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 SEPTEMBER 30TH 2004
-------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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 11,831,916 shares as of Oct 29th 2004.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2004
(UNAUDITED - U.S. DOLLARS)
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SEPTEMBER 30 DECEMBER 31
2004 2003
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Assets
CURRENT
Cash and cash equivalents $ 774,324 $ 237,080
Short term investments 938,360 5,033,837
Accounts receivable 591,524 294,238
Income tax receivable 85,123 86,243
Loan receivable 17,849 17,585
Inventory 1,009,891 212,938
Prepaid expenses 134,279 36,101
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3,551,350 5,918,022
PROPERTY AND EQUIPMENT 5,207,929 167,589
INVESTMENT 303,500 303,500
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$9,062,779 $6,389,111
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LIABILITIES
CURRENT
Due to shareholders - 7,700
Short term loan 3,150,000
Accounts payable and accrued liabilities 159,817 $ 157,643
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3,309,817 165,343
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
11,831,916 (2003: 11,794,916) common shares 11,832 11,794
CAPITAL IN EXCESS OF PAR VALUE 7,571,032 7,306,613
OTHER COMPREHENSIVE INCOME (LOSS) - 3,023
DEFICIT (1,829,903) (1,097,662)
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TOTAL STOCKHOLDER'S EQUITY 5,752,961 6,223,768
-------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $9,062,778 $6,389,111
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The accompanying notes are an integral part of these statements.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED - U.S. DOLLARS)
NINE MONTHS ENDED
SEPTEMBER 30
----------------------------
2004 2003
------------ ------------
SALES $ 2,411,925 $ 1,982,571
COST OF SALES 829,314 1,130,293
----------- ------------
GROSS PROFIT 1,582,611 852,278
------------ ------------
OPERATING EXPENSES
Wages 606,942 408,658
Administrative salaries and benefits 94,973 60,258
Advertising and promotion 73,258 60,915
Investor relations and transfer agent fee 173,164 120,273
Office and miscellaneous 154,053 59,334
Insurance 33,475
Interest expense 29,364
Rent 114,711 49,153
Consulting 294,109 122,223
Professional fees 212,146 173,143
Travel 79,831 120,030
Telecommunications 28,464 36,576
Shipping 21,950 14,687
Research 21,000 61,298
Bad debt expense (recovery) (797) 822
Currency exchange 5,666 20,787
Utilities 46,469 13,938
Depreciation 359,536 24,768
------------ ------------
2,348,314 1,346,863
------------ ------------
INCOME (LOSS) BEFORE INTEREST INCOME AND INCOME TAX (765,704) (494,585)
INTEREST INCOME 33,464 155,196
------------ ------------
INCOME (LOSS) BEFORE INCOME TAX (732,239) (339,389)
INCOME TAX (RECOVERY) (363)
------------ ------------
NET INCOME (LOSS) (732,239) $ (339,026)
DEFICIT, BEGINNING (1,097,662) (3,100,974)
============ ============
DEFICIT, ENDING (1,829,901) (3,440,000)
NET INCOME (LOSS) PER SHARE $ (0.06) $ (0.03)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 11,826,345 11,715,619
============ ============
The accompanying notes are an integral part of these statements.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED - U.S. DOLLARS)
THREE MONTHS ENDED
SEPTEMBER 30
-------------------------------------------------------------------------------
2004 2003
-------------------------------------------------------------------------------
SALES $ 1,376,054 $ 40,009
COST OF SALES 418,307 34,944
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GROSS PROFIT 957,747 5,065
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OPERATING EXPENSES
Wages 349,226 74,786
Administrative salaries and benefits 37,429 20,783
Advertising and promotion 16,466 31,757
Investor relations and transfer agent fee 50,539 51,606
Office and miscellaneous 62,099 24,559
Insurance 28,507
Interest expense 29,364 -
Rent 62,495 11,601
Consulting 105,293 39,572
Professional fees 104,432 45,270
Travel 30,317 41,611
Telecommunications 13,750 11,976
Shipping 11,153 6,409
Research 5,158 41,594
Bad debt expense (recovery) - 822
Currency exchange 2,343 (42,172)
Utilities 32,271 3,711
Depreciation 173,989 8,841
-------------------------------------------------------------------------------
1,114,831 372,726
-------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INTEREST INCOME AND INCOME TAX (157,084) (367,661)
INTEREST INCOME 2,994 50,950
-------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAX (154,090) (316,711)
INCOME TAX (RECOVERY) (26,457)
-------------------------------------------------------------------------------
NET INCOME (LOSS) (154,090) $ (290,254)
DEFICIT, BEGINNING (1,675,812) $(3,149,746)
-------------------------------------------------------------------------------
DEFICIT, ENDING (1,829,902) $(3,440,000)
NET INCOME (LOSS) PER SHARE $ (0.01) $ (0.02)
-------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES 11,831,916 11,791,612
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED - U.S. DOLLARS)
-----------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30
2004 2003
-----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ (732,241) $ (339,026)
Stock compensation expense 206,957 68,998
Depreciation 359,536 24,768
Changes in non-cash working capital items:
Accounts receivable (297,286) (170,996)
Inventory (796,953) (23,462)
Prepaid expenses (98,177) 34,685
Accounts payable 2,174 12,796
Income tax receivable 1,120 60,014
Decrease in due to shareholders (7,700) -
Unrealized foreign exchange gain/loss - -
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,362,571) (332,223)
-----------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of property and equipment (5,399,876) (49,477)
Short-term investments 4,095,477 (143,683)
Loan receivable (264) (277,625)
Acquisition of investments - (1,827)
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CASH USED IN INVESTING ACTIVITIES (1,304,663) (472,612)
-----------------------------------------------------------------------------
FINANCING ACTIVITY
Subscriptions received - 3,000
Short term loan 3,150,000
Proceeds from issuance of common stock 57,500 401,058
-----------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 3,207,500 404,058
-----------------------------------------------------------------------------
Effect of exchange rate changes on cash (3,022) (14,576)
-----------------------------------------------------------------------------
INFLOW (OUTFLOW) OF CASH 537,244 (415,353)
Cash and cash equivalents, beginning of period 237,080 556,789
-----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 774,324 $ 141,436
-----------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ - $ 58,000
Interest received 33,464 155,196
-----------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30
(U.S. DOLLARS)
(UNAUDITED)
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, 2003 Annual Report on Form 10-KSB. This
quarterly report should be read in conjunction with such
annual report.
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, 2004 and the consolidated results of
operations and the consolidated statements of cash flows for
the nine months ended September 30, 2004 and 2003. The results
of operations for the three months ended September 30, 2004
are not necessarily indicative of the results to be expected
for the entire fiscal year.
2. SIGNIFIGANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in
accordance with generally accepted accounting principles
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) Inventory -
Inventory is valued at the lower of cost and net realizable
value. Cost is determined on a first-in, first-out basis.
c) Property, Equipment and Leaseholds -
The following assets are recorded at cost and depreciated
using the following methods using the following annual rates:
Computer hardware 30% Declining balance
Furniture and fixtures 20% Declining balance
Manufacturing equipment 20% Declining balance
Office equipment 20% Declining balance
Trailer 30% Declining balance
Building 10% Declining balance
Leasehold improvements Straight-line over lease term
Property and equipment are written down to net realizable
value when management determines there has been a change in
circumstances which indicates its carrying amount may not be
recoverable. No write downs have been necessary to date.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30
(U.S. DOLLARS)
(UNAUDITED)
d) Foreign Currency -
The functional currency of the company is the Canadian dollar. The
translation of the Canadian dollar to the reporting currency of 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
financial statements from the company's functional currency, Canadian
dollars, into the reporting currency, U.S. dollars, are excluded from
the determination of income and disclosed as other comprehensive income
(loss) in stockholders' equity.
Foreign exchange gains and losses relating to transactions not
denominated in the applicable local currency are included in income if
realized during the year and in comprehensive income if they remain
unrealized at the end of the year.
e) Revenue Recognition -
Revenue from product sales is recognized at the time the product is
shipped since title and risk of losses is transferred to purchaser upon
delivery to the carrier. Shipments are made F.O.B. shipping point.
Provisions are made at the time the related revenue is recognized for
estimated product returns. Since the company's inception, product
returns have been insignificant, therefore no provision has been
established for estimated product returns.
f) Stock Issued in Exchange for Services -
The valuation of the common stock issued in exchange for services is
valued at an estimated fair market value as determined by officers and
directors of the company based upon trading prices of the company's
common stock on the dates of the stock transactions.
g) Stock Based Compensation -
The company applies APB Opinion No. 25 and related interpretations in
accounting for its employee stock option plans. Compensation expense is
recorded when options are granted to management at discounts to market.
h) Comprehensive Income -
Other comprehensive income refers to revenues, expenses, gains and
losses that under generally accepted accounting principles are included
in comprehensive income but are excluded from net income as these
amounts are recorded directly as an adjustment to stockholders' equity.
The company's other comprehensive income is primarily comprised of
unrealized foreign exchange gains and losses.
i) Income (Loss) Per Share -
Income (loss) per share is calculated by dividing net income (loss) by
the weighted average number of shares outstanding.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30
(U.S. DOLLARS)
(UNAUDITED)
j) Use of Estimates -
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of
America 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.
k) Financial Instruments -
The fair market value of the company's financial instruments comprising
cash, short-term investment, accounts receivable, income tax
recoverable, loan receivable, accounts payable and accrued liabilities
and amounts due to shareholders were estimated to approximate their
carrying values due to immediate or short-term maturity of these
financial instruments.
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.
l) Recent Accounting Pronouncements -
i) In June 2001, the Financial Accounting Standards Board
(FASB) issued FAS 142, Goodwill and Other Intangible
Assets. Under FAS 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed
at least annually for impairment. The amortization
provisions of FAS 142 apply to goodwill and intangible
assets acquired after June 30, 2001. With respect to
goodwill and intangible assets acquired prior to July 1,
2001, the company adopted FAS 142 effective January 1,
2002. Application of the non-amortization provisions of FAS
142 for goodwill did not have any impact on its financial
reporting
ii) In October 2001, the FASB issued Statement of Financial
Accounting Standards for FAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." FAS 144
addresses significant issues relating to the implementation
of FAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," and
develops a single accounting model, based on the framework
established in FAS 121 for long-lived assets to be disposed
of by sale, whether such assets are or are not deemed to be
a business. FAS 144 also modifies the accounting and
disclosure rules for discontinued operations. The standard
was adopted on January 1, 2002 and did not have any impact
on the financial statements.
In November 2001, the FASB issued EITF Issue No. 01-14,. "Income
Statement Characterization of Reimbursements Received for "Out of
Pocket" Expenses Incurred." This guidance requires companies to
recognize the recovery of reimbursable expenses such as travel costs on
service contracts as revenue. These costs are not to be netted as a
reduction of cost. This guidance was implemented January 1, 2002. The
company does not expect this guidance to have a material impact on the
financial statements
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30
(U.S. DOLLARS)
(UNAUDITED)
3. PROPERTY, EQUIPMENT AND LEASEHOLDS:
Accumulated September December
Cost Amortization 2004 Net 2003 Net
----------------------------------------------------------------------
Computer hardware $ 36,371 $ 11,692 $ 24,680 $ 9,267
Furniture and equipment 14,278 3,197 11,080 3,293
Office equipment 27,339 9,231 18,108 15,195
Manufacturing equipment 2,037,063 291,093 1,745,970 133,283
Trailer 1,763 577 1,186 1,518
Building 3,144,259 153,754 2,990,507 -
Leasehold improvements 23,610 9,227 14,382 5,033
Trade show display 4,140 310 3,830 -
Land 398,186 - 398,186 -
----------------------------------------------------------------------
$5,687,009 $479,081 $5,207,929 $167,589
===============================================================================
4. STOCKHOLDERS' EQUITY
(a) During the prior periods, the Company granted stock options to
consultants and have recognized consulting expense applying SFAS
123 using the Black-Scholes option pricing model which resulted in
expense of $71,727 for the three months ended September 30, 2004.
(b) The following table summarizes the Company's stock option activity
for the period:
-------------------------------------------------------------------------------------
2004
Weighted
Exercise Average
Number Price Exercise
of Shares Per Share Price
-------------------------------------------------------------------------------------
Balance, June 30, 2004 1,758,740 $ 1.00 to $ 4.55 $ 2.79
Granted During the Period 5,000 $3.60 3.60
Exercised 0 0 0
-------------------------------------------------------------------------------------
Cancelled 500,000 $2.50 to $3.50 $3.10
-------------------------------------------------------------------------------------
Balance, September 30, 2004 1,263,740 $ 1.00 to $ 4.25 $ 2.67
-------------------------------------------------------------------------------------
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30
(U.S. DOLLARS)
(UNAUDITED)
5. ACQUISITION OF ASSETS OF DONLAR CORPORATION
Pursuant to a purchase agreement dated May 26, 2004, the
company acquired the assets of Donlar Corporation on June 9,
2004.
The purchase price of the transaction was $6,150,000 with
consideration being a combination of cash and debt. Under the
purchase agreement and as part of the consideration, the
company issued a promissory note bearing interest at the prime
rate to the vendor to satisfy $3,150,000 of the purchase
price.
The following table summarizes the estimated fair value of the
assets acquired at the date of acquisition:
As at June 9, 2004:
Current assets $ 1,126,805
Property and equipment 5,023,195
--------------------------------------------------------------------------------
$ 6,150,000
Acquisitions costs assigned to property and equipment 254,874
--------------------------------------------------------------------------------
Total assets acquired $ 6,404,874
6. CONTINGENCIES
a) The company has been named as a defendant in a lawsuit filed in the
state of Illinois by a former employee. In November 2003, an
ex-employee, Patrick Grant filed suit against Flexible Solutions in
Cook County Circuit Court, Cook County IL, claiming wrongful
dismissal and seeking return of options rights or cash. The company
believes these allegations are without merit and intends to
vigorously defend against them.
b) The company is plaintiff in a lawsuit demanding return of the share
certificate of 100,000 shares of stock originally given to the
defendant as payment in advance for services. The services for which
the advance was given were never performed or given to the company,
and the company therefore received no consideration or value for
such advance. Return of the share certificate for 100,000 shares was
demanded within ten (10) days, namely August 22, 2001, however, to
date remains unreturned.
On date of issue, January 4, 2001, the share transaction was
recorded as shares issued for services at fair market value, a value
of $0.80 per share.
c) The company has been named the defendant in a lawsuit filed in the
Federal Court of Canada as well as the plaintiff in a countersuit in
the same court. In July 2004, a former distributor, Sunsolar Energy
Technologies, filed suit claiming trademark infringement. The
company believes these allegations are without merit and intends to
vigorously defend against them.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30
(U.S. DOLLARS)
(UNAUDITED)
d) The company is plaintiff in a lawsuit demanding the return of the
share certificate of 100,000 shares of stock originally given as
payment in advance for services, $10,000 and undetermined damages
resulting from a breach of contract. The suit has been filed in
Circuit Court of Cook County, IL against Tatko Biotech Inc. of
Peoria, IL. The services for which the advance was given were never
performed or given to the company, and the company therefore
received no consideration or value for such advance.
The shares issued were recorded at fair market value less 10%,
resulting in an expense of $271,000 recognized in June 2003.
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.
RESULTS OF OPERATIONS
The following analysis and discussion pertains to the Company's results of
operations for the three month and nine month periods ended Sept. 30th 2004,
compared to the results of operations for the three month and nine month periods
ended Sept. 30th 2003, and to changes in the Company's financial condition from
December 31st 2003 to Sept. 30th 2004.
THREE MONTHS ENDED SEPTEMBER 30TH 2004 AND 2003
For the three months ended Sept. 30th 2004, the Company experienced a loss of
$154,090 as compared to a loss of $290,254 for the three months ended Sept. 30th
2003. Although swimming pool product sales were negatively impacted by the end
of the northeastern season and the transition from outside to inside
distribution, increases in pool product sales outside of North America and a
full quarter of operations from the NanoChem division resulted in revenue of
$1,376,054 compared to $40,009 in the year earlier quarter. Management is
extremely satisfied with the effect of the acquisition. The NanoChem division
contributed greatly to sales and cash flow only 110 days after the close and is
starting to replace the capital expended for it. As well, opportunities to
synergistically cross sell the products of all divisions have already generated
leads to new business and the swimming pool division has discovered ways to help
NanoChem increase utilization of the Peru, IL factory while decreasing costs for
the Company as a whole. The Company maintained expenditures in the areas of
WaterSavr sales and marketing and production equipment development. The major
changes that resulted in the large revenue increase were greater sales from our
swimming pool division into new overseas markets and the first complete quarter
of sales from the recently acquired NanoChem division. NanoChem sales are much
less seasonal than those of our WaterSavr and Flexible Solutions Ltd divisions
which should lead to less volatile sales figures in future. Management will
attempt to reduce seasonality even further over time.
Operating expenses were $1,114,831 for the third quarter, up from $372,725 for
the third quarter of 2003. Flexible Solutions continued expanding its sales and
marketing efforts for WaterSavr with the objective of closing the first major
sales as soon as possible and with development of advanced production machinery
for swimming pool products. The largest real increases were in the areas of
wages ($349,226 versus $74,786), rent, ($62,495 versus $11,601), office ($62,099
from $24,559), and consulting, (105,293 versus 39,572). These increases are
wholly accounted for by the operating costs of the new division and represent a
permanent increase in operating costs related to the new level of sales. The
decreases in travel, ($30,317 versus $41,611) and advertising ($16,466 down from
$31,757) are the result of better cost control in these areas instituted by
management over the past year. Professional fees increased to $104,432 from
$45,270 in the quarter. This was largely the result of the one time costs of
transferring patent assets of the acquisition. In addition, a substantial amount
of the increase in consulting fees, from $39,572 to $105,293, is the result of
expensing of consultant options. Note should be made that depreciation increased
to $173,989 from $8,841 as a result of the depreciable NanoChem assets acquired
in June 2004.
The loss for the quarter was $154,090, a decrease from third quarter last year
when the loss was $290,254. The decreased loss was realized through increased
sales in swimming pool products compared to the year earlier quarter augmented
by positive operating cash from the NanoChem division.
The loss per share was $0.01 for the three months ended September 30th 2004
compared to a loss of $0.02 for the three months ended September 30th 2003.
NINE MONTHS ENDED SEPTEMBER 30TH 2004 AND 2003
Sales in the nine months ended September 30th 2004 were $2,411,925 compared to
$1,982,571 for the nine months ended September 30th 2003. The swimming pool
division experienced temporarily reduced sales as a result of taking over
distribution from an outside group. The product pipeline was filled prior to the
distribution change and the focus of our sales team was directed toward ensuring
sales for the 2005 season and expanding sales overseas. However, 20 days of
revenue in second quarter and the full third quarter from the NanoChem division
combined with reasonable sales in the swimming pool products line resulted in
nine month sales of $2,411,925, an increase of 22%.
Operating expenses for the Company were $2,348,314 for the nine months ended
September 30th 2004 up from $1,346,863 for the nine months ended Sept. 30th
2003. The increase in operating expenses was a result of the increase in total
sales. The loss for the nine months ended September 30th 2004 was $732,239
compared to a loss of $339,026 for the nine months ended September 30th 2003. Of
the increased loss, $329,007 was from depreciation on the assets of the
acquisition and $206,957 was from expensing of consultant options.
The loss per share was $0.06 for the nine-month period ended September 30th 2004
compared to a loss of $0.03 for the nine-month period ended September 30th 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company has cash on hand of $774,324 as of the end of Sept 2004 compared to
$141,435 on Sept 30th 2003.
As of September 30th 2004 the Company had working capital of $241,553 as
compared to working capital of $5,857,728 on December 31st 2003. The decrease
was a result of the cash used to purchase the assets that have become the
NanoChem division and the costs associated with that acquisition combined with
the continuing costs of market development for the WaterSavr division.
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 September
30th 2004. 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 extensively in both Canada and the USA. 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
The Company is plaintiff in a
lawsuit demanding the return of the share certificate
of 100,000 shares of stock originally given as
payment in advance for services, $10,000 and
undetermined damages resulting from a breach of
contract. The suit has been filed in Circuit Court of
Cook County, IL against Tatko Biotech Inc. of Peoira,
IL. The services for which the advance was given were
never performed or given to the company, and the
company therefore received no consideration or value
for such advance.
ITEM 2. CHANGES IN SECURITIES
None
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.(B) REPORTS ON FORM 8-K
October 6th, 2004 - Financial results
August 23, 2004 - Legal proceedings
July 26, 2004 -- Appointed Officer
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 12th 2004 /s/ DAN O'BRIEN
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Dan O'Brien
President and Director