Item
1. Financial Statements.
FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(U.S. Dollars)
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,240,573
|
|
|
$
|
3,634,670
|
|
Accounts receivable (Note 3)
|
|
|
5,786,736
|
|
|
|
4,470,215
|
|
Inventory (Note 4)
|
|
|
6,942,410
|
|
|
|
9,182,786
|
|
Prepaid expenses
|
|
|
344,030
|
|
|
|
218,638
|
|
Total current assets
|
|
|
19,313,749
|
|
|
|
17,506,309
|
|
Property, equipment and leaseholds, net (Note 5)
|
|
|
4,507,282
|
|
|
|
4,005,676
|
|
Operating right of use assets (Note 2)
|
|
|
562,673
|
|
|
|
789,205
|
|
Patents (Note 6)
|
|
|
34,247
|
|
|
|
46,576
|
|
Intangible assets (Note 7)
|
|
|
2,820,000
|
|
|
|
2,952,000
|
|
Long term deposits (Note 8)
|
|
|
8,540
|
|
|
|
30,630
|
|
Investments (Note 9)
|
|
|
3,018,144
|
|
|
|
1,915,585
|
|
Goodwill (Note 7)
|
|
|
2,534,275
|
|
|
|
2,534,275
|
|
Restricted cash (Note 9e)
|
|
|
-
|
|
|
|
1,000,000
|
|
Deferred tax assets
|
|
|
1,583,072
|
|
|
|
1,600,161
|
|
Total Assets
|
|
$
|
34,381,982
|
|
|
$
|
32,380,417
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
750,233
|
|
|
$
|
636,260
|
|
Accrued liabilities
|
|
|
333,965
|
|
|
|
181,234
|
|
Deferred revenue
|
|
|
264,988
|
|
|
|
213,221
|
|
Income taxes payable
|
|
|
2,370,931
|
|
|
|
1,770,105
|
|
Short term line of credit (Note 10)
|
|
|
1,640,382
|
|
|
|
2,389,982
|
|
Current portion of lease liabilities (Note 2)
|
|
|
370,538
|
|
|
|
405,670
|
|
Current portion of long term debt (Note 11)
|
|
|
958,610
|
|
|
|
1,196,722
|
|
Total current liabilities
|
|
|
6,689,647
|
|
|
|
6,793,194
|
|
Convertible note payable (Note 12)
|
|
|
-
|
|
|
|
500,000
|
|
Lease liabilities (Note 2)
|
|
|
192,135
|
|
|
|
383,535
|
|
Deferred income tax liability
|
|
|
1,058,641
|
|
|
|
1,058,641
|
|
Long term debt (Note 11)
|
|
|
2,605,787
|
|
|
|
3,183,671
|
|
Total liabilities
|
|
|
10,546,210
|
|
|
|
11,919,041
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Capital stock (Note 14)
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
12,240,545 (2019: 12,215,545) common shares
|
|
|
12,241
|
|
|
|
12,216
|
|
Capital in excess of par value
|
|
|
16,550,943
|
|
|
|
16,437,473
|
|
Other comprehensive loss
|
|
|
(967,806
|
)
|
|
|
(994,610
|
)
|
Accumulated earnings
|
|
|
5,436,059
|
|
|
|
2,456,148
|
|
Total stockholders’ equity – controlling interest
|
|
|
21,031,437
|
|
|
|
17,911,227
|
|
Non-controlling interests (Note 15)
|
|
|
2,804,335
|
|
|
|
2,550,149
|
|
Total Stockholders’ Equity
|
|
|
23,835,772
|
|
|
|
20,461,376
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
34,381,982
|
|
|
$
|
32,380,417
|
|
—
See Notes to Unaudited Interim Condensed Consolidated Financial Statements —
FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(U.S. Dollars — Unaudited)
|
|
Three Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Sales
|
|
$
|
8,112,930
|
|
|
$
|
7,403,492
|
|
Cost of sales
|
|
|
5,597,513
|
|
|
|
5,024,130
|
|
Gross profit
|
|
|
2,515,417
|
|
|
|
2,379,362
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Wages
|
|
|
531,759
|
|
|
|
554,454
|
|
Administrative salaries and benefits
|
|
|
200,018
|
|
|
|
199,055
|
|
Advertising and promotion
|
|
|
40,171
|
|
|
|
38,426
|
|
Investor relations and transfer agent fee
|
|
|
18,268
|
|
|
|
17,314
|
|
Office and miscellaneous
|
|
|
77,031
|
|
|
|
94,686
|
|
Insurance
|
|
|
125,739
|
|
|
|
141,997
|
|
Interest expense
|
|
|
43,872
|
|
|
|
94,319
|
|
Lease expense
|
|
|
115,348
|
|
|
|
116,005
|
|
Consulting
|
|
|
63,700
|
|
|
|
39,943
|
|
Professional fees
|
|
|
57,654
|
|
|
|
140,025
|
|
Travel
|
|
|
19,552
|
|
|
|
71,388
|
|
Telecommunications
|
|
|
10,174
|
|
|
|
11,006
|
|
Shipping
|
|
|
2,246
|
|
|
|
5,155
|
|
Research
|
|
|
17,114
|
|
|
|
15,551
|
|
Commissions
|
|
|
1,683
|
|
|
|
7,906
|
|
Currency exchange
|
|
|
18,461
|
|
|
|
9,823
|
|
Utilities
|
|
|
5,081
|
|
|
|
2,862
|
|
Total operating expenses
|
|
|
1,347,871
|
|
|
|
1,559,915
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,167,546
|
|
|
|
819,447
|
|
Gain on sale of asset
|
|
|
9,490
|
|
|
|
-
|
|
Gain on investment
|
|
|
121,184
|
|
|
|
82,734
|
|
Interest income
|
|
|
13,583
|
|
|
|
13,621
|
|
Income before income tax
|
|
|
1,311,803
|
|
|
|
915,802
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(370,203
|
)
|
|
|
(213,771
|
)
|
Net income for the period including non-controlling interests
|
|
|
941,600
|
|
|
|
702,031
|
|
Less: Net income attributable to non-controlling interests
|
|
|
(359,231
|
)
|
|
|
(289,983
|
)
|
Net income attributable to controlling interest
|
|
$
|
582,369
|
|
|
$
|
412,048
|
|
Income per share (basic and diluted)
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
Weighted average number of common shares (basic)
|
|
|
12,240,545
|
|
|
|
12,108,110
|
|
Weighted average number of common shares (diluted)
|
|
|
12,306,432
|
|
|
|
12,277,789
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Net income
|
|
|
941,600
|
|
|
|
702,031
|
|
Unrealized gain (loss) on foreign currency translations
|
|
|
56,670
|
|
|
|
(24,773
|
)
|
Total comprehensive income
|
|
$
|
998,270
|
|
|
$
|
677,258
|
|
Comprehensive income – non-controlling interest
|
|
|
(359,231
|
)
|
|
|
(289,983
|
)
|
Comprehensive income attributable to Flexible Solutions International Inc.
|
|
$
|
639,039
|
|
|
$
|
387,275
|
|
—
See Notes to Unaudited Interim Condensed Consolidated Financial Statements —
FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(U.S. Dollars — Unaudited)
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Sales
|
|
$
|
24,252,023
|
|
|
$
|
22,645,408
|
|
Cost of sales
|
|
|
16,365,958
|
|
|
|
15,338,382
|
|
Gross profit
|
|
|
7,886,065
|
|
|
|
7,307,026
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Wages
|
|
|
1,561,119
|
|
|
|
1,648,384
|
|
Administrative salaries and benefits
|
|
|
597,581
|
|
|
|
690,797
|
|
Advertising and promotion
|
|
|
156,117
|
|
|
|
133,610
|
|
Investor relations and transfer agent fee
|
|
|
56,976
|
|
|
|
61,622
|
|
Office and miscellaneous
|
|
|
191,004
|
|
|
|
215,082
|
|
Insurance
|
|
|
343,987
|
|
|
|
329,387
|
|
Interest expense
|
|
|
199,947
|
|
|
|
341,791
|
|
Lease expense
|
|
|
350,592
|
|
|
|
345,216
|
|
Consulting
|
|
|
199,013
|
|
|
|
158,993
|
|
Professional fees
|
|
|
166,634
|
|
|
|
412,735
|
|
Travel
|
|
|
86,188
|
|
|
|
250,105
|
|
Telecommunications
|
|
|
32,556
|
|
|
|
33,307
|
|
Shipping
|
|
|
9,595
|
|
|
|
13,643
|
|
Research
|
|
|
57,290
|
|
|
|
70,997
|
|
Commissions
|
|
|
6,644
|
|
|
|
38,665
|
|
Bad debt expense
|
|
|
-
|
|
|
|
231,696
|
|
Currency exchange
|
|
|
(49,207
|
)
|
|
|
190,934
|
|
Utilities
|
|
|
13,231
|
|
|
|
10,903
|
|
Total operating expenses
|
|
|
3,979,267
|
|
|
|
5,177,867
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
3,906,798
|
|
|
|
2,129,159
|
|
Gain on sale of assets
|
|
|
9,490
|
|
|
|
-
|
|
Gain on investment
|
|
|
660,601
|
|
|
|
342,248
|
|
Interest income
|
|
|
26,197
|
|
|
|
69,154
|
|
Income before income tax
|
|
|
4,603,086
|
|
|
|
2,540,561
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
|
|
|
|
|
|
Deferred income tax recovery
|
|
|
-
|
|
|
|
125,999
|
|
Income tax expense
|
|
|
(1,064,851
|
)
|
|
|
(743,317
|
)
|
Net income for the period including non-controlling interests
|
|
|
3,538,235
|
|
|
|
1,923,243
|
|
Less: Net income attributable to non-controlling interests
|
|
|
(558,324
|
)
|
|
|
(527,778
|
)
|
Net income attributable to controlling interest
|
|
$
|
2,979,911
|
|
|
$
|
1,395,465
|
|
Income per share (basic and diluted)
|
|
$
|
0.24
|
|
|
$
|
0.12
|
|
Weighted average number of common shares (basic)
|
|
|
12,239,633
|
|
|
|
11,862,484
|
|
Weighted average number of common shares (diluted)
|
|
|
12,300,732
|
|
|
|
12,009,934
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Net income
|
|
|
3,538,235
|
|
|
|
1,923,243
|
|
Unrealized gain (loss) on foreign currency translations
|
|
|
26,804
|
|
|
|
101,326
|
|
Total comprehensive income
|
|
$
|
3,565,039
|
|
|
$
|
2,024,569
|
|
Comprehensive income – non-controlling interest
|
|
|
(558,324
|
)
|
|
|
(527,778
|
)
|
Comprehensive income attributable to Flexible Solutions International Inc.
|
|
$
|
3,006,715
|
|
|
$
|
1,496,791
|
|
—
See Notes to Unaudited Interim Condensed Consolidated Financial Statements —
FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. Dollars — Unaudited)
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income for the period including non-controlling interests
|
|
$
|
3,538,235
|
|
|
$
|
1,923,243
|
|
Adjustments to reconcile net income to net cash:
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
88,745
|
|
|
|
129,024
|
|
Depreciation and amortization
|
|
|
445,588
|
|
|
|
462,448
|
|
Bad debt expense
|
|
|
-
|
|
|
|
231,696
|
|
Increase (decrease) in deferred income tax
|
|
|
17,089
|
|
|
|
(140,909
|
)
|
Gain on investment
|
|
|
(582,086
|
)
|
|
|
(265,764
|
)
|
|
|
|
|
|
|
|
|
|
Changes in non-cash working capital items:
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(1,346,271
|
)
|
|
|
(469,696
|
)
|
Decrease in inventory
|
|
|
2,280,074
|
|
|
|
177,652
|
|
Increase in prepaid expenses
|
|
|
(125,674
|
)
|
|
|
(156,436
|
)
|
Increase in accounts payable and accrued liabilities
|
|
|
282,617
|
|
|
|
869,286
|
|
Increase in taxes payable
|
|
|
600,825
|
|
|
|
729,353
|
|
Increase (decrease) in deferred revenue
|
|
|
51,989
|
|
|
|
(14,251
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
|
5,251,131
|
|
|
|
3,475,646
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Long term deposits
|
|
|
22,071
|
|
|
|
147
|
|
Investment
|
|
|
(520,473
|
)
|
|
|
(898,023
|
)
|
Net purchase of property, equipment and leaseholds
|
|
|
(826,515
|
)
|
|
|
(1,397,196
|
)
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
(1,324,917
|
)
|
|
|
(2,295,072
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Repayment of short term line of credit
|
|
|
(749,600
|
)
|
|
|
(957,045
|
)
|
Loan repayments
|
|
|
(1,353,956
|
)
|
|
|
(916,017
|
)
|
Loan proceeds received
|
|
|
537,960
|
|
|
|
1,100,000
|
|
Convertible note
|
|
|
(500,000
|
)
|
|
|
-
|
|
Dividends paid
|
|
|
-
|
|
|
|
(1,476,357
|
)
|
Partnership distributions
|
|
|
(304,137
|
)
|
|
|
(133,759
|
)
|
Proceeds of issuance of common stock
|
|
|
24,750
|
|
|
|
335,010
|
|
|
|
|
|
|
|
|
|
|
Cash used in financing activities
|
|
|
(2,344,983
|
)
|
|
|
(2,048,168
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
24,672
|
|
|
|
10,738
|
|
|
|
|
|
|
|
|
|
|
Inflow (Outflow) of cash
|
|
|
1,605,903
|
|
|
|
(856,856
|
)
|
Cash and cash equivalents, beginning
|
|
|
4,634,670
|
|
|
|
7,857,936
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, ending
|
|
$
|
6,240,573
|
|
|
$
|
7,001,080
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash consists of:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
5,240,573
|
|
|
|
6,001,080
|
|
Term Deposit
|
|
|
1,000,000
|
|
|
|
-
|
|
Restricted Cash
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
|
6,240,573
|
|
|
|
7,001,080
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
464,026
|
|
|
$
|
8,741
|
|
Interest paid
|
|
$
|
199,947
|
|
|
$
|
327,457
|
|
Common shares issued on conversion of convertible debt
|
|
|
-
|
|
|
|
500,000
|
|
—
See Notes to Unaudited Condensed Interim Consolidated Financial Statements –
FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.
CONDENSED
INTERIM Consolidated Statements of Stockholders’ Equity
(U.S.
Dollars – Unaudited)
|
|
Shares
|
|
|
Capital
Stock
|
|
|
Capital
in
Excess of
Par Value
|
|
|
Accumulated
Earnings
(Deficiency)
|
|
|
Other
Comprehensive
Income (Loss)
|
|
|
Total
|
|
|
Non-
Controlling Interests
|
|
|
Total
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2019
|
|
|
12,215,545
|
|
|
$
|
12,216
|
|
|
$
|
16,437,473
|
|
|
$
|
2,456,148
|
|
|
$
|
(994,610
|
)
|
|
$
|
17,911,227
|
|
|
$
|
2,550,149
|
|
|
$
|
20,461,376
|
|
Translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(98,928
|
)
|
|
|
(98,928
|
)
|
|
|
—
|
|
|
|
(98,928
|
)
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,264,675
|
|
|
|
—
|
|
|
|
1,264,675
|
|
|
|
67,015
|
|
|
|
1,331,690
|
|
Common stock issued
|
|
|
25,000
|
|
|
|
25
|
|
|
|
24,725
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,750
|
|
|
|
—
|
|
|
|
24,750
|
|
Distributions to non-controlling
interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(143,002
|
)
|
|
|
(143,002
|
)
|
Stock-based
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
29,582
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29,582
|
|
|
|
—
|
|
|
|
29,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2020
|
|
|
12,240,545
|
|
|
$
|
12,241
|
|
|
$
|
16,491,780
|
|
|
$
|
3,720,823
|
|
|
$
|
(1,093,538
|
)
|
|
$
|
19,131,306
|
|
|
$
|
2,474,162
|
|
|
$
|
21,605,468
|
|
Translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
69,062
|
|
|
|
69,062
|
|
|
|
—
|
|
|
|
69,062
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,132,867
|
|
|
|
—
|
|
|
|
1,132,867
|
|
|
|
132,078
|
|
|
|
1,264,945
|
|
Distributions to non-controlling
interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(54,238
|
)
|
|
|
(54,238
|
)
|
Stock-based
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
29,108
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29,108
|
|
|
|
—
|
|
|
|
29,108
|
|
Balance June 30, 2020
|
|
|
12,240,545
|
|
|
$
|
12,241
|
|
|
$
|
16,520,888
|
|
|
$
|
4,853,690
|
|
|
$
|
(1,024,476
|
)
|
|
$
|
20,362,343
|
|
|
$
|
2,552,002
|
|
|
$
|
22,914,345
|
|
Translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56,670
|
|
|
|
56,670
|
|
|
|
—
|
|
|
|
56,670
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
582,369
|
|
|
|
—
|
|
|
|
582,369
|
|
|
|
359,231
|
|
|
|
941,600
|
|
Distributions to non-controlling
interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(106,898
|
)
|
|
|
(106,898
|
)
|
Stock-based
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
30,055
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,055
|
|
|
|
—
|
|
|
|
30,055
|
|
Balance
September 30, 2020
|
|
|
12,240,545
|
|
|
$
|
12,241
|
|
|
$
|
16,550,943
|
|
|
$
|
5,436,059
|
|
|
$
|
(967,806
|
)
|
|
$
|
21,031,437
|
|
|
$
|
2,804,335
|
|
|
$
|
23,835,772
|
|
—
See Notes to Unaudited Condensed Interim Consolidated Financial Statements —
FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.
CONDENSED
INTERIM Consolidated Statements of Stockholders’ Equity
(U.S.
Dollars – Unaudited)
|
|
Shares
|
|
|
Capital
Stock
|
|
|
Capital
in
Excess of
Par Value
|
|
|
Accumulated
Earnings
(Deficiency)
|
|
|
Other
Comprehensive
Income (Loss)
|
|
|
Total
|
|
|
Non-
Controlling Interests
|
|
|
Total
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2018
|
|
|
11,699,657
|
|
|
$
|
11,700
|
|
|
$
|
15,328,285
|
|
|
$
|
2,941,889
|
|
|
$
|
(1,222,573
|
)
|
|
$
|
17,059,301
|
|
|
$
|
2,462,231
|
|
|
$
|
19,521,532
|
|
Translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
182,293
|
|
|
|
182,293
|
|
|
|
—
|
|
|
|
182,293
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,011,150
|
|
|
|
—
|
|
|
|
1,011,150
|
|
|
|
29,264
|
|
|
|
1,040,414
|
|
Common stock issued
|
|
|
12,000
|
|
|
|
12
|
|
|
|
10,838
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,850
|
|
|
|
—
|
|
|
|
10,850
|
|
Dividends paid
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(590,483
|
)
|
|
|
—
|
|
|
|
(590,483
|
)
|
|
|
—
|
|
|
|
(590,483
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
5,747
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,747
|
|
|
|
—
|
|
|
|
5,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2019
|
|
|
11,711,657
|
|
|
$
|
11,712
|
|
|
$
|
15,344,870
|
|
|
$
|
3,362,556
|
|
|
$
|
(1,040,280
|
)
|
|
$
|
17,678,858
|
|
|
$
|
2,491,495
|
|
|
$
|
20,170,353
|
|
Translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(56,194
|
)
|
|
|
(56,194
|
)
|
|
|
—
|
|
|
|
(56,194
|
)
|
Net income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(27,733
|
)
|
|
|
—
|
|
|
|
(27,733
|
)
|
|
|
208,531
|
|
|
|
180,798
|
|
Common stock issued upon exercise of stock options
|
|
|
105,888
|
|
|
|
106
|
|
|
|
128,714
|
|
|
|
—
|
|
|
|
—
|
|
|
|
129,020
|
|
|
|
—
|
|
|
|
129,020
|
|
Common stock issued – convertible debt
|
|
|
200,000
|
|
|
|
200
|
|
|
|
500,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500,000
|
|
|
|
—
|
|
|
|
500,000
|
|
Dividends paid
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(885,874
|
)
|
|
|
—
|
|
|
|
(885,874
|
)
|
|
|
—
|
|
|
|
(885,874
|
)
|
Distributions to non-controlling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(16,461
|
)
|
|
|
(16,461
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
61,638
|
|
|
|
—
|
|
|
|
—
|
|
|
|
61,638
|
|
|
|
—
|
|
|
|
61,638
|
|
Balance June 30, 2019
|
|
|
12,017,545
|
|
|
$
|
12,018
|
|
|
$
|
16,035,222
|
|
|
$
|
2,448,949
|
|
|
$
|
(1,096,474
|
)
|
|
$
|
17,399,715
|
|
|
$
|
2,683,565
|
|
|
$
|
20,083,280
|
|
Translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(24,773
|
)
|
|
|
(24,773
|
)
|
|
|
—
|
|
|
|
(24,773
|
)
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
412,048
|
|
|
|
—
|
|
|
|
412,048
|
|
|
|
289,983
|
|
|
|
702,031
|
|
Common stock issued
|
|
|
172,000
|
|
|
|
172
|
|
|
|
194,968
|
|
|
|
—
|
|
|
|
—
|
|
|
|
195,140
|
|
|
|
—
|
|
|
|
195,140
|
|
Distributions to non-controlling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(117,298
|
)
|
|
|
(117,298
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
61,639
|
|
|
|
—
|
|
|
|
—
|
|
|
|
61,639
|
|
|
|
—
|
|
|
|
61,639
|
|
Balance September 30, 2019
|
|
|
12,189,545
|
|
|
$
|
12,190
|
|
|
$
|
16,291,829
|
|
|
$
|
2,860,997
|
|
|
$
|
(1,121,247
|
)
|
|
$
|
18,043,769
|
|
|
$
|
2,856,250
|
|
|
$
|
20,900,019
|
|
—
See Notes to Unaudited Condensed Interim Consolidated Financial Statements —
FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ended September 30, 2020
(U.S.
Dollars — Unaudited)
1.
Basis of Presentation.
These
consolidated financial statements include the accounts of Flexible Solutions International, Inc. (the “Company”),
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., Natural Chem SEZC Ltd.,
and InnFlexHoldings Inc. and its 65% interest in EnP Investments, LLC (“ENP Investments”). 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. In 2019, the Company redomiciled into Alberta, Canada.
In
2018, NanoChem, a wholly-owned subsidiary of the Company, completed the purchase of a 65% interest in EnP Investments for
an aggregate purchase price of $5,110,560. An unrelated party owns the remaining 35% interest in EnP Investments, and EnP Investments
is consolidated into the financial statements. The outside investor’s ownership interest in EnP Investments is included
in noncontrolling interests in these consolidated financial statements from the acquisition date onward.
The
Company 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. The TPA division also manufactures two nitrogen conservation products for agriculture that
slows nitrogen loss from fields.
The
outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in a widespread health
crisis that has affected economies and financial markets around the world resulting in an economic downturn. This outbreak may
also cause staff shortages, reduced customer demand, increased government regulations or interventions, all of which may negatively
impact the business, financial condition or results of options of the Company. The duration and impact of the COVID-19 outbreak
is unknown at this time and it is not possible to reliably estimate the length and severity of these developments.
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, 2019 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 September 30, 2020, the consolidated results of operations for the three and nine months ended September 30, 2020
and 2019, the consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019 and the consolidated
statements of stockholders’ equity for the nine months ended September 30, 2020 and 2019. The results of operations for
the three and nine months ended September 30, 2020 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 on a historical cost basis, except where otherwise noted, 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 and
consist of cash and a term deposit of $1,000,000.
(b)
Inventories and Cost of Sales
The
Company has three major classes of inventory: completed goods, work in progress and raw materials and supplies. In all classes
inventories are stated at the lower of cost and net realizable value. 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. Shipping and handling charges billed
to customers are included in revenue for the nine months ended September 30th (2020 - $339,560; 2019 – $431,771).
Shipping and handling costs incurred are included in cost of goods sold for the nine months ended September 30th (2020
- $837,825; 2019 – $894,795).
((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, Leaseholds and Intangible Assets.
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
|
Trailer
|
|
30% Declining balance
|
Automobiles
|
|
Straight-line over 5 years
|
Patents
|
|
Straight-line over 17 years
|
Technology
|
|
Straight-line over 10 years
|
Right of Use Assets
|
|
Straight-line over lease term
|
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 their carrying amounts 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, equipment and leaseholds, 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.
(f)
Foreign Currency.
The
functional currency of the Company is the U.S. dollar. 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 in the consolidated statements
of operations and comprehensive income.
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.
(g)
Revenue Recognition.
The
Company follows a five-step model for revenue recognition. The five steps are: (1) identification of the contract(s) with the
customer, (2) identification of the performance obligation(s) in the contract(s), (3) determination of the transaction price,
(4) allocation of the transaction price to the performance obligation, and (5) recognition of revenue when (or as) the performance
obligation is satisfied. The Company has fulfilled its performance obligations when control transfers to the customer,
which is generally at the time the product is shipped since risk of loss is transferred to the purchaser upon delivery to the
carrier. For shipments which are F.O.B. shipping point, the Company has elected to account for shipping and handling activities
as a fulfillment cost rather than as an additional promised service and performance obligation.
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.
(j)
Other 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 comprised only 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 and nine months ended September 30, 2020 and 2019.
(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 valuation of goodwill and intangible
assets, asset impairment analysis, share-based payments and warrants, valuation allowances for deferred income tax assets, determination
of useful lives of property, the discount rate of the right of use asset, equipment, leaseholds, intangible assets, 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.
(n)
Fair Value of Financial Instruments
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.
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
as income or expense 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 September 30, 2020, 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 consolidated statements of operations and comprehensive income.
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.
Credit exposure is minimized by dealing with only credit worthy counterparties. Accounts receivable for the Company’s three
primary customers totaled $3,088,120 (53%) at September 30, 2020 (December 31, 2019 - $2,707,825 or 61%).
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. 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.
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 and accrued
liabilities. 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 the Company 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 initially 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.
(s)
Goodwill and Intangible Assets
Goodwill
represents the excess of the purchase price of an acquired entity over the amounts assigned to the assets acquired and liabilities
assumed. Goodwill is not amortized, but is reviewed for impairment annually or more frequently if certain impairment conditions
arise. The Company performs an annual goodwill impairment review in the at December 31 of each year at the reporting unit level.
The evaluation begins with a qualitative assessment of the factors that could impact the significant inputs used to estimate fair
value. If after performing the qualitative assessment, it is determined likely that the fair value of a reporting unit is more
than its carrying amount, including goodwill, then no further analysis is necessary. However, if the results of the qualitative
test are unclear, the Company performs a quantitative test, which involves comparing the fair value of a reporting unit with its
carrying amount, including goodwill. The Company uses an income-based valuation method, determining the present value of future
cash flows, to estimate the fair value of a reporting unit. If the fair value of a reporting unit exceeds its positive carrying
amount, goodwill of the reporting unit is considered not impaired, and no further analysis is necessary. If the fair value of
the reporting unit is less than its carrying amount, goodwill impairment would be recognized equal to the amount of the carrying
value in excess of the reporting unit’s fair value, limited to the total amount of goodwill allocated to the reporting unit.
Intangible
assets primarily include trademarks and trade secrets with indefinite lives and customer-relationships with finite lives. Intangible
assets with indefinite lives are not amortized but are tested for impairment on an annual basis, or more frequently if indicators
of impairment are present. Indefinite lived intangible assets are assessed using either a qualitative or a quantitative
approach. The qualitative assessment evaluates factors including macro-economic conditions, industry and company-specific factors,
legal and regulatory environments, and historical company performance in assessing fair value. If it is determined the fair value
of the intangible asset is less than its carrying value, a quantitative test is then performed. When using a quantitative
approach, the Company compares the fair value of the intangible asset to its carrying amount. If the estimated fair value of the
intangible asset is less than its carrying amount, impairment is indicated, requiring recognition of an impairment
charge for the differential.
Qualitative
assessments of goodwill and indefinite-lived intangible assets were performed in 2019 and 2018. Based on the results of
the assessment, it was determined that it is more likely than not the reporting units, and intangible asset had
a fair value in excess of carrying value. Accordingly, no further impairment testing was completed and no impairment charges related
to goodwill or indefinite-lived intangibles were recognized during 2019, 2018 or the three or nine months ended September
30, 2020.
Finite-lived
intangible assets are amortized on a straight-line basis over their estimated useful lives. The Company reviews for impairment
indicators of finite-lived intangibles and other long-lived assets as described in the “Property and Equipment” significant
accounting policy.
(t)
Leases
For
leases with terms greater than 12 months, the Company records the related right-of-use (“ROU”) asset and lease obligation
at the present value of lease payments over the term. Leases may include fixed rental escalation clauses, renewal options and
/ or termination options that are factored into the determination of lease payments when appropriate. The Company’s leases
do not usually provide a readily determinable implicit rate; therefore, an estimate of the Company’s incremental borrowing
rate is used to discount the lease payments based on information available at the lease commencement date. The discount rate used
was 5.5%.
The
table below summarizes the right-of-use asset and lease liability for the period ended September 30, 2020:
Right of Use Assets
|
|
September 30, 2020
|
|
Balance at December 31, 2019
|
|
$
|
789,205
|
|
Depreciation
|
|
|
(226,532
|
)
|
Balance at September 30, 2020
|
|
$
|
562,673
|
|
|
|
|
|
|
Lease Liability
|
|
|
|
|
Balance at December 31, 2019
|
|
|
789,205
|
|
Lease interest expense
|
|
|
15,687
|
|
Payments
|
|
|
(242,399
|
)
|
Balance at September 30, 2020
|
|
$
|
562,493
|
|
|
|
|
|
|
Short-term portion
|
|
$
|
370,358
|
|
Long-term portion
|
|
|
192,135
|
|
Total
|
|
$
|
562,493
|
|
Update
to Lease Policy
Accounting
and reporting guidance for leases requires that leases be evaluated and classified as either operating or finance leases by the
lessee and as either operating, sales-type or direct financing leases by the lessor. The Company’s operating leases are
included in ROU assets, lease liabilities-current portion and lease liability-less current portion in the accompanying consolidated
balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities
represent the obligation to make lease payments arising from the lease.
3.
Accounts Receivable.
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Accounts receivable
|
|
$
|
6,056,366
|
|
|
$
|
4,740,867
|
|
Allowances for doubtful accounts
|
|
|
(269,630
|
)
|
|
|
(270,652
|
)
|
|
|
$
|
5,786,736
|
|
|
$
|
4,470,215
|
|
4.
Inventory.
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Completed goods
|
|
$
|
2,921,840
|
|
|
$
|
3,818,876
|
|
Work in progress
|
|
|
-
|
|
|
|
416,950
|
|
Raw materials and supplies
|
|
|
4,020,570
|
|
|
|
4,946,960
|
|
|
|
$
|
6,942,410
|
|
|
$
|
9,182,786
|
|
5.
Property, Plant & equipment.
|
|
September 30, 2020
|
|
|
Accumulated
|
|
|
September 30, 2020
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Buildings
|
|
$
|
3,670,311
|
|
|
$
|
2,682,225
|
|
|
$
|
988,086
|
|
Automobiles
|
|
|
168,648
|
|
|
|
76,473
|
|
|
|
92,175
|
|
Computer hardware
|
|
|
43,473
|
|
|
|
41,715
|
|
|
|
1,758
|
|
Furniture and fixtures
|
|
|
110,972
|
|
|
|
100,006
|
|
|
|
10,966
|
|
Manufacturing equipment
|
|
|
6,348,792
|
|
|
|
3,312,880
|
|
|
|
3,035,912
|
|
Boat
|
|
|
34,400
|
|
|
|
23,621
|
|
|
|
10,779
|
|
Office equipment
|
|
|
1,779
|
|
|
|
874
|
|
|
|
905
|
|
Trailer
|
|
|
8,994
|
|
|
|
6,091
|
|
|
|
2,903
|
|
Leasehold Improvements
|
|
|
88,872
|
|
|
|
82,547
|
|
|
|
6,325
|
|
Land
|
|
|
357,473
|
|
|
|
-
|
|
|
|
357,473
|
|
Technology
|
|
|
102,417
|
|
|
|
102,417
|
|
|
|
-
|
|
|
|
$
|
10,936,131
|
|
|
$
|
6,428,849
|
|
|
$
|
4,507,282
|
|
|
|
December 31, 2019
|
|
|
Accumulated
|
|
|
December 31, 2019
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Buildings
|
|
$
|
3,614,057
|
|
|
$
|
2,619,914
|
|
|
$
|
994,143
|
|
Automobiles
|
|
|
163,397
|
|
|
|
94,789
|
|
|
|
68,608
|
|
Computer hardware
|
|
|
43,540
|
|
|
|
41,233
|
|
|
|
2,307
|
|
Furniture and fixtures
|
|
|
108,906
|
|
|
|
97,030
|
|
|
|
11,876
|
|
Manufacturing equipment
|
|
|
5,634,255
|
|
|
|
3,106,526
|
|
|
|
2,527,729
|
|
Boat
|
|
|
34,400
|
|
|
|
21,719
|
|
|
|
12,681
|
|
Office equipment
|
|
|
1,827
|
|
|
|
733
|
|
|
|
1,094
|
|
Trailer
|
|
|
9,236
|
|
|
|
5,389
|
|
|
|
3,847
|
|
Leasehold improvements
|
|
|
88,872
|
|
|
|
68,571
|
|
|
|
20,301
|
|
Land
|
|
|
363,090
|
|
|
|
—
|
|
|
|
363,090
|
|
Technology
|
|
|
105,177
|
|
|
|
105,177
|
|
|
|
—
|
|
|
|
$
|
10,166,757
|
|
|
$
|
6,161,081
|
|
|
$
|
4,005,676
|
|
Amount
of depreciation expense for 2020: $433,259 (2019: $450,119) and is included in cost of sales in the consolidated statements of
operations and comprehensive income.
.
6.
Patents.
In
fiscal 2005, the Company started the patent process for additional WATER$AVR® products. Patents associated with these costs
were granted in 2006 and they have been amortized over their legal life of 17 years.
|
|
September
30, 2020
Cost
|
|
|
Accumulated
Amortization
|
|
|
September
30, 2020
Net
|
|
Patents
|
|
$
|
198,747
|
|
|
$
|
164,500
|
|
|
$
|
34,247
|
|
|
|
December
31, 2019
Cost
|
|
|
Accumulated
Amortization
|
|
|
December
31, 2019
Net
|
|
Patents
|
|
$
|
204,102
|
|
|
$
|
157,526
|
|
|
$
|
46,576
|
|
Decrease
in 2020 cost was due to currency conversion. 2020 cost in Canadian dollars - $265,102 (2019 - $265,102 in Canadian dollars).
Amount
of amortization for 2020 - $12,329 (2019 - $12,329)
Estimated
amortization expense over the next three years is as follows:
2020
|
|
$
|
16,438
|
|
2021
|
|
|
16,438
|
|
2022
|
|
|
13,700
|
|
7.
Goodwill and Indefinite Lived Intangible Assets
Goodwill
|
|
|
|
Balance as of December 31, 2018
|
|
$
|
2,534,275
|
|
Additions
|
|
|
-
|
|
Impairment
|
|
|
-
|
|
Balance as of December 31, 2019 and September 30, 2020
|
|
$
|
2,534,275
|
|
|
|
|
|
|
Indefinite Lived Intangible Assets
|
|
|
|
|
Balance as of December 31, 2018
|
|
$
|
770,000
|
|
Additions
|
|
|
-
|
|
Impairment
|
|
|
-
|
|
Balance as of December 31, 2019 and September 30, 2020
|
|
$
|
770,000
|
|
Indefinite
lived intangible assets consist of trade secrets and trademarks related to the acquisition of EnP Investments LLC.
Definite Life Intangible Assets
|
|
|
|
Balance as of December 31, 2018
|
|
$
|
2,358,000
|
|
Amortization
|
|
|
(176,000
|
)
|
Balance as of December 31, 2019
|
|
|
2,182,000
|
|
Amortization
|
|
|
(132,000
|
)
|
Balance as of September 30, 2020
|
|
$
|
2,050,000
|
|
Definite
life intangible assets consists of customer relationships related to the acquisition of EnP Investments LLC. Customer relationships
are amortized over their estimated useful life of 15 years.
Estimated
amortization expense over the next five years is as follows:
2020
|
|
$
|
176,000
|
|
2021
|
|
|
176,000
|
|
2022
|
|
|
160,000
|
|
2023
|
|
|
160,000
|
|
2024
|
|
|
160,000
|
|
8.
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.
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Long term deposits
|
|
$
|
8,540
|
|
|
$
|
30,630
|
|
9.
Investments
(a)
The Company has a 50% ownership interest
in ENP Peru Investments LLC (“ENP Peru”), which was acquired in fiscal 2016. ENP Peru is located in Illinois and leases
warehouse space. The Company accounts for this investment using the equity method of accounting as ENP Peru is not controlled
by the Company. A summary of the Company’s investment follows:
Balance, December 31, 2018
|
|
$
|
12,108
|
|
Return of equity
|
|
|
(6,250
|
)
|
Gain in equity method investment
|
|
|
5,529
|
|
Balance, December 31, 2019
|
|
|
11,387
|
|
Return of equity
|
|
|
(7,813
|
)
|
Balance, September 30, 2020
|
|
$
|
3,574
|
|
Summarized
profit and loss information related to the equity accounted investment is as follows for the full year:
|
|
2019
|
|
|
|
|
|
Net sales
|
|
$
|
285,635
|
|
Net income
|
|
$
|
11,058
|
|
(b)
The Company has a 24% ownership interest
in ENP Realty LLC (“ENP Realty”), which was acquired in fiscal 2018. ENP Realty is located in Illinois and leases
warehouse space. The Company accounts for this investment using the equity method of accounting. A summary of the Company’s
investment follows:
Balance, December 31, 2018
|
|
$
|
64,249
|
|
Return of equity
|
|
|
(9,292
|
)
|
Gain in equity method investment
|
|
|
8,208
|
|
Balance, December 31, 2019 and September 30, 2020
|
|
$
|
63,165
|
|
Summarized
profit and loss information related to the equity accounted investment is as follows for the full year:
|
|
2019
|
|
|
|
|
|
Net sales
|
|
$
|
75,870
|
|
Net income
|
|
$
|
34,200
|
|
(c)
In December 2018 the Company invested $200,000 in Applied Holding Corp. (“Applied”). Applied is a captive
insurance company and the Company received a promissory note for its investment which becomes due in 2021 but may be extended
with notice for a maximum of two years. The Company has elected to account for this investment at cost.
(d)
In December 2018 the Company invested
$500,000 in Trio Opportunity Corp. (“Trio”), a privately held entity. Trio is a real estate investment vehicle and
the Company received 50,000 non-voting Class B shares at $10.00/share. In accordance with ASC 321-10-35, the Company has elected
to account for this investment at cost. A summary of the Company’s investment follows:
Balance, December 31, 2018
|
|
$
|
500,000
|
|
Impairment
|
|
|
-
|
|
Balance, December 31, 2019 and September 30, 2020
|
|
$
|
500,000
|
|
(e)
In January 2019, the Company invested
$1,001,000 in a Florida based LLC that is engaged in international sales of fertilizer additives. The Company accounts for this
investment using the equity method of accounting. According to the operating agreement, the Company has a 50% interest in the
profit and loss of the LLC but does not have control. A summary of the Company’s investment
follows:
Balance, December 31, 2018
|
|
$
|
-
|
|
Acquisition
|
|
|
1,001,000
|
|
Gain in equity method investment
|
|
|
290,033
|
|
Return on investment
|
|
|
(150,000
|
)
|
Balance, December 31, 2019
|
|
|
1,141,033
|
|
Additional payment
|
|
|
1,000,000
|
|
Return on investment
|
|
|
(471,714
|
)
|
Gain on equity method investment
|
|
|
582,086
|
|
Balance, September 30, 2020
|
|
$
|
2,251,405
|
|
Further
to the original investment amount, the Company had placed $1,000,000 in trust, to be released upon the LLC reaching a milestone
related to earnings before interest, taxes and depreciation (“EBITDA”) targets. This amount is accounted for as restricted
cash on the December 31, 2019 balance sheet and was reclassified as an investment during the nine-month period ended September
30, 2020. Further payments of $1,000,000 and $500,000 may become due should other subsequent milestones be reached. Summarized
profit and loss information for the nine months ended September 30th related to the equity accounted investment is
as follows:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
8,024,786
|
|
|
$
|
6,875,157
|
|
Gross profit
|
|
|
3,251,607
|
|
|
|
1,951,078
|
|
Net income
|
|
$
|
1,164,174
|
|
|
$
|
646,996
|
|
10.
Short-Term Line of Credit.
(a)
In September 2018, the Company signed
a new agreement with Harris Bank (“Harris”) to renew the expiring credit line. The revolving line of credit is for
an aggregate amount of up to the lesser of (i) $2,500,000, or (ii) 80% of eligible domestic accounts receivable and certain foreign
accounts receivable plus 60% of inventory. The loan has an annual interest rate of 3.25% at September 30, 2020 (December 31, 2019
– 4.75%).
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 Harris, Harris’ 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 September 30, 2020, 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 Harris 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 September 30, 2020 were $1,640,382 (December 31, 2019 - $1,641,085).
(b)
In April, 2020, EnP Investments, LLC signed a new agreement with Midland State Bank (“Midland”) to renew the expiring
credit line. The revolving line of credit is for an aggregate amount up to $3,000,000. The interest rate of this loan is subject
to change from time to time based on changes in an independent index which is the 1 month LIBOR as published in the Wall Street
Journal (the “Index”). Interest on the unpaid principal balance of this loan will be calculated using a rate of 4.050
percentage points over the Index. Under no circumstances will the interest rate of this loan be less than 4.500% per annum or
more than the maximum rate allowed by applicable law. The interest rate at September 30, 2020 is 4.5% (December 31, 2019 –
6.075%).
The
revolving line of credit contains customary affirmative and negative covenants, including the following: compliance with laws,
provisions of financial statements and periodic reports, payment of taxes, maintenance of inventory and insurance, maintenance
of operating accounts at Midland, Midland’s access to collateral, formation of 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. NanoChem Solutions Inc. is a guarantor of 65%
of all the principal and other loan costs not to exceed $1,625,000. As of September 30, 2020, EnP Investments , LLC was in compliance
with all loan covenants.
To
secure the repayment of any amounts borrowed under the revolving line of Credit, EnP Investments, LLC granted Midland a security
interest in all inventory, equipment and fixtures and acknowledges a separate commercial security agreement from guarantor to
Midland dated February 15, 2011.
Short-term
borrowings outstanding under the revolving line as of September 30, 2020 were $nil (December 31, 2019 – $748,897).
11.
Long Term Debt.
(a)
In September 2014, NanoChem Solutions
Inc. signed a $1,005,967 promissory note with Harris Bank with a rate of prime plus 0.5% (September 30, 2019 – 5.75%) to
be repaid over 5 years with equal monthly installments plus interest. This money was used to retire the previously issued and
outstanding debt obligations. The final payment was made in September 2019. Interest expense for the nine months ended September
30, 2019 was $3,294.
(b)
In October 2018, NanoChem Solutions Inc. signed a $4,100,000 term loan with Harris Bank with a rate of prime (September 30,
2020 – 3.25%; December 31, 2019 – 4.75%) to be repaid over 7 years with equal monthly installments plus interest along
two payments consisting of 25% prior year cash flow recapture, capped at $300,000, due May 31, 2019 and 2020. The money was used
to purchase a 65% interest in EnP Investments LLC. Interest expense for the nine months ended September 30, 2020 was $69,139 (2019
- $152,005). The balance owing at September 30, 2020 was $1,977,381 (December 31, 2019 - $3,116,667).
The
Company has committed to the following repayments:
2020
|
|
$
|
885,714
|
|
2021
|
|
$
|
585,714
|
|
2022
|
|
$
|
585,714
|
|
2023
|
|
$
|
585,714
|
|
2024
|
|
$
|
473,811
|
|
(c)
In April 2019, NanoChem Solutions
Inc. signed a loan for $1,100,000 with Harris Bank with a rate of prime plus 0.5% (September 30, 2020 – 3.75%; December
31, 2019 – 5.25%) for the purchase of new manufacturing equipment.
The
Company paid interest only payments until February 2020, when equally monthly installments of the principal and interest are due
until January 2024. Interest expense for the nine months ended September 30, 2020 was $33,317 (2019 – $21,399). The balance
owing at September 30, 2020 was $916,667 (December 31, 2019 - $1,100,000).
The
Company has committed to the following repayments:
2020
|
|
$
|
252,083
|
|
2021
|
|
$
|
275,000
|
|
2022
|
|
$
|
275,000
|
|
2023
|
|
$
|
275,000
|
|
2024
|
|
$
|
22,917
|
|
(d)
In January 2018, EnP Investments,
LLC signed a $200,000 promissory note with Midland States Bank with a rate of 5.250% to be repaid over 7 years with equal monthly
installments plus interest. This money was used to purchase production equipment. Interest expense for the nine months ended September
30, 2020 was $5,860 (2019 - $6,770). The principal balance owing at September 30, 2020 is $132,389 (December 31, 2019 - $152,241).
The
Company has committed to the following repayments:
2020
|
|
$
|
25,562
|
|
2021
|
|
$
|
25,562
|
|
2022
|
|
$
|
25,562
|
|
2023
|
|
$
|
25,562
|
|
2024
|
|
$
|
25,562
|
|
(e)
In March, 2016, EnP Investments, LLC
signed a $45,941 promissory note with Ford Motor Credit Company with a rate of 0.00% interest to be repaid over 5 years with equal
monthly installments. In August 2020, the loan was paid off in full. The balance owing at September 30, 2020 is $nil (December
31, 2019 - $11,485).
(f)
In April 2020, NanoChem Solutions Inc. received a two year loan of $322,000 through the Paycheck Protection Program with a
rate of 1%. Management expects the full amount of the loan to be forgiven but at this time, it cannot be proven and has chosen
to list the loan as a long term debt. Eighteen equal installments of principal and interest are due starting November 2020 if
the loan amount is not forgiven in full.
(g)
In April 2020, EnP Investments, LLC. received a two year loan of $215,960 through the Paycheck Protection Program with a rate
of 1%. Management expects the full amount of the loan to be forgiven but at this time, it cannot be proven and has chosen to list
the loan as a long term debt. Eighteen equal installments of principal and interest are due starting November 2020 if the loan
amount is not forgiven in full.
As
of September 30, 2020, the Company was in compliance with all loan covenants.
Continuity
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Balance, January 1
|
|
$
|
4,380,393
|
|
|
|
4,351,743
|
|
Plus: Proceeds from loans
|
|
|
537,960
|
|
|
|
1,100,000
|
|
Less: Payments on loan
|
|
|
(1,353,956
|
)
|
|
|
(1,071,350
|
)
|
Balance, end of period
|
|
$
|
3,564,397
|
|
|
$
|
4,380,393
|
|
Outstanding balance
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
a) Long term debt – Harris Bank
|
|
$
|
-
|
|
|
$
|
-
|
|
b) Long term debt – Harris Bank
|
|
|
1,977,381
|
|
|
|
3,116,667
|
|
c) Long term debt – Harris Bank
|
|
|
916,667
|
|
|
|
1,100,000
|
|
d) Long term debt – Midland States Bank
|
|
|
132,389
|
|
|
|
152,241
|
|
e) Long term debt – Ford Credit
|
|
|
-
|
|
|
|
11,485
|
|
f) Long term debt – PPP
|
|
|
322,000
|
|
|
|
|
|
g) Long term debt – PPP
|
|
|
215,960
|
|
|
|
|
|
Long-term Debt
|
|
$
|
3,564,397
|
|
|
$
|
4,380,393
|
|
Less: current portion
|
|
|
(958,610
|
)
|
|
|
(1,196,722
|
)
|
|
|
$
|
2,605,787
|
|
|
$
|
3,183,671
|
|
12.
Convertible note payable.
In
October 2018, the Company issued a convertible note payable in the amount of $1,000,000 in connection with the acquisition of
EnP Investments LLC. The convertible note is due on or before September 30, 2023 with 5% interest due per year. At the option
of the holder, the Note may be converted to 400,000 shares of the Company’s common stock. The Company has the option to
extend the note to no later than September 30, 2028.
In
June 2019, the holder opted to convert $500,000 of the convertible note payable into 200,000 shares of the Company’s common
stock.
In
April 2020, the holder opted to receive $500,000 and close the note.
13.
Stock Options.
The
Company has 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 the Company’s 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 and the exercise
price of all options are issued for not less than fair market value at the date of the grant.
The
following table summarizes the Company’s stock option activities for the year ended December 31, 2019 and the nine month
period ended September 30, 2020:
|
|
Number of shares
|
|
|
Exercise price
per share
|
|
|
Weighted average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
660,000
|
|
|
$
|
0.75
– 1.75
|
|
|
$
|
1.35
|
|
Granted
|
|
|
347,000
|
|
|
$
|
2.44 – 4.13
|
|
|
$
|
2.99
|
|
Cancelled or expired
|
|
|
(56,112
|
)
|
|
$
|
0.75 – 3.46
|
|
|
$
|
1.41
|
|
Exercised
|
|
|
(315,888
|
)
|
|
$
|
0.75 – 1.70
|
|
|
$
|
1.15
|
|
Balance, December 31, 2019
|
|
|
635,000
|
|
|
$
|
0.75 – 4.13
|
|
|
$
|
2.31
|
|
Cancelled or expired
|
|
|
(10,000
|
)
|
|
$
|
2.44 – 3.46
|
|
|
$
|
2.85
|
|
Exercised
|
|
|
(25,000
|
)
|
|
$
|
0.75 – 1.05
|
|
|
$
|
0.99
|
|
Balance, September 30, 2020
|
|
|
600,000
|
|
|
$
|
0.75 – 4.13
|
|
|
$
|
2.36
|
|
Exercisable, September 30, 2020
|
|
|
343,000
|
|
|
$
|
0.75 – 4.13
|
|
|
$
|
2.52
|
|
The
fair value of each option grant is calculated using the following weighted average assumptions:
|
|
2019
|
|
|
|
|
|
Expected life – years
|
|
|
3.0
|
|
Interest rate
|
|
|
1.93
|
%
|
Volatility
|
|
|
43.89
|
%
|
Weighted average fair value of options granted
|
|
$
|
1.0959
|
|
During
the nine months ended September 30, 2020, the Company granted nil (2019 – 40,000) stock options to consultants and has applied
ASC 718 using the Black-Scholes option-pricing model, which resulted in expenses of $nil (2019 - $29,244). The Company granted
nil stock options to employees during the nine months ended September 30, 2020 (2019 – 113,000) which resulted in expenses
of $nil (2019 - $82,558). Vesting of options granted in previous years resulted in expenses in the amount of $54,929 for employees
(2019 - $nil) during the nine months ended September 30, 2020 and $33,816 for consultants (2019 - $17,242). There were 15,000
employee and 10,000 consultant stock options exercised during the nine months ended September 30, 2020 (2019 – 204,000 employee
and 85,888 consultant stock options).
As
of September 30, 2020, there was approximately $49,349 of compensation expense related to non-vested awards. This expense is expected
to be recognized over a weighted average period of 0.75 years.
The
aggregate intrinsic value of vested options outstanding at September 30, 2020 is $nil (2019 - $224,330).
14.
Capital Stock.
During
the nine months ended September 30, 2020, 15,000 shares were issued upon the exercise of employee stock options (2019 –
204,000) and 10,000 shares were issued upon the exercise of consultant stock options (2019 – 85,888).
In
June 2019, the holder of the Company’s convertible note opted to convert $500,000 of the convertible note payable into 200,000
shares of the Company’s common stock.
In
February 2019, the Company announced the payment of a special dividend to the existing stockholders of the Company as of March
6, 2019 in the amount of $0.05 per share.
In
March 2019, the Company announced the payment of annual dividends of $0.15 per share, to be paid in two tranches. Shareholders
of record on March 31, 2019 received $0.075 per share on April 15, 2019 and shareholders of record on September 30, 2019 received
$0.075 per share on October 15, 2019. On March 19, 2020, the Company suspended the annual dividend until further notice due to
the uncertainty surrounding the COVID-19 virus.
15.
Non-Controlling Interests
EnP
Investments is a limited liability company (LLC) that manufactures and distributes
golf, turf and ornamental agriculture products in Mendota, IL. Effective October 1, 2018, the Company paid $4,110,560 in
cash and issued a $1,000,000 convertible note to acquire a 65% interest in EnP Investments. An unrelated party owns the remaining
35% of EnP Investments. For financial reporting purposes, the assets, liabilities and earnings of the LLC are consolidated into
these financial statements. The unrelated third party’s ownership interest in the LLC is recorded as noncontrolling interests
in these consolidated financial statements. The noncontrolling interest represents the unrelated third party’s interest
in the earnings and equity of EnP Investments. EnP Investments is allocated to the TPA segment.
EnP
Investments makes cash distributions to the unit holders based on formulas defined within its Ownership Interest Purchase Agreement
dated October 1, 2018. Distributions, as defined in the Ownership Interest Purchase Agreement, are based on cash on hand to the
extent it exceeds current and anticipated long-term and short-term needs, including, without limitation, needs for operating expenses,
debt service, acquisitions, reserves, and mandatory distributions, if any.
From
the effective date of acquisition onward, the minimum distributions requirements under the Ownership Interest Purchase Agreement
were satisfied. The total distribution from the effective date of acquisition onward was $830,248.
Balance, December 31, 2018
|
|
$
|
2,462,231
|
|
Distribution to non-controlling interest
|
|
|
(296,875
|
)
|
Noncontrolling interest share of profits
|
|
|
384,793
|
|
Balance, December 31, 2019
|
|
|
2,550,149
|
|
Distribution to non-controlling interest
|
|
|
(304,138
|
)
|
Noncontrolling interest share of profits
|
|
|
558,324
|
|
Balance, |September 30, 2020
|
|
$
|
2,804,335
|
|
16.
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 “TPA” 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 September 30, 2020:
|
|
EWCP
|
|
|
TPA
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
101,215
|
|
|
$
|
8,011,715
|
|
|
$
|
8,112,930
|
|
Interest expense
|
|
|
-
|
|
|
|
43,872
|
|
|
|
43,872
|
|
Depreciation and amortization
|
|
|
10,531
|
|
|
|
145,555
|
|
|
|
156,086
|
|
Segment profit (loss)
|
|
|
(64,945
|
)
|
|
|
647,314
|
|
|
|
582,369
|
|
Segment assets
|
|
|
437,298
|
|
|
|
10,021,179
|
|
|
|
10,458,477
|
|
Expenditures for segment assets
|
|
|
-
|
|
|
|
(265,379
|
)
|
|
|
(265,379
|
)
|
Three
months ended September 30, 2019:
|
|
EWCP
|
|
|
TPA
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
91,945
|
|
|
$
|
7,311,547
|
|
|
$
|
7,403,492
|
|
Interest expense
|
|
|
-
|
|
|
|
94,319
|
|
|
|
94,319
|
|
Depreciation and amortization
|
|
|
11,660
|
|
|
|
144,823
|
|
|
|
156,483
|
|
Segment profit (loss)
|
|
|
(123,629
|
)
|
|
|
535,677
|
|
|
|
412,048
|
|
Segment assets
|
|
|
483,543
|
|
|
|
9,623,560
|
|
|
|
10,107,103
|
|
Expenditures for
segment assets
|
|
|
-
|
|
|
|
(79,603
|
)
|
|
|
(79,603
|
)
|
Nine
months ended September 30, 2020:
|
|
EWCP
|
|
|
TPA
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
311,376
|
|
|
$
|
23,940,647
|
|
|
$
|
24,252,023
|
|
Interest expense
|
|
|
-
|
|
|
|
199,947
|
|
|
|
199,947
|
|
Depreciation and amortization
|
|
|
31,294
|
|
|
|
414,294
|
|
|
|
445,588
|
|
Segment profit (loss)
|
|
|
(135,417
|
)
|
|
|
3,115,328
|
|
|
|
2,979,911
|
|
Segment assets
|
|
|
437,298
|
|
|
|
10,021,179
|
|
|
|
10,458,477
|
|
Expenditures for
segment assets
|
|
|
-
|
|
|
|
(826,515
|
)
|
|
|
(826,515
|
)
|
Nine
months ended September 30, 2019:
|
|
EWCP
|
|
|
TPA
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
375,380
|
|
|
$
|
22,270,028
|
|
|
$
|
22,645,408
|
|
Interest expense
|
|
|
569
|
|
|
|
341,222
|
|
|
|
341,791
|
|
Depreciation and amortization
|
|
|
34,830
|
|
|
|
427,618
|
|
|
|
462,448
|
|
Segment profit (loss)
|
|
|
(473,404
|
)
|
|
|
1,868,869
|
|
|
|
1,395,465
|
|
Segment assets
|
|
|
483,543
|
|
|
|
9,623,560
|
|
|
|
10,107,103
|
|
Expenditures for
segment assets
|
|
|
-
|
|
|
|
(1,397,796
|
)
|
|
|
(1,397,196
|
)
|
The
sales generated in the United States, Canada and abroad are as follows:
|
|
Nine months ended
September 30, 2020
|
|
|
Nine months ended
September 30, 2019
|
|
Canada
|
|
$
|
373,863
|
|
|
$
|
302,702
|
|
United States and abroad
|
|
|
23,878,160
|
|
|
|
22,342,706
|
|
Total
|
|
$
|
24,252,023
|
|
|
$
|
22,645,408
|
|
The
Company’s property, equipment, leasehold and patents, intangible assets and goodwill are located in Canada and the United
States as follows:
|
|
September
30, 2020
|
|
|
December
31, 2019
|
|
Canada
|
|
$
|
437,298
|
|
|
$
|
480,243
|
|
United States
|
|
|
10,021,179
|
|
|
|
9,847,489
|
|
Total
|
|
$
|
10,458,477
|
|
|
$
|
10,327,732
|
|
Three
customers accounted for $10,925,243 (45%) of sales during the nine months ended September 30, 2020 (2019 - $10,162,926 or 45%).
17.
Comparative Figures.
Certain
of the comparative figures have been reclassified to conform with the current period’s presentation.
18.
Subsequent Events
None.