NOTES
TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2018
(U.S.
Dollars)
1.
|
Basis
of Presentation
.
|
These
unaudited interim condensed consolidated financial statements include the accounts of Flexible Solutions International Inc. (the
“Company”), and its wholly-owned subsidiaries Flexible Fermentation Ltd. (“Flexible Ltd.”), NanoChem Solutions
Inc. (“NanoChem”), Flexible Solutions Ltd., Flexible Biomass LP, FS Biomass Inc., NCS Deferred Corp., Conserve H2O
Ltd. and Natural Chem SEZC Ltd. All inter-company balances and transactions have been eliminated. The company was incorporated
May 12, 1998 in the State of Nevada and had no operations until June 30, 1998.
Flexible
Solutions International Inc. and its subsidiaries develop, manufacture and market specialty chemicals which slow the evaporation
of water. One product, HEATSAVR®, is marketed for use in swimming pools and spas where its use, by slowing the evaporation
of water, allows the water to retain a higher temperature for a longer period of time and thereby reduces the energy required
to maintain the desired temperature of the water in the pool. Another product, WATERSAVR®, is marketed for water conservation
in irrigation canals, aquaculture, and reservoirs where its use slows water loss due to evaporation. In addition to the water
conservation products, the Company also manufactures and markets water-soluble chemicals utilizing thermal polyaspartate biopolymers
(hereinafter referred to as “TPAs”), which are beta-proteins manufactured from the common biological amino acid, L-aspartic.
TPAs can be formulated to prevent corrosion and scaling in water piping within the petroleum, chemical, utility and mining industries.
TPAs are also used as proteins to enhance fertilizers in improving crop yields and can be used as additives for household laundry
detergents, consumer care products and pesticides.
These
unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial statements. These unaudited interim financial statements
are condensed and do not include all disclosures required for annual financial statements. The organization and business of the
Company, accounting policies followed by the Company and other information are contained in the notes to the Company’s audited
consolidated financial statements filed as part of the Company’s December 31, 2017 Annual Report on Form 10-K/A. This quarterly
report should be read in conjunction with such annual report.
In
the opinion of the Company’s management, these unaudited interim condensed consolidated financial statements reflect all
adjustments, all of which are of normal recurring nature, necessary to present fairly the Company’s consolidated financial
position at March 31, 2018, the consolidated results of operations for the three months ended March 31, 2018 and 2017, and the
consolidated statements of cash flows for the three months ended March 31, 2018 and 2017. The results of operations for the three
months ended March 31, 2018 are not necessarily indicative of the results to be expected for the entire fiscal year.
2.
|
Significant
Accounting Policies.
|
These
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States applicable to a going concern and reflect the policies outlined below.
|
(a)
|
Cash
and Cash Equivalents
.
|
The
Company considers all highly liquid investments purchased with an original or remaining maturity of less than three months at
the date of purchase to be cash equivalents. Cash and cash equivalents are maintained with several financial institutions.
|
(b)
|
Inventories
and Cost of Sales
|
The
Company has three major classes of inventory: 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.
|
(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
|
Patents
|
|
Straight-line
over 17 years
|
Technology
|
|
Straight-line
over 10 years
|
Leasehold
improvements
|
|
Straight-line
over lease term
|
Property
and equipment are written down to net realizable value when management determines there has been a change in circumstances which
indicates its carrying amount may not be recoverable. No write-downs have been necessary to date.
|
(e)
|
Impairment
of Long-Lived Assets
.
|
In
accordance with FASB Codification Topic 360, “Property, Plant and Equipment (ASC 360), the Company reviews long-lived assets,
including, but not limited to, property, 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.
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 income 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
.
|
Revenue
from product sales is recognized at the time the product is shipped since title and risk of loss is transferred to the purchaser
upon delivery to the carrier. Shipments are made F.O.B. shipping point. The Company recognizes revenue when there is persuasive
evidence of an arrangement, delivery to the carrier has occurred, the fee is fixed or determinable, collectability is reasonably
assured and there are no significant remaining performance obligations. When significant post-delivery obligations exist, revenue
is deferred until such obligations are fulfilled. To date, there have been no such significant post-delivery obligations.
Since
the Company’s inception, product returns have been insignificant; therefore, no provision has been established for estimated
product returns.
Deferred
revenues consist of products sold to distributors with payment terms greater than the Company’s customary business terms
due to lack of credit history or operating in a new market in which the Company has no prior experience. The Company defers the
recognition of revenue until the criteria for revenue recognition has been met, and payment is received from these distributors.
|
(h)
|
Stock
Issued in Exchange for Services
.
|
The
Company’s common stock issued in exchange for services is valued at estimated fair market value based upon trading prices
of the Company’s common stock on the dates of the stock transactions. The corresponding expense of the services rendered
is recognized over the period that the services are performed.
|
(i)
|
Stock-based
Compensation
.
|
The
Company recognizes compensation expense for all share-based payments in accordance with FASB Codification Topic 718,
Compensation
— Stock Compensation
, (ASC 718). Under the fair value recognition provisions of ASC 718, the Company recognizes share-based
compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award.
The
fair value at grant date of stock options is estimated using the Black-Scholes option-pricing model. Compensation expense is recognized
on a straight-line basis over the stock option vesting period based on the estimated number of stock options that are expected
to vest. Shares are issued from treasury upon exercise of stock options.
|
(j)
|
Comprehensive
Income
.
|
Other
comprehensive income refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included
in comprehensive income, but are excluded from net income as these amounts are recorded directly as an adjustment to stockholders’
equity. The Company’s other comprehensive income is primarily comprised of unrealized foreign exchange gains and losses.
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, comprised of incremental common shares issuable upon the exercise of stock options
and warrants are included in diluted net income per share to the extent that these shares are dilutive. Common equivalent shares
that have an anti-dilutive effect on net income per share have been excluded from the calculation of diluted weighted average
shares outstanding for the three months ended March 31, 2018 and 2017.
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates and would impact the results of operations and cash flows.
Estimates
and underlying assumptions are reviewed at each period end. Revisions to accounting estimates are recognized in the period in
which the estimates are revised and in any future periods affected.
Significant
areas requiring the use of management estimates include assumptions and estimates relating to the asset impairment analysis, share-based
payments and warrants, valuation allowances for deferred income tax assets, determination of useful lives of property, equipment
and leaseholds, 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
Certain
conditions may exist as of the date the financial statements are issued which may result in a loss to the Company but which will
only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess
such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies
related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the
Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived
merits of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates
that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material,
would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would
be disclosed. Legal fees associated with loss contingencies are expensed as incurred.
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected
future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance so that the
assets are recognized only to the extent that when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will be realized.
Per
FASB ASC 740 “Income taxes” under the liability method, it is the Company’s policy to provide for uncertain
tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more
likely than not to be sustained upon examination by tax authorities. At March 31, 2018, 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 income and comprehensive income.
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 $1,133,325 (44%) at March 31, 2018 (December 31, 2017 - $1,247,374 or 65%).
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 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 income and comprehensive
income.
|
(s)
|
Adoption
of new accounting principles
|
In February 2016, the
FASB issued ASU 2016-02, Leases. The standard will require lessees to recognize most leases on their balance sheet and makes selected
changes to lessor accounting. The standard is effective for annual and interim reporting periods beginning after December 15,
2018. A modified retrospective transition approach is required, with certain practical expedients available. We are currently
evaluating the impact the adoption of this standard will have on our consolidated financial statements.
In May 2014, the FASB
issued ASU 2014-09, Revenue from Contracts with Customers, which has been updated through several revisions and clarifications
since its original issuance. The standard will require revenue recognized to represent the transfer of promised goods or services
to customers at an amount that reflects the consideration which a company expects to receive in exchange for those goods or services.
The standard also requires new, expanded disclosures regarding revenue recognition. The standard is effective January 1, 2018.
We have evaluated the effect and do not expect this to have a material impact on our consolidated financial statements.
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Accounts receivable
|
|
$
|
2,605,742
|
|
|
$
|
2,145,803
|
|
Allowances
for doubtful accounts
|
|
|
(39,244
|
)
|
|
|
(40,332
|
)
|
|
|
$
|
2,566,498
|
|
|
$
|
2,105,471
|
|
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
Completed goods
|
|
$
|
2,555,914
|
|
|
$
|
2,530,914
|
|
Work in progress
|
|
|
-
|
|
|
|
183,944
|
|
Raw materials
and supplies
|
|
|
2,233,495
|
|
|
|
1,971,994
|
|
|
|
$
|
4,789,409
|
|
|
$
|
4,686,852
|
|
In
February 2017, the Company lost $367,331CAD ($277,482USD) in inventory in a fire at the Taber, AB location. Insurance was in place.
See Note 5.
5.
|
Property,
Plant & equipment
|
|
|
March 31, 2018
|
|
|
Accumulated
|
|
|
March 31, 2018
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Buildings
|
|
$
|
3,394,428
|
|
|
$
|
2,433,501
|
|
|
$
|
960,927
|
|
Computer hardware
|
|
|
40,904
|
|
|
|
39,511
|
|
|
|
1,393
|
|
Furniture and fixtures
|
|
|
17,673
|
|
|
|
11,481
|
|
|
|
6,192
|
|
Manufacturing equipment
|
|
|
2,596,260
|
|
|
|
2,128,427
|
|
|
|
467,833
|
|
Boat
|
|
|
34,400
|
|
|
|
15,576
|
|
|
|
18,824
|
|
Office equipment
|
|
|
1,440
|
|
|
|
209
|
|
|
|
1,231
|
|
Trailer
|
|
|
9,304
|
|
|
|
1,989
|
|
|
|
7,315
|
|
Leasehold Improvements
|
|
|
85,432
|
|
|
|
36,778
|
|
|
|
48,654
|
|
Land
|
|
|
364,675
|
|
|
|
-
|
|
|
|
364,675
|
|
Technology
|
|
|
105,956
|
|
|
|
105,956
|
|
|
|
-
|
|
|
|
$
|
6,650,472
|
|
|
$
|
4,773,428
|
|
|
$
|
1,877,044
|
|
|
|
December 31, 2017
|
|
|
Accumulated
|
|
|
December 31, 2017
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Buildings
|
|
$
|
3,400,792
|
|
|
$
|
2,409,179
|
|
|
$
|
991,613
|
|
Computer hardware
|
|
|
40,904
|
|
|
|
39,398
|
|
|
|
1,506
|
|
Furniture and fixtures
|
|
|
17,673
|
|
|
|
11,156
|
|
|
|
6,517
|
|
Office equipment
|
|
|
1,480
|
|
|
|
148
|
|
|
|
1,332
|
|
Manufacturing equipment
|
|
|
2,590,158
|
|
|
|
2,104,137
|
|
|
|
486,021
|
|
Trailer
|
|
|
9,562
|
|
|
|
1,434
|
|
|
|
8,128
|
|
Boat
|
|
|
34,400
|
|
|
|
14,586
|
|
|
|
19,814
|
|
Leasehold improvements
|
|
|
85,432
|
|
|
|
32,506
|
|
|
|
52,926
|
|
Technology
|
|
|
101,748
|
|
|
|
101,748
|
|
|
|
-
|
|
Land
|
|
|
370,652
|
|
|
|
-
|
|
|
|
370,652
|
|
|
|
$
|
6,652,801
|
|
|
$
|
4,714,292
|
|
|
$
|
1,938,509
|
|
Amount
of depreciation expense for three months ended March 31, 2018: $55,590 (2017: $76,265) and is included in cost of sales in the
unaudited interim condensed consolidated statements of income and comprehensive income (loss).
In
February 2017, the Company lost a net carrying value total of $2,196,722CAD ($1,659,404USD) in building and manufacturing equipment
in a fire at the Taber, AB location. Insurance was in place. During the quarter ended March 31, 2017, the Company was approved
for interim insurance proceeds of $5,570,000CAD ($4,207,578USD). Subsequent to the quarter ended March 31, 2018, the Company was
approved for and received a final insurance payment of $3,132,666CAD ($2,429,695USD).
In
fiscal 2005, the Company started the patent process for additional WATER$AVR® products. Patents associated with these costs
were granted in 2006 and they have been amortized over their legal life of 17 years.
|
|
March
31
, 2018
Cost
|
|
|
Accumulated
Amortization
|
|
|
March
31,
2018
Net
|
|
Patents
|
|
$
|
205,613
|
|
|
$
|
130,271
|
|
|
$
|
75,342
|
|
|
|
December
31,
2017
Cost
|
|
|
Accumulated
Amortization
|
|
|
December
31, 2
017
Net
|
|
Patents
|
|
$
|
212,426
|
|
|
$
|
132,974
|
|
|
$
|
79,452
|
|
Decrease
in 2018 cost was due to currency conversion. The 2018 cost in Canadian dollars - $265,102 (2017 - $265,102 in Canadian dollars).
Amount
of amortization for 2018 - $4,110 (2017 - $4,110) and is included in cost of sales in the consolidated statements of income
and comprehensive income (loss).
Estimated
amortization expense over the next five years is as follows:
2018
|
|
$
|
16,438
|
|
2019
|
|
|
16,438
|
|
2020
|
|
|
16,438
|
|
2021
|
|
|
16,438
|
|
2022
|
|
|
16,438
|
|
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.
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
|
|
Long term deposits
|
|
$
|
18,498
|
|
|
$
|
18,531
|
|
8.
|
Equity
Method Investment
|
The
Company has a 42% ownership interest in ENP Peru Investments LLC (“ENP Peru”), which we acquired in fiscal 2016. ENP
Peru is located in the state of Illinois and leases warehouse space. We account for this investment using the equity method of
accounting. A summary of our investment is as follows:
Balance,
January 1, 2017
|
|
$
|
122,480
|
|
Return of equity
|
|
|
(25,000
|
)
|
Loss in equity
method investment
|
|
|
(84,066
|
)
|
Balance, December 31, 2017
|
|
$
|
13,414
|
|
Return of
equity
|
|
|
(6,250
|
)
|
Balance, March
31, 2018
|
|
$
|
7,164
|
|
9.
|
Short-Term
Line of Credit
|
In
May 2017, the Company signed a new agreement with Harris Bank (“the Bank”) to renew the expiring credit line. The
revolving line of credit is for an aggregate amount of up to the lesser of (i) $3,000,000, or (ii) 75% of eligible domestic accounts
receivable and certain foreign accounts receivable plus 40% of inventory. The loan has an annual interest rate of 5% and is up
for renewal on June 30, 2018.
The
Revolving Line of Credit contains customary affirmative and negative covenants, including the following: compliance with laws,
provision of financial statements and periodic reports, payment of taxes, maintenance of inventory and insurance, maintenance
of operating accounts at the Bank, the Bank’s access to collateral, formation or acquisition of subsidiaries, incurrence
of indebtedness, dispositions of assets, granting liens, changes in business, ownership or business locations, engaging in mergers
and acquisitions, making investments or distributions and affiliate transactions. The covenants also require that the Company
maintain a minimum ratio of qualifying financial assets to the sum of qualifying financial obligations. As of March 31, 2018,
Company was in compliance with all loan covenants.
To
secure the repayment of any amounts borrowed under the Revolving Line of Credit, the Company granted the Bank a security interest
in substantially all of the assets of NanoChem Solutions Inc., exclusive of intellectual property assets.
Short-term
borrowings outstanding under the Revolving Line as of March 31, 2018 were $250,000 (December 31, 2017 - $250,000).
In
September 2014, NanoChem Solutions Inc. signed a $1,005,967 promissory note with
Harris Bank with a rate of prime plus 0.5% (December 31, 2017 – 5%) 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 balance owing at March 31, 2018 was $301,791 (December 31, 2017 - $352,089). The final payment will be made in September 2019.
The
Company has committed to the following repayments:
2018
|
|
$
|
150,895
|
|
2019
|
|
$
|
150,896
|
|
Continuity
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Balance, beginning of
year
|
|
$
|
352,089
|
|
|
$
|
553,282
|
|
Less: Payments
on loan
|
|
|
50,298
|
|
|
|
201,193
|
|
Balance, end
of year
|
|
$
|
301,791
|
|
|
$
|
352,089
|
|
Less: current portion
|
|
|
(201,193
|
)
|
|
|
(201,193
|
)
|
Long term
balance
|
|
$
|
100,598
|
|
|
$
|
150,896
|
|
The
Company adopted a stock option plan (“Plan”). The purpose of this Plan is to provide additional incentives to key
employees, officers, directors and consultants of the Company and its subsidiaries in order to help attract and retain the best
available personnel for positions of responsibility and otherwise promote the success of its business. It is intended that options
issued under this Plan constitute non-qualified stock options. The general terms of awards under the option plan are that 100%
of the options granted will vest the year following the grant. The maximum term of options granted is 5 years. The exercise price
of all options are not less than fair market value at the date of grant.
The
following table summarizes the Company’s stock option activity for the year ended December 31, 2017 and the three-month
period ended March 31, 2018:
|
|
Number
of shares
|
|
|
Exercise
price
per share
|
|
|
Weighted
average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2016
|
|
|
813,000
|
|
|
|
$0.75
- $2.22
|
|
|
$
|
1.19
|
|
Granted
|
|
|
154,000
|
|
|
$
|
1.70
|
|
|
$
|
1.70
|
|
Cancelled or expired
|
|
|
(114,000
|
)
|
|
$
|
1.00
– 2.22
|
|
|
$
|
1.75
|
|
Exercised
|
|
|
(140,000
|
)
|
|
$
|
0.75
– 1.21
|
|
|
$
|
1.11
|
|
Balance, December 31, 2017
|
|
|
713,000
|
|
|
$
|
0.75
– 1.70
|
|
|
$
|
1.21
|
|
Cancelled or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(33,000
|
)
|
|
$
|
1.00
- 1.42
|
|
|
$
|
1.10
|
|
Balance, March
31, 2018
|
|
|
680,000
|
|
|
$
|
0.75
– 1.70
|
|
|
$
|
1.22
|
|
Exercisable,
March 31, 2018
|
|
|
526,000
|
|
|
$
|
0.75
– 1.41
|
|
|
$
|
1.08
|
|
The
fair value of each option grant is calculated using the following weighted average assumptions:
|
|
2017
|
|
|
|
|
|
Expected life –
years
|
|
|
3.0
|
|
Interest rate
|
|
|
2.23
|
%
|
Volatility
|
|
|
73.09
|
%
|
Dividend yield
|
|
|
—
|
%
|
Weighted average fair value of options
granted
|
|
$
|
0.8344
|
|
The
Company did not grant any options during the three months ended March 31, 2018 or 2017. Options granted in previous quarters resulted
in expenses in the amount of $6,675 for consultants (2017 - $5,658) and $19,025 for employees (2017 - $17,824) during the quarter
ended March 31, 2018. There were 23,000 employee and 10,000 consultant stock options exercised during the during the three months
ended March 31, 2018 (2017 – 3,000 employee stock options).
As
of March 31, 2018, there was approximately $77,099 of compensation expense related to non-vested awards. This expense is expected
to be recognized over a weighted average period of 0.75 years.
During
the three months ended March 31, 2018, 23,000 shares were issued upon the exercise of employee stock options (2017 – 3,000)
and 10,000 shares were issued upon the exercise of consultant stock options (2017 – nil).
13.
|
Segmented,
Significant Customer Information and Economic Dependency
.
|
The
Company operates in two segments:
(a)
Energy and water conservation products (as shown under the column heading “EWCP” below), which consists of a (i) liquid
swimming pool blanket which saves energy and water by inhibiting evaporation from the pool surface, and (ii) food-safe powdered
form of the active ingredient within the liquid blanket and which is designed to be used in still or slow moving drinking water
sources.
(b)
Biodegradable polymers and chemical additives used within the petroleum, chemical, utility and mining industries to prevent corrosion
and scaling in water piping (as shown under the column heading “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 March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
EWCP
|
|
|
TPA
|
|
|
Total
|
|
Revenue
|
|
$
|
75
,820
|
|
|
$
|
4,125,360
|
|
|
$
|
4,201,180
|
|
Interest expense
|
|
|
-
|
|
|
|
7,400
|
|
|
|
7,400
|
|
Depreciation and amortization
|
|
|
12,640
|
|
|
|
47,060
|
|
|
|
59,700
|
|
Segment profit (loss)
|
|
|
(97,834
|
)
|
|
|
801,498
|
|
|
|
703,664
|
|
Segment assets
|
|
|
555,710
|
|
|
|
1,396,676
|
|
|
|
1,952,386
|
|
Expenditures
for segment assets
|
|
|
(1,419
|
)
|
|
|
(6,078
|
)
|
|
|
(7,497
|
)
|
Three
months ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
EWCP
|
|
|
TPA
|
|
|
Total
|
|
Revenue
|
|
$
|
247,726
|
|
|
$
|
4,415,982
|
|
|
$
|
4,663,708
|
|
Interest expense
|
|
|
55
|
|
|
|
11,512
|
|
|
|
11,567
|
|
Depreciation and amortization
|
|
|
31,971
|
|
|
|
48,404
|
|
|
|
80,375
|
|
Segment profit (loss)
|
|
|
2,384,013
|
|
|
|
868,654
|
|
|
|
3,252,667
|
|
Segment assets
|
|
|
323,228
|
|
|
|
1,482,276
|
|
|
|
1,805,504
|
|
Expenditures
for segment assets
|
|
|
(22,497
|
)
|
|
|
(7,406
|
)
|
|
|
(29,903
|
)
|
The
sales generated in the United States and Canada are as follows:
|
|
Three
months ended March 31, 2018
|
|
|
Three
months ended March 31, 2017
|
|
Canada
|
|
$
|
100,189
|
|
|
$
|
74,835
|
|
United States
and abroad
|
|
|
4,100,991
|
|
|
|
4,588,873
|
|
Total
|
|
$
|
4,201,180
|
|
|
$
|
4,663,708
|
|
The
Company’s long-lived property and equipment, and patents are located in Canada and the United States as follows:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Canada
|
|
$
|
555,710
|
|
|
$
|
580,304
|
|
United States
|
|
|
1,396,676
|
|
|
|
1,437,657
|
|
Total
|
|
$
|
1,952,386
|
|
|
$
|
2,017,961
|
|
Three
customers accounted for $1,999,638 (47%) of sales during the three-month period ended March 31, 2018 (2017 - $2,642,973
or 57%).
The
Company is committed to minimum rental payments for property and premises aggregating approximately $685,315 over the term of
three leases, the last expiring on October 31, 2021.
Commitments
in the next four years are as follows:
2018
|
|
$
|
151,485
|
|
2019
|
|
$
|
205,580
|
|
2020
|
|
$
|
209,400
|
|
2021
|
|
$
|
118,850
|
|
15.
|
Comparative
Figures
.
|
Certain
of the comparative figures have been reclassified to conform with the current period’s presentation.
Subsequent
to the quarter ended March 31, 2018, the Company was approved for and received a final insurance payment of $3,132,666CAD ($2,429,695USD).