Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended March 31,
2017
OR
☐ TRANSITION REPORT PURSUANT TO 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ________ to ________
Commission
File Number: 001-31540
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
(Exact Name
of Issuer as Specified in Its Charter)
|
Nevada
|
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91-1922863
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|
(State or other
jurisdiction of incorporation
or
organization)
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|
(I.R.S. Employer
Identification No.)
|
|
|
|
|
|
#206 – 920
Hillside Ave.
|
|
|
|
Victoria, British
Columbia, Canada
|
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V8T
1Z8
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|
(Address of
Issuer's Principal Executive Offices)
|
|
(Zip
Code)
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Issuer’s
telephone number: (250) 477-9969
NA
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate
by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes
☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes ☒ No
☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer”, “smaller reporting company” and "emerging
growth company" in Rule 12b-2 of the Exchange Act. (Check
one):
|
Large accelerated filer
|
☐
|
Accelerated filer
|
☐
|
|
Non-accelerated
filer
|
☐
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
☒
|
|
|
|
Emerging
growth company
|
☐
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): ☐ Yes ☒ No
|
Class of
Stock
|
No. Shares
Outstanding
|
Date
|
|
Common
|
11,460,991
|
May 15,
2017
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FORM 10-Q
Index
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PART I.
|
FINANCIAL INFORMATION
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4
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Item
1.
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Financial
Statements.
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4
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|
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(a)
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Unaudited
Interim Condensed Consolidated Balance Sheets at March 31, 2017 and
December 31, 2016.
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4
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(b)
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Unaudited
Interim Condensed Consolidated Statements of Operations and
Comprehensive Loss for the Three Months Ended March 31, 2017 and
2016.
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5
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(c)
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Unaudited
Interim Condensed Consolidated Statements of Cash Flows for the
Three Months Ended
March
31, 2017 and 2016.
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6
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|
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(d)
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Notes to Unaudited Interim Condensed Consolidated Financial Statements for the
Three Months Ended March 31, 2017.
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7
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Item 2.
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Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
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21
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Item
4
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Controls
and Procedures.
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24
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PART II.
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OTHER INFORMATION
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25
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Item 6.
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Exhibits.
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25
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SIGNATURES
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26
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
document contains “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of
1995. All statements other than statements of historical fact are
“forward-looking statements” for the purposes of the
federal and state securities laws, including, but not limited to:
any projections of earnings, revenue or other financial items; any
statements of the plans, strategies and objectives of management
for future operations; any statements concerning proposed new
services or developments; any statements regarding future economic
conditions or performance; any statements of belief; and any
statements of assumptions underlying any of the
foregoing.
Forward-looking
statements may include the words “may,”
“could,” “will,” “estimate,”
“intend,” “continue,”
“believe,” “expect” or
“anticipate” or other similar words. These
forward-looking statements present our estimates and assumptions
only as of the date of this report. Except for our ongoing
obligation to disclose material information as required by the
federal securities laws, we do not intend, and undertake no
obligation, to update any forward-looking statement.
Although we believe
that the expectations reflected in any of our forward-looking
statements are reasonable, actual results could differ materially
from those projected or assumed in any of our forward-looking
statements. Our future financial condition and results of
operations, as well as any forward-looking statements, are subject
to change and inherent risks and uncertainties. The factors
impacting these risks and uncertainties include but are not limited
to:
●
Increased
competitive pressures from existing competitors and new
entrants;
●
Increases in
interest rates or our cost of borrowing or a default under any
material debt agreement;
●
Deterioration in
general or regional economic conditions;
●
Adverse state or
federal legislation or regulation that increases the costs of
compliance, or adverse findings by a regulator with respect to
existing operations;
●
Loss of customers
or sales weakness;
●
Inability to
achieve future sales levels or other operating
results;
●
The unavailability
of funds for capital expenditures; and
●
Operational
inefficiencies in distribution or other systems.
For a
detailed description of these and other factors that could cause
actual results to differ materially from those expressed in any
forward-looking statement, please see “Risk Factors” in
our Annual Report on Form 10-K for the year ended December 31,
2016.
PART
I
FINANCIAL
INFORMATION
Item
1.
Financial
Statements.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(U.S. Dollars -
Unaudited)
|
|
|
|
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Assets
|
|
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Current
|
|
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Cash
and cash equivalents
|
$4,869,420
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$2,470,066
|
|
Accounts
receivable (see Note 3)
|
3,393,166
|
3,008,153
|
|
Interim
insurance proceeds receivable (see Note 5)
|
1,570,531
|
-
|
|
Inventory
(see Note 4)
|
4,539,129
|
3,786,093
|
|
Prepaid
expenses
|
182,087
|
228,699
|
|
Total
current assets
|
14,554,333
|
9,493,011
|
|
Property,
plant and equipment (see Note 5)
|
1,713,723
|
3,393,944
|
|
Patents
(see Note 6)
|
91,781
|
95,890
|
|
Long
term deposits (see Note 7)
|
26,248
|
26,163
|
|
Investment
(see Note 8)
|
116,230
|
122,480
|
|
Deferred
tax asset
|
2,473,595
|
2,026,999
|
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Total
Assets
|
$18,975,910
|
$15,158,487
|
|
Liabilities
|
|
|
|
Current
|
|
|
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Accounts
payable and accrued liabilities
|
$758,027
|
$902,037
|
|
Deferred
revenue
|
42,098
|
95,308
|
|
Taxes
payable
|
1,190,742
|
893,867
|
|
Line of
credit (see Note 9)
|
700,000
|
250,000
|
|
Current
portion of long term debt (see Note 10)
|
201,193
|
201,193
|
|
Total
current liabilities
|
2,892,060
|
2,342,405
|
|
Long
term debt (see Note 10)
|
301,791
|
352,089
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Total
Liabilities
|
3,193,851
|
2,694,494
|
|
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Stockholders’
Equity
|
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Capital
stock
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|
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Authorized
|
|
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50,000,000
Common shares with a par value of $0.001 each
|
|
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1,000,000
Preferred shares with a par value of $0.01 each
|
|
|
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Issued and
outstanding
|
|
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|
11,460,991
(December 31, 2016: 11,457,991) common shares
|
11,460
|
11,458
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Capital
in excess of par value
|
14,868,593
|
14,842,863
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|
Accumulated
other comprehensive loss
|
(1,047,541)
|
(1,087,208)
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Retained
earnings (Deficit)
|
1,949,547
|
(1,303,120)
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|
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Total
Stockholders’ Equity
|
15,782,059
|
12,463,993
|
|
|
|
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Total
Liabilities and Stockholders’ Equity
|
$18,975,910
|
$15,158,487
|
|
|
|
|
-- See
Notes to Unaudited Interim Condensed Consolidated Financial
Statements --
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
AND
COMPREHENSIVE LOSS
(U.S. Dollars -- Unaudited)
|
|
Three Months
Ended March 31,
|
|
|
|
|
|
|
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Sales
|
$4,663,708
|
$5,312,635
|
|
Cost
of sales
|
2,569,675
|
3,073,932
|
|
|
|
|
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Gross
profit
|
2,094,033
|
2,238,703
|
|
Operating
expenses
|
|
|
|
Wages
|
358,417
|
354,090
|
|
Administrative
salaries and benefits
|
249,082
|
204,745
|
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Advertising
and promotion
|
9,577
|
9,305
|
|
Investor
relations and transfer agent fee
|
37,341
|
19,457
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Office
and miscellaneous
|
34,902
|
35,729
|
|
Insurance
|
81,609
|
73,648
|
|
Interest
expense
|
11,567
|
10,944
|
|
Rent
|
55,514
|
21,983
|
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Consulting
|
34,296
|
29,836
|
|
Professional
fees
|
57,552
|
19,909
|
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Travel
|
33,899
|
38,515
|
|
Telecommunications
|
6,296
|
4,591
|
|
Shipping
|
3,862
|
3,394
|
|
Research
|
11,144
|
35,728
|
|
Commissions
|
40,655
|
55,534
|
|
Bad
debt expense
|
380
|
-
|
|
Currency
exchange
|
9,004
|
17,995
|
|
Utilities
|
6,695
|
3,500
|
|
Total operating
expenses
|
1,042,062
|
938,903
|
|
|
|
|
|
Income
before other items and income tax
|
1,051,971
|
1,299,800
|
|
Gain
on involuntary disposition
|
2,572,288
|
-
|
|
Write
down of inventory
|
(51,346)
|
-
|
|
Interest
income
|
33
|
-
|
|
|
|
|
|
Income
before income tax
|
3,572,946
|
1,299,800
|
|
Deferred
income tax expense
|
23,404
|
-
|
|
Provision
for income taxes
|
296,875
|
558,006
|
|
Net
income
|
3,252,667
|
741,794
|
|
|
|
|
|
Other
comprehensive income (loss)
|
39,667
|
(77,142)
|
|
Comprehensive
income (loss)
|
3,292,334
|
664,652
|
|
|
|
|
|
Net
income per share (basic and diluted)
|
$0.28
|
$0.06
|
|
Weighted
average number of common shares (basic)
|
11,458,170
|
11,543,376
|
|
Weighted
average number of common shares (diluted)
|
11,638,732
|
11,566,717
|
-- See
Notes to Unaudited Interim Condensed Consolidated Financial
Statements --
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH
FLOWS
For the Three Months Ended March 31, 2017 and 2016
(U.S. Dollars -- Unaudited)
|
|
Three Months
Ended March 31,
|
|
|
2017
|
|
|
Operating
activities
|
|
|
|
Net
income
|
$3,252,667
|
$741,794
|
|
Stock
compensation expense
|
23,482
|
11,730
|
|
Depreciation
and amortization
|
80,375
|
131,587
|
|
Decrease
in deferred tax asset
|
23,404
|
-
|
|
Gain on
involuntary disposition
|
(2,572,288)
|
-
|
|
Changes in non-cash
working capital items:
|
|
|
|
(Increase)
in accounts receivable
|
(1,975,550)
|
(1,695,504)
|
|
Decrease
(Increase) in inventory
|
(925,992)
|
676,187
|
|
Decrease
in prepaid expenses
|
47,193
|
107,492
|
|
Increase
(decrease) in accounts payable
|
(91,874)
|
103,305
|
|
Increase
in taxes payable
|
296,875
|
109,872
|
|
Decrease
in deferred revenue
|
(52,499)
|
-
|
|
|
|
|
|
Cash
(used in) provided by operating activities
|
(1,894,207)
|
186,463
|
|
|
|
|
|
Investing
activities
|
|
|
|
Long
term deposits
|
-
|
350
|
|
Investment
|
6,250
|
-
|
|
Proceeds
from insurance
|
4,053,612
|
-
|
|
Acquisition
of property and equipment
|
(29,903)
|
(90,701)
|
|
|
|
|
|
Cash
(used in) provided by investing activities
|
4,029,959
|
(91,051)
|
|
|
|
|
|
Financing
activities
|
|
|
|
Short
term line of credit
|
450,000
|
250,000
|
|
Loan
Repayment
|
(50,298)
|
(50,298)
|
|
Proceeds
from sale of common stock
|
2,250
|
-
|
|
Repurchase
of common stock
|
-
|
(1,575,000)
|
|
|
|
|
|
Cash
provided (used) by financing activities
|
401,952
|
(1,375,298)
|
|
|
|
|
|
Effect of exchange
rate changes on cash
|
(138,350)
|
29,785
|
|
|
|
|
|
(Outflow)
Inflow of cash
|
2,399,354
|
(1,250,101)
|
|
Cash and cash
equivalents, beginning
|
2,470,066
|
2,498,738
|
|
|
|
|
|
Cash
and cash equivalents, ending
|
$4,869,420
|
$1,248,637
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
Income taxes
paid
|
$-
|
$448,330
|
|
Interest
paid
|
$11,567
|
$10,944
|
-- See
Notes to Unaudited Interim Condensed Consolidated Financial
Statements --
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For the Three Months Ended March 31, 2017
(U.S. Dollars)
1.
Basis of
Presentation.
These
unaudited interim condensed consolidated financial statements
include the accounts of Flexible Solutions International Inc. (the
“Company”), and its wholly-owned subsidiaries Flexible
Fermentation Ltd. (“Flexible Ltd.”), NanoChem Solutions
Inc. (“NanoChem”), Flexible Solutions Ltd., Flexible
Biomass LP, FS Biomass Inc., NCS Deferred Corp., Conserve H2O Ltd.
and Natural Chem SEZC Ltd. All inter-company balances and
transactions have been eliminated. The company was incorporated May
12, 1998 in the State of Nevada and had no operations until June
30, 1998.
Flexible Solutions
International Inc. and its subsidiaries develop, manufacture and
market specialty chemicals which slow the evaporation of water. One
product, HEATSAVR®, 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. Another product,
WATERSAVR®, is marketed for water conservation in irrigation
canals, aquaculture, and reservoirs where its use slows water loss
due to evaporation. In addition to the water conservation products,
the Company also manufactures and markets water-soluble chemicals
utilizing thermal polyaspartate biopolymers (hereinafter referred
to as “TPAs”), which are beta-proteins manufactured
from the common biological amino acid, L-aspartic. TPAs can be
formulated to prevent corrosion and scaling in water piping within
the petroleum, chemical, utility and mining industries. TPAs are
also used as proteins to enhance fertilizers in improving crop
yields and can be used as additives for household laundry
detergents, consumer care products and pesticides.
These
unaudited interim condensed consolidated financial statements of
the Company have been prepared in accordance with accounting
principles generally accepted in the United States for interim
financial statements. These unaudited interim financial
statements are condensed and do not include all disclosures
required for annual financial statements. The
organization and business of the Company, accounting policies
followed by the Company and other information are contained in the
notes to the Company’s audited consolidated financial
statements filed as part of the Company’s December 31, 2016
Annual Report on Form 10-K. This quarterly report should
be read in conjunction with such annual report.
In the
opinion of the Company’s management, these unaudited interim
condensed consolidated financial statements reflect all
adjustments, all of which are of normal recurring nature, necessary
to present fairly the Company’s consolidated financial
position at March 31, 2017, the consolidated results of operations
for the three months ended March 31, 2017 and 2016, and the
consolidated statements of cash flows for the three months ended
March 31, 2017 and 2016. The results of operations for
the three months ended March 31, 2017 are not necessarily
indicative of the results to be expected for the entire fiscal
year.
2.
Significant Accounting Policies.
These
consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States
applicable to a going concern and reflect the policies outlined
below.
(a)
Cash and Cash Equivalents.
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.
(b)
Inventories and Cost of Sales
The
Company has three major classes of inventory: finished goods, work
in progress and raw materials and supplies. In all classes,
inventory is valued at the lower of cost or market. Cost is
determined on a first-in, first-out basis. Cost of sales includes
all expenditures incurred in bringing the goods to the point of
sale. Inventory costs and costs of sales include direct costs of
the raw material, inbound freight charges, warehousing costs,
handling costs (receiving and purchasing) and utilities and
overhead expenses related to the Company’s manufacturing and
processing facilities.
(c) Allowance
for Doubtful Accounts
The
Company provides an allowance for doubtful accounts when management
estimates collectability to be uncertain. Accounts receivable are
continually reviewed to determine which, if any, accounts are
doubtful of collection. In making the determination of the
appropriate allowance amount, the Company considers current
economic and industry conditions, relationships with each
significant customer, overall customer credit-worthiness and
historical experience.
(d) Property,
Equipment and Leaseholds.
The
following assets are recorded at cost and depreciated using the
methods and annual rates shown below:
|
Computer
hardware
|
|
30%
Declining balance
|
|
Furniture
and fixtures
|
|
20%
Declining balance
|
|
Manufacturing
equipment
|
|
20%
Declining balance
|
|
Office
equipment
|
|
20%
Declining balance
|
|
Boat
|
|
20%
Declining balance
|
|
Building
and improvements
|
|
10%
Declining balance
|
|
Technology
|
|
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.
(e) Impairment
of Long-Lived Assets.
In
accordance with FASB Codification Topic 360, “Property, Plant
and Equipment (ASC 360), the Company reviews long-lived assets,
including, but not limited to, property and equipment, patents and
other assets, for impairment annually or whenever events or changes
in circumstances indicate the carrying amounts of assets may not be
recoverable. The carrying value of long-lived assets is assessed
for impairment by evaluating operating performance and future
undiscounted cash flows of the underlying assets. If the expected
future cash flows of an asset is less than its carrying value, an
impairment measurement is indicated. Impairment charges are
recorded to the extent that an asset’s carrying value exceeds
its fair value. Accordingly, actual results could vary
significantly from such estimates. There were no impairment charges
during the periods presented.
The
functional currency of three of the Company’s subsidiaries is
the Canadian Dollar. The translation of the Canadian Dollar to the
reporting currency of the Company, the U.S. Dollar is performed for
assets and liabilities using exchange rates in effect at the
balance sheet date. Revenue and expense transactions are translated
using average exchange rates prevailing during the year.
Translation adjustments arising on conversion of the
Company’s financial statements from the subsidiary’s
functional currency, Canadian Dollars, into the reporting currency,
U.S. Dollars, are excluded from the determination of income (loss)
and are disclosed as other comprehensive income (loss) in the
condensed interim consolidated statements of operations and
comprehensive income (loss).
Foreign
exchange gains and losses relating to transactions not denominated
in the applicable local currency are included in operating income
(loss) if realized during the year and in comprehensive income
(loss) if they remain unrealized at the end of the
year.
Revenue
from product sales is recognized at the time the product is shipped
since title and risk of loss is transferred to the purchaser upon
delivery to the carrier. Shipments are made F.O.B. shipping point.
The Company recognizes revenue when there is persuasive evidence of
an arrangement, delivery to the carrier has occurred, the fee is
fixed or determinable, collectability is reasonably assured and
there are no significant remaining performance obligations. When
significant post-delivery obligations exist, revenue is deferred
until such obligations are fulfilled. To date, there have been no
such significant post-delivery obligations.
Since
the Company’s inception, product returns have been
insignificant; therefore, no provision has been established for
estimated product returns.
Deferred revenues
consist of products sold to distributors with payment terms greater
than the Company’s customary business terms due to lack of
credit history or operating in a new market in which the Company
has no prior experience. The Company defers the recognition of
revenue until the criteria for revenue recognition has been met,
and payments become due or cash is received from these
distributors.
(h) Stock
Issued in Exchange for Services.
The
Company’s common stock issued in exchange for services is
valued at estimated fair market value based upon trading prices of
the Company’s common stock on the dates of the stock
transactions. The corresponding expense of the services rendered is
recognized over the period that the services are
performed.
(i) Stock-based
Compensation.
The Company recognizes compensation expense for
all share-based payments in accordance with FASB Codification Topic
718, Compensation —
Stock Compensation, (ASC 718).
Under the fair value recognition provisions of ASC 718, the Company
recognizes share-based compensation expense, net of an estimated
forfeiture rate, over the requisite service period of the
award.
The
fair value at grant date of stock options is estimated using the
Black-Scholes-Merton option-pricing model. Compensation expense is
recognized on a straight-line basis over the stock option vesting
period based on the estimated number of stock options that are
expected to vest. Shares are issued from treasury upon exercise of
stock options.
(j)
Comprehensive Income
(Loss).
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 (loss) is primarily comprised of unrealized foreign exchange
gains and losses.
(k) Income
Per Share.
Basic
earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding in the period. Diluted earnings per share are
calculated giving effect to the potential dilution of the exercise
of options and warrants. Common equivalent shares, composed of
incremental common shares issuable upon the exercise of stock
options and warrants are included in diluted net income per share
to the extent that these shares are dilutive. Common equivalent
shares that have an anti-dilutive effect on net income per share
have been excluded from the calculation of diluted weighted average
shares outstanding for the three months ended March 31, 2017 and
2016.
(l)
Use of
Estimates.
The
preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States
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 the results of
operations and cash flows.
Estimates
and underlying assumptions are reviewed at each period end.
Revisions to accounting estimates are recognized in the period in
which the estimates are revised and in any future periods
affected.
Significant
areas requiring the use of management estimates include assumptions
and estimates relating to the asset impairment analysis,
share-based payments and warrants, valuation allowances for
deferred income tax assets, determination of useful lives of
property, plant and equipment, and the valuation of
inventory.
(m)
Financial
Instruments.
The fair market
value of the Company’s financial instruments comprising cash
and cash equivalents, accounts receivable, accounts payable and
accrued liabilities, and short term line of credit were estimated
to approximate their carrying values due to immediate or short-term
maturity of these financial instruments. The Company maintains cash
balances at financial institutions which at times exceed federally
insured amounts. The Company has not experienced any material
losses in such accounts.
The Company is
exposed to foreign exchange and interest rate risk to the extent
that market value rate fluctuations materially differ from
financial assets and liabilities, subject to fixed long-term
rates.
(n) Fair
Value of Financial Instruments
In August 2009, an update was
made to Fair Value
Measurements and Disclosures — “Measuring
Liabilities at Fair Value.” This update permits entities to
measure the fair value of liabilities, in circumstances in which a
quoted price in an active market for an identical liability is not
available, using a valuation technique that uses a quoted price of
an identical liability when traded as an asset, quoted prices for
similar liabilities or similar liabilities when traded as assets or
the income or market approach that is consistent with the
principles of Fair Value
Measurements and Disclosures. Effective upon issuance, the
Company has adopted this guidance with no material impact to the
Company’s consolidated financial
statements.
Fair
value is defined as the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair value
must maximize the use of observable inputs and minimize the use of
unobservable inputs. The standard describes a fair value hierarchy
based on three levels of inputs described below, of which the first
two are considered observable and the last unobservable, that may
be used to measure fair value.
●
Level 1
– Quoted prices in active markets for identical assets
or liabilities
●
Level 2 –
Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
●
Level 3 —
Unobservable inputs that are supported by little or no market
activity which is significant to the fair value of the assets or
liabilities.
The
fair values of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities and the short term line of
credit for all periods presented approximate their respective
carrying amounts due to the short term nature of these financial
instruments
(o) Contingencies
Certain
conditions may exist as of the date the financial statements are
issued which may result in a loss to the Company but which will
only be resolved when one or more future events occur or fail to
occur. The Company's management and its legal counsel assess such
contingent liabilities, and such assessment inherently involves an
exercise of judgment. In assessing loss contingencies related to
legal proceedings that are pending against the Company or
unasserted claims that may result in such proceedings, the
Company's legal counsel evaluates the perceived merits of any legal
proceedings or unasserted claims as well as the perceived merits of
the amount of relief sought or expected to be sought
therein.
If the
assessment of a contingency indicates that it is probable that a
material loss has been incurred and the amount of the liability can
be estimated, the estimated liability would be accrued in the
Company's financial statements. If the assessment indicates that a
potential material loss contingency is not probable but is
reasonably possible, or is probable but cannot be estimated, then
the nature of the contingent liability, together with an estimate
of the range of possible loss if determinable and material, would
be disclosed.
Loss
contingencies considered remote are generally not disclosed unless
they involve guarantees, in which case the guarantees would be
disclosed. Legal fees associated with loss contingencies are
expensed as incurred.
(p)
Income
Taxes
Income
taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the expected
future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Deferred tax
assets are reduced by a valuation allowance so that the assets are
recognized only to the extent that when, in the opinion of
management, it is more likely than not that some portion or all of
the deferred tax assets will be realized.
Per
FASB ASC 740 “Income taxes” under the liability method,
it is the Company’s policy to provide for uncertain tax
positions and the related interest and penalties based upon
management’s assessment of whether a tax benefit is more
likely than not to be sustained upon examination by tax
authorities. At December 31, 2016, the Company believes it has
appropriately accounted for any unrecognized tax benefits. To the
extent the Company prevails in matters for which a liability for an
unrecognized benefit is established or is required to pay amounts
in excess of the liability, the Company’s effective tax rate
in a given financial statement period may be affected. Interest and
penalties associated with the Company’s tax positions are
recorded as interest expense in the condensed interim consolidated
statements of operations and comprehensive income
(loss).
(q)
Risk
Management.
The Company’s credit risk is primarily
attributable to its accounts receivable. The amounts presented in
the accompanying consolidated balance sheets are net of allowances
for doubtful accounts, estimated by the Company’s management
based on prior experience and the current economic
environment. The Company is exposed to credit-related losses
in the event of non-payment by customers to the financial
instruments. Credit exposure is minimized by dealing with only
credit worthy counterparties. Accounts receivable for the
Company’s three primary customers totaled $1,889,159 (56%) at
March 31, 2017 (December 31, 2016 - $2,032,646 or
67%).
The
credit risk on cash and cash equivalents is limited because the
Company limits its exposure to credit loss by placing its cash and
cash equivalents with major financial institutions.
In
order to manage its exposure to foreign exchange risks, the Company
is closely monitoring the fluctuations in the foreign currency
exchange rates and the impact on the value of cash and cash
equivalents, accounts receivable, and accounts payable. The Company
has not hedged its exposure to currency fluctuations.
(r) Equity
Method Investment
The
Company accounts for investments using the equity method of
accounting if the investment provides us the ability to exercise
significant influence, but not control, over the investee.
Significant influence is generally deemed to exist if the Company's
ownership interest in the voting stock of the investee ranges
between 20% and 50%, although other factors, such as representation
on the investee's board of directors, are considered in determining
whether the equity method of accounting is appropriate. Under the
equity method of accounting, the investment is recorded at cost in
the consolidated balance sheets under other assets and adjusted for
dividends received and the Company's share of the investee's
earnings or losses together with other-than-temporary impairments
which are recorded through interest and other loss, net in the
consolidated statements of operations and comprehensive income
(loss).
(s) Adoption
of new accounting principles
In July
2015, the FASB issued ASU 2015-11, Simplifying the Measurement of
Inventory. The standard will require inventory to be measured at
the lower of cost or net realizable value. The guidance will not
apply to inventories for which cost is determined using the
last-in, first-out method or the retail inventory method. The
standard is effective for annual and interim reporting periods
beginning after December 15, 2016. Adoption of this standard had no
effect on our consolidated financial statements.
In
March 2016, the FASB issued Accounting Standards Update No.
2016-09, Improvements to Employee Share-Based Payment Accounting
("ASU 2016-09"). This standard was issued as part of the FASB's
Simplification Initiative that involve several aspects of the
accounting for share based payment transactions, including the
income tax consequences, classification of awards as either equity
or liabilities and classification on the statement of cash flows.
Some of the areas for simplification apply only to nonpublic
entities. For public business entities, ASU 2016-09 is effective
for annual periods beginning after December 15, 2016 and interim
periods within those annual periods. The method of adoption is
dependent on the specific aspect of accounting addressed in this
new guidance. Early adoption is permitted in any interim or annual
period. Adoption of this standard had no effect on our consolidated
financial statements.
(t) Accounting
Pronouncements Not Yet Adopted
In January
2017, the FASB issued ASU 2017-04, Simplifying the Test for
Goodwill Impairment. The standard eliminates step two in the
current two-step impairment test under ASC 350. Under the new
standard, a goodwill impairment will be recorded for any excess of
a reporting unit's carrying value over its fair value. A
prospective transition approach is required. The standard is
effective for annual and interim reporting periods beginning after
December 15, 2019 with early adoption permitted for annual and
interim goodwill impairment testing dates after January 1, 2017. We
do not expect the standard to have a material impact on our
consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02, Leases. The standard
will require lessees to recognize most leases on their balance
sheet and makes selected changes to lessor accounting. The standard
is effective for annual and interim reporting periods beginning
after December 15, 2018. A modified retrospective transition
approach is required, with certain practical expedients available.
We are currently evaluating the impact the adoption of this
standard will have on our consolidated financial
statements.
In July
2015, the FASB issued ASU 2015-11, Simplifying the Measurement of
Inventory. The standard will require inventory to be measured at
the lower of cost or net realizable value. The guidance will not
apply to inventories for which cost is determined using the
last-in, first-out method or the retail inventory method. The
standard is effective for annual and interim reporting periods
beginning after December 15, 2016. We do not expect the adoption of
this standard to have a material impact on our consolidated
financial statements.
In May
2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers, which has been updated through several revisions and
clarifications since its original issuance. The standard will
require revenue recognized to represent the transfer of promised
goods or services to customers at an amount that reflects the
consideration which a company expects to receive in exchange for
those goods or services. The standard also requires new, expanded
disclosures regarding revenue recognition. The standard will be
effective January 1, 2018 with early adoption permissible beginning
January 1, 2017. We are currently evaluating the transition method
we will elect and the effect on our consolidated financial
statements.
3. Accounts
Receivable
|
|
|
|
|
Accounts
receivable
|
$3,430,391
|
$3,044,652
|
|
Allowances for
doubtful accounts
|
(37,225)
|
(36,499)
|
|
|
$3,393,166
|
$3,008,153
|
4. Inventory
|
|
|
|
|
Completed
goods
|
$1,885,611
|
$1,646,465
|
|
Work in
progress
|
-
|
2,572
|
|
Raw
materials
|
2,653,518
|
2,137,056
|
|
|
$4,539,129
|
$3,786,093
|
In
February 2017, the Company lost $367,331CAD ($277,482USD) in
inventory in a fire at the Taber, AB location. Insurance was in
place, see Note 5.
5.
Property, Plant & equipment
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
$3,164,847
|
$2,333,427
|
$831,420
|
|
Computer
hardware
|
40,904
|
38,913
|
1,991
|
|
Furniture and
fixtures
|
17,673
|
9,934
|
7,739
|
|
Manufacturing
equipment
|
2,430,642
|
2,005,424
|
425,218
|
|
Boat
|
34,400
|
10,871
|
23,529
|
|
Leasehold
Improvements
|
85,432
|
19,691
|
65,741
|
|
Land
|
358,085
|
-
|
358,085
|
|
|
$6,131,983
|
$4,418,260
|
$1,713,723
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
$4,762,094
|
$2,967,370
|
$1,794,724
|
|
Computer
hardware
|
89,480
|
85,784
|
3,696
|
|
Furniture and
fixtures
|
32,439
|
23,142
|
9,297
|
|
Office
equipment
|
17,745
|
16,788
|
957
|
|
Manufacturing
equipment
|
5,236,404
|
4,102,635
|
1,133,769
|
|
Trailer
|
12,859
|
12,250
|
609
|
|
Boat
|
34,400
|
9,632
|
24,768
|
|
Leasehold
improvements
|
85,432
|
15,419
|
70,013
|
|
Technology
|
101,748
|
101,748
|
-
|
|
Land
|
356,111
|
-
|
356,111
|
|
|
$10,728,712
|
$7,334,768
|
$3,393,944
|
Amount
of depreciation expense for three months ended March 31, 2017:
$76,265 (2016: $127,896) and is included in cost of sales in the
unaudited interim condensed consolidated statements of
comprehensive income (loss).
In
February 2017, the Company lost a net carrying value total of
$2,196,722CAD ($1,659,404USD) in building and manufacturing
equipment in a fire at the Taber, AB location. Insurance was in
place. During the quarter ended March 31, 2017, the Company was
approved for interim insurance proceeds of $5,570,000CAD
($4,207,578USD). $1,570,531USD of the insurance proceeds was
receivable at March 31, 2017 and was collected subsequent to the
quarter end.
6.
Patents
In
fiscal 2005, the Company started the patent process for additional
WATER$AVR® products. Patents associated with these costs were
granted in 2006 and they have been amortized over their legal life
of 17 years.
|
|
|
|
|
|
Patents
|
$199,330
|
$107,549
|
$91,781
|
|
|
|
|
|
|
Patents
|
$197,448
|
$101,558
|
$95,890
|
Increase in 2017
cost was due to currency conversion. The 2017 cost in Canadian dollars -
$265,102 (2016 - $265,102 in Canadian dollars).
Amount
of amortization for 2017 - $4,110 (2016 - $3,691) and is included
in cost of sales in the consolidated statements of operations and
comprehensive income (loss).
Estimated
amortization expense over the next five years is as
follows:
|
2017
|
$16,438
|
|
2018
|
16,438
|
|
2019
|
16,438
|
|
2020
|
16,438
|
|
2021
|
16,438
|
7. Long
Term Deposits
The
Company has reclassified certain security deposits to better
reflect their long term nature. Long term deposits consist of
damage deposits held by landlords and security deposits held by
various vendors.
|
|
|
|
|
|
|
|
|
Long term
deposits
|
$26,248
|
$26,163
|
8.
Equity Method Investment
The
Company has a 42% ownership interest in ENP Peru Investments LLC
(“ENP Peru”), which we acquired in fiscal 2016. ENP
Peru is located in the state of Illinois and leases warehouse
space. We account for this investment using the equity method of
accounting. A summary of our investment is as follows:
|
Balance, January 1,
2016
|
-
|
|
Capital
contributions
|
$150,066
|
|
Return of
equity
|
(12,500)
|
|
Loss in equity
method investment
|
(15,086)
|
|
Balance, December
31, 2016
|
$122,480
|
|
Return of
equity
|
(6,250)
|
|
Balance, March 31,
2017
|
$116,230
|
9.
Short-Term Line of Credit
In May
2016, the Company signed a new agreement with Harris Bank
(“the Bank”) to renew the expiring credit line. The
revolving line of credit is for an aggregate amount of up to the
lesser of (i) $3,000,000, or (ii) 75% of eligible domestic accounts
receivable and certain foreign accounts receivable plus 40% of
inventory. The loan has an annual interest rate of
4.0%.
The
Revolving Line of Credit contains customary affirmative and
negative covenants, including the following: compliance with laws,
provision of financial statements and periodic reports, payment of
taxes, maintenance of inventory and insurance, maintenance of
operating accounts at the Bank, the Bank’s access to
collateral, formation or acquisition of subsidiaries, incurrence of
indebtedness, dispositions of assets, granting liens, changes in
business, ownership or business locations, engaging in mergers and
acquisitions, making investments or distributions and affiliate
transactions. The covenants also require that the Company maintain
a minimum ratio of qualifying financial assets to the sum of
qualifying financial obligations. As of March 31, 2017, the Company
was in compliance with all loan covenants.
To
secure the repayment of any amounts borrowed under the Revolving
Line of Credit, the Company granted the Bank a security interest in
substantially all of the assets of NanoChem Solutions Inc.,
exclusive of intellectual property assets.
Short-term
borrowings outstanding under the Revolving Line as of March 31,
2017 were $700,000 (December 31, 2016 - $250,000).
10. Long Term
Debt
In September 2014,
NanoChem Solutions Inc. signed a US$1,005,967 promissory note
with
Harris
Bank with a rate of prime plus 0.5% to be repaid over 5 years with
equal monthly installments plus interest. This money was used to
retire prior outstanding debt obligations. The balance owing at
March 31, 2017 was $502,984 (December 31, 2016 -
US$553,282).
The
Company has committed to the following repayments:
|
2017
|
$150,896
|
|
2018
|
$201,193
|
|
2019
|
$150,895
|
As of
March 31, 2017, Company was in compliance with all loan
covenants.
|
|
|
December 31, 2016
|
|
Continuity
|
|
|
Balance, beginning of period
|
$553,282
|
$754,475
|
|
Plus:
Proceeds from loans
|
--
|
-
|
|
Less:
Payments on loan
|
50,298
|
201,193
|
|
Balance,
end of period
|
$502,984
|
$553,282
|
|
|
|
|
|
Outstanding
balance at:
|
|
|
|
Long term debt
– Harris
|
502,984
|
553,282
|
|
Long term
debt
|
$502,984
|
$553,282
|
|
Less: current
portion
|
(201,193)
|
(201,193)
|
|
Balance
|
$301,791
|
$352,089
|
11. Stock
Options
The Company adopted
a stock option plan ("Plan"). The purpose of this Plan is
to provide additional incentives to
key employees, officers, directors and consultants
of the Company and its subsidiaries in order to
help attract and retain the best available
personnel for positions of
responsibility and otherwise promote the success of its
business. It is intended that options issued
under this Plan constitute non-qualified stock
options. The general terms of awards under the
option plan are that 100% of the options granted will vest the
year following the grant.
The maximum term of options granted is 5
years.
The
Company may issue stock options to provide incentives to directors,
key employees and other persons who contribute to the success of
the Company. The exercise price of all incentive options are issued
for not less than fair market value at the date of
grant.
The
following table summarizes the Company’s stock option
activity for the year ended December 31, 2016 and the three-month
period ended March 31, 2017:
|
|
|
|
Weighted average
exercise price
|
|
|
|
|
|
|
Balance, December
31, 2015
|
1,190,000
|
$0.75 - $2.45
|
$1.34
|
|
Granted
|
168,000
|
$1.42
|
$1.42
|
|
Cancelled or
expired
|
(515,000)
|
$0.75 – 2.45
|
$1.61
|
|
Exercised
|
(30,000)
|
$1.00 – 1.21
|
$1.09
|
|
Balance, December
31, 2016
|
813,000
|
$0.75 – 2.22
|
$1.19
|
|
Cancelled or
expired
|
(84,000)
|
$1.00 - 2.22
|
$1.99
|
|
Exercised
|
(3,000)
|
$0.75
|
$0.75
|
|
Balance, March 31,
2017
|
726,000
|
$0.75 – 2.00
|
$1.10
|
|
Exercisable, March
31, 2017
|
560,000
|
$0.75 – 2.00
|
$1.01
|
The
fair value of each option grant is calculated using the following
weighted average assumptions:
|
|
|
|
Expected life
– years
|
3.0
|
|
Interest
rate
|
1.37%
|
|
Volatility
|
75.64%
|
|
Dividend
yield
|
--%
|
|
Weighted average
fair value of options granted
|
$0.7073
|
The
Company did not grant any options during the three months ended
March 31, 2017 or 2016. Options granted in previous quarters
resulted in expenses in the amount of $5,658 for consultants (2016
- $2,970) and $17,824 for employees (2016 - $8,760) during the
quarter ended March 31, 2017. There were 3,000 employee stock
options exercised during the during the three months ended March
31, 2017 (2016 – nil).
As of
March 31, 2017, there was approximately $70,447 of compensation
expense related to non-vested awards. This expense is expected to
be recognized over a weighted average period of 0.75
years.
12.
Capital
Stock.
On
March 10, 2017, the Company issued 3,000 shares upon the exercise
of employee stock options.
On
January 6, 2016, the Company repurchased 1,750,000 shares of its
common stock at $0.90 per share for a total purchase price of
$1,575,000. The shares were returned to treasury and
cancelled.
13.
Segmented, Significant
Customer Information and Economic Dependency.
The
Company operates in two segments:
(a)
Energy and water conservation products (as shown under the column
heading “EWCP” below), which consists of a (i) liquid
swimming pool blanket which saves energy and water by inhibiting
evaporation from the pool surface, and (ii) food-safe powdered form
of the active ingredient within the liquid blanket and which is
designed to be used in still or slow moving drinking water
sources.
(b)
Biodegradable polymers and chemical additives used within the
petroleum, chemical, utility and mining industries to prevent
corrosion and scaling in water piping (as shown under the column
heading “BPCA” below). These chemical additives are
also manufactured for use in laundry and dish detergents, as well
as in products to reduce levels of insecticides, herbicides and
fungicides.
The
accounting policies of the segments are the same as those described
in Note 2, Significant Accounting
Policies. The Company evaluates performance based on profit
or loss from operations before income taxes, not including
nonrecurring gains and losses and foreign exchange gains and
losses.
The
Company’s reportable segments are strategic business units
that offer different, but synergistic products and services. They
are managed separately because each business requires different
technology and marketing strategies.
Three
months ended March 31, 2017:
|
|
|
|
|
|
Revenue
|
$247,726
|
$4,415,982
|
$4,663,708
|
|
Interest
expense
|
55
|
11,512
|
11,567
|
|
Depreciation
and amortization
|
31,971
|
48,404
|
80,375
|
|
Segment profit
(loss)
|
1,770,391
|
593,545
|
3,252,667
|
|
Segment
assets
|
323,228
|
1,482,276
|
1,805,504
|
|
Expenditures
for segment
assets
|
(22,497)
|
(7,406)
|
(29,903)
|
Three
months ended March 31, 2016:
|
|
|
|
|
|
Revenue
|
$327,713
|
$4,984,922
|
$5,312,635
|
|
Interest
expense
|
-
|
10,944
|
10,944
|
|
Depreciation
and amortization
|
78,478
|
53,109
|
131,587
|
|
Segment profit
(loss)
|
(130,408)
|
872,202
|
741,794
|
|
Segment
assets
|
2,274,377
|
1,717,392
|
3,991,769
|
|
Expenditures
for segment
assets
|
-
|
(90,701)
|
(90,701)
|
The
sales generated in the United States and Canada are as
follows:
|
|
Three months
ended March 31, 2017
|
Three months
ended March 31, 2016
|
|
Canada
|
$74,835
|
$135,779
|
|
United States and
abroad
|
4,588,873
|
5,176,856
|
|
Total
|
$4,663,708
|
$5,312,635
|
The
Company’s long-lived property and equipment, and patents are
located in Canada and the United States as follows:
|
|
|
|
|
Canada
|
$323,232
|
$1,966,564
|
|
United
States
|
1,482,276
|
1,523,270
|
|
Total
|
$1,805,504
|
$3,489,834
|
Three
customers accounted for $2,642,973 (57%) of sales during the
three-month period ended March 31, 2017 (2016 - $3,273,817 or 62%).
Three customers accounted for $1,889,159 of accounts receivable
(56%) at March 31, 2017 (December 31, 2016 – $2,032,646 or
67%).
14.
Commitments.
The
Company is committed to minimum rental payments for property and
premises aggregating approximately $882,550 over the term of three
leases, the last expiring on October 31, 2021.
Commitments in the
next five year are as follows:
|
2017
|
$154,630
|
|
2018
|
$201,840
|
|
2019
|
$205,580
|
|
2020
|
$209,400
|
|
2021
|
$111,100
|
15.
Comparative
Figures.
Certain
of the comparative figures have been reclassified to conform with
the current period’s presentation.
Item
2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
Overview
The
Company develops, manufactures and markets specialty chemicals that
slow the evaporation of water. The Company also manufactures and
markets biodegradable polymers which are used in the oil, gas and
agriculture industries.
Results of Operations
The
Company has two product lines:
Energy
and Water Conservation products - The Company’s
HEAT$AVR® product is used in swimming pools and spas.
The product forms a thin, transparent layer on the water’s
surface. The transparent layer slows the evaporation of
water, allowing the water to retain a higher temperature for a
longer period of time and thereby reducing the energy required to
maintain the desired temperature of the water.
WATER$AVR®, a modified version of HEAT$AVR®, can be used
in reservoirs, potable water storage tanks, livestock watering
ponds, canals, and irrigation ditches.
BCPA
products - The second product, TPA’s (i.e. thermal
polyaspartate biopolymers), are biodegradable polymers used by the
petroleum, chemical, utility and mining industries to prevent
corrosion and scaling in water piping. This product can also be
used in detergents to increase biodegradability and in agriculture
to increase crop yields by enhancing fertilizer
uptake.
Material changes in
the Company’s Statement of Operations for the three months
ended March 31, 2017 compared to the same period in the prior year
are discussed below:
|
Item
|
|
Increase (I) or
Decrease (D)
|
|
Reason
|
|
Sales
|
|
|
|
|
|
EWCP
products
|
|
D
|
|
Loss of Taber, AB manufacturing facility to fire.
|
|
BPCA
products
|
|
D
|
|
Lower customer orders.
|
|
Gross
profit, as a % of
sales
|
|
I
|
|
Lower
oil prices reduced aspartic acid costs.
|
|
|
|
|
|
|
|
Administrative
salaries and benefits
|
|
I
|
|
Increased
wages to retain employees.
|
|
Rent
|
|
I
|
|
Additional
storage and capacity space for BCPS products.
|
|
Professional
fess
|
|
I
|
|
Increased
legal fees associated with IP and general legal representation
along with increased accounting costs.
|
|
|
|
|
|
|
|
Commissions
|
|
D
|
|
Uncommissioned
sales increased against commissioned sales.
|
Three
customers accounted for 57% of the Company’s sales during the
three months ended March 31, 2017 (2016 - 62%). The amount of
revenue (all from the sale of BCPA products) attributable to each
customer is shown below.
|
|
Three Months Ended March 31,
|
|
|
|
|
|
Company
A
|
$1,458,352
|
$1,423,418
|
|
Company
B
|
$704,375
|
$1,311,532
|
|
Company
C
|
$480,247
|
$538,867
|
Customers with
balances greater than 10% of our receivables as of March 31, 2016
and 2015 are shown below:
|
|
|
|
|
|
|
|
Company
A
|
1,448,600
|
891,348
|
|
Company
B
|
-
|
685,364
|
|
Company
C
|
-
|
478,998
|
In
2007, we began construction of a plant in Taber, AB, Canada. The
plant came on line during 2012 and we began depreciating the plant
and related equipment effective January 2012.
In
February 2014, we suspended production of aspartic acid at our
Taber plant. The suspension was due to the fact that since
construction of the plant began in 2008, economic conditions in
Alberta and worldwide have changed significantly. In particular,
plant operating costs have risen and the price of aspartic acid
derived from oil was less than forecast. On February 11, 2017, the
Taber plant was destroyed in a fire. The building and contents with
a carrying value of $1,936,886 are a total loss. Insurance was in
place.
Other
factors that will most significantly affect future operating
results will be:
●
the sale price of
crude oil which is used in the manufacture of aspartic acid we
import from China. Aspartic acid is a key ingredient in our BCPA
product;
●
activity in the oil
and gas industry, as we sell our BCPA product to oil and gas
companies; and
●
drought conditions,
since we also sell our BCPA product to farmers.
Other
than the foregoing we do not know of any trends, events or
uncertainties that have had, or are reasonably expected to have, a
material impact on our revenues or expenses.
Capital Resources and Liquidity
The
Company’s sources and (uses) of cash for the three months
ended March 31, 2016 and 2015 are shown below:
|
|
|
|
|
Cash provided
(used) by operations
|
(1,894,207)
|
186,463
|
|
Long term
deposits
|
-
|
350
|
|
Investment
|
6,250
|
-
|
|
Loss from
fire
|
4,053,612
|
-
|
|
Acquisition of
equipment
|
(29,903)
|
(90,701)
|
|
Borrowings from
line of credit
|
450,000
|
250,000
|
|
Repayment of
loans
|
(50,298)
|
(50,298)
|
|
Proceeds of
issuance of common stock
|
2,250
|
-
|
|
Repurchase of
common stock
|
-
|
(1,575,000)
|
|
Changes in exchange
rates
|
(138,350)
|
29,785
|
The
Company has sufficient cash resources to meets its future
commitments and cash flow requirements for the coming year. As of
March 31, 2017, working capital was $11,662,273 (December 31, 2016
- $7,150,606) and the Company has no substantial commitments that
require significant outlays of cash over the coming fiscal
year.
The
Company is committed to minimum rental payments for property and
premises aggregating approximately $882,550 over the term of three
leases, the last expiring on October 31, 2021.
Commitments in the
next five year are as follows:
|
2017
|
$154,630
|
|
2018
|
$201,840
|
|
2019
|
$205,580
|
|
2020
|
$209,400
|
|
2021
|
$111,100
|
Other
than as disclosed above, the Company does not anticipate any
capital requirements for the twelve months ending December 31,
2017.
Other
than as disclosed in Item 2 of this report, the Company does not
know of any trends, demands, commitments, events or uncertainties
that will result in, or that are reasonable likely to result in,
its liquidity increasing or decreasing in any material
way.
Other
than as disclosed in Item 2 of this report, the Company does not
know of any significant changes in its expected sources and uses of
cash.
The
Company does not have any commitments or arrangements from any
person to provide it with any equity capital.
See
Note 2 to the financial statements included as part of this report
for a description of the Company’s significant accounting
policies.
Item
4.
CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Under
the direction and with the participation of our management,
including our Principal Executive and Financial Officer, we
conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures as of March 31,
2017. We maintain disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our
periodic reports with the Securities and Exchange Commission is
recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and regulations, and
that such information is accumulated and communicated to our
management, including our principal executive and financial
officer, as appropriate, to allow timely decisions regarding
required disclosure. Our disclosure controls and procedures are
designed to provide a reasonable level of assurance of reaching
desired disclosure control objectives. Based on the evaluation, our
Principal Executive and Financial Officer concluded that these
disclosure controls and procedures are effective as of March 31,
2017.
Changes
in Internal Control over Financial Reporting
Our
management, with the participation of our Principal Executive and
Financial Officer, evaluated whether any change in our internal
control over financial reporting occurred during the three months
ended March 31, 2017. Based on that evaluation, it was concluded
that there has been no change in our internal control over
financial reporting during the three months ended March 31, 2017
that materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II
|
Number
|
Description
|
|
3.1
|
Amended
and Restated Articles of Incorporation. (1)
|
|
3.2
|
Bylaws
(1)
|
|
31.1
|
Certification
of Principal Executive Officer Pursuant to §302 of the
Sarbanes-Oxley Act of 2002.*
|
|
31.2
|
Certification
of Principal Financial Officer Pursuant to §302 of the
Sarbanes-Oxley Act of 2002.*
|
|
32.1
|
Certification
of Principal Executive and Financial Officer Pursuant to 18 U.S.C.
§1350 and §906 of the Sarbanes-Oxley Act of
2002.*
|
______________
*
Filed with this
report.
(1) Incorporated
by reference to the registrant’s Registration Statement on
Form 10-SB (SEC File. No. 000-29649) filed February 22,
2000.
SIGNATURES
In
accordance with the requirements the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
|
Flexible Solutions International, Inc.
|
|
|
|
|
|
|
|
May 15,
2017
|
By:
|
/s/
Daniel
B. O’Brien
|
|
|
|
|
Daniel B.
O’Brien
|
|
|
|
|
President
and Principal Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
May 15,
2017
|
By:
|
/s/
Daniel
B. O’Brien
|
|
|
|
|
Daniel B.
O’Brien
|
|
|
|
|
Principal Financial
and Accounting Officer
|
|