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1. Basis of Presentation and Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2012
Notes to Financial Statements  
Basis of Presentation

 

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”), ESP Ventures, Inc. of Delaware (“ESP Ventures”), ESP Corporation, S.A., a Panamanian corporation (“ESP Corporation”) and ESP Payroll Services, Inc. of Nevada (“ESP Payroll”).  On July 11, 2012 the Company formed two partially owned subsidiaries in Delaware, ESP Advanced Technologies, Inc., and ESP Facility & Pipeline Services, Inc.


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

 

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

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 our 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 and nine months ended September 30, 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

Concentrations


The Company has three major customers that together account for 63.6% of accounts receivable as of September 30, 2012 and 77.0% of the total revenues earned for the nine months ended September 30, 2012 as follows:


 

   

Accounts

Receivable

    Revenue  
Customer A     36.5 %     37.5 %
Customer B     17.3 %     21.8 %
Customer C     9.9 %     17.7 %
Totals:     63.6 %     77.0 %


 

The Company has two vendors that accounted for 81.2% of chemical purchases during the nine months ended September 30, 2012 and 59.7% of the ending accounts payable at September 30, 2012 as follows:


 

   

Accounts

Payable

    Purchases  
Vendor A     51.6 %     68.0 %
Vendor B     8.2 %     13.2 %
Totals:     59.7 %     81.2 %


Revenue and Cost Recognition

Revenue and Cost Recognition


The Company operates in the oil and gas services industry. The Company’s petrochemical business is a custom formulator of specialty petrochemicals for the oil and gas industry and related services to the oil and gas industry. Since the products are formulated specifically to each location, the receipt of an order or purchase order starts the production process. Once the blending of the petrochemicals for the order 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.


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, or service performed in accordance with the contractual terms. 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 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

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 September 30, 2012 and December 31, 2011:


 

   

September 30,

2012

   

December 31,

2011

 
Trade receivables   $ 2,608,875     $ 2,070,334  
Less: Allowance for doubtful accounts     (23,000 )     (149,401 )
Net accounts receivable   $ 2,585,875     $ 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

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.