UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the quarterly period ended MARCH 31, 2003
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from ________ to ________
Commission file number: 0-29649
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
(Name of small business issuer in its charter)
Nevada, USA 91-1922863
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(State or other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
2614 Queenswood Drive, Victoria, British Columbia, Canada V8N 1X5
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(Address of principal executive offices)
Issuer's Telephone Number: 250-477-9969
Securities to be registered pursuant to Section 12(b) of the Act: None
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Securities to be registered pursuant to Section 12(g) of the Act:
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Common Stock $0.001 par value.
------------------------------
(Title of Class)
----------------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of March 31, 2003. Common
Stock, $0.001 par value - 11,671,916 Shares.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
1
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Attached hereto and incorporated herein by reference
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information contains certain forward-looking statements that
anticipate future trends or events. These statements are based on certain
assumptions that may prove to be erroneous and are subject to certain risks
including but not limited to the risks of increased competition in the Company's
industry and other risks detailed in the Company's Securities and Exchange
Commission filings. Accordingly, actual results may differ, possibly materially,
from the predictions contained herein.
Overview
--------
Gross sales increased $904,646 during the first quarter of Fiscal 2003 as
compared to the first quarter of Fiscal 2002. The increase was a result of
increased production and sales in the Company's swimming pool division as well
as the first significant revenue generated by the Water$avr division During the
first quarter of Fiscal 2003, the Company experienced an increase in net income
of $159,760 as compared to the first quarter of Fiscal 2002. The increase in net
income was the result of the increase in revenue mentioned above.
Results of Operations
---------------------
Flexible Solutions is an environmental biotechnology company active in energy
and water conservation products. The Company believes that its patented and
patent-pending products are effective. All of the Company's products are
biodegradable. The Company's corporate headquarters and research facilities are
located in Victoria, British Columbia. It has one manufacturing plant situated
in Calgary Alberta. The wholly owned Water$avr subsidiary is based in Yorkville
IL.
For the first quarter of the current fiscal year, ending March 31, 2003, sales
increased 240% to $1,281,266 compared to $376,620 for the same quarter of the
previous year. The Company experienced a higher volume of sales during the first
quarter Fiscal 2003 as its "Tropical Fish" product continued to gain market
share, Heat$avr sold to the commercial pool sector increased and our new product
"Water$avr (W$)" had its first significant quarter of revenue. Management
expects that these trends will continue in the future.
2
General and administrative expenses for the Company were $412,994 for the first
quarter up from $155,307 for the first quarter of last year. The increase in
operating expenses was the result of the growth in the Company both in its
Water$avr Division and its "Heat$aver" Division. Notable increases included:
wages up to $138,670 from $31,755 directly a result of new hires in the W$
division and increased head count at the factory in Alberta for increased
production; office costs up to $46,022 from $29,149 a result of the new office
cost of the W$ division; travel, up to $34,184 from $7,611 due to world wide
sales efforts in the W$ group; research to $17,531 from $0 as a result of
breaking out the category; currency exchange to $16,167 from $0 for the same
reasons; telephone to $8,762 from $2,257 as a result of the general increase in
corporate activity and consulting, $41,684 from $0 as a result of expensing
options granted to consultants (this is a non-cash expense generated for
accounting requirements).
Management attributes the increase in general and administrative expenses to the
fact that the Company has expanded the manufacturing and sales of its entire
product line. Excluding the non-cash option expense, operating costs increased
139% to $371,310 from $155,307 while revenue increased 254%.
Net income for the quarter was $180,781 which represents an 760% increase over
the first quarter of last year when net income was $21,021. As stated earlier,
the increase in net income was due to an increase in sales of all product lines
and commencement of sales in the Water$avr division.
Earnings per share were $0.02 (basic), $0.01(fully diluted) for the first
quarter of Fiscal 2003 compared to $0.00 (basic) and $0.00 (fully diluted) for
the first quarter of fiscal 2002.
Liquidity and Capital Resources
-------------------------------
As of March 31st, 2003, the Company had working capital of $6,344,840, which
represented an increase of $5,810,013 as compared to the working capital
position of $534,827 on March 31st 2002. The increase in working capital was due
to net financings of $5,750,000 in April and July 2002 through private
placements of common shares, capital realized from exercise of stock options in
the 12 months to March 31st 2003 and the positive cash flow from operations over
the 12 month period.
Accounts Receivable and Inventory represented 12.5% of current assets and both
continue to turn over at acceptable rates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS:
The Company does not have any derivative financial instruments as of May 11th
2003. However, the Company is exposed to interest rate risk.
3
The Company's interest income and expense are most sensitive to changes in the
general level of U.S. and Canadian interest rates. In this regard, changes in
U.S. and Canadian interest rates affect the interest paid on the Company's
investments.
FOREIGN CURRENCY RISK
The Company operates primarily in Canada. Therefore, the Company's business and
financial condition is sensitive to currency exchange rates or any other
restriction imposed on its currency.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In December 2001, the Company filed suit in British Columbia Supreme Court
against Equity Trust and John Wells. The Company is claiming that Equity Trust
and John Wells did not provide the services for which they were paid 100,000
shares of common stock and loaned $25,000. The Company is seeking return (and
cancellation) of the shares, repayment of the loan, costs and penalties from
Equity Trust and John Wells. As of 3/31/2002, the BC Supreme Court has enjoined
the defendant against any transaction regarding the shares until trial is
complete. The Company has accounted for the loan as un-collectable; the 100,000
shares are included in reported issued/outstanding common stock. The Company
will continue to prosecute this case to a final decision by the courts.
ITEM 2. CHANGES IN SECURITIES
a. No Disclosure Necessary.
b. No Disclosure Necessary.
c. 101,000 shares of common stock issued in 1st Quarter of 2003 upon exercise of
employee stock option with proceeds of $38,500 received. d. No Disclosure
Necessary.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No Disclosure Necessary.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No Disclosure Necessary
ITEM 5. OTHER INFORMATION
No Disclosure Necessary
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No Disclosure Necessary
4
ITEM 14. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-14(c). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the foregoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date the Company completed its evaluation.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Flexible Solutions International Inc.
Registrant
Date: May 11th 2003 /s/ DANIEL B. O'BRIEN
--------------------------
President and CEO
5
CERTIFICATION PURSUANT TO
18 U.S.C. 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Flexible Solutions International Inc.
(the Company) on form 10-Q for the period ended March 31st 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I, Dan
O'Brien, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
1. The Report fully complies with the requirements of Section 13(a) or 15(b) of
the Securities Exchange Act of 1934; and 2. The information contained in the
Report fairly represents, in all material respects, the financial condition and
results of operations of the Company.
/s/ DAN O'BRIEN
---------------
Dan O'Brien
CFO, May 11th 2003
CERTIFICATION PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Flexible Solutions International Inc.
on form 10-Q for the period ended March 31st 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Dan O'Brien, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as
adopted pursuant to section 906 of the Sarbanes -Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and 2. The information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ DAN O'BRIEN
---------------
Dan O'Brien
CEO, May 11th 2003
6
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS)
MARCH 31, DECEMBER 31,
2003 2002
------------------------------------------------------------- ------------- ------------
(Unaudited)
ASSETS
CURRENT
Cash $ 405,492 $ 556,789
Short-term investment 5,112,762 5,062,495
Accounts receivable 706,593 55,222
Income tax recoverable 86,775 118,014
Loan receivable 10,964 10,082
Inventory 104,016 203,830
Prepaid expenses 76,454 87,321
------------------------------------------------------------- ------------- ------------
TOTAL CURRENT ASSETS 6,503,056 6,093,753
PROPERTY AND EQUIPMENT 132,981 128,566
INVESTMENT 32,500 32,500
------------------------------------------------------------- ------------- ------------
TOTAL ASSETS $ 6,668,537 $ 6,254,819
============================================================= ============= ============
LIABILITIES
CURRENT
Accounts payable $ 158,216 $ 53,146
------------------------------------------------------------- ------------- ------------
STOCKHOLDERS' EQUITY
CAPITAL STOCK
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
11,671,916 and 11,570,916 Common shares 11,671 11,570
CAPITAL IN EXCESS OF PAR VALUE 9,411,231 9,328,648
SHARE SUBSCRIPTION RECEIVABLE (16,217) (16,217)
OTHER COMPREHENSIVE INCOME (LOSS) 23,829 (21,354)
ACCUMULATED DEFICIENCY (2,920,193) (3,100,974)
------------------------------------------------------------- ------------- ------------
TOTAL STOCKHOLDERS' EQUITY 6,510,321 6,201,673
------------------------------------------------------------- ------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,668,537 $ 6,254,819
============================================================= ============= ============
See notes to consolidated financial statements.
1
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2003 2002
--------------------------------------------------- ----------- -----------
SALES $ 1,281,266 $ 376,620
COST OF SALES
(Exclusive of depreciation shown separately below) 687,067 187,410
--------------------------------------------------- ----------- -----------
GROSS PROFIT 594,199 189,210
--------------------------------------------------- ----------- -----------
OPERATING EXPENSES
Wages 138,670 31,755
Professional fees 23,063 26,952
Office 46,022 29,149
Consulting (note 2) 41,684 0
Travel 34,184 7,611
Administrative salaries
and benefits 17,642 25,014
Research 17,531 0
Currency exchange 16,167 0
Rent 14,398 15,772
Subcontracting 10,248 6,035
Telephone 8,762 2,257
Shipping 3,692 3,164
Stock promotion and
transfer agent fee 33,120 3,820
Bad debt expense (recovery) 0 (410)
Depreciation 7,811 4,188
--------------------------------------------------- ----------- -----------
412,994 155,307
--------------------------------------------------- ----------- -----------
INCOME BEFORE OTHER ITEM AND INCOME TAX 181,205 33,903
INTEREST INCOME 50,268 0
--------------------------------------------------- ----------- -----------
INCOME BEFORE INCOME TAX 231,473 33,903
INCOME TAX 50,692 12,882
--------------------------------------------------- ----------- -----------
NET INCOME $ 180,781 $ 21,021
--------------------------------------------------- ----------- -----------
NET INCOME PER SHARE $ 0.02 $0.00
=================================================== =========== ===========
DILUTED INCOME PER SHARE $ 0.01 $ 0.00
=================================================== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES 11,610,138 9,378,338
DILUTIVE EFFECTS OF OPTIONS 2,716,200 791,500
--------------------------------------------------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF SHARES WITH DILUTION 14,326,338 10,169,838
=================================================== =========== ===========
See notes to consolidated financial statements.
2
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIODS ENDED MARCH 31
(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 (October and December 9,500 9 4,116 0 0 0 4,125
Services (January, July
and November) 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
UNAUDITED INFORMATION
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
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 subscriptions
receivable 0 0 0 16,783 0 0 16,783
Stock option compensation 0 0 2,821,608 0 0 0 2,821,608
Translation adjustment 0 0 0 0 0 2,488 2,488
Net loss, period ended
September 30, 2002 0 0 0 0 (3,082,445) 0 (3,082,445)
----------------------------- ---------- -------- ----------- ----------- -------------- ------------- -------------
BALANCE, SEPTEMBER 30, 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.
3
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIODS ENDED MARCH 31
(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
----------------------------- ---------- -------- ----------- ----------- -------------- ------------- -------------
CARRIED FORWARD 11,570,916 $ 11,570 $ 9,328,648 $ (16,217) $ (3,100,974) $ (21,354) $ 6,201,673
SHARES ISSUED FOR CASH
Exercise of stock options 101,000 101 38,399 0 0 0 38,500
Stock option compensation 0 0 44,184 0 0 0 44,184
Translation adjustment 0 0 0 0 0 45,183 45,183
Net income 0 0 0 0 180,781 0 180,781
----------------------------- ---------- -------- ----------- ----------- -------------- ------------- -------------
Balance, March 31, 2003 11,671,916 $ 11,671 $ 9,411,231 $ (16,217) $ (2,920,193) $ 23,829 $ 6,510,321
============================= ========== ======== =========== =========== ============== ============= =============
See notes to consolidated financial statements.
4
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2003 2002
------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 180,781 $ 21,021
Adjustments to reconcile net income
to net cash, provided by operating activities
Stock option compensation 44,184 0
Depreciation 7,811 4,188
Accrued interest income (50,267) 0
Changes in Non-Cash Working Capital
Accounts receivable (651,371) (369,187)
Inventory 99,814 48,076
Prepaid expenses 10,867 27,916
Accounts payable 105,070 140,299
Income tax receivable 31,239 25,543
Unrealized foreign exchange gain (loss) 37,277 0
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CASH USED IN OPERATING ACTIVITIES (184,595) (102,144)
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INVESTING ACTIVITIES
Acquisition of property and equipment (12,226) (12,355)
Note receivable 0 9,403
Loan receivable (882) 0
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CASH USED IN INVESTING ACTIVITIES (13,108) (2,952)
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FINANCING ACTIVITY
Proceeds from issuance of common stock 38,500 61,500
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 7,906 (9,986)
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OUTFLOW OF CASH (151,297) (53,582)
CASH, BEGINNING OF PERIOD 556,789 190,457
------------------------------------------------------------------------------
CASH, END OF PERIOD $ 405,492 $ 136,875
==============================================================================
See notes to consolidated financial statements.
5
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED MARCH 31
(U.S. DOLLARS)
(UNAUDITED)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United
States for interim financial information. These 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, 2002 Form
10-KSB.
In the opinion of the Company's management, these consolidated
financial statements reflect all adjustments necessary to present
fairly the Company's consolidated financial position at March 31, 2003
and the consolidated results of operations and the consolidated
statements of cash flows for the three months ended March 31, 2003 and
2002. The results of operations for the three months ended March 31,
2003 are not necessarily indicative of the results to be expected for
the entire fiscal year.
2. STOCKHOLDERS' EQUITY
(a) During the period, the Company granted 50,000 stock options to
consultants and have been recognized applying SFAS 123 using
the Black-Scholes option pricing model which resulted in
consulting expense of $20,625 for the three months ended March
31, 2003. Additional consulting expense of $21,059 have also
been recognized on the 75,000 stock options granted on
December 31, 2002 which have a vesting period of one year.
(b) The following table summarizes the Company's stock option
activity for the period:
2003
Weighted
Exercise Average
Number Price Exercise
of Shares Per Share Price
------------------------------------ ---------------- --------
Balance, December 31, 2002 3,671,800 $ 0.25 to $ 5.50 $ 3.79
Granted During the Period 50,000 $ 3.25 3.25
Exercised (101,000) $ 0.25 to $ 1.50 (0.38)
------------------------------------ ---------------- --------
Balance, March 31, 2003 3,620,800 $ 0.25 to $ 5.50 $ 3.79
==================================== ================ ========
6
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30
(U.S. DOLLARS)
(UNAUDITED)
--------------------------------------------------------------------------------
2. STOCKHOLDERS' EQUITY (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 $2,500 was
recognized as wages expense for the three months ended March
31, 2003. Had compensation expense been determined as provided
in SFAS 123 using the Black- Scholes option - pricing model,
the pro-forma effect on the Company's net income and per share
amounts for the three months ended March 31, 2003 would have
been as follows:
Net income, as reported $ 180,781
Net income, pro-forma $ 88,038
Net income per share, as reported $ 0.02
Net income per share, pro-forma $ 0.01
======================================================
The fair value of each option grant is calculated using the
following weighted average assumption:
Expected life (years) 5 years
Interest rate 3%
Volatility 36.55%
Dividend yield 0
=====================================================
(c) Share subscription receivable represents amount due for stock
purchased on exercise of options on June 30, 2002.
7