NOTES
TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020
(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., Natural Chem SEZC Ltd.,
and InnFlexHoldings Inc. and its 65% interest in EnP Investments, LLC (“ENP Investments”). All inter-company balances
and transactions have been eliminated. The Company was incorporated May 12, 1998 in the State of Nevada and had no operations
until June 30, 1998. In 2019, the Company redomiciled into Alberta, Canada.
In
2018, NanoChem, a wholly-owned subsidiary of the Company, completed the purchase of 65% interest in EnP Investments for an aggregate
purchase price of $5,110,560. An unrelated party owns the remaining 35% interest in EnP Investments, and EnP Investments is consolidated
into the financial statements. The outside investor’s ownership interest in EnP Investments is included in noncontrolling
interests in these consolidated financial statements from the acquisition date onward.
The
Company and its subsidiaries develop, manufacture and market specialty chemicals which slow the evaporation of water. One product,
HEATSAVR®, is marketed for use in swimming pools and spas where its use, by slowing the evaporation of water, allows the water
to retain a higher temperature for a longer period of time and thereby reduces the energy required to maintain the desired temperature
of the water in the pool. Another product, WATERSAVR®, is marketed for water conservation in irrigation canals, aquaculture,
and reservoirs where its use slows water loss due to evaporation. In addition to the water conservation products, the Company
also manufactures and markets water-soluble chemicals utilizing thermal polyaspartate biopolymers (hereinafter referred to as
“TPAs”), which are beta-proteins manufactured from the common biological amino acid, L-aspartic. TPAs can be formulated
to prevent corrosion and scaling in water piping within the petroleum, chemical, utility and mining industries. TPAs are also
used as proteins to enhance fertilizers in improving crop yields and can be used as additives for household laundry detergents,
consumer care products and pesticides. The TPA division also manufactures two nitrogen conservation products for agriculture that
slows nitrogen loss from fields.
These
unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial statements. These unaudited interim financial statements
are condensed and do not include all disclosures required for annual financial statements. The organization and business of the
Company, accounting policies followed by the Company and other information are contained in the notes to the Company’s audited
consolidated financial statements filed as part of the Company’s December 31, 2019 Annual Report on Form 10-K. This quarterly
report should be read in conjunction with such annual report.
In
the opinion of the Company’s management, these unaudited interim condensed consolidated financial statements reflect all
adjustments, all of which are of normal recurring nature, necessary to present fairly the Company’s consolidated financial
position at March 31, 2020, the consolidated results of operations for the three months ended March 31, 2020 and 2019, and the
consolidated statements of cash flows for the three months ended March 31, 2020 and 2019. The results of operations for the three
months ended March 31, 2020 are not necessarily indicative of the results to be expected for the entire fiscal year.
2.
Significant Accounting Policies.
These
consolidated financial statements have been prepared on a historical cost basis, except where otherwise noted, in accordance with
accounting principles generally accepted in the United States applicable to a going concern and reflect the policies outlined
below.
(a)
Cash and Cash Equivalents.
The
Company considers all highly liquid investments purchased with an original or remaining maturity of less than three months at
the date of purchase to be cash equivalents. Cash and cash equivalents are maintained with several financial institutions.
(b)
Inventories and Cost of Sales
The
Company has three major classes of inventory: completed goods, work in progress and raw materials and supplies. In all classes,
inventories are stated at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis. Cost
of sales includes all expenditures incurred in bringing the goods to the point of sale. Inventory costs and costs of sales include
direct costs of the raw material, inbound freight charges, warehousing costs, handling costs (receiving and purchasing) and utilities
and overhead expenses related to the Company’s manufacturing and processing facilities. Shipping and handling charges billed
to customers are included in revenue (2020 - $162,905; 2019 – $165,592). Shipping and handling costs incurred are included
in cost of goods sold (2020 - $290,748; 2019 – $347,960).
(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
|
Automobile
|
|
Straight-line
over 5 years
|
Patents
|
|
Straight-line
over 17 years
|
Technology
|
|
Straight-line
over 10 years
|
Right
of Use Asset
|
|
Straight-line
over lease term
|
Leasehold
improvements
|
|
Straight-line
over lease term
|
Property
and equipment are written down to net realizable value when management determines there has been a change in circumstances which
indicates their carrying amounts may not be recoverable. No write-downs have been necessary to date.
(e)
Impairment of Long-Lived Assets.
In
accordance with FASB Codification Topic 360, “Property, Plant and Equipment (ASC 360), the Company reviews long-lived assets,
including, but not limited to, property, equipment and leaseholds, patents and other assets, for impairment annually or whenever
events or changes in circumstances indicate the carrying amounts of assets may not be recoverable. The carrying value of long-lived
assets is assessed for impairment by evaluating operating performance and future undiscounted cash flows of the underlying assets.
If the expected future cash flows of an asset is less than its carrying value, an impairment measurement is indicated. Impairment
charges are recorded to the extent that an asset’s carrying value exceeds its fair value. Accordingly, actual results could
vary significantly from such estimates. There were no impairment charges during the periods presented.
(f)
Foreign Currency.
The
functional currency of the Company is the U.S. dollar. The functional currency of three of the Company’s subsidiaries is
the Canadian Dollar. The translation of the Canadian Dollar to the reporting currency of the Company, the U.S. Dollar, is performed
for assets and liabilities using exchange rates in effect at the balance sheet date. Revenue and expense transactions are translated
using average exchange rates prevailing during the year. Translation adjustments arising on conversion of the Company’s
financial statements from the subsidiary’s functional currency, Canadian Dollars, into the reporting currency, U.S. Dollars,
are excluded from the determination of income (loss) and are disclosed as other comprehensive income in the consolidated statements
of 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)
Other Comprehensive Income.
Other
comprehensive income refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included
in comprehensive income, but are excluded from net income as these amounts are recorded directly as an adjustment to stockholders’
equity. The Company’s other comprehensive income is comprised only of unrealized foreign exchange gains and losses.
(k)
Income Per Share.
Basic
earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares
outstanding in the period. Diluted earnings per share are calculated giving effect to the potential dilution of the exercise of
options and warrants. Common equivalent shares, composed of incremental common shares issuable upon the exercise of stock options
and warrants are included in diluted net income per share to the extent that these shares are dilutive. Common equivalent shares
that have an anti-dilutive effect on net income per share have been excluded from the calculation of diluted weighted average
shares outstanding for the three months ended March 31, 2020 and 2019.
(l)
Use of Estimates.
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates and would impact the results of operations and cash flows.
Estimates
and underlying assumptions are reviewed at each period end. Revisions to accounting estimates are recognized in the period in
which the estimates are revised and in any future periods affected.
Significant
areas requiring the use of management estimates include assumptions and estimates relating to the valuation of goodwill and intangible
assets, asset impairment analysis, share-based payments and warrants, valuation allowances for deferred income tax assets, determination
of useful lives of property, equipment and leaseholds and intangible assets, and the valuation of inventory.
(m)
Financial Instruments.
The
fair market value of the Company’s financial instruments comprising cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities, and short term line of credit were estimated to approximate their carrying values due to immediate
or short-term maturity of these financial instruments.
(n)
Fair Value of Financial Instruments
Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on
the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize
the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs described below,
of which the first two are considered observable and the last unobservable, that may be used to measure fair value.
|
●
|
Level
1 – Quoted prices in active markets for identical assets or liabilities
|
|
|
|
|
●
|
Level
2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
|
|
|
|
|
●
|
Level
3 — Unobservable inputs that are supported by little or no market activity which is significant to the fair value of
the assets or liabilities.
|
The
fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and the short term line
of credit for all periods presented approximate their respective carrying amounts due to the short term nature of these financial
instruments.
(o)
Contingencies
Certain
conditions may exist as of the date the financial statements are issued which may result in a loss to the Company but which will
only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess
such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies
related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the
Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived
merits of the amount of relief sought or expected to be sought 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 $3,650,830 (48%) at March 31, 2020 (December 31, 2019 - $2,707,825 or 61%).
The
credit risk on cash and cash equivalents is limited because the Company limits its exposure to credit loss by placing its cash
and cash equivalents with major financial institutions. The Company maintains cash balances at financial institutions which at
times exceed federally insured amounts. The Company has not experienced any material losses in such accounts.
The
Company is exposed to foreign exchange and interest rate risk to the extent that market value rate fluctuations materially differ
from financial assets and liabilities, subject to fixed long-term rates.
In
order to manage its exposure to foreign exchange risks, the Company is closely monitoring the fluctuations in the foreign currency
exchange rates and the impact on the value of cash and cash equivalents, accounts receivable, and accounts payable and accrued
liabilities. The Company has not hedged its exposure to currency fluctuations.
(r)
Equity Method Investment
The
Company accounts for investments using the equity method of accounting if the investment provides the Company the ability to exercise
significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company’s
ownership interest in the voting stock of the investee ranges between 20% and 50%, although other factors, such as representation
on the investee’s board of directors, are considered in determining whether the equity method of accounting is appropriate.
Under the equity method of accounting, the investment is 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 begins with a qualitative assessment of the factors that could impact the significant inputs used to estimate fair
value. If after performing the qualitative assessment, it is determined likely that the fair value of a reporting unit is more
than its carrying amount, including goodwill, then no further analysis is necessary. However, if the results of the qualitative
test are unclear, the Company performs a quantitative test, which involves comparing the fair value of a reporting unit with its
carrying amount, including goodwill. The Company uses an income-based valuation method, determining the present value of future
cash flows, to estimate the fair value of a reporting unit. If the fair value of a reporting unit exceeds its positive carrying
amount, goodwill of the reporting unit is considered not impaired, and no further analysis is necessary. If the fair value of
the reporting unit is less than its carrying amount, goodwill impairment would be recognized equal to the amount of the carrying
value in excess of the reporting unit’s fair value, limited to the total amount of goodwill allocated to the reporting unit.
Intangible
assets primarily include trademarks and trade secrets with indefinite lives and customer-relationships with finite lives. Intangible
assets with indefinite lives are not amortized but are tested for impairment on an annual basis, or more frequently if indicators
of impairment are present. Indefinite lived intangible assets are assessed using either a qualitative or a quantitative approach.
The qualitative assessment evaluates factors including macro-economic conditions, industry and company-specific factors, legal
and regulatory environments, and historical company performance in assessing fair value. If it is determined the fair value of
the reporting unit is less than its carrying value, a quantitative test is then performed. When using a quantitative approach,
the Company compares the fair value of the 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 2019 and 2018. 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 three months ended March 31, 2020.
Finite-lived
intangible assets are amortized on a straight-line basis over their estimated useful lives. The Company reviews for impairment
indicators of finite-lived intangibles and other long-lived assets as described in the “Property and Equipment” significant
accounting policy.
(t)
Adoption of new accounting principles
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued ASC 842 which requires lessees to recognize
a right-of-use (“ROU”) asset and lease liability on the balance sheet for virtually all leases. From a lessee perspective,
ASC 842 retains a dual model requiring leases to be classified as either operating or finance leases for the income statement.
Operating leases will result in straight-line expense, and financing leases will have a front-loaded expense pattern with an interest
expense component. On January 1, 2019, the Company adopted ASC 842 and all related amendments using the prospective transition
approach. The comparative information has not been restated and continues to be reported under the accounting standards in effect
for those periods. Adoption of the new standard resulted in the recording of lease ROU assets and lease liabilities of approximately
$819,079 as of January 1, 2019. In accordance with ASC 842, the Company determines if an arrangement is a lease at inception based
on whether there is an identified asset, whether the Company has the right to obtain substantially all of the economic benefits
from the use of the asset and whether the Company has the right to direct the use of the asset. Currently, the Company only has
operating leases and does not have any financing leases. Operating lease ROU assets and operating lease liabilities are recognized
based on the present value of the future minimum lease payments over the lease term. Lease expense for minimum lease payments
is recognized on a straight-line basis over the lease term. See note 3, Leases, for further disclosures and detail regarding our
operating leases.
In
November 2016, the FASB issued ASU2016-18 “Statement of Cash Flows” (Topic230); Restricted Cash (ASU2016-18), which
defines new requirements for the presentation of restricted cash and restricted cash equivalents in the statement of cash flows.
The amendments in this ASU require retrospective application to each period presented. The Company adopted this guidance effective
January 1, 2018 retrospectively. This ASU requires entities to present the statement of cash flows in a manner such that it reconciles
beginning and ending totals of cash, cash equivalents, restricted cash or restricted cash equivalents. Also, when cash, cash equivalents,
restricted cash or restricted cash equivalents are presented in more than one line item within the statement of financial position,
an entity should, for each period that a statement of financial position is presented, present on the face of the statement of
cash flows or disclose in the notes to the financial statements, the line items and amounts of cash, cash equivalents, and restricted
cash or restricted cash equivalents reported within the statement of financial position. The amounts, disaggregated by the line
item in which they appear within the statement of financial position, shall sum to the total amount of cash, cash equivalents,
and restricted cash or restricted cash equivalents at the end of the corresponding period shown in the statement of cash flows.
(u)
Recent Accounting Pronouncements
The
Company has implemented all applicable new accounting pronouncements that are in effect. Those pronouncements did not have any
material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other
new accounting pronouncements that have been issued that might have a material impact on its financial position or results of
operations.
3.
Adoption of ASC 942, Leases
On
January 1, 2019, the Company adopted ASC 842 using the prospective transition approach, which applies the provisions of the new
guidance at the effective date without adjusting the comparative periods presented. The adoption of the lease standard did not
result in a cumulative-effect adjustment to opening equity. Results for reporting periods beginning after January 1, 2019 are
presented under ASC 842 while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s
historic accounting under ASC 840, “Leases,” (“ASC 840”).
The
Company leases office space. For leases with terms greater than 12 months, the Company records the related ROU asset and lease
obligation at the present value of lease payments over the term. Leases may include fixed rental escalation clauses, renewal options
and / or termination options that are factored into the determination of lease payments when appropriate. The Company’s
leases do not usually provide a readily determinable implicit rate; therefore, an estimate of the Company’s incremental
borrowing rate is used to discount the lease payments based on information available at the lease commencement date. The discount
rate used was 5.5%.
Operating
lease costs during the three months ended March 31, 2020 were $101,079 (2019 - $99,908).
The
adoption of ASC 842 resulted in the recognition of right-of-use (“ROU”) assets and lease liabilities of approximately
$819,079 as of January 1, 2019. The standard did not materially impact the Company’s consolidated statement of operations
or its consolidated statement of cash flows for the three months ended March 31, 2020. See below for the Company’s updated
lease policy and the required disclosures under ASC 842.
The
Company is a lessee in five different leases that have various expiry dates within the next 5 years.
The
table below summarizes the remaining expected lease payments under our operating leases as of March 31, 2020.
Future Lease Payments
|
|
March 31, 2020
|
|
2020
|
|
$
|
304,591
|
|
2021
|
|
|
313,496
|
|
2022
|
|
|
93,155
|
|
2023
|
|
|
70,925
|
|
Thereafter
|
|
|
-
|
|
Less: imputed interest
|
|
|
(76,509
|
)
|
|
|
|
|
|
Present value of operating lease liabilities
|
|
$
|
705,658
|
|
Update
to Lease Policy
Accounting
and reporting guidance for leases requires that leases be evaluated and classified as either operating or finance leases by the
lessee and as either operating, sales-type or direct financing leases by the lessor. The Company’s operating leases are
included in ROU assets, lease liabilities-current portion and lease liability-less current portion in the accompanying consolidated
balance sheets. ROU assets (which in plain English means “leases”) represent the Company’s right to use an underlying
asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease.
4.
Accounts Receivable
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Accounts receivable
|
|
$
|
7,939,833
|
|
|
$
|
4,740,867
|
|
Allowances for doubtful accounts
|
|
|
(267,362
|
)
|
|
|
(270,652
|
)
|
|
|
$
|
7,672,471
|
|
|
$
|
4,470,215
|
|
5.
Inventories
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Completed goods
|
|
$
|
4,660,303
|
|
|
$
|
3,818,876
|
|
Work in progress
|
|
|
297,824
|
|
|
|
416,950
|
|
Raw materials and supplies
|
|
|
3,944,746
|
|
|
|
4,946,960
|
|
|
|
$
|
8,902,873
|
|
|
$
|
9,182,786
|
|
6.
Property, Plant & equipment
|
|
March
31, 2020
|
|
|
Accumulated
|
|
|
March
31, 2020
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Buildings
|
|
$
|
3,624,527
|
|
|
$
|
2,636,575
|
|
|
$
|
987,952
|
|
Automobiles
|
|
|
163,397
|
|
|
|
102,095
|
|
|
|
61,302
|
|
Computer
hardware
|
|
|
43,318
|
|
|
|
41,306
|
|
|
|
2,012
|
|
Furniture
and fixtures
|
|
|
108,590
|
|
|
|
97,859
|
|
|
|
10,731
|
|
Manufacturing
equipment
|
|
|
5,649,910
|
|
|
|
3,102,395
|
|
|
|
2,547,515
|
|
Boat
|
|
|
34,400
|
|
|
|
22,353
|
|
|
|
12,047
|
|
Office
equipment
|
|
|
1,673
|
|
|
|
721
|
|
|
|
952
|
|
Trailer
|
|
|
8,456
|
|
|
|
5,198
|
|
|
|
3,258
|
|
Leasehold
Improvements
|
|
|
88,872
|
|
|
|
73,230
|
|
|
|
15,642
|
|
Land
|
|
|
345,017
|
|
|
|
-
|
|
|
|
345,017
|
|
Technology
|
|
|
96,297
|
|
|
|
96,297
|
|
|
|
-
|
|
|
|
$
|
10,164,457
|
|
|
$
|
6,178,029
|
|
|
$
|
3,986,428
|
|
|
|
December 31, 2019
|
|
|
Accumulated
|
|
|
December 31, 2019
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Buildings
|
|
$
|
3,614,057
|
|
|
$
|
2,619,914
|
|
|
$
|
994,143
|
|
Automobiles
|
|
|
163,397
|
|
|
|
94,789
|
|
|
|
68,608
|
|
Computer hardware
|
|
|
43,540
|
|
|
|
41,233
|
|
|
|
2,307
|
|
Furniture and fixtures
|
|
|
108,906
|
|
|
|
97,030
|
|
|
|
11,876
|
|
Office equipment
|
|
|
1,827
|
|
|
|
733
|
|
|
|
1,094
|
|
Manufacturing equipment
|
|
|
5,634,255
|
|
|
|
3,106,526
|
|
|
|
2,527,729
|
|
Trailer
|
|
|
9,236
|
|
|
|
5,389
|
|
|
|
3,847
|
|
Boat
|
|
|
34,400
|
|
|
|
21,719
|
|
|
|
12,681
|
|
Leasehold improvements
|
|
|
88,872
|
|
|
|
68,571
|
|
|
|
20,301
|
|
Technology
|
|
|
105,177
|
|
|
|
105,177
|
|
|
|
—
|
|
Land
|
|
|
363,090
|
|
|
|
—
|
|
|
|
363,090
|
|
|
|
$
|
10,166,757
|
|
|
$
|
6,161,081
|
|
|
$
|
4,005,676
|
|
Amount
of depreciation expense for the three months ended March 31, 2020: $99,948 (2019: $100,169) and is included in cost of sales in
the unaudited interim condensed consolidated statements of income and comprehensive income.
7.
Patents
In
fiscal 2005, the Company started the patent process for additional WATER$AVR® products. Patents associated with these costs
were granted in 2006 and they have been amortized over their legal life of 17 years.
|
|
March
31, 2020
Cost
|
|
|
Accumulated
Amortization
|
|
|
March
31, 2020
Net
|
|
Patents
|
|
$
|
186,870
|
|
|
$
|
144,404
|
|
|
$
|
42,466
|
|
|
|
December 31, 2019
Cost
|
|
|
Accumulated
Amortization
|
|
|
December 31, 2019
Net
|
|
Patents
|
|
$
|
204,102
|
|
|
$
|
157,526
|
|
|
$
|
46,576
|
|
The
decrease in the carrying amount of patents is primarily due to foreign currency translation effects. The 2020 cost in Canadian
dollars - $265,102 (2019 - $265,102 in Canadian dollars).
Amount
of amortization for 2020 - $4,110 (2019 - $4,110) and is included in cost of sales in the consolidated statements of income and
comprehensive income.
Estimated
amortization expense over the next three years is as follows:
2020
|
|
$
|
16,438
|
|
2021
|
|
|
16,438
|
|
2022
|
|
|
13,700
|
|
8.
Goodwill and Indefinite Lived Intangible Assets
Goodwill
|
|
|
|
|
Balance as of December 31, 2018
|
|
$
|
2,534,275
|
|
Additions
|
|
|
-
|
|
Impairment
|
|
|
-
|
|
Balance as of December 31, 2019 and March 31, 2020
|
|
$
|
2,534,275
|
|
Indefinite Lived Intangible Assets
|
|
|
|
|
Balance as of December 31, 2018
|
|
$
|
770,000
|
|
Additions
|
|
|
-
|
|
Impairment
|
|
|
-
|
|
Balance as of December 31, 2019 and March 31, 2020
|
|
$
|
770,000
|
|
Indefinite
lived intangible assets consist of trade secrets and trademarks related to the acquisition of EnP Investments LLC.
Definite Life Intangible Assets
|
|
|
|
|
Balance as of December 31, 2018
|
|
$
|
2,358,000
|
|
Amortization
|
|
|
(176,000
|
)
|
Balance as of December 31, 2019
|
|
|
2,182,000
|
|
Amortization
|
|
|
(44,000
|
)
|
Balance as of March 31, 2020
|
|
$
|
2,138,000
|
|
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:
2020
|
|
$
|
176,000
|
|
2021
|
|
|
176,000
|
|
2022
|
|
|
160,000
|
|
2023
|
|
|
160,000
|
|
2024
|
|
|
160,000
|
|
9.
Long Term Deposits
The
Company has reclassified certain security deposits to better reflect their long term nature. Long term deposits consist of damage
deposits held by landlords and security deposits held by various vendors.
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
|
|
|
|
|
|
|
Long
term deposits
|
|
$
|
8,540
|
|
|
$
|
30,630
|
|
10.
Investments
(a)
The Company has a 50% ownership interest
in ENP Peru Investments LLC (“ENP Peru”), which was acquired in fiscal 2016. ENP Peru is located in Illinois and leases
warehouse space. The Company accounts for this investment using the equity method of accounting. A summary of the Company’s
investment follows:
Balance, December 31, 2018
|
|
$
|
12,108
|
|
Return of equity
|
|
|
(6,250
|
)
|
Loss in equity method investment
|
|
|
5,529
|
|
Balance, December 31, 2019
|
|
|
11,387
|
|
Return of equity
|
|
|
(6,563
|
)
|
Balance, March 31, 2020
|
|
$
|
4,824
|
|
Summarized
profit and loss information related to the equity accounted investment is as follows:
|
|
2019
|
|
|
|
|
|
Net sales
|
|
$
|
285,635
|
|
Net income
|
|
$
|
11,058
|
|
(b)
The Company has a 24% ownership interest
in ENP Realty LLC (“ENP Realty”), which was acquired in fiscal 2018. ENP Realty is located in Illinois and leases
warehouse space. The Company accounts for this investment using the equity method of accounting. A summary of the Company’s
investment follows:
Balance,
December 31, 2018
|
|
$
|
64,249
|
|
Return
of equity
|
|
|
(9,292)
|
|
Gain
in equity method investment
|
|
|
8,208
|
|
Balance,
December 31, 2019 and March 31, 2020
|
|
$
|
63,165
|
|
Summarized
profit and loss information related to the equity accounted investment is as follows:
|
|
2019
|
|
|
|
|
|
Net
sales
|
|
$
|
75,870
|
|
Net
income
|
|
$
|
34,200
|
|
(c)
In December 2018 the Company invested $200,000 in Applied Holding Corp. (“Applied”). Applied is a captive
insurance company and the Company received a promissory note for its investment which becomes due in 2021 but may be extended
with notice for a maximum of two years.
(d)
In December 2018 the Company invested
$500,000 in Trio Opportunity Corp. (“Trio”), a privately held entity. Trio is a real estate investment vehicle and
the Company received 50,000 non-voting Class B shares at $10.00/share. In accordance with ASC 321-10-35, the Company has elected
to account for this investment at cost less impairment. A summary of the Company’s investment follows:
Balance, December 31, 2018
|
|
$
|
500,000
|
|
Impairment
|
|
|
-
|
|
Balance, December 31, 2019 and March 31, 2020
|
|
$
|
500,000
|
|
(e)
In January 2019, the Company invested
$1,001,000 in a Florida based LLC that is engaged in international sales of fertilizer additives. The Company accounts for this
investment using the equity method of accounting. According to the operating agreement, the Company has a 50% interest in the
profit and loss of the LLC but does not have control. A summary of the Company’s investment
follows:
Balance, December 31, 2018
|
|
$
|
-
|
|
Acquisition
|
|
|
1,001,000
|
|
Gain in equity method investment
|
|
|
290,033
|
|
Return on investment
|
|
|
(150,000
|
)
|
Balance, December 31, 2019
|
|
|
1,141,033
|
|
Additional payment
|
|
|
1,000,000
|
|
Return on investment
|
|
|
(250,000
|
)
|
Gain on equity method investment
|
|
|
140,182
|
|
Balance, March 31, 2020
|
|
$
|
2,031,215
|
|
Further
to the original investment amount, the Company has placed $1,000,000 in trust, to be released upon the LLC reaching a milestone
related to earnings before interest, taxes and depreciation (“EBITDA”) targets. This amount was accounted for as restricted
cash on the balance sheet and was released in January 2020. Further payments of $1,000,000 and $500,000 may become due should
other subsequent milestones be reached. Summarized profit and loss information related to the equity accounted investment is as
follows:
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
Net
sales
|
$
|
2,791,754
|
|
$
|
3,257,350
|
|
Gross
profit
|
|
945,395
|
|
|
1,010,781
|
|
Net
income
|
$
|
280,364
|
|
$
|
448,804
|
|
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 50% of inventory. The loan has an annual interest rate of 3.25% at March 31, 2020 (December 31, 2019
– 4.75%).
The
revolving line of credit contains customary affirmative and negative covenants, including the following: compliance with laws,
provision of financial statements and periodic reports, payment of taxes, maintenance of inventory and insurance, maintenance
of operating accounts at Harris, Harris’ access to collateral, formation or acquisition of subsidiaries, incurrence of indebtedness,
dispositions of assets, granting liens, changes in business, ownership or business locations, engaging in mergers and acquisitions,
making investments or distributions and affiliate transactions. The covenants also require that the Company maintain a minimum
ratio of qualifying financial assets to the sum of qualifying financial obligations. As of March 31, 2020, Company was in compliance
with all loan covenants.
To
secure the repayment of any amounts borrowed under the revolving line of credit, the Company granted Harris a security interest
in substantially all of the assets of NanoChem Solutions Inc., exclusive of intellectual property assets.
Short-term
borrowings outstanding under the revolving line as of March 31, 2020 were $1,641,085 (December 31, 2019 - $1,641,085).
(b)
In June 2019, 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 4.750% per annum or
more than the maximum rate allowed by applicable law. The interest rate at March 31, 2020 is 5.0445% (December 31, 2019 –
6.075%).
The
revolving line of credit contains customary affirmative and negative covenants, including the following: compliance with laws,
provisions of financial statements and periodic reports, payment of taxes, maintenance of inventory and insurance, maintenance
of operating accounts at Midland, Midland’s access to collateral, formation of acquisition of subsidiaries, incurrence of
indebtedness, dispositions of assets, granting liens, changes in business, ownership or business locations, engaging in mergers
and acquisitions, making investments or distributions and affiliate transactions. NanoChem Solutions Inc. is a guarantor of 65%
of all the principal and other loan costs not to exceed $1,625,000. As of March 31, 2020, EnP Investments , LLC was in compliance
with all loan covenants.
To
secure the repayment of any amounts borrowed under the revolving line of Credit, EnP Investments, LLC granted Midland a security
interest in all inventory, equipment and fixtures and acknowledges a separate commercial security agreement from guarantor to
Midland dated February 15, 2011.
Short-term
borrowings outstanding under the revolving line as of March 31, 2020 were $1,914,747 (December 31, 2019 – $748,897).
12.
Long Term Debt
(a)
In September 2014, NanoChem Solutions
Inc. signed a $1,005,967 promissory note with Harris Bank with a rate of prime plus 0.5% (March 31, 2019 – 6.0%) to be repaid
over 5 years with equal monthly installments plus interest. This money was used to retire the previously issued and outstanding
debt obligations. The final payment was made in September 2019. Interest expense for the three months ended March 31, 2019 was
$2,009.
(b)
In October 2018, NanoChem Solutions
Inc. signed a $4,100,000 term loan with Harris Bank with a rate of prime (March 31, 2020 – 3.25%; December 31, 2019 –
4.75%) to be repaid over 7 years with equal monthly installments plus interest along two payments consisting of 25% prior year
cash flow recapture, capped at $300,000, due May 31, 2019 and 2020. The money was used to purchase a 65% interest in EnP Investments
LLC. Interest expense for the three months ended March 31, 2020 was $34,458 (2019 - $54,958). The balance owing at March 31, 2020
was $2,970,238 (December 31, 2019 - $3,116,667).
The
Company has committed to the following repayments:
2020
|
|
$
|
739,285
|
|
2021
|
|
$
|
585,714
|
|
2022
|
|
$
|
585,714
|
|
2023
|
|
$
|
585,714
|
|
2024
|
|
$
|
473,811
|
|
(c)
In April 2019, NanoChem Solutions
Inc. signed a loan for $1,100,000 with Harris Bank with a rate of prime plus 0.5% (March 31, 2020 – 3.75%; December 31,
2019 – 5.25%) for the purchase of new manufacturing equipment. The Company paid interest only payments until February 2020,
when equally monthly installments of the principal and interest are due until January 2024. Interest expense for the three months
ended March 31, 2020 was $14,232 (2019 – $nil). The balance owing at March 31, 2020 was $1,054,166 (December 31,
2019 - $1,100,000)
The
Company has committed to the following repayments:
2020
|
|
$
|
206,249
|
|
2021
|
|
$
|
275,000
|
|
2022
|
|
$
|
275,000
|
|
2023
|
|
$
|
275,000
|
|
2024
|
|
$
|
22,917
|
|
(d)
In January, 2018, EnP Investments,
LLC signed a $200,000 promissory note with Midland States Bank with a rate of 5.250% to be repaid over 7 years with equal monthly
installments plus interest. This money was used to purchase production equipment. Interest expense for the three months ended
March 31, 2020 was $2,104 (2019 - $2,333). The principal balance owing at March 31, 2020 is $145,774 (December 31, 2019 - $152,241).
The
Company has committed to the following repayments:
2020
|
|
$
|
19,171
|
|
2021
|
|
$
|
25,562
|
|
2022
|
|
$
|
25,562
|
|
2023
|
|
$
|
25,562
|
|
2024
|
|
$
|
25,562
|
|
(e)
In March, 2016, EnP Investments, LLC
signed a $45,941 promissory note with Ford Motor Credit Company with a rate of 0.00% interest to be repaid over 5 years with equal
monthly installments. The balance owing at March 31, 2020 is $9,188 (December 31, 2019 - $11,485).
The
Company has committed to the following repayments:
2020
|
|
$
|
6,891
|
|
2021
|
|
$
|
2,297
|
|
As
of March 31, 2020, Company was in compliance with all loan covenants.
Continuity
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
Balance,
January 1
|
|
$
|
4,380,393
|
|
|
|
4,351,743
|
|
Plus:
Proceeds from loans
|
|
|
-
|
|
|
|
1,100,000
|
|
Less:
Payments on loan
|
|
|
(201,027
|
)
|
|
|
(1,071,350
|
)
|
Balance,
end of period
|
|
$
|
4,179,366
|
|
|
$
|
4,380,393
|
|
Outstanding
balance
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
a)
Long term debt – Harris Bank
|
|
$
|
-
|
|
|
$
|
-
|
|
b)
Long term debt – Harris Bank
|
|
|
2,970,238
|
|
|
|
3,116,667
|
|
b)
Long term debt – Harris Bank
|
|
|
1,054,166
|
|
|
|
1,100,000
|
|
c)
Long term debt – Midland States Bank
|
|
|
145,774
|
|
|
|
152,241
|
|
d)
Long term debt – Ford Credit
|
|
|
9,188
|
|
|
|
11,485
|
|
Long-term
Debt
|
|
$
|
4,179,366
|
|
|
$
|
4,380,393
|
|
Less:
current portion
|
|
|
(1,197,186
|
)
|
|
|
(1,196,722
|
)
|
|
|
$
|
2,982,180
|
|
|
$
|
3,183,671
|
|
13.
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. 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.
In
June 2019, the holder opted to convert $500,000 of the convertible note into 200,000 shares of the Company’s common stock.
14.
Stock Options
The
Company has a stock option plan (“Plan”). The purpose of this Plan is to provide additional incentives to key employees,
officers, directors and consultants of the Company and its subsidiaries in order to help attract and retain the best available
personnel for positions of responsibility and otherwise promote the success of the Company’s business. It is intended that
options issued under this Plan constitute non-qualified stock options. The general terms of awards under the option plan are that
100% of the options granted will vest the year following the grant. The maximum term of options granted is 5 years and the exercise
price for all options are issued for not less than fair market value at the date of the grant.
The
following table summarizes the Company’s stock option activities for the year ended December 31, 2019 and the three-month
period ended March 31, 2020:
|
|
Number
of shares
|
|
|
Exercise
price
per share
|
|
|
Weighted
average
exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2018
|
|
|
660,000
|
|
|
$
|
0.75
– 1.75
|
|
|
$
|
1.35
|
|
Granted
|
|
|
347,000
|
|
|
$
|
2.44
– 4.13
|
|
|
$
|
2.99
|
|
Cancelled
or expired
|
|
|
(56,112
|
)
|
|
$
|
0.75
– 3.46
|
|
|
$
|
1.41
|
|
Exercised
|
|
|
(315,888
|
)
|
|
$
|
0.75
– 1.70
|
|
|
$
|
1.15
|
|
Balance,
December 31, 2019
|
|
|
635,000
|
|
|
$
|
0.75
– 4.13
|
|
|
$
|
2.31
|
|
Cancelled
or expired
|
|
|
(10,000
|
)
|
|
$
|
2.44
– 3.46
|
|
|
$
|
2.85
|
|
Exercised
|
|
|
(25,000
|
)
|
|
$
|
0.75
– 1.05
|
|
|
$
|
0.99
|
|
Balance,
March 31, 2020
|
|
|
600,000
|
|
|
$
|
0.75
– 4.13
|
|
|
$
|
2.36
|
|
Exercisable,
March 31, 2020
|
|
|
337,000
|
|
|
$
|
0.75
– 4.13
|
|
|
$
|
2.52
|
|
The
weighted average remaining contractual life of options outstanding is 3.8 years.
The
fair value of each option grant is calculated using the following weighted average assumptions:
|
|
2019
|
|
|
|
|
|
Expected
life – years
|
|
|
3.0
|
|
Interest
rate
|
|
|
1.69
– 1.93
|
%
|
Volatility
|
|
|
43.89
– 57.24
|
%
|
Weighted
average fair value of options granted
|
|
$
|
0.7892
– 1.6399
|
|
The
Company did not grant any options during the three months ended March 31, 2020 or 2019. Options granted in previous quarters resulted
in expenses in the amount of $11,272 for consultants (2019 - $5,747) and $18,310 for employees (2019 - $nil) during the quarter
ended March 31, 2020. There were 15,000 employee and 10,000 consultant stock options exercised during the three months ended March
31, 2020 (2019 – 12,000 employee and nil consultant stock options).
As
of March 31, 2020, there was approximately $113,721 of compensation expense related to non-vested awards. This expense is expected
to be recognized over a weighted average period of 1.3 years.
15.
Capital Stock.
During
the three months ended March 31, 2020, 15,000 shares were issued upon the exercise of employee stock options (2019 – 12,000)
and 10,000 shares were issued upon the exercise of consultant stock options (2019 – nil).
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.
In
March 2019, the Company announced the payment of annual dividends of $0.15 per share, to be paid in two tranches. Shareholders
of record on March 31, 2019 received $0.075 per share on April 15, 2019 and shareholders of record on September 30, 2019 received
$0.075 per share on October 15, 2019. On March 19, 2020, the Company suspended the annual dividend until further notice due to
the uncertainty surrounding the COVID-19 virus.
In
June 2019, the holder of the Company’s convertible note opted to convert $500,000 of the convertible note into 200,000 shares
of the Company’s common stock.
16.
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 EnP Investments through its wholly-owned
subsidiary NanoChem. An unrelated party owns the remaining 35% EnP Investments. For financial reporting purposes, the assets,
liabilities and earnings of the LLC are consolidated into these financial statements. The unrelated third party’s ownership
interest in the LLC are recorded as 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 to acquire EnP Investments. EnP Investments
is allocated to the TPA 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 $669,111.
Balance, December 31, 2018
|
|
$
|
2,462,231
|
|
Distribution
|
|
|
(296,875
|
)
|
Noncontrolling interest share of profits
|
|
|
384,793
|
|
Balance, December 31, 2019
|
|
|
2,550,149
|
|
Distribution
|
|
|
(143,002
|
)
|
Noncontrolling interest share of profits
|
|
|
67,015
|
|
Balance, March 31, 2020
|
|
$
|
2,474,162
|
|
17.
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, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EWCP
|
|
|
TPA
|
|
|
Total
|
|
Revenue
|
|
$
|
89,928
|
|
|
$
|
8,339,558
|
|
|
$
|
8,429,486
|
|
Interest expense
|
|
|
-
|
|
|
|
101,425
|
|
|
|
101,425
|
|
Depreciation and amortization
|
|
|
10,476
|
|
|
|
137,582
|
|
|
|
148,058
|
|
Segment profit (loss)
|
|
|
(60,255
|
)
|
|
|
1,324,930
|
|
|
|
1,264,675
|
|
Segment assets
|
|
|
545,187
|
|
|
|
9,722,640
|
|
|
|
10,176,827
|
|
Expenditures for segment assets
|
|
|
-
|
|
|
|
(96,280
|
)
|
|
|
(96,280
|
)
|
Three months ended March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EWCP
|
|
|
TPA
|
|
|
Total
|
|
Revenue
|
|
$
|
123,139
|
|
|
$
|
8,348,337
|
|
|
$
|
8,471,476
|
|
Interest expense
|
|
|
-
|
|
|
|
129,007
|
|
|
|
129,007
|
|
Depreciation and amortization
|
|
|
11,608
|
|
|
|
136,671
|
|
|
|
148,279
|
|
Segment profit (loss)
|
|
|
(143,808
|
)
|
|
|
1,154,958
|
|
|
|
1,011,150
|
|
Segment assets
|
|
|
502,783
|
|
|
|
9,658,406
|
|
|
|
10,161,189
|
|
Expenditures for segment assets
|
|
|
-
|
|
|
|
(1,275,835
|
)
|
|
|
(1,275,835
|
)
|
The
sales generated in the United States and Canada are as follows:
|
|
Three
months ended
March
31, 2020
|
|
|
Three
months ended
March
31, 2019
|
|
Canada
|
|
$
|
146,000
|
|
|
$
|
75,952
|
|
United
States and abroad
|
|
|
8,283,486
|
|
|
|
8,395,524
|
|
Total
|
|
$
|
8,429,486
|
|
|
$
|
8,471,476
|
|
The
Company’s long-lived assets (property, equipment, intangibles, goodwill, leaseholds, patents and right of use assets) are
located in Canada and the United States as follows:
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
Canada
|
|
$
|
454,187
|
|
|
$
|
480,243
|
|
United
States
|
|
|
9,722,640
|
|
|
|
9,847,489
|
|
Total
|
|
$
|
10,176,827
|
|
|
$
|
10,327,732
|
|
Three
customers accounted for $3,650,830 (48%) of sales during the three-month period ended March 31, 2020 (2019 - $3,790,213 or 45%).
18.
Comparative Figures.
Certain
of the comparative figures have been reclassified to conform with the current period’s presentation.
19.
Subsequent Events
In
April 2020, the holder of our convertible note opted to cash it in for $500,000.
The
outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in a widespread health
crisis that has affected economies and financial markets around the world resulting in an economic downturn. This outbreak may
also cause staff shortages, reduced customer demand, increased government regulations or interventions, all of which may negatively
impact the business, financial condition or results of options of the Company. The duration and impact of the COVID-19 outbreak
is unknown at this time and it is not possible to reliably estimate the length and severity of these developments.