FSI Flexible Solutions International Inc

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2024

 

OR

 

☐	TRANSITION REPORT PURSUANT TO 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

Commission File Number: 001-31540

 

FLEXIBLE SOLUTIONS INTERNATIONAL INC.

(Exact Name of registrant as Specified in Its Charter)

 

Alberta		71-1630889
(State or other jurisdiction of		(Employer
incorporation or organization)		Identification No.)

 

6001 54 Ave.
Taber, Alberta, Canada		T1G 1X4
(Address of Principal Executive Offices)		(Zip Code)

 

Registrant’s telephone number: (403) 223-2995

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		FSI		NYSE American

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): ☐ Yes ☒ No

 

Class of Stock		No. Shares Outstanding		Date
Common		12,450,532		August 14, 2024

 

 

 

FORM 10-Q

 

Index

 

PART I.	FINANCIAL INFORMATION		3
Item 1.	Financial Statements.		3
	(a)	Unaudited Condensed Interim Consolidated Balance Sheets at June 30, 2024 and December 31, 2023.	3
	(b)	Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended June 30, 2024 and 2023.	4
	(c)	Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Income for the Six Months Ended June 30, 2024 and 2023.	5
	(d)	Unaudited Condensed Interim Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023.	6
	(e)	Unaudited Condensed Interim Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023.	7
	(f)	Notes to Unaudited Condensed Interim Consolidated Financial Statements for the Period Ended June 30, 2024.	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation.		23
Item 4.	Controls and Procedures.		26
PART II.	OTHER INFORMATION		26
Item 5.	Other Information.		26
Item 6.	Exhibits.		26
SIGNATURES			27

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are “forward-looking statements” for the purposes of the federal and state securities laws, including, but not limited to: any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

 

Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.

 

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include but are not limited to:

 

	●	Increased competitive pressures from existing competitors and new entrants;
	●	Increases in interest rates or our cost of borrowing or a default under any material debt agreement;
	●	Deterioration in general or regional economic conditions;
	●	Adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;
	●	Loss of customers or sales weakness;
	●	Inability to achieve future sales levels or other operating results;
	●	The unavailability of funds for capital expenditures;
	●	Operational inefficiencies in distribution or other systems; and
	●	New tariffs relating to raw materials imported from China.

 

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.

 

 

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.

CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS

(U.S. Dollars)

 

		June 30, 2024				December 31, 2023
		(Unaudited)
Assets
Current
Cash		$	6,843,825			$	5,017,583
Term deposits (Note 2)			2,365,613				2,690,241
Accounts receivable, net (Note 4)			8,792,696				9,843,056
Inventories (Note 5)			10,333,958				11,134,889
Prepaid expenses and deposits			586,473				1,540,923
Total current assets			28,922,565				30,226,692
Property, equipment and leaseholds, net (Note 6)			13,976,733				13,171,787
Right of use assets (Note 3)			-				115,293
Intangible assets (Note 7)			2,200,000				2,280,000
Long term deposits (Note 8)			2,521,905				824,254
Investments (Note 9)			5,904,624				6,033,960
Goodwill (Note 7)			2,534,275				2,534,275
Deferred tax asset (Note 2)			284,794				284,794
Total Assets		$	56,344,896			$	55,471,055
Liabilities
Current
Accounts payable		$	1,488,836			$	1,984,592
Accrued liabilities			1,258,609				284,131
Deferred revenue			79,917				148,292
Income taxes payable			5,307,642				4,485,213
Short term line of credit (Note 10)			619,844				1,810,479
Current portion of lease liability (Note 3)			-				59,520
Current portion of long term debt (Note 11)			2,163,602				1,281,632
Total current liabilities			10,918,450				10,053,859
Lease liability (Note 3)			-				55,773
Deferred income tax liability (Note 2)			260,047				260,047
Long term debt (Note 11)			6,102,531				6,833,304
Total Liabilities			17,281,028				17,202,983
Stockholders’ Equity
Capital stock (Note 13)
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:
12,450,532 (December 31, 2023: 12,435,532) common shares			12,451				12,436
Common stock, value			12,451				12,436
Capital in excess of par value			18,337,510				17,932,015
Other comprehensive loss			(732,805	)			(795,146	)
Accumulated earnings			18,545,020				18,053,051
Total stockholders’ equity – controlling interest			36,162,176				35,202,356
Non-controlling interests (Note 14)			2,901,692				3,065,716
Total Stockholders’ Equity			39,063,868				38,268,072
Total Liabilities and Stockholders’ Equity		$	56,344,896			$	55,471,055

 

— See Notes to Unaudited Condensed Interim Consolidated Financial Statements —

 

 

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(U.S. Dollars — Unaudited)

 

		2024				2023
		Three Months Ended June 30,
		2024				2023
Sales		$	10,528,739			$	10,331,291
Cost of sales			6,589,644				7,292,438
Gross profit			3,939,095				3,038,853
Operating Expenses
Wages			594,384				787,621
Administrative salaries and benefits			289,777				394,305
Insurance			229,198				228,445
Office and miscellaneous			197,707				74,944
Interest expense			157,131				115,498
Consulting			142,395				69,253
Professional fees			122,470				79,532
Utilities			76,256				5,487
Advertising and promotion			63,283				62,011
Research			62,474				15,833
Travel			61,179				64,612
Currency exchange			47,681				13,925
Investor relations and transfer agent fee			46,174				32,993
Telecommunications			15,996				10,432
Lease expense			12,195				27,645
Shipping			7,014				5,100
Commissions
Total operating expenses			2,125,314				1,987,636
Operating income			1,813,781				1,051,217
Gain on investment			115,463				256,708
Loss on lease termination
Interest income			61,440				41,174
Income before income tax			1,990,684				1,349,099
Income taxes
Income tax expense			(558,251	)			(354,372	)
Net income for the period including non-controlling interests			1,432,433				994,727
Less: Net income attributable to non-controlling interests			(142,637	)			(184,862	)
Net income attributable to controlling interest		$	1,289,796			$	809,865
Income per share (basic)		$	0.10			$	0.07
Income per share (diluted)		$	0.10			$	0.06
Weighted average number of common shares (basic)			12,450,532				12,435,532
Weighted average number of common shares (diluted)			12,480,712				12,519,930
Other comprehensive income (loss):
Net income			1,432,433				994,727
Unrealized income (loss) on foreign currency translations			35,118				226,645
Total comprehensive income		$	1,467,551			$	1,221,372
Comprehensive income – non-controlling interest			(142,637	)			(184,862	)
Comprehensive income attributable to Flexible Solutions International Inc.		$	1,324,914			$	1,036,510

 

 

— See Notes to Unaudited Condensed Interim Consolidated Financial Statements —

 

 

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

(U.S. Dollars — Unaudited)

 

		2024				2023
		Six Months Ended June 30,
		2024				2023
Sales		$	19,753,611			$	20,178,808
Cost of sales			12,994,149				14,054,963
Gross profit			6,759,462				6,123,845
Operating Expenses
Wages			1,245,542				1,459,313
Administrative salaries and benefits			707,636				787,319
Insurance			473,458				429,975
Office and miscellaneous			355,330				173,790
Interest expense			332,397				250,368
Consulting			242,316				132,230
Research			189,128				37,335
Professional fees			183,465				142,299
Utilities			149,932				12,974
Advertising and promotion			130,232				110,409
Travel			127,440				126,264
Investor relations and transfer agent fee			85,478				122,885
Currency exchange			46,046				16,501
Lease expense			42,345				52,940
Telecommunications			29,528				23,010
Shipping			14,843				9,766
Commissions			-				2,985
Total operating expenses			4,355,116				3,890,363
Operating income			2,404,346				2,233,482
Gain on investment			298,438				326,703
Loss on lease termination			(41,350	)			-
Interest income			109,637				53,185
Income before income tax			2,771,071				2,613,370
Income taxes
Income tax expense			(822,429	)			(654,149	)
Net income for the period including non-controlling interests			1,948,642				1,959,221
Less: Net income attributable to non-controlling interests			(201,620	)			(264,987	)
Net income attributable to controlling interest		$	1,747,022			$	1,694,234
Income per share (basic and diluted)		$	0.14			$	0.14
Weighted average number of common shares (basic)			12,450,118				12,434,230
Weighted average number of common shares (diluted)			12,450,118				12,498,945
Other comprehensive income:
Net income		$	1,948,642			$	1,959,221
Unrealized gain (loss) on foreign currency translations			62,341				59,406
Total comprehensive income		$	2,010,983			$	2,018,627
Comprehensive income – non-controlling interest			(201,620	)			(264,987	)
Comprehensive income attributable to Flexible Solutions International Inc.		$	1,809,363			$	1,753,640

 

 

— See Notes to Unaudited Condensed Interim Consolidated Financial Statements —

 

 

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. Dollars — Unaudited)

 

		2024				2023
		Six Months Ended June 30,
		2024				2023
Operating activities
Net income for the period including non-controlling interest		$	1,948,642			$	1,959,221
Adjustments to reconcile net income to cash provided by operations:
Stock based compensation			379,260				366,526
Depreciation and amortization			939,524				751,574
Lease right of use amortization			13,694				25,687
Lease right of use financing			1,186				3,353
Loss on termination lease			41,350				-
Gain on investment			(298,438	)			(326,703	)
Changes in non-cash working capital items:
(Increase) Decrease in accounts receivable			1,050,360				2,014,807
(Increase) Decrease in inventories			800,931				3,646,494
(Increase) Decrease in prepaid expenses			954,450				(558,583	)
Increase (Decrease) in accounts payable and accrued liabilities			478,723				(8,821	)
Increase (Decrease) in taxes payable			822,429				405,577
Increase (Decrease) deferred revenue			(68,375	)			(352,357	)
Cash provided by operating activities			7,063,736				7,926,775
Investing activities
Long term deposits			(1,703,091	)			(361,616	)
Proceeds of equity method investment distributions			427,000				-
Net purchase of property, equipment and leaseholds			(1,663,697	)			(3,784,193	)
Non-controlling interest of 317 Mendota			-				200,000
Additional investment in Trio			-				(470,000	)
Cash (used in) investing activities			(2,939,788	)			(4,415,809	)
Financing activities
Repayment of short term line of credit			(1,190,635	)			(2,818,591	)
Repayment of long term debt			(373,615	)			(361,265	)
Proceeds from loans			524,812				2,248,292
Dividends paid			(1,255,053	)			(626,777	)
Lease financing costs			(50,790	)			(29,040	)
Distributions to non-controlling interest			(365,644	)			(387,696	)
Proceeds of issuance of common stock			26,250				13,600
Cash (used in) financing activities			(2,684,675	)			(1,961,477	)
Effect of exchange rate changes on cash			62,341				59,406
Inflow (outflow) of cash			1,501,614				1,608,895
Cash and term deposits, beginning			7,707,824				6,815,099
Cash and term deposits, ending		$	9,209,438			$	8,423,994
Cash and term deposits are comprised of:
Cash		$	6,843,825			$	7,413,753
Term deposits			2,365,613				1,010,241
Cash and cash equivalents, ending		$	9,209,438			$	8,423,994

 

— See Notes to Unaudited Condensed Interim Consolidated Financial Statements —

 

 

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.

CONDENSED INTERIM Consolidated Statements of Stockholders’ Equity

(U.S. Dollars – Unaudited)

 

		Shares				Par Value				Capital in Excess of Par Value				Accumulated Earnings				Other Comprehensive Income (Loss)				Total				Non- Controlling Interests				Total   Stockholders’ Equity
Balance December 31, 2023			12,435,532			$	12,436			$	17,932,015			$	18,053,051			$	(795,146	)		$	35,202,356			$	3,065,716			$	38,268,072
Translation adjustment			—				—				—				—				27,223				27,223				—				27,223
Net income			—				—				—				457,226				—				457,226				58,983				516,209
Common stock issued			15,000				15				26,235				—				—				26,250				—				26,250
Stock-based compensation			—				—				253,357				—				—				253,357				—				253,357
Balance March 31, 2024			12,450,532			$	12,451			$	18,211,607			$	18,510,277			$	(767,923	)		$	35,966,412			$	3,124,699			$	39,091,111
Translation adjustment			—				—				—				—				35,118				35,118				—				35,118
Net income			—				—				—				1,289,796				—				1,289,796				142,637				1,432,433
Dividends paid			—				—				—				(1,255,053	)			—				(1,255,053	)			—				(1,255,053	)
Distributions to noncontrolling interests			—				—				—				—				—				—				(365,644	)			(365,644	)
Stock-based compensation			—				—				125,903				—				—				125,903				—				125,903
Balance June 30, 2024			12,450,532			$	12,451			$	18,337,510			$	18,545,020			$	(732,805	)		$	36,162,176			$	2,901,692			$	39,063,868

 

— See Notes to Unaudited Condensed Interim Consolidated Financial Statements —

 

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.

CONDENSED INTERIM Consolidated Statements of Stockholders’ Equity

(U.S. Dollars – Unaudited)

 

		Shares				Par Value				Capital in Excess of Par Value				Accumulated Earnings				Other Comprehensive Income (Loss)				Total				Non- Controlling Interests				Total   Stockholders’ Equity
Balance December 31, 2022			12,426,260			$	12,426			$	17,523,345			$	15,903,964			$	(805,799	)		$	32,633,936			$	2,605,034			$	35,238,970
Translation adjustment			—				—				—				—				(167,239	)			(167,239	)			—				(167,239	)
Net income			—				—				—				884,369				—				884,369				80,125				964,494
Common stock issued			9,272				10				13,590				—				—				13,600				—				13,600
Stock-based compensation			—				—				185,298				—				—				185,298				—				185,298
Balance March 31, 2023			12,435,532			$	12,436			$	17,722,233			$	16,788,333			$	(973,038	)		$	33,549,964			$	2,685,159			$	36,235,123
Balance			12,435,532			$	12,436			$	17,722,233			$	16,788,333			$	(973,038	)		$	33,549,964			$	2,685,159			$	36,235,123
Translation adjustment			—				—				—				—				226,645				226,645				—				226,645
Net income			—				—				—				809,865				—				809,865				184,862				994,727
Dividends paid			—				—				—				(626,777	)			—				(626,777	)			—				(626,777	)
Non-controlling interest of 317 Mendota LLC			—				—				—				—				—				—				200,000				200,000
Distributions to noncontrolling interests			—				—				—				—				—				—				(387,696	)			(387,696	)
Stock-based compensation			—				—				181,228				—				—				181,228				—				181,228
Balance June 30, 2023			12,435,532			$	12,436			$	17,903,461			$	16,971,421			$	(746,393	)		$	34,140,925			$	2,682,325			$	36,823,250
Balance			12,435,532			$	12,436			$	17,903,461			$	16,971,421			$	(746,393	)		$	34,140,925			$	2,682,325			$	36,823,250

 

— See Notes to Unaudited Condensed Interim Consolidated Financial Statements —

 

 

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2024

(U.S. Dollars - Unaudited)

 

1. BASIS OF PRESENTATION

 

These interim condensed consolidated financial statements (“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., InnFlex Holdings Inc., ENP Peru Investments LLC (“ENP Peru”), its 80% controlling interest in 317 Mendota LLC (“317 Mendota”), and its 65% controlling interest in ENP Investments, LLC (“ENP Investments”) and ENP Mendota, LLC (“ENP Mendota”). 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 in 2019 the Company redomiciled into Alberta, Canada.

 

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.

 

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.

 

In the opinion of management, the accompanying unaudited condensed interim consolidated financial statements contain all adjustments (all of which are of a normal recurring nature) and disclosures necessary for a fair presentation of the Company’s financial position as of June 30, 2024 and the results of its operations for the three and six months then ended. The consolidated balance sheet as of December 31, 2023 is derived from the December 31, 2023 audited financial statements.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S, GAAP have been condensed or omitted. These unaudited condensed interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K/A for the year ended December 31, 2023. The results of operations for the period ended June 30, 2024 are not necessarily indicative of the operating results that may be expected for the full year.

 

(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. As of June 30, 2024 and December 31, 2023, the Company did not have any cash equivalents.

 

(b) Term Deposits.

 

The Company has four term deposits that are maintained by commercials banks. The first term deposit is for $303,954 and matures in February 2025. This deposit pays 1.3% interest and if withdrawn before maturity, a penalty may be applied. The second term deposit is for $731,767, matures in November 2024 and pays interest at a rate of 3.00%. If withdrawn before maturity, the greater of the loss of accrued interest or $150, plus 1% of the principal shall be levied. The third term deposit is for $1,019,197 and matures in November 2024. This deposit pays 3.85% and if withdrawn before maturity, the greater of the loss of accrued interest or $150, plus 1% of the principal shall be levied. The fourth term deposit is for $310,695, matures in August 2024 and pays interest at a rate of 3.85%. If withdrawn before maturity, a penalty may be applied.

 

(c) 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 or 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 (2024 - $288,826; 2023 - $286,290). Shipping and handling costs incurred are included in cost of goods sold (2024 - $509,167; 2023 - $542,321).

 

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(d) Allowance for expected credit losses.

 

The Company’s expected credit losses are determined through a review using historical credit loss experience; changes in asset specific characteristics, current conditions, and reasonable and supportable future forecasts, among other specific account data, and is performed at least quarterly. The Company develops and documents its methodology to determine its allowance for expected credit losses. Risk characteristics used by the Company may include customer mix, knowledge of customers and general economic conditions of the various local economics, among others. Specific account balances are written off when management determines the amounts to be uncollectible. Management has reviewed the balance reserved through the allowance for expected losses and believes it is reasonable.

 

(e) 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 

Manufacturing equipment		20% Declining balance
Office equipment		20% Declining balance
Building and improvements		10% Declining balance
Automobiles		Straight-line over 5 years
Technology		Straight-line over 10 years
Leasehold improvements		Straight-line over lease term
Customer relationships		Straight-line over 15 years

 

(f) 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.

 

(g) 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 period. 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.

 

(h) Revenue Recognition.

 

The Company generates revenue primarily from energy and water conservation products and biodegradable polymers, as further discussed in Note 15.

 

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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 free-on-board 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.

 

(i) 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.

 

(j) 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.

 

(k) 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 related to the translation of subsidiaries’ functional currency into the reporting currency.

 

(l) 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 six months ended June 30, 2024 and 2023.

 

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(m) 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, valuation of assets acquired at fair value, asset impairment analysis, share-based payments, 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 costing and recoverable value of inventory.

 

(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, term deposits, 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 and lease liabilities for all periods presented approximate their respective carrying amounts due to these financial instruments being at market rates.

 

(o) 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.

 

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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. The Company is not aware of any contingencies at the date of these consolidated financial statements.

 

(p) Income Taxes.

 

Income taxes are computed by multiplying the Company’s taxable net income by the Company’s effective tax rates. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss carry-forwards, if any. Deferred income 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 income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to reduce the carrying amount of deferred income tax assets if it is considered more likely than not that some portion, or all, of the deferred income tax assets will not be realized.

 

In accordance with FASB Codification Topic 740, Income taxes (ASC 740) 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 June 30, 2024, 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. Revenue for the Company’s three primary customers totaled $9,843,563 (50%) for the six months ended June 30, 2024 (2023 - $9,276,058 or 46%) and $5,520,361 (52%) for the three months ended June 30, 2024 (2023 - $5,172,025 or 50%). Accounts receivable for the Company’s three primary customers for the six months ended June 30, 2024 totaled $4,443,400 or 49% (2023 - $4,172,657 or 56%). Accounts receivable for the Company’s three primary customers for the three months ended June 30, 2024 totaled $4,333,665 or 49% (2023 - $4,172,657 or 56%; December 31, 2023 - $6,561,164 or 67%).

 

The credit risk on cash is limited because the Company limits its exposure to credit loss by placing its cash 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 risk to the extent that market value rate fluctuations materially differ for financial assets and liabilities denominated in foreign currencies.

 

In order to manage its exposure to foreign exchange risks, the Company closely monitors the fluctuations in the foreign currency exchange rates and the impact on the value of cash, 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 subject to fixed long-term interest rates.

 

In order to manage its exposure to interest rate risk, the Company closely monitors fluctuations in market interest risks and will refinance its long-term debt where possible to obtain more favourable rates.

 

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(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 initially 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 (loss).

 

(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 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 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. 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.

 

In accordance with FASB Codification Topic 350, Intangibles – Goodwill and Other, (ASC 350), qualitative assessments of goodwill and indefinite-lived intangible assets were performed at December 31, 2023. 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 amounts. Accordingly, no further impairment testing was completed and no impairment charges related to goodwill or indefinite-lived intangibles were recognized during the three or six months ended June 30, 2024.

 

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.

 

(t) 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.

 

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3. LEASES

 

Leases are 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-long term 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%.

 

In March 2024, the Company consolidated NanoChem operations into the Peril, IL locations and terminated the lease in Naperville, IL. The Company had to pay a penalty of $35,910 and forfeited the $5,440 security deposit to terminate the lease early and incurred a loss of $41,350 on early termination of the lease. The table below summarizes the right-of-use asset and lease liability for the periods ended June 30, 2024 and December 31, 2023.

 SUMMARY OF RIGHT-OF-USE ASSET AND LEASE LIABILITY

Right of Use Assets
Balance at December 31, 2022		$	167,222
Depreciation			(51,929	)
Balance at December 31, 2023		$	115,293
Depreciation			(13,694	)
Early termination of lease			(101,599	)
Balance at June 30, 2024		$	-
Lease Liability
Balance at December 31, 2022		$	167,222
Lease interest expense			6,151
Payments			(58,080	)
Balance at December 31, 2023		$	115,293
Lease interest expense			1,186
Payments			(14,880	)
Early termination of lease			(101,599	)
Balance at June 30, 2024		$	-

 

4. ACCOUNTS RECEIVABLE

 SCHEDULE OF ACCOUNTS RECEIVABLE

		June 30, 2024				December 31, 2023
Accounts receivable		$	9,081,600			$