SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2 A-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
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(Name of small business issuer in its charter)
Nevada 2800 1922863
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(State of Incorporation) (Primary Standard Industrial (IRS Employer I.D.
Classification Number) Number)
2614 Queenswood Drive
Victoria, BC, V8N 1X5, Canada
(250) 477-9969
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(Address and telephone number of principal executive offices)
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2614 Queenswood Drive
Victoria, BC, V8N 1X5, Canada
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(Address of principal place of business)
Daniel B. O'Brien, President
Flexible Solutions International, Inc.
2614 Queenswood Drive
Victoria, BC, V8N 1X5, Canada
(250) 477-9969
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(Name, address and telephone number of agent for service)
Copies to:
Joel Bernstein, Esq., P.A.
11900 Biscayne Blvd. #604
Miami, FL 33181
(305) 892-1122
Fax:(305) 892-0822
Approximate date of proposed commencement of sale to the
public: From time to time after the Registration Statement
becomes effective.
CALCULATION OF REGISTRATION FEE
============================================================================================
Title of each Proposed Proposed Amount of
class of securities Amount maximum offering maximum aggregate Registration
to be registered to be registered price per unit(1) offering price Fee
---------------- ---------------- ----------------- ----------------- ------------
common stock 1,828,600 shares $3.08 $5,632,088 $518.15
(1) Estimated solely for purposes of calculating the registration fee based
upon the average of the bid and asked price in the over the counter
market on September 13, 2002
Registrant hereby amends the registration statement on such date or dates as may
be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Acts of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
Subject to completion, dated April ___, 2003
Flexible Solutions International, Inc.
1,828,600 Shares of Common Stock
These shares of common stock are being offered by the selling shareholders named
in this prospectus.
The selling shareholders may sell the shares covered by this prospectus on the
American Stock Exchange in ordinary brokerage transactions, in negotiated
transactions or otherwise, at prevailing market prices at the time of sale or at
negotiated prices, and may engage a broker or a dealer to sell the shares. For
additional information, you should refer to the Plan of Distribution section of
this prospectus. The selling shareholders may be deemed to be underwriters
within the meaning of the Securities Act in connection with their sale of our
shares. We will not receive any proceeds from the sale of the shares, but will
bear the costs relating to the registration of the shares.
Our common stock is traded on the American Stock Exchange under the symbol FSI.
Investing in the common stock involves a high degree of risk. You should
consider carefully the risk factors beginning on page 4.
Neither the securities and exchange commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is April____, 2003
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PROSPECTUS SUMMARY
Our company
Flexible Technologies International, Inc. develops, manufactures and markets
specialty chemicals which slow down the evaporation of water. Our initial
product, Heat$avr, is marketed for use in swimming pools and spas where its use,
by slowing the evaporation of water, allows the water to retain a higher
temperature for a longer period of time and thereby reduces the energy required
to maintain the desired temperature of the water in the pool. Our newest
product, Water$avr, is marketed for water conservation where its use slows down
water loss due to evaporation. This product is designed for use in agriculture,
golf course and turf, reservoirs, and irrigation. We also make and sell
dispensers which automate the deployment of our chemical products.
We are a Nevada corporation which was incorporated in May 1998. Our wholly-owned
subsidiary, Flexible Solutions, Ltd., which we acquired in 1998, began
operations in 1991. Our executive office is located at 2614 Queenswood Drive,
Victoria, British Columbia V8N 1X5. Our telephone number is (250) 477-9969 and
our facsimile number is (250) 477-9912.
RISK FACTORS
Except for historical information, the information in this prospectus and in our
SEC reports contains forward-looking statements about our expected future
business and performance. Our actual operating results and financial performance
may prove to be very different from what we might have predicted as of the date
of this prospectus. The risks described below deserve your special
consideration.
Our business would be adversely affected if we lost the services Dan O'brien,
our chief executive officer.
We are dependent upon the services of Dan O'Brien, who serves as our president
and chief executive officer. Our business would be adversely affected if the
executive services of Mr. O'Brien ceased to be available us because none of our
other employees could take over the management activities of Mr. O'Brien.
Therefore we would have to recruit one or more new executives but there can be
no assurance that we would be able to engage a replacement executive with the
required skills on satisfactory terms. Mr. O'Brien does not have an employment
contract with Flexible. We have a key man life insurance policy in the amount of
CDN $400,000 (currently approximately USD$250,000) on Mr. O'Brien.
Our revenues would be substantially reduced if we lost the major customer that
accounts for a substantial amount of our sales.
Our exclusive U.S. and Canadian distributor of our HEAT$AVR product packaged in
our Tropical Fish dispenser accounted for 94% of our sales revenues in 2001 and
95% of our sales revenues in 2002. Although we have an agreement with such firm
which is described below, the agreement does not require the distributor to
purchase any minimum amount of our products, nor does it prevent it from
handling competing products. If our distributor reduced its purchase or ceased
to purchase our products we would suffer substantial reduction in our sales and
would have to make alternative arrangements to distribute our Tropical Fish
product in the U.S. and Canada. There can be no assurance that we would be able
to replace the services of this distributor on satisfactory terms.
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We are subject to concentrated credit risk from our major customer.
We allow our major customer 45 days to pay for each shipment of product we make
to them. This represents risk that we would be subject to substantial write-off
of our accounts receivable if this customer defaulted on their payment
obligations to us.
The recent introduction of our water$avr product may result in losses.
We introduced our WATER$AVR product in June 2002. We have delivered quantities
for testing by potential customers but only one customer has ordered the product
for commercial use. This product can achieve success only if it is ordered in
substantial quantities by commercial customers who have determined that the
water saving benefits of the product exceed the costs of purchase and deployment
of the product. We cannot assure that we will receive sufficient orders of this
product to achieve profits or cover the additional expenses incurred to
manufacture and market this product. We expect to spend $1,900,000 on WATER$AVR
in 2003.
Our products can be hazardous if not handled, stored and used properly.
HEAT$AVR is flammable and must be stored properly to avoid fire risk.
Additionally, it may injure eyes which are exposed to the concentrated product.
Although we label the products to warn of such risks, our sales could be reduced
if our products were to be viewed as being dangerous to use or actually been
implicated in causing personal injury or property damage, which is not currently
the case.
USE OF PROCEEDS
The shares being sold with this prospectus are being sold by selling security
holders. Flexible will not receive the proceeds of any sales.
MARKET FOR SECURITIES
Our common stock began trading on the American Stock Exchange under the symbol
FSI on November 19, 2002. Prior to that, our stock traded on the
over-the-counter market and was quoted on the NASD Electronic Bulletin Board.
5
The following is the range of high and low closing sales or bid prices for
Flexible common stock for the periods indicated:
SALES OR BID PRICES
High Low
-----------------
2001
January 2 - March 30 2.75 .6875
April 2 - June 29 2.30 1.50
July 2 - September 28 1.75 .67
October 1 - December 31 1.45 .73
2002
January 2 - March 28 3.57 1.30
April 1 - June 28 4.10 2.50
July 1 - September 30 3.85 1.95
October 1 - December 31 3.85 2.77
2003
January 1 - March 24 3.40 2.45
Prices since November 19, 2002 represent high and low prices on the American
Stock Exchange. Prices prior to Novemeber 19, 2002, represent inter-dealer
quotations which do not include retail mark-ups, markdowns, or commissions, and
do not necessarily represent actual transactions. We had 75 record holders of
our common stock on March 21, 2003. Such shares are owned by approximately 350
beneficial owners.
Our common stock also trades on the Frankfurt Germany stock market under the
symbol FXT.
THE PENNY STOCK RULES
The Securities and Exchange Commission has adopted regulations which generally
define a penny stock to be any equity security that has a market price less than
$5.00 per share, subject to certain exceptions. Until November 19, 2002, when
our shares began trading on the American Stock Exchange, our shares were within
the definition of a penny stock and were subject to rules and we could be
subject to those rules again if we lost our listing on the American Stock
Exchange because we failed to remain in compliance with the requirements to
maintain our listing. The penny stock rules impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the transaction
prior to the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the rules require the delivery, prior to the transaction,
of a risk disclosure document mandated by the Commission relating to the penny
stock market. The broker-dealer also must disclose the commissions payable to
both the broker-dealer and the registered representative, current quotations for
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the securities and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. The penny stock rules may restrict the ability
of broker-dealers to sell our shares and may affect the ability of our
shareholders to sell our shares in the secondary market.
DIVIDEND POLICY
Flexible has not paid any dividends on its common stock, and it is not
anticipated that any dividends will be paid in the foreseeable future. The Board
of Directors intends to follow a policy of retaining earnings, if any, to
finance the growth of the company. The declaration and payment of dividends in
the future will be determined by the Board of Directors in light of conditions
then existing, including the company's earnings, financial condition, capital
requirements and other factors.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Our operating activities are related primarily to manufacturing and marketing
our swimming pool chemical product called "HEAT$AVR", including the consumer
version packed in our "Tropical Fish" dispenser. In June 2002 we introduced a
fresh water evaporation control chemical product called "WATER$AVR".
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The SEC has recently issued Financial Reporting Release No. 60, "Cautionary
Advice Regarding Disclosure About Critical Accounting Policies" ("FRR 60"),
suggesting companies provide additional disclosure and commentary on those
accounting policies considered most critical. A critical accounting policy is
one that is both very important to the portrayal of our financial condition and
results, and requires management's most difficult, subjective or complex
judgments. Typically, the circumstances that make these judgments difficult,
subjective and/or complex have to do with the need to make estimates about the
effect of matters that are inherently uncertain. We believe the accounting
policies below represent our critical accounting policies as contemplated by FRR
60. See Note 3 of the Notes to Consolidated Financial Statements for a detailed
discussion on the application of these and other accounting policies.
Allowances for Product Returns. We still grant certain of our customers the
right to return product which they are unable to sell. Upon sale, we evaluate
the need to record a provision for product returns based on our historical
experience, economic trends and changes in customer demand.
Allowances for Doubtful Accounts Receivable. We evaluate our accounts receivable
to determine if they will ultimately be collected. This evaluation includes
significant judgments and estimates, including an analysis of receivables aging
and a review of large accounts. If, for example, the financial condition of our
customers deteriorates resulting in an impairment of their ability to pay or a
pattern of late payment develops, allowances may be required.
Provisions for Inventory Obsolescence. We may need to record a provision for
estimated obsolescence and shrinkage of inventory. Our estimates would consider
the cost of inventory, the estimated market value, the shelf life of the
inventory and our historical experience. If there are changes to these
estimates, provisions for inventory obsolescence may be necessary.
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Results of Operations
Year ended December 31, 2002 and 2001
Sales for the year ended December 31, 2002 were $1,112,192 compared to
$1,334,273 for the 2001 period, a decrease of $222,081 or 16.6%. Our sales
decline was primarily the result of poor weather conditions in the Eastern U.S.
and Canada which reduced the outdoor swimming season and therefore the demand
for our tropical fish product. There were no price changes in this period.
Our overall gross profit margin on product sales decreased slightly to 47.7% in
2002 from 50.3% in 2001. This decrease was primarily due to higher fixed costs
related to additional production facilities and equipment which we have added in
the 2002 period.
Operating expenses for fiscal 2002 were $3,701,899, up from $806,020 in 2001. We
issued over 2 million stock options to employees and consultants which resulted
in a non-cash expense recognition of $2,736,608 in 2002. In 2002 we also
increased sales and marketing costs in connection with our WATER$AVR product and
this was reflected in increased wages, office, rent, telephone and travel
expenses. We incurred higher professional fees in the 2002 period primarily due
to increased legal and accounting expenses. Depreciation expense was $24,683 for
the 2002 period compared to $18,910 for the 2001 reflecting depreciation for
additional property and equipment added in 2002. Our expenses to increase
investor awareness of our company was significantly less than in 2001 and this
resulted in a decrease in stock promotion and transfer agent's fee in 2002. We
also had an expense of $19,180 in 2002 for currency exchange. There was income
of $2,368 from such item in 2001.
Our income tax provision for 2002 reflected a benefit of $21,456 due to the net
loss while we had income tax expense of $100,264 in 2001. We had interest income
of $67,228 in 2002 reflecting earnings on the proceeds of stock sales during the
year. There was a net loss of $3,082,445 in the 2002 period compared to a net
loss of $233,955 in 2001.
Year Ended December 31, 2001 and 2000
Fiscal 2001 revenue rose 30% to $1,334,273 because of more effective marketing
with the preponderance of sales continuing to be in Canada to our Montreal-based
distributor. The distributor reports that 75% of his sales are in the USA. Gross
profit margins were stable at 50.3%. Product mix shifted little during the year
with a continued emphasis on "Tropical Fish". There were no price changes in
this period.
Operating expenses for 2001 were $806,020 up from $289,860 in the 2000 period.
Wages increased to $313,918 in 2001 from $87,907 in 2000. In 2001 this included
$173,750 related to granting of stock options rather than cash expense. Cash
expense also increased due to increased production levels and to further
introduction of WATER$AVR. In the 2001 period we increased sales and marketing
costs in connection with our WATER$AVR product and this was reflected in
increased wages, office, rent, telephone and travel expenses. We incurred lower
professional fees in the 2001 period primarily due decreased legal and
accounting expenses. Depreciation expense was $18,910 for the 2001 period
compared to $13,489 for 2000 reflecting additional depreciation for additional
property and equipment added in 2001. We also undertook a program to increase
investor awareness of our company and this program resulted in an increase in
8
stock promotion and transfer agent's fee in 2001. We also had income of $2,368
in 2001 for currency exchange. There was $19,344 of such income in 2000.
There was a net loss of $233,955 in 2001 compared to net income of $138,971 in
2000.
Liquidity and Capital Resources
We sold 1,828,600 shares of common stock to investors in 2002 for net proceeds
of $5,750,000. We believe we have sufficient capital to support our business and
operations for at least the next 12 months. We anticipate utilizing
approximately $2 million in the next twelve months to attempt to increase the
sales of our products by adding sales and marketing professionals, increase
advertising and promotion expenses, improve our products, develop additional
uses for our core technology and make additional patent applications. There can
be no assurance that such expenditures will result in significant increase in
sales of our products. Approximately $1,900,000 of such expenditures are related
to our recently introduced WATER$AVR product. There can be no assurance that any
of the expenditures will result in additional sales revenues.
SEASONALITY
Our operations are subject to seasonal fluctuations. Use of our products
increase in summer months in most markets and result in our sales from January
to June being greater than in July through November. Additionally, cooler summer
weather patterns lead to lower sales volume, particularly of our Tropical Fish
product which is geared to residential pools, due to shorter swimming season
while hotter weather results in increased sales volume due to a longer swimming
season. We believe we are able to adequately respond to these seasonal
fluctuations by reducing or increasing production as needed.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus discuss future expectations,
contain projections of future operations or state other "forward-looking"
information. These statements are subject to known and unknown risks,
uncertainties and other factors that could cause the actual results to differ
materially from those contemplated by the statements. The forward-looking
information is based on various factors and is derived using numerous
assumptions. Important factors that may cause actual results to differ from
projections include, for example:
o the success or failure of management's efforts to implement our
business strategy;
o the uncertainty of demand for our products;
o introduction of competitive products which may be superior to ours; and
o our ability to attract and retain quality employees.
We do not promise to update forward-looking information to reflect actual
results or changes in assumptions or other factors that could affect those
statements.
OUR BUSINESS
Flexible Solutions International, Inc. was incorporated in the State of Nevada
in May 1998. It acquired all of the outstanding shares of Flexible Solutions,
Ltd., a British Columbia corporation, in June 1998 in exchange for 7,000,000
9
shares of common stock, which represented all of the issued and outstanding
shares of Flexible Solutions International at the conclusion of such
acquisition. Flexible Solutions International had no other business and was
incorporated in order to acquire Flexible Solutions, Ltd. Flexible Solutions,
Ltd. was organized in 1991 to develop and market a swimming pool chemical
product designed to reduce heat loss.
We completed the development of our HEAT$AVR product and introduced it into the
commercial marketplace in 1998, achieving sales of $84,252 that year. Since that
time we have been expanding our distribution network and working to complete the
development of our WATER$AVR product.
In 2002 we established Watersavr Global Solutions, Inc., an Illinois
corporation, as a wholly owned subsidiary to concentrate on marketing of
WATER$AVR.
Flexible develops, manufactures and markets specialty chemicals which slow down
the evaporation of water. Our initial product, Heat$avr, is marketed for use in
swimming pools and spas where its use, by slowing the evaporation of water,
allows the water to retain a higher temperature for a longer period of time and
thereby reduces the energy required to maintain the desired temperature of the
water in the pool. Our newest product, Water$avr, is marketed for water
conservation in irrigation canals, aquaculture, and reservoirs where its use
slows down water loss due to evaporation. We also make and sell dispensers which
automate the deployment of our chemical products.
Our HEAT$AVR product
The primary product of Flexible is HEAT$AVR which represents substantially all
of our sales. HEAT$AVR is a chemical product for use in swimming pools and spas
that forms a thin, invisible layer on the surface of water which reduces the
amount of water evaporation and heat loss from the pool. The product is marketed
as a cost effective and convenient way to save on the cost of energy required to
heat pools and spas. Approximately 70% of the energy lost from a swimming pool
occurs through evaporation.
HEAT$AVR is a mixture of chemicals which are lighter than water. The solution
floats to the surface when introduced into a pool or spa to form a very thin
layer on the surface of the water which slows down evaporation of water from the
surface of the pool. The product is not visible on the pool surface and it
cannot be seen, felt or tasted by swimmers. After a swimmer stops disturbing the
pool water, the product reforms to a complete layer on the pool surface.
We market HEAT$AVR to the residential market primarily in the form of our
"Tropical Fish" dispenser. Each Tropical Fish dispenser is made of molded
plastic in the form of a ten inch long colorful Tropical Fish that is filled
with enough HEAT$AVR solution to cover the surface of a 400 square foot swimming
pool for about one month. The Tropical Fish is deployed by snipping the fin and
tossing the fish into the pool where it submerges to the bottom of the pool.
Water pressure causes the HEAT$AVR liquid inside to escape into the water where
it rises to the surface and forms an invisible layer on the surface of the
water. The empty dispenser can remain on the bottom of the pool for decoration
and use as a pool toy or be removed. The Tropical Fish product has a suggested
retail price of $9.95 in the United States.
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Benefits of HEAT$AVR use in outdoor pools
In outdoor swimming pools HEAT$AVR provides savings on pool heating costs and
provides convenience of use when compared to pool blankets.
Pool personnel often find it inconvenient to use conventional pool blankets
correctly and consistently. Pool blankets are plastic covers which are cut to
the size and shape of the surface of the pool or spa. They float on the surface
and perform the same purpose as HEAT$AVR of reducing energy cost by inhibiting
evaporation. Of course the blanket must be removed and stored prior to swimmers
entering the pool and provide no energy savings when not in the pool. HEAT$AVR
eliminates the necessity of installing, removing and storing the blanket and
works 24 hours a day. We believe that the ease of use provided by HEAT$AVR
results in more consistent usage.
Benefits of HEAT$AVR use in indoor pools
Use of HEAT$AVR in indoor pools results in even greater energy savings. Indoor
pool locations use energy not only to heat the pool water but to air condition
the pool environment. By slowing the transfer of heat and water vapor from the
pool to the atmosphere of the pool enclosure atmosphere less energy is required
to maintain a pool at the desired temperature, there is a reduced load on the
air-conditioning system because less is heat transferred from the pool water to
the surrounding air and less water vapor will have to be removed from the air to
maintain the required comfort level. Air-conditioned indoor pools are very high
users of energy because swimmers and loungers have differing temperature
expectations which require both water heat, generally by gas, and electric air
cooling to keep both groups happy in the same room.
Market for HEAT$AVR
We market our HEAT$AVR product to both the residential market made up of
individual homeowners with pools and spas and the commercial market consisting
of operators of commercial swimming pools such as those located in hotels,
motels, schools, and municipal and private recreational facilities.
Pool and Spa Marketing Magazine has published the following estimates concerning
the swimming pool market and their 2002 reference and directory:
2000 U.S in-ground pool sales - 170,700
2000 U.S. above-ground pool sales - 345,000
Existing pools in U.S. - 4,210,000
Existing above-ground pools in U.S. - 3,219,000
2000 sales for new pools in U.S. - $3,950,000,000
1999 residential pool sales in Europe - 95,740
We have received reports from some of our commercial customers documenting
energy savings of $2,400 to $6,000 per year. We also make and sell programmable
dispenser for automatically dispensing HEAT$AVR into a pool. The dispenser has a
reservoir holding a one week supply of HEAT$AVR. The unit is programmed to
inject the appropriate amount of the product into the pool at the rate of 1 oz.
per 400 square feet of pool surface per day.
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Marketing and Sales
The HEAT$AVR and Tropical Fish products are sold in Canada and the United States
by Flexible's exclusive distributor, Sun Solar Energy Technologies, and in
Australia by Hydro-Flexible Solutions PTY. Flexible also sells HEAT$AVR directly
into the United States to both wholesale and retail accounts. We have about 155
active customers. However, in 2002 Sun Solar Energy Technologies represented 95%
of our total sales.
Our agreement with Sun Solar Energy Technologies
We have a written agreement with Sun Solar Energy Technologies, our exclusive
distributor for our Tropical Fish product in the U.S. and Canada. This customer
represented 95% of our total sales in 2002. In February 1998 we entered into an
exclusive distributorship with Sun Solar Technologies for our Tropical Fish
product. The agreement gives Sun Solar exclusive right to distribute our
Tropical Fish product in the United States and Canada. In order to maintain the
exclusivity of such distribution, Sun Solar must order and pay for at least
720,000 units in the year ending February 28, 2003. Such exclusive agreement
terminates on February 29, 2004. We have agreed to give Sun Solar a right of
first refusal in the event we propose to sell our Flexible Solutions Ltd.
subsidiary. If such subsidiary is sold we must require the purchaser to fulfill
the exclusive distribution contract with Sun Solar and Sun Solar can veto the
proposed sale to an entity which it reasonably believes may have an intent to
discontinue manufacture of our Tropical Fish product. The agreement also
provides that Sun Solar will sell its veto for a reasonable premium arrived at
by mutually agreed upon by a mediator. The agreement also provides that Flexible
has a right of first refusal if Sun Solar proposes to sell its exclusive
distributorship. If such distributorship is sold Sun Solar's sales performance
minimums are required to be binding on the new owner.
The agreement also provides that if such exclusive distribution rights are sold
by Sun Solar, the buyer must advance to Flexible $1.00 US for each Tropical Fish
which must be bought in the year of sale to maintain the distribution agreement
exclusivity, which payment will be credited to future orders of Tropical Fish at
the rate of $1.00 US per fish as the orders are made. We have also agreed to
offer distribution rights on new swimming pool products to Sun Solar in the US
and Canada if it is up-to-date on its sales performance requirements. Flexible
is satisfied with the performance of Sun Solar as exclusive distributor of
Tropical Fish and believes our relationship with Sun Solar is satisfactory.
There can be no assurance that our exclusive distributorship with Sun Solar will
be renewed past its current expiration on February 29, 2004. We grant Sun Solar
45 days to pay for product ordered after shipment.
We also have nonexclusive distributors in Canada and the United States for
HEAT$AVR not packaged in our Tropical Fish dispenser and exclusive distributors
in Australia, Korea and Great Britain. We support our distributors and seek
additional market opportunities by attending the major pool industry trade shows
in the United States yearly. We advertise in trade magazines and directly to
buyer associations. We maintain an Internet presence with a website containing
information about our products. We also write and publish a newsletter to 5,000
customers and potential customers twice a year.
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Our WATER$AVR product
We introduced our WATER$AVR product in June 2002. This product utilizes our core
technology to reduce water evaporation. It is marketed as a water conservation
product for use where water is standing or gently flowing and the need for water
conservation can justify the cost of purchase and deployment of the product. We
believe that our WATER$AVR product may find a market for use in :
Reservoirs Potable water storage Aqueducts and canals Agricultural
irrigation Flood water crops Lawn and turf care Potted and bedding plants
Stock watering ponds Mining
WATER$AVR is sold in granulated form. It can be provided in shaker containers
holding 3/4 pound or in 44 pound weatherproof bags. We also offer a dispenser
for WATER$AVR to automate deployment of the product. The product can be applied
in various ways from hand dispersal to fully automated scheduled metering.
Current status of our WATER$AVR product
We anticipate our initial market for WATER$AVR will be in India and China. We
have provided quantities of the product for testing in these countries and if
successful anticipate that substantial orders may be received. The product will
also be marketed in both developed and lesser developed countries to address
water conservation concerns. We are seeking to establish strategic relationships
with companies in the water processing industry who have marketing and
manufacturing operations in countries with water conservation concerns. We have
a full time employee dedicated to establishing sales channels throughout the
world for WATER$AVR.
In September, 2002 we granted Ondeo Nalco Company, a subsidiary of Suez, of
Naperville, Illinois exclusive and non-exclusive distribution rights as follows:
Exclusive
---------
Market Countries
------ ---------
Municipal Canada and USA
Mineral and Mining All, except India, Pakistan,
Bangladesh, Sri Lanka, Nepal,
Bhutan, Mauritania, Malaysia and
Singapore.
Non-Exclusive
-------------
Market Countries
------ ---------
All except agriculture All, except India, Pakistan,
and large retail Bangladesh, Sri Lanka, Nepal,
Bhutan, Mauritania, Malaysia and
Singapore.
The distributor is not required to purchase any quantity of WATER$AVR and there
can be no assurance that we will achieve substantial sales of WATER$AVR to the
distributor. The agreement does provide that the exclusive markets convert to
non-exclusive if the distributor does not meet certain thresholds of sales.
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In connection with the distribution agreement we issued options to purchase our
common stock to Ondeo Nalco as follows:
- 1,000,000 shares at $4.25 per share. In order to exercise this
option, the distribution agreement must not have been terminated due to a
default by Ondeo Nalco. In the event our stock price closes at or above $6.75
for five consecutive days the option will terminate in the event Ondeo Nalco has
not exercised it within 60 days after the fifth day our stock traded at that
level.
- An additional option to purchase 1,000,000 shares of our common stock
for $5.50 per share in the event meets the minimum purchase amounts necessary to
maintain exclusivity under the distribution agreement. In order to exercise this
second option, the distribution agreement must not have been terminated due to a
default by Ondeo Nalco. In the event our stock price closes at or above $8.00
for five consecutive days the option will terminate in the event Ondeo Nalco has
not exercised it within 60 days after the fifth day our stock traded at that
level. However if our stock is already above $8.00/share for five consecutive
days at the time this option becomes exercisable, Ondeo Nalco shall have 90
calendar days from the time the option becomes exercisable to exercise.
There can be no assurance Ondeo Nalco will exercise any of these options. If
they were to exercise the first 1,000,000 share option they would hold 7.9% of
our outstanding common stock as a result of their ownership of 1,000,000 shares
of a total of 12,621,919 shares outstanding, based on the shares outstanding as
of March 17, 2003. If they were to exercise the second 1,000,000 share option,
Ondeo Nalco would then hold 14.7% of our outstanding common stock as a result of
their ownership of 2,000,000 shares of a total of 13,621,919 shares that would
be outstanding.
Competition
We are not aware of any chemical evaporation reduction products on the market or
under development which compete with our HEAT$AVR product. HEAT$AVR does compete
against plastic pool blanket products. We compete against pool blankets on the
basis of convenience of use of HEAT$AVR versus the inconvenience of deploying
and storing pool blankets. Pool owners and operators may also decide that no
evaporation control product is needed for their pools. We are aware of one
chemical product manufactured by Aegis Chemical Industries Ltd. of India which
competes with our WATER$AVR product. We believe WATER$AVR is a superior product
for the following reasons:
- Easier Application - WATER$AVER may be deployed directly to the water
water surface by hand. The Aegis product requires premixing to dilute
it to usable strength.
- Cost - In order to achieve comparable water savings levels, the Aegis
product would cost more than the WATER$AVER product.
Specialty chemicals are a highly competitive industry with many huge
multi-national firms with large research and development operations. There are a
number of firms which develop and market chemical products for the pool and spa
industry. Therefore, we can expect competition to arise at any time.
Water conservation is an important priority throughout the world and numerous
researchers in industry and academia are seeking to develop solutions which may
compete with or be superior to our products. Climate changes which relieve water
shortage conditions or a technological breakthrough in water desalination could
reduce the need for water conservation products.
14
Manufacturing
Our HEAT$AVR products and dispensers are made from chemicals, plastic and other
materials and parts which are readily available from multiple suppliers. We have
never experienced any shortage in the availability of raw materials and parts
for our products and we do not have any long term supply contracts for any such
items. We manufacture our products in an 11,000 square foot plant in Calgary,
Alberta, Canada.
We have agreed to purchase all our requirements for WATER$AVER from Ondeo Nalco
Company under a five year agreement effective April 2002, but are not required
to purchase any minimum quantity of such product.
Governmental Regulations
Chemical products for use in swimming pools are covered by a variety of
governmental regulations in the countries where we sell our products. Such
regulations cover such matters as packaging, labeling and product safety. We
believe our products are in compliance with such regulations. Our WATER$AVR
product will be subject to additional regulation in some countries particularly
for agricultural and drinking water uses. We will address these issues on a
country-by-country basis. We do not anticipate that governmental regulations
will be an impediment to marketing WATER$AVR because the major ingredient has
been used in agriculture for many years. We will require approval to sell
WATER$AVR in the United States for agricultural or drinking water users. We have
not yet applied for any such approvals in the U.S. WATER$AVR has been certified
by National Sanitation Foundation, a non-profit, non-governmental organization
as meeting its health effects standard for chemicals which are used to treat
drinking water.
Proprietary Rights
Our success and ability to compete is dependent in part upon our proprietary
technology. We rely on a combination of patent, copyright and trade secret laws
and nondisclosure agreements to protect our proprietary technology. We currently
hold two U.S. patent and are seeking to extend these patents to certain other
countries. We also have seven patent applications pending. There can be no
assurance that our pending patent applications will be granted on that any
issued patents will be upheld as valid or prevent the development of competitive
products which may be equivalent or superior to our products. We have not
received any claims alleging infringement of the intellectual property rights of
others, but there can be no assurance that we may not be subject to such claims
in the future.
Employees
As of March 24, 2003, we employed 30 persons including one officer, five sales
and customer support and 15 in manufacturing. None of our employees is
represented by a labor union and we have experienced no work stoppages to date.
Facilities
Our president provides use of space in his residence to conduct his
administrative duties and we do not reimburse him for such use. We rent 1400 sq.
ft. of sales and research space in Victoria BC for $1050 a month and 500 sq. ft.
of office space in Chicago IL for $500 a month. We lease an 11,000 sq. foot
building in Calgary, Alberta, Canada for $3,150 per month until September 2003
for manufacture of our products.
15
Legal Proceedings
On January 15, 2002 we filed a lawsuit in the Supreme Court of British Columbia
against John Wells and Equity Trust, S.A. seeking return of 100,000 shares of
our common stock and repayment of a $25,000 loan which were provided to
defendants for investment banking services to be provided to Flexible consisting
of providing a $5 million loan and a $25 million stock offering. Such services
were not performed and the loan was not repaid when due and we filed suit for
the return of such shares after they were not returned voluntarily and the note
was not paid.
MANAGEMENT
Our directors and executive officers are:
Name Age Office
---- --- ------
Daniel B. O'Brien 46 President, Director
John H. Bientjes 49 Director
Dr. Robert O'Brien 81 Director
Dale Friend 47 Director
Daniel B. O'Brien has been president and a director of Flexible since August
1998. He has been involved in the swimming pool industry since 1990 when he
founded our subsidiary, Flexible Solutions Ltd. which was purchased by Flexible
Solutions International, Inc. in August 1998. From 1990 to 1998 Mr. O'Brien was
also a teacher at Brentwood College where he was in charge of outdoor education.
John H. Bientjes has been a member of our Board of Directors since February
2000. Mr. Bientjes has been the manager of the Commercial Aquatic Supplies
Division of D.B. Perks & Associates, Ltd., located in Vancouver, British
Columbia, a company that markets supplies and equipment to commercial swimming
pools which are primarily owned by municipalities. Mr. Bientjes was graduated in
1976 from Simon Fraser University in Vancouver, British Columbia with a Bachelor
of Arts Degree in Economics and Commerce.
Dr. Robert N. O'Brien has been a member of the Company's Board of Directors
since May 1998. Dr. O'Brien was a Professor of Chemistry at the University of
Victoria from 1968 until 1986 at which time he was given the designation of
Professor Emeritus. He held various academic positions since 1957 at the
University of Alberta, the University of California at Berkley, and the
University of Victoria. While teaching, Dr. O'Brien acted as a consultant and
served on the British Columbia Research Council from 1968 to 1990. In 1987, Dr.
O'Brien founded the Vancouver Island Advanced Technology and Research
Association. Dr. O'Brien received his Bachelor of Applied Science in Chemical
Engineering from the University of British Columbia in 1951; his Masters of
Applied Science in Metallurgical Engineering from the University of British
Columbia in 1952; his Ph.D. in Metallurgy from the University of Manchester in
1955; and, was a Post Doctoral Fellow in Pure Chemistry at the University of
Ottawa from 1955 through 1957.
Dale Friend was elected a director in December, 2002. She was a Senior Trust
Analyst for Alderwoods Group, formerly The Loewen Group from August 2002 to
February 2003. She was Advanced Accountant for such firm from 1999 to August
2002. She was with Telus, formerly BC Tel, from 1979 to 1998 in various
accounting, auditing and financial planning positions.
Daniel B. O'Brien and Dr. Robert N. O'Brien are father and son.
16
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid to our chief
executive officer for the last three completed fiscal years. No other officer
earned $100,000 or more per year in such period.
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
AWARDS PAYOUTS
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
YEAR ($) ($) ($) ($) (#) ($) ($)
--------- ----- ------- -------- --------- ---------- ------- ---------
Daniel O'Brien 2002 $40,000 -- -- -- 50,000 shares -- --
--
President, Chief 2001 $18,500 -- -- 100,000 shares -- --
Executive Officer 2000 $18,500 100,000 shares
The following table provides certain information about the stock
options granted to the executive officer named in the Summary Compensation
Table. in the year ended December 31, 2002.
OPTIONS GRANTED IN 2002 FISCAL YEAR
--------------------------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES
UNDERLYING PERCENT OF TOTAL
OPTIONS GRANTED OPTIONS/SARS GRANTED TO EXERCISE OR BASE PRICE
NAME (#) EMPLOYEES IN FISCAL YEAR ($/SHARE) EXPIRATION DATE
--------------------------- ------------------ -------------------------- ------------------------ -----------------------
Daniel B. O'Brien 50,000 shares 40.4% $4.25 December 31, 2007
--------------------------- ------------------ -------------------------- ------------------------ -----------------------
17
The following table sets forth certain information about stock options
exercised in 2002 and the value of unexercised stock option held as of December
31, 2002 by the executive officer named in the Summary Compensation Table.
AGGREGATE OPTION EXERCISES IN 2002 AND YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE
SHARES OPTIONS AT FY-END (#) MONEY OPTIONS AT FY-END ($)
ACQUIRED ON VALUE ------------------------------ --------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------- -------------- -------------- -------------- -------------- -------------- ----------------
Daniel B. O'Brien 100,000 $330,000 100,000 50,000 $205,000 0
DIRECTOR COMPENSATION
We have agreed to issue our directors who are not also employed by the Company
options to purchase 5,000 shares of our common stock annually for serving as a
director. However, Dr. Robert N. O'Brien will not receive director options in
any year in which he receives options for other services. We pay Dr. Robert
O'Brien additional options for assisting in research and development and patent
prosecution. The amount of such options are determined annually by the Board of
Directors with Dr. O'Brien not voting on such matter. In 2002, Dr. O'Brien
received the following options for such services and he did not receive director
options:
Option Price No. of Options Expiration Date
------------ -------------- ---------------
$4.25 25,000 December 31, 2007
Our other outside directors received the following options in 2002:
Name Option Price No. of Options Expiration Date
---- ------------ -------------- ---------------
John H. Bientjes $4.25 5,000 December 31, 2007
Dale Friend $4.25 5,000 December 31, 2007
Certain Transactions
Our director, Dr. Robert O'Brien, developed our products and has assigned his
patent rights to such products to us. We have no agreement with Dr. O'Brien
requiring him to conduct any research and development activities for us but we
anticipate that any future inventions which may be of interest to us will
continue to be assigned to us by Dr. O'Brien, although he has no legal
obligation to do so. Dr. O'Brien does not receive any salary or royalties from
us for any research and development activities. The Board of Directors does
consider such activities undertaken by Dr. O'Brien when it grants stock options
to Dr. O'Brien. Dr. O'Brien is a member of the Board of Directors but does not
participate in the proceedings of the Board concerning his own stock option
grants.
18
INDEMNIFICATION
Our articles of incorporation provide that we will indemnify our directors to
the fullest extent permitted by the Nevada General Corporation Law. Nevada law
provides that the directors of a corporation may not be indemnified (i) for any
breach of their duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or that involve intentional misconduct,
fraud or a knowing violation of law; or (iii) for unlawful distributions to
shareholders. Flexible's by-laws provide that we shall indemnify our directors
and officers for any actions taken as officers or directors other than arising
out of negligence or willful misconduct.
Indemnification Against Public Policy
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or person controlling the company,
Flexible has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of March 17, 2003 by (i) each stockholder who is
known by the Company to own beneficially more than five percent of the Company's
outstanding Common Stock, (ii) each director of the Company, (iii) the Company's
executive officers named in the Summary Compensation Table, and (iv) by all
executive officers and directors of the Company as a group. The information as
to each person or entity has been furnished by such person or group.
Shares Beneficially Owned (1)
Common Stock Percentage
Daniel O'Brien(2)(3) 4,606,000 39.3%
John H. Bientjes(2)(3) 40,000 *
Dr. Robert O'Brien(2)(3) 1,800,000 15.4%
Dale Friend(2)(3) -0- -
Sprott Asset Management, Inc.(4) 1,672,800 14.4%
PF Water(5) 678,600 5.8%
Beat Aschmann(6) 700,000 6.0%
All directors and officers
as a group (4 persons) 6,446,000 54.7%
* Less than 2%
(1) Applicable percentage of ownership at March 17, 2003, is based upon
11,621,919 shares of Common Stock outstanding. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to shares shown
as beneficially owned. Shares of Common Stock subject to options or warrants
currently exercisable or exercisable within 60 days of February 3, 2003, are
deemed outstanding for computing the shares and percentage ownership of the
person holding such options or warrants, but are not deemed outstanding for
computing the percentage ownership of any other person or entity.
19
(2) Address for this shareholder is 2614 Queenswood Drive, Victoria,BC, V8N 1X5,
Canada.
(3) Includes shares which may be acquired on the exercise of stock options as
follows.
Name No. of Options Exercise Price Expiration Date
---- -------------- -------------- ---------------
Daniel O'Brien 100,000 $1.40 December 21, 2006
John H. Bientjes 5,000 $1.40 December 21, 2006
Dr. Robert O'Brien 50,000 $1.40 December 21, 2006
Does not include the following shares which may be acquired on the exercise of
stock options which are not exercisable until December 31, 2003.
Name No. of Options Exercise Price Expiration Date
---- -------------- -------------- ---------------
Daniel O'Brien 50,000 $4.25 December 31, 2007
John H. Bientjes 5,000 $4.25 December 31, 2007
Dr. Robert O'Brien 25,000 $4.25 December 31, 2007
Dale Friend 5,000 $4.25 December 31, 2007
(4) Address for this shareholder is Suite 3450, South Tower, Royal Bank Plaza,
Toronto, Ontario, M5J 2J2, Canada.
(5) Formerly known as Pictet Global Sector Fund. Address for this shareholder is
Boulevard Georges Favon, Geneva, Switzerland CH-1204.
(6) Address of this shareholder is Laerchenhofweg #3, Bonstetten, Switzerland,
CH-8906.
DESCRIPTION OF SECURITIES
Common stock
Flexible is authorized to issue 50,000,000 shares of common stock with $.001 par
value. The holders of the common stock are entitled to one vote per each share
held and have the sole right and power to vote on all matters on which a vote of
common stockholders is taken. Voting rights are non-cumulative. The holders of
shares of common stock are entitled to receive dividends when, as and if
declared by the Board of Directors, out of funds legally available therefore and
to share pro-rata in any distribution to stockholders. Upon liquidation,
dissolution, or winding up of the company, the holders of the common stock are
entitled to receive the net assets held by the company after distributions to
the creditors and payment of any preferences due to the holders of any preferred
stock which may be issued and outstanding. The holders of common stock do not
have any preemptive right to subscribe for or purchase any shares of any class
of stock. The shares of common stock offered hereby will not be subject to
further call or redemption and are fully paid and non-assessable.
Preferred Stock
The Board of Directors has the authority to cause us to issue without any
further vote or action by the shareholders, up to 1,000,000 shares of preferred
stock, par value $.01 per share, in one or more series, and to designate the
number of shares constituting any series, and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, voting right,
rights and terms of redemption, redemption price or prices and liquidation
preferences of such series.
20
The authorized shares but unissued shares of our common stock and preferred
stock may be used to discourage, delay or prevent persons from attempting to
gain control of us by diluting the voting power of shares then outstanding or
increasing the voting power of persons who would support the Board of Directors
in opposing a takeover bid or a solicitation in opposition to management. These
shares could also be used by the Board of Directors in a public or a private
sale, merger or similar transaction by increasing the number of outstanding
shares and thereby diluting the equity interest and voting power of a party
attempting to obtain control of us. We are not currently aware of any effort to
obtain control of us and have no plans to use the new shares for purposes of
discouraging any such effort. Issuing any additional shares of our common stock
or preferred stock would dilute our current shareholders interests in us.
SELLING SHAREHOLDERS
In April 2002 we sold 400,000 shares of our common stock to investors for $2.50
per share and we sold 1,428,600 shares of our common stock to investors for
$3.50 per share in July 2002. We are registering these shares for sale in the
registration statement of which this prospectus is a part.
The following table sets forth certain information as of March 17, 2003
regarding the ownership of our common stock by the selling shareholders and as
adjusted to give effect to the sale of the shares offered in this prospectus.
Name Shares Shares which Number of
owned may be offered shares to be
prior to this under this owned after
offering prospectus the offering
--------------------------------- -------- ---------- ------------
Sprott Asset Management, Inc. (1) 1,672,800 1,400,000 272,800 (2)
PF Water - formerly known as
Pictet Global Sector Fund 678,600 428,600 150,000 (3)
----------
(1) Sprott Asset Management, Inc. is an investment manager that has sole or
shared dispositive and sole or shared voting power with respect to these shares,
which were purchased on behalf of investment accounts for which it is portfolio
manager.
(2) Represents 2.4 % of total common shares outstanding as of March 17, 2003.
(3) Represents 1.3 % of total common shares outstanding as of March 17, 2003.
The selling shareholders and their officers and directors have not held any
positions or office or had any other material relationship with Flexible or any
of its affiliates within the past three years except as purchaser of the shares
registered for sale.
The selling shareholders have each advised us that at the time of the
acquisition of their shares they had no agreements or understandings, directly
or indirectly, with any person to distribute the shares. The shares were
acquired by the selling shareholders in the ordinary course of business
21
PLAN OF DISTRIBUTION
The shares of common stock are being offered on behalf of the selling
shareholders, and we will not receive any proceeds from the offering. The shares
of common stock may be sold or distributed from time to time by the selling
shareholders, or by pledgees, donees or transferees of, or other successors in
interest to, the selling shareholders, directly to one or more purchasers
(including pledgees) or through brokers, dealers or underwriters who may act
solely as agent or may acquire such shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices, or at fixed prices, which may be subject to
change. The sale of the shares of common stock may be effected through one or
more of the following methods: (i) ordinary brokers' transactions; (ii)
transactions involving cross or block trades or otherwise on the
over-the-counter; (iii) purchases by brokers, dealers or underwriters as
principal and resale by such purchasers for their own accounts pursuant to this
prospectus; (iv) "at the market" to or through market makers or into established
trading markets, including direct sales to purchasers or sales effected through
agents; and (v) any combination of the foregoing, or by any other legally
available means. The selling shareholders also may enter into option or other
transactions with broker-dealers that require the delivery by such
broker-dealers of the shares of common stock, which shares of common stock may
be resold thereafter pursuant to this prospectus. We cannot be certain that all
or any of the shares of common stock will be sold by the selling shareholders.
Brokers, dealers, underwriters or agents participating in the sale of the shares
of common stock as agents may receive compensation in the form of commissions,
discounts or concessions from the selling shareholders and/or purchasers of the
common stock for whom such broker-dealers may act as agent, or to whom they may
sell as principal, or both (which compensation to a particular broker-dealer may
be less than or in excess of customary commissions). The selling shareholders
and any broker-dealers or other persons who act in connection with the sale of
the common stock may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commission they receive and proceeds of any sale of such
shares may be deemed to be underwriting discounts and commissions under the
Securities Act. Neither Flexible nor the selling shareholders can presently
estimate the amount of such compensation. Flexible does not know of any existing
arrangements between the selling shareholders and any other shareholders,
broker, dealer, underwriter or agent relating to the sale or distribution of the
shares of our common stock.
We will file a supplement to this prospectus, to the extent required pursuant to
Rule 424(b) under the Securities Act upon being notified by the selling
stockholder that any material arrangement has been entered into with a
broker--dealer for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution of a purchase by a broker or
dealer. Such supplement will disclose:
-- the name of the selling stockholder and of the participating
broker--dealer(s);
-- the number of shares involved;
-- the price at which such shares were sold;
-- the commissions paid or discounts or concessions allowed to such
broker--dealer(s), where applicable;
-- that such broker--dealer(s) did not conduct any investigation
to verify the information set out or incorporated by reference
in this prospectus; and
-- other facts material to the transaction.
22
If underwriters are used in a sale, the shares will be acquired by the
underwriters for their own account and may be resold from time to time in one or
more transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. Shares may be offered
to the public either through underwriting syndicates represented by one or more
managing underwriters or directly by one or more firms acting as underwriters.
The underwriter or underwriters with respect to a particular underwritten
offering of shares will be named in the supplement to this prospectus relating
to that offering and, if an underwriting syndicate is used, the managing
underwriter or underwriters will be stated on the cover of the prospectus
supplement.
The selling shareholders and any other persons participating in the sale or
distribution of the common stock will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the common stock by the
selling shareholders or any other such persons. The foregoing may affect the
marketability of the common stock. We will pay substantially all of the expenses
incidental to the registration of the shares which may be offered by the selling
shareholders, but the selling shareholders will be responsible for any
commissions or discounts of underwriters, broker-dealers or agents.
LEGAL MATTERS
The validity of the securities offered hereby is being passed upon by Joel
Bernstein, Esq., P.A., Miami, Florida.
EXPERTS
The financial information statements appearing in this Prospectus and
Registration Statement have been audited by Pannell Kerr Forster, Chartered
Accountants, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
Flexible is subject to the reporting requirements of Section 13 of the
Securities Exchange Act of 1934 and files periodic reports including financial
statements, proxy statements and other information with the Securities and
Exchange Commission. For further information with respect to Flexible and the
securities hereby offered, reference is made to the exhibits filed as part of
this registration statement, which may be inspected and copied at the public
reference facilities of the Commission in Washington D.C., and copies of such
material can be obtained from the Public Reference Room of the Commission, 450
5th Street, N.W., Washington, D.C. 20549, at prescribed rates and are available
on the World Wide Web at : http://www.sec.gov. You may call the SEC at
1-800-732-0330 for further information about operation of the public reference
room.
23
--------------------------------------------------------------------------------
FLEXIBLE SOLUTIONS
INTERNATIONAL INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(U.S. DOLLARS)
INDEX PAGE
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS TO
THE BOARD OF DIRECTORS AND STOCKHOLDERS 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-16
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF FLEXIBLE SOLUTIONS INTERNATIONAL INC.
We have audited the accompanying consolidated balance sheets of Flexible
Solutions International Inc. as of December 31, 2002 and 2001 and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the years ended December 31, 2002, 2001 and 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2002
and 2001 and the results of its operations and its cash flows for each of the
years ended December 31, 2002, 2001 and 2000 in conformity with accounting
principles generally accepted in the United States of America.
"Pannell Kerr Forster"
Chartered Accountants
Vancouver, Canada
March 12, 2003
1
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
(U.S. DOLLARS)
--------------------------------------------------------------------------------------------------------------------
2002 2001
--------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash $556,789 $190,457
Short-term investment (note 14) 5,062,495 0
Accounts receivable 55,222 46,374
Income tax recoverable 118,014 0
Loan receivable (note 4) 10,082 9,516
Note receivable (note 5) 0 9,225
Inventory 203,830 181,698
Prepaid expenses (note 6) 87,321 59,291
--------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 6,093,753 496,561
PROPERTY AND EQUIPMENT (note 7) 128,566 72,753
INVESTMENT (note 8) 32,500 0
--------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $6,254,819 $569,314
--------------------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable $53,146 $20,592
Income tax payable 0 18,108
--------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 53,146 38,700
--------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 13)
Authorized
50,000,000 Common shares with a par value of $0.001 each
1,000,000 Preferred shares with a par value of $0.01 each
Issued and Outstanding
11,570,916 and 9,272,816 Common shares 11,570 9,272
CAPITAL IN EXCESS OF PAR VALUE 9,328,648 563,713
SHARE SUBSCRIPTION RECEIVABLE (16,217) 0
OTHER COMPREHENSIVE LOSS (21,354) (23,842)
ACCUMULATED DEFICIENCY (3,100,974) (18,529)
--------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 6,201,673 530,614
--------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,254,819 $569,314
--------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
2
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
(U.S. DOLLARS)
--------------------------------------------------------------------------------------------------------------------
2002 2001 2000
--------------------------------------------------------------------------------------------------------------------
SALES $1,112,192 $1,334,273 $1,029,649
COST OF SALES, (exclusive
of depreciation shown
separately below) 581,422 662,807 509,933
--------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 530,770 671,466 519,716
--------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Wages (note 12) 414,885 246,955 87,907
Consulting (note 12) 2,736,608 66,963 0
Office 122,703 48,398 9,028
Stock promotion and transfer agent fee 96,954 241,573 568
Rent 61,126 28,978 11,445
Subcontracting 53,837 16,630 33,312
Professional fees 53,548 23,338 36,701
Travel and entertainment 50,213 23,125 10,454
Administrative salaries and benefits 45,312 46,639 37,234
Currency exchange 19,180 (2,368) (19,344)
Shipping 10,771 13,563 12,189
Telephone 9,326 5,616 3,613
Research 2,523 0 0
Bad debt expense 230 26,570 51,282
Commission 0 1,130 1,982
Depreciation 24,683 18,910 13,489
--------------------------------------------------------------------------------------------------------------------
3,701,899 806,020 289,860
--------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE OTHER ITEMS
AND INCOME TAX (3,171,129) (134,554) 229,856
--------------------------------------------------------------------------------------------------------------------
OTHER ITEMS
Gain on sale of property and equipment 0 863 0
Interest income 67,228 0 0
--------------------------------------------------------------------------------------------------------------------
67,228 863 0
--------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAX (3,103,901) (133,691) 229,856
INCOME TAX (RECOVERY) (21,456) 100,264 90,885
--------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(3,082,445) $(233,955) $138,971
--------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE $ (0.29) $ (0.03) $ 0.02
--------------------------------------------------------------------------------------------------------------------
DILUTED INCOME PER SHARE N/A N/A $ 0.01
--------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES 10,555,754 9,247,949 9,131,316
DILUTIVE EFFECTS OF OPTIONS N/A N/A 220,527
--------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
SHARES WITH DILUTION 10,555,754 9,247,949 9,351,843
--------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
3
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(U.S. DOLLARS)
---------------------------- ------------ ------------ -------------- --------------- -------------- --------------- ---------------
Capital in Share Accumulated Other Total
Excess of Subscription Earnings Comprehensive Stockholders'
Shares Par Value Par Value Receivable (Deficiency) Income (Loss) Equity
---------------------------- ------------ ------------ -------------- --------------- -------------- --------------- ---------------
BALANCE, DECEMBER 31, 1999 9,131,316 $9,131 $163,653 $0 $76,455 $6,677 $255,916
TRANSLATION ADJUSTMENT 0 0 0 0 0 (8,516) (8,516)
NET INCOME 0 0 0 0 138,971 0 138,971
---------------------------- ------------ ------------ -------------- --------------- -------------- --------------- ---------------
BALANCE, DECEMBER 31, 2000 9,131,316 9,131 163,653 0 215,426 (1,839) 386,371
SHARES ISSUED
For cash 9,500 9 4,116 0 0 0 4,125
For services 132,000 132 139,868 0 0 0 140,000
Stock option compensation 0 0 256,076 0 0 0 256,076
Translation adjustment 0 0 0 0 0 (22,003) (22,003)
Net loss 0 0 0 0 (233,955) 0 (233,955)
---------------------------- ------------ ------------ -------------- --------------- -------------- --------------- ---------------
BALANCE, DECEMBER 31, 2001 9,272,816 9,272 563,713 0 (18,529) (23,842) 530,614
SHARES ISSUED
FOR CASH
Private placement 1,828,600 1,829 5,998,271 0 0 0 6,000,100
Exercise of stock options 439,500 439 150,686 0 0 0 151,125
For services 30,000 30 44,370 0 0 0 44,400
Share issue costs 0 0 (250,000) 0 0 0 (250,000)
Share subscription 0 0 0 (33,000) 0 0 (33,000)
Payment of subscription
receivable 0 0 0 16,783 0 0 16,783
Stock option compensation 0 2,821,608 0 0 0 2,821,608
Translation adjustment 0 0 0 0 0 2,488 2,488
Net loss 0 0 0 0 (3,082,445) 0 (3,082,445)
---------------------------- ------------ ------------ -------------- --------------- -------------- --------------- ---------------
BALANCE, DECEMBER 31, 2002 11,570,916 $11,570 $9,328,648 $(16,217) $(3,100,974) $(21,354) $6,201,673
---------------------------- ------------ ------------ -------------- --------------- -------------- --------------- ---------------
See notes to consolidated financial statements.
4
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
(U.S. DOLLARS)
------------------------------------------------------------------------------------------------------------------
2002 2001 2000
------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $(3,082,445) $(233,955) $138,971
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities
Stock option compensation 2,821,608 256,076 0
Non-cash services 44,400 141,510 0
Depreciation 24,683 18,910 13,489
Gain on sale of property and equipment 0 (863) 0
Changes in Non-Cash Working Capital
Accounts receivable (8,848) 98,009 (31,544)
Inventory (22,132) (88,185) 43,047
Prepaid expenses (28,030) (53,140) (5,631)
Accounts payable 32,554 8,170 (14,589)
Accrued liabilities 0 0 (6,929)
Income tax recoverable (136,122) (72,490) 21,312
Unrealized foreign exchange gain/loss 627 (10,500) (5,033)
------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (353,705) 63,542 153,093
------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Short-term investment (5,062,495) 0 0
Acquisition of property and equipment (80,496) (39,246) (16,771)
Note receivable 9,225 (9,225) 0
Loan receivable (566) (9,516) 0
Investment (32,500) 0 0
------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (5,166,832) (57,987) (16,771)
------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 5,868,225 4,125 0
Subscriptions received 16,783 0 0
------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 5,885,008 4,125 0
------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,861 (11,503) (3,483)
------------------------------------------------------------------------------------------------------------------
INFLOW (OUTFLOW) OF CASH 366,332 (1,823) 132,839
CASH, BEGINNING OF YEAR 190,457 192,280 59,441
------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR $556,789 $190,457 $192,280
------------------------------------------------------------------------------------------------------------------
SUPPLEMENTARY DISCLOSURE OF CASH
FLOW INFORMATION
Income taxes paid $115,472 $85,126 $66,748
------------------------------------------------------------------------------------------------------------------
SUPPLEMENTARY DISCLOSURE OF NON-CASH
TRANSACTIONS
Issue of common stock for service $44,400 $140,000 $0
Sale of trailer - exchange for rent $0 $1,510 $0
------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
5
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(U.S. DOLLARS)
--------------------------------------------------------------------------------
1. OPERATIONS AND BASIS OF PRESENTATION
These consolidated financial statements include the accounts of
Flexible Solutions International Inc. ("the Company") and its
wholly-owned subsidiaries Flexible Solutions Ltd. and Water$aver Global
Solutions Inc. All intercompany balances and transactions are
eliminated. The parent company was incorporated May 12, 1998 in the
State of Nevada and had no operations until June 30, 1998 as described
below.
On June 30, 1998 the Company completed the acquisition of 100% of the
shares of Flexible Solutions Ltd. The acquisition was effected through
the issuance of 7,000,000 shares of common stock by the Company with
the former shareholders of the subsidiary receiving 100% of the total
shares then issued and outstanding. The transaction has been accounted
for as a reverse take-over.
Flexible Solutions Ltd. is accounted for as the acquiring party and the
surviving entity. Because Flexible Solutions Ltd. is the accounting
survivor, the consolidated financial statements presented for all
periods are those of Flexible Solutions Ltd. The shares issued by
Flexible Solutions International Inc. pursuant to the 1998 acquisition
have been accounted for as if those shares had been issued upon the
organization of Flexible Solutions Ltd.
On May 7, 2002, the Company established Water$aver Global Solutions
Inc. through issuance of 100 shares of common stock to itself.
2. COMPARATIVE FIGURES
Certain of the comparative figures are reclassified to conform with the
current year's presentation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Foreign currency
The functional currency of the Company is the Canadian dollar.
The translation of the Canadian dollar to the reporting
currency of the U.S. dollar is performed for current assets
and current liabilities using exchange rates in effect at the
balance sheet date. Non-monetary assets and liabilities are
translated using rates prevailing at the time of the
acquisition of the assets or assumption of the liabilities.
Revenue and expense transactions are translated using average
exchange rates prevailing during the year. Translation
adjustments arising on conversion of the financial statements
from the Company's functional currency, Canadian dollars, into
the reporting currency, U.S. dollars, are excluded from the
determination of income and disclosed as other comprehensive
income (loss) in stockholders' equity.
Foreign exchange gains and losses relating to transactions not
denominated in the applicable local currency are included in
income if realized during the year and in comprehensive income
if they remain unrealized at the end of the year.
6
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(U.S. DOLLARS)
--------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b) Use of estimates
The preparation of 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 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 and would impact future results of
operations and cash flows.
(c) Cash
The Company considers all highly liquid investments purchased
with an original or remaining maturity of less than three
months at the date of purchase to be cash equivalents. Cash
and cash equivalents are maintained with several financial
institutions.
(d) Inventory
Inventory is valued at the lower of cost and net realizable
value. Cost is determined on a first-in, first-out basis.
(e) Property and equipment
Property and equipment are recorded at cost and depreciated
using the following methods using the following annual rates:
Manufacturing equipment - 20% Declining balance
Computer hardware - 30% Declining balance
Furniture and fixtures - 20% Declining balance
Office equipment - 20% Declining balance
Leasehold improvements - Straight-line over lease term
Property and equipment are written down to net realizable
value when management determines there has been a change in
circumstances which indicates its carrying amount may not be
recoverable. No write downs have been necessary to date.
(f) Revenue recognition
Revenue from product sales is recognized at the time the
product is shipped since title and risk of losses is
transferred to purchaser upon delivery to carrier. Shipments
are made F.O.B. shipping point. Provisions are made at the
time related revenue is recognized for estimated product
returns. Since the Company's inception, product returns have
been insignificant; therefore no provision has been
established for estimated product returns.
7
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(U.S. DOLLARS)
--------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(g) Financial instruments
The fair market value of the Company's financial instruments
comprising cash, short-term investment, accounts receivable,
income tax recoverable, loan receivable and accounts payable
were estimated to approximate their carrying values due to
immediate or short-term maturity of these financial
instruments.
The Company is exposed to interest rate risk to the extent
that market value rate fluctuations materially differ from
financial assets and liabilities subject to fixed long-term
rates.
(h) Income (loss) per share calculation
Income (loss) per share is calculated by dividing net income
(loss) by the weighted average number of shares outstanding.
Common share equivalents consisting of stock options are not
considered in the computation because their effect would be
anti-dilutive.
(i) Stock issued in exchange for services
The valuation of the common stock issued in exchange for
services is valued at an estimated fair market value as
determined by officers and directors of the Company based upon
trading prices of the Company's common stock on the dates of
the stock transactions.
(j) Stock based compensation
The Company applies APB Opinion No. 25 and related
interpretations in accounting for its employee stock option
plans. Compensation expense is recorded when options are
granted to management at discounts to market.
(k) Comprehensive income
Other comprehensive income refers to revenues, expenses, gains
and losses that under generally accepted accounting principles
are included in comprehensive income but are excluded from net
income as these amounts are recorded directly as an adjustment
to stockholders' equity. The Company's other comprehensive
income is primarily comprised of unrealized foreign exchange
gains and losses.
8
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(U.S. DOLLARS)
--------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(l) Recent accounting pronouncements
(i) In June 2001, the Financial Accounting Standards
Board (FASB) issued FAS 142, Goodwill and Other
Intangible Assets. Under FAS 142, goodwill and
intangible assets with indefinite lives are no longer
amortized but are reviewed at least annually for
impairment. The amortization provisions of FAS 142
apply to goodwill and intangible assets acquired
after June 30, 2001. With respect to goodwill and
intangible assets acquired prior to July 1, 2001, the
Company has adopted FAS 142 effective January 1,
2002. Application of the non-amortization provisions
of FAS 142 for goodwill did not have any impact on
its financial reporting.
(ii) In October 2001, the FASB issued Statement of
Financial Accounting Standards FAS 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets."
FAS 144 addresses significant issues relating to the
implementation of FAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," and develops a single
accounting model, based on the framework established
in FAS 121 for long-lived assets to be disposed of by
sale, whether such assets are or are not deemed to be
a business. FAS 144 also modifies the accounting and
disclosure rules for discontinued operations. The
standard was adopted on January 1, 2002, and did not
have any impact on the financial statements.
In November 2001, the FASB issued EITF Issue No.
01-14, "Income Statement Characterization of
Reimbursements Received for "Out of Pocket" Expenses
Incurred." This guidance requires companies to
recognize the recovery of reimbursable expenses such
as travel costs on service contracts as revenue.
These costs are not to be netted as a reduction of
cost. This guidance was implemented January 1, 2002.
The Company does not expect this guidance to have a
material effect on the financial statements.
9
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(U.S. DOLLARS)
--------------------------------------------------------------------------------
4. LOAN RECEIVABLE
-----------------------------------------------------------------------------------------------------------
2002 2001
-----------------------------------------------------------------------------------------------------------
5% loan receivable due on demand $10,082 $9,516
-----------------------------------------------------------------------------------------------------------
5. NOTE RECEIVABLE
The note receivable had no stated terms of repayment or interest and
was received in full during the year 2002.
6. PREPAID EXPENSES
-----------------------------------------------------------------------------------------------------------
2002 2001
-----------------------------------------------------------------------------------------------------------
Deposits for materials purchase $13,578 $41,436
Security deposit and prepaids 73,743 17,855
-----------------------------------------------------------------------------------------------------------
$87,321 $59,291
-----------------------------------------------------------------------------------------------------------
7. PROPERTY AND EQUIPMENT
-----------------------------------------------------------------------------------------------------------
2002
Accumulated
Cost Depreciation Net
-----------------------------------------------------------------------------------------------------------
Manufacturing equipment $159,885 $61,641 $98,244
Computer hardware 9,834 3,602 6,232
Furniture and fixtures 5,542 2,031 3,511
Office equipment 14,690 1,731 12,959
Leasehold improvements 10,160 2,540 7,620
-----------------------------------------------------------------------------------------------------------
$200,111 $71,545 $128,566
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
2001
Accumulated
Cost Depreciation Net
-----------------------------------------------------------------------------------------------------------
Manufacturing equipment $110,105 $43,303 $66,802
Computer hardware 5,190 1,927 3,263
Furniture and fixtures 3,786 1,372 2,414
Office equipment 534 260 274
-----------------------------------------------------------------------------------------------------------
$119,615 $46,862 $72,753
-----------------------------------------------------------------------------------------------------------
10
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(U.S. DOLLARS)
--------------------------------------------------------------------------------
8. INVESTMENT
-----------------------------------------------------------------------------------------------------------
2002 2001
-----------------------------------------------------------------------------------------------------------
Ideal Business Solutions India
P.Ltd - 2700 equity shares (10%) $32,500 $0
-----------------------------------------------------------------------------------------------------------
The above investment is recorded at cost.
9. COMPREHENSIVE (LOSS) INCOME
-------------------------------------------- ----------------------- ------------------- -------------------
2002 2001 2000
-------------------------------------------- ----------------------- ------------------- -------------------
Net income (loss) $(3,082,445) $(233,955) $138,971
Other comprehensive
income (loss) 2,488 (22,003) (8,516)
-------------------------------------------- ----------------------- ------------------- -------------------
Comprehensive income (loss) $(3,079,957) $(255,958) $130,455
-------------------------------------------- ----------------------- ------------------- -------------------
10. INCOME TAX
Total income tax expense differs from the amounts computed by applying
the combined Canadian federal and provincial statutory rate of 44.62%
to income before income taxes. The income to which this is applied is
as follows:
----------------------------------------------- --------------------- ------------------- -------------------
2002 2001 2000
----------------------------------------------- --------------------- ------------------- -------------------
Income (loss) before income tax
per entity
Flexible Solutions International Inc. $(2,866,021) $(396,470) $0
Flexible Solutions Ltd. (56,264) 62,779 229,856
Water$aver Global Solutions Inc. (181,616) 0 0
----------------------------------------------- --------------------- ------------------- -------------------
Consolidated income (loss) before
income tax (3,103,901) (133,691) 229,856
Permanent difference
Stock option benefit 2,821,608 256,076 0
Other
Stock issued for services 44,400 140,000 0
Miscellaneous 0 394 0
----------------------------------------------- --------------------- ------------------- -------------------
Taxable income (loss) for
tax purposes $(237,893) $262,779 $229,856
----------------------------------------------- --------------------- ------------------- -------------------
11
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(U.S. DOLLARS)
--------------------------------------------------------------------------------
10. INCOME TAX (Continued)
Application of the federal and provincial statutory rate results in the
following:
------------------------------------------------ ------------------- ------------------- ------------------
2002 2001 2000
------------------------------------------------ ------------------- ------------------- ------------------
Expected tax expense (recovery)
at statutory rates
From Canadian operations $(21,456) $100,264 $90,885
From US operations (84,691) 16,988 13,975
Decrease resulting from
manufacturing and
processing deduction 0 (18,395) (16,090)
Other 0 1,407 2,115
------------------------------------------------ ------------------- ------------------- ------------------
Income tax expense (recovery) $(106,147) $100,264 $90,885
------------------------------------------------ ------------------- ------------------- ------------------
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
Company's deferred tax liability calculated at 35% tax rate consist of
the following:
-----------------------------------------------------------------------------------------------------------
2002 2001
-----------------------------------------------------------------------------------------------------------
Non-capital loss carry-forwards $93,858 $10,595
Book over tax value of fixed assets (1,449) (1,086)
Valuation allowance (92,409) (9,509)
-----------------------------------------------------------------------------------------------------------
$0 $0
-----------------------------------------------------------------------------------------------------------
The Company's losses for U.S. income tax purposes are $268,165 which
may be carried forward to apply against future income for U.S. income
tax purposes, expiring between 2018 and 2022. The future benefit of
these loss carry-forwards has been offset with a full valuation
allowance. These losses expire as follows:
------------------------------------------------------------------------------------- --------------------
Available to Amount
------------------------------------------------------------------------------------- --------------------
2018 $16,858
2019 13,414
2022 237,893
------------------------------------------------------------------------------------- --------------------
$268,165
------------------------------------------------------------------------------------- --------------------
12
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(U.S. DOLLARS)
11. NET INCOME (LOSS) PER SHARE
------------------------------------------- ---------------------- --------------------- ------------------
Net
Income (Loss) Shares Per Share
(Numerator) (Denominator) Amount
------------------------------------------- ---------------------- --------------------- ------------------
2002
Basic net loss per share
Net loss $(3,082,445) 10,555,754 $ (0.29)
2001
Basic net loss per share
Net loss $(233,955) 9,247,949 $ (0.03)
2000
Basic net income per share
Net income $138,971 9,131,316 $ 0.02
------------------------------------------- ---------------------- --------------------- ------------------
There were no preferred shares issued and outstanding for the years
ended December 31, 2002, 2001 and 2000. The 2002 denominator excludes
3,671,800 shares that may be issued upon exercise of options as to do
so would have been anti dilutive for the 2002 per share loss.
12. STOCK OPTIONS
The Company may issue stock options and stock bonuses for common stock
of the Company to provide incentives to directors, key employees and
other persons who contribute to the success of the Company. The
exercise price of the Incentive Options (employees of the Company or
its subsidiaries) is not less than the fair market value of the stock
at the date of the grant and for non-employees the exercise price is no
less than 80% of the fair market value (defined by the most recent
closing sale price reported by AMEX) on the date of the grant.
The following table summarizes the Company's stock option activity for
the year ended December 31, 2002 and 2001:
-------------------------------------- -------------------- ---------------------------- ------------------
Weighted
Number of Exercise Price Average
Shares Per Share Exercise Price
-------------------------------------- -------------------- ---------------------------- ------------------
Balance, December 31, 2000 589,000 $ 0.25 - $0.70 $ 0. 31
Granted during year ended
December 31, 2001 1,309,000 $ 0.25 - $3.50 $ 1. 47
Exercised (9,500) $ 0.25 - $1.00 $ 0. 32
-------------------------------------- -------------------- ---------------------------- ------------------
Balance, December 31, 2001 1,888,500 $ 0.25 - $ 3.50 $ 1. 63
Granted during year ended
December 31, 2002 2,222,800 $ 1.50 - $ 5.50 $ 4.78
Exercised (439,500) $ 0.25 - $ 1.50 $ (0.34)
Balance, December 31, 2002 3,671,800 $ 0.25 - $ 5.50 $ 3.79
-------------------------------------- -------------------- ---------------------------- ------------------
13
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(U.S. DOLLARS)
--------------------------------------------------------------------------------
12. STOCK OPTIONS (Continued)
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options granted to employees, and accordingly,
compensation expense of $85,000 (2001 - $173,750) was recognized as
wages expense. Had compensation expense been determined as provided in
SFAS 123 using Black-Scholes option - pricing model, the pro-forma
effect on the Company's net income (loss) and per share amounts would
have been as follows:
------------------------------------------- ---------------------- --------------------- -------------------
2002 2001 2000
------------------------------------------- ---------------------- --------------------- -------------------
Net income (loss), as reported $(3,082,445) $(233,955) $138,971
Net income (loss), pro-forma (3,704,296) (955,071) 138,971
Net income (loss) per share,
as reported $ (0.29) $ (0.03) $ 0.02
Net income (loss) per share,
pro-forma $(0.35) $ (0.10) $ 0.02
------------------------------------------- ---------------------- --------------------- -------------------
The fair value of each option grant is calculated using the following
weighted average assumptions:
-------------------------------------------------------------------------- --------------- -----------------
2002 2001
-------------------------------------------------------------------------- --------------- -----------------
Expected life (years) 5 3.5
Interest rate 3.00% 4.00%
Volatility 72.3% 58.27%
Dividend yield 0.00% 0.00%
-------------------------------------------------------------------------- --------------- -----------------
During the year, the Company granted 2,097,000 (2001 - 51,000) stock
options to consultants and have been recognized applying SFAS 123 using
the Black-Scholes option pricing model which resulted in additional
consulting expense of $2,736,608 (2001 - $66,963). Of the 2,097,000
options, 75,000 were granted on December 31, 2002 and have a vesting
period of one year, consequently consulting expense related to these
options will be recognized during the year ended December 31, 2003.
14
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(U.S. DOLLARS)
--------------------------------------------------------------------------------
13. CAPITAL STOCK
(a) During the year, the Company:
(i) completed two private placements whereby 400,000
shares of common stock were issued at a price of
$2.50 per share and an additional 1,428,600 shares of
common stock were issued at a price of $3.50 per
share to independent third parties;
(ii) issued 439,500 shares of common stock at prices
ranging from $0.25 to $1.50 per share upon exercise
of stock options;
(iii) issued 30,000 shares of common stock at a price of
$1.48 per share to a officer in lieu of six months of
salary.
(b) The Company is the plaintiff in a lawsuit demanding the return
of the share certificate for 100,000 shares of stock
originally given to the defendant as payment in advance for
services. The services for which the advance was given were
never performed or given to the Company, and the Company
therefore received no consideration or value for such advance.
Return of the share certificate for 100,000 shares was
demanded within ten (10) days, namely by August 22, 2001,
however, to date remains unreturned.
On date of issue, January 4, 2001, the share transaction was
recorded as shares issued for services at fair market value, a
value of $0.80 per share.
14. SHORT-TERM INVESTMENT
Short-term investment consists of a certificate of deposit bearing
interest at 4.11% and maturing September 11, 2005. The Company will
incur a penalty if principal is withdrawn before maturity date. The
amount of penalty equals one half of the remaining days in the terms
daily compounded interest on the total amount withdrawn. If the accrued
interest is less than the calculated penalty at time of withdrawal, the
difference between the penalty and the accrued interest will be
deducted from the principal.
15. SEGMENTED AND SIGNIFICANT CUSTOMER INFORMATION
The Company operates in a single segment, involving the development and
marketing of two lines of energy and water conservation products.
The first line consists of a liquid swimming pool blanket which saves
energy and water by storing evaporation from the pool surface. The
second line consists of a food safe powdered form of the active
ingredient within the liquid blanket and is designed to be used in
still or slow moving drinking water sources.
15
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(U.S. DOLLARS)
--------------------------------------------------------------------------------
15. SEGMENTED AND SIGNIFICANT CUSTOMER INFORMATION (Continued)
The Company's sales in the United States of America and abroad amounted
to 4%, 5% and 3% for the years ended December 31, 2002, 2001 and 2000
respectively. The remainder were earned in Canada.
All the Company's long-lived assets are located in Canada.
The Company had one major customer, Sunsolar Energy Technologies which
comprised 95%, 94% and 96% of total sales for the years ended December
31, 2002, 2001 and 2000 respectively. The Company is exposed to
concentrated credit risk with respect to its trade receivables from
this customer. It seeks to keep this risk to a minimum by granting only
45 days credit terms to this customer.
16. RELATED PARTY TRANSACTION
A director provides use of space of his residence to conduct
administrative duties without reimbursement from the Company.
17. COMMITMENTS
Property and premises leases
The Company is committed to minimum rental payments for property and
premises aggregating approximately $113,800 over the terms of leases
expiring September 29, 2003 and November 1, 2005.
Commitments in each of the next three years are approximately as
follows:
-----------------------------------------------------------------------
2003 $78,600
2004 19,200
2005 16,000
-----------------------------------------------------------------------
16
[OUTSIDE BACK COVER OF THE PROSPECTUS]
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than those contained in this
prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company.
This Prospectus does not constitute an offer of any securities other than those
to which it relates or an offer to sell or a solicitation of any offer to buy
any securities in any jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction. The delivery of this Prospectus at any time
does not imply that the information herein is correct as of any time subsequent
to its date. Notwithstanding the foregoing, the Company has undertaken to amend
this Prospectus in the event of any fundamental changes in the affair of the
Company.
--------------------------------------------------------------------------------
TABLE OF CONTENTS
Prospectus Summary ......................................................4
Risk Factors ............................................................4
Use of Proceeds .........................................................5
Market for Securities ...................................................5
Dividend Policy .........................................................7
Management's Discussion and Analysis of
Results of Operation and Financial Condition ........................7
Our Business ............................................................9
Management ..............................................................16
Indemnification .........................................................17
Security Ownership of Certain Beneficial
Owners and Management ...............................................19
Description of Securities ...............................................20
Selling Shareholders ....................................................21
Plan of Distribution ....................................................22
Legal Matters ...........................................................23
Experts .................................................................23
Additional Information ..................................................23
Index to Financial Statements ...........................................F-1
UNTIL ____________, 2003 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION DESCRIBED HEREIN, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS WITH RESPECT TO THE OFFERING HEREIN.
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PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of directors and officers.
Sections 78.03 and 78.378 to 78.3793 of the Nevada Revised Statutes contain
provisions concerning the indemnification of the directors and officers of a
Nevada corporation.
These statutes provide that a Nevada corporation may indemnify its officers and
directors against expenses actually and reasonably incurred in the event an
officer or director is made a party or threatened to be made a party to an
action (other than an action brought by or on behalf of the corporation as
discussed below) by reason of his or her official position with the corporation
provided the director or officer (1) is not liable for the breach of any
fiduciary duties as a director or officer involving intentional misconduct,
fraud or a knowing violation of the law or (2) acted in good faith and in a
manner he or she reasonably believed to be in the best interests of the
corporation and, with respect to any criminal actions, had no reasonable cause
to believe his or her conduct was unlawful.
A Nevada corporation may indemnify its officers and directors against expenses,
including amounts paid in settlement, actually and reasonably incurred in the
event an officer or director is made a party or threatened to be made a party to
an action by or on behalf of the corporation by reason of his or her official
position with the corporation provided the director or officer (1) is not liable
for the breach of any fiduciary duties as a director or officer involving
intentional misconduct, fraud or a knowing violation of the laws or (2) acted in
good faith and in a manner he or she reasonably believed to be in the best
interests of the corporation.
The Nevada Revised Statutes further provides that a corporation generally may
not indemnify an officer or director if it is determined by a court that such
officer or director is liable to the corporation or responsible for any amounts
paid to the corporation as a settlement, unless a court also determines that the
officer or director is entitled to indemnification in light of all of the
relevant facts and circumstances.
The Nevada Revised Statutes require a corporation to indemnify an officer or
director to the extent he or she is successful on the merits or otherwise
successfully defends the action.
Article VI of our Articles of Incorporation and Article 6.1 of our
bylaws provide that we shall indemnify our directors and officers to
the fullest extent permitted by Nevada law.
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Item 25. Other expenses of issuance and distribution
The following table sets forth the expenses in connection with the issuance and
distribution of the securities offered hereby.
------------------------------------------------------- ----------
Registration Fee $518
------------------------------------------------------- ----------
Estimated Printing Expenses $500
------------------------------------------------------- ----------
Legal Fees and Expenses $25,000
------------------------------------------------------- ----------
Estimated Accounting Fees and Expenses $1,000
------------------------------------------------------- ----------
Blue Sky Fees and Expenses $0
------------------------------------------------------- ----------
Estimated Transfer Agent Fees and Expenses $200
------------------------------------------------------- ----------
Estimated Misc. $1,000
------------------------------------------------------- ----------
Total $28,218
------------------------------------------------------- ----------
Item 26. Recent sales of unregistered securities.
The following provides information of all sales of securities that were not
registered under the Securities Act of 1933 during the last three years.
In January 2001 we issued 100,000 shares of our common stock to Equity Trust for
services to be rendered. Such shares were issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933. Such shares were
issued pursuant to an investment letter under which the shareholder acknowledged
that the shares were restricted securities and would not be sold without
registration or an exemption from registration. The certificate for such shares
contained a legend restricting transfer without such registration or exemption
and a stop transfer order was lodged against the shares with our transfer agent.
In July 2001 we issued 30,000 shares of our common stock to Patrick Grant, an
employee, for services for the period from July 1, 2001 to December 31, 2001.
Such shares were issued pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933. Such shares were issued pursuant to an
investment letter under which the shareholder acknowledged that the shares were
restricted securities and would not be sold without registration or an exemption
from registration. The certificate for such shares contained a legend
restricting transfer without such registration or exemption and a stop transfer
order was lodged against the shares with our transfer agent.
In January 2002 we issued 30,000 shares of our common stock to Patrick Grant, an
employee, for services for the period from January 1, 2002 to June 30, 2002.
Such shares were issued pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933. Such shares were issued pursuant to an
investment letter under which the shareholder acknowledged that the shares were
restricted securities and would not be sold without registration or an exemption
from registration. The certificate for such shares contained a legend
restricting transfer without such registration or exemption and a stop transfer
order was lodged against the shares with our transfer agent.
26
In April 2002 we sold 400,000 shares of our common stock in a private placement
to managed accounts of Sprott Asset Management, Inc. for $2.50 per share. We
paid a commision of $50,000 in connection with such placement. Such shares were
issued pursuant to an exemption from registration under Section 4(2) of the
Securities Act of 1933. Such shares were issued pursuant to an investment letter
under which the shareholder acknowledged that the shares were restricted
securities and would not be sold without registration or an exemption from
registration. The certificate for such shares contained a legend restricting
transfer without such registration or exemption and a stop transfer order was
lodged against the shares with our transfer agent.
In July 2002 we sold 1,000,000 shares of our common stock in a private placement
to managed accounts of Sprott Asset Management, Inc. and 428,600 shares to
Pictet Global Sector Fund for $3.50 per share. We paid a commission of $200,000
on such placement. Such shares were issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933. Such shares were
issued pursuant to an investment letter under which the shareholder acknowledged
that the shares were restricted securities and would not be sold without
registration or an exemption from registration. The certificate for such shares
contained a legend restricting transfer without such registration or exemption
and a stop transfer order was lodged against the shares with our transfer agent.
Item 27. Exhibits.
Exhibit No. Description
3.1 Articles of Incorporation of the Registrant (Incorporated by reference
to Exhibit 3.1 to Registrant's Registration Statement on Form 10-SB
filed February 22, 2000) (1).
3.2 Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2
Registrant's Registration Statement on Form 10- SB-2 filed February
22,2000) (1).
10.1 Distribution Agreement dated June 1, 1998 between Flexible Solutions,
Ltd. and Heliocol Canada Ltd. (now known as Sunsolar Energy
Technologies). Incorporated by reference to Exhibit 10.1 to
Registration Statement on Form 10-SB filed on April 4, 2000.
10.2 Global Supply and License Agreement between Registrant and Ondeo Nalco
Company. [Portions omitted pursuant to a request for
confidentiality](3)
10.3 Exclusive Distribution Agreement effective September 1, 2002 with Ondeo
Nalco Company.[Portions omitted pursuant to a request for
confidentiality] (3)
5.1 Opinion of counsel (1)
21 Subsidiaries (2)
23 Consent of counsel is contained in Exhibit 5.1 (1)
23.1 Consent of Independent Chartered Accountants. (2)
(1) Filed with original filing of the registration statement.
(2) Filed with Amendment No. 1
(3) Filed with Amendment No. 2.
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Item 28. Undertakings.
A. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the questions whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
B. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement
to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining any liability under the Securities Act, treat each
such post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Victoria, British Columbia, Canada on April 8, 2003.
FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
By:/s/ DAN O'BRIEN
------------------------------------------
Dan O'Brien
President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement or amendment thereto has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ DAN O'BRIEN President, Chairman, April 8, 2003
--------------- Director
Dan O'Brien (Principal executive
officer, principal
accounting officer and
principal financial
officer)
/s/ ROBERT O'BRIEN Director April 8, 2003
------------------
Robert O'Brien
/s/ JOHN BIENTJES Director April 8, 2003
-----------------
John Bientjies
/s/ DALE FRIEND Director April 8, 2003
---------------
Dale Friend
29