10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

oQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

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

For the transition period from ____________ to ____________

Commission file number000-52506

ESP RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Nevada	98-0440762
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

111 Lions Club Street, Scott, LA  70583

(Address of principal executive offices) (Zip Code)

(337) 706-7056

(Issuer’s telephone number)

______________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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 No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  111,362,067 common shares issued and outstanding as of May 12, 2012.

PART I - FINANCIAL INFORMATION

ITEM 1. – FINANCIAL STATEMENTS

It is the opinion of management that the interim financial statements for the quarter ended March 31, 2012 include all adjustments necessary in order to ensure that the interim financial statements are not misleading.

ESP Resources, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31,			December 31,
	2012			2011
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	150,725		$	126,456
Restricted cash		158,677			192,198
Accounts receivable, net		2,042,219			1,920,933
Inventories, net		1,681,516			1,571,889
Prepaid expenses and other current assets		241,428			360,525
Total Current Assets		4,274,565			4,172,001
Property and equipment, net of accumulated depreciation of $875,550 and $750,519, respectively		2,750,932			2,690,122
Other assets		80,406			50,262
Total Assets	$	7,105,903		$	6,912,385
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	1,790,033		$	1,574,521
Factoring payable		1,586,770			1,642,285
Accrued expenses		352,854			387,465
Due to related parties		58,014			76,286
Guarantee liability		120,000			120,000
Short-term debt		196,748			270,528
Current maturities of long-term debt		803,106			701,016
Current portion of capital lease obligation		111,401			113,401
Total Current Liabilities		5,018,926			4,885,502
Long-term debt (less current maturities)		908,392			1,032,135
Long-term convertible debt (less current maturities)		47,895
Capital lease obligations (less current maturities)		185,307			191,319
Contingent consideration payable for acquisition of Turf		31,437			31,437
Deferred lease cost		25,000			25,000
Total Liabilities		6,216,957			6,165,393
STOCKHOLDERS' EQUITY
Common stock - $0.001 par value, 350,000,000 shares authorized, 111,362,067 and 110,000,008 shares issued and outstanding, respectively		111,362			110,000
Preferred stock - $0.001 par value, 10,000,000 shares authorized in 2011, zero outstanding		-			-
Additional paid-in capital		15,651,424			15,115,452
Subscription receivable		(1,000	)		(1,000	)
Accumulated deficit		(14,872,840	)		(14,477,460	)
Total Stockholders' Equity		888,946			746,992
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	7,105,903		$	6,912,385

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

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ESP Resources, Inc.

Condensed Consolidated Statements of Operations

For the three months ended March 31, 2012 and 2011

(Unaudited)

	March 31,
	2012			2011
SALES, NET	$	4,289,985		$	1,815,156
COST OF GOODS SOLD		2,226,523			1,027,991
GROSS PROFIT		2,063,462			787,165
General and administrative expenses		2,141,820			1,416,365
Depreciation and amortization		151,580			128,453
Loss on disposal of assets		4,085			-
LOSS FROM OPERATIONS	$	(234,023	)	$	(757,653	)
OTHER INCOME (EXPENSE)
Interest expense		(42,641	)		(36,263	)
Factoring fees		(109,731	)		(46,814	)
Amortization of debt discount		(10,479	)		-
Other income, net		1,473			1,232
Interest income		21			34
Total other expense		(161,357	)		(81,811	)
NET LOSS	$	(395,380	)	$	(839,464	)
NET LOSS PER SHARE (basic and diluted)	$	(0.00	)	$	(0.01	)
WEIGHTED AVERAGE SHARES OUTSTANDING		110,151,678			89,759,155

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

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ESP Resources, Inc.

Condensed Statement of Stockholders’ Equity

For the three months ended March 31, 2012

(Unaudited)

	Common Stock						Subscription			Accumulated
	Number		Par Value		APIC		Receivable			Deficit			Total
Balance, December 31, 2011		110,000,008	$	110,000	$	15,115,452	$	(1,000	)	$	(14,477,460	)	$	746,992
Stock-based compensation						314,746					-			314,746
Shares issued in connection with accounts payable conversion		166,434		167		26,130					-			26,297
Shares issued with private placement		1,195,625		1,195		123,805					-			125,000
Value of warrants and benefical conversion feature of convertible debt						71,291								71,291
Net loss		-		-		-		-			(395,380	)		(395,380	)
Balance, March 31, 2012		111,362,067	$	111,362	$	15,651,424	$	(1,000	)	$	(14,872,840	)	$	888,946

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

4

ESP Resources, Inc.

Condensed Consolidated Statements of Cash Flow

For the three months ended March 31, 2012 and 2011

(Unaudited)

	March 31,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(395,380	)	$	(839,464	)
Adjustments to reconcile net loss to net cash
used for operating activities:
Amortization of debt discount		10,479			-
Loss on disposal of assets		4,085			-
Depreciation and amortization, net of disposals		151,580			127,453
Bad debt expense		9,000			-
Stock-based compensation		314,746			201,305
Changes in operating assets and liabilities:
Accounts receivable		(130,286	)		254,906
Inventory		(109,627	)		(185,047	)
Prepaid expenses and other current assets		119,097			31,724
Other assets		(30,144	)		(2,887	)
Accounts payable		215,512			(141,767	)
Accrued expenses		(8,314	)		(13,495	)
Accrued expense to related parties		(18,272	)		8,996
CASH (USED IN) / PROVIDED BY OPERATING ACTIVITIES	$	132,476		$	(558,276	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash		33,521			8,618
Purchase of fixed assets		(105,673	)		(206,503	)
CASH USED IN INVESTING ACTIVITIES	$	(72,152	)	$	(197,885	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on debt		130,000			-
Repayment of long-term debt		(208,414	)		(73,972	)
Repayment of capital leases		(27,126	)		(5,306	)
Net factoring advances		(55,515	)		(66,307	)
Proceeds from sales of units in private placement, net		125,000			765,439
CASH (USED IN) / PROVIDED BY FINANCING ACTIVITIES	$	(36,055	)	$	619,854
NET INCREASE (DECREASE) IN CASH		24,269			(136,307	)
CASH AT BEGINNING OF PERIOD		126,456			531,290
CASH AT END OF PERIOD	$	150,725		$	394,983
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	138,847		$	65,139
Non-cash investing and financing transactions:
Notes issued for purchase of property and equipment	$	91,668		$	330,856
Discount on notes payable from warrants and beneficial conversion features	$	71,291		$	-
Stock issued for debt conversion	$	26,297		$	51,750
Placement agent warrantS at fair value for private placement	$	-		$	239,847

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

5

ESP Resources, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2012

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

Basis of Presentation

ESP Resources, Inc. (“ESP Resources”, and collectively with its subsidiaries, “we, “our” or the “Company”) was incorporated in the State of Nevada on October 27, 2004.  The accompanying unaudited condensed consolidated financial statements include the accounts of ESP Resources, Inc. and its wholly owned subsidiaries, ESP Petrochemicals, Inc. of Louisiana (“ESP Petrochemicals”) and ESP Resources, Inc. of Delaware (“ESP Delaware”).  ESP Petrochemicals also owns certain assets and liabilities of Turf Chemistry Inc. (“Turf”), a Texas corporation.  On September 7, 2011 the Company became a 49% partner in a new entity for which the management of ESP Resources will direct the operations of and receive 80% of the profits.  All significant inter-company balances and transactions have been eliminated in the consolidation.  The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America.  Any reference herein to “ESP Resources”, the “Company”, “we”, “our” or “us” is intended to mean ESP Resources, Inc. including the wholly-owned subsidiaries indicated above, unless otherwise indicated.

Use of Estimates

The preparation of the unaudited condensed consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Interim Financial Statements

The condensed unaudited consolidated financial statements presented herein have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) and the accounting policies set forth in its audited consolidated financial statements for the period ended December 31, 2011 as filed with the Securities and Exchange Commission (the “SEC”) in the Company’s Annual Report on Form 10-K and should be read in conjunction with the notes thereto.  In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) which are necessary to provide a fair presentation of operating results for the interim periods presented.  Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.  The results of operations presented for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the year.  These condensed consolidated financial statements should be read in connection with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

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Concentrations

The Company has three major customers that together account for 53% of accounts receivable as of March 31, 2012 and 73% of the total revenues earned for the three months ended March 31, 2012 as follows:

	Accounts Receivable			Revenue
Customer A		24	%		20	%
Customer B		22	%		27	%
Customer C		7	%		26	%
Totals:		53	%		73	%

The Company has two vendors that accounted for 77% of chemical purchases during the three months ended March 31, 2012 and 52% of the ending accounts payable at March 31, 2012 as follows:

	Accounts Payable			Purchases
Vendor A		42	%		61	%
Vendor B		10	%		16	%
Totals:		52	%		77	%

Revenue and Cost Recognition

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

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

Basic and Diluted Loss Per Share

Basic and diluted earnings or loss per share (EPS) amounts in the consolidated financial statements are computed in accordance Accounting Standard Codification (ASC) 260 – 10 “Earnings per Share”, which establishes the requirements for presenting EPS.  Basic EPS is based on the weighted average number of common shares outstanding.  Diluted EPS is based on the weighted average number of common shares outstanding and dilutive common stock equivalents.  Basic EPS is computed by dividing net income or loss available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period.  Potentially dilutive securities were excluded from the calculation of diluted loss per share, because their effect would be anti-dilutive.

Accounts Receivable and Allowance for Doubtful Accounts

The Company generally does not require collateral, and the majority of its trade receivables are unsecured.  The carrying amount for accounts receivable approximates fair value.

Accounts receivable consisted of the following as of March 31, 2012 and December 31, 2011:

	March 31, 2012			December 31, 2011
Trade receivables	$	2,200,620		$	2,070,334
Less: Allowance for doubtful accounts		(158,401	)		(149,401	)
Net accounts receivable	$	2,042,219		$	1,920,933

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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.

Recently Issued Accounting Pronouncements

The Company does not expect that the adoption of recently issued accounting pronouncements will have a material impact on its financial position, results of operations, or cash flows.

Note 2 – Going Concern

The Company has had a history of net losses through the three months ended March 31, 2012.  This factor raises substantial doubt about the Company's ability to continue as a going concern.  The unaudited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.  The Company's ability to continue operations will likely require additional capital.  This condition raises substantial doubt about the Company’s ability to continue as a going concern.  We expect cash flows from operating activities to improve, primarily as a result of an increase in revenue, although there can be no assurance thereof.  The accompanying unaudited consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.  If we fail to generate more significant positive cash flows or obtain additional financing, when required, we may have to modify, delay, or abandon some or all of our business and expansion plans.

Note 3 – Inventory

Inventory represents raw and blended chemicals and other items valued at the lower of cost or market with cost determined using the first-in first-out method, and with market defined as the lower of replacement cost or realizable value.  Inventory consisted of the following as March 31, 2012 and December 31, 2011:

	March 31, 2012		December 31, 2011
Raw materials	$	943,249	$	831,504
Finished goods		738,267		740,385
Total inventory	$	1,681,516	$	1,571,889

Note 4 – Long-Term Debt

On January 30, 2012, the Company purchased a vehicle by issuing debt of $59,744 with an annual interest rate of 6.4% and a term of 36 months.  On March 19, 2012 the Company purchased a vehicle by issuing debt of $50,328 with an annual interest rate of 5.9% and a term of 36 months.

On January 27, 2012, the Company received proceeds of $130,000 from the sale of 16% Convertible Subordinated Debentures (the “Debentures”).  The Debentures are subordinate to all other secured debt of the Company, pay 16% interest per annum in cash quarterly and are convertible into the Company’s common stock by the investors at any time at a minimum conversion price per share of $.15.  On March 1, 2013, June 1, 2013 and September 1, 2013, the Company shall redeem one quarter, one quarter and one half, respectively, of the face value of the balance of the 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 and determined equity classification was appropriate.  The Company then analyzed the conversion option under ASC 470-20 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.

8

Note 5 – Stockholders’ Equity

Common stock issued for services

On January 13 2012, the Company issued 166,434 shares of its common stock to a vendor for settlement of Accrued expenses related to services rendered.  The shares were valued at $12,297 and recorded as stock based compensation. In addition for the period ended March 31, 2012 the Company amortized $101,949 of stock based compensation resulting from stock and warrants issued in previous periods.

Warrants issued

The following table reflects a summary of Common Stock warrants outstanding and warrant activity during 2012:

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Term (Years)
Warrants outstanding at December 31, 2011		75,317,618		$	0.51		0.6
Granted during the period		1,866,667			0.15		3.0
Exercised during period
Forfeited during the period		(13,535,716	)		0.55
Warrants outstanding at March 31, 2012		63,648,569		$	0.49		0.5

On January 27, 2012, as discussed in Note 4, the Company granted 866,667 warrants in conjunction with the issuance of 16% Convertible Subordinated Debentures.

On January 31, 2012 the Company granted 1,000,000 warrants for consulting services at an exercise price of $0.15.  The Company valued the warrants at a fair value of $78,604 using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.10; warrant term of 3 years; expected volatility of 180%; and discount rate of 0.31%.  The Company is amortizing the warrants over the one year term of the agreement and recognized $13,101 of expense during the three months ended March 31, 2012.

Stock Option Awards

The Company has recognized compensation expense of $199,696 on the stock options granted in prior years that vested during the current period for the three months ended March 31, 2012.  The fair value of the unvested shares is $498,035 as of March 31, 2012.

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, 2011		25,600,000		$	0.14		8.85
Granted				$
Exercised		-			-		-
Expired/Forfeited		(837,000	)		0.15		9.4
Outstanding at March 31, 2012		24,763,000		$	0.14		8.77
Exercisable at March 31, 2012		14,400,000		$	0.14		8.84

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LPC Agreement

On September 16, 2010, the Company signed a $5 million purchase agreement with Lincoln Park Capital Fund, LLC (“LPC”), an Illinois limited liability company.  Upon signing the agreement, we received $100,000 from LPC as an initial purchase under the $5 million commitment in exchange for 666,667 shares of our common stock and warrants to purchase 666,667 shares of our common stock at an exercise price of $0.20 per share.  The Company also issued 1,181,102 of shares of common stock as a commitment fee valued at $159,449.

The Company also entered into a registration rights agreement with LPC whereby the Company agreed to file a registration statement related to the transaction with the U.S. Securities & Exchange Commission (“SEC”) covering the shares that may be issued to LPC under the purchase agreement.  After the SEC had declared effective the registration statement related to the transaction on December 22, 2010, the Company has the right, in its sole discretion, over a 30-month period to sell its shares of common stock to LPC in amounts up to $500,000 per sale, depending on certain conditions as set forth in the purchase agreement, up to the aggregate commitment of $5 million.

There are no upper limits to the price LPC may pay to purchase the Company’s common stock.  The purchase price of the shares related to the $4.9 million of future funding will be based on the prevailing market prices of the Company’s shares immediately preceding the time of sales without any fixed discount, and the Company will control the timing and amount of any future sales of shares to LPC.  LPC shall not have the right or the obligation to purchase any shares of common stock on any business day that the price of our common stock is below $0.10.  In addition, the Company will issue to LPC up to 1,181,102 shares pro rata as LPC purchases the remaining $4.9 million as additional consideration for entering into the purchase agreement.  The purchase agreement may be terminated by the Company at any time at the Company’s discretion without any cost to the Company.  Except for a limitation on variable priced financings, there are no financial or business covenants, restrictions on future fundings, rights of first refusal, participation rights, penalties or liquidated damages in the agreement.

On April 20, 2011, pursuant to the LPC agreement described herein, the Company delivered a regular purchase notice to LPC to purchase $25,000 of the Company’s common stock, or 193,996 shares.  Subsequent to this transaction, there are remaining 14,812,030 additional shares that the Company may sell to LPC, 1,181,102 shares already issued as a commitment fee, and 1,175,076 additional commitment shares that the Company may issue on a pro rata basis as up to an additional $4,875,000 of the Company’s stock is purchased by LPC.

From January 1, 2012 through March 6, 2012, the Company delivered regular purchase notices for transactions with LPC to sell 1,195,625 common shares and received $125,000.

Note 6 – Related Party Transactions

As of December 31, 2011, the Company owed shareholders and management a total of $76,286. As of March 31, 2012, the Company had balances due to shareholders and management a total of $58,014.

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ITEM 2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements as that term is defined in Section 27A of the United States Securities Act of 1933 and Section 21E of the United States Securities Exchange Act of 1934.  These statements relate to future events or our future financial performance.  In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology.  These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” in the Company’s Form 10-K, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Financial information contained in this quarterly report is prepared in accordance with United States generally accepted accounting principles.  The following discussion should be read in conjunction with our audited consolidated financial results on Form 10-K for December 31, 2011 and the related notes that appear elsewhere in this quarterly report.  As used in this quarterly report, and unless otherwise indicated, the terms “we”, “us” and “our” mean ESP Resources, Inc., unless otherwise indicated.

Corporate History

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

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

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

On July 29, 2011 the shareholders decreased the authorized shares of our common stock from 1,200,000,000 shares to 350,000,000 shares and authorized a new class of stock, preferred stock having 10,000,000 shares of stock authorized at $.001 par value.

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 subsidiary, ESP Petrochemicals, Inc., unless otherwise indicated.

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 via a high level of innovation.  We focus our efforts on solving problems at the drilling site or well with a highly complex integration of chemicals and processes to achieve the highest level of quality petroleum output.  Constant management of our chemical applications at the drilling site or well, continuous monitoring of the productivity and outflow levels of oil & gas and listening to our customers with their changing demands and applying our skills as chemical formulators enables us to measure the impact we have in our business.

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We act as manufacturer, distributor and marketer of specialty chemicals and supply specialty chemicals for a variety of oil and gas field applications including killing bacteria, separating suspended water and other contaminants from crude oil, separating the oil from the gas, pumping enhancement, pumping cleaning, as well as a variety of fluids and additives used in the drilling and production process.  At each well that is in production, there exists a number of factors that make each site unique.  These include the depth of the producing formation, the bottom-hole temperature of the producing well, the size of the 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 lines for the oil and gas products.  Wells that are operating short distances from each other in the same field can have very different characteristics.  This variance in operating conditions, chemical makeup of the oil, and the usage of diverse equipment requires a very specific chemical blend to be used if maximum drilling and production well performance is to be attained.

Our customers are typically the 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 to our customers in principally two main areas: completion petrochemicals and production petrochemicals.

Completion Petrochemicals

Our completion petrochemicals are primarily used during the completion stage of oil or gas wells that are drilled in various shale formations in the United States.  After a well is drilled, we deliver a specialized chemical equipment trailer, or chemical delivery unit, that is used in the pumping of chemicals during the hydraulic fracturing process.  Hydraulic fracturing, or fracking, is a technology used to inject a fluid into a well to create fractures in the minerals containing the oil or gas.  Usually the fluid is water, sand, and chemical additives.  Our chemical delivery units pump chemicals to treat the fluids used in the completion of the oil and gas wells during the fracking process.  Each unit consists of a trailer mounted pumping system with associated power generation components, a chemical supply trailer, safety and spill prevention equipment, communication devices, and computerized reporting equipment.

The units pump treatment chemicals to eliminate the bacteria contamination present in the fluids used in the fracking process.  We have developed a specialized chemical formulation that is intended to provide for a longer term bacteria-contamination elimination time frame than what is currently supplied by our competitors.  The longer term time frame is designed to provide our customers significant cost savings in the removal treatment of contaminants from the oil and gas well-stream once the well has been placed into production.

Once the completion works is concluded at the well, which typically takes between 2-5 days, our chemical delivery units are moved out of the location and sent back to the appropriate district office for the next completion job.

Production Petrochemicals

After a well has been completed and placed into production, we supply production chemicals and services that are designed to be administered throughout the life of the well.  Through the utilization of over 100 base chemicals, we replicate well conditions, analyze the properties of the well, determine the precise mix of chemicals to treat the well and then inject the chemicals in small batches via our specialized equipment.  Our production petrochemicals include, but are not limited to, drilling chemicals, waste remediation chemicals, cleaners and waste treatment chemicals as follows:

●   Surfactants that are highly effective in treating production and injection problems at the customer well- head;

●   Well completion and work-over chemicals that maximize productivity from new and existing wells;

●   Bactericides that kill water borne bacterial growth, thus preventing corrosion and plugging of the customer wellhead and flowline;

●   Scale compounds that prevent or treat scale deposits;

●   Corrosion inhibitors, which are organic compounds that form a protective film on metal surfaces to insulate the metal from its corrosive environment;

●   Antifoams that provide safe economic means of controlling foaming problems;

●   Emulsion breakers, which are chemicals specially formulated for crude oils containing produced waters;

●   Paraffin chemicals that inhibit and/or dissolve paraffin to prevent buildup (their effectiveness is not diminished when used in conjunction with other chemicals); and

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

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Our first goal is to solve our customers’ problem at the well and optimize drilling or production and, secondly, the sale of product.  Typically, our service personnel may gather information at a well and enter this data into the analytical system at each of our five (5) respective district offices located in Scott, Louisiana; Pharr, Texas; Victoria, Texas; Guy, Arkansas and Longview, 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.

Competition

Currently, the market distribution is shared by very few large participants, namely, 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 will need to continually enhance and update our chemical processes and technologies that 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 through the following competitive advantages:

●   Personalized service;

●   Expedited field analysis; and

●   Convenience and access to the best available market rates and products that we can produce and identify that are currently offered by our suppliers for our customers.

Additionally, new companies are constantly entering the market.  This growth and fragmentation could also have a negative impact on our ability to obtain additional market share.  Larger companies which have been engaged in this business for substantially longer periods of time may have access to greater financial resources and industry relationships.  These companies may have greater success in recruiting and retaining qualified employees in specialty chemical manufacturing and marketing, which may give them a competitive advantage.

Government Approval and Regulation

We are subject to federal, state and local environmental laws, rules, regulations, and ordinances, including those concerning emissions and discharges, and the generation, handling, storage, transportation, treatment, disposal and import and export of hazardous materials (“Environmental Laws”).  The operation of the Company's facilities and the distribution of chemical products entail risks under Environmental Laws, many of which provide for substantial remediation costs in the event of discharges of contaminants and fines and sanctions for violations.  Violations of Environmental Laws could result in the imposition of substantial criminal fines and penalties against the Company and their officers and employees in certain circumstances.  The costs associated with responding to civil or criminal matters can be substantial.  Also, significant civil or criminal violations could adversely impact the Company's marketing ability in the region served by the Company.  Compliance with existing and future Environmental Laws may require significant capital expenditures by the Company, although we do not anticipate having to expend significant resources to comply with any governmental regulations applicable to our current operations.

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

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

There can be no assurance that past or future operations will not result in the Company incurring material environmental liabilities and costs or that compliance with Environmental Laws will not require material capital expenditures by the Company, each of which could have a material adverse effect on the Company's results of operations and financial condition.  The Company knows of no existing contamination sites where the company supplies petrochemicals for their current customer locations.  The title for the chemicals that we supply to our customer base passes from us to the customer upon delivery of the chemical to the customer location.  We have insurance that covers accidental spillage and cleanup at our blending location and for transportation to the customer location; however, the customer is responsible for the integrity of the chemical once the chemical blend is delivered to the receiving point of the customer.

Results of Operations

You should read the following discussion of our financial condition and results of operations together with the unaudited interim consolidated financial statements 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, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.

Three Month Period Ended March 31, 2012 Compared to Three Month Period Ended March 31, 2011

The following table summarizes the results of our operations during the three months ended March 31, 2012 and 2011, and provides information regarding the dollar and percentage increase or (decrease) from 2010 to 2011:

	Three Months Ended March,						$ Increase			% Increase
	2012			2011			(Decrease)			(Decrease)
Sales	$	4,289,985		$	1,815,156		$	2,474,829			136	%
Cost of goods sold		2,226,523			1,027,991			1,198,532			117	%
Gross profit		2,063,462			787,165			1,276,297			162	%
Total general and administrative expenses		2,141,820			1,416,365			725,455			51	%
Depreciation and amortization expense		151,580			128,453			23,127			18	%
Loss on disposal of assets		4,085			-			4,085			100	%
Loss from operations		(234,023	)		(757,653	)		523,630			(69	%)
Total other income (expense)		(161,357	)		(81,811	)		(79,546	)		97	%
Net loss	$	(395,380	)	$	(839,464	)	$	444,084			53	%

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Sales

Sales were $4,289,985 for the three months ended March 31, 2012, compared to $1,815,156 for the same period in 2011, an increase of $2,474,829, or 136%.  The increase was mainly due to increased sales volume from petrochemical sales and services to customers engaged in the hydraulic fracturing of oil and gas wells.  In addition, sales increased through increases in sales of production petrochemicals in the Southern Louisiana, South Texas, Southeastern Texas and Arkansas regions.  The addition of field service technicians in the South Texas and Arkansas regions in previous quarters and their sales contacts resulted in a direct increase in sales volumes from these regions.

Cost of goods sold and gross profit

Cost of goods was $2,226,523, or 52% of net sales, for the three months ended March 31, 2012, compared to $1,027,991, or 57% of net sales, for the same period in 2011.  Gross profit was $2,063,462, or 48% of net sales, for the three months ended March 31, 2012, compared to $787,165, or 43% of net sales, for the same period in 2011.  The 5% increase in gross profit for the three month period in 2012 is the result of a decrease in costs as a percentage of sales for certain petrochemical components used to service the Company’s customers engaged in the hydraulic fracturing of oil and gas wells, compared to the same period in 2011.

General and administrative expenses

General and administrative expenses increased by $725,455 for the three months ended March 31, 2012, compared to the same period in 2011.  The increase in general and administrative expenses was primarily due to increases in staff and additions in the Company’s facilities in the Victoria, Texas Region and development of international operations.  The development of international operations included in the general and administrative expenses was $112,000 for the three months ended March 31, 2012, compared to zero for the same period in 2011.

Net loss

The Company’s net loss decreased to $(395,380) for the three months ended March 31, 2012, as compared to a net loss of $(839,464) for the same period in 2011.  The primary reason for the decrease in the net loss was due to a decrease, as a percentage of sales in general and administrative expenses relating to the expansion of our sales from our existing facilities, stock compensation expense, the cost of additional infrastructure to support higher levels of sales in future periods and development of international operations.

Modified EBITDA

Modified Earnings before interest (including Factoring fees), taxes, depreciation amortization and stock-based compensation (“Modified EBITDA”) is a non-GAAP financial measure.  We use Modified EBITDA as an unaudited supplemental financial measure to assess the financial performance of our assets without regard to financing methods, capital structures, taxes or historical cost basis; our liquidity and operating performance over time in relation to other companies that own similar assets and that we believe calculate Modified EBITDA in a similar manner; and the ability of our assets to generate cash sufficient for us to pay potential interest costs.  We also understand that such data are used by investors to assess our performance.  However, the term Modified EBITDA is not defined under generally accepted accounting principles and Modified EBITDA is not a measure of operating income, operating performance or liquidity presented in accordance with generally accepted accounting principles.  When assessing our operating performance or liquidity, investors should not consider this data in isolation or as a substitute for net income, cash flow from operating activities, or other cash flow data calculated in accordance with generally accepted accounting principles. Modified EBITDA for the three months ended March 31, 2012 was $233,776 compared to $(313,222) for the same period in 2011, an increase of $546,998.

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	Three Months Ended March 31, 2012			Three Months Ended March 31, 2011
Net loss	$	(395,380	)	$	(839,464	)
Add back interest and factoring expense, net of interest income		152,351			83,043
Add back depreciation and amortization		162,059			127,453
Add back stock-based compensation		314,746			201,305
Modified EBITDA	$	233,776		$	(427,663	)

Cash Flow Used by Operating Activities

Operating activities provided cash of $132,476 for the three months ended March 31, 2012, compared to use of cash of $(558,276) for the same period in 2011.  The decrease in cash used during the three months ended March 31, 2012 was primarily due to changes in working capital including a decrease in accounts receivable and chemical inventory and an increase in accounts payable.

Cash Flow Used in Investing Activities

Investing activities used cash of $72,152 for the three month period ended March 31, 2012, compared to a use of cash of $197,885 for the three month period ended March 31, 2011.  The net cash used in investing activities during the three months ended March 31, 2012 was a result of the cash used for the acquisition of new delivery and field service vehicles and the purchase of additional field equipment including storage tanks, containment storage devices, and chemical delivery pumps.

Cash Flow Provided by Financing Activities

Financing activities used cash of $(36,055) for the three month period ended March 31, 2012, compared to $619,854 for the three month period ended March 31, 2011.  The net use of cash generated from financing activities during the three months ended March 31, 2012, was a result of repayment of long-term debt and was reduced by the proceeds from the sales of units of convertible debt of $130,000 and the sale of common stock of $125,000.

Liquidity and Capital Resources

As of March 31, 2012, our total assets were $7,105,903 and our total liabilities were $6,216,957.  We had cash of $150,725, current assets of $4,274,565, and current liabilities of $5,018,925 as of March 31, 2012.  We had negative working capital of $(744,360) on that date.  We will require additional funds to implement our growth strategy.  For this most recent quarter, we generated a small increase in cash flows from operations, so we remaineddependent on sales of our equity securities and debt financings to meet our cash requirements.  We expect this situation to continue for the foreseeable future.  While we anticipate further increases in operating cash flows, we will continue to require additional capital 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 able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock.  Furthermore, we may continue to be unprofitable.

Working Capital

We estimate that our general operating expenses for the next twelve month period will remain at their current levels based on our results for the three month period ended March 31, 2012 for 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.  Any increase in field operating expenses will be due to increases in field operating personnel, travel and international expenses as the demands from current and new and existing customers increase.  Specifically, we expect to continue to increase the size of our operating personnel during 2012 as we increase our presence in the Texas regions as well as expansion plans in place for increases in sales in the Southeast Oklahoma and Arkansas regions.

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Cash Requirements

Our plan of operations for the next 12 months involves the growth of our production and completion petrochemical business through the expansion of regional sales, and the research and development of new chemical and analytical services in areas of waste remediation, water treatment and specialty biodegradable cleaning compounds.  As of March 31, 2012, our company had cash of $150,725 and a working capital deficit of ($744,360).

We incurred a net loss of $(395,380) for the three month period ended March 31, 2012.  We estimate that our needs for additional capital for the next twelve month period to be $3,000,000 to $5,000,000.  However, if our operating expenses or capital expenditures exceed estimates, we will require additional monies during the next twelve months to execute our business plan.  To date, we have been dependent on sales of our equity securities and debt financing to meet our cash requirements.  We expect this situation to continue for the foreseeable future.  There can be no assurance that we will be successful in raising 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 able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock.  Further, we may continue to be unprofitable in the foreseeable future.

We can offer no assurance that our company will generate cash flow sufficient to continue our growth, achieve consistently profitable operations or that our expenses will not continue to 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 due and we will be forced to scale down our operations.

Going Concern

Due to our net losses, negative cash flow and negative working capital as of December 31, 2011, 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, 2011.

Since inception, we have incurred losses and through March 31, 2012 totaling $14,872,840.  Because of these historical losses, we will require additional working capital to develop our business operations.  We intend to raise additional working capital through private placements, 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 would be available, will increase our liabilities and future cash commitments.

There are no assurances that we will be able to achieve a level of revenues 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 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.

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Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operation are based upon the condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  Preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.  There have been no changes to our critical accounting policies from those described in our annual report on Form 10-K for the year ended December 31, 2011.

ITEM 3. – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4T. – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this quarterly report, being March 31, 2012, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures.  This evaluation was carried out under the supervision and with the participation of our company’s management, including our company’s President and Chief Executive Officer.  Based upon that evaluation, our company’s President and Chief Executive Officer concluded that our company’s disclosure controls and procedures are ineffective as at the end of the period covered by this report.  There have been no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

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

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PART II - OTHER INFORMATION

ITEM 1. – LEGAL PROCEEDINGS

On March 2, 2012 the Company filed, a trade secret infringement lawsuit to protect its rights against a former employee, a competitor and the officers of the competitor. The petition ESP Petrochemicals, Inc. V. Shane Cottrell, Platinum Chemicals, LLC Ladd Naquin, Andjoe Lauer was filed in the district court of Victoria County, Texas 24th Judicial District and was amended on April 20, 2012.

ITEM 2. – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended March 31, 2012, the Company received proceeds of $130,000 from the sale of 16% Convertible Subordinated Debentures (the “Debentures”).  The Debentures are subordinate to all other secured debt of the Company, pay 16% interest per annum in cash quarterly and are convertible into the Company’s common stock by the investors at any time at a minimum conversion price per share of $.15.  On March 1, 2013, June 1, 2013 and September 1, 2013, the Company shall redeem one quarter, one quarter and one half, respectively, of the face value of the balance of the 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.  Each purchaser of the Debentures represented to the Company that such purchaser is an “accredited investor” within the meaning of Rule 501 of Regulation D.  We sold the Debentures in accordance with Rule 506 of Regulation D under the Securities Act of 1933, as amended.  Proceeds were used for working capital to fund continuing operations.

ITEM 3. – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. – (REMOVED AND RESERVED)

ITEM 5. – OTHER INFORMATION

None.

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ITEM 6. - EXHIBITS

Exhibit Number	Description
1.1	Licensing Agreement with Peter Hughes (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006)
3.1	Articles of Incorporation (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006)
3.2	Bylaws (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006)
3.3	Articles of Merger filed with the Secretary of State of Nevada on September 19, 2007 and which is effective September 28, 2007 (incorporated by reference from our Current Report on Form 8-K filed on September 28, 2007)
3.4	Certificate of Change filed with the Secretary of State of Nevada on September 19, 2007 and which is effective September 28, 2007 (incorporated by reference from our Current Report on Form 8-K filed on September 28, 2007)
4.1	Regulation “S” Securities Subscription Agreement (incorporated by reference from our Registration Statement on Form SB-2 filed on April 18, 2006)
10.1	Share Purchase Agreement dated November 21, 2007 among our company, Pantera Oil and Gas PLC, Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Current Report on Form 8-K filed on November 26, 2007)
10.2	Form of Advisory Board Agreement (incorporated by reference from our Current Report on Form 8-K filed on February 4, 2008)
10.3	Equity Financing Agreement dated February 12, 2008 with FTS Financial Investments Ltd. (incorporated by reference from our Current Report on Form 8-K filed on February 15, 2008)
10.4	Return to Treasury Agreement dated February 26, 2008 with Peter Hughes (incorporated by reference from our Current Report on Form 8-K filed on February 28, 2008)
10.5	Amending Agreement dated March 17, 2008 with Artemis Energy PLC, Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Current Report on Form 8- K filed on March 19, 2008)
10.6	Subscription Agreement dated February 28, 2008 with Trius Energy, LLC (incorporated by reference from our Quarterly Report on Form 10-QSB filed on April 14, 2008)
10.7	Joint Venture Agreement dated February 24, 2008 with Trius Energy, LLC (incorporated by reference from our Quarterly Report on Form 10-QSB filed on April 14, 2008)
10.8	Second Amending Agreement dated July 30, 2008 among our company, Artemis Energy PLC (formerly Pantera Oil and Gas PLC), Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Current Report on Form 8- K filed on August 5, 2008)
10.9	Amended and Restated Share Purchase Agreement dated September 9, 2008 among company, Artemis Energy PLC (formerly Pantera Oil and Gas PLC), Aurora Petroleos SA and Boreal Petroleos SA (incorporated by reference from our Annual Report on for 10-KSB filed on September 15, 2008)
10.10	Agreement dated October 31, 2008 with Lakehills Production, Inc. and a private equity drilling fund (incorporated by reference from our Current Report on Form 8-K filed on November 5, 2008)
10.11	Security Purchase Agreement for 16% Subordinated Convertible Debenture Agreement and warrants (incorporated by reference from our Current Report on Form 10-K filed on  March 22, 2012)
14.1	Code of Ethics (incorporated by reference from our Annual Report on Form 10-KSB filed on August 28, 2007)
31.1*	Certification of Principal Executive Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

__________

*Filed herewith

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SIGNATURES

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

	ESP RESOURCES, INC.
Date: May 15, 2012	By:	/s/ David Dugas
		David Dugas
		Chief Executive Officer and Director
		(Principal Executive Officer and Principal Financial 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.

	ESP RESOURCES, INC.
Date: May 15, 2012	By:	/s/ David Dugas
		David Dugas
		Chief Executive Officer and Director
		(Principal Executive Officer and Principal Financial Officer)
Date: May 15, 2012	By:	/s/ Tony Primeaux
		Tony Primeaux
		Director
Date: May 15, 2012	By:	/s/ William M Cox
		William M. Cox
		Director

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EX-31.1

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF

ESP RESOURCES, INC.

PURSUANT TO § 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David Dugas, certify that:

1.	I have reviewed this annual report on Form 10-Q for the quarter ended March 31, 2012 of ESP Resources, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2012	/s/ DAVID DUGAS
	David Dugas
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER OF

ESP RESOURCES, INC.

PURSUANT TO § 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David Dugas, certify that:

1.	I have reviewed this annual report on Form 10-Q for the quarter ended March 31, 2012 of ESP Resources, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2012	/s/ DAVID DUGAS
	David Dugas
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF

ESP RESOURCES, INC.

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

§ 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of ESP Resources, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Dugas, Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, based on my knowledge, that:

1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ DAVID DUGAS

David Dugas

Chief Executive Officer

May 15, 2012

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER OF

ESP RESOURCES, INC.

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

§ 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of ESP Resources, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Dugas, Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, based on my knowledge, that:

1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ DAVID DUGAS

David Dugas

Chief Financial Officer

May 15, 2012

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.

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Inventory

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Inventory

Inventory represents raw and blended chemicals and other items valued at the lower of cost or market with cost determined using the first-in first-out method, and with market defined as the lower of replacement cost or realizable value. Inventory consisted of the following as March 31, 2012 and December 31, 2011:

	March 31,		December 31,
	2012		2011
Raw materials	$	943,249	$	831,504
Finished goods		738,267		740,385
Total inventory	$	1,681,516	$	1,571,889

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Going Concern

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Going Concern

The Company has had a history of net losses through the three months ended March 31, 2012. This factor raises substantial doubt about the Company's ability to continue as a going concern. The unaudited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's ability to continue operations will likely require additional capital. This condition raises substantial doubt about the Company’s ability to continue as a going concern. We expect cash flows from operating activities to improve, primarily as a result of an increase in revenue, although there can be no assurance thereof. The accompanying unaudited consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. If we fail to generate more significant positive cash flows or obtain additional financing, when required, we may have to modify, delay, or abandon some or all of our business and expansion plans.

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Consolidated Balance Sheets (Unaudited) (USD $)	Mar. 31, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 150,725	$ 126,456
Restricted cash	158,677	192,198
Accounts receivable, net	2,042,219	1,920,933
Inventories, net	1,681,516	1,571,889
Prepaid expenses and other current assets	241,428	360,525
Total current assets	4,274,565	4,172,001
Property and equipment, net of accumulated depreciation of $875,550 and $750,519, respectively	2,750,932	2,690,122
Other assets	80,406	50,262
Total assets	7,105,903	6,912,385
LIABILITIES AND STOCKHOLDERS EQUITY
Accounts payable	1,790,033	1,574,521
Factoring payable	1,586,770	1,642,285
Accrued expenses	352,854	387,465
Due to related parties	58,014	76,286
Guarantee liability	120,000	120,000
Short-term debt	196,748	270,528
Current maturities of long-term debt	803,106	701,016
Current portion of capital lease obligation	111,401	113,401
Total current liabilities	5,018,926	4,885,502
Long-term debt (less current maturities)	908,392	1,032,135
Long-term convertible debt (less current maturities)	47,895	0
Capital lease obligations (less current maturities)	185,307	191,319
Contingent consideration payable for acquisition of Turf	31,437	31,437
Deferred lease cost	25,000	25,000
Total liabilities	6,216,957	6,165,393
STOCKHOLDERS' EQUITY
Common stock - $0.001 par value, 350,000,000 shares authorized, 111,362,067 and 110,000,008 shares issued and outstanding, respectively	111,362	110,000
Preferred stock - $0.001 par value, 10,000,000 shares authorized in 2011, zero outstanding	0	0
Additional paid-in capital	15,651,424	15,115,452
Subscription receivable	(1,000)	(1,000)
Accumulated deficit	(14,872,840)	(14,477,460)
Total stockholders' equity	888,946	746,992
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 7,105,903	$ 6,912,385

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Consolidated Statements of Cash Flows (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (395,380)	$ (839,464)
Adjustments to reconcile net loss to net cash used for operating activities:
Amortization of debt discount	10,479	0
Loss on disposal of assets	4,085	0
Depreciation and amortization, net disposals	151,580	127,453
Bad debt expense	9,000	0
Stock based compensation	314,746	201,305
Changes in operating assets and liabilities:
Accounts receivable	(130,286)	254,906
Inventory	(109,627)	(185,047)
Prepaid expenses and other current assets	119,097	31,724
Other assets	(30,144)	(2,887)
Accounts payable	215,512	(141,767)
Accrued expenses	(8,314)	(13,495)
Accrued expenses to related parties	(18,272)	8,996
CASH (USED IN) / PROVIDED BY OPERATING ACTIVITIES	132,476	(558,276)
CASH FLOWS FROM INVESTING ACTIVITIES
Restricted cash	33,521	8,618
Purchase of fixed assets	(105,673)	(206,503)
CASH USED IN INVESTING ACTIVITIES	(72,152)	(197,885)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing on debt	130,000	0
Repayment of long term debt	(208,414)	(73,972)
Repayment of capital leases	(27,126)	(5,306)
Net factoring advances	(55,515)	(66,307)
Proceeds from sales of units in private placement, net	125,000	765,439
CASH (USED IN) / PROVIDED BY FINANCING ACTIVITIES	(36,055)	619,854
NET INCREASE (DECREASE) IN CASH	24,269	(136,307)
CASH AT BEGINNING OF PERIOD	126,456	531,290
CASH AT END OF PERIOD	150,725	394,983
Supplemental Disclosures of Cash Flow Information
Cash paid for interest	138,847	65,139
Non-cash investing and financing transactions:
Notes issued for purchase of property and equipment	138,847	330,856
Discount on notes payable from warrants and beneficial conversion features	71,291	0
Stock issued for debt conversion	26,297	51,750
Placement agent warrants at fair value for private placement	$ 0	$ 239,847

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Basis of Presentation and Significant Accounting Policies

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Basis of Presentation and Significant Accounting Policies

Basis of Presentation

ESP Resources, Inc. (“ESP Resources”, and collectively with its subsidiaries, “we, “our” or the “Company”) was incorporated in the State of Nevada on October 27, 2004. The accompanying unaudited condensed consolidated financial statements include the accounts of ESP Resources, Inc. and its wholly owned subsidiaries, ESP Petrochemicals, Inc. (“ESP Petrochemicals”) of Louisiana and ESP Resources, Inc. of Delaware (“ESP Delaware”). ESP Petrochemicals also owns certain assets and liabilities of Turf Chemistry Inc. (“Turf”), a Texas corporation. On September 7, 2011 the Company became a 49% partner in a new entity for which the management of ESP Resources will direct the operations of and the company and receive 80% of the profits. All significant inter-company balances and transactions have been eliminated in the consolidation. The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America. Any reference herein to “ESP Resources”, the “Company”, “we”, “our” or “us” is intended to mean ESP Resources, Inc. including the wholly-owned subsidiaries indicated above, unless otherwise indicated.

Use of Estimates

The preparation of the unaudited condensed consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Interim Financial Statements

The condensed unaudited consolidated financial statements presented herein have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) and the accounting policies set forth in its audited consolidated financial statements for the period ended December 31, 2011 as filed with the Securities and Exchange Commission (the “SEC”) in the Company’s Annual Report on Form 10-K and should be read in conjunction with the notes thereto. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) which are necessary to provide a fair presentation of operating results for the interim periods presented. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The results of operations presented for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the year. These condensed consolidated financial statements should be read in connection with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Concentrations

The Company has three major customers that together account for 53% of accounts receivable as of March 31, 2012 and 73% of the total revenues earned for the three months ended March 31, 2012 as follows:

	Accounts Receivable			Revenue
Customer A		24	%		20	%
Customer B		22	%		27	%
Customer C		7	%		26	%
Totals:		53	%		73	%

The Company has two vendors that accounted for 77% of chemical purchases during the three months ended March 31, 2012 and 52% of the ending accounts payable at March 31, 2012 as follows:

	Accounts Payable			Purchases
Vendor A		42	%		61	%
Vendor B		10	%		16	%
Totals:		52	%		77	%

Revenue and Cost Recognition

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

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

Basic and Diluted Loss Per Share

Basic and diluted earnings or loss per share (EPS) amounts in the consolidated financial statements are computed in accordance Accounting Standard Codification (ASC) 260 – 10 “Earnings per Share”, which establishes the requirements for presenting EPS. Basic EPS is based on the weighted average number of common shares outstanding. Diluted EPS is based on the weighted average number of common shares outstanding and dilutive common stock equivalents. Basic EPS is computed by dividing net income or loss available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Potentially dilutive securities were excluded from the calculation of diluted loss per share, because their effect would be anti-dilutive.

Accounts Receivable and Allowance for Doubtful Accounts

The Company generally does not require collateral, and the majority of its trade receivables are unsecured. The carrying amount for accounts receivable approximates fair value.

Accounts receivable consisted of the following as of March 31, 2012 and December 31, 2011:

	March 31,		December 31,
	2012		2011
Trade receivables	$	2,200,620	$	2,070,334
Less: Allowance for doubtful accounts		(158,401)		(149,401)
Net accounts receivable	$	2,042,219	$	1,920,933

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.

Recently Issued Accounting Pronouncements

The Company does not expect that the adoption of recently issued accounting pronouncements will have a material impact on its financial position, results of operations, or cash flows.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2012	Dec. 31, 2011
ASSETS:
Accumulated Depreciation and Amortization	$ 875,550	$ 750,519
STOCKHOLDER'S EQUITY:
Common stock, par value	$ 0.001	$ 0.001
Common stock shares authorized	350,000,000	350,000,000
Common stock shares issued	111,362,067	110,000,008
Common stock shares outstanding	111,362,067	110,000,008
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares outstanding	0	0

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Document and Entity Information	3 Months Ended
	Mar. 31, 2012	May 12, 2012
Document And Entity Information
Entity Registrant Name	ESP Resources, Inc.
Entity Central Index Key	0001346526
Document Type	10-Q
Document Period End Date	Mar. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		111,362,067
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2012

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Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Income Statement [Abstract]
SALES, NET	$ 4,289,985	$ 1,815,156
COST OF GOODS SOLD	2,226,523	1,027,991
GROSS PROFIT	2,063,462	787,165
General and administrative	2,141,820	1,416,365
Depreciation and amortization	151,580	128,453
Loss on disposal of assets	4,085	0
Loss from operations	(234,023)	(757,653)
OTHER INCOME (EXPENSE)
Interest expense	(42,641)	(36,263)
Factoring fees	(109,731)	(46,814)
Amortization of debt discount	(10,479)	0
Other income, net	1,473	1,232
Interest income	21	34
Total other expense	(161,357)	(81,811)
NET LOSS	$ (395,380)	$ (839,464)
NET LOSS PER SHARE (basic and diluted)	$ 0.00	$ (0.01)
WEIGHTED AVERAGE SHARES OUTSTANDING	110,151,678	89,759,155

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Related Party Transactions

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Related Party Transactions

As of December 31, 2011, the Company owed shareholders and management a total of $76,286. As of March 31, 2012, the Company had balances due to shareholders and management a total of $58,014.

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Stockholders' Equity

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Stockholders' Equity

Common stock issued for services

On January 13 2012, the Company issued 166,434 shares of its common stock to a vendor for settlement of Accrued expenses related to services rendered. The shares were valued at $12,297 and recorded as stock based compensation. In addition for the period ended March 31, 2012 the Company amortized $101,949 of stock based compensation resulting from stock and warrants issued in previous periods.

Warrants issued

The following table reflects a summary of Common Stock warrants outstanding and warrant activity during 2012:

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Term (Years)
Warrants outstanding at December 31, 2011		75,317,618		$	0.51		0.6
Granted during the period		1,866,667			0.15		3.0
Exercised during period
Forfeited during the period		(13,535,716	)		0.55
Warrants outstanding at March 31, 2012		63,648,569		$	0.49		0.5

On January 27, 2012, as discussed in Note 4, the Company granted 866,667 warrants in conjunction with the issuance of 16% Convertible Subordinated Debentures.

On January 31, 2012 the Company granted 1,000,000 warrants for consulting services at an exercise price of $0.15. The Company valued the warrants at a fair value of $78,604 using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.10; warrant term of 3 years; expected volatility of 180%; and discount rate of 0.31%. The Company is amortizing the warrants over the one year term of the agreement and recognized $13,101 of expense during the three months ended March 31, 2012.

Stock Option Awards

The Company has recognized compensation expense of $199,696 on the stock options granted in prior years that vested during the current period for the three months ended March 31, 2012. The fair value of the unvested shares is $498,035 as of March 31, 2012.

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, 2011		25,600,000	$	0.14		8.85
Granted			$
Exercised		-		-		-
Expired/Forfeited		(837,000)		0.15		9.4
Outstanding at March 31, 2012		24,763,000	$	0.14		8.77
Exercisable at March 31, 2012		14,400,000	$	0.14		8.84

LPC Agreement

On September 16, 2010, the Company signed a $5 million purchase agreement with Lincoln Park Capital Fund, LLC (“LPC”), an Illinois limited liability company. Upon signing the agreement, we received $100,000 from LPC as an initial purchase under the $5 million commitment in exchange for 666,667 shares of our common stock and warrants to purchase 666,667 shares of our common stock at an exercise price of $0.20 per share. The Company also issued 1,181,102 of shares of common stock as a commitment fee valued at $159,449.

The Company also entered into a registration rights agreement with LPC whereby the Company agreed to file a registration statement related to the transaction with the U.S. Securities & Exchange Commission (“SEC”) covering the shares that may be issued to LPC under the purchase agreement. After the SEC had declared effective the registration statement related to the transaction on December 22, 2010, the Company has the right, in its sole discretion, over a 30-month period to sell its shares of common stock to LPC in amounts up to $500,000 per sale, depending on certain conditions as set forth in the purchase agreement, up to the aggregate commitment of $5 million.

There are no upper limits to the price LPC may pay to purchase the Company’s common stock. The purchase price of the shares related to the $4.9 million of future funding will be based on the prevailing market prices of the Company’s shares immediately preceding the time of sales without any fixed discount, and the Company will control the timing and amount of any future sales of shares to LPC. LPC shall not have the right or the obligation to purchase any shares of common stock on any business day that the price of our common stock is below $0.10. In addition, the Company will issue to LPC up to 1,181,102 shares pro rata as LPC purchases the remaining $4.9 million as additional consideration for entering into the purchase agreement. The purchase agreement may be terminated by the Company at any time at the Company’s discretion without any cost to the Company. Except for a limitation on variable priced financings, there are no financial or business covenants, restrictions on future fundings, rights of first refusal, participation rights, penalties or liquidated damages in the agreement.

On April 20, 2011, pursuant to the LPC agreement described herein, the Company delivered a regular purchase notice to LPC to purchase $25,000 of the Company’s common stock, or 193,996 shares. Subsequent to this transaction, there are remaining 14,812,030 additional shares that the Company may sell to LPC, 1,181,102 shares already issued as a commitment fee, and 1,175,076 additional commitment shares that the Company may issue on a pro rata basis as up to an additional $4,875,000 of the Company’s stock is purchased by LPC.

From January 1, 2012 through March 6, 2012, the Company delivered regular purchase notices for transactions with LPC to sell 1,195,625 common shares and received $125,000.

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Shareholders Equity (Unaudited) (USD $)	Common Stock	Additional Paid-In Capital	Subscription Receivable	Accumulated Deficit	Total
Beginning Balance, Amount at Dec. 31, 2011	$ 110,000	$ 15,115,452	$ (1,000)	$ (14,477,460)	$ 746,992
Beginning Balance, Shares at Dec. 31, 2011	110,000,008
Stock Based Compensation, Amount		314,746			314,746
Shares issued in connection with accounts payable conversion, shares	166,434
Shares issued in connection with accounts payable conversion, amount	167	26,130			26,297
Shares issued with private placement, Shares	1,195,625
Shares issued with private placement, Amount	1,195	123,805			125,000
Value of warrants and benefical conversion feature of convertible debt		71,291			71,291
Net loss				(395,380)	(395,380)
Ending Balance, Amount at Mar. 31, 2012	$ 111,362	$ 15,651,424	$ (1,000)	$ (14,872,840)	$ 888,946
Ending Balance, shares at Mar. 31, 2012	111,362,067

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Long-Term Debt

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Long-Term Debt

On January 30, 2012, the Company purchased a vehicle by issuing debt of $59,744 with an annual interest rate of 6.4% and a term of 36 months. On March 19, 2012 the Company purchased a vehicle by issuing debt of $50,328 with an annual interest rate of 5.9% and a term of 36 months.

On January 27, 2012, the Company received proceeds of $130,000 from the sale of 16% Convertible Subordinated Debentures (the “Debentures”). The Debentures are subordinate to all other secured debt of the Company, pay 16% interest per annum in cash quarterly and are convertible into the Company’s common stock by the investors at any time at a minimum conversion price per share of $.15. On March 1, 2013, June 1, 2013 and September 1, 2013, the Company shall redeem one quarter, one quarter and one half, respectively, of the face value of the balance of the 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 and determined equity classification was appropriate. The Company then analyzed the conversion option under ASC 470-20 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.