UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015March 31, 2021
o Or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number 000-5250698-0440762
ESP RESOURCES, INC.
(Exact name of registrant as specified in its charter)
| ESP RESOURCES, INC. |
| (Exact name of registrant as specified in its charter) |
| Nevada | 98-0440762 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 6770 |
| (Primary Standard Industrial Classification Code Number) |
| 1185 Avenue of the Americas 3rd Floor New York, | ||
| New York | 10036 | |
| (Address of principal executive offices) | ( |
Registrant’s telephone number, including area code 1003 South Hugh Wallis Road Suite G-1 Lafayette, Louisiana 70508(646) 768 -8417
(Address of principal executive offices) (Zip Code)
(832) 342-9131
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed since last report)Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐ Yes þ☒ Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☐ Yes þ ☒ Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- acceleratednon-accelerated filer, or a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | Accelerated filer | ||
| Non-accelerated | Smaller reporting company | ||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Act.) Yes o ☒ No þ☐
AsThe number of November 16, 2015, there were 237,830,249 shares outstanding of the Registrant’sregistrant’s common stock outstanding.as of July 20, 2021 was 237,080,429 shares.
DOCUMENTS INCORPORATED BY REFERENCE — NONE
ESP RESOURCES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015
TABLE OF CONTENTSFor the three months ended March 31, 2021
2
PART I – FINANCIAL INFORMATION
ITEM 1. – FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, 2015 | December 31, 2014 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 105,882 | $ | 121,880 | ||||
| Restricted cash | 121,792 | 283,392 | ||||||
| Accounts receivable, net | 1,378,237 | 2,110,534 | ||||||
| Inventories | 952,664 | 987,734 | ||||||
| Prepaid expenses | 98,528 | 358,856 | ||||||
| Total current assets | 2,657,103 | 3,862,396 | ||||||
| Assets held for sale | - | 160,378 | ||||||
| Property and equipment, net of accumulated depreciation of $2,691,759 and $2,253,686, September 30, 2015 and December 31, 2014 | 1,376,737 | 1,709,845 | ||||||
| Other assets | 49,515 | 49,877 | ||||||
| Total assets | $ | 4,083,355 | $ | 5,782,496 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 2,651,163 | $ | 2,785,041 | ||||
| Net Liabilities from discontinued operations | 58,535 | 78,095 | ||||||
| Factoring payable | 836,226 | 1,339,653 | ||||||
| Accrued expenses | 2,171,466 | 1,540,409 | ||||||
| Due to related parties | 418,316 | 412,373 | ||||||
| Contingent consideration payable | - | 38,937 | ||||||
| Guarantee liability | 120,000 | 120,000 | ||||||
| Short-term debt | 297,942 | 361,477 | ||||||
| Current maturities of convertible debentures, net of debt discount | 907,000 | 1,142,000 | ||||||
| Current maturities of debt - vendor deferred payment | 1,285,528 | 1,285,528 | ||||||
| Current maturities of Long-term Debt | 447,809 | 669,005 | ||||||
| Current portion of capital lease obligation | 80,065 | 99,240 | ||||||
| Derivative liability | 202,107 | 255,168 | ||||||
| Total current liabilities | 9,476,157 | 10,126,926 | ||||||
| Long-term debt (less current maturities) | 42,175 | 111,038 | ||||||
| Capital lease obligations (less current maturities) | 36,382 | 84,319 | ||||||
| Total liabilities | 9,554,714 | 10,322,283 | ||||||
| Commitments and Contingencies (Note 13) | ||||||||
| 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 September 30, 2015 and December 31, 2014, respectively | 242,831 | 237,831 | ||||||
| Additional paid-in capital | 22,390,237 | 22,081,766 | ||||||
| Subscription receivable | (1,000 | ) | (1,000 | ) | ||||
| Accumulated deficit | (28,103,427 | ) | (26,858,384 | ) | ||||
| Total stockholders' deficit | (5,471,359 | ) | (4,539,787 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 4,083,355 | $ | 5,782,496 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Condensed Consolidated Statements of Operations
(Unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| SALES, NET | $ | 1,806,003 | $ | 3,033,101 | $ | 5,600,198 | $ | 8,814,225 | ||||||||
| COST OF GOODS SOLD | 584,353 | 802,938 | 1,770,617 | 3,393,632 | ||||||||||||
| GROSS PROFIT | 1,221,650 | 2,230,163 | 3,829,581 | 5,420,593 | ||||||||||||
| General and administrative | 1,543,403 | 2,518,419 | 4,538,720 | 6,261,864 | ||||||||||||
| Depreciation and amortization | 243,710 | 135,314 | 484,338 | 450,942 | ||||||||||||
| (Gain) Loss on disposal of assets | (141,655 | ) | - | (130,830 | ) | 18,915 | ||||||||||
| LOSS FROM OPERATIONS | (423,808 | ) | (423,570 | ) | (1,062,647 | ) | (1,311,128 | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest expense | (77,521 | ) | (181,102 | ) | (295,558 | ) | (389,163 | ) | ||||||||
| Factoring fees | (45,465 | ) | (83,162 | ) | (150,853 | ) | (221,143 | ) | ||||||||
| Amortization of debt discount | - | (57,848 | ) | - | (266,241 | ) | ||||||||||
| Other (expense) income, net | 7,006 | 75 | 18,438 | 28,048 | ||||||||||||
| Change in derivative liability | 1,751 | 11,582 | 53,061 | 3,199 | ||||||||||||
| (Loss) Gain on Extinguishment of debt | (52,226 | ) | - | 192,516 | - | |||||||||||
| Total other expense | (166,455 | ) | (310,455 | ) | (182,396 | ) | (845,300 | ) | ||||||||
| NET LOSS | $ | (590,263 | ) | $ | (734,025 | ) | $ | (1,245,043 | ) | $ | (2,156,428 | ) | ||||
| NET LOSS PER SHARE (basic) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
| WEIGHTED AVERAGE SHARES OUTSTANDING | 237,830,249 | 193,412,858 | 237,830,249 | 168,882,264 | ||||||||||||
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in this quarterly report on Form 10-Q contains “forward-looking statements.” These forward-looking statements are contained principally in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events, including, but not limited to: our ability to consummate the Merger, as such term is defined below; the continued services of the Custodian as such term is defined below; our future financial performance; the continuation of historical trends; the sufficiency of our resources in funding our operations; our intention to engage in mergers and acquisitions; and our liquidity and capital needs. Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. These risks, uncertainties and other factors include but are not limited to: the risks of limited management, labor, and financial resources; our ability to establish and maintain adequate internal controls; our ability to develop and maintain a market in our securities; and our ability obtain financing, if and when needed, on terms that are acceptable. Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
As used in this quarterly report on Form 10-Q, “we”, “our”, “us” and the “Company” refer to ESP RESOURCES, INC. a Nevada corporation unless the context requires otherwise.
ii
Index to Financial Statements
Balance Sheets
(unaudited)
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Total assets | $ | - | $ | - | ||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Due to related parties | $ | 9,546 | $ | 9,546 | ||||
| Total current liabilities | 9,546 | 9,546 | ||||||
| Total liabilities | 9,546 | 9,546 | ||||||
| Stockholders’ Deficit | ||||||||
| Common Stock - $0.001 par value, 350,000,000 shares authorized; 237,830,249 shares and outstanding as of March 31, 2021 and December 31, 2020, respectively | 237,831 | 237,831 | ||||||
| Additional paid in capital | 26,620,553 | 26,620,553 | ||||||
| Accumulated deficit | (26,867,930 | ) | (26,867,930 | ) | ||||
| Total stockholders’ deficit | (9,546 | ) | (9,546 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | - | $ | - | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements
ESP Resources, Inc.RESOURCES, INC.
Condensed Consolidated Statements of Cash FlowOperations
(Unaudited)(unaudited)
| September 30, | ||||||||
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (1,245,043 | ) | $ | (2,156,428 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Amortization of debt discount | - | 266,241 | ||||||
| (Gain) Loss on disposal of assets | (130,830 | ) | 18,915 | |||||
| Depreciation and amortization, net disposals | 484,338 | 450,942 | ||||||
| Bad debt expense | 45,000 | 45,000 | ||||||
| Stock and warrant based compensation | 313,472 | 1,614,836 | ||||||
| Stock issued in settlement of lawsuit | - | 8,000 | ||||||
| Change in derivative liability | (53,061 | ) | (3,199 | ) | ||||
| Gain on Extinguishment of debt | (192,516 | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 687,297 | (27,999 | ) | |||||
| Inventory | 35,070 | 435,877 | ||||||
| Prepaid expenses | 260,328 | 302,416 | ||||||
| Other assets | 362 | (643 | ) | |||||
| Accounts payable | 74,357 | 218,555 | ||||||
| Accrued expenses | 670,410 | 155,304 | ||||||
| Due to related parties | 5,943 | (23,656 | ) | |||||
| Net Liabilities from discontinued operations | (3,843 | ) | (12,697 | ) | ||||
| CASH PROVIDED BY OPERATING ACTIVITIES | 951,284 | 1,291,464 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Restricted cash | 161,600 | (195,371 | ) | |||||
| Proceeds from the sale of vehicles and equipment | 88,351 | 98,746 | ||||||
| Proceeds from the sale of capital lease equipment | 95,027 | - | ||||||
| Purchase of fixed assets | (51,730 | ) | (155,004 | ) | ||||
| CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | 293,248 | (251,629 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Repayment of long term debt | (333,956 | ) | (462,965 | ) | ||||
| Repayment of convertible debentures | (135,000 | ) | - | |||||
| Repayment of capital leases | (67,112 | ) | (185,503 | ) | ||||
| Repayment of short-term debt | (213,535 | ) | (226,265 | ) | ||||
| Net factoring advances | (503,427 | ) | 59,200 | |||||
| Payment of settlement on contingent liabilities | (7,500 | ) | (120,000 | ) | ||||
| CASH USED IN FINANCING ACTIVITIES | (1,260,530 | ) | (935,533 | ) | ||||
| NET CHANGE IN CASH | (15,998 | ) | 104,302 | |||||
| CASH AT BEGINNING OF PERIOD | 121,880 | 5,757 | ||||||
| CASH AT END OF PERIOD | $ | 105,882 | $ | 110,059 | ||||
| Supplemental Disclosures of Cash Flow Information | ||||||||
| Cash paid for interest and factoring cost | $ | 326,270 | $ | 554,834 | ||||
| Non-cash investing and financing transactions: | ||||||||
| Notes issued for purchase of property and equipment | $ | 43,896 | $ | - | ||||
| Capital lease obligations | - | 31,281 | ||||||
| Assets returned to service | 90,378 | 143,042 | ||||||
| Capital lease expired | - | 116,139 | ||||||
| Shares issued on settlement of lawsuit | - | 8,000 | ||||||
| Deferred leasing cost | 17,000 | |||||||
| Assets reclassified as held for sale | ||||||||
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenue | ||||||||
| Total revenue, net | $ | - | $ | - | ||||
| Operating expenses | ||||||||
| General and administrative expenses | - | - | ||||||
| Total operating expenses | - | - | ||||||
| Loss from Operations | - | - | ||||||
| Other income (expenses) | ||||||||
| Total other income (expenses), net | - | - | ||||||
| Loss from operations before income taxes | - | - | ||||||
| Income tax expense | - | - | ||||||
| Net Loss | $ | - | $ | - | ||||
| Weighted average number of ordinary shares | ||||||||
| Basic and diluted | 237,830,249 | 237,830,249 | ||||||
| Earnings per share | ||||||||
| Basic and diluted | $ | - | $ | - | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.statements
5
Statements of Changes in Shareholders’ Deficit
(unaudited)
| Common Stock | Additional paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | capital | Deficit | Total | ||||||||||||||||
| Balance, January 1, 2021 | 237,830,249 | $ | 237,831 | $ | 26,620,553 | $ | (26,867,930 | ) | $ | (9,546 | ) | |||||||||
| Net loss | - | - | - | - | - | |||||||||||||||
| Balance, March 31, 2021 | 237,830,249 | $ | 237,831 | $ | 26,620,553 | $ | (26,867,930 | ) | $ | (9,546 | ) | |||||||||
The accompanying notes are an integral part of these financial statements
ESP Resources, Inc.RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements of Cash Flows
For the Three and Nine Months Ended September 30, 2015 and 2014(unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | - | $ | - | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Due to related parties | - | |||||||
| Net cash used in operating activities | - | - | ||||||
| Cash Flows From Investing Activities | ||||||||
| Net cash used in investing activities | - | - | ||||||
| Cash Flows From Financing Activities | ||||||||
| Net cash provided by financing activities | - | - | ||||||
| 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 financial statements
Note 1 – Organization and Basis of PresentationESP RESOURCES, INC.
NOTES TO (UNAUDITED) FINANCIAL STATEMENTS
OrganizationNOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
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 condensed 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. of Louisiana (“ESP Petrochemicals”), ESP Ventures, Inc. of Delaware (“ESP Ventures”), ESP Corporation, S.A., a Panamanian corporation (“ESP Corporation”) and ESP Payroll Services, Inc. of Nevada (“ESP Payroll”). On July 11, 2012, the Company formed two partially owned subsidiaries in Delaware, ESP Advanced Technologies, Inc., and ESP Facility& Pipeline Services, Inc. On December 19, 2012, the Company formed a partially owned subsidiary in Nevada, IEM, Inc.under Case No. 16-60020-H2-11.
On SeptemberJanuary 7, 2011,2021, 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 Company became a 49% partner in a new entity, ESP Marketing, LLC. The Company’s management directed the operationsmanaging director of the business and the Company would receive 80% of the profits. On July 11, 2012, the Company became a 60% partner in a new entity, ESP Facility and Pipeline Services, Inc. The Company’s management directed the operations of the business and the Company would receive 60% of the profits. All significant inter-company balances and transactions have been eliminated in the consolidated financial statements.Custodian
On June 11, 2013,January 7, 2021, Custodian appointed David Lazar as the boardCompany’s Chief Executive Officer, President, Secretary, Chief Financial Officer, Chief Executive Officer and Chairman of directors decided to cease operationsthe Board 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, mainly vehicles and equipment, be sold.Directors.
The Company’s year-end is December 31.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements 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.
6
Management’s Representation of Interim Financial Statements
The accompanying unaudited condensed interim consolidated financial statements and related notes have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America and with the(“GAAP”) have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These financial statements include all of the Securitiesadjustments, which in the opinion of management are necessary to a fair presentation of financial position and Exchange Commission to Form 10-Qresults of operations. All such adjustments are of a normal and Article 8recurring nature. Interim results are not necessarily indicative of Regulation S-X.results for a full year. These unaudited condensed interim consolidated financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2014 and notes thereto containedon December 31, 2020, as presented in the information as part of the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2015. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2014 as reported in the Form 10-K have been omitted. In the opinion of management, the unaudited interim consolidated financial statements furnished reflect all adjustments (consisting of normal recurring adjustments) which are necessary to present fairly the financial position and the results of operations for the interim periods presented herein. Unaudited interim results are not necessarily indicative of the results for the full year. Any reference herein to “ESP Resources,” the “Company,” “we,” “our” or “us” is intended to mean ESP Resources, Inc. including the subsidiaries indicated above, unless otherwise indicated.10-K.
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.
Use of Estimates
The 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.
Restricted CashIncome taxes
The Company accounts for income taxes under FASB ASC 740, ”Accounting for Income Taxes”. Under FASB ASC 740, deferred tax assets and liabilities are recognized for the termsfuture tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the Factoring payable,years in which those temporary differences are expected to be recovered or settled. Under FASB ASC 740, the Company may obtain advanceseffect on deferred tax assets and liabilities of upa change in tax rates is recognized in income in the period that includes 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 100% of the amount of eligible accounts receivable, subject to a 0.75% per 15 days factoring fee, with 10% heldbe taken in a restricted cash reserve account, which is releasedtax return. For those benefits to the Companybe recognized, a tax position must be more-likely-than-not to be sustained upon payment of the receivable. As of September 30, 2015 and December 31, 2014, restricted cash totaled $121,792 and $283,392, respectively.
Accounts Receivable and Allowance for Doubtful Accountsexamination 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 generally does not require collateral, andassesses the majorityvalidity of its trade receivables are unsecured. The carrying amount for accounts receivable approximates fair value.conclusions regarding uncertain tax positions quarterly to determine if facts or circumstances have arisen that might cause it to change its judgment regarding the likelihood of a tax position’s sustainability under audit.
Net Loss per Share
Accounts receivable consistedNet loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by Financial Accounting Standards, ASC Topic 260, “Earnings per Share.” Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the following asyear. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of September 30, 2015common shares and December 31, 2014:dilutive common share equivalents outstanding.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that impact the Company’s operations.
September 30, 2015 | December 31, 2014 | |||||||
| Trade receivables | $ | 1,452,006 | $ | 2,265,534 | ||||
| Less: Allowance for doubtful accounts | (73,769 | ) | (155,000 | ) | ||||
| Net accounts receivable | $ | 1,378,237 | $ | 2,110,534 | ||||
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.NOTE 3 - GOING CONCERN
As of September 30, 2015 and DecemberMarch 31, 2014, inventory consisted of2021, the following:
September 30, 2015 | December 31, 2014 | |||||||
| Raw materials | $ | 222,890 | $ | 412,978 | ||||
| Finished goods | 729,774 | 574,756 | ||||||
| Total inventory | $ | 952,664 | $ | 987,734 | ||||
Derivatives
The valuation of our embedded derivatives and warrant derivatives are determined primarily by the multinomial distribution (Lattice) model. An embedded derivative is a derivative instrument that is embedded within another contract, which under the convertible note (the host contract) includes the right to convert the note by the holder, certain default redemption right premiums and a change of control premium (payableCompany had $-0- in cash if a fundamental change occurs). In accordance with Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, 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:
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.
Concentration
cash equivalents. The Company has four major customers that together account for 65%net loss of accounts receivable at September 30, 2015 and five major customers that together account for 61% of the total revenues earned$-0- for the periodthree months ended September 30, 2015.
Accounts Receivable | Revenue | |||||||
| Customer A | 21 | % | 17 | % | ||||
| Customer B | 20 | % | 16 | % | ||||
| Customer C | 13 | % | 9 | % | ||||
| Customer D | 11 | % | 5 | % | ||||
| Customer E | 0 | % | 14 | % | ||||
| 65 | % | 61 | % | |||||
March 31, 2021 and has negative working capital of $9,546 and accumulated deficit of $26,867,930 on March 31, 2021. 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 Company has three vendors that accounted for 26%, 21%,will be able to maintain profitability and 19% of purchasescontinue growth for the period ended September 30, 2015.
The Company has four major customers that together account for 57% of accounts receivable at September 30, 2014 and 58% of the total revenues earned for the period ended September 30, 2014.
Accounts Receivable | Revenue | |||||||
| Customer A | 18 | % | 11 | % | ||||
| Customer B | 15 | % | 29 | % | ||||
| Customer C | 14 | % | 6 | % | ||||
| Customer D | 10 | % | 12 | % | ||||
| 57 | % | 58 | % | |||||
The Company has two vendors that accounted for 37% and 13% of purchases for the nine months ended September 30, 2014.
Revenue and Cost Recognition
The Company through its wholly owned subsidiary, ESP Petrochemicals, Inc.,foreseeable future. If management is a custom formulator of petrochemicals for the oil and gas industry. Since the products are specificnot able to each location, the receipt of an order increase revenue and/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 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 agreementmanage operating expenses in line with the customer at the agreed upon price.
Revenue is recognized when title and risk of loss have transferred to the customer and when contractual terms have been fulfilled. Transfer of title and risk of loss occurs when the product is delivered in accordance with the contractual shipping terms, generally to a land site or dock. Revenue is recognized based on the credit agreement with the customer at the agreed upon price.
Stock-based Compensation
The Company accounts for stock-based compensation to employees in accordance with ASC 718, Stock-based compensation. Stock-based compensation to employees is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite employee service period. The Company accounts for stock-based compensation to non-employees in accordance with ASC 505-50, Equity-based payments to non-employees. Equity instruments issued to non-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 an expense over the service period. The Company estimates the fair value of stock-based payments using the Black-Scholes option-pricing model for common stock options and warrants and the closing price of the Company’s common stock for common share issuances.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments including accounts payable, accrued expenses, and notes payable approximate fair value due to the relative short period for maturity of these instruments.
Reclassification
Certain accounts in the prior period were reclassified to conform to the current period financial statements presentation.
Recently Issued Accounting Pronouncements
During the period ended September 30, 2015 and through November 12, 2015, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by 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 condensed consolidated financial statements.
Note 2 – Going Concern
At September 30, 2015,revenue forecasts, the Company had cash and cash equivalents of $105,882 and a working capital deficit of $6,819,054. The Company believes that its existing capital resources may not be adequateable to enable it to execute its business plan.maintain profitability. These conditionsfactors raise substantial doubt as toabout the Company’s ability to continue as a going concern. The Company estimates that based on its current operating plan and condition, it will require additional cash resources during 2015 and 2016.
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 result 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, and such securities might have rights, preferences or privileges senior to the Company’s 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, 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 August 15, 2014, ESP Petrochemicals, Inc., (the “Company”) a subsidiary of the Company 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 terminate the Factoring Agreement at any time upon thirty days’ notice of an event of default. Under the terms of the Factoring Agreement, Transfac may purchase any accounts submitted by the Company. The Company shall pay 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 detail in the Factoring Agreement set forth as an exhibit 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 the Factoring Agreement at September 30, 2015 was $836,226 with $121,792 held in restricted cash in the condensed consolidated balance sheets.
Note 4 – Property and Equipment
Property and equipment includes the following at September 30, 2015 and December 31, 2014:
September 30, 2015 | December 31, 2014 | |||||||
| Plant, property and equipment | $ | 1,640,441 | $ | 1,597,011 | ||||
| Vehicles | 1,455,465 | 1,679,220 | ||||||
| Equipment under capital lease | 882,178 | 596,888 | ||||||
| Equipment under capital lease – related party | 31,281 | 31,281 | ||||||
| Office furniture and equipment | 59,131 | 59,131 | ||||||
| 4,068,496 | 3,963,531 | |||||||
| Less: accumulated depreciation | (2,691,759 | ) | (2,253,686 | ) | ||||
| Net property and equipment | $ | 1,376,737 | $ | 1,709,845 | ||||
Depreciation and amortization expense was $484,338 and $450,942 for the period ended September 30, 2015 and 2014, respectively.
In the nine months ended September 30, 2015 the Company sold certain vehicles for proceeds of $88,351 and special equipment, acquired using a Capital lease for net proceeds of $95,027 and recorded a gain on disposal of equipment of $130,830.
In the nine months ended September 30, 2014 the Company recognized an $18,915 net loss on disposed equipment.
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 840-30, Leases - Capital lease and concluded that the lease constituted capital leases.
At December 31, 2014, the Company determined that certain specialized equipment was to be sold and classified the $160,378 as its fair value and net book value. In the nine months ended September 30, 2015, based on the expectation for revenues of this equipment, the Company returned this specialized equipment to service.
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 during the year ended December 31, 2013.
During the nine months ended September 30, 2015 the holder of $100,000 of the January 2012 debentures agreed to convert this instrument plus accrued interest of $38,119 plus the accrued interest on a demand note of $26,149 into a demand promissory note of $150,000.
During the year ended December 31, 2014, the Company issued notes payable to finance its insurance with an aggregate principal amount of $265,486. The notes mature in one year, bear interest at 5.7% per annum and require equal monthly payments.
The Company made aggregate repaymentswill focus on its short-term debt of $213,535 during the nine months ended September 30, 2015.
Note 6 - Long-Term-Debt AND Vendor Deferred Payment
Long-term debt on vendor deferred payments consisted of the following at September 30, 2015improving operation efficiency and December 31, 2014:
September 30, 2015 | December 31, 2014 | |||||||
| 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 | $ | 1,285,528 | ||||
| Less current maturities | (1,285,528 | ) | (1,285,528 | ) | ||||
| Total long-term debt | $ | - | $ | - | ||||
During 2013 the Companycost reduction, developing core cash-generating business, 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 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, Troubled Debt Restructurings by Debtors and concluded that the revised terms constituted a troubled debt restructuring, rather than a debt extinguishment or debt modification.
As of September 30, 2015, the Company was unable to make the required payments under the agreement, so the debt is in default and is classifiedenhancing marketing function. Actions include developing more customers, as current maturities.
Note 7- Long Term-Debt
Long-term debt consisted of the following at September 30, 2015 and December 31, 2014:
September 30, 2015 | December 31, 2014 | |||||||
| Equipment secured note payable - the note bears interest at a rate of 7.5% per annum, is payable in monthly installments of $2,522 and matured April 2015. | $ | - | $ | 3,016 | ||||
| Vehicle secured notes payable - the notes bear interest at rates between 9.49% and 0% per annum, are payable in monthly installments between $681 and $1,832 and matures between November 2015 and March 2020. | 134,585 | 385,328 | ||||||
| On April 13, 2013, the Company borrowed $50,150 from a bank with an annual interest rate of 5.8% and a term of 36 months with payments of $1,170. | 22,399 | 31,731 | ||||||
| Unsecured notes payable - the notes bear interest at 5% per annum and are due between April 2009 and July 2013 and are in default. | 333,000 | 359,968 | ||||||
| Total | 489,984 | 780,043 | ||||||
| Less current maturities | (447,809 | ) | (669,005 | ) | ||||
| Total long-term debt | $ | 42,175 | $ | 111,038 | ||||
Minimum principal payments due under the long-term debt for the 5 years following September 30, 2015 arewell as follows:
| 2016 | $ | 447,809 | ||
| 2017 | 18,997 | |||
| 2018 | 8,960 | |||
| 2019 | 9,372 | |||
| 2020 | 4,846 |
During the nine months ended September 30, 2015, the Company purchased a vehicle through the issuance of debt with a principal amount of $51,896. The note bears interest at 4.5% per annum, is secured by the underlying vehicle, matures during March 2020 and requires monthly payments of $818.
Note 8 – Capital Lease Obligations
ESP Petrochemicals leases certain office equipment, warehouse equipment and special purpose equipment and vehicles under capital leases. Long-term capital leases consisted of the following at September 30, 2015 and December 31, 2014:
| Year | Borrowed Amount | Term in Months | Monthly Payment | Sept. 30, 2015 | Dec. 31, 2014 | ||||||||||||||||||
| $ | - | $ | - | ||||||||||||||||||||
| Warehouse equipment | 2013 | $ | 26,313 | 36 | $731 | 2,930 | 10,127 | ||||||||||||||||
| Vehicles | 2010 | - | 2014 | $ | 368,766 | 21 | - | 72 | $887 | - | 1,905 | 21,064 | 48,479 | ||||||||||
| Office equipment | 2014 | $ | 10,140 | 24 | $260 | 7,532 | 9,953 | ||||||||||||||||
| Special purpose equipment | 2011 | - | 2012 | $ | 125,000 | 24 | $6,065 | 84,921 | 115,000 | ||||||||||||||
| Total capital lease | 116,447 | 183,559 | |||||||||||||||||||||
| less current portion | (80,065 | ) | (99,240 | ) | |||||||||||||||||||
| Total long-term capital lease | $ | 36,382 | $ | 84,319 | |||||||||||||||||||
On March 19, 2014, the Company acquired a vehicle 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 840-30, Leases - Capital leases and concluded that the lease constituted a capital lease.
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 840-30, Leases - Capital leases and concluded that the lease constituted a capital lease.
The future payments under the capital lease are as follows:
| 2015 | $ | 80,065 | ||
| 2016 | $ | 35,306 | ||
| 2017 | $ | 1,076 |
Note 9 – Convertible Debentures
The following reflects the Convertible debentures for the periods ended September 30, 2015 and December 31, 2014.
September 30, 2015 | December 31, 2014 | |||||||
| 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%. | $ | 30,000 | 130,000 | |||||
| On December 20, 2013, the Company amended the debenture initially issued November 14, 2012 in which proceeds of $750,000 was received from the sale of 16% Convertible Subordinated Debentures. The Company is in default and interest accrues at 18%. | 627,000 | 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 | 907,000 | 1,142,000 | ||||||
| Less current maturities | (907,000 | ) | (1,142,000 | ) | ||||
| Total Long-term convertible debentures | $ | - | $ | - | ||||
The January 2012 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 intocreating synergy using the Company’s common stock by the investors at 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 common stock that the purchase amount would buy in warrants at the conversion price of $0.15, or a total of 866,667 warrants, with a 3-year term. The Company does not have any registration obligation in regard to the common stock. The Company analyzed the conversion option under ASC 815, Derivatives and Hedging and determined equity classification was appropriate. The Company then analyzed the conversion option under ASC 470-20, Debt With Conversion and Other Options for consideration of a beneficial conversion feature and determined the option had intrinsic value on the date of issuance. The Company recorded a discount from the relative fair value of the warrants and the intrinsic value of the conversion option of $71,291. The Company valued the warrants using 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. During the nine months ended September 30, 2015 the holder of $100,000 of the January 2012 Debentures agreed to convert this instrument plus accrued interest of $38,119 plus the accrued interest on a demand note of $25,438 into the demand promissory note of $150,000, the Company recognized a gain on extinguishment of debt of $14,868. The Company evaluated the application of ASC 470-50, Modifications and Extinguishments and ASC 470-60, Troubled Debt Restructurings by Debtors.
The November 2012 Debentures
On November 14, 2012, the Company received proceeds of $1,000,000 from the sale of 16% Convertible Subordinated Debentures (the “November 2012 Debentures”). The November 2012 Debentures were due on March 1, 2014. The aggregate principal amount of the combined November 2012 Debentures is $1,000,000 with an interest rate of 16% per annum. The interest is payable quarterly on March 1st, June 1st, September 1st, and December 1st, beginning on March 1, 2013. The November 2012 Debentures are convertible at any time after the original issue date at a conversion price of $0.085 per share, subject to adjustments. The Company recorded a discount from the relative fair value of the conversion feature and the intrinsic value of the conversion option of $421,715. The Company estimated the fair value of these derivatives using a multinomial Distribution (Lattice) valuation model with the following assumptions: stock price on the measurement date of $0.07; term of 1.5 years; expected volatility between 112% and 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, Derivatives and Hedging and determined and recorded $449,840 derivative liability.resources.
The Company in its sole discretion, may choose to pay interest inbelieves that available cash sharesand cash equivalents, the cash provided by operating activities, together with actions as developing more customers and create synergy of common stock, or in combination thereof. At the Company’s election, it may,resources, should enable the Company to meet presently anticipated cash needs for at any timeleast the next 12 months after the six-month anniversary ofdate that 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 eventfinancial statements are issued and the Company defaults,has prepared the outstanding principal amount offinancial statements on a going concern basis. If the November 2012 Debentures, plus accruedCompany encounters unforeseen circumstances that place constraints on its capital resources, management will be required to take various measures to conserve liquidity, which could include, but unpaid interest, liquidated damagesnot necessarily be limited to, obtaining financial support from related parties 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 stockcontrolling overhead expenses. Management cannot provide any assurance that the purchase amount would buy in warrants atCompany’s efforts will be successful. The financial statements do not include any adjustments to reflect the conversion pricepossible future effects on the recoverability and classification of $0.09,assets or a totalthe amounts and classification of 11,764,706 warrants with a 5-year term. The Company recorded a discountliabilities that may result from the relative fair value of the warrants and the intrinsic value of the conversion option of $208,685. The Company estimated the fair valueoutcome 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.uncertainties.
NOTE 4 – EQUITY
Common Stock
The Company analyzed the warrants under ASC 815, Derivatives and Hedging and determined and recorded a $222,603 derivative liability. The November 2012 Debentures are secured by the remaining unencumbered assets of the Company. The Company’s subsidiary companies guaranteed the security agreement by agreeing to act as surety for the payment of the November 2012 Debentures. As further consideration, the Company issued a combined total of 4,000,000has authorized 350,000,000 shares of $0.001 par value, common stock to the investors, which the Company recorded as a debt discount $299,600 at issuancestock. As of March 31, 2021 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 took all actions necessary to nominate2020 there were 237,830,249 shares of Common Stock issued and recommend shareholder approval for the appointment of one director selected by Hillair Capital Management LLC (“Hillair”) to the Company’s Board of Directors. Hillair declined the board seat. 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 one of the 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, Troubled 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.outstanding.
On December 20, 2013 the Company agreed with one of the 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 ofNOTE 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% and 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, Derivatives and Hedging 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, Troubled 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 are reflected as current and the interest rate increased to 18%.
As of September 30, 2015 these convertible debentures are in default and have been classified as current maturities.
Note 10 – Derivative liabilityRELATED PARTY NOTES PAYABLE
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 priceAll of the warrants and the conversion priceCompany’s financing has come from its Court appointed custodian, Custodian Ventures, LLC. As 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 and 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 DecemberMarch 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 range of significant assumptions which the Company used to measure the fair value of the derivative liabilities (a level 3 input) at September 30, 2015 is as follows:
| Warrants | Debentures | |||||||
| Stock price | $0.01 | $0.01 | ||||||
| Term (years) | 3.0 | to | 4.1 | .1 | ||||
| Volatility | 143% | - | 204% | 143% | - | 204% | ||
| Risk-free interest rate | 0.92% | 0% | ||||||
| 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, 2014 was $255,168 and $202,107 at September 30, 2015. The change in the fair value of derivative liabilities resulted in a mark to market change of $53,061 and $3,199 for the period ended September 30, 2015 and 2014, respectively.
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 September 30, 2015.
Carrying Value at | Fair Value Measurement at September 30, 2015 | |||||||||||||||
| September 30, 2015 | Level 1 | Level 2 | Level 3 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative convertible debt liability | $ | 141,957 | $ | - | $ | - | $ | 141,957 | ||||||||
| Derivative warrant liability | $ | 60,150 | $ | - | $ | - | $ | 60,150 | ||||||||
| Total derivative liability | $ | 202,107 | $ | - | $ | - | $ | 202,107 | ||||||||
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 | ||||||||
Changes in the derivative liability for the periods ended September 30, 20152021 and December 31, 2014 consist of:
Nine Month Period Ended September 30, 2015 | Year Ended December 31, 2014 | |||||||
| Beginning of year derivative liability | $ | 255,168 | $ | 263,875 | ||||
| Change in derivative due to repayment | (50,427 | ) | - | |||||
| Change in derivative liability – mark to market | (2,634 | ) | (8,707 | ) | ||||
| Derivative liability at end of period | $ | 202,107 | $ | 255,168 | ||||
Note 11 – Stockholders’ Equity
Settlement of Lawsuit
On April 25, 2014,2020 the Company’s court appointed custodian, Custodian Ventures had loaned the Company reached$9,546 on 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.interest free basis.
Shares Issued to Officers and Employee
On September 1, 2015, the Company granted 5,000,000 shares of restricted stock to an employee as part of his employment agreement and recorded $10,000 of stock compensation.
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.
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 the periods:
| Number of warrants | Weighted Average Exercise Price | Weighted (Years) | ||||||||||
| Warrants outstanding at December 31, 2013 | 63,092,278 | $ | 0.16 | 2.21 | ||||||||
| 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 | 0.67 | ||||||||
| Granted during the period | - | - | - | |||||||||
| Exercised during period | - | - | - | |||||||||
| Forfeited during the period | (42,455,667 | ) | (0.20 | ) | - | |||||||
| Warrants outstanding at September 30, 2015 | 18,431,373 | $ | 0.09 | .16 | ||||||||
The Common Stock warrants expire in years ended September 30 as follows:
| Year | Amount | |||
| 2015 | 666,667 | |||
| 2016 | 1,000,000 | |||
| 2017 | 11,764,706 | |||
| 2018 | 5,000,000 | |||
| Total | 18,431,373 | |||
Stock Option Awards
During the periods ended September 30, 2015 and September 30, 2014 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 10% 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, 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 | ||||||||
| Granted | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Expired/Forfeited | (432,000 | ) | (0.14 | ) | - | |||||||
| Outstanding at September 30, 2015 | 52,463,000 | $ | 0.12 | 6.2 | ||||||||
| Exercisable at September 30, 2015 | 49,663,000 | $ | 0.12 | 6.2 | ||||||||
| Exercisable at December 31, 2014 | 50,095,000 | $ | 0.12 | 6.9 | ||||||||
A summary of the Company’s non-vested options at September 30, 2015, and changes during the nine months ended September 30, 2015, is presented below:
| Options | Weighted Average Grant Date Fair Value | |||||||
| Non-vested, beginning of period | 2,800,000 | $ | 0.12 | |||||
| Granted | - | $ | - | |||||
| Vested | - | $ | - | |||||
| Forfeited | - | $ | - | |||||
| Non-vested, end of period | 2,800,000 | $ | 0.12 | |||||
The following tables summarize information about stock options outstanding and exercisable at September 30, 2015:
| Options Outstanding at September 30, 2015 | ||||||||||||||||
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 | 7.0 | $ | 0.10 | $ | - | ||||||||
| $0.11 | to | $0.12 | 2,000,000 | 6.0 | $ | 0.12 | $ | - | ||||||||
| $0.13 | to | $0.15 | 22,645,000 | 5.3 | $ | 0.15 | $ | - | ||||||||
| $0.09 | to | $0.15 | 52,895,000 | 6.2 | $ | 0.12 | $ | - | ||||||||
| Options Exercisable at September 30, 2015 | ||||||||||||||||
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 | 7.0 | $ | 0.09 | $ | - | ||||||||
| $0.11 | to | $0.12 | 2,000,000 | 6.0 | $ | 0.12 | $ | - | ||||||||
| $0.13 | to | $0.15 | 22,213,000 | 5.3 | $ | 0.15 | $ | - | ||||||||
| $0.09 | to | $0.15 | 49,663,000 | 6.2 | $ | 0.12 | $ | - | ||||||||
During the nine months ended September 30, 2015, the Company recognized stock-based compensation expense of $205,972 related to stock options. As of September 30, 2015, there was approximately $478,352 of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over the remaining vesting period.
During the nine months ended September 30, 2014, the Company recognized stock-based compensation expense of $527,752 related to stock options. As of September 30, 2014, there was approximately $862,252 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 September 30, 2014.
Note 12 – Related Party Transactions
As of September 30, 2015 and December 31, 2014, the Company had balances due to related parties as follows:
September 30, 2015 | December 31, 2014 | |||||||
| Due to officer | $ | 362,526 | $ | 356,583 | ||||
| Due to ESP Enterprises | 55,790 | 55,790 | ||||||
| Total due to related parties | $ | 418,316 | $ | 412,373 | ||||
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 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 840-30, Leases - Capital lease and concluded that the lease constituted a capital lease.
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, 2015, $106,667 has been deferred and reflected as Due to related parties, a liability.
Note 13 – Commitments and Contingencies
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.
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. The Settlement Agreement was fully satisfied during the three months ending March 31, 2015.
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 September 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 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. On April 21, 2015, the First Court of Appeals directed the parties to advise the Court of the status of the proceedings or file a motion to reinstate and dismiss the appeal. On May 4, 2015, Appellant ESP, through letter motion, requested that the First Court of Appeals dismiss the appeal. On May 21, 2015, the First Court of Appeals granted Appellant ESP Resources, Inc.’s Motion to Dismiss the Appeal.
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, due on September 30, 2012; and two promissory notes in sum of $100,000, each, due on September 30, 2012 when ESP allegedly failed to pay the $73,006 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 the Company’s No-Evidence Motion for Summary Judgment. On September 12, 2014, the Company filed its Reply to BWC’s Response to the Company’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. On May 8, 2015, the Court issued a Final Judgment and Order in the amount of $444,000 against the Company, disposing of all parties and all claims and was appealable by the Company. On June 5, 2015, the Company filed a Motion for a New Trial. On June 19, 2015, BWC filed its Response to the Company’s Motion for a New Trial. On July 9, 2015, the Company filed its Reply to BWC’s Response to the Company’s Motion for a New Trial. On July 10, 2015, the Court issued an order denying the Company’s Motion for a New Trial. On or about August 9, 2015 the Company filed a notice of appeal. On November 11, 2015 the Company filed its appellate brief. BWC’s Brief in Response is due to be filed December 11, 2015.
Note 14NOTE 6 – Gain on Extinguishment of DebtCOMMITMENTS AND CONTINGENCIES
During the nine months ended September 30, 2015, the Company reached a final settlement with certain vendors with liabilities of $320,795 for payments of $138,093; the final payment on the Alfredo Ledesma settlement with liabilities of $38,937 for a final payment of $7,500; the net liabilities from discontinued operations reduced the liabilities from $18,095 for the final payment of $2,378 and the restructuring of convertible debentures and accrued interest of $314,868 with a new demand note of $300,000, resulting in a gain from extinguishment of debt of $192,516.
Note 15 – Guarantee Liability
On November 3, 2008, the Company provided a guarantee to a director of Aurora and Boreal who loaned $120,000 to Aurora and Boreal. The Company 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, the Company 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 the Company at $1.20 per share. In exchange for issuing the convertible note to the director, the Company will receive the right to receive payments under the director’s note receivable from Aurora and Boreal.
The Company recordeddid not have any contractual commitments as of March 31, 2021.
NOTE 7 – SUBSEQUENT EVENTS
In accordance with SFAS 165 (ASC 855-10) management has performed an evaluation of subsequent events through the fairdate 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 guarantee liability at $48,000, which representedBoard 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 fairCorporation 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 note receivable from AuroraSeries A Preferred Stock, shall have conversion rights as follows (the “Conversion Rights”), the holder of issued and Boreal whichoutstanding shares of Series A Preferred Stock shall be entitled to convert the Company would take over fromSeries A Preferred Stock, at the director. On June 1, 2009 when Auroraoption 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 Boreal did not makenonassessable shares of Common Stock that are equal to ninety percent (90%), post conversion, of the required payments on their notes payabletotal 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 director,Conversion Shares multiplied by the Company determined that the valuequotient of the guarantee liability should be increased to the full face amountnumber of the guaranteed noteshares of $120,000, resulting inSeries A Preferred Stock converted by a loss on guarantee liabilityholder divided by the number of $72,000 during the year ended December 31, 2010. There have been no changes in the matter during 2013all Series A Preferred Stock issued and 2014, hence the balance remains same.
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.
ITEMItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This report contains forward-looking statements. Forward-looking statements are projections in respect of 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. Forward-looking statements made in this quarterly report on Form 10-Q include statements about
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forth in our Annual Report on Form 10-K for the year ended December 31, 2014, and filed on April 15, 2015, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation:
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. 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.
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. The following Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations.
Organizational History of the Company shouldand Overview
No Current Operations
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 similar transaction. Our Chief Executive Officer has experience in business consulting, although no assurances can be readgiven that he can identify and implement a viable business strategy or that any such strategy will result in conjunction with the Condensed Consolidated Financial Statementsprofits. Our ability to effectively identify, develop and notes related thereto included in this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known aboutimplement a viable plan for our business may be hindered by risks and operations. No assurancesuncertainties which are made that actual resultsbeyond our control, including without limitation, the continued negative effects of operations or the resultscoronavirus pandemic on the U.S. and global economies. For more information about the risk of coronavirus on our future activities will not differ materially from our assumptions.
Corporate Historybusiness, see Item 1A “Risk Factors.”
We were incorporated on October 27, 2004,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 Stateearly stages of Nevada. Our principal offices are located at 1003 South Hugh Wallis Road Suite G-1 Lafayette, Louisiana 70508.
Effective September 28, 2007,development. In such event, we completedexpect to be subject to numerous risks inherent in the business and operations of 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.”financially unstable or early stage entity. In addition, effective September 28, 2007, we effectedmay effect a 16 for 1 forward stock split of our authorized, issued and outstanding common stock. As a result, our authorized capital increased from 75,000,000 common shares to 1,200,000,000 common sharesbusiness combination with the same par value of $0.001. At that time, our issued and outstanding share capital increased from 6,970,909 common shares to 111,534,544 common shares.
In December 2008, the Company entered into an agreement with ESP Resources, Inc., a Delaware corporation (“ESP Delaware”), whereby the Company acquired 100% ownership of ESP Delawareentity in exchange for 292,682,297 common shares. As a result of this acquisition, we changed our name from “Pantera Petroleum, Inc.” to “ESP Resources, Inc.” On January 27, 2009, we effected a 1 for 20 reverse stock split of our common stock and received a new ticker symbol. The name change and reverse stock split became effective with the OTC Bulletin Board at the opening of trading on January 27, 2009 under the new symbol “ESPI” and a new CUSIP number of 26913L104.
On July 29, 2011 the shareholders decreased the authorized shares of our common stock from 1,200,000,000 shares to 350,000,000 shares and authorized a new class of preferred stock having 10,000,000 shares of stock authorized at $.001 par value.
Any reference herein to “ESP Resources,” the “Company,” “we,” “our” or “us” is intended to mean ESP Resources, Inc., a Nevada corporation, including our wholly-owned subsidiaries including, ESP Petrochemicals, Inc. of Louisiana (“ESP Petrochemicals”), ESP Ventures, Inc. of Delaware (“ESP Ventures”), ESP Corporation, S.A., a Panamanian corporation (“ESP Corporation”) and ESP Payroll Services, Inc. of Nevada (“ESP Payroll”), unless otherwise indicated and two partially owned subsidiaries of which the Company ceased operations on June 11, 2013, ESP Advanced Technologies, Inc. of Delaware, and ESP Facility & Pipeline Services, Inc. of Delaware.
Our Business
We are a custom formulator of specialty chemicals for the oil and gas industry. We offer analytical services and essential custom-blended chemicals for oil and gas wells, which improve production yields and overall efficiencies. Our mission is to provide applications of surface chemistry to service all facets of the fossil energy business viaan industry characterized by a high level of innovation. We focusrisk or in which our efforts on solving problems atmanagement has limited experience, and, although our management will endeavor to evaluate the drilling siterisks inherent in a particular target business, there can be no assurance that we will properly ascertain or well with a highly complex integration of chemicals and processesassess all significant risks.
Our management anticipates that we will likely only be able to achieve the highest level of quality petroleum output. Management believes our constant management of our chemical applications at the drilling site or well, continuous monitoring of the productivity and outflow levels of oil and gas and listeningeffect one business combination due to our customers and their changing demands, and applying our skills as chemical formulators enableslimited 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 measureoffset potential losses from one venture or operating territory against gains from another. The risks we face will likely be heightened to the impactextent we haveacquire a business operating in our business.a single industry or geographical region.
We act as manufacturer, distributoranticipate that the selection of a business combination will be a complex and marketerrisk-prone process. Because of specialty chemicalsgeneral economic conditions, including unfavorable conditions caused by the coronavirus pandemic, rapid technological advances being made in some industries and supply specialty chemicals forshortages 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 oildifferent industries or regions and gas field applications including killing bacteria, separating suspended waterat various stages of development, all of which will likely render the task of comparative investigation and other contaminants from crude oil, separatinganalysis 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 oil fromimplementation 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 gas, pumping enhancement, pumping cleaning, as wellnext 12 months. If we are able to close a reverse merger, it is likely we will need capital as a varietycondition of fluidsclosing 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 significantly and additives usedmaterially restrict our business operations.
We anticipate that we will incur operating losses in the drilling and production process. At each wellnext 12 months, principally costs related to our being obligated to file reports with the SEC. Our prospects must be considered in production, there exist a number of factors that make each site unique. These include the depthlight of the producing formation, the bottom-hole temperaturerisks, expenses and difficulties frequently encountered by companies in their early stage of the producing well, the size of the wellhead through which the producing fluids flow, the size and pressure ratings of the production equipment, including the separators, heater-treaters, compression equipment, size of production tubulars in the wellbore, size of the storage tanks on the customers’ location, and pressure ratings of the sales linesdevelopment. Such risks for the oil and gas products. Wells that are operating short distances from each other in the same field can have very different characteristics. This variance in operating conditions, chemical makeup of the oil, and the usage of diverse equipment requires a very specific chemical blend to be used if maximum drilling and production well performance is to be attained.
Our customers are typically oil and gas exploration customers who plan and finance the well, drill the well and then operate the well through the point of full depletion. Of the various stages involved in the development of an oil and gas well, we offer our products and services in principally two main areas: production petrochemicals and completion petrochemicals.
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 petrochemicalsus include, but are not limited to, drilling chemicals, waste remediation chemicals, cleanersan evolving and waste treatment chemicals as follows:
Our first goal is to solve our customers’ problems at the well and optimize drilling or production and, secondly, the saleunpredictable business model, recognition of product. Typically, our service personnel gather information at a well and enter this data into the analytical system at each of our 4 respective district offices located in Rayne, Louisiana; Pharr, Texas; Victoria, Texas and 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.
Completion Petrochemicals
Our completion petrochemicals are primarily used during the completion stage of oil or gas wells that are drilled in various shale formations in the United States. After a well is drilled, we deliver a specialized chemical equipment trailer, or chemical delivery unit, that is used in the pumping of chemicals during the hydraulic fracturing process. Hydraulic fracturing, or fracking, is a technology used to inject a fluid into a well to create fractures in the minerals containing the oil or gas. Usually the fluid is water, sand, and chemical additives. Our chemical delivery units pump chemicals to treat the fluids used in the completion of the oil and gas wells during the fracking process. Each unit consists of a trailer mounted pumping system with associated power generation components, a chemical supply trailer, safety and spill prevention equipment, communication devices, and computerized reporting equipment.
The units pump treatment chemicals to eliminate the bacteria contamination present in the fluids used in the fracking process. We have developed a specialized chemical formulation that is intended to provide for a longer term bacteria-contamination elimination time frame than what is currently supplied by our competitors. The longer term time frame is designed to provide our customers significant cost savings in the removal treatment of contaminants from the oil and gas well-stream once the well has been placed into production.
Once the completion work is concluded at the well, which typically takes between 2-5 days, our chemical delivery units are moved out of the location and sent back to the appropriate district office for the next completion job.
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:
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.
Results of Operations
The following section of our financial condition and results of operations should be read together with the unaudited interim consolidated financial statementsrevenue sources, and the notes to the unaudited interim consolidated financial statements included in this quarterly report. This discussion contains forward-looking statements that reflect our plans, estimatesmanagement of growth. To address these risks, we must, among other things, develop, implement, and beliefs. Our actual results may differ materially from those anticipated in any forward-looking statements.
Results for the three months and nine months ended September 30, 2015 compared to three and nine months ended September 30, 2014
The following table summarizes the results of our operations during the nine months ended September 30, 2015 and 2014 and provides information regarding the dollar and percentage increase or (decrease) from 2015 to 2014:
Nine Months Ended September 30, | $ Increase | % Increase | ||||||||||||||
| 2015 | 2014 | (Decrease) | (Decrease) | |||||||||||||
| Sales | $ | 5,600,198 | $ | 8,814,225 | $ | (3,214,027 | ) | (36 | )% | |||||||
| Cost of goods sold | 1,770,617 | 3,393,632 | (1,623,015 | ) | (48 | )% | ||||||||||
| Gross profit | 3,829,581 | 5,420,593 | (1,591,012 | ) | (29 | )% | ||||||||||
| Total general and administrative expenses | 4,538,720 | 6,261,864 | (1,723,144 | ) | (28 | )% | ||||||||||
| Depreciation and amortization expense | 484,338 | 450,942 | 33,396 | 7 | % | |||||||||||
| (Gain) Loss from disposal of assets | (130,830 | ) | 18,915 | (149,745 | ) | (792 | )% | |||||||||
| Total other income (expense) | (182,396 | ) | (845,300 | ) | 662,904 | (78 | )% | |||||||||
| Net Income (Loss) | $ | (1,245,043 | ) | $ | (2,156,428 | ) | $ | 911,385 | (43 | )% | ||||||
The following table summarizes the results of our operations during the three months ended September 30, 2015 and 2014 and provides information regarding the dollar and percentage increase or (decrease) from 2015 to 2014:
| Three Months Ended September 30, | $ Increase | % Increase | ||||||||||||||
| 2015 | 2014 | (Decrease) | (Decrease) | |||||||||||||
| Sales | $ | 1,806,003 | $ | 3,033,101 | $ | (1,227,098 | ) | (40 | )% | |||||||
| Cost of goods sold | 584,353 | 802,938 | (218,585 | ) | (27 | )% | ||||||||||
| Gross profit | 1,221,650 | 2,230,163 | (1,008,513 | ) | (45 | )% | ||||||||||
| Total general and administrative expenses | 1,543,403 | 2,518,419 | (975,016 | ) | (39 | )% | ||||||||||
| Depreciation and amortization expense | 243,710 | 135,314 | (108,396 | ) | (80 | )% | ||||||||||
| Gain from disposal of assets | (141,655 | ) | - | (141,655 | ) | - | % | |||||||||
| Total other income (expense) | (166,455 | ) | (310,455 | ) | 144,000 | (46 | )% | |||||||||
| Net Income (Loss) | $ | (590,263 | ) | $ | (734,025 | ) | $ | 143,762 | 20 | % | ||||||
Sales
Sales were $5,600,198 for the nine months ended September 30, 2015, compared to $8,814,225 for the same period in 2014, a decrease of $3,214,027, or 36%. The decrease was mainly due to an approximate $3,000,000 decrease in sales volume from three major customers in the Eagle Ford and in the North Texas shale regions where the Company had been servicing and selling customers completion petrochemicals. For the nine months ended September 30, 2015, the Company’s completion petrochemical sales decreased completely due to the Company’s customers’ discontinuance of fracking activity in the shale regions in which the Company’s district offices are located.
Sales were $1,806,003 for the three months ended September 30, 2015, compared to $3,033,101 for the same period in 2014, a decrease of $1,227,098, or 40%. The decrease was mainly due to an approximate $1,000,000 decrease in sales volume from four major customers in the Eagle Ford and in the North Texas shale regions. For the three months ended September 30, 2015, the Company’s completion petrochemical sales decreased completely due to the Company’s customers’ discontinuance of fracking activity in the shale regions in which the Company’s district offices are located.
Cost of Goods Sold and Gross Profit
Cost of goods was $1,770,617, or 32% of net sales, for the nine months ended September 30, 2015, compared to $3,393,632 or 39% of net sales, for the same period in 2014. Gross profit was $3,829,581, or 68% of net sales, for the nine months ended September 30, 2015, compared to $5,420,593, or 62% of net sales, for the same period in 2014. The 6% increase in gross profit for the nine months ended September 30, 2015 is mainly due recent increases in prices ranging from of 7% to 28% on many of our products and the change in sales mix to higher margin products.
Cost of goods was $584,353, or 32% of net sales, for the three months ended September 30, 2015, compared to $802,938 or 26% of net sales, for the same period in 2014. Gross profit was $1,221,650, or 68% of net sales, for the three months ended September 30, 2015, compared to $2,230,163, or 74% of net sales, for the same period in 2014. The 6% decrease in gross profit rate for the three months ended September 30, 2015 is mainly due to the net effect of reduced sales from four major customers, our recent increases in prices of 7% to 28% on many of our products and the change in sales mix to higher margin products.
General and Administrative Expenses
General and administrative expenses decreased by $1,723,144 for the nine months ended September 30, 2015, compared to the same period in 2014. The decrease in general and administrative expenses was primarily due to a reduction in auto and related costs, and the approximately $1,309,000 reduction in stock compensation.
General and administrative expenses decreased by $975,016 for the three months ended September 30, 2015, compared to the same period in 2014. The decrease in general and administrative expenses was primarily due to a reduction in auto and related costs, and the approximately $1,038,000 reduction in stock compensation.
Net loss
The Company’s net loss decreased by $911,385 for the nine months ended September 30, 2015, as compared to the net loss for the same period in 2014. The primary reason for the change in net loss was due to decreased general and administration costs and a gain on the extinguishment of debt of $192,516 in the nine months ended September 30, 2015, compared to the same period in 2014.
The Company’s net loss decreased by $143,762 for the three months ended September 30, 2015, as compared to the net loss from continued operations for the same period in 2014.
Modified EBITDA
Modified Earnings before interest (including factoring fees), taxes, depreciation amortization and stock-based compensation (Modified EBITDA”) is a non-GAAP financial measure. We use Modified EBITDA as an unaudited supplemental financial measure to assess the financial performance of our assets without regard to financing methods, capital structures, taxes or historical cost basis; our liquidity and operating performance over time in relation to other companies that own similar assets and that we believe calculate Modified EBITDA in a similar manner; and the ability of our assets to generate cash sufficient for us to pay potential interest costs. We also understand that such data is used by investors to assess our performance. However, the term Modified EBITDA is not defined under generally accepted accounting principles and Modified EBITDA is not a measure of operating income, operating performance or liquidity presented in accordance with generally accepted accounting principles. When assessing our operating performance or liquidity, investors should not consider this data in isolation or as a substitute for net income, cash flow from operating activities, or other cash flow data calculated in accordance with generally accepted accounting principles.
Modified EBITDA for the nine months ended September 30, 2015 was $(246,236) compared to $790,698 for the same period in 2014, a change of $(1,036,934).
| Nine Months ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| Net loss | $ | (1,245,043 | ) | $ | (2,156,428 | ) | ||
| Add back interest and factoring expense, net of interest income | 446,411 | 610,306 | ||||||
| Add back depreciation and amortization | 484,338 | 450,942 | ||||||
| Add back amortization debt discount | - | 266,241 | ||||||
| Add back stock-based compensation | 313,635 | 1,622,836 | ||||||
| Add back change in derivative liability | (53,061 | ) | (3,199 | ) | ||||
| Deduct gain on extinguishment of debt | (192,516 | ) | - | |||||
| Modified EBITDA | $ | (246,236 | ) | $ | 790,698 | |||
Modified EBITDA for the three months ended September 30, 2015 was $(114,481) compared to $860,249 for the same period in 2014, a change of $(974,730).
| Three Months Ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| Net loss | $ | (590,263 | ) | $ | (734,025 | ) | ||
| Add back interest and factoring expense, net of interest income | 122,986 | 264,264 | ||||||
| Add back depreciation and amortization | 243,710 | 135,314 | ||||||
| Add back amortization debt discount | - | 57,848 | ||||||
| Add back stock-based compensation | 110,837 | 1,148,430 | ||||||
| Add back change in derivative liability | (1,751 | ) | (11,582 | ) | ||||
| Modified EBITDA | $ | (114,481 | ) | $ | 860,249 | |||
Cash Flow Used by Operating Activities
Operating activities provided cash of $951,284 for the nine months ended September 30, 2015, compared to cash provided of $1,291,464 for the same period in 2014. The decrease in cash provided by operations during the nine months ended September 30, 2015 was primarily due to an increase in inventory.
Cash Flow Used in Investing Activities
Investing activities provided cash of $293,248 for the nine months ended September 30, 2015, compared to cash used in investing activities of $251,629 for the nine months ended September 30, 2014. The change in net cash in investing activities during the nine months ended September 30, 2015 was a result of the proceeds from the sale of equipment.
Cash Flow Provided by Financing Activities
Financing activities used cash of $1,260,530 for the nine months ended September 30, 2015, compared to cash used in financing activities of $935,533 for the nine months ended September 30, 2014. The change in net cash from financing activities was from repayment of long-term and short-term debt activities during the nine months ended September 30, 2014.
Liquidity and Capital Resources
As of September 30, 2015, our total assets were $4,083,355 and our total liabilities were $9,554,714. We had cash of $105,882, current assets of $2,657,103, and current liabilities of $9,476,157. We had a working capital deficit of $6,819,054 on that date. We will require additional capital to fund our losses and working capital deficits and to grow our business to recapture our decline in sales. For this most recent quarter, we remained dependent on our working capital lines and extended credit terms with our vendors to meet our cash requirements. We expect this situation to continue for the foreseeable future until we are able to raise additional capital on acceptable terms. While we anticipate further increases in operating cash flows, we will continue to require additional capital through equity financing and/or debt financing, if available, which may result in further dilution in the equity ownership of our shares and will continue to rely on our extended payment terms with vendors. There is still no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock or for our vendors to continue cooperating with us as they have in the past. Furthermore, we may continue to be unprofitable and/or unable to grow our sales at a level where we can become profitable.
Working Capital
We estimate that our general operating expenses for the next twelve months will decrease as we focus on reducing expenses and achieving profitability based on our current level of sales. Professional and consulting fees, administrative salaries, telephone, office and warehouse rent, and ongoing legal, accounting, and audit expenses to comply with our reporting responsibilities as a public company under the Securities Exchange Act of 1934, as amended, are expected to remain the same. Any increase in field operating expenses will be due to increases in field operating personnel, travel and other sales support expenses only as the demands from current and new customers increase.
Cash Requirements
Our plan of operations for the next twelve months involves the growth of our production petrochemical business through the expansion of regional sales, and the research and development of new chemical and analytical services. As of September 30, 2015, our Company had cash of $105,882 and a working capital deficit of $6,819,054.
We generated a net loss of $1,245,043 for the nine months ended September 30, 2015. We estimate that our needs for additional capital to fund our working capital deficits, become current with our vendors, pay off certain debts and implement our growth plans for the next twelve months to be $5,000,000 to $7,000,000. However, the prospects for raising such capital will be difficult with the current financial condition of the Company and our stock. Furthermore, if any growth and expansion requires more capital or operating expenses and/or capital expenditures exceed estimates, we will require additional monies during the next twelve months tosuccessfully execute our business plan. To date, we have been dependent on debt financing and special payment terms with our vendorsmarketing strategy, respond to meet our cash requirements. We expect this situation to continue for the foreseeable future.competitive developments, and attract, retain, and motivate qualified personnel. There can be no assurance that we will be successful in raisingaddressing such risks, and the required additional capital or that actual cash requirements will not exceed our estimates. These funds may be raised through equity financing and/or debt financing which may result in further dilution in the equity ownership of our shares. There is still no assurance that we will be ablefailure to raise any funding or to maintain operations atdo so could have a level sufficient for an investor to obtain a returnmaterial adverse effect on his investment in our common stock. Furthermore, we may continue to be unprofitable and/or unable to grow our sales at a level where we can become profitable.
We can offer no assurance that our company will generate cash flow sufficient to continue our growth, achieve consistently profitable operations or that we can meet or exceed our projections. If our expenses exceed estimates, we will require additional monies during the next twelve months to execute our business plan. There are no assurances that we will be able to obtain funds required for our continued operation. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain additional financing on a timely basis, we will not be able to meet our other obligations as they become dueprospects, financial condition, and we will be forced to scale down our operations.
Going Concern
Due to our net losses, negative cash flow and negative working capital asresults of September 30, 2015, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern in their report on our audited financial statements for the year ended December 31, 2014.
Since inception and through September 30, 2015, we have incurred losses totaling $28,103,427. Because of these historical losses, we will require additional working capital to develop our business operations. We intend to raise additional working capital on the most commercially reasonable terms through private placements, bank financing and/or advances from related parties or shareholder loans.
The continuation of our business is dependent upon obtaining further financing and achieving consistently profitable operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current or future stockholders. Obtaining commercial loans, assuming those loans are available, will increase our liabilities and future cash commitments.
There are no assurances that we will be able to achieve a level of revenue adequate to generate profitability. To the extent that funds generated from operations and any private placements and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to us. If adequate working capital is not available we may not be able to grow our business and increase cash flow from our operations.
These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Off-Balance Sheet Arrangements
Our company has no outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. Our company does not engage in trading activities involving non-exchange traded contracts.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operation areoperations is based upon the condensed consolidatedon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, in the United States of America. Preparationor “GAAP.” The preparation of these financial statements requires us to make estimates and judgmentsassumptions that affect the reported amounts of assets and liabilities, revenuesdisclosure of contingent assets and expenses. There have been no changesliabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are fully described in Note 2 to our criticalfinancial statements appearing elsewhere in this Quarterly Report, and we believe those accounting policies from those describedare critical to the process of making significant judgments and estimates in the preparation of our annual report on Form 10-K for the year ended December 31, 2014.financial statements.
ITEM 3. – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKOff-Balance Sheet Arrangements
Not applicable.None.
ITEM 4. – CONTROLS AND PROCEDURESItem 3. Quantitative And Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide the information called for by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and ProceduresProcedures.
As required byOur management is responsible for establishing and maintaining a system of “disclosure controls and procedures” (as defined in Rule 13a-1513a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this quarterly report, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company’s management, including our President and Chief Executive Officer. Based uponAct) that evaluation, our President and Chief Executive Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report. There have been no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
Disclosure controls and procedures and other procedures that areis designed to ensure that information required to be disclosed by us in ourthe reports filedthat we file or submittedsubmit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported, within the time periodperiods 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 by an issuer in ourthe reports filedthat it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including our Presidentits principal executive officer or officers and Chief Executive Officer,principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
PART II - OTHER INFORMATIONManagement’s Report on Internal Control over Financial Reporting.
ITEM 1. – LEGAL PROCEEDINGSOur 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.
Daniel A. Spencer v. ESP Advanced Technologies, Inc.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 March 31, 2021, 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 three months ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The District CourtCompany may be involved in certain legal proceedings that arise from time to time in the ordinary course of Caddo Parish, Louisiana entered a default judgment in favorits business. Legal expenses associated with any contingency are expensed as incurred. The Company’s officers and directors are not aware 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 remediesany threatened or pending litigation 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,which the Company filedis a trade secret infringement lawsuit to protectparty or which any of its rights against a former employee, a competitorproperty is the subject 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 sellwhich would have 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.
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 the Company 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 the Company and Ledesma and Turf, whereby the Company 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. The Settlement Agreement was fully satisfied during the three months ending March 31, 2015.
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, the Company filed its Answer. On November 25, 2013, Madoff filed its First Amended Petition alleging that the Company 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, the Company 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 annummaterial, adverse effect on the total amount of the judgment from the date immediately following entry of the judgment until paid. On April 15, 2014, the Company filed its Notice of Appeal of the Final Judgment with the First Court of Appeals, Houston, Texas. On September 30, 2014, the Company filed its Brief for the Appellant. On July 30, 2014, Madoff filed its Brief for the Appellee. On August 18, 2014, the Company filed its Reply Brief for the Appellant. In August 2014, Madoff and the Company, in order to avoid the further expense of litigation, jointly prepared a Forbearance and Payment Agreement, effective August 11, 2014, whereby the Company agreed to pay Madoff $130,000.00 pursuant to a payment schedule of $30,000 per month for eleven months. On September 3, 2014, Andrew Madoff, CEO of Madoff Energy Holdings, Inc., died. On September 18, 2014, Madoff and the Company 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. On April 21, 2015, the First Court of Appeals directed the parties to advise the Court of the status of the proceedings or file a motion to reinstate and dismiss the appeal. On May 4, 2015, Appellant ESP Resources, through letter motion, requested that the First Court of Appeals dismiss the appeal. On May 21, 2015, the First Court of Appeals granted Appellant ESP Resources, Inc.’s Motion to Dismiss the Appeal.Company.
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, due on September 30, 2012; and two promissory notes in sum of $100,000, each, due on September 30, 2012 when ESP allegedly failed to pay the $73,006 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 the Company’s No-Evidence Motion for Summary Judgment. On September 12, 2014, the Company filed its Reply to BWC’s Response to the Company’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. On May 8, 2015, the Court issued a Final Judgment and Order in the amount of $444,000 against the Company, disposing of all parties and all claims and was appealable by the Company. On June 5, 2015, the Company filed a Motion for a New Trial. On June 19, 2015, BWC filed its Response to the Company’s Motion for a New Trial. On July 9, 2015, the Company filed its Reply to BWC’s Response to the Company’s Motion for a New Trial. On July 10, 2015, the Court issued an order denying the Company’s Motion for a New Trial. On or about August 9, 2015 the Company filed a notice of appeal. On November 11, 2015 the Company filed its appellate brief. BWC’s Brief in Response is due to be filed December 11, 2015.
Internal Revenue Service
The Internal Revenue Service (“IRS”) has alleged ESP Ventures, Inc. and ESP Petrochemicals, Inc., the Company’s subsidiaries, have failed to pay certain of their payroll taxes. The subsidiaries are working with the IRS to reach a mutually beneficial agreement.
ITEMItem 1A. RISK FACTORSRisk Factors.
Reference is made to the risks and uncertainties disclosed in Item 1A (“Risk Factors”) of our Annual Report on Form 10-K for the period ended December 31, 2020 which sections are incorporated by reference into this report, as the same may be updated from time to time. Prospective investors are encouraged to consider the risks described in our 2020 Form 10-K, and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Report and other information publicly disclosed or contained in documents we file with the Securities and Exchange Commission before purchasing our securities.
As a smaller reporting company, (as defined in Rule 12b-2 of the Exchange Act), we areCompany is not required to providedisclose material changes to the information called for by this Item 1A.risk factors that were contained in the 2020 Form 10-K.
ITEMItem 2. – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSUnregistered Sales of Equity Securities and Use Of Proceeds.
None.
ITEMItem 3. – DEFAULTS UPON SENIOR SECURITIESDefaults Upon Senior Securities.
None.
ITEMItem 4. – MINE SAFETY DISCLOSURESMine Safety Disclosures.
Not Applicable.applicable.
ITEMItem 5. – OTHER INFORMATIONOther Information.
None.
The exhibits listed on the Exhibit Index below are provided as part of this report.
| Exhibit No. | Description | |
| Certification of principal executive and | ||
| 32.1* | Certification | |
| XBRL INSTANCE | ||
| 101.SCH* | XBRL TAXONOMY EXTENSION SCHEMA | |
| 101.CAL* | XBRL TAXONOMY EXTENSION CALCULATION | |
| 101.DEF* | XBRL TAXONOMY EXTENSION DEFINITION | |
| 101.LAB* | XBRL TAXONOMY EXTENSION LABELS | |
| 101.PRE* | XBRL TAXONOMY EXTENSION PRESENTATION |
* Filed herewith
herewith.
In accordance with Section 13 or 15(d)Pursuant to the requirements 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. | |||
| By: | /s/ David | ||
| David | Lazar | ||
Chief Executive Officer and | |||
Chief Financial Officer | |||
Principal Executive Officer, | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.