Item
8.
|
Financial
Statements and Supplementary Data.
|
FLEXIBLE
SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of Flexible Solutions International, Inc.
Opinion
on the Consolidated Financial Statements
We have audited the accompanying
consolidated balance sheets of Flexible Solutions International Inc.(the Company) as of December 31, 2018 and 2017, and the related
consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the years in
the two-year period ended December 31, 2018, and the related notes (collectively referred to as the consolidated financial statements).
In our opinion, the consolidated
financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December
31, 2018 and 2017, and the results of its consolidated operations and its consolidated cash flows for each of the years in the
two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is
not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our
audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Restatement of Previously Issued
Consolidated Financial Statements
As discussed in Note 22 to the
Consolidated Financial Statements, the Company restated its consolidated financial statements for the year ended December 31,
2018.
|
|
Chartered
Professional Accountants
|
|
We
have served as the Company’s auditor since 2009.
|
|
Vancouver,
BC
|
|
May
16, 2019
|
FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.
Consolidated
Balance Sheets
As
at December 31
(U.S.
Dollars)
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
7,857,936
|
|
|
$
|
6,912,138
|
|
Accounts receivable
(see Note 4)
|
|
|
4,422,745
|
|
|
|
2,105,471
|
|
Inventories (see
Note 5)
|
|
|
8,727,709
|
|
|
|
4,686,852
|
|
Prepaid
expenses
|
|
|
200,306
|
|
|
|
255,080
|
|
Total current assets
|
|
|
21,208,696
|
|
|
|
13,959,541
|
|
Property, equipment
and leaseholds, net (see Note 6)
|
|
|
2,563,261
|
|
|
|
1,938,509
|
|
Patents (see Note
7)
|
|
|
63,014
|
|
|
|
79,452
|
|
Intangible
assets
(Note 8)
|
|
|
3,128,000
|
|
|
|
-
|
|
Long
term deposits (see Note 9)
|
|
|
30,777
|
|
|
|
18,531
|
|
Investments
(Note 10)
|
|
|
776,357
|
|
|
|
13,414
|
|
Goodwill
(Note 8)
|
|
|
2,534,275
|
|
|
|
-
|
|
Deferred
tax asset (Note 14)
|
|
|
891,735
|
|
|
|
1,763,923
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
31,196,115
|
|
|
$
|
17,773,370
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
|
$
|
1,050,673
|
|
|
$
|
939,116
|
|
Deferred revenue
|
|
|
127,168
|
|
|
|
208,608
|
|
Income taxes payable
|
|
|
1,357,299
|
|
|
|
1,101,596
|
|
Short
term line of credit (Note 11)
|
|
|
2,798,131
|
|
|
|
250,000
|
|
Current
portion of long term debt (Note 12)
|
|
|
771,359
|
|
|
|
201,193
|
|
Total
current liabilities
|
|
|
6,104,630
|
|
|
|
2,700,513
|
|
Convertible
note payable (Note 13)
|
|
|
1,000,000
|
|
|
|
-
|
|
Deferred
income tax liability (Note 14)
|
|
|
989,569
|
|
|
|
-
|
|
Long
term debt (Note 12)
|
|
|
3,580,384
|
|
|
|
150,896
|
|
Total
liabilities
|
|
|
11,674,583
|
|
|
|
2,851,409
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
Capital
stock (see Note 17)
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
|
|
|
|
|
|
50,000,000
common shares with a par value of $0.001 each
1,000,000
preferred shares with a par value of $0.01 each
|
|
|
|
|
|
|
|
|
Issued and outstanding:
|
|
|
|
|
|
|
|
|
11,699,657
(2017: 11,597,991) common shares
|
|
|
11,700
|
|
|
|
11,598
|
|
Capital in excess of par value
|
|
|
15,328,285
|
|
|
|
15,114,835
|
|
Other comprehensive
loss
|
|
|
(1,222,573
|
)
|
|
|
(656,093
|
)
|
Accumulated earnings
|
|
|
2,941,889
|
|
|
|
451,621
|
|
Total stockholders’ equity
– controlling interest
|
|
|
17,059,301
|
|
|
|
14,921,961
|
|
Non
controlling interests (Note 18)
|
|
|
2,462,231
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
19,521,532
|
|
|
|
14,921,961
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
31,196,115
|
|
|
$
|
17,773,370
|
|
Commitments
and Subsequent events
|
(See
Notes 20 and 21)
|
See
Notes to Consolidated Financial Statements.
FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.
Consolidated
Statements of Income and Comprehensive Income
For
the Years Ended December 31
(U.S.
Dollars)
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
17,829,518
|
|
|
$
|
15,494,325
|
|
Cost of sales
|
|
|
12,192,684
|
|
|
|
9,508,827
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,636,834
|
|
|
|
5,985,498
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Wages
|
|
|
1,729,467
|
|
|
|
1,647,780
|
|
Administrative salaries and benefits
|
|
|
1,082,991
|
|
|
|
1,007,850
|
|
Advertising and promotion
|
|
|
68,492
|
|
|
|
18,257
|
|
Investor relations and transfer agent fee
|
|
|
132,694
|
|
|
|
152,362
|
|
Office and miscellaneous
|
|
|
247,424
|
|
|
|
238,195
|
|
Insurance
|
|
|
312,275
|
|
|
|
285,418
|
|
Interest expense
|
|
|
93,653
|
|
|
|
44,125
|
|
Rent
|
|
|
249,051
|
|
|
|
241,286
|
|
Consulting
|
|
|
186,847
|
|
|
|
133,949
|
|
Professional fees
|
|
|
282,654
|
|
|
|
222,743
|
|
Travel
|
|
|
137,902
|
|
|
|
137,392
|
|
Telecommunications
|
|
|
32,315
|
|
|
|
26,071
|
|
Shipping
|
|
|
19,790
|
|
|
|
19,624
|
|
Research
|
|
|
135,930
|
|
|
|
98,928
|
|
Commissions
|
|
|
46,993
|
|
|
|
112,678
|
|
Bad debt expense
|
|
|
-
|
|
|
|
1,191
|
|
Currency exchange
|
|
|
(445,443
|
)
|
|
|
64,870
|
|
Utilities
|
|
|
16,775
|
|
|
|
21,339
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,329,810
|
|
|
|
4,474,058
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,307,024
|
|
|
|
1,511,440
|
|
Gain on involuntary disposition (net of tax) (Note 6)
|
|
|
1,714,261
|
|
|
|
2,043,614
|
|
Write down of inventory
|
|
|
-
|
|
|
|
(51,346
|
)
|
Loss on investment
|
|
|
(3,281
|
)
|
|
|
(84,066
|
)
|
Interest income
|
|
|
36,843
|
|
|
|
913
|
|
Income before income tax
|
|
|
3,054,847
|
|
|
|
3,420,555
|
|
|
|
|
|
|
|
|
|
|
Income taxes (Note 14)
|
|
|
|
|
|
|
|
|
Deferred income tax expense
|
|
|
(100,000
|
)
|
|
|
(985,495
|
)
|
Income tax expense
|
|
|
(533,130
|
)
|
|
|
(680,319
|
)
|
|
|
|
|
|
|
|
|
|
Net income for the year including non-controlling interests
|
|
|
2,421,717
|
|
|
|
1,754,741
|
|
Less: Net (loss) income attributable to non-controlling interests
|
|
|
(68,551
|
)
|
|
|
-
|
|
Net income attributable to controlling interest
|
|
$
|
2,490,268
|
|
|
$
|
1,754,741
|
|
|
|
|
|
|
|
|
|
|
Income per share (basic and diluted) (Note 15)
|
|
$
|
0.21
|
|
|
$
|
0.15
|
|
Weighted average number of common shares (basic)
|
|
|
11,630,136
|
|
|
|
11,485,580
|
|
Weighted average number of common shares (diluted)
|
|
|
11,816,054
|
|
|
|
11,725,482
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Net income
|
|
|
2,421,717
|
|
|
|
1,754,741
|
|
Unrealized gain (loss) on foreign currency transactions
|
|
|
(566,480
|
)
|
|
|
431,115
|
|
Total comprehensive income
|
|
|
1,855,237
|
|
|
|
2,185,856
|
|
Comprehensive income – non-controlling interest
|
|
|
(68,551
|
)
|
|
|
-
|
|
Comprehensive income attributable to Flexible Solutions
International Inc.
|
|
$
|
1,923,788
|
|
|
$
|
2,185,856
|
|
See
Notes to Consolidated Financial Statements.
FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.
Consolidated
Statements of Cash Flows
For
Years Ended December 31
(U.S.
Dollars)
|
|
2018
(Restated
– See note 22)
|
|
|
2017
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income for the year including non-controlling interests
|
|
$
|
2,421,717
|
|
|
$
|
-
|
|
Net income (loss) attributable to non-controlling interests
|
|
|
(68,551
|
)
|
|
|
-
|
|
Net income attributable to controlling interest
|
|
|
2,490,268
|
|
|
|
1,754,741
|
|
Adjustments to reconcile net income to net cash:
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
111,192
|
|
|
|
116,092
|
|
Depreciation and amortization
|
|
|
342,561
|
|
|
|
286,616
|
|
Loss on investment
|
|
|
3,281
|
|
|
|
84,066
|
|
Decrease in deferred tax asset
|
|
|
100,000
|
|
|
|
985,495
|
|
Write down of inventory
|
|
|
-
|
|
|
|
(51,346
|
)
|
Gain on involuntary disposition
|
|
|
(1,714,261
|
)
|
|
|
(2,043,614
|
)
|
|
|
|
|
|
|
|
|
|
Changes in non-cash working capital items:
|
|
|
|
|
|
|
|
|
(Increase) Decrease in accounts receivable
|
|
|
(1,048,290
|
)
|
|
|
912,056
|
|
(Increase) Decrease in inventories
|
|
|
(2,185,462
|
)
|
|
|
(887,339
|
)
|
(Increase) Decrease in prepaid expenses
|
|
|
53,275
|
|
|
|
(23,758
|
)
|
Increase (Decrease) in accounts payable and accrued liabilities
|
|
|
(351,508
|
)
|
|
|
(407,555
|
)
|
Increase (Decrease) in taxes payable
|
|
|
243,276
|
|
|
|
207,729
|
|
Increase (Decrease) deferred revenue
|
|
|
(205,936
|
)
|
|
|
109,242
|
|
|
|
|
|
|
|
|
|
|
Cash (used in) provided by operating activities
|
|
|
(2,161,604
|
)
|
|
|
1,042,425
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Long term deposits
|
|
|
(1,246
|
)
|
|
|
7,980
|
|
Investment
|
|
|
(700,000
|
)
|
|
|
-
|
|
Proceeds of equity investment distributions
|
|
|
27,813
|
|
|
|
25,000
|
|
Proceed from insurance
|
|
|
2,407,325
|
|
|
|
3,366,889
|
|
Acquisition of EnP Investments LLC
|
|
|
(4,110,560
|
)
|
|
|
-
|
|
Net purchase of property, equipment and leaseholds
|
|
|
(180,830
|
)
|
|
|
(426,480
|
)
|
|
|
|
|
|
|
|
|
|
Cash (used in) provided by investing activities
|
|
|
(2,557,498
|
)
|
|
|
2,973,389
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Draw from short term line of credit
|
|
|
2,462,346
|
|
|
|
-
|
|
Loans
|
|
|
3,792,734
|
|
|
|
(201,193
|
)
|
Partnership distribution
|
|
|
(229,135
|
)
|
|
|
-
|
|
Proceeds of issuance of common stock
|
|
|
102,360
|
|
|
|
156,020
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities
|
|
|
6,128,305
|
|
|
|
(45,173
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(463,405
|
)
|
|
|
471,430
|
|
|
|
|
|
|
|
|
|
|
Inflow (outflow) of cash
|
|
|
945,798
|
|
|
|
4,442,072
|
|
Cash and cash equivalents, beginning
|
|
|
6,912,138
|
|
|
|
2,470,066
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, ending
|
|
$
|
7,857,936
|
|
|
$
|
6,912,138
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
|
288,653
|
|
|
|
833,766
|
|
Interest paid
|
|
|
94,775
|
|
|
|
43,003
|
|
See
Notes to Consolidated Financial Statements.
FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.
Consolidated
Statements of Stockholders’ Equity
For
the Years Ended December 31, 2018 and 2017
(U.S.
Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
in
|
|
|
Accumulated
|
|
|
Other
|
|
|
|
|
|
Non-
|
|
|
Total
|
|
|
|
|
|
|
Par
|
|
|
Excess
of
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
|
|
|
Controlling
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Value
|
|
|
Par
Value
|
|
|
(Deficiency)
|
|
|
Income
(Loss)
|
|
|
Total
|
|
|
Interests
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2016
|
|
|
11,457,991
|
|
|
$
|
11,458
|
|
|
$
|
1
4,842,863
|
|
|
$
|
(1,303,120
|
)
|
|
$
|
(1,087,208
|
)
|
|
$
|
12,463,993
|
|
|
$
|
—
|
|
|
$
|
12,463,993
|
|
Translation
adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
431,115
|
|
|
|
431,115
|
|
|
|
—
|
|
|
|
431,115
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,754,741
|
|
|
|
—
|
|
|
|
1,754,741
|
|
|
|
—
|
|
|
|
1,754,741
|
|
Comprehensive
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,185,856
|
|
|
|
—
|
|
|
|
2,185,856
|
|
Common
stock issued
|
|
|
140,000
|
|
|
|
140
|
|
|
|
155,880
|
|
|
|
—
|
|
|
|
—
|
|
|
|
156,020
|
|
|
|
—
|
|
|
|
156,020
|
|
Stock-based
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
116,092
|
|
|
|
—
|
|
|
|
—
|
|
|
|
116,092
|
|
|
|
—
|
|
|
|
116,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2017
|
|
|
11,597,991
|
|
|
$
|
11,598
|
|
|
$
|
15,114,835
|
|
|
$
|
451,621
|
|
|
$
|
(656,093
|
)
|
|
$
|
14,921,961
|
|
|
|
—
|
|
|
$
|
14,921,961
|
|
Translation
adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(566,480
|
)
|
|
|
(566,480
|
)
|
|
|
—
|
|
|
|
(566,480
|
)
|
Net
income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,490,268
|
|
|
|
—
|
|
|
|
2,490,268
|
|
|
|
(68,551
|
)
|
|
|
2,421,717
|
|
Common
stock issued
|
|
|
101,666
|
|
|
|
102
|
|
|
|
102,258
|
|
|
|
—
|
|
|
|
—
|
|
|
|
102,360
|
|
|
|
—
|
|
|
|
102,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of EnP Investments LLC
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,759,917
|
|
|
|
2,759,917
|
|
Distributions
to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(229,135
|
)
|
|
|
(229,135
|
)
|
Stock-based
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
111,192
|
|
|
|
—
|
|
|
|
—
|
|
|
|
111,192
|
|
|
|
—
|
|
|
|
111,192
|
|
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
|
|
See
Notes to Consolidated Financial Statements.
FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
(U.S.
Dollars)
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. and Natural Chem SEZC Ltd,
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
2018, NanoChem, a wholly-owned subsidiary of the Company, completed the purchase of 65% of the units of ownership interest in
EnP Investments for an aggregate purchase price of $5,110,560. An unrelated party owns the remaining 35% of the units of ownership
interest in EnP Investments, and EnP Investments is consolidated into the financial statements. The outside investor’s units
of ownership interests in EnP Investments were included in noncontrolling interests in these consolidated financial statements
from the acquisition date onward.
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.
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.
(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
|
Trailer
|
|
30%
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 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 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
.
We
follow 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. We have fulfilled our 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.
The
Company recognizes revenue when there are no significant remaining performance obligations.
When significant post-delivery obligations exist, revenue is deferred until such obligations are fulfilled. To date, there have
been no such significant post-delivery obligations.
Since
the Company’s inception, product returns have been insignificant; therefore, no provision has been established for estimated
product returns.
Deferred
revenues consist of products sold to distributors with payment terms greater than the Company’s customary business terms
due to lack of credit history or operating in a new market in which the Company has no prior experience. The Company defers the
recognition of revenue until the criteria for revenue recognition has been met, and payments become due or cash is received from
these distributors.
(h)
Stock Issued in Exchange for Services
.
The
Company’s common stock issued in exchange for services is valued at estimated fair market value based upon trading prices
of the Company’s common stock on the dates of the stock transactions. The corresponding expense of the services rendered
is recognized over the period that the services are performed.
(i)
Stock-based Compensation
.
The
Company recognizes compensation expense for all share-based payments in accordance with FASB Codification Topic
718,
Compensation — Stock Compensation
, (ASC 718). Under the fair value recognition provisions of ASC 718, the Company
recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award.
The
fair value at grant date of stock options is estimated using the Black-Scholes 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.
(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 years ended December 31, 2018 and 2017.
(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, 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.
(o)
Contingencies
Certain
conditions may exist as of the date the financial statements are issued which may result in a loss to the Company but which will
only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess
such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies
related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the
Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived
merits of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates
that a potential material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material,
would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would
be disclosed. Legal fees associated with loss contingencies are expensed as incurred.
(p)
Income Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected
future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance so that the
assets are recognized only to the extent that when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will be realized.
Per
FASB ASC 740 “Income taxes” under the liability method, it is the Company’s policy to provide for uncertain
tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more
likely than not to be sustained upon examination by tax authorities. At December 31, 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.
(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 $1,280,406 (29%) at December 31, 2018 (December 31, 2017 - $1,247,374 or 59%).
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)
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 fourth quarter of each year at the reporting unit
level. The evaluation can begin 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 that it is not more likely
than not that the fair value of a reporting unit is less 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, indu
stry and company-specific factors,
legal and regulatory environments, and historical company performance are evaluated in assessing fair value. If it is determined
that it is more likely than not that the fair value of the reporting unit is less than its carrying value, a quantitative test
is then performed. Otherwise, no further testing is required. When using a quantitative approach, the Company compares the fair
value of the reporting unit to its carrying amount, including goodwill. If the estimated fair value of the reporting unit is less
than the carrying amount of the reporting unit, impairment is indicated, requiring recognition of an impairment charge for the
differential.
Qualitative assessments
of goodwill and indefinite-lived intangible assets were performed in 2018 and 2017. Based on the results of assessment, it was
determined that it is more likely than not the reporting unit, customer lists and trademarks 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 the fiscal period ended December 31, 2018.
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)
Adoption of new accounting principles
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which has been updated through several
revisions and clarifications since its original issuance and supersedes the revenue recognition requirements in Accounting Standards
Codification (ASC) Topic 605, Revenue Recognition. The standard requires 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 was
adopted for the current year and had no material effect on the consolidated financial statements.
On
January 1, 2018, the Company adopted ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10) Recognition
and Measurement of Financial Assets and Financial Liabilities, which changes the income statement impact of equity investments
held by an entity. The amendments require the unrealized gains or unrealized losses of equity instruments measured at fair value
to be recognized in net income. Our adoption of this ASU had no material effect on the consolidated financial statements.
(u)
Accounting Pronouncements Not Yet Adopted
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.
(v)
Restatement
The Company has restated
its previously issued consolidated statement of cash flows for the year ended December 31, 2018. The impact of the restatement
is more specifically described herein under Note 22.
Restatement of Previously Issued Consolidated Financial Statements.
Effective October 1,
2018, the Company, through its NanoChem Solutions Inc. subsidiary, entered into an agreement to purchase 65% of EnP
Investments LLC.
Total
consideration paid of $5,110,560 was paid through a combination of $10,560 cash on hand, $4,100,000 in debt financing provided
by Harris Bank (see Note 12b) and a $1,000,000 convertible note payable. 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.
The
following table summarizes the final purchase price allocation of the consideration paid to the respective fair values of the
assets acquired and liabilities assumed in EnP Investments LLC as of the effective date. The Company finalized its estimates
after it was able to determine that is had obtained all necessary information that existed as of the acquisition date related
to these matters.
|
|
|
|
Cash paid
|
|
$
|
4,110,560
|
|
Convertible note
|
|
|
1,000,000
|
|
Total consideration
|
|
$
|
5,110,560
|
|
|
|
|
|
|
Assets acquired:
|
|
|
|
|
Accounts receivable
|
|
$
|
1,071,078
|
|
Note receivable
|
|
|
60,000
|
|
Prepaid expenses
|
|
|
105,473
|
|
Inventory
|
|
|
1,867,137
|
|
Investments
|
|
|
84,943
|
|
Equipment
|
|
|
740,000
|
|
Intangible assets
|
|
|
3,168,000
|
|
Liabilities assumed:
|
|
|
|
|
Account payable
|
|
|
520,164
|
|
Loans payable
|
|
|
292,706
|
|
Deferred income taxes
|
|
|
989,569
|
|
Total identifiable net assets
|
|
|
5,294,192
|
|
Non-controlling interest
|
|
|
2,759,917
|
|
Goodwill
|
|
$
|
2,534,275
|
|
In
connection with the 65% purchase of EnP Investments LLC, the Company incurred bank appraisal fees of $7,038 which was recorded
as general expenses during the year ended December 31, 2018. Goodwill of $2,534,275 is the excess of total consideration
less identifiable assets at fair value less debt assumed at fair value. Goodwill is attributable to EnP Investments LLC
management, assembled workforce, operating model and completive presence in its respective market.
The
operating results of EnP Investments LLC have been included in the consolidated financial statements beginning October
1, 2018.
Unaudited
pro forma financial information
The
following unaudited pro forma combined financial information presents combined results of the Company and EnP Investments as if
the Business Combination had occurred on January 1, 2017.
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
23,152,539
|
|
|
$
|
23,119,226
|
|
Gross profit
|
|
|
8,428,317
|
|
|
|
12,466,963
|
|
Net income
|
|
$
|
4,470,245
|
|
|
$
|
3,253,679
|
|
The
pro forma financial information is not intended to represent or be indicative of the actual results of operations of the combined
entity that would have been reported had the Business Combination been completed on January 1, 2016, nor is it representative
of future operating results of the Company.
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
4,459,834
|
|
|
$
|
2,145,803
|
|
Allowances for
doubtful accounts
|
|
|
(37,089
|
)
|
|
|
(40,332
|
)
|
|
|
$
|
4,422,745
|
|
|
$
|
2,105,471
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Completed goods
|
|
$
|
3,770,071
|
|
|
$
|
2,530,914
|
|
Work in progress
|
|
|
150,333
|
|
|
|
183,944
|
|
Raw materials
and supplies
|
|
|
4,807,305
|
|
|
|
1,971,994
|
|
|
|
$
|
8,727,709
|
|
|
$
|
4,686,852
|
|
6.
|
Property,
Equipment and Leaseholds
|
|
|
2018
|
|
|
Accumulated
|
|
|
2018
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Buildings and improvements
|
|
$
|
3,516,710
|
|
|
$
|
2,523,148
|
|
|
$
|
993,562
|
|
Automobiles
|
|
|
193,397
|
|
|
|
74,753
|
|
|
|
118,644
|
|
Computer hardware
|
|
|
43,414
|
|
|
|
40,226
|
|
|
|
3,188
|
|
Furniture and fixtures
|
|
|
105,494
|
|
|
|
93,087
|
|
|
|
12,407
|
|
Office equipment
|
|
|
1,740
|
|
|
|
438
|
|
|
|
1,302
|
|
Manufacturing equipment
|
|
|
3,859,653
|
|
|
|
2,838,344
|
|
|
|
1,021,309
|
|
Trailer
|
|
|
8,793
|
|
|
|
3,561
|
|
|
|
5,232
|
|
Boat
|
|
|
34,400
|
|
|
|
18,548
|
|
|
|
15,852
|
|
Leasehold improvements
|
|
|
88,872
|
|
|
|
49,937
|
|
|
|
38,935
|
|
Technology
|
|
|
100,136
|
|
|
|
100,136
|
|
|
|
—
|
|
Land
|
|
|
352,830
|
|
|
|
—
|
|
|
|
352,830
|
|
|
|
$
|
8,305,439
|
|
|
$
|
5,742,178
|
|
|
$
|
2,563,261
|
|
|
|
2017
|
|
|
Accumulated
|
|
|
2017
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Buildings and improvements
|
|
$
|
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 2018: $326,123 (2017: $270,178) and is included in cost of sales in the consolidated statements
of income and comprehensive income.
In February of 2017,
the Company lost a net carrying value total of $2,196,722CAD ($1,659,404 USD) in building and manufacturing equipment in a fire
at the Taber, AB location. Insurance was in place. During the year ended December 31, 2018 the Company received the final insurance
proceeds of $3,132,666 CAD ($2,349,498 USD). During the year ended 2017, the Company received interim insurance proceeds of $5,570,000
CAD ($4,207,578 USD).
7.
Patents
|
|
2018
Cost
|
|
|
Accumulated
Amortization
|
|
|
2018
Net
|
|
Patents
|
|
$
|
194,320
|
|
|
$
|
131,306
|
|
|
$
|
63,014
|
|
|
|
2017
Cost
|
|
|
Accumulated
Amortization
|
|
|
2017
Net
|
|
Patents
|
|
$
|
212,426
|
|
|
$
|
132,974
|
|
|
$
|
79,452
|
|
Decrease
in 2018 cost was due to currency conversion. 2018 cost in Canadian dollars - $265,102 (2017 - $265,102 in Canadian dollars).
Amount
of amortization for 2018: $16,438 (2017: $16,438) and is included in cost of sales in the consolidated statements of income and
comprehensive income.
Estimated
amortization expense over the next four years is as follows:
2019
|
|
$
|
16,438
|
|
2020
|
|
|
16,438
|
|
2021
|
|
|
16,438
|
|
2022
|
|
|
13,700
|
|
8.
|
Goodwill
and Indefinite Lived Intangible Assets
|
Goodwill
|
|
|
|
Balance as of December 31, 2017
|
|
|
-
|
|
Additions
|
|
|
2,534,275
|
|
Impairment
|
|
|
-
|
|
Balance as of December 31, 2018
|
|
|
2,534,275
|
|
Indefinite Lived Intangible Assets
|
|
|
|
Balance as of December 31, 2017
|
|
|
-
|
|
Additions
|
|
|
770,000
|
|
Impairment
|
|
|
-
|
|
Balance as of December 31, 2018
|
|
|
770,000
|
|
Indefinite
lived intangible assets consist of trade secrets and trademarks related to the acquisition of EnP Investments LLC (note 3).
Definite Life Intangible Assets
|
|
|
|
Balance as of December 31, 2017
|
|
|
-
|
|
Additions
|
|
|
2,398,000
|
|
Amortization
|
|
|
(40,000
|
)
|
Balance as of December 31, 2018
|
|
|
2,358,000
|
|
Definite
life intangible assets consists of customer relationships related to the acquisition of EnP Investments LLC (note 3). Customer
relationships are amortized over their estimated useful life of 15 years.
Estimated
amortization expense over the next five years is as follows:
2019
|
|
$
|
160,000
|
|
2020
|
|
|
160,000
|
|
2021
|
|
|
160,000
|
|
2022
|
|
|
160,000
|
|
2023
|
|
|
160,000
|
|
The
Company has security deposits that are long term in nature which consist of damage deposits held by landlords and security deposits
held by various vendors.
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Long term deposits
|
|
$
|
30,777
|
|
|
$
|
18,531
|
|
(
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. A summary of the Company’s
investment 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
|
|
Acquisition of additional units
|
|
|
25,000
|
|
Loss
in equity method investment
|
|
|
(26,306
|
)
|
Balance, December 31, 2018
|
|
$
|
12,108
|
|
(
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, January 1, 2018
|
|
$
|
-
|
|
Acquisition
|
|
|
56,590
|
|
Gain in equity method investment
|
|
|
7,659
|
|
Balance, December 31, 2018
|
|
$
|
64,249
|
|
(
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.
(
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 accounts
for this investment at cost less impairment. A summary of the Company’s investment follows:
Balance, January 1, 2018
|
|
$
|
-
|
|
Acquisition
|
|
|
500,000
|
|
Impairment
|
|
|
-
|
|
Balance, December 31, 2018
|
|
$
|
500,000
|
|
11
.
|
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 5.75%.
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 December 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 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 December 31, 2018 were $1,700,000 (December 31, 2017 - $250,000).
(b)
In February, 2018, EnP Investments, LLC signed a new agreement with Midland States Bank (“Midland”) to renew the
expiring credit line. The revolving line of credit is for an aggregate amount of up to $2,500,000. 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 4.060 percentage points over the Index. Under no circumstances will the interest rate of this loan be less than 4.000%
per annum or more than the maximum rate allowed by applicable law. The interest rate at December 31, 2018 is 6.5296% (December
31, 2017 – 5.5550%).
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. Advanced Turf Solutions, Inc., a 35% owner of
EnP Investments, LLC, is a Guarantor of said loan. As of December 31, 2018, 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 December 31, 2018 were $1,098,131 (December 31, 2017 – 1,246,647).
(
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% (December 31, 2018 – 5.75%; 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 December 31, 2018 was $150,895 (December 31, 2017 - $352,089).
Interest expense for the year ended December 31, 2018 was $13,123 (December 31, 2017 - $44,125). The final payment will
be made in September 2019.
The
Company has committed to the following repayments:
(
b
)
In October 2018, NanoChem Solutions
Inc. signed a $4,100,000 term loan with Harris Bank with a rate of prime (December 31, 2018 – 5.5%; December 31, 2017 -
nil) 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. The balance owing at December 31, 2018 was $4,002,381.
The
Company has committed to the following repayments:
2019
|
|
$
|
585,714
|
|
2020
|
|
$
|
585,714
|
|
2021
|
|
$
|
585,714
|
|
2022
|
|
$
|
585,714
|
|
2023
|
|
$
|
585,714
|
|
(
c
)
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 year ended December
31, 2018 was $2,415 (December 31, 2017 - $nil). The principal balance owing at December 31, 2018 is $177,794.
The
Company has committed to the following repayments:
2019
|
|
$
|
25,562
|
|
2020
|
|
$
|
25,562
|
|
2021
|
|
$
|
25,562
|
|
2022
|
|
$
|
25,562
|
|
2023
|
|
$
|
25,562
|
|
(
d
)
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. The balance owing at December 31, 2018 is $20,673 (December 31, 2017 - $29,861).
The
Company has committed to the following repayments:
2019
|
|
$
|
9,188
|
|
2020
|
|
$
|
9,188
|
|
2021
|
|
$
|
2,297
|
|
As
of December 31, 2018, Company was in compliance with all loan covenants.
Continuity
|
|
2018
|
|
|
2017
|
|
Balance, January 1
|
|
$
|
352,089
|
|
|
|
553,282
|
|
Plus: Proceeds from loans
|
|
|
4,100,000
|
|
|
|
-
|
|
Plus: Acquisition of ENP (see Note 3)
|
|
|
206,921
|
|
|
|
|
|
Less: Payments
on loan
|
|
|
(307,267
|
)
|
|
|
(201,193
|
)
|
Balance, December 31
|
|
$
|
4,351,743
|
|
|
$
|
352,089
|
|
Outstanding
balance at December 31,
|
|
2018
|
|
|
2017
|
|
a) Long term debt –
Harris Bank
|
|
$
|
150,895
|
|
|
$
|
352,089
|
|
b) Long term debt – Harris Bank
|
|
|
4,002,381
|
|
|
|
-
|
|
c) Long term debt – Midland States
Bank
|
|
|
177,794
|
|
|
|
-
|
|
d) Long term
debt – Ford Credit
|
|
|
20,673
|
|
|
|
-
|
|
Long-term Debt
|
|
$
|
4,351,743
|
|
|
$
|
352,089
|
|
Less: current
portion
|
|
|
(771,359
|
)
|
|
|
(201,194
|
)
|
|
|
$
|
3,580,384
|
|
|
$
|
150,895
|
|
1
3.
Convertible Note Payable
In
October 2018, the Company issued a convertible note payable in the amount of $1,000,000 to EnP Investments LLC in connection with
the acquisition of EnP Investments LLC (note 3).
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 in Flexible Solutions International Inc. The Company has the option to extend the note to no later
than September 30, 2028.
|
|
|
|
Carrying amount of equity component
|
|
$
|
277,600
|
|
Principal amount of liability component
|
|
|
722,400
|
|
Balance, December 31, 2018
|
|
$
|
1,000,000
|
|
14
.
Income Tax
The provision for income tax expense (benefit)
is comprised of the following:
|
|
2018
|
|
|
2017
|
|
Current tax, federal
|
|
$
|
221,758
|
|
|
$
|
547,486
|
|
Current tax, state
|
|
|
82,806
|
|
|
|
132,833
|
|
Current tax, foreign
|
|
|
112,449
|
|
|
|
-
|
|
Current tax, total
|
|
|
417,013
|
|
|
|
680,319
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax, federal
|
|
|
-
|
|
|
|
(11,069
|
)
|
Deferred income tax, state
|
|
|
-
|
|
|
|
(2,686
|
)
|
Deferred income tax, foreign
|
|
|
759,493
|
|
|
|
385,639
|
|
Deferred income tax, total
|
|
|
759,493
|
|
|
|
371,884
|
|
Total
|
|
$
|
1,176,506
|
|
|
$
|
1,052,203
|
|
The following table
reconciles the income tax benefit at the U.S. Federal statutory rate to income tax benefit at the Company’s effective tax rates.
|
|
2018
|
|
|
2017
|
|
Income (loss) before tax, net of tax from gain on involuntary disposition
|
|
|
3,054,847
|
|
|
|
3,420,556
|
|
Tax from gain on involuntary disposition
|
|
|
693,063
|
|
|
|
(613,611
|
)
|
Income (loss) before taxes
|
|
|
3,747,910
|
|
|
|
2,806,945
|
|
US statutory tax rates
|
|
|
28.51
|
%
|
|
|
39.69
|
%
|
Expected income tax (recovery)
|
|
|
1,068,342
|
|
|
|
1,114,147
|
|
Non-deductible items
|
|
|
354,548
|
|
|
|
520,665
|
|
Change in estimates
|
|
|
61,361
|
|
|
|
(91,632
|
)
|
Change in enacted tax rate
|
|
|
|
|
|
|
189,626
|
|
Option expired during the year
|
|
|
5,191
|
|
|
|
21,640
|
|
Functional currency adjustments
|
|
|
116,996
|
|
|
|
-
|
|
Foreign tax rate difference
|
|
|
(393,794
|
)
|
|
|
(662,381
|
)
|
Change in valuation allowance
|
|
|
(36,119
|
)
|
|
|
(39,863
|
)
|
Total income taxes (recovery)
|
|
|
1,176,506
|
|
|
|
1,052,203
|
|
|
|
|
|
|
|
|
|
|
Current income tax expenses (recovery)
|
|
|
417,013
|
|
|
|
680,318
|
|
Deferred tax expenses (recovery)
|
|
|
759,493
|
|
|
|
371,884
|
|
Total income taxes (recovery)
|
|
|
1,176,506
|
|
|
|
1,052,203
|
|
Deferred taxes reflect
the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes.
Deferred tax assets (liabilities) at December 31, 2018 and 2017 are comprised of the following:
|
|
2018
|
|
|
2017
|
|
Canada
|
|
|
|
|
|
|
|
|
Non capital loss
carryforwards
|
|
|
556,462
|
|
|
|
1,378,242
|
|
Patents
|
|
|
63,998
|
|
|
|
69,597
|
|
Fixed assets
|
|
|
(350
|
)
|
|
|
-
|
|
Financial
instruments
|
|
|
-
|
|
|
|
-
|
|
|
|
|
620,110
|
|
|
|
1,447,839
|
|
Valuation Allowance
|
|
|
-
|
|
|
|
-
|
|
Net Deferred
tax asset (liability)
|
|
|
620,110
|
|
|
|
1,447,839
|
|
|
|
|
2018
|
|
|
|
2017
|
|
USA
|
|
|
|
|
|
|
|
|
Fixed Assets
|
|
|
247,665
|
|
|
|
351,746
|
|
Intangible assets
|
|
|
(989,569
|
)
|
|
|
-
|
|
Stock-Based
Compensation
|
|
|
173,739
|
|
|
|
154,023
|
|
|
|
|
(568,165
|
)
|
|
|
505,768
|
|
Deferred
tax asset not recognized
|
|
|
153,565
|
|
|
|
189,684
|
|
Net Deferred
tax asset
|
|
|
(414,600
|
)
|
|
|
316,084
|
|
The Company has non-operating
loss carryforwards of approximately $2,060,971 (2017 - $5,097,682) which may be carried forward to apply against future year income
tax for Canadian income tax purposes, subject to the final determination by taxation authorities, expiring in the following years:
Expiry
|
|
Loss
|
|
2032
|
|
|
401,480
|
|
2037
|
|
|
1,659,491
|
|
Total
|
|
|
2,060,971
|
|
As at December 31,
2018, the Company has no net operating losses carryforward available for US tax purposes.
Accounting for Uncertainty for Income
Tax
Effective January 1,
2009, the Company adopted the interpretation for accounting for uncertainty in income taxes which was an interpretation of the
accounting standard accounting for income taxes. This interpretation created a single model to address accounting for uncertainty
in tax positions. This interpretation clarifies the accounting for income taxes, by prescribing a minimum recognition threshold
a tax position is required to meet before being recognized in the financial statements.
As at December 31,
2018 and 2017, the Company’s consolidated balance sheets did not reflect a liability for uncertain tax positions, nor any
accrued penalties or interest associated with income tax uncertainties. The Company has no income tax examinations in progress.
We
present both basic and diluted income per share on the face of our consolidated statements of operations. Basic and diluted income
per share are calculated as follows:
|
|
2018
|
|
|
2017
|
|
Net income (loss)
|
|
$
|
2,490,268
|
|
|
$
|
1,754,741
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,630,136
|
|
|
|
11,485,580
|
|
Diluted
|
|
|
11,816,054
|
|
|
|
11,725,482
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
0.21
|
|
|
$
|
0.15
|
|
Certain
stock options whose terms and conditions are described in Note 16, “Stock Options” could potentially dilute
basic EPS in the future, but were not included in the computation of diluted EPS because to do so would have been anti-dilutive.
Those anti-dilutive options are as follows.
|
|
2018
|
|
|
2017
|
|
Anti-dilutive
options
|
|
|
261,000
|
|
|
|
nil
|
|
There
were no preferred shares issued and outstanding during the years ended December 31, 2018 or 2017.
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 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.
The
Company may issue stock options and stock bonuses for shares of its common stock to provide incentives to directors, key employees
and other persons who contribute to the success of the Company. The exercise price of all incentive options are issued for not
less than fair market value at the date of grant.
The
following table summarizes the Company’s stock option activity for the years ended December 31, 2018 and 2017:
|
|
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
|
|
Granted
|
|
|
110,000
|
|
|
$
|
1.48
– 1.75
|
|
|
$
|
1.74
|
|
Cancelled or expired
|
|
|
(61,334
|
)
|
|
$
|
1.00
– 1.70
|
|
|
$
|
1.09
|
|
Exercised
|
|
|
(101,666
|
)
|
|
$
|
0.75
– 1.42
|
|
|
$
|
1.01
|
|
Balance, December 31, 2018
|
|
|
660,000
|
|
|
$
|
0.75
– 1.75
|
|
|
$
|
1.35
|
|
Exercisable, December 31, 2018
|
|
|
555,000
|
|
|
$
|
0.75
– 1.70
|
|
|
$
|
1.27
|
|
The
weighted-average remaining contractual life of outstanding options is 3.04 years.
The
fair value of each option grant is calculated using the following weighted average assumptions:
|
|
2018
|
|
|
2017
|
|
Expected life – years
|
|
|
3.0
|
|
|
|
3.0
|
|
Interest rate
|
|
|
2.8
– 2.96
|
%
|
|
|
2.23
|
%
|
Volatility
|
|
|
47.77
– 51.85
|
%
|
|
|
73.09
|
%
|
Dividend yield
|
|
|
—
|
%
|
|
|
—
|
%
|
Weighted average fair value of options
granted
|
|
$
|
0.4759
– 0.6313
|
|
|
$
|
0.8344
|
|
During
the year ended December 31, 2018, the Company granted 100,000 (2017 – 40,000) stock options to consultants and has applied
ASC 718 using the Black-Scholes option-pricing model, which resulted in additional expenses of $5,747 (2017 - $6,675). Options
granted in other years resulted in additional expenses of $26,701 (2017 – $22,634). During the year ended December 31, 2018,
employees were granted 10,000 (2017 – 114,000) stock options, which resulted in additional expenses of $5,150 (2017
– $19,024). Options granted in other years resulted in additional expenses in the amount of $73,594 for employees during
the year ended December 31, 2018 (2017 - $67,759). There were 60,000 employee and 41,666 consultant stock options exercised during
the year ended December 31, 2018 (2017 – 110,000 employee; 30,000 consultant).
As
of December 31, 2018, there was approximately $57,383 of compensation expense related to non-vested awards. This expense is expected
to be recognized over a weighted average period of 4.75 years.
The
aggregate intrinsic value of vested options outstanding at December 31, 2018 is $43,190 (2017 – $413,410).
During
the year ended December 31, 2018, the Company issued 60,000 shares upon the exercise of employee stock options and 41,666 shares
upon the exercise of consultant stock options.
During
the year ended December 31, 2017, the Company issued 110,000 shares upon the exercise of employee stock options and 30,000 shares
upon the exercise of consultant stock options.
18.
|
Non-Controlling
Interests
|
EnP
Investments is a limited liability corporation (LLC) that
manufactures and distributes golf,
turf and ornamental agriculture products in Mendota, IL.
The Company owns 65% of the units of ownership interest EnP Investments
through its wholly-owned subsidiary NanoChem. An unrelated party owns the remaining 35% of the units of ownership interest in
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 units of ownership interest in the LLC are recorded in noncontrolling
interests in these consolidated financial statements. The noncontrolling interest represents the noncontrolling unitholder’s
interest in the earnings and equity of EnP Investments. Effective October 1, 2018, the Company paid $4,110,560 in cash and issued
a $1,000,000 convertible note (see Note 3) to acquire EnP Investments.
EnP Investments is allocated to the BCPA segment.
EnP
Investments makes cash distributions to the unitholders based on formulas defined within its Ownership Interest Purchase Agreement
dated October 1, 2018. Distributions are defined in the Ownership Interest Purchase Agreement as 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 $229,135.
Balance, January 1, 2018
|
|
$
|
-
|
|
Acquisition
|
|
|
2,759,917
|
|
Distribution
|
|
|
(229,135
|
)
|
Noncontrolling interest share of loss
|
|
|
(68,551
|
)
|
Balance, December 31, 2018
|
|
$
|
2,462,231
|
|
19
.
|
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 (“BCPA’s”), also known as TPA’s, used by the petroleum, chemical, utility and mining
industries to prevent corrosion and scaling in water piping. This product can also be used in detergents to increase biodegradability
and in agriculture to increase crop yields by enhancing fertilizer uptake.
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.
Year
ended December 31, 2018:
|
|
EWCP
|
|
|
BCPA
|
|
|
Consolidated
|
|
Sales
|
|
$
|
314,544
|
|
|
$
|
17,514,974
|
|
|
$
|
17,829,518
|
|
Interest expense
|
|
|
-
|
|
|
|
93,653
|
|
|
|
93,653
|
|
Depreciation
|
|
|
50,920
|
|
|
|
251,641
|
|
|
|
302,561
|
|
Income tax expense
|
|
|
-
|
|
|
|
533,130
|
|
|
|
533
,130
|
|
Segment profit
|
|
|
1,579,464
|
|
|
|
9
10,804
|
|
|
|
2,490,268
|
|
Segment assets
|
|
|
505,124
|
|
|
|
7,783,426
|
|
|
|
8,288,550
|
|
Expenditures
for segment assets
|
|
|
15,032
|
|
|
|
165,798
|
|
|
|
180,830
|
|
Year
ended December 31, 2017:
|
|
EWCP
|
|
|
BCPA
|
|
|
Consolidated
|
|
Sales
|
|
$
|
641,675
|
|
|
$
|
14,852,650
|
|
|
$
|
15,494,325
|
|
Interest expense
|
|
|
54
|
|
|
|
44,071
|
|
|
|
44,125
|
|
Depreciation
|
|
|
62,376
|
|
|
|
224,240
|
|
|
|
286,616
|
|
Income tax expense
|
|
|
-
|
|
|
|
680,319
|
|
|
|
680,319
|
|
Segment profit
|
|
|
2,021,289
|
|
|
|
(266,548
|
)
|
|
|
1,754,741
|
|
Segment assets
|
|
|
580,304
|
|
|
|
1,437,657
|
|
|
|
2,017,961
|
|
Expenditures
for
segment assets
|
|
|
287,853
|
|
|
|
138,628
|
|
|
|
426,480
|
|
Sales
by territory are shown below:
|
|
2018
|
|
|
2017
|
|
Canada
|
|
$
|
364,847
|
|
|
$
|
362,362
|
|
United States
and abroad
|
|
|
17,464,671
|
|
|
|
15,131,963
|
|
Total
|
|
$
|
17,829,518
|
|
|
$
|
15,494,325
|
|
The
Company’s long-lived assets (property, equipment, leaseholds and patents) are located in Canada and the United States as
follows:
|
|
2018
|
|
|
2017
|
|
Canada
|
|
$
|
505,124
|
|
|
$
|
580,304
|
|
United States
|
|
|
7,783,426
|
|
|
|
1,437,657
|
|
Total
|
|
$
|
8,288,550
|
|
|
$
|
2,017,961
|
|
Three
customers accounted for $6,880,598 (39%) of sales made in 2018 (2017 - $9,157,538 or 59%).
The
Company is committed to minimum rental payments for property and premises aggregating approximately $1,121,595 over the term of
five leases, the last expiring on September 30, 2023.
Commitments
for rent in the next five years are as follows:
2019
|
|
$
|
425,995
|
|
2020
|
|
$
|
399,900
|
|
2021
|
|
$
|
276,980
|
|
2022
|
|
$
|
10,620
|
|
2023
|
|
$
|
8,100
|
|
In
January 2019, the Company issued 5,000 shares on the exercise of employee stock options. In February 2019, the Company issued
5,000 shares on the exercise of consultant stock options.
In
January 2019, the Company
purchased membership in a profitable limited liability company
engaged in international sales of fertilizer additives. This purchase will be accounted for as an investment. The price paid was
an initial US$ 1 million with two further payments of US$1 million and US$ 1.5 million contingent on the investment reaching
EBITDA hurdles in 2019 and 2020 respectively. The purchase was made using cash.
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 five cents per share.
22.
|
RESTATEMENT
OF PREVIOUSLY FILED STATEMENTS
.
|
The Company identified errors within the financial statements filed on Edgar for the year ended December 31,
2018. The identified errors in the cash flow statement and in Notes 2, 3, 13, 14 and 19 were the result of incomplete information
provided to the edgarizer. In addition, the financial statements were inadvertently released prematurely, prior to the Company’s
auditors full review and approval.
The impact of the restatement
on the Company’s consolidated statements of cash flows for the year ended December 31, 2018 is presented below. The restatement
did not have any impact on the Company’s consolidated balance sheets or consolidated statements of income and comprehensive
income for the year ended December 31, 2018.
|
|
For the Year Ended December 31, 2018
|
|
|
|
As Previously Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,490,268
|
|
|
$
|
68,551
|
|
|
$
|
2,421,717
|
|
Net income (loss) attributable to non-controlling interests
|
|
|
-
|
|
|
|
(68,551
|
)
|
|
|
(68,551
|
)
|
Partnership distribution
|
|
|
(299,135
|
)
|
|
|
70,000
|
|
|
|
(229,135
|
)
|
In addition to the
above, Notes 2, 3, 13, and 19 were revised for wording and Note 14 was updated for final results.