UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended Sept. 30th 2003
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from___________ to ____________
Commission file number ______________
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
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(Exact name of small business issuer as specified in its charter)
NEVADA 91-1922863
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2614 Queenswood Dr. Victoria BC Canada V8N 1X5
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(Address of principal executive offices)
( 250 ) 477 - 9969
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(Issuer's telephone number)
(Former name, former address and former fiscal year
if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12,13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes[ ] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Common stock $.001 par value
11,792,916 shares as of Sept. 30th 2003. ----------------------------
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Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30TH 2003
(UNAUDITED - U.S. DOLLARS)
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SEPTEMBER 30 DECEMBER 31
2003 2002
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Assets
CURRENT
Cash and cash equivalents $ 141,435 $ 556,789
Short term investments 5,206,178 5,062,495
Accounts receivable 226,218 55,222
Income tax receivable 58,000 118,014
Loan receivable 11,909 10,082
Inventory 227,292 203,830
Prepaid expenses 52,636 87,321
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5,923,670 6,093,753
PROPERTY AND EQUIPMENT 153,275 128,566
INVESTMENT 310,125 32,500
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$ 6,387,070 $ 6,254,819
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LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 65,942 $ 53,146
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STOCKHOLDERS' EQUITY
CAPITAL STOCK
Authorized
50,000,000 Common shares with a par value of $0.001 each
1,000,000 Preferred shares with a par value of $0.01 each
Issued and Outstanding
11,792,916 (2002: 11,570,916) common shares 11,793 11,570
CAPITAL IN EXCESS OF PAR VALUE 9,729,483 9,328,648
SHARE SUBSCRIPTION RECEIVABLE (13,217) (16,217)
OTHER COMPREHENSIVE INCOME (LOSS) 33,068 (21,354)
DEFICIT (3,440,000) (3,100,974)
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TOTAL STOCKHOLDER'S EQUITY 6,321,128 6,201,673
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 6,387,070 $ 6,254,819
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FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED - U.S. DOLLARS)
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THREE MONTHS ENDED SEPTEMBER 30
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2003 2002
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SALES $ 40,009 $ 55,257
COST OF SALES 34,944 54,782
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GROSS PROFIT 5,064 475
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OPERATING EXPENSES
Wages 74,786 28,880
Administrative salaries and benefits 20,783 5,202
Advertising and promotion 31,757 8,976
Investor relations and transfer agent fee 51,606 15,510
Office and miscellaneous 24,559 7,922
Rent 11,601 16,788
Consulting 39,572 2,711,958
Professional fees 45,270 37,478
Travel 41,611 13,608
Telecommunications 11,976 2,124
Shipping 6,409 3,462
Research 41,594
Bad debt expense (recovery) 822 1
Currency exchange (42,172) 4,797
Utilities 3,711 1,953
Depreciation 8,841 6,390
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372,725 2,865,049
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INCOME (LOSS) BEFORE INTEREST INCOME AND INCOME TAX (367,660) (2,864,574)
INTEREST INCOME 50949.58 15,221
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INCOME (LOSS) BEFORE INCOME TAX (316,711) (2,849,353)
INCOME TAX (RECOVERY) (26,457) (43,343)
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NET INCOME (LOSS) (290,254) $(2,806,010)
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NET INCOME (LOSS) PER SHARE $ -0.02 $ -0.25
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WEIGHTED AVERAGE NUMBER OF SHARES 11,791,612 11,448,128
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FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED - U.S. DOLLARS)
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NINE MONTHS ENDED SEPTEMBER 30
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2003 2002
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SALES $ 1,982,571 $ 1,089,164
COST OF SALES 1,130,293 594,041
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GROSS PROFIT 852,277 495,123
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OPERATING EXPENSES
Wages 408,658 248,933
Administrative salaries and benefits 60,258 77,228
Advertising and promotion 60,915 37,739
Investor relations and transfer agent fee 120,273 41,156
Office and miscellaneous 59,334 23,204
Rent 49,153 46,356
Consulting 122,223 2,760,275
Professional fees 173,143 67,283
Travel 120,030 24,023
Telecommunications 36,576 7,074
Shipping 14,687 9,087
Research 61,298 -
Bad debt expense (recovery) 822 (350)
Currency exchange 20,787 20,205
Utilities 13,938 4,159
Depreciation 24,768 15,335
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1,346,862 3,381,707
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INCOME (LOSS) BEFORE INTEREST INCOME AND INCOME TAX (494,584) (2,886,584)
INTEREST INCOME 155,196 15,221
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INCOME (LOSS) BEFORE INCOME TAX (339,389) (2,871,363)
INCOME TAX LOSS (RECOVERY) (363) -
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NET INCOME (LOSS) (339,026) (2,871,363)
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NET INCOME (LOSS) PER SHARE $ -0.03 $ -0.27
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WEIGHTED AVERAGE NUMBER OF SHARES 11,715,619 10,555,256
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FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED - U.S. DOLLARS)
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NINE MONTHS ENDED SEPTEMBER 30
2003 2002
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OPERATING ACTIVITIES
Net income (loss) $ (339,026) $ (2,871,363)
Stock compensation expense 68,998 2,844,758
Depreciation 24,768 15,335
Changes in non-cash working capital items:
Accounts receivable (170,996) (29,045)
Inventory (23,462) 18,505
Prepaid expenses 34,685 39,803
Accounts payable 12,796 11,014
Income tax receivable 60,014 (90,406)
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CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (332,223) (61,399)
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INVESTING ACTIVITIES
Acquisition of property and equipment (49,477) (54,299)
Purchase of short-term investments (143,683) 9,225
Acquisition of investments (277,625)
Loan receivable (1,827) (69)
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CASH USED IN INVESTING ACTIVITIES (472,613) (45,143)
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FINANCING ACTIVITY
Proceeds from issuance of common stock 401,058 5,867,600
Subscriptions received 3,000 13,010
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CASH PROVIDED BY FINANCING ACTIVITIES 404,059 5,880,610
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Effect of exchange rate changes on cash (14,576) 4,921
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INFLOW (OUTFLOW) OF CASH (415,354) 5,778,989
Cash and cash equivalents, beginning of period 556,789 190,457
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 141,435 $ 5,969,446
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 58,000 $ 74,067
Interest received 155,196 15,221
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SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Issue of common stock for investment (2002 - services) $ 271,000 $ 44,400
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FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30
(U.S. DOLLARS)
(UNAUDITED)
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1. BASIS OF PRESENTATION
These unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles in the United States for interim financial
information. These 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, 2002 Form 10-KSB.
In the opinion of the Company's management, these consolidated
financial statements reflect all adjustments necessary to
present fairly the Company's consolidated financial position
at September 30, 2003 and the consolidated results of
operations and the consolidated statements of cash flows for
the nine months ended September 30, 2003 and 2002. The results
of operations for the three months ended September 30, 2003
are not necessarily indicative of the results to be expected
for the entire fiscal year.
2. STOCKHOLDERS' EQUITY
(a) During the prior period, the Company granted 30,000
stock options to consultants and have recognized
consulting expense applying SFAS 123 using the
Black-Scholes option pricing model which resulted in
expense of $12,407 for the three months ended
September 30, 2003.
(b) The following table summarizes the Company's stock
option activity for the period:
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2003
Weighted
Exercise Average
Number Price Exercise
of Shares Per Share Price
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Balance, March 31, 2003 3,620,800 $ 0.25 to $ 5.50 $ 3.79
Granted During the Period 2,000 $ 4.25 4.25
Exercised (5,000) $ 0.25 to $ 2.28 (1.40)
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Balance, June 30, 2003 3,617,800 $ 0.25 to $ 5.50 $ 3.81
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(c) Share subscription receivable represents amount due
for stock purchased on exercise of options on June
30, 2002.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30
(U.S. DOLLARS)
(UNAUDITED)
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3. SUBSEQUENT EVENTS
On October 9, 2003, the Company announced the modification of
the marketing agreement with Ondeo Nalco. Ondeo Nalco fell
short of sales targets to maintain exclusive distributorship
of WATER$AVR, opening other avenues for the company to pursue
key markets internally. This resulted in the return of two
million incentive stock options, which will be accounted for
in the next quarter.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information contains certain forward looking statements that
anticipate future trends or events. These statements are based on certain
assumptions that may prove to be erroneous and are subject to certain risks
including but not limited to the risks of increased competition in the Company's
industry and other risks detailed in the Company's Securities and Exchange
Commission filings. Accordingly, actual results may differ, possibly materially,
from the predictions contained herein.
For the three months ended Sept. 30th 2003, the Company experienced a loss of
$290,254 as compared to a loss of $2,806,010 for the three months ended Sept.
30th 2002. As in the quarter ending Sept. 30th 2002, the end of the Northeastern
USA pool season reduces demand for our products in the usual cyclical manner and
resulted in very low production requirements in 3rd quarter and revenue of
$40,009 compared to $55,257 in the year earlier quarter. In addition, the
Company increased expenditures in the areas of WATER$AVR sales and marketing and
production equipment development. Finally, the Company produced the correct
amount of product in Q-1 and Q-2 2003 as a percentage of annual sales and
therefore did not have to carry high production rates into Q-3 2003.
RESULTS OF OPERATIONS
Reference is made to Item 2, "Management's Discussion and Analysis" included in
the Company's registration statement on Form 10-SB for the year ended December
31st 1999, as amended, and the Company's 10K-SB for the years ended Dec. 31st
2000 and 2001 on file with the Securities and Exchange Commission. The following
analysis and discussion pertains to the Company's results of operations for the
three month and nine month periods ended Sept. 30th 2003, compared to the
results of operations for the three month and nine month periods ended Sept.
30th 2002, and to changes in the Company's financial condition from December
31st 2002 to Sept. 30th 2003.
THREE MONTHS ENDED SEPT. 30TH 2003 AND 2002
For the third quarter of the current fiscal year ending Sept. 30th 2003, sales
were $40,009 compared to $55,257 for the same quarter of the previous year. This
essentially flat sales result was expected since third quarter is our slowest
every year, a situation that is expected to continue because most sales to the
residential pool market are completed by the end of second quarter each year.
Operating expenses were $372,725 for the third quarter, down from $2,865,049 for
the third quarter of last year. The decrease is as a result of non-recurrence of
a non-cash expense ($2,704,000) to account for options granted to Ondeo Nalco
Company. Flexible Solutions continued increased spending on sales and marketing
for Water$avr and development of advanced production machinery. The largest real
increases were in the areas of wages ($74,786 versus $28,880), advertising and
promotion, ($31,757 from $8,976), investor relations and transfer agent ($51,606
from $15,510), travel ($41,611 from $13,608) and research from $nil to $41,594.
These increases were primarily related to promoting, developing and marketing
the new Water$avr products. Additional personnel were hired for these purposes
and travel increased in line with the personnel in order to promote the products
throughout North America and around the world.
The loss for the quarter was $290,254, a huge decrease from third quarter last
year when the loss was $2,806,010. The decreased loss was almost all related to
non-cash option expenses. Cost of sales decreased to 87% from 99% as a result of
lower sales with a concurrent larger reduction in costs.
The loss per share was $0.02 for the three months ended Sept. 30th 2003 compared
to a loss of $0.25 for the three months ended Sept. 30th 2002.
NINE MONTHS ENDED SEPT. 30TH 2003 AND 2002
Sales in the nine months ended Sept. 30th 2003 were $1,982,571 compared to
$1,089,164 for the nine months ended Sept. 30th 2002. The 82% increase was a
result of the increase in sales in our swimming pool division in the first two
quarters combined with the first significant sales from the drinking water
product, "Water$avr".
Operating expenses for the Company were $1,346,662 for the nine months ended
Sept. 30th 2003 down from $3,381,707 for the nine months ended Sept. 30th 2002.
The nine months ended Sept. 30th 2002 included a non-cash charge of $2,704,000
for expensing consultant options. The cash increase in operating expenses were
as a result of increases in sales and marketing costs for Water$avr.
The net income for the nine months ended Sept. 30th 2003 was ($339,026) compared
to a net income of ($2,871,363) for the nine months ended Sept. 30th 2002. The
cash flow from operations decreased substantially from ($61,399 to ($332,223) as
costs related to the sales and marketing of Water$avr increased.
The loss per share was $0.03 for the nine-month period ended Sept. 30th 2003
compared to a loss of $0.27 for the nine-month period ended Sept. 30th 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company has cash on hand of $5,347,613 as of the end of the quarter.
As of Sept. 30th 2003 the Company had working capital of $5,857,728 as compared
to working capital of $6,040,607 on Dec 31st 2002. The decrease was a result of
operational costs incurred to market Water$avr during the 9 months ended Sept
30th 2003.
The Company has no external sources of liquidity in the form of credit lines
from banks.
Management believes that its available cash will be sufficient to fund the
Company's working capital requirements through December 31st 2004. Management
further believes that available cash will be sufficient to implement the
Company's expansion plans. No investment banking agreements are in place and
there is no guarantee that the Company will be able to raise capital in the
future should that become necessary.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS:
The Company does not have any derivative financial instruments as of Sept. 30th
2003. However, the Company is exposed to interest rate risk.
The Company's interest income and expense are most sensitive to changes in the
general level of U.S. and Canadian interest rates. In this regard, changes in
U.S. and Canadian interest rates affect the interest paid on the Company's cash
equivalents as well as the interest paid on debt.
FOREIGN CURRENCY RISK
The Company operates primarily in Canada. Therefore, the Company's business and
financial condition is sensitive to currency exchange rates or any other
restriction imposed on its currency.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None
ITEM 2. CHANGES IN SECURITIES
- 2000 options were granted to an employee during the period.
- 5,000 options were exercised by an employee during the
period for proceeds to the Company of $7,000.
ITEM 3. DEFAULT UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS - None
ITEM 5. OTHER INFORMATION - None
ITEM 6. (a) EXHIBITS
31 Certification pursuant to Rule 13a-14(a)/15d-14(a)
32 Certification pursuant to 18 U.S.C. SS. 1350
(b) Reports on Form 8-K
July 10th 2003
Aug 5th 2003
ITEM 14. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures
that are designed to ensure that information required to be
disclosed in the Company's Exchange Act reports is recorded,
processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such
information is accumulated and communicated to the Company's
management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the
definition of "disclosure controls and procedures" in Rule
13a-14(c). In designing and evaluating the disclosure
controls and procedures, management recognized that any
controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving
the desired control objectives, and management necessarily
was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and
procedures.
Within 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with
the participation of the Company's management, including the
Company's Chief Executive Officer and the Company's Chief
Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and
procedures. Based on the foregoing, the Company's Chief
Executive Officer and Chief Financial Officer concluded that
the Company's disclosure controls and procedures were
effective.
There have been no significant changes in the Company's
internal controls or in other factors that could
significantly affect the internal controls subsequent to the
date the Company completed its evaluation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
(Registrant)
Dated: November 14th 2003 /s/ DAN O'BRIEN
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Dan O'Brien, President and Director