NOTES
TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Period Ended September 30, 2021
(U.S.
Dollars — Unaudited)
1. Basis
of Presentation.. BASIS OF PRESENTATION
These
consolidated financial statements include the accounts of Flexible Solutions International, Inc. (the “Company”), its wholly-owned
subsidiaries Flexible Fermentation Ltd. , NanoChem Solutions Inc. (“NanoChem”), Flexible Solutions Ltd., Flexible Biomass
LP, FS Biomass Inc., NCS Deferred Corp., Natural Chem SEZC Ltd., and InnFlex Holdings Inc. and its 65% interest in ENP Investments, LLC
(“ENP Investments”) and ENP Realty, LLC (“ENP Realty”). All inter-company balances and transactions have been
eliminated upon consolidation. The Company was incorporated on May 12, 1998 in the State of Nevada and had no operations until June 30,
1998. In 2019, the Company redomiciled into Alberta, Canada.
In
2018, NanoChem, a wholly-owned subsidiary of the Company, completed the purchase of a 65% interest in ENP Investments for an aggregate
purchase price of $5,110,560. An unrelated party owns the remaining 35% interest in ENP Investments, and ENP Investments is consolidated
into the financial statements. The outside investor’s ownership interest in ENP Investments is included in noncontrolling interests
in these consolidated financial statements from the acquisition date onward. In 2020, ENP Investments increased its investment in ENP
Realty from 24% to 100%, making ENP Realty a wholly-owned subsidiary of ENP Investments. ENP Realty was renamed ENP Mendota and is consolidated
into the financial statements.
The
Company and its subsidiaries develop, manufacture and market specialty chemicals which slow the evaporation of water. One product, HEATSAVR®,
is marketed for use in swimming pools and spas where its use, by slowing the evaporation of water, allows the water to retain a higher
temperature for a longer period of time and thereby reduces the energy required to maintain the desired temperature of the water in the
pool. Another product, WATERSAVR®, is marketed for water conservation in irrigation canals, aquaculture, and reservoirs where its
use slows water loss due to evaporation. In addition to the water conservation products, the Company also manufactures and markets water-soluble
chemicals utilizing thermal polyaspartate biopolymers (hereinafter referred to as “TPAs”), which are beta-proteins manufactured
from the common biological amino acid, L-aspartic. TPAs can be formulated to prevent corrosion and scaling in water piping within the
petroleum, chemical, utility and mining industries. TPAs are also used as proteins to enhance fertilizers in improving crop yields and
can be used as additives for household laundry detergents, consumer care products and pesticides. The TPA division also manufactures
two nitrogen conservation products for agriculture that slows nitrogen loss from fields.
The
outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in a widespread health crisis
that has affected economies and financial markets around the world resulting in an economic downturn. This outbreak may also cause staff
shortages, reduced customer demand, increased government regulations or interventions, all of which may negatively impact the business,
financial condition or results of operations of the Company. The duration and impact of the COVID-19 outbreak is unknown at this
time and it is not possible to reliably estimate the length and severity of these developments.
These
unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States of America 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, 2020 Annual Report on Form 10-K. This quarterly report should
be read in conjunction with such annual report.
In
the opinion of the Company’s management, these unaudited interim condensed consolidated financial statements reflect all adjustments,
all of which are of normal recurring nature, necessary to present fairly the Company’s consolidated financial position at September
30, 2021, the consolidated results of operations for the three and nine months ended September 30, 2021 and 2020, the consolidated statements
of cash flows for the nine months ended September 30, 2021 and 2020 and the consolidated statements of stockholders’ equity for
the nine months ended September 30, 2021 and 2020. The results of operations for the three and nine months ended September 30, 2021 are
not necessarily indicative of the results to be expected for the entire fiscal year.
2.
Significant Accounting Policies. 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 of America 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 or weighted average cost
formula to inventories in different subsidiaries. Cost of sales includes all expenditures incurred in bringing the goods to the point
of sale. Inventory costs and costs of sales include direct costs of the raw material, inbound freight charges, warehousing costs, handling
costs (receiving and purchasing) and utilities and overhead expenses related to the Company’s manufacturing and processing facilities.
Shipping and handling charges billed to customers are included in revenue for the three and nine months ended September 30th
(Nine months ended 2021 - $362,035;
2020 - $339,560;).
Shipping and handling costs incurred are included in cost of sales for the three and nine months ended September 30th
(Nine months ended 2021 - $855,717;
2020 - $837,825).
(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:
SCHEDULE OF METHOD OF DEPRECIATION
|
Computer
hardware
|
|
30%
Declining balance
|
|
Furniture
and fixtures
|
|
20%
Declining balance
|
|
Manufacturing
equipment
|
|
20%
Declining balance
|
|
Office
equipment
|
|
20%
Declining balance
|
|
Boat
|
|
20%
Declining balance
|
|
Building
and improvements
|
|
10%
Declining balance
|
|
Trailer
|
|
30%
Declining balance
|
|
Automobiles
|
|
Straight-line
over 5 years
|
|
Patents
|
|
Straight-line
over 17 years
|
|
Technology
|
|
Straight-line
over 10 years
|
|
Right
of Use Assets
|
|
Straight-line
over lease term
|
|
Leasehold
improvements
|
|
Straight-line
over lease term
|
|
Customer
Relationships – ENP Investments
|
|
Straight-line
over 15 years
|
|
Software
– ENP Investments
|
|
Straight-line
over 3 years
|
(e)
Impairment of Long-Lived Assets.
In
accordance with FASB Codification Topic 360, “Property, Plant and Equipment (ASC 360), the Company reviews long-lived assets, including,
but not limited to, property, equipment and leaseholds, patents and other assets, for impairment annually or whenever events or changes
in circumstances indicate the carrying amounts of assets may not be recoverable. The carrying value of long-lived assets is assessed
for impairment by evaluating operating performance and future undiscounted cash flows of the underlying assets. If the expected future
cash flows of an asset is less than its carrying value, an impairment measurement is indicated. Impairment charges are recorded to the
extent that an asset’s carrying value exceeds its fair value. Accordingly, actual results could vary significantly from such estimates.
There were no impairment charges during the periods presented.
(f)
Foreign Currency.
The
functional currency of the Company is the U.S. dollar. The functional currency of three of the Company’s subsidiaries is the Canadian
dollar. The translation of the Canadian dollar to the reporting currency of the Company, the U.S. dollar, is performed
for assets and liabilities using exchange rates in effect at the balance sheet date. Revenue and expense transactions are translated
using average exchange rates prevailing during the year. Translation adjustments arising on conversion of the Company’s financial
statements from the subsidiary’s functional currency, Canadian dollars, into the reporting currency, U.S. dollars,
are excluded from the determination of income (loss) and are disclosed as other comprehensive income in the consolidated statements of
operations and comprehensive income.
Foreign
exchange gains and losses relating to transactions not denominated in the applicable local currency are included in operating income
(loss) if realized during the year and in comprehensive income (loss) if they remain unrealized at the end of the year.
(g)
Revenue Recognition.
The
Company generates revenue primarily from energy and water conservation products and biodegradable polymers, as further discussed
in Note 17.
The
Company follows a five-step model for revenue recognition. The five steps are: (1) identification of the contract(s) with the customer,
(2) identification of the performance obligation(s) in the contract(s), (3) determination of the transaction price, (4) allocation of
the transaction price to the performance obligation, and (5) recognition of revenue when (or as) the performance obligation is satisfied.
The Company has fulfilled its performance obligations when control transfers to the customer, which is generally at the time the product
is shipped since risk of loss is transferred to the purchaser upon delivery to the carrier. For shipments which are F.O.B. shipping point,
the Company has elected to account for shipping and handling activities as a fulfillment cost rather than as an additional promised service
and performance obligation.
Since
the Company’s inception, product returns have been insignificant; therefore, no provision has been established for estimated product
returns.
Deferred
revenues consist of products sold to distributors with payment terms greater than the Company’s customary business terms due to
lack of credit history or operating in a new market in which the Company has no prior experience. The Company defers the recognition
of revenue until the criteria for revenue recognition has been met and payments become due or cash is received from these distributors.
(h)
Stock Issued in Exchange for Services.
The
Company’s common stock issued in exchange for services is valued at estimated fair market value based upon trading prices of the
Company’s common stock on the dates of the stock transactions. The corresponding expense of the services rendered is recognized
over the period that the services are performed.
(i)
Stock-based Compensation.
The
Company recognizes compensation expense for all share-based payments in accordance with FASB Codification Topic 718, Compensation
— Stock Compensation, (ASC 718). Under the fair value recognition provisions of ASC 718, the Company recognizes share-based
compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award.
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 and nine
months ended September 30, 2021 and 2020.
(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, recoverability of accounts receivable, recoverability of
investments, discount rates for right of use assets and the valuation of inventory.
(m)
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, 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.
The
fair value of the long term debt for all periods presented approximate their respective carrying amounts due to these financial instruments
being at market rates.
(n)
Contingencies
Certain
conditions may exist as of the date the consolidated 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 consolidated 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.
(o)
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 September 30, 2021, the Company believes it has appropriately accounted for
any unrecognized tax benefits. To the extent the Company prevails in matters for which a liability for an unrecognized benefit is established
or is required to pay amounts in excess of the liability, the Company’s effective tax rate in a given financial statement period
may be affected. Interest and penalties associated with the Company’s tax positions are recorded as interest expense in the consolidated
statements of operations and comprehensive income.
p)
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. Revenue for the Company’s three primary customers totaled $11,236,707
(44%)
for the nine months ended September 30, 2021 (2020 - $10,925,243
or 45%).
Accounts receivable for the Company’s three primary customers for the nine months ended September 30, 2021 totaled $2,099,564
(36%)
at September 30, 2021 (December 31, 2020 - $3,986,284
or 68%).
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 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.
The
Company is exposed to interest rate risk to the extent that the fair value or future cash flows for financial liabilities will fluctuate
as a result of changes in market interest rates. The Company is exposed to interest rate risk on its long-term debt.
In
order to manage its exposure to interest rate risk, the Company is closely monitoring fluctuations in market interest risks and will
refinance its long-term debt where possible to obtain more favourable rates.
(q)
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 other income (loss), net in the consolidated statements of operations and comprehensive income.
(r)
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 that it is more likely than not that the fair value of a reporting unit is greater 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 that it is more likely than not that the fair value of
the intangible asset 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 intangible asset to its carrying amount, including goodwill.
If the estimated fair value of the intangible asset is less than the carrying amount of the intangible asset, impairment is indicated,
requiring recognition of an impairment charge for the differential.
Qualitative
assessments of goodwill and indefinite-lived intangible assets were performed in 2021 and 2020. Based on the results of the 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 their
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 or nine months ended September 30, 2021.
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 “Impairment of Long Lived Assets” significant
accounting policy.
(s)
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 consolidated 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.
LEASES
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. For leases with terms greater than 12 months, the Company
records the related right-of-use (“ROU”) asset and lease obligation at the present value of lease payments over the term.
Leases may include fixed rental escalation clauses, renewal options and / or termination options that are factored into the determination
of lease payments when appropriate. The Company’s operating leases are included in ROU assets, lease liabilities-current portion
and lease liability-less current portion in the accompanying consolidated balance sheets. ROU assets represent the Company’s right
to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the
lease. The Company’s leases do not usually provide a readily determinable implicit rate; therefore, an estimate of the Company’s
incremental borrowing rate is used to discount the lease payments based on information available at the lease commencement date. The
discount rate used was 5.5%.
The
table below summarizes the right-of-use asset and lease liability for the nine months ended September 30, 2021:
SUMMARY
OF RIGHT-OF-USE ASSET AND LEASE LIABILITY
|
|
|
September
30, 2021
|
|
|
Right
of Use Assets
|
|
|
|
|
|
Balance at December 31, 2020
|
|
$
|
483,113
|
|
|
Depreciation
|
|
|
(230,046
|
)
|
|
Balance at September 30, 2021
|
|
$
|
253,067
|
|
|
|
|
|
|
|
|
Lease
Liability
|
|
|
|
|
|
Balance at December 31, 2020
|
|
$
|
483,113
|
|
|
Lease interest expense
|
|
|
19,164
|
|
|
Payments
|
|
|
(249,210
|
)
|
|
Balance at September 30, 2021
|
|
$
|
253,067
|
|
|
|
|
|
|
|
|
Short-term portion
|
|
$
|
96,695
|
|
|
Long-term portion
|
|
|
156,372
|
|
|
Total
|
|
$
|
253,067
|
|
Undiscounted
rent payments for the next five years are as follows:
SCHEDULE
OF UNDISCOUNTED RENT PAYMENTS
|
|
|
|
|
|
|
2021
|
|
$
|
38,690
|
|
|
2022
|
|
|
67,320
|
|
|
2023
|
|
|
66,180
|
|
|
2024
|
|
|
59,520
|
|
|
2025
|
|
|
61,020
|
|
|
Total
|
|
$
|
292,730
|
|
|
Impact of discounting
|
|
|
(39,663
|
)
|
|
Lease liability, September 30, 2021
|
|
$
|
253,067
|
|
4.
Accounts Receivable.
ACCOUNTS RECEIVABLE
SCHEDULE
OF ACCOUNTS RECEIVABLE
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
6,142,581
|
|
|
$
|
6,161,249
|
|
|
Allowances for doubtful accounts
|
|
|
(273,411
|
)
|
|
|
(271,436
|
)
|
|
Total accounts
receivable
|
|
$
|
5,869,170
|
|
|
$
|
5,889,813
|
|
5.
Inventory. INVENTORY
SCHEDULE
OF INVENTORIES
|
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
|
|
|
|
|
|
|
|
|
Completed goods
|
|
$
|
3,371,536
|
|
|
$
|
3,393,794
|
|
|
Work in progress
|
|
|
150,901
|
|
|
|
152,595
|
|
|
Raw materials and supplies
|
|
|
7,216,821
|
|
|
|
4,826,087
|
|
|
Total inventory
|
|
$
|
10,739,258
|
|
|
$
|
8,372,476
|
|
6.
Property, Plant & equipment. PROPERTY, PLANT & EQUIPMENT
SCHEDULE
OF PROPERTY, EQUIPMENT AND LEASEHOLDS
|
|
|
September 30, 2021
|
|
|
Accumulated
|
|
|
September 30, 2021
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
|
Buildings
|
|
$
|
4,801,701
|
|
|
$
|
2,945,618
|
|
|
$
|
1,856,083
|
|
|
Automobiles
|
|
|
196,255
|
|
|
|
62,290
|
|
|
|
133,965
|
|
|
Computer hardware
|
|
|
43,592
|
|
|
|
42,323
|
|
|
|
1,269
|
|
|
Furniture and fixtures
|
|
|
112,619
|
|
|
|
104,138
|
|
|
|
8,481
|
|
|
Manufacturing equipment
|
|
|
6,732,866
|
|
|
|
4,009,855
|
|
|
|
2,723,011
|
|
|
Boat
|
|
|
34,400
|
|
|
|
25,777
|
|
|
|
8,623
|
|
|
Office equipment
|
|
|
1,863
|
|
|
|
1,104
|
|
|
|
759
|
|
|
Trailer
|
|
|
9,416
|
|
|
|
7,288
|
|
|
|
2,128
|
|
|
Leasehold Improvements
|
|
|
88,872
|
|
|
|
88,705
|
|
|
|
167
|
|
|
Land
|
|
|
452,260
|
|
|
|
-
|
|
|
|
452,260
|
|
|
Technology
|
|
|
107,226
|
|
|
|
107,226
|
|
|
|
-
|
|
|
|
|
$
|
12,581,070
|
|
|
$
|
7,294,324
|
|
|
$
|
5,186,746
|
|
|
|
|
December 31, 2020
|
|
|
Accumulated
|
|
|
December 31, 2020
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
|
Buildings and improvements
|
|
$
|
4,798,370
|
|
|
$
|
2,836,142
|
|
|
$
|
1,962,228
|
|
|
Automobiles
|
|
|
180,956
|
|
|
|
61,266
|
|
|
|
119,690
|
|
|
Computer hardware
|
|
|
43,593
|
|
|
|
41,957
|
|
|
|
1,636
|
|
|
Furniture and fixtures
|
|
|
111,145
|
|
|
|
101,186
|
|
|
|
9,959
|
|
|
Office equipment
|
|
|
1,864
|
|
|
|
971
|
|
|
|
893
|
|
|
Manufacturing equipment
|
|
|
6,154,425
|
|
|
|
3,573,748
|
|
|
|
2,580,677
|
|
|
Trailer
|
|
|
9,422
|
|
|
|
6,675
|
|
|
|
2,747
|
|
|
Boat
|
|
|
34,400
|
|
|
|
24,255
|
|
|
|
10,145
|
|
|
Leasehold improvements
|
|
|
88,872
|
|
|
|
87,205
|
|
|
|
1,667
|
|
|
Technology
|
|
|
107,295
|
|
|
|
107,295
|
|
|
|
—
|
|
|
Land
|
|
|
452,399
|
|
|
|
—
|
|
|
|
452,399
|
|
|
|
|
$
|
11,982,741
|
|
|
$
|
6,840,700
|
|
|
$
|
5,142,041
|
|
Amount
of depreciation expense for nine months ended September 30, 2021: $566,254 (2020: $301,259) and is included in cost of sales in the consolidated
statements of operations and comprehensive income.
7.
Patents. PATENTS
In
fiscal 2005, the Company started the patent process for additional WATER$AVR® products. Patents associated with these costs were
granted in 2006 and they have been amortized over their legal life of 17 years.
SCHEDULE
OF PATENTS
|
|
|
September
30, 2021
Cost
|
|
|
Accumulated
Amortization
|
|
|
September
30, 2021
Net
|
|
|
Patents
|
|
$
|
208,078
|
|
|
$
|
190,270
|
|
|
$
|
17,808
|
|
|
|
|
December
31, 2020
Cost
|
|
|
Accumulated
Amortization
|
|
|
December
31, 2020
Net
|
|
|
Patents
|
|
$
|
208,211
|
|
|
$
|
178,074
|
|
|
$
|
30,137
|
|
Decrease
in 2021 cost was due to currency conversion. 2021 cost in Canadian dollars - $265,102 (2020 - $265,102 in Canadian dollars).
Amount
of amortization for 2021 - $12,329 (2020 - $12,329)
Estimated
amortization expense over the next two years is as follows:
SCHEDULE
OF ESTIMATED AMORTIZATION EXPENSE
|
|
|
|
|
|
|
2021
|
|
$
|
16,437
|
|
|
2022
|
|
|
13,700
|
|
8.
Goodwill and Intangible Assets GOODWILL AND INTANGIBLE ASSETS
SCHEDULE
OF GOODWILL AND INDEFINITE LIVED INTANGIBLE ASSETS
|
Goodwill
|
|
|
|
|
|
Balance as of December 31, 2019
|
|
$
|
2,534,275
|
|
|
Additions
|
|
|
-
|
|
|
Impairment
|
|
|
-
|
|
|
Balance as of December 31, 2020 and September 30, 2021
|
|
$
|
2,534,275
|
|
|
|
|
|
|
|
|
Indefinite Life Intangible Assets
|
|
|
|
|
|
Balance as of December 31, 2019
|
|
$
|
770,000
|
|
|
Additions
|
|
|
-
|
|
|
Impairment
|
|
|
-
|
|
|
Amortization
|
|
|
(176,000
|
)
|
|
Balance as of December 31, 2020
and September 30, 2021
|
|
$
|
770,000
|
|
Goodwill
relates to the acquisition of ENP Investments. Indefinite lived intangible assets consist of trade secrets and trademarks related to
the acquisition of EnP Investments.
|
Definite Life Intangible Assets
|
|
|
|
|
Balance as of December 31, 2019
|
|
$
|
2,182,000
|
|
|
Amortization
|
|
|
(176,000
|
)
|
|
Balance as of December 31, 2020
|
|
|
2,006,000
|
|
|
Amortization
|
|
|
(132,000
|
)
|
|
Balance as of September 30, 2021
|
|
$
|
1,874,000
|
|
Estimated amortization expense over the next five years is as follows:
SCHEDULE
OF ESTIMATED FUTURE AMORTIZATION EXPENSE
|
|
|
|
|
|
|
2020
|
|
$
|
176,000
|
|
|
2021
|
|
|
176,000
|
|
|
2022
|
|
|
160,000
|
|
|
2023
|
|
|
160,000
|
|
|
2024
|
|
|
160,000
|
|
9.
Long Term Deposits LONG TERM DEPOSITS
Long term deposits consist of damage deposits
held by landlords and security deposits held by various vendors.
SCHEDULE
OF LONG TERM DEPOSITS
|
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term deposits
|
|
$
|
8,540
|
|
|
$
|
8,540
|
|
10.
Investments 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:
SCHEDULE
OF EQUITY METHOD INVESTMENT
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
$
|
11,387
|
|
|
Return of equity
|
|
|
(9,063
|
)
|
|
Gain in equity method investment
|
|
|
1,498
|
|
|
Additional
payments
|
|
|
2,518,684
|
|
|
Balance, December 31, 2020
|
|
|
3,822
|
|
|
Balance, December 31, 2020
|
|
|
3,822
|
|
|
Return of equity
|
|
|
(3,822
|
)
|
|
Gain in equity method investment
|
|
|
-
|
|
|
Balance, September 30, 2021
|
|
$
|
-
|
|
Summarized
profit and loss information related to the equity accounted investment is as follows for the full year:
SUMMARY
OF PROFIT AND LOSS INFORMATION RELATED TO EQUITY ACCOUNTED INVESTMENT
|
|
|
2020
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
295,800
|
|
|
Net income
|
|
$
|
2,996
|
|
During
the nine months ended September 30, 2021, the Company received $23,678 from ENP Peru. At the time of receipt of the payment, the investment
balance was $nil and the payment was not recorded against the investment balance but was included in gains on investments.
(b) In
fiscal 2018, ENP Investments acquired a 24% ownership interest in ENP Realty LLC (“ENP Realty”). ENP Realty is located
in Illinois and leases warehouse space. During the year ended December 31, 2020, the other partners of ENP Realty withdrew from the
partnership, resulting in ENP Realty becoming a wholly owned subsidiary of ENP Investments. As a result, ENP Realty was renamed ENP
Mendota and is consolidated in the financial statements of the Company and a 35% non-controlling interest is recognized from the
acquisition date onwards.
It
was determined that ENP Mentoda did not meet the definition of a business in accordance with FASB Codification Topic 805, Business Combinations
(ASC 805), and the acquisition was accounted for as an asset acquisition. 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 Realty as of
the acquisition date.
SCHEDULE
OF FAIR VALUES OF ASSETS ACQUIRED AND LIABILITIES ASSUMPTION
|
|
|
|
|
|
|
Investment eliminated upon consolidation
|
|
$
|
63,165
|
|
|
|
|
|
|
|
|
Assets acquired:
|
|
|
|
|
|
Cash
|
|
|
13,419
|
|
|
Building
|
|
|
630,000
|
|
|
Land
|
|
|
85,000
|
|
|
Liabilities assumed:
|
|
|
|
|
|
Accounts payable
|
|
|
(15,797
|
)
|
|
Long term debt
|
|
|
(450,000
|
)
|
|
Deferred income tax liability
|
|
|
(66,116
|
)
|
|
Total identifiable net assets:
|
|
|
196,506
|
|
|
Gain on acquisition of ENP Realty
|
|
$
|
133,341
|
|
The
income tax expense arising from the deferred income tax liability was net against gain on acquisition of ENP Realty in the consolidated
statements of operations and comprehensive income for the full year ended December 31, 2020.
A
summary of the Company’s investment follows:
SCHEDULE
OF EQUITY METHOD INVESTMENT
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
$
|
63,165
|
|
|
Investment eliminated
upon consolidation
|
|
|
(63,165
|
)
|
|
Balance, December 31, 2020 and September
30, 2021
|
|
$
|
-
|
|
Summarized
profit and loss information related to the equity accounted investment is as follows for the full year:
SUMMARY
OF PROFIT AND LOSS INFORMATION RELATED TO EQUITY ACCOUNTED INVESTMENT
|
|
|
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. In accordance with FASB Codification Topic 323, Investments – Equity Method and Joint Ventures (ASC
323), the Company has elected to account for this investment at cost.
(d)
In December 2018 the Company invested $500,000 in Trio Opportunity Corp. (“Trio”), a privately held entity. Trio
is a real estate investment vehicle and the Company received 50,000 non-voting Class B shares at $10.00/share. In accordance with ASC
323, the Company has elected to account for this investment at cost.
(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 Florida based LLC but
does not have control. A summary of the Company’s investment follows:
SCHEDULE
OF EQUITY METHOD INVESTMENT
|
|
|
|
|
|
|
Balance,
December 31, 2019
|
|
$
|
1,141,033
|
|
|
Additional
payments
|
|
|
2,518,684
|
|
|
Gain
in equity method investment
|
|
|
809,342
|
|
|
Return
of equity
|
|
|
(896,714
|
)
|
|
Balance,
December 31, 2020
|
|
|
3,572,345
|
|
|
Gain
in equity method investment
|
|
|
468,003
|
|
|
Return
of equity
|
|
|
(225,000
|
)
|
|
Balance,
September 30, 2021
|
|
$
|
3,815,348
|
|
Further
to the original investment amount, the Company had placed $1,000,000 in trust, which was released upon the Florida based 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 as at December 31, 2019. During the year ended December 31, 2020, this amount was released. The
additional payments of $2,518,684 made during the year ended December 31, 2020 related to contingent consideration which was dependent
on the Florida based LLC meeting certain performance millstones during the year. Summarized profit and loss information related to the
equity accounted investment is as follows:
SUMMARY
OF PROFIT AND LOSS INFORMATION RELATED TO EQUITY ACCOUNTED INVESTMENT
|
|
|
Nine
months ended
September 30, 2021
|
|
|
Nine
months ended
September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
7,103,337
|
|
|
$
|
8,024,786
|
|
|
Gross profit
|
|
|
2,630,168
|
|
|
|
3,251,607
|
|
|
Net income
|
|
$
|
936,005
|
|
|
$
|
1,164,174
|
|
During the nine months ended September 30, 2021, the Company had sales
of $4,428,663 (2020 - $4,773,970) to the Florida Based LLC, of which $443,169 is included within Accounts Receivable as at September
30, 2021 (2020 - $1,186,839).
f)
In December 2020, the Company invested $500,000 in Lygos Inc., a privately held entity. Both companies intend to work together in
pursuit of sustainable aspartic acid through synthetic biology. The Company has elected
to account for this investment at cost. Upon reaching a predetermined milestone, a further payment of $500,000 was made in June 2021.
A summary of the Company’s investment follows:
SCHEDULE
OF EQUITY METHOD INVESTMENT
|
|
|
|
|
|
|
Balance, January 1, 2020
|
|
$
|
-
|
|
|
Acquisition
|
|
|
500,000
|
|
|
Additional payment
|
|
|
-
|
|
|
Balance, December 31, 2020
|
|
|
500,000
|
|
|
Additional payment
|
|
|
500,000
|
|
|
Balance, September 30, 2021
|
|
$
|
1,000,000
|
|
11.
Short-Term Line of Credit.
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 had an annual interest rate of 3.25% and a balance of $1,641,085 at December 31, 2019. The revolving
line of credit at Harris was paid in October 2020, upon the opening of the revolving line of credit at Midland States Bank (“Midland”).
(b)
In August 2021, ENP Investments signed a new agreement with Midland to renew the expiring credit line. The revolving line of credit
is for an aggregate amount up to $3,000,000. The interest rate of this loan is subject to change from time to time based on changes in
an independent index which is the 1 month LIBOR as published in the Wall Street Journal (the “Index”). Interest on the unpaid
principal balance of this loan will be calculated using a rate of 1.000 percentage points over the Index. Under no circumstances will
the interest rate of this loan be less than 4.250% per annum or more than the maximum rate allowed by applicable law. The interest rate
at September 30, 2021 is 4.25% (December 31, 2020 – 4.5%).
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 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. NanoChem is a guarantor of 65% of all the principal and other loan costs not to exceed $1,625,000.
As of September 30, 2021, ENP Investments was in compliance with all loan covenants.
To
secure the repayment of any amounts borrowed under the revolving line of credit, ENP Investments granted Midland a security interest
in all inventory, equipment and fixtures and acknowledges a separate commercial security agreement from guarantor to Midland dated February
15, 2011.
Short-term
borrowings outstanding under the revolving line as of September 30, 2021 were $nil (December 31, 2020 - $541,456).
(c)
In October 2021, the Company signed a new agreement with Midland to replace the expiring credit line at Harris. The revolving line
of credit is for an aggregate amount of up to the lesser of (i) $3,500,000, or (ii) 80% of eligible domestic accounts receivable and
certain foreign accounts receivable plus 50% of inventory. Interest on the unpaid principal balance of this loan will be calculated using
a rate of 0.500 percentage points over the Index. Under no circumstances will the interest rate of this loan be less than 4.50% per annum
or more than the maximum rate allowed by applicable law. The interest rate at September 30, 2021 is 3.75% (December 31, 2020 –
3.75%).
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 Midland, Midland’s access to collateral, formation or acquisition of subsidiaries, incurrence of indebtedness, dispositions
of assets, granting liens, changes in business, ownership or business locations, engaging in mergers and acquisitions, making investments
or distributions and affiliate transactions. The covenants also require that the Company maintain a minimum ratio of qualifying financial
assets to the sum of qualifying financial obligations. As of September 30, 2021, 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 Midland a security interest in substantially
all of the assets of NanoChem, exclusive of intellectual property assets.
Short-term
borrowings outstanding under the revolving line as of September 30, 2021 were $1,489,154 (December 31, 2020 - $1,574,617).
12.
Long Term Debt.
LONG TERM DEBT
(a)
In October 2018, NanoChem signed a $4,100,000
term loan with Harris with a rate of prime (June 30, 2020 – 3.25%) 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. Interest expense for the six months ended June 30, 2020 was $50,590. This loan
was paid in October 2020 upon opening of credit facilities at Midland. The balance owing at September 30, 2020 was $1,977,381.
(b)
In April 2019, NanoChem signed a loan for
$1,100,000 with Harris with a rate of prime plus 0.5% (December 31, 2019 – 5.25%) for the purchase of new manufacturing equipment.
The Company paid interest monthly until February 2020, when equal monthly installments of the principal and interest were due until January
2024. Interest expense for the year ended December 31, 2020 was $36,272 (2019 – $36,333). This loan was paid in October 2020 upon
opening of credit facilities at Midland. The balance owing at September 30, 2020 was $916,667.
(c)
In January 2018, ENP Investments signed a
$200,000 promissory note with Midland 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 and in May 2021, ENP Investments paid the loan in full with cash on hand. Interest
expense for the nine months ended September 30, 2021 was $2,788 (2020 - $5,860). The principal balance owing at September 30, 2021 is
$nil (December 31, 2020 - $125,543).
(d)
In March 2016, ENP Investments signed a $45,941
promissory note with Ford Motor Credit Company with a rate of 0.00% interest to be repaid over 5 years with equal monthly installments.
In August 2020, the loan was paid off in full.
(e)
In April 2020, NanoChem received a two year
loan of $322,000 through the Paycheck Protection Program with a rate of 1%. In March, 2021, the loan was forgiven by the SBA and has
been recorded as Other Income of the condensed interim consolidated statements of operations and comprehensive income for the nine month
period ended September 30, 2021.
(f)
In April 2020, ENP Investments received a two year loan of $215,960 through the Paycheck Protection Program with a rate of 1%. In
March, 2021, the loan was forgiven by the SBA and has been recorded as Other Income of the condensed interim consolidated statements
of operations and comprehensive income for the nine month period ended September 30, 2021.
(g)
In October 2020, NanoChem signed a $1,980,947 term loan with Midland with a rate of 3.85% to be repaid over 5 years with equal monthly
payments including interest. The money was used to retire the debt at Harris related to the loan to purchase a 65% interest in ENP Investments.
Interest expense for the nine ended September 30, 2021 was $53,776 (2020 - $nil). The balance owing at September 30, 2021 is $1,647,179
(December 31, 2020 - $1,920,976).
The
Company has committed to the following repayments:
SCHEDULE
OF INTEREST LOAN REPAYMENT
|
|
|
|
|
|
|
2021
|
|
$
|
368,332
|
|
|
2022
|
|
$
|
382,705
|
|
|
2023
|
|
$
|
397,414
|
|
|
2024
|
|
$
|
413,516
|
|
|
2025
|
|
$
|
359,009
|
|
(h)
In October 2020, NanoChem signed a loan for $894,253
with Midland with an interest rate 3.85%
to be repaid over two years with equal monthly payments including interest.
The funds were used to replace the loan at Harris for the purchase of new manufacturing equipment. Interest expense for the nine ended
September 30, 2021 was $20,301
(2020 - $nil).
The balance owing at September 30, 2021 is $493,532
(December 31, 2020 - $822,380).
SCHEDULE
OF INTEREST LOAN REPAYMENT
|
|
|
|
|
|
|
2021
|
|
$
|
441,260
|
|
|
2022
|
|
$
|
381,120
|
|
(i)
In January 2020, ENP Mendota refinanced its mortgage and signed a loan for $450,000
with Stock Yards Bank & Trust to be repaid
over 10
years with monthly installments plus interest.
Interest for the first five years is at 4.35%
and it will be adjusted for the last five years to the Cincinnati Federal Home Bank Loan 5
year fixed index plus 2.5%.
Interest expense for nine ended September 30, 2021 was $14,339
(2020 - $8,843).
The balance owing at September 30, 2021 is $433,245
(December 31, 2020 - $440,779).
As
of September 30, 2021, Company was in compliance with all loan covenants.
SCHEDULE
OF LOAN COVENANTS
|
Continuity
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
|
Balance, January 1
|
|
$
|
3,847,638
|
|
|
$
|
4,380,393
|
|
|
Plus: Proceeds from loans
|
|
|
-
|
|
|
|
3,413,160
|
|
|
Plus: Loan acquired with acquisition of ENP
Realty
|
|
|
-
|
|
|
|
450,000
|
|
|
Less: Forgiveness on PPP loans
|
|
|
(537,960
|
)
|
|
|
-
|
|
|
Less: Payments on loan
|
|
|
(735,722
|
)
|
|
|
(4,395,915
|
)
|
|
Balance, end of period
|
|
$
|
2,573,956
|
|
|
$
|
3,847,638
|
|
SCHEDULE
OF OUTSTANDING BALANCE LOAN
|
Outstanding
balance
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
|
a) Long term debt – Harris Bank
|
|
$
|
-
|
|
|
$
|
-
|
|
|
b) Long term debt – Harris Bank
|
|
|
-
|
|
|
|
-
|
|
|
c) Long term debt – Midland
States Bank
|
|
|
-
|
|
|
|
125,543
|
|
|
d) Long term debt – Ford Credit
|
|
|
-
|
|
|
|
-
|
|
|
e) Long term debt – PPP
|
|
|
-
|
|
|
|
322,000
|
|
|
f) Long term debt - PPP
|
|
|
-
|
|
|
|
215,960
|
|
|
g) Long term debt – Midland States Bank
|
|
|
1,647,179
|
|
|
|
1,920,976
|
|
|
h) Long term debt – Midland States Bank
|
|
|
493,532
|
|
|
|
822,380
|
|
|
i) Long term debt –
Stock Yards Bank & Trust
|
|
|
433,245
|
|
|
|
440,779
|
|
|
Long-term Debt
|
|
|
2,573,956
|
|
|
|
3,847,638
|
|
|
Less: current portion
|
|
|
(861,618
|
)
|
|
|
(848,794
|
)
|
|
|
|
$
|
1,712,338
|
|
|
$
|
2,998,844
|
|
13.
Convertible note payable. CONVERTIBLE NOTE PAYABLE
In
October 2018, the Company issued a convertible note payable in the amount of $1,000,000 in connection with the acquisition of EnP Investments
LLC. The convertible note is due on or before September 30, 2023 with 5% interest due per year. At the option of the holder, the Note
may be converted into 400,000 shares in the Company’s common stock.
In
June 2019, the holder opted to convert $500,000 of the convertible note payable into 200,000 shares of the Company’s common stock.
In
April 2020, the Company repaid the remaining principal balance of $500,000 and accrued interest of $13,046.
14.
Stock Options. 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, 2020 and the nine month period
ended September 30, 2021:
SCHEDULE
OF STOCK OPTION ACTIVITIES
|
|
|
Number
of shares
|
|
|
Exercise
price per share
|
|
|
Weighted
average
exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
635,000
|
|
|
$
|
0.75
– 1.75
|
|
|
$
|
1.35
|
|
|
Granted
|
|
|
172,000
|
|
|
$
|
2.44
|
|
|
$
|
2.44
|
|
|
Cancelled or expired
|
|
|
(13,000
|
)
|
|
$
|
2.44
– 3.46
|
|
|
$
|
2.75
|
|
|
Exercised
|
|
|
(45,000
|
)
|
|
$
|
0.75
– 1.05
|
|
|
$
|
0.88
|
|
|
Balance, December 31, 2020
|
|
|
749,000
|
|
|
$
|
0.75
– 4.13
|
|
|
$
|
2.42
|
|
|
Cancelled or expired
|
|
|
(29,799
|
)
|
|
$
|
1.42
– 3.46
|
|
|
$
|
2.45
|
|
|
Exercised
|
|
|
(66,701
|
)
|
|
$
|
0.75
– 3.46
|
|
|
$
|
1.60
|
|
|
Balance, September 30, 2021
|
|
|
652,500
|
|
|
$
|
1.42
– 4.13
|
|
|
$
|
2.50
|
|
|
Exercisable, September 30, 2021
|
|
|
411,500
|
|
|
$
|
1.42
– 4.13
|
|
|
$
|
2.66
|
|
The
weighted average remaining contractual life of options outstanding is 3.6 years.
The
fair value of each option grant is calculated using the following weighted average assumptions:
SCHEDULE
OF STOCK OPTION FAIR VALUE ASSUMPTIONS
|
|
|
2021
|
|
|
|
|
|
|
|
Expected life – years
|
|
|
3.0
|
|
|
Interest rate
|
|
|
0.37
|
%
|
|
Volatility
|
|
|
70.14
|
%
|
|
Weighted average fair value of options granted
|
|
$
|
1.12
|
|
The
Company did not grant any options during the nine months ended September 30, 2021 or 2020. Options granted in previous quarters
resulted in expenses in the amount of $39,196
for consultants (2020 - $33,816)
and $79,571
for employees (2020 - $54,929)
during the nine months ended September 30, 2021. There were 33,500
employee and 33,201
consultant stock options exercised during the
nine months ended September 30, 2021 (2020 – 15,000
employee and 10,000
consultant stock options).
As
of September 30, 2021, there was approximately $48,573 of compensation expense related to non-vested awards. This expense is expected
to be recognized over a weighted average period of 6 months.
The
aggregate intrinsic value of vested options outstanding at September 30, 2021 is $388,460 (2020 – $nil).
15.
Capital Stock. CAPITAL STOCK
During
the nine months ended September 30, 2021, 33,500 shares were issued upon the exercise of employee stock options (2020 – 15,000)
and 33,201 shares were issued upon the exercise of consultant stock options (2020 – 10,000).
On
March 19, 2020, the Company suspended its annual dividend until further notice due to the uncertainty surrounding the COVID-19 virus.
16.
Non-Controlling Interests NON-CONTROLLING INTERESTS
ENP
Investments is a limited liability corporation (LLC) that manufactures and distributes golf, turf
and ornamental agriculture products in Mendota, Illinois. The Company owns a 65%
interest in ENP Investments through its wholly-owned subsidiary NanoChem. An unrelated party owns the remaining 35%
interest in ENP Investments. As of December 31, 2020, ENP Realty, now ENP Mendota, is a wholly owned subsidiary of ENP Investments. ENP
Mendota leases warehouse space. For financial reporting purposes, the assets, liabilities and earnings of both of the LLC’s are
consolidated into these financial statements. The unrelated third party’s ownership interest in the LLC is recorded in non-controlling
interests in these consolidated financial statements. The non-controlling interest represents the non-controlling unitholder’s
interest in the earnings and equity of ENP Investments. ENP Investments is allocated to the TPA segment.
ENP
Investments makes cash distributions to its equity owners 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 $1,620,568.
SCHEDULE
OF DISTRIBUTIONS
|
Balance, December 31, 2019
|
|
$
|
2,550,149
|
|
|
Distribution
|
|
|
(594,882
|
)
|
|
Non-controlling interest share of income
|
|
|
606,484
|
|
|
Balance, December 31, 2020
|
|
|
2,561,751
|
|
|
Distribution
|
|
|
(526,576
|
)
|
|
Non-controlling interest share of income
|
|
|
798,161
|
|
|
Balance, September 30, 2021
|
|
$
|
2,833,336
|
|
During the nine months ended September 30, 2021,
the Company had sales of $4,014,063 (2020 - $3,551,972) to the party that holds 35% interest in ENP Investments, of which $1,439,413
is included within Accounts Receivable as of September 30, 2021 (2020 – $1,669,908).
17.
Segmented, Significant Customer Information and Economic Dependency.
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.
SCHEDULE
OF REPORTABLE SEGMENTS
|
Three months ended September
30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EWCP
|
|
|
TPA
|
|
|
Total
|
|
|
Revenue
|
|
$
|
97,307
|
|
|
$
|
9,117,160
|
|
|
$
|
9,214,467
|
|
|
Interest expense
|
|
|
-
|
|
|
|
41,749
|
|
|
|
41,749
|
|
|
Depreciation and amortization
|
|
|
10,052
|
|
|
|
220,681
|
|
|
|
230,733
|
|
|
Income tax expense
|
|
|
-
|
|
|
|
758,924
|
|
|
|
758,924
|
|
|
Segment profit (loss)
|
|
|
(273,239
|
)
|
|
|
1,541,449
|
|
|
|
1,268,210
|
|
|
Segment assets
|
|
|
1,880,310
|
|
|
|
37,491,689
|
|
|
|
39,371,999
|
|
|
Expenditures for segment assets
|
|
|
-
|
|
|
|
(158,231
|
)
|
|
|
(158,231
|
)
|
|
Three months ended September
30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EWCP
|
|
|
|
TPA
|
|
|
|
Total
|
|
|
Revenue
|
|
$
|
101,215
|
|
|
$
|
8,011,715
|
|
|
$
|
8,112,930
|
|
|
Interest expense
|
|
|
-
|
|
|
|
43,872
|
|
|
|
43,872
|
|
|
Depreciation and amortization
|
|
|
10,531
|
|
|
|
145,555
|
|
|
|
156,086
|
|
|
Income tax expense
|
|
|
-
|
|
|
|
370,203
|
|
|
|
370,203
|
|
|
Segment profit (loss)
|
|
|
(64,945
|
)
|
|
|
647,314
|
|
|
|
582,369
|
|
|
Segment assets
|
|
|
838,177
|
|
|
|
33,543,805
|
|
|
|
34,381,982
|
|
|
Expenditures for segment assets
|
|
|
-
|
|
|
|
(265,379
|
)
|
|
|
(265,379
|
)
|
|
Nine months ended September
30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EWCP
|
|
|
|
TPA
|
|
|
|
Total
|
|
|
Revenue
|
|
$
|
336,152
|
|
|
$
|
25,038,463
|
|
|
$
|
25,374,615
|
|
|
Interest expense
|
|
|
-
|
|
|
|
155,078
|
|
|
|
155,078
|
|
|
Depreciation and amortization
|
|
|
30,238
|
|
|
|
680,345
|
|
|
|
710,583
|
|
|
Income tax expense
|
|
|
-
|
|
|
|
1,723,107
|
|
|
|
1,723,107
|
|
|
Segment profit (loss)
|
|
|
(443,375
|
)
|
|
|
4,233,331
|
|
|
|
3,789,956
|
|
|
Segment assets
|
|
|
1,880,310
|
|
|
|
37,491,689
|
|
|
|
39,371,999
|
|
|
Expenditures for segment assets
|
|
|
-
|
|
|
|
(610,959
|
)
|
|
|
(610,959
|
)
|
|
Nine months ended September
30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EWCP
|
|
|
|
TPA
|
|
|
|
Total
|
|
|
Revenue
|
|
$
|
311,376
|
|
|
$
|
23,940,647
|
|
|
$
|
24,252,023
|
|
|
Interest expense
|
|
|
-
|
|
|
|
199,947
|
|
|
|
199,947
|
|
|
Depreciation and amortization
|
|
|
31,294
|
|
|
|
414,294
|
|
|
|
445,588
|
|
|
Income tax expense
|
|
|
19,170
|
|
|
|
1,045,681
|
|
|
|
1,064,851
|
|
|
Segment profit (loss)
|
|
|
(135,417
|
)
|
|
|
3,115,328
|
|
|
|
2,979,911
|
|
|
Segment assets
|
|
|
838,177
|
|
|
|
33,543,805
|
|
|
|
34,381,982
|
|
|
Expenditures for segment assets
|
|
|
-
|
|
|
|
(826,515
|
)
|
|
|
(826,515
|
)
|
The sales generated in the United States and Canada are as follows:
SCHEDULE
OF REVENUE GENERATED IN UNITED STATES AND CANADA
|
|
|
Nine
months ended
September 30, 2021
|
|
|
Nine
months ended
September 30, 2020
|
|
|
Canada
|
|
$
|
350,004
|
|
|
$
|
373,863
|
|
|
United
States and abroad
|
|
|
25,024,611
|
|
|
|
23,878,160
|
|
|
Total
|
|
$
|
25,374,615
|
|
|
$
|
24,252,023
|
|
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:
SCHEDULE
OF LONG-LIVED ASSETS ARE LOCATED IN CANADA AND UNITED STATES
|
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
|
Canada
|
|
$
|
419,049
|
|
|
$
|
445,663
|
|
|
United
States
|
|
|
10,216,847
|
|
|
|
10,519,903
|
|
|
Total
|
|
$
|
10,635,896
|
|
|
$
|
10,965,566
|
|
Three
primary customers accounted for $11,236,707 (44%) of sales during nine months ended September 30, 2021 (2020 - $10,925,243 or 45%).
18.
Comparative Figures. COMPARATIVE
FIGURES
Certain
of the comparative figures have been reclassified to conform with the current period’s presentation.
19.
Subsequent Events SUBSEQUENT EVENTS
In
October, 2021, the Company sold the 3 acres of vacant land in Taber, Canada for $274,715 ($350,000 CAD).