 02 | | | 2021 | | | 06 | | | 2021 | |
| Finotec (FTGI) | | OTC Markets | | Chairman, President, CEO, CFO & Secretary | | 03 | | | 2020 | | | 01 | | | 2021 | |
| 3D Makerjet Inc. (MRJT) | | OTC Markets | | Chairman, President, CEO, CFO & Secretary | | 07 | | | 2020 | | | 03 | | | 2021 | |
David Lazar was also the sole officer and director of Shentang International, Inc. (“Shentang”), which is a blank check company. On April 29, 2020, Plentiful Limited, a Samoan company, purchased 10,000,000 shares of Shentang’s preferred stock, par value $0.001 per share, representing 98% of the voting stock, from Custodian Ventures for $225,000. This concluded Mr. Lazar’s association with Shentang. A business plan. These conditions raise substantial doubtcombination has yet to occur. Shentang has not registered any offerings under the Securities Act.
David Lazar was also the sole officer and director of Guozi Zhongyu Capital Holdings (formerly Melt Inc.) (“Guozi”), which was a blank check company. On February 27, 2019, Zhicheng RAO, purchased 2,185,710,000 shares of Guozi’s common stock, par value $0.00001 per share, from Custodian Ventures for $325,000, representing 99% of the voting stock. This concluded Mr. Lazar’s association with Guozi. Guozi has not registered any offerings under the Securities Act.
David Lazar was also the sole officer and director of Cang Bao Tian Xia International Art Trade Center Inc. (formerly Zhongchai Machinery, Inc.) (“Cang”), which is a blank check company. On December 16, 2018, Xingtao Zhou and Yaqin Fu purchased 3,096,200 shares of common stock and 10,000,000 shares (the “Shares”) of preferred stock, each par value $0.001 per share, representing approximately 99% of the voting capital, from Custodian Ventures for $375,000. This concluded Mr. Lazar’s association with Cang. A business combination has yet to occur. Cang has not registered any offerings under the Securities Act.
Except for GHAR, Inc, Adorbs, Inc. and Reliance Global Group Inc., Mr. Lazar took control of all of the companies listed by becoming the Court-appointed custodian through Custodian Ventures LLC and entity in which he is the managing member.
Election of Directors and Officers
Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the Board following the next annual meeting of stockholders and until their successors have been elected and qualified.
Audit Committee
We do not have any committees of the Board as we only have one director.
Director Independence
We do not currently have any independent directors. We evaluate independence by the standards for director independence established by Marketplace Rule 5605(a)(2) of the Nasdaq Stock Market, Inc.
Board Leadership Structure
We have chosen to combine the Chief Executive Officer and Board Chairman positions since one person is our sole officer and director.
Code of Ethics
Our Board has not adopted a Code of Ethics due to the Company’s abilitysize and lack of employees. As of the date of this Report, our sole director is also our Chief Executive Officer.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires the Company’s directors, executive officers, and persons who own more than 10% of the Company’s Common Stock to continue as a going concern. The Company estimates that it will require additional cash resources during 2015 based on its current operating planfile initial reports of ownership and condition.
The Company’s ability to continue as a going concern is dependent on its ability to raise the required additional capital or debt financing to meet short and long-term operating requirements. The Company believes that future private placements of equity capital and debt financing are needed to fund our long-term operating requirements. The Company may also encounter business endeavors that require significant cash commitments or unanticipated problems or expenses that could resultchanges in
a requirement for additional cash. If the Company raises additional funds through the issuance of equity or convertible debt securities, the percentage ownership of
current shareholders could be reduced,the Company’s Common Stock with the SEC. These individuals are required by the regulations of the SEC to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of the forms furnished to us none of Company’s directors, executive officers, and
such securities might have rights, preferences or privileges seniorpersons who own more than 10% of the Company’s Common Stock failed to comply with Section 16(a) filing requirements.ITEM 11. EXECUTIVE COMPENSATION
The following information is related to the Company’s common stock. Additional financing may not be available upon acceptable terms,compensation paid, distributed, or at all. If adequate funds are not available or are not available on acceptable terms,accrued by us for the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict our operations. The Company is continuing to pursue external financing alternatives to improve our working capital position. If the Company is unable to obtain the necessary capital, the Company may have to cease operations.
Note 3 – Factoring Payable
On May 24, 2011, ESP Petrochemical Inc. entered into an Account Receivable Financing agreement with Crestmark Commercial Capital Leading LLC (“Crestmark”), with an initial term of six months and renewing semi-annually thereafter. The agreement is in the subsequent renewal period. The Company may obtain advances up to 100% of eligible accounts receivable, subject to a 0.75 percent per 15 days factoring fee, with ten percent held in a reserve account, which is released to the Company upon payment of the receivable. The agreement is subject to a master note, which limits borrowing to $2,000,000. The master note is payable upon demand, or if no demand is paid, with monthly payments of interest at 1.5%. All outstanding principal plus accrued unpaid interest is due on maturity of the note or when the related invoice is collected. The master note is secured by all inventory, accounts, general intangibles, and equipment of the ESPI. On March 2, 2012 Crestmark increased the borrowing limit to $3,000,000. On August 1, 2012 Crestmark increased the borrowing limit to $4,000,000.The total borrowing under the agreement atfiscal year ended December 31, 2013 was $1,093,593 with $113,589 held in restricted cash in2020 to our Chief Executive Officer (principal executive officer) during the consolidated balance sheets.
On August 15, 2014 ESP Petrochemicals, Inc., (the “Company”) a subsidiarylast fiscal year and the two other most highly compensated executive officers serving as of
ESP Resources, Inc. entered into a Purchase and Sale Agreement (the “Factoring Agreement”) with Transfac Capital, Inc., which served to replace the agreement with Crestmark. On October 1, 2014 the Factoring agreement was amended. The Factoring Agreement has an initial term of two years (“Contract Term”) with automatically renewing successive Contract Terms. The Factoring Agreement may be terminated by the Company at the end of a Contract Term by providing notice to Transfac no more than ninety and no less than sixty days before the end of the
current Contract Term. Transfac may terminatelast fiscal year whose compensation exceeded $100,000 (the “Named Executive Officers”):We did not pay any compensation to our Chief Executive Officers (the “Named Executive Officers”) during the Factoring Agreement at any time upon thirty days’ notice of an event of default. Under the termslast two fiscal years.
Named Executive Officer Employment Agreements
None.
Termination Provisions
As of the Factoring Agreement, Transfac may purchasedate of this Report, we have no contract, agreement, plan, or arrangement, whether written or unwritten, that provides for payments to a Named Executive Officer at, following, or in connection with any accounts submitted bytermination, including without limitation resignation, severance, retirement or a constructive termination of a Named Executive Officer, or a change in control of the Company. The Company shall payor a servicing fee equal to the greater of 0.75% or $10 and will be subject to others fees and charges and may be required to establish a reserve account as set forth in greater detailchange in the Factoring Agreement set forth as an exhibitNamed Executive Officer’s responsibilities, with respect to this current report and incorporated herein by reference. The Factoring Agreement is secured by substantially all of the Company’s assets and personally guaranteed by David Dugas and Tony Primeaux and guaranteed by ESP Resources, Inc. and ESP Ventures, Inc. The total borrowing under this agreementeach Named Executive Officer.
Outstanding Equity Awards at December 31, 2014 was $1,339,653 with $283,392 held in restricted cash in the consolidated balance sheets.
Note 4 – Property and equipment
Property and equipment includes the following at December 31, 2014 and 2013:
| | | 2014 | | | 2013 | |
| | | | | | | | | |
| Plant, property and equipment | | $ | 1,597,011 | | | $ | 1,406,517 | |
| Vehicles | | | 1,679,220 | | | | 1,745,704 | |
| Equipment under capital lease | | | 596,888 | | | | 955,779 | |
| Equipment under capital lease – related party | | | 31,281 | | | | - | |
| Office furniture and equipment | | | 59,131 | | | | 59,131 | |
| | | | 3,963,531 | | | | 4,167,131 | |
| Less: accumulated depreciation | | | (2,253,686 | ) | | | (1,836,493 | ) |
| Net property and equipment | | $ | 1,709,845 | | | $ | 2,330,638 | |
Depreciation expense was $787,632 and $831,642 for the years ended December 31, 2014 and 2013, respectively.
On March 19, 2014 the Company exchanged three vehicles with a net carrying value of $79,957, two of which were classified as assets held for sale with a combined net carrying value of $46,551, and a vehicle with a net carrying value of $33,406 in exchange for reduction of $63,787 in related long-term debt including $7,916 of accrued interest, for a capitalized lease on a vehicle in which a related party purchased, then leased the vehicle to the Company. The Company valued the leased vehicle as equipment under capital lease of $31,281, which resulted in a gain from disposal of assets of $2,953.
On December 31, 2014 the Company agreed to extend the leases of certain specialized equipment with a fair value of $113,595 for an additional 2 years and a purchase option of $1. The Company evaluated the application of ASC 440-30, “Leases - Capital lease” and concluded that the lease constituted capital leases.
In the year ended December 31, 2014 The Company determine that certain specialized equipment was to be sold and as such classified the $160,378 its fair value and net book value.
In the year ended December 31, 2014 the Company recognized an additional $2,049 loss disposed of equipment on assets held for sale.
In the year ended December 31, 2013 the Company recognized a loss on the impairment of assets held for sale of $133,556 and disposed of equipment and assets held for sale, receiving proceeds of $131,533 resulting in a loss of $327,174 of the disposal of assets.
Note 5- Short-Term Debt
On April 8, 2013, the Company executed a demand note for $150,000 with an annual interest rate of 8%. As part of the agreement the Company granted the holder 150,000 shares of Common Stock and warrants to purchase 150,000 shares of common stock at an exercise price of $0.15 per share through April 8, 2014. The Company determined the fair value of the common stock and warrants to be $10,500 and $2,458, respectively. The aggregate fair value of $12,958 was recognized as a debt discount which is being amortized to interest expense over the life of the debt. During the year ended December 31, 2013, the entire discount of $12,958 was amortized to interest expense.
During the years ended December 31, 2014 and 2013 the Company issued notes payable to finance its insurance with an aggregate principal amounts of $265,486 and $292,227, respectively. The notes mature in 1 year, bear interest between 5.7% and 5.7% per annum and require equal monthly payments.
The Company made aggregate repayments on its short-term debt of $280,273 and $469,836 during the years ended December 31, 2014 and 2013, respectively.
Note 6- Long-term-debt Vendor Deferred Payment
Long-term debt on vendor deferred payments consisted of the following at December 31, 2014 and 2013:
| | | December 31, 2014 | | | December 31, 2013 | |
The Company reached an agreement with certain Vendors to exchange payables for term debentures with a annual interest rates of 5% or prime plus 1.5% payable monthly between $22,551 and $10,000 and maturing between October 2014 and September 2018 | | $ | 1,285,528 | | | $ | 1,413,420 | |
| Less current maturities | | | (1,285,528 | ) | | | (348,466 | ) |
| Total long-term debt | | $ | - | | | $ | 1,064,954 | |
During 2013 the Company and certain of its trade vendors agreed to convert existing accounts payable balances totaling $1,104,407 to 5% notes in the aggregate principal amount of $1,104,407 with monthly payments ranging from $1,409 to $22,551 continuing to between October 15, 2014 and September 21, 2018. The trade vendors agreed to subordinate its position to any provider of new debt, excluding a trade vendor.
On May 25, 2012, the Company reached an agreement with a Vendor to exchange accounts payable for a term debenture of $450,000 with an annual interest rate of prime plus 1.5% payable monthly of $10,000 plus interest.
The Company evaluated the application of ASC 470-50, “Modifications and Extinguishments” and ASC 470-60, “Trouble Debt Restructurings by Debtors” and concluded that the revised terms constituted a troubled debt restructuring, rather than a debt extinguishment or debt modification.
Fiscal Year EndAs of December 31, 2014, the Company was unable to make the required payments under the long-term debt – vendor deferred payments, so the debt is in default and is classified as current maturities.
Note 7- Long Term-Debt
Long term debt consisted2020 none of the following at December 31, 2014 and 2013:
| | | December 31, 2014 | | | December 31, 2013 | |
Equipment secured note payable - the note bear interest at rates between 7.5% per annum, is payable in monthly installments of $2,522 and mature January 2015. | | $ | 3,016 | | | $ | 73,733 | |
| Vehicle secured notes payable - the notes bear interest at rates between 9.49% and 0.0% per annum, are payable in monthly installments between $698 and $1,832 and mature between January 2015 and August 2016. | | | 385,328 | | | | 843,910 | |
| On April 13, 2013, the Company borrowed $50,150 from a bank with an annual interest rate of 5.80% and a term of 36 months with payments of $1,170 | | | 31,731 | | | | 43,559 | |
| Unsecured notes payable. The notes bear interest at 5 percent per annum and are due between April 2009 and July 2013 | | | 359,968 | | | | 359,968 | |
| Total | | | 780,043 | | | | 1,321,170 | |
| Less current maturities | | | (669,005 | ) | | | (858,002 | ) |
| Total long-term debt | | $ | 111,038 | | | $ | 463,168 | |
Minimum principal payments due under long-term debt for the 5 years following December 31, 2014 are as follows:
| 2015 | | $ | 669,005 | |
| 2016 | | | 105,120 | |
| 2017 | | | 5,918 | |
During the year ended December 31, 2013, the Company purchased property and equipment through the issuance of debt with an aggregate principal amount of $268,805. The notes bear interest ranging from 4.24% to 4.69% per annum, are secured by the underlying property and equipment, mature between February 2016 and June 2016 and require monthly payments ranging from $934 to $1,673.
On April 13, 2013, the Company borrowed $50,150 from a bank with an annual interest rate of 5.80% and a term of 36 months with monthly payments of $1,170.
Note 8 – Capital Lease Obligations
ESP Petrochemicals leases certain office equipment, warehouse equipment special purpose equipment and vehicles under capital leases. Long term capitalize lease consisted of the following at December 31, 2014:
| | | Year | | | Borrowing | | | Term in months | | | Monthly payment | | | December 31, 2014 | | | December 31, 2013 | |
| | | | | | | | | | | | | | | | | | | | | $ | - | | | $ | - | |
| Warehouse equipment | | | 2013 | | | | $ | 26,313 | | | | 36 | | | | | $731 | | | | | 10,127 | | | | 21,097 | |
| Vehicles | | 2010 | - | 2014 | | | $ | 368,766 | | | 21 | - | 72 | | | $887 | - | 1,905 | | | | 48,479 | | | | 52,564 | |
| Office equipment | | | 2014 | | | | $ | 10,140 | | | | 24 | | | | | $260 | | | | | 9,953 | | | | 3,380 | |
| Special purpose equipment | | 2011 | - | 2012 | | | $ | 125,000 | | | | 24 | | | | | $6,065 | | | | | 115,000 | | | | 203,481 | |
| Total capital lease | | | | | | | | | | | | | | | | | | | | | | 183,559 | | | | 280,522 | |
| less current portion | | | | | | | | | | | | | | | | | | | | | | (99,240 | ) | | | (230,462 | ) |
| Total long-term capital lease | | | | | | | | | | | | | | | | | $ | 84,319 | | | $ | 50,060 | |
On June 1, 2012 the Company completed a sale leaseback transaction of certain equipment for $304,879 in accordance Accounting Standard Codification (ASC) 840 – 40 “Sales-Leaseback Transactions”, the gain was deferred. The lease was accounted for as a capitalized lease, a financing method, with monthly payments of $22,200 through November, 2014. The proceeds from the sale where used to repay the debt on the equipment. The Company will continue to reflect the book value of the equipment and related accumulated depreciation remain on the balance sheet and no sale was recognized. The sales price of the equipment is recorded as a capitalized lease obligation with a portion of each lease payment includes interest expense.
On March 19, 2014 the Company acquired a vehicle using under a lease with a related party with a 3 year term and a monthly payment of $869. The Company evaluated the application of ASC 440-30, “Leases - Capital lease” and concluded that the lease constituted capital leases.
On December 31, 2014 the Company extended the lease on specialized equipment for 2 years with a monthly lease payment of $6,065, bargain purchase and the Company granted to the leaseholder 200,000 shares with a fair value of $2,000 which was accounted for as stock compensation. The Company evaluated the application of ASC 440-30, “Leases - Capital lease” and concluded that the lease constituted capital leases.
The future payments under the capital lease are as follows:
| 2015 | | $ | 99,240 | |
| 2016 | | $ | 78,215 | |
| | $ | 5,835 | |
| 2018 | | $ | 269 | |
Note 9 – Convertible debentures
The following reflect the Convertible debentures for the year ended December 31.
| | | 2014 | | | 2013 | |
On January 27, 2012, the Company received proceeds of $130,000 from the sale of 16% Convertible Subordinated Debentures. The Company is in default and interest is past due and continues to accrue at 16%. | | | 130,000 | | | | 130,000 | |
| On December 20, 2013, the Company amended the debenture initially issued November 14, 2012 in which received proceeds of $750,000 from the sale of 16% Convertible Subordinated Debentures. The Company is in default and interest is past due and accrues at 18%. | | | 762,000 | | | | 762,000 | |
| On November 14, 2012, the Company received proceeds of $250,000 from the sale of 16% Convertible Subordinated Debentures. Interest was due March 1, 2013, June 1, 2013 and September 1, 2013. The Company is in default and interest is past due and accrues at 18%. | | | 250,000 | | | | 250,000 | |
| | | | | | | | | |
| Total | | | 1,142,000 | | | | 1,142,000 | |
| Less unamortized debt discounts | | | | | | | (266,240 | ) |
| Less current maturities | | | | ) | | | (875,760 | ) |
| Total Long-term convertible debentures | | $ | - | | | $ | - | |
On January 27, 2012, the Company received proceeds of $130,000 from the sale of 16% Convertible Subordinated Debentures (the “January 2012 Debentures”). The January 2012 Debentures are subordinate to all other secured debt of the Company, pay 16% interest per annum in cash quarterly and are convertible into the Company’s common stock by the investors atour Named Executive Officers held any time at a minimum conversion price per share of $0.15. On March 1, 2013, June 1, 2013 and September 1, 2013, the Company was required to redeem one quarter, one quarter and one half, respectively, of the face value of the balance of the January 2012 Debentures in cash. In addition, the investors received 100% of the number of shares of commonunexercised options, stock that the purchase amount would buy in warrants at the conversion price of $0.15,have not vested, or a total of 866,667 warrants, with a 3-year term. other equity incentive plan awards.Director Compensation
To date, we have not paid our director any compensation for services on our Board.
Equity Compensation Plan Information
The Company does not have any registration obligation in regard to the common stock. securities authorized for issuance or outstanding under an equity compensation plan or equity compensation grants made outside of such a plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The Company analyzed the conversion option under ASC 815 and determined equity classification was appropriate. The Company then analyzed the conversion option under ASC 470-20 for consideration of afollowing table sets forth certain information regarding beneficial conversion feature and determined the option had intrinsic value on the date of issuance. The Company recorded a discount from the relative fair valueownership of the warrantsCompany’s Common Stock as of May 31, 2021, by (i) each person who is known by the Company to own beneficially more than 5% of any classes of outstanding Common Stock, (ii) each director of the Company, (iii) each of the Chief Executive Officers and the intrinsic valueexecutive officers (collectively, the “Named Executive Officers”) and (iv) all directors and executive officers of the conversion option of $71,291. Company as a group based upon 11,020,000 shares outstanding.
| Name and Address of Beneficial Owners of Common Stock | | Title of Class | | Amount and
Nature of
Beneficial
Ownership | | | % of
Common
Stock | |
| | | | | | | | | |
David Lazar 1185 Avenue of the Americas, 3rd Floor New York, New York 10036 | | Preferred Stock | | | 10,000,000 | | | | 90 | %(a) |
| | | Common Stock | | | 1,331,360 | | | | Less than 1% | |
DIRECTORS AND OFFICERS – TOTAL
(One Officer and Director) | | | | | 11,331,360 | | | | 90 | % |
| | | | | | | | | | | |
| (a) Mr. Lazar is the managing director of Custodian Ventures who holds 10,000,000 shares of Series A Preferred Stock. Each share of preferred share held is convertible into 214.05 shares of common stock. The ownership percentage is calculated as if the preferred stock was converted to common stock. | | | | | | | | | | |
| | | | | | | | | | | |
David Dugas
207 Waterford Drive
Lafayette, La 70503 | | Common stock | | | 43,000,000 | | | | 18 | % |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Not applicable.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company valuedfollowing table shows the warrants usingfees paid or accrued for the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.114; warrant term of 3 years; expected volatility of 156%; and discount rate of 0.32% and accounted for them as debt discount, which will be amortized over the term of the loan which expires September 1, 2013.
On November 14, 2012, the Company received proceeds of $1,000,000 from the sale of 16% Convertible Subordinated Debentures (the “November 2012 Debentures”). The November 2012 Debentures were due on March 1, 2014. The aggregate principal amount of the combined November 2012 Debentures is $1,000,000 with an interest rate of 16% per annum. The interest is payable quarterly on March 1st, June 1st, September 1st, and December 1st, beginning on March 1, 2013. The November 2012 Debentures are convertible at any time after the original issue date at a conversion price of $0.085 per share, subject to adjustments. The Company recorded a discount from the relative fair value of the conversion feature and the intrinsic value of the conversion option of $421,715. The Company estimated the fair value of these derivatives using a multinomial Distribution (Lattice) valuation model with the following assumptions: stock price on the measurement date of $0.07; term of 1.5 years; expected volatility between 112% 159%; and discount rate of 0.22% and accounted for them as debt discount, which will be amortized over the term of the loan which expired March 1, 2014. The Company analyzed the conversion option under ASC 815 and determined and recorded $449,840 derivative liability. The Company, in its sole discretion, may choose to pay interest in cash, shares of Common Stock, or in combination thereof. At the Company’s election, it may, at any time after the six-month anniversary of the transaction’s closing date, deliver a notice to the holders to redeem the then-outstanding principal amount of the November 2012 Debentures for cash. In the event the Company defaults, the outstanding principal amount of the November 2012 Debentures, plus accrued but unpaid interest, liquidated damagesaudit and other amounts owing in respect thereof through the date of acceleration, shall become, at the holders’ election, immediately due and payable in cash. In addition, the investors received 100% of the number of shares of common stock that the purchase amount would buy in warrants at the conversion price of $0.09, or a total of 11,764,706 warrants with a 5-year term. The Company recorded a discount from the relative fair value of the warrants and the intrinsic value of the conversion option of $208,685. The Company estimated the fair value of these derivatives using a multinomial Distribution (Lattice) valuation model with the following assumptions: stock price on the measurement date of $0.07; warrant term of 5 years; expected volatility between 112%-593%; and discount rate of 0.63% and accounted for them as debt discount, which will be amortized over the term of the loan which expires March 1, 2014. The Company analyzed the warrants under ASC 815 and determined and recorded a $222,603 derivative liability. The November 2012 Debentures are securedservices provided by the remaining unencumbered assets of the Company. The Company’s subsidiary companies guaranteed the security agreement by agreeing to act as surety for the payment of the November 2012 Debentures. As further consideration, the Company issued a combined total of 4,000,000 shares of common stock to the investors, which the Company recorded as a debt discount $299,600 at issuance and will amortize the debt discount over the term of the debt. For the year ended December 31, 2013, the Company amortized $5,912. The Company shall take all actions necessary to nominate and recommend shareholder approval for the appointment of one director selected by Hillair Capital Management LLC to ESP’s Board of Directors. In conjunction with this debenture, the Company paid $70,000 of professional fees and record these fees as debt discount to be amortized over the term of the debenture. The Company determined that the Debenture and warrant had derivative features and derivative liabilities were established for each.
On September 30, 2013 the Company agreed with its convertible debenture holders to amend and restate the November 2012 Debenture. The September 1, 2013 payment obligation was extended and deferred to $375,000 on December 1, 2013 and $625,000 on March 1, 2014 plus accrued interest; the conversion price was amended and restated to $0.05 from $0.085; the related warrants exercise price per share of the common stock was amended and restated to $0.075 from $0.09. The Company evaluated the application of ASC 470-50, Modifications and Extinguishments and ASC 470-60, Trouble Debt Restructurings by Debtors and concluded that the revised terms did not constitute a substantial modification or a troubled debt restructuring. The amended and restated exercise price of the warrant and conversion price were valued as derivative instruments and were revalued at the fair market value of the derivative instruments at September 30, 2013.
On December 20, 2013 the Company agreed with one of its convertible debenture holders to amend and restate the November 2012 Debenture amended previously on September 30, 2013. The December 1, 2013 payment obligation was extended and deferred to $281,250 on June 1, 2014 and $468,750 on September 1, 2014 plus accrued interest. The Company issued 5,000,000 Warrants with an exercise price per share of the Common Stock $0.075 and a term of 5 years. The amended and restated exercise price of the Warrant and Conversion price were valued as derivative instruments and were revalued at the fair market value of the derivative instruments at December 20, 2013 as debt discount. The Company estimated the fair value of these derivatives using a multinomial Distribution (Lattice) valuation model with the following assumptions: stock price on the measurement date of $0.07; term of 1.5 years; expected volatility between 123% 143% and accounted for them as debt discount, which will be amortized over the term of the loan which expires September 1, 2014. The Company analyzed the conversion option under ASC 815 and determined and recorded derivative liability of these warrants at $13,365 and included in Debt discount. The Company estimated the conversion option of this debt conversion feature at $158,612 and included in debt discount. The Company evaluated the application of ASC 470-50, Modifications and Extinguishments and ASC 470-60, Trouble Debt Restructurings by Debtors and concluded that the revised terms constituted a substantial modification which resulted in a debt extinguishment. The Company recognized a loss on the extinguishment of $310,767 during 2013. Accrued interest of $12,000 was incorporated into the reissued convertible debenture principal amount.
On December 1, 2013 the Company failed to make the amended principal payment on one if its convertible debentures dated November 14, 2012 amended on September 30, 2013. This convertible debenture is now in default. Under the terms of the convertible debenture all principal payments are now due and reflected as current and the interest rate increases to 18%.
As of December 31, 2014 these convertible debentures are in default and have been classified as current maturities.
Note 10 – Derivative liability
The Company evaluated whether its warrants and convertible debt instruments contain provisions that protect holders from declines in its stock price or otherwise could result in modification of either the exercise price or the shares to be issued under the respective warrant agreements. The November 14, 2012 16% convertible debenture and associated warrants included down-round provisions which reduce the exercise price of the warrants and the conversion price of the convertible instrument if the company either issues equity shares for a price that is lower than the exercise price of those instruments or issues new warrants or convertible instruments that have a lower exercise price. The Company determined that a portion of its outstanding warrants and conversion instrument contained such provisions thereby concluding they were not indexed to the Company’s own stock and therefore a derivative instrument in accordance with ASC 815 “Derivatives and Hedging”.
The range of significant assumptions which the Company used to measure the fair value of the derivative liabilities (a level 3 input) at November 14, 2012 is as follows:
| | | Warrant | | | Debenture | |
| | | | | | | | | | | |
| Stock price | | | $0.07 | | | | | $0.07 | | |
| Term (years) | | | 5 | | | | | 1.5 | | |
| Volatility | | 112% | - | 593% | | | 112% | - | 159% | |
| Risk-free interest rate | | | 0.22% | | | | | 0.63% | | |
| Exercise prices | | $0.09 | to | 0.00255 | | | $0.085 | to | 0.055 | |
| Dividend yield | | | 0.00% | | | | | 0.00% | | |
The Company estimated the fair value of these derivatives using a multinomial Distribution (Lattice) valuation model. The fair value of these warrant and debenture liabilities at November 14, 2012 was $693,043 the Company recorded them as derivative liabilities.
On December 20, 2013 the Company agreed with one of its convertible debenture holders to issued 5,000,000 Warrants with an exercise price per share of the Common Stock $0.075 and a term of 5 years. The Company estimated the fair value of derivative value of these warrants at $13,395. The Company estimated fair value of derivative of the conversion option of this debt at $158,612.
The range of significant assumptions which the Company used to measure the fair value of the derivative liabilities (a level 3 input) at December 20, 2013 is as follows:
| | | Warrants | | | Debentures | |
| | | | | | | | | | | |
| Stock price | | | $0.02 | | | | | $0.02 | | |
| Term (years) | | | 5 | | | | | .75 | | |
| Volatility | | 123% | - | 143% | | | 123% | - | 143% | |
| Risk-free interest rate | | | 1.75% | | | | | 0.13% | | |
| Exercise prices | | $0.075 | to | 0.002 | | | $0.05 | to | 0.02 | |
| Dividend yield | | | 0.00% | | | | | 0.00% | | |
The Company estimated the fair value of these derivatives using a multinomial Distribution (Lattice) valuation model. The fair value of these warrant and debenture liabilities at December 20, 2013 was $172,007 the Company recorded as derivative liability.
The range of significant assumptions which the Company used to measure the fair value of the derivative liabilities (a level 3 input) at December 31, 2014 is as follows:
| | | Warrants | | | Debentures | |
| | | | | | | | | | | |
| Stock price | | | $0.01 | | | | | $0.01 | | |
| Term (years) | | 3.6 | to | 4.7 | | | | .5 | | |
| Volatility | | 143% | - | 202% | | | 143% | - | 202% | |
| Risk-free interest rate | | | 1.65% | | | | | 0.04% | | |
| Exercise prices | | $0.075 | to | 0.002 | | | $0.05 | to | 0.02 | |
| Dividend yield | | | 0.00% | | | | | 0.00% | | |
The Company analyzed the warrants and conversion feature under ASC 815 “Derivatives and Hedging” to determine the derivative liability. The Company estimated the fair value of these derivatives using a multinomial Distribution (Lattice) valuation model. The fair value of these derivative liabilities at December 31, 2013 was $263,875, and at December 31, 2014 was $255,168. As part of the modification of the Hillair Capital Management note in the year ended December 31, 2013, the company recognized an extinguishment of derivative liability in the amount of $65,452. The change in the fair value of derivative liabilities resulted in a mark to market change of $8,707 and $766,923our independent auditors for the years ended December 31, 2014 and December 31, 2013, respectively.
Changes in the derivative liability for the years ended December 31, 2014 and 2013 consist of:
| | | | | | | |
| Beginning of year derivative liability | | $ | 263,875 | | | $ | 924,243 | |
| Conversion option of issuance of warrants December 20, 2013 | | | - | | | | 158,612 | |
| Warrants issued December 20, 2013 | | | - | | | | 13,395 | |
| Exercise of Warrants December 20, 2013 | | | - | | | | (65,452 | ) |
| Change in derivative liability – mark to market | | | (8,707 | ) | | | (766,923 | ) |
| Derivative liability at end of year | | $ | 255,168 | | | $ | 263,875 | |
As a basis for considering such assumptions, there exists a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
ended:● | Level 1 | December 31,
2020 | |
| Audit fees | | $ | - | unadjusted quoted prices in active markets for identical assets
|
Total fees paid or liabilities that the Company has the abilityaccrued to access asour principal accountant | | $ | - | |
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STAATEMENT SCHEDULES
●101.INS XBRL Instance Document (furnished herewith)* |
Level 2 -101.SCH XBRL Taxonomy Extension Schema Document (furnished herewith)* |
inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
|
| 101.DEF XBRL Taxonomy Extension Definition Linkbase Document (furnished herewith)* |
| 101.LAB XBRL Taxonomy Extension Label Linkbase Document (furnished herewith)* |
| 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (furnished herewith)* |
● | Level 3 - | unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. |
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
To determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future events. Other factors used to determine fair value include our period end stock price, historical stock volatility, risk free interest rate and derivative term. The fair value recorded for the derivative liability varies from period to period. This variability may result in the actual derivative liability for a period either above or below the estimates recorded on our consolidated financial statements, resulting in significant fluctuations in other income (expense) because of the corresponding non-cash gain or loss recorded.
Note 11 – Income taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company recorded the valuation allowance due to the uncertainty of future realization of federal and state net operating loss carryforwards. The deferred income tax assets are comprised of the following at December 31:
| | | | 2014 | | | | 2013 | |
| Deferred income tax assets: | | $ | | | | $ | 5,815,000 | |
| Valuation allowance | | | | ) | | | (5,815,000 | ) |
| Net total | | $ | - | | | $ | - | |
Reconciliations between the statutory rate and the effective tax rate for the years ended December 31, 2014 and 2013 consist as follows:
| | | 2014 | | | 2013 | |
| Federal statutory tax rate | | | (35.0 | )% | | | (35.0 | )% |
| State taxes, net of federal benefit | | | (6.0 | )% | | | (6.0 | )% |
| Valuation allowance | | | 41 | % | | | 41 | % |
| Effective tax rate | | | | | | | | |
At December 31, 2014, the Company had net operating loss carryforwards of approximately $14,703,000. The net operating loss carryforwards expire in 2019 through 2034.
The valuation allowance was increased by $215,000 during the year ended December 31, 2014. The current income tax benefit of $6,030,000 and $5,815,000 generated for the years ended December 31, 2014 and 2013, respectively, was offset by an equal increase in the valuation allowance. The valuation allowance was increased due to uncertainties as to the Company’s ability to generate sufficient taxable income to utilize the net operating loss carryforwards and other deferred income tax items.
The Company’s ability to utilize the net operating loss carryforwards in future years will be significantly limited inSIGNATURES
In accordance with the provisions of Section 382requirements of the Internal Revenue Code, because ofExchange Act, the changes in ownership that have occurred in the prior years. The Company’s Net Operating Loss (“NOL”) may be further limited should there be any further changes in ownership. As defined in Section 382 of the Internal Revenue Code, the Company who has undergone, or may undergo in the future, a greater than 50% ownership change as a result of financing initiatives. Consequently, there may be limitations on the amount of the Company’s NOLs which may be utilized to offset future taxable income in any one year.
The Company recognizes interest and penalties related to uncertain tax positions in general and administrative expense. As of December 31, 2014, the Company has no unrecognized uncertain tax positions, including any related interest and penalties. The Company has yet to submit the Federal consolidated tax return for the year ended December 31, 2013 and certain state income and franchise tax returns for that period.
Note 12 – Stockholders’ Equity
Settlement of lawsuit
On April 25, 2014 the Company reached an agreement with the former owner of Turf Chemistry, Inc., Alfredo Ledesma. As part of the settlement agreement 400,000 shares of the Company’s restricted common stock were issued.
Shares issued to officers
On August 15, 2014 the Company granted 28,000,000 shares of restricted stock to David Dugas, Chief Executive Officer and 28,000,000 shares of restricted stock to Tony Primeaux Vice President for their provision of personal guarantees on the Transfac financing agreement.
Common stock issued for services
On August 15, 2014, the Company issued 6,000,000 shares of its common stock to a vendor for services rendered the shares were valued at $60,000 and recorded as stock based compensation.
On September 2, 2014, the Company issued 9,500,000 shares of its common stock to a vendor for services rendered, the shares were valued at $95,000 and recorded as stock based compensation.
On December 31, 2014, the Company issued 200,000 shares of its common stock to a lease holder for services rendered, the shares were valued at $2,000 and recorded as stock based compensation.
On August 12, 2013, the Company issued 5,000,000 shares of its common stock to a vendor for settlement of related to services rendered. The shares were valued at $50,000 and recorded as stock based compensation.
On April 8, 2013, the Company executed a demand note for $150,000 with an annual interest rate of 8%. As part of the agreement the Company granted the holder 150,000 shares of common stock and warrants to purchase 150,000 shares of common stock at an exercise price of $0.15 through April 8, 2014. The Company determined the fair value of the common stock and warrantsregistrant caused this report to be $10,500 and $2,458, respectively. The aggregate fair value of $12,958 was recognized as a debt discount which is being amortized to interest expense over the life of the debt. During the year ended December 31, 2013, the entire discount of $12,958 was amortized to interest expense.
On January 13, 2013, the Company issued 250,000 shares ofsigned on its common stock to a vendor for settlement services rendered. The shares were valued at $20,000 was recorded as stock based compensation.
For the year ended December 31, 2013 the Company amortized an aggregate of $1,107,697 of stock based compensation resulting from stock and warrants.
Shares issued for forbearance agreement
On September 2, 2014, the Company issued 9,500,000 shares of its common stock to a vendor under a forbearance agreement, the shares were valued at $95,000 and recorded as stock based compensation.
Warrants issued
The following table reflects a summary of common stock warrants outstanding and warrant activity during 2014 and 2013:
| | | Number of warrants | | | Weighted Average Exercise Price | | | Weighted Average Term (Years) | |
| | | | | | | | | | |
| Warrants outstanding at December 31, 2012 | | | 57,942,278 | | | $ | 0.17 | | | | 1.20 | |
| Granted during the period | | | 5,150,000 | | | | 0.08 | | | | 4.84 | |
| Exercised during period | | | - | | | | - | | | | - | |
| Forfeited during the period | | | - | | | | - | | | | - | |
| Warrants outstanding at December 31, 2013 | | | 63,092,278 | | | $ | 0.16 | | | | | |
| Granted during the period | | | - | | | | - | | | | - | |
| Exercised during period | | | - | | | | - | | | | - | |
| Forfeited during the period | | | (2,205,238 | ) | | | (0.09 | ) | | | - | |
| Warrants outstanding at December 31, 2014 | | | 60,887,040 | | | $ | 0.16 | | | | | |
The Common Stock warrants expire in years ended December 31 as follows:
| Year | | Amount | |
| | | | |
| 2015 | | | 43,122,334 | |
| 2016 | | | 1,000,000 | |
| 2017 | | | 11,764,706 | |
| 2018 | | | 5,000,000 | |
| Total | | | 60,887,040 | |
On December 20, 2013 the Company agreed to issue one of the November 14, 2012 convertible debenture holders 5,000,000 warrants with an exercise price per share of the Common Stock $0.075, with a term of 5 years.
On April 8, 2013, the Company executed a demand note for $150,000 with an annual interest rate of 8%. As part of the agreement the Company granted the holder 150,000 shares of common stock and warrants to purchase 150,000 shares of common stock at an exercise price of $0.15 through April 8, 2014.
Stock Option Awards
During the year ended December 31, 2014 and December 31, 2013 the Company did not grant any stock options.
On July 29, 2011 shareholders approved the 2011 STOCK OPTION AND INCENTIVE PLAN which authorized up to 5,000,000 options shares. Under the plan the exercise price per share for the Stock covered by a Stock Option granted pursuant shall not be less than 100% of the Fair Market Value on the date of grant. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the option price of such Incentive Stock Option shall be not less than 110% of the Fair Market Value on the grant date. The term of each Stock Option shall be fixed but no Stock Option shall be exercisable more than ten years after the date the Stock Option is granted. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the date of grant.
Stock option activity summary covering options is presented in the table below:
| | | Number of Shares | | | Weighted- average Exercise Price | | | Weighted- average Remaining Contractual Term (years) | |
| | | | | | | | | | | | | |
| Outstanding at December 31, 2012 | | | 52,975,000 | | | | 0.12 | | | | 8.9 | |
| Granted | | | - | | | | - | | | | - | |
| Exercised | | | - | | | | - | | | | - | |
| Expired/Forfeited | | | (45,000 | ) | | | 0.14 | | | | 7.6 | |
| Outstanding at December 31, 2013 | | | 52,930,000 | | | $ | 0.12 | | | | 7.9 | |
| Granted | | | - | | | | - | | | | - | |
| Exercised | | | - | | | | - | | | | - | |
| Expired/Forfeited | | | (35,000 | ) | | | 0.14 | | | | 6.6 | |
| Outstanding at December 31, 2014 | | | 52,895,000 | | | $ | 0.12 | | | | 6.9 | |
| Exercisable at December 31, 2014 | | | 50,095,000 | | | $ | 0.12 | | | | 6.9 | |
| Exercisable at December 31, 2013 | | | 34,530,000 | | | $ | 0.13 | | | | 7.6 | |
A summary of the Company’s nonvested options at December 31, 2014, and changes during the year ended December 31, 2014, is presented below:
| | | Options | | | Weighted Average Grant Date Fair Value | |
| Non-vested, beginning of period | | | 18,400,000 | | | $ | 0.13 | |
| Granted | | | - | | | $ | - | |
| Vested | | | (15,600,000 | ) | | $ | 0.15 | |
| Forfeited | | | — | | | $ | — | |
| Non-vested, end of period | | | 2,800,000 | | | $ | 0.12 | |
The following tables summarize information about stock options outstanding and exercisable at December 31, 2014:
| | | Options Outstanding at December 31, 2014 | |
Range of Exercise Prices | | Number Outstanding | | Weighted Remaining Contractual Life (years) | | Weighted Average Exercise Price | | | Aggregate Intrinsic Value(1) | |
| | | | | | | | | | | |
| $0.09 to $0.10 | | | 28,250,000 | | 7.7 | | $ | 0.10 | | | $ | - | |
| $0.11 to $0.12 | | | 2,000,000 | | 6.8 | | $ | 0.12 | | | $ | - | |
| $0.13 to $0.15 | | | 22,645,000 | | 6.0 | | $ | 0.15 | | | $ | - | |
| $0.09 to $0.15 | | | 52,895,000 | | 6.9 | | $ | 0.12 | | | $ | - | |
| | | Options Exercisable at December 31, 2014 | |
Range of Exercise Prices | | Number Exercisable | | Weighted Remaining Contractual Life (years) | | Weighted Average Exercise Price | | | Aggregate Intrinsic Value(1) | |
| | | | | | | | | | | |
| $0.09 to $0.10 | | | 25,450,000 | | 7.7 | | $ | 0.09 | | | $ | - | |
| $0.11 to $0.12 | | | 2,000,000 | | 6.8 | | $ | 0.12 | | | $ | - | |
| $0.13 to $0.15 | | | 22,645,000 | | 6.0 | | $ | 0.15 | | | $ | - | |
| $0.09 to $0.15 | | | 28,881,842 | | 5.9 | | $ | 1.00 | | | $ | - | |
(1) | The aggregate intrinsic value in the table represents the difference between the closing stock price on December 31, 2014 and the exercise price, multiplied by the number of in-the-money options that would have been received by the option holders had all option holders exercised their options on December 31, 2014. No options were exercised during 2014. |
During the year ended December 31, 2014, the Company recognized stock-based compensation expense of $705,680 related to stock options. As of December 31, 2014, there was approximately $684,323 of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over the remaining vesting period. The aggregate intrinsic value of these options was $0 at December 31, 2014.
During the year ended December 31, 2013, the Company recognized stock-based compensation expense of $783,815 related to stock options. As of December 31, 2013, there was approximately $1,390,003 of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over the remaining vesting period. The aggregate intrinsic value of these options was $0 at December 31, 2013.
Note 13 – Sale Leaseback of Equipment
On June 1, 2012 the Company completed a sale leaseback transaction of certain equipment for $304,879 in accordance Accounting Standard Codification (ASC) 840 – 40 “Sales-Leaseback Transactions”, the gain was deferred. The lease was accounted for as a capitalized lease, a financing method, with monthly payments of $22,200 through November, 2014. The proceeds from the sale where used to repay the debt on the equipment, see note 4 June 19, 2012 above. The Company will continue to reflect the book value of the equipment and related accumulated depreciation remain on the balance sheet and no sale was recognized. The sales price of the equipment is recorded as a capitalized lease obligation with a portion of each lease payment includes interest expense.
Note 14 – Discontinued Operations
On June 11, 2013, the board of directors decided to cease operations of various subsidiaries, including ESP Facility and Pipeline Services, Inc., ESP Advanced Technologies, Inc., ESP KUJV Limited Joint Venture and ESP Marketing Group LLC. The Board determined that certain activities should be closed and that unused assets, principally vehicles and equipment, be sold. The Company determined this action was a discontinued operation and those activities prior to this action were:
| | | Years Ended December 31, | |
| | | 2014 | | | 2013 | |
| DISCONTINUED OPERATIONS | | | | | | |
| Sales, net | | $ | - | | | $ | 258,330 | |
| Cost of goods sold | | | (- | ) | | | (125,540 | ) |
| General and administrative | | | (- | ) | | | (463,035 | ) |
| Potential loss on assets held | | | (- | ) | | | (13,758 | |
| Depreciation | | | (- | ) | | | (21,418 | ) |
| Provision for income taxes | | | - | | | | - | |
| LOSS FROM DISCONTINUED OPERATIONS | | $ | (- | ) | | $ | (365,421 | ) |
The Board determined that certain activities should be closed and that unused assets, principally vehicles and equipment, be sold. The Company estimated the fair value of those assets to be sold and if the fair value was less than the net book value, an impairment loss was recognized. During the year ended December 31, 2013, the Company recognized an impairment loss on assets held for sale of $133,556. The book value of the remaining assets held for sale at December 31, 2013 was $216,092. During the year ended December 31, 2014 these assets were either sold, traded-in or returned to service. Additionally, at December 31, 2014 and December 31, 2013 the company has remaining liabilities associated with the discontinued operations of $78,095 and $90,792, respectively.
Note 15 – Commitments and Contingencies
Leases
The Company leases certain offices, facilities, equipment, and vehicles under non-cancelable operating leases at various dates through 2023. At December 31, 2014, future minimum contractual obligations were as follows:
| | | Facilities | | | Facilities subleased | | | Facilities net of sublease | | | Vehicles & Equipment | |
| | | | | | | | | | | | | |
| Year ending December 31, 2015 | | $ | 259,042 | | | $ | (153,772 | ) | | $ | 105,270 | | | $ | 139,576 | |
| Year ending December 31, 2016 | | | 258,170 | | | | (153,772 | ) | | | 104,398 | | | | 103,000 | |
| Year ending December 31, 2017 | | | 225,165 | | | | (115,329 | ) | | | 109,836 | | | | 59,381 | |
| Year ending December 31, 2018 | | | 106,500 | | | | (- | ) | | | 106,500 | | | | 24,804 | |
| Year ending December 31, 2019 | | | 105,000 | | | | - | | | | 105,000 | | | | 20,670 | |
| Thereafter | | | 358,750 | | | | - | | | | 358,750 | | | | - | |
| Total Minimum Lease Payments: | | $ | 1,312,627 | | | $ | (422,873 | ) | | $ | 889,754 | | | $ | 347,431 | |
On January 26, 2015 the Company entered into a three-year lease requiring monthly payment of $1,500 for our 4,000 square foot facility in Center, Texas.
On June 7, 2013 the Company subleased the Company’s Houston, Texas office, improvements and certain equipment to a non-related third party. The sublease became effective July 1, 2013 with the term of the sublease coinciding with the original leasebehalf by the Company. The Company determined the remaining lease cost plus amortization and depreciation on the remaining leasehold improvements and equipment exceeded the sublease income by $274,555 and reflected a loss on disposal.
On June 1, 2013 the Company entered into a ten-year lease requiring monthly payment of $8,750 for our primary production facility in Rayne, Louisiana. The Company has the option to purchase the property for five years commencing one year after lease execution. The purchase option price will be for $100,000 above the lessor’s full cost of ownership for the first two years of the option, and increase by $50,000 per year for the third through fifth year of the option term.
On August 15, 2012 the Company entered into a five-year lease requiring monthly payment ranging from $11,083 to $11,775 for our primary office in The Woodlands, Texas.
On June 27, 2013 the Company relocated the Scott, Louisiana office and production facility to a different leased facility in Rayne, Louisiana. The unamortized leasehold improvement cost of $18,152 of the Scott, Louisiana facility was charged to amortization of leasehold improvements in the quarter.
undersigned, thereunto duly authorized. | ESP RESOURCES, INC. |
| | |
| Dated: July 29, 2021 | By: | /s/ David Lazar |
| | David Lazar Chief Executive Officer (Principal Executive Officer) |
In October 2010, the Company entered into a three-year commercial lease of a building requiring monthly payments of $3,750.
In March 2010, the Company entered into two, three-year commercial leases of a building requiring monthly payments of $4,000 and $2,400, respectively.
Contingent payable – Turf Chemistry
Alfredo Ledesma and Turf Chemistry, Inc. v. ESP Resources, Inc., ESP Petrochemicals, Inc. and Gerard Allen Primeaux
On June 16, 2011, Alfredo Ledesma and Turf Chemistry, Inc. filed their original Petition against ESP Resources, Inc., ESP Petrochemicals, Inc. and Gerard Allen Primeaux in the District Court, 93rd Judicial District, Hidalgo County, Texas. On August 19, 2011, ESP Resources, Inc. filed its Original Answer to the Original Petition. On January 23, 2012, Alfredo Ledesma and Turf Chemistry, Inc. filed their First Amended Original Petition. On April 11, 2012, Gerard Primeaux filed his Original Answer. On May 10, 2012, Alfredo Ledesma and Turf Chemistry, Inc. filed their Second Amended Original Petition. On January 17, 2014, Alfredo Ledesma and Turf Chemistry, Inc. filed their Third Amended Original Petition. The Petition alleged that ESP had breached, by failing to satisfy the terms of the agreement and pay the agreed upon amounts, the letter of intent to enter into an Asset Purchase Agreement between ESP and Ledesma and Turf, whereby ESP agreed to acquire the assets and liabilities of Turf and relieve Ledesma of certain debt obligations. On February 14, 2014, ESP Resources, Inc., ESP Petrochemicals, Inc. and Gerard Allen Primeaux filed their First Answer, Special Exceptions, Affirmative Defenses and Counterclaims. On or about April 25, 2014, all parties, without admitting liability, entered into and executed a Settlement Agreement and Release of Claims.
Legal proceedings
Daniel A. Spencer v. ESP Advanced Technologies, Inc.
The District Court of Caddo Parish, Louisiana entered a default judgment in favor of Daniel Spencer and against ESP Advanced Technologies, Inc. on October 17, 2013 for $3,500,000, together with future interest from October 14, 2013, until paid, at a rate of 20% per annum for default after service. All of the operations of ESP Advanced Technologies, Inc. were discontinued on June 11, 2013. The Company believes this judgment is without merit and will vigorously pursue post-judgment remedies to set aside the judgment and have it annulled under Louisiana law. Management does not consider the potential for loss to be probable. Accordingly, the judgment amount was not accrued.
ESP Petrochemicals, Inc. v. Shane Cottrell, Platinum Chemicals, LLC, Ladd Naquin, Joe Lauer, Patrick Williams, Ralph McClelland and Ronald Walling
On March 2, 2012, the Company filed a trade secret infringement lawsuit to protect its rights against a former employee, a competitor and officers of the competitor. On November 21, 2012, an Agreed Final Judgment was entered in the lawsuit against the Defendants. Under the terms of the Agreed Final Judgment, the Defendants cannot offer or sell any chemical product or related services to a number of entities or in conjunction with any operations within designated Texas Railroad Commission districts for specified periods of time as long as ESP Petrochemicals is in conformance with the terms of the Agreed Final Judgment. The name of the entities, the lists of designated districts and the specific time periods are delineated in the Agreed Final Judgment. Additionally, the Defendants are not to solicit or recruit any ESP Petrochemical employees, they must turn over any “ESP Information” (as that term is described in the Agreed Final Judgment) and they cannot directly or indirectly, offer, market, advertise, promote or otherwise describe in any way a product to a customer, prospective customer or third party, as being derived from ESP Petrochemical formula or an equivalent.
Madoff Energy Holdings, LLC v. ESP Resources, Inc.
On September 4, 2013, Madoff Energy Holdings, LLC filed its Original Petition against ESP Resources, Inc. in the District Court, 295th Judicial District, Harris County, Texas. On October 1, 2013, ESP filed its Answer. On November 25, 2013, Madoff filed its First Amended Petition alleging that ESP failed to repay a Promissory Note, executed on April 30, 2009, in sum of $87,190.00, plus interest on any unpaid balance owed at the rates of 5% per annum from October 30, 2008 to April 30, 2009, and 18% per annum after April 30, 2009. On or about March 19, 2014, Madoff filed a Motion for Summary Judgment. On or about March 24, 2014, ESP filed its Response. On April 7, 2014, the Court issued an Order Granting Madoff’s Motion for Summary Judgment and granting damages in the principal sum of $122,939.68; attorneys fees in the amount of $12,860.70, plus $10,000.00 should the judgment be appealed to the Texas Court of Appeals, plus $7,500.00 should the judgment be appealed to the Texas Supreme Court; costs of court; and post-judgment interest at 5% per annum on the total amount of the judgment from the date immediately following entry of the judgment until paid. On April 15, 2014, ESP filed its Notice of Appeal of the Final Judgment with the First Court of Appeals, Houston, Texas. On June 30, 2014, ESP filed its Brief for the Appellant. On July 30, 2014, Madoff filed its Brief for the Appellee. On August 18, 2014, ESP filed its Reply Brief for the Appellant. In August 2014, Madoff and ESP, in order to avoid the further expense of litigation, jointly prepared a Forbearance and Payment Agreement, effective August 11, 2014, whereby ESP agreed to pay Madoff $130,000.00 pursuant to a payment schedule of $30,000.00 per month for eleven months. On September 3, 2014, Andrew Madoff, CEO of Madoff Energy Holdings, Inc., died. On September 18, 2014, Madoff and ESP filed with the First Court of Appeals a Joint Appellant and Appellee Motion to Abate the Appeal to preserve the rights of both parties until such time as the Forbearance and Payment Agreement could be executed. On September 23, 2014, the Court issued a Writ granting the Motion to Abate the Appeal. On or about March 9, 2015, the Executor of Mr. Madoff’s Estate executed the Forbearance and Payment Agreement on behalf of the Estate. To date, ESP Resources, Inc. is making payments pursuant to the agreed upon Payment Schedule in accordance with the terms of the Forbearance and Payment Agreement.
BWC Management, Inc. v. ESP Resources, Inc. (f/k/a Pantera Petroleum, Inc.)
On April 25, 2013, BWC Management, Inc. filed its Original Petition against ESP Resources, Inc. in the District Court, 113th Judicial District, Harris County, Texas. On May 31, 2013, ESP Resources, Inc. filed its Original Answer. On August 5, 2014, BWC filed its Motion for Partial Summary Judgment against ESP. On August 21, 2014, BWC filed its First Amended Petition against ESP alleging that ESP had defaulted on three promissory notes documenting a series of loans with BWC as lender: a promissory note in sum of $73,006.00, due on September 30, 2012; and two promissory notes in sum of $100,000.00, each, due on September 30, 2012 when ESP allegedly failed to pay the $73,006.00 note. On August 25, 2014, ESP filed its Response to BWC’s Motion for Partial Summary Judgment. On August 25, 2014, BWC filed its Reply to ESP’s Response to BWC’s Motion for Partial Summary Judgment. On August 27, 2014, ESP filed its Sur Reply to BWC’s Reply to ESP’s Response to BWC’s Motion for Partial Summary Judgment. On August 28, 2014, ESP filed a No-Evidence Motion for Summary Judgment against BWC. On September 4, 2014, BWC filed its Response to ESP’s No-Evidence Motion for Summary Judgment. On September 12, 2014, ESP filed its Reply to BWC’s Response to ESP’s No-Evidence Motion for Summary Judgment. On September 15, 2014, the Court issued an Order denying BWC’s Motion for Summary Judgment. On October 27, 2014, the Court issued an Order denying final Summary Judgment. Trial of this action was held on March 30 and March 31, 2015 resulting in a verdict for BWC Management, Inc.
Note 16 – Related Party Transactions
As of December 31, 2014 and December 31, 2013, the Company had balances due to related parties as follows:
| | | December 31, 2014 | | | December 31, 2013 | |
| Due to officer | | $ | 356,583 | | | $ | 419,382 | |
| Due to ESP Enterprises | | | 55,790 | | | | 55,790 | |
| Total due to related parties | | $ | 412,373 | | | $ | 475,172 | |
The above balances are unsecured, due on demand and bear no interest.
On August 15, 2014 the Company granted 28,000,000 shares of restricted stock to David Dugas, Chief Executive Officer and 28,000,000 shares of restricted stock to Tony Primeaux Vice President for their provision of personal guarantees on the Transfac financing agreement.
On March 19, 2014 the Company acquired a vehicle using under a lease with a related party with a 3 year term and a monthly payment of $869. The Company evaluated the application of ASC 440-30, “Leases - Capital lease” and concluded that the lease constituted capital leases.
On June 1, 2013, the Officers agreed to defer a portion of their salaries until such time as cash flow allowed. As of September 30, 2014, $106,667 has been deferred and reflected as a liability due to related parties.
On July 10, 2012 the Company granted a total of 14,000,000 options to members of the Board of Directors, the options have a term of 10 years, an exercise price of $0.10 per share and vest at 20% per year and 250,000 options to a member of the Board of Directors, the option has an exercise price of $0.10 per share and vest immediately and used the Black-Scholes method to determine fair value. For the period from grant to December 31, 2013 $159,727 was recorded as stock based compensation.
On July 10, 2012 the Company granted 6,500,000 shares of restricted stock to the Company’s Chief Executive Officer, the shares were valued at $650,000 on the date of the grant. The restricted stock vests at a rate of 20% per year on the anniversary date of the grant and $32,500 was recorded as stock based compensation for the period from the grant date to September 30, 2012.
On November 23, 2012 the Company granted a total of 13,000,000 options to members of the Board of Directors, the options have a term of 10 years, an exercise price of $0.09 per share and vest at 20% every six months and 1,000,000 options to a member of the Board of Directors, the option has an exercise price of $0.09 per share and vest immediately and used the Black-Scholes method to determine fair value. For the period from grant to December 31, 2013 $320,078 was recorded as stock based compensation.
On November 23, 2012 the Company granted 5,000,000 shares of restricted stock to the Company’s Chief Executive Officer. The shares were valued at $400,000 and were recorded as stock based compensation for the period.
Note 17 – Guarantee Liability
On November 3, 2008, ESP provided a guarantee to a director of Aurora and Boreal who loaned $120,000 to Aurora and Boreal. ESP provided this guarantee to encourage the director’s continued employment and commitment to the development of the concessions held by Aurora and Boreal, which the Company believed was vital to the future success of Aurora and Boreal. In the event that Aurora and Boreal did not repay the loan by the due date of June 1, 2009, ESP guaranteed to make the payment in the form of a convertible note due June 1, 2011. The convertible note is non-interest bearing and is convertible into common stock of ESP at $1.20 per share. In exchange for issuing the convertible note to the director, ESP will receive the right to receive payments under the director’s note receivable from Aurora and Boreal.
ESP recorded the fair value of the guarantee liability at $48,000, which represented the fair value of the note receivable from Aurora and Boreal which ESP would take over from the director. On June 1, 2009 when Aurora and Boreal did not make the required payments on their notes payable to the director, ESP determined that the value of the guarantee liability should be increased to the full face amount of the guaranteed note of $120,000, resulting in a loss on guarantee liability of $72,000 during the year ended December 31, 2010. There have been no changes in the matter during 2013 and 2014, hence the balance remains same.
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