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5. Stockholders' Equity
9 Months Ended
Sep. 30, 2012
Equity [Abstract]  
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 $26,296 and $12,296 was recorded as stock based compensation and $14,000 as a reduction in Accrued expenses.


On April 3, 2012, the Company issued 218,182 shares of its common stock to a vendor for settlement of accrued expenses related to services rendered. The shares were valued at $19,636 and recorded as stock based compensation.

 

On July 6, 2012 the Company granted 5,000,000 shares of restricted stock to a service provider the shares were value at $435,000 on the date of the grant, 20% of the restricted stock vest per year on the anniversary date of the grant and $21,750 was recorded as stock based compensation for the period from grant date to September 30, 2012.


On July 10, 2012 the Company granted 6,500,000 shares of restricted stock to the Company’s Chief Executive Officer, the shares were valued at $650,000 on the date of the grant. The restricted stock vests at a rate of 20% per year on the anniversary date of the grant and $$32,500 was recorded as stock based compensation for the period from the grant date to September 30, 2012.


On July 10, 2012 the Company granted 550,000 shares of restricted stock to two employees, the shares were value at $55,000. 300,000 shares vested immediately and 250,000 vested on January 1, 2013, and $42,500 was recorded as stock based compensation for the period from the grant date to September 30, 2012.

 

 

On September 30, 2012, the Company issued 600,000 shares of its common stock to a vendor for settlement of accrued expenses related to services rendered. The shares were valued at $62,400 and recorded as stock based compensation.

 

For the nine month period ended September 30, 2012 the Company amortized $274,271 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     42,455,667       0.20       2.76  
Exercised during period                        
Forfeited during the period     (46,658,572 )     0.40          
Warrants outstanding at September 30, 2012     71,114,713     $ 0.39       1.3  


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 $115,838 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 $78,604 of expense during the nine months ended September 30, 2012.


On June 19, 2012 the Company’s initiated a sale of units of restricted common stock and common stock purchase warrants in a private placement (the “Private Placement”). Each unit was for $50,000 and consisted of 625,000 shares of stock at $0.08, a warrant to purchase 937,500 shares of common stock at $0.15 for three years and a warrant to purchase 937,500 shares of common stock at $0.25 for three years. As of September 30, 2012 the Company had sold $1,068,000 in the Private Placement consisting of 13,350,000 shares of restricted common stock at a per share price of $0.08, common stock purchase warrants for the purchase of 20,025,000 shares of the Company’s common stock exercisable at a per share price of $0.15 and common stock purchase warrants for the purchase of 20,025,000 shares of the Company’s common stock exercisable at a per share price of $0.25. The common stock purchase warrants may be exercised for a period of 3 years. The Company granted  warrants for the purchase of 539,000 shares of the Company’s common stock exercisable at a per share price of $0.08 for services related to this Private Placement, each warrant maybe exercised for a period of 3 years and no expenses was recorded. The Company has a piggy-back registration obligation with respect to the common stock in the Private Placement.


Stock Option Awards


On July 10, 2012 the Company granted a total of 14,000,000 options to members of the Board of Directors, the options have a term of 10 years, an exercise price of $0.10 per share and vest at 20% per year and 250,000 options to a member of the Board of Directors, the option has an exercise price of $0.10 per share and vest immediately and used the Black-Scholes method to determine fair value. For the period from grant to September 30, 2012 $90,671 was recorded as stock based compensation.


The Company has recognized a compensation expense of $515,297 on the stock options granted in prior years that vested during the current period for the nine months ended September 30, 2012. The fair value of the unvested shares is $1,403,168 and has no intrinsic value as of September 30, 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     14,250,000     $ 0.10       9.83  
Exercised     -       -       -  
Expired/Forfeited     (859,000 )     0.15       9.15  
Outstanding at September 30, 2012     38,991,000     $ 0.12       7.25  
Exercisable at September 30, 2012     21,323,000     $ 0.12       6.83  


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 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.  There have been no purchase notices delivered to LPC since March 6, 2012.


Sale of restricted shares


On June 19, 2012 the Company’s initiated a sale of units of restricted common stock and common stock purchase warrants in a private placement (the “Private Placement”). Each unit was for $50,000 and consisted of 625,000 shares of stock at $0.08, a warrant to purchase 937,500 shares of common stock at $0.15 for three years and a warrant to purchase 937,500 shares of common stock at $0.25 for three years. As of September 30, 2012 the Company had sold $1,068,000 in the Private Placement consisting of 13,350,000 shares of restricted common stock at a per share price of $0.08, common stock purchase warrants for the purchase of 20,025,000 shares of the Company’s common stock exercisable at a per share price of $0.15 and common stock purchase warrants for the purchase of 20,025,000 shares of the Company’s common stock exercisable at a per share price of $0.25. The common stock purchase warrants may be exercised for a period of 3 years. The Company granted  warrants for the purchase of 539,000 shares of the Company’s common stock exercisable at a per share price of $0.08 for services related to this Private Placement, each warrant maybe exercised for a period of 3 years. The Company has a piggy-back registration obligation with respect to the common stock in the Private Placement.