Note 1 - Organization and Basis of Presentation | 3 Months Ended |
Mar. 31, 2015 |
Disclosure Text Block [Abstract] | |
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] | Note 1 – Organization and Basis of Presentation |
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Organization |
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ESP Resources, Inc. (“ESP Resources”, and collectively with its subsidiaries, “we, “our” or the “Company”) was incorporated in the State of Nevada on October 27, 2004. The accompanying consolidated financial statements include the accounts of ESP Resources, Inc. and its wholly owned subsidiaries, ESP Petrochemicals, Inc. of Louisiana (“ESP Petrochemicals”), ESP Ventures, Inc. of Delaware (“ESP Ventures”), ESP Corporation, S.A., a Panamanian corporation (“ESP Corporation”) and ESP Payroll Services, Inc. of Nevada (“ESP Payroll”). On July 11, 2012, the Company formed two partially owned subsidiaries in Delaware, ESP Advanced Technologies, Inc., and ESP Facility & Pipeline Services, Inc. On December 19, 2012, the Company formed a partially owned subsidiary in Nevada, IEM, Inc. |
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On September 7, 2011, the Company became a 49% partner in a new entity, ESP Marketing, LLC. The Company’s management will direct the operations of the business and the Company will 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 will direct the operations of the business and the Company will receive 60% of the profits. All significant inter-company balances and transactions have been eliminated in the consolidated financial statements. |
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On June 11, 2013, the board of directors decided to cease operations of various subsidiaries, including ESP Facility and Pipeline Services, Inc., ESP Advanced Technologies, Inc., ESP KUJV Limited Joint Venture and ESP Marketing Group LLC. The Board determined that certain activities should be closed and that unused assets, mainly vehicles and equipment, be sold. |
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Basis of Presentation |
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The accompanying unaudited condensed interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America and with the rules and regulations of the Securities and Exchange Commission to Form 10-Q and Article 8 of Regulation S-X. These unaudited condensed interim consolidated financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2014 and notes thereto contained 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. |
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Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed |
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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. |
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Use of Estimates |
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The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
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Restricted Cash |
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Under the terms of the Factoring payable, the Company may obtain advances of up to 100% of the amount of eligible accounts receivable, subject to a 0.75% per 15 days factoring fee, with 10% held in a restricted cash reserve account, which is released to the Company upon payment of the receivable. As of March 31, 2015 and December 31, 2014, restricted cash totaled $110,598 and $283,392, respectively. |
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Accounts Receivable and Allowance for Doubtful Accounts |
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The Company generally does not require collateral, and the majority of its trade receivables are unsecured. The carrying amount for accounts receivable approximates fair value. |
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Accounts receivable consisted of the following as of March 31, 2015 and December 31, 2014: |
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| | March 31, | | | December 31, | |
2015 | 2014 |
Trade receivables | | $ | 1,849,844 | | | $ | 2,265,534 | |
Less: Allowance for doubtful accounts | | | (170,000 | ) | | | (155,000 | ) |
Net accounts receivable | | $ | 1,679,844 | | | $ | 2,110,534 | |
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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. |
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Inventories |
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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. |
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As of March 31, 2015 and December 31, 2014, inventory consisted of the following: |
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| | March 31, | | | December 31, | |
2015 | 2014 |
Raw materials | | $ | 496,600 | | | $ | 412,978 | |
Finished goods | | | 623,449 | | | | 574,756 | |
Total inventory | | $ | 1,120,049 | | | $ | 987,734 | |
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Derivatives |
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The valuation of our embedded derivatives and warrant derivatives are determined primarily by the multinomial distribution (Lattice) model. An embedded derivative is a derivative instrument that is embedded within another contract, which under the convertible note (the host contract) includes the right to convert the note by the holder, certain default redemption right premiums and a change of control premium (payable in cash if a fundamental change occurs). In accordance with Accounting Standards Codification (“ASC”) 815 “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: |
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● | Level 1 - | unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. | | | | | | |
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● | Level 2 - | inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. | | | | | | |
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● | Level 3 - | unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. | | | | | | |
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This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. |
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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. |
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Concentration |
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The Company has four major customers that together account for 53% of accounts receivable at March 31, 2015 and 41% of the total revenues earned for the period ended March 31, 2015. |
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| | Accounts | | | Revenue | |
Receivable |
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Customer A | | | 16 | % | | | 17 | % |
Customer B | | | 14 | % | | | 14 | % |
Customer C | | | 12 | % | | | 3 | % |
Customer D | | | 11 | % | | | 7 | % |
| | | 53 | % | | | 41 | % |
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The Company has three vendors that accounted for 34%, 31%, and 23% of purchases for the three months ended March 31, 2015. |
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The Company has five major customers that together account for 63% of accounts receivable at March 31, 2014 and 58% of the total revenues earned for the period ended March 31, 2014. |
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| | Accounts | | | Revenue | |
Receivable |
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Customer A | | | 19 | % | | | 13 | % |
Customer B | | | 15 | % | | | 25 | % |
Customer C | | | 10 | % | | | 6 | % |
Customer D | | | 10 | % | | | 6 | % |
Customer E | | | 9 | % | | | 8 | % |
| | | 63 | % | | | 58 | % |
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The Company has three vendors that accounted for 54%, 13% and 12% of purchases for the three months ended March 31, 2014. |
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Revenue and Cost Recognition |
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The Company through its wholly owned subsidiary, ESP Petrochemicals, Inc., is a custom formulator of petrochemicals for the oil and gas industry. Since the products are specific to each location, the receipt of an order or purchase order starts the production process. Once the blending takes place, the order is delivered to the land site or dock. When the containers of blended petrochemicals are off-loaded at the dock, or are stored on the land site, a delivery ticket is obtained, an invoice is generated and Company recognizes revenue. The invoice is generated based on the credit agreement with the customer at the agreed upon price. |
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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. |
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Stock-based Compensation |
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The Company accounts for stock-based compensation to employees in accordance with FASB ASC 718. Stock-based compensation to employees is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite employee service period. The Company accounts for stock-based compensation to non-employees in accordance with FASB 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. |
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Fair Value of Financial Instruments |
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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. |
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Reclassification |
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Certain accounts in the prior period were reclassified to conform to the current period financial statements presentation. |
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Recently Issued Accounting Pronouncements |
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During the period ended March 31, 2015 and through May 15, 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 consolidated financial statements. |
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