UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the fiscal year ended: DECEMBER 31, 2001
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from ________ to ________
Commission file number: 0-29649
Flexible Solutions International Inc.
(Name of small business issuer in its charter)
Nevada, USA N/A
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(State or other Jurisdiction of Incorporation (IRS Employer Identification No.)
or Organization)
2614 Queenswood Drive, Victoria, British Columbia, Canada V8N 1X5
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(Address of principal executive offices)
Issuer's Telephone Number: 250-477-9969
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Securities to be registered pursuant to Section 12(b) of the Act: None
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Securities to be registered pursuant to Section 12(g) of the Act:
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Common Stock $0.001 par value.
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. [X] Yes [ ] No
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year. $1,353,186.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: March 28, 2002 = $26,083,000.
Common Stock, $0.001 par value, of issuer outstanding at March 31, 2002:
9,485,819 shares
Page 1 of 49
Index to Exhibits on Page 33
Flexible Solutions International Inc.
Form 10-KSB
TABLE OF CONTENTS
PART I
Page
Item 1. Description of Business............................... 3
Item 2. Description of Property............................... 17
Item 3. Legal Proceedings..................................... 17
Item 4. Submission of Matters to a Vote of Securities Holders. 17
PART II
Item 5. Market for Common Equity and
Related Stockholder Matters........................... 18
Item 6. Management's Discussion and Analysis or
Plan of Operation..................................... 19
Item 7. Financial Statements.................................. 24
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................ 24
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a) of the
Exchange Act.......................................... 25
Item 10. Executive Compensation............................... 28
Item 11. Security Ownership of Certain Beneficial Owners
and Management....................................... 31
Item 12. Certain Relationships and Related Transactions....... 32
Item 13. Exhibits and Reports on Form 8-K..................... 33
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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Introduction
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Flexible Solutions International Inc. and its subsidiaries hereinafter also are
referred to as the "Company" and/or the "Registrant". The Company is involved in
the sale of specialty chemicals which slow down the evaporation of water.
Applications include swimming pools where their use allows the water to retain a
higher temperature for a longer period of time, irrigation canals, aquaculture,
and reservoirs.
The Company currently manufactures three products: "HEAT$AVR"; the "Tropical
Fish"; and "WATER$AVR".
The Company has one wholly-owned subsidiary:
Flexible Solutions Ltd.;
incorporated in January 1991 in British Columbia; and
acquired in June 1998.
The Company's executive office:
2614 Queenswood Drive, Victoria, British Columbia V8N 1X5
Contact person: Daniel B. O'Brien,
President/Treasurer/Secretary and Director
Telephone: (250) 477-9969
Facsimile: (250) 477-9912
E-Mail: flexsol@vanisle.net
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Website: www.flexiblesolutions.com
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The Company's authorized capital includes 50,000,000 shares of common stock with
$0.001 par value and 1,000,000 shares of preferred stock with $0.01 par value.
As of the close of the Company's latest fiscal year, 12/31/2001, there were
9,272,819 shares of common stock outstanding and no preferred shares
outstanding.
The Company's common stock trades on the NASD OTC Electronic Bulletin Board
under the symbol "FXSO" and on the Frankfurt Stock Exchange in Germany under the
symbol "FXT".
The information in this Annual Report is current as of 12/31/2001, unless
otherwise indicated.
3
Historical Corporate Development
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The Company was incorporated in the state of Nevada on 5/12/1998.
The Company acquired Flexible Solutions Ltd. ("Flexible Solutions") on
6/25/1998. The Company issued 7,000,000 shares of its common stock in exchange
for all of the issued/outstanding stock of Flexible Solutions; the acquisition
was accounted for as a "reverse takeover". The two primary shareholders of
Flexible Solutions were officer/directors of the Company and/or significant
shareholders of the Company: Daniel O'Brien and Robert O'Brien. Accordingly, the
transactions between the Company and Flexible Solutions cannot be deemed to be
an arm's length transaction.
Flexible Solutions was incorporated on 1/25/1991 in British Columbia. From its
inception through the Fiscal 1998 ended January 31st, Flexible Solutions
incurred net income (losses):
1992: $1,326
1993: $1,883
1994: $3,265
1995: $3,440
1996: ($2,454)
1997: $1,679
1998: $3,154
Following acquisition, net income (loss) for the Company increased: 1999 -
$102,848; 2000 - $138,971; and 2001 - ($233,955); the 2001 loss reflects
accounting rules for non-cash compensation, operating income showed an increase
during 2001.
During Fall 1998 the Company completed private placements:
1,050,000 shares at $0.01 per share = gross proceeds of $10,500;
500,000 shares at $0.05 per share = gross proceeds of $25,000;
581,316 shares at $0.25 per share = gross proceeds of $145,329.
The proceeds of these offerings were used for professional fees,
research/development of the "Tropical Fish" product, the purchase of
machinery/dies to begin large scale production of the "Tropical Fish" product,
and general corporate purposes. The investors, in addition to Daniel O'Brien and
Dr. Robert O'Brien, in all instances, were friends, family or business
associates of Daniel O'Brien and/or Dr. Robert O'Brien.
Since incorporation in 1998, the Company has utilized the home of its President
in Victoria, British Columbia, as its "executive offices". Since 1999, the
Company utilized a 1,000 sq.ft., rented, factory facility, in Victoria, British
Columbia. Since April 2000, the Company has maintained a 2,000 sq.ft., rented,
administrative facility in Victoria, British Columbia. In October 2001, the
Company moved all production operations to a 11,000 sq.ft. rented Calgary,
Alberta facility.
4
Business
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Introduction
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The Company manufacturers and markets chemicals and chemical dispensers through
its wholly-owned subsidiary, Flexible Solutions Ltd. The chemicals are designed
to act as energy saving "liquid blankets" which reduce the evaporation of water.
The Company currently manufactures three products: "HEAT$AVR"; the "Tropical
Fish"; and "WATER$AVR".
The HEAT$AVR Product and the Tropical Fish Product
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Product Description:
The primary product of the Company is HEAT$AVR. This product is a non-toxic
chemical that forms an invisible skin on the surface of water thereby reducing
the amount of evaporation and creating an energy saving device. The Company
estimates that evaporative losses account for between 70% and 95% of pool/spa
energy use.
HEAT$AVR is a mixture of ingredients which are lighter than water so that they
automatically float to the surface. They are attracted to each other so that
they try always to form a very thin layer over the whole pool surface. They are
individually so small that they are 500 times smaller than the spaces in a high
quality filter. After a swimmer stops disturbing the water they rush to reform a
complete layer. Management estimates that the use of HEAT$AVR could achieve
savings in energy costs of up to 40%, and that most pool managers and/or owners
will realize energy bill reductions between 17% and 30%.
Management believes that customers associated with outdoor swimming pools use
HEAT$AVR primarily for two reasons: cost savings on energy being the primary
one; and pool personnel often find it inconvenient to use conventional pool
blankets correctly and consistently, and that the ease of use provided by
HEAT$AVR results in more consistent usage.
Management believes that users of air-conditioned indoor swimming pools use the
HEAT$AVR product because it also results in savings. The savings occurs because
less energy is required to maintain a pool at the desired temperature and also
because there is a reduced load on the air-conditioning system because less heat
and much less water vapor will have to be removed from the air to maintain the
required comfort. Air-conditioned indoor pools are very high users of energy
because the swimmers and loungers have environmental expectations which require
both gas water heat and electric air cooling to keep both groups happy in the
same room. HEAT$AVR works by slowing the transfer of heat and water vapor from
the pool to the pool room atmosphere.
5
The company also sells a timer-controlled injection pump which automatically
adds the chemical to the pool as needed. Each of these systems is programmable
to fit both the size of the pool and the hours of operation. The reservoir which
holds the HEAT$AVR must be checked and filled once a week instead of daily. The
system is self-contained and needs to be connected into the main return line of
the pool and then plugged into a 110V AC socket.
There are some disadvantages to using HEAT$AVR and these include the following:
a. The product biodegrades and must be replaced twice per week
unless the timer controlled injection pump or the Tropical
Fish dispenser is utilized;
b. The product reduces evaporative heat loss only and has no
effect on convective and conductive losses;
c. The product is flammable when not mixed with water; and,
d. The product is poisonous, although not fatal, if ingested
straight from the bottle or the dispenser.
The British Health Department, the Health Department of Queensland (Australia),
and the Health Department of New South Wales (Australia) have concluded that the
product, used as directed, has no adverse effects on humans or animals.
The product is manufactured by the Company from readily-available components,
and is usually dispensed by the consumer utilizing the Company's "Tropical Fish"
dispenser. This Company-designed dispenser is shaped like a fish about 10" long
and requires minimal effort on the part of the consumer. One Tropical Fish
covers an area of 400 square feet and is effective for about one month.
The Tropical Fish is utilized by opening the fin where indicated and placing the
fish into the pool where it submerges to the bottom of the pool and, as the
pressure increases, the HEAT$AVR liquid escapes, rises, and forms an invisible
layer on the surface of the water. The HEAT$AVR liquid acts like a conventional
solar blanket by forming an invisible layer on the surface of the swimming pool,
thus inhibiting water evaporation. It dispenses a blue liquid, which creates a
one-molecule thick layer on the surface of the pool.
6
Target Market:
The Company currently is selling to clients associated with hotels, municipal
swimming pools, and residential swimming pools. The HEAT$AVR and Tropical Fish
products are sold in Canada and the United States by the Company's distributor,
Sunsolar Energy Technologies, and in Australia by Hydro-Flexible Solutions PTY.
The Company also sells HEAT$AVR directly into the United States to both
wholesale and retail accounts.
The Company estimates that there are over 100,000 municipal swimming pools in
its initial target market, which is Australia, Canada, Europe, and the United
States. Based on the assumption that energy costs are a large portion of the
total operating costs for municipal pools and that the operators of these
facilities want to lower these costs, the Company anticipates that the operators
may turn to the use of chemicals, such as HEAT$AVR, as an alternative to the
higher cost pool blankets. The Company realizes, however, that the product may
not be used by proprietors of every pool in the target market referred to above.
With regard to hotel pools, the Company estimates that there are approximately
300,000 hotel pools located in its target market. Company management believes
that each hotel which utilizes the HEAT$SAVR product will be able to save
between $2,400 and $6,000 per year on its heating costs throughout the life of
the pool. Again, the Company realizes that the product may not be used by
proprietors of every pool in this category.
Regarding the residential pool market, management believes that there are
approximately eight million residences in Canada and the United States that have
swimming pools. Management believes that successful market penetration in this
area will require developing sound business relationships with retail swimming
pool stores by creating equitable pricing policies. Management further believes
that the Company's HEAT$AVR product packaged in the Tropical Fish dispenser will
appeal to the residential pool market based on the novelty of the Tropical Fish
dispenser, coupled with the east of use and the low initial cost. The Company
realizes that the product may not be used by proprietors of ever pool in this
category.
The Tropical Fish product is retail priced at $9.95 in the United States. The
Company currently offers no rebates, discounts or promotional prices for the
Tropical Fish product.
7
The WATER$AVR Product
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The Company also markets its core technology in the areas of fresh water
conservation and aquaculture through another product called WATER$AVR. The
WATER$AVR product works in the same way as the HEAT$AVR product.
Production Description:
WATER$AVR is a granulated product which is delivered to the customer in a
44-pound weatherproof bag. There are various ways to apply this product ranging
from simple hand dispersal to fully automated scheduled metering using local
weather data to determine timing and dosage quantities. Examples of suitable
applications include the following:
a. Reservoirs;
b. Potable water storages;
c. Aqueducts and canals;
d. Agricultural irrigation canals and ditches;
e. Flood water crops; and
f. Stock watering ponds.
This product can be used in any application where water is either standing or
running without rapids.
The Company currently makes available to customers one piece of mechanized
dispersal equipment called the Model P-320e WATER$AVR dispensing machine. It
is capable of servicing reservoirs up to 30 acres in size and 100 miles or less
of irrigation canals for six to eight days. It is fully automated and provides
scheduled powder metering using local weather data to determine timing and
dosage quantities. Specifications are:
a. Hopper capacity: 320 lbs;
b. Shoreline swivel mounted on 12 cubic yard abutment or trailer
mounted for mobile deployment;
c. Has windproof dispersal pattern skirting;
d. Full SCADA compliance ready (custom mounting tabs, bracketing
and enclosures);
e. Full NEMA weather proofing of electronics;
f. Data collection storage and transmission with the customer's
choice of variables to be monitored;
g. The data may be collected by laptop computer through RS232
ports;
h. Land line, cellular, radio and satellite transmission of real
time and stored data;
i. Armored protection of electronics and backup equipment by
casting into abutment;
j. Hydro grid powered with a battery backup;
k. Battery powered with solar running and recharging capability;
l. Antipersonnel-protective fencing with sabotage-suppression
razor wire available.
8
The Company also has available a basic dispersal machine which is available for
lower-tech situations and the Company will build custom models to suite
individual client's requirements.
US Patent Issued:
In October 2001, the United States Patent and Trademark Office formally issued a
patent for the Company's evaporation control powder which is marketed under the
name WATER$AVR. Worldwide patents have been applied for and are pending.
Management believes that this is an important step forward for the Company. The
Company will be much more open about our technology with prospective customers
and partners without risking duplication of our technology.
Marketing:
WATER$AVR is now ready for commercial production and sales. WATER$AVR is used on
open water, soil, crops, and grass to reduce the loss of water due to
evaporation. Management believes it is an inexpensive way to conserve water for
other uses.
The Company has embarked on an expanded marketing effort for WATER$AVR. A
President was hired for the WATER$AVR Division in August 2001. Management
believes that WATER$AVR, with its unique spreading technology, helps reduce
evaporation and increase local water supply by up to 40% at a cost as low as
$0.04 per cubic meter of water saved. The Company's vision is to strategically
leverage the WATER$AVR technology with international water companies, who are
positioned through their existing channels, to distribute WATER$AVR in all
countries with water management concerns.
In January 2002, the Company received of a minimum US$1,000,000 order for it
WATER$AVR evaporation control product from a multinational company in India. The
product will be used on water reservoirs and flood irrigated crops over the next
24 months. The order is still in the form of a letter of intent. Shipments will
begin in Spring 2002 if the onsite testing in India is complete and successful.
In February 2002, the Company has received a Letter of Intent from the Ministry
of Water of the Peoples Republic of China and the National Engineering Research
Center for Water Saving and Irrigation ("NERCWSI") at Yang Ling, to purchase a
minimum of US$4,750,000 worth of WATER$AVR evaporation reduction powder over the
next four years. This letter of intent was negotiated following successful
testing of WATER$AVR in Yang Ling, China in December 2001. As part of the Letter
of Intent, a larger scale test will be conducted in China. Success again should
result in a firm contract and a date for the first shipment. NERCWSI has already
chosen the sites and planning has begun.
9
In March 2002, The Company received a Letter of Intent from Ondeo Nalco, a
subsidiary of SUEZ (a NYSE-traded public company), to provide global
manufacturing capacity for the Company's WATER$AVR product. In partnering with
Ondeo Nalco on this project, the Company hopes it has found a partner that can
meet the quality manufacturing standards required for a National Sanitation
Foundation grade product. Additionally, Ondeo Nalco has access to regional
capacities in various areas of the world, and total annual capability to
manufacture up to 400 million pounds of WATER$AVR. It is the intention of both
companies to move quickly from the Letter of Intent toward a full manufacturing
contract. Ondeo Nalco is a global leader in finding solutions in the
international water market. Because WATER$AVR provides a unique solution to
managing evaporation loss, management anticipates that both companies will be
able to leverage their strengths in creating a successful partnership. The
companies have also initiated licensing negotiations for WATER$AVR.
Ondeo Nalco, a subsidiary of Ondeo (the water division of SUEZ) is the worldwide
leader in water treatment and process chemicals with 10,000 employees working
with more than 60,000 customers in 120 countries and annual revenues of $2.8
billion. Ondeo is the premier water-related solutions provider with a presence
in 130 countries supplying 115 million people with water and wastewater
services, and has built more than 10,000 water treatment plants worldwide.
In North America, Patrick Grant, the new WATER$AVR Division President, is
attempting to duplicate his international success. The WATER$AVR Division is
exploring new methods of commercializing its products, including geographic
expansion, new distributors, and new retail outlets.
10
Competition
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The Company is not aware of any other companies developing or producing similar
swimming pool and/or reservoir chemicals. This belief stems management's decade
of directly involvement in the pool/spa industry and research into advertising
and literature in the field. Management is not aware of any other companies
offers or advertises a product that directly competes with HEAT$AVR, the
"Tropical Fish" product, or the WATER$AVR product. Rather, competition arises
from various devices that cover the pool.
However, in general, and with regard to its markets, it is anticipated that the
Company will be competing with a wide variety of national, regional and local
companies, many of which have established public images and greater financial
strength and personnel resources than the Company. Further, it is likely that
the Company will also be competing with entities, which have established good
will and market acceptance.
Government Regulation and Legal Uncertainties
---------------------------------------------
The Company anticipates that it will be subject to various governmental
regulations with regard to the chemicals used in HEAT$AVR, WATER$AVR and the
Tropical Fish. In Australia, the Company's operations are subject to health acts
as enacted by the Commonwealth and/or various states within Australia. In
Canada, the Company's operations are subject to health regulations within the
various provinces in Canada; further, in French-speaking provinces such as
Quebec, the Company is required to comply with "French only" regulations such as
the actual wording on its products (no English allowed). In the United States,
the Company's operations are subject to the regulations enacted by the U.S.
Department of Health and possibly the regulations enacted by the Environmental
Protection Agency. Further, the Company anticipates that all ingredients may
have to be approved by the Food and Drug Administration for direct, undiluted
skin contact.
11
Risk Factors
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The Company is almost exclusively dependent on the efforts of its sole Executive
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Officer and has little depth of management:
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The Company's success is dependent, to a large degree, upon the efforts of its
sole executive officer: Daniel O'Brien. The loss or unavailability of him could
have an adverse effect on the Company. At the present time the Company maintains
CDN$400,000 key-man life insurance policies for Mr. O'Brien. Also, the continued
success and viability of the Company is dependent upon its ability to attract
and retain qualified personnel in all areas of its business, especially
management positions. In the event the Company is unable to attract and retain
qualified personnel, its business may be adversely affected. Currently, there is
an employment agreement in place with the Executive Officer.
The Company currently has one significant customer; the decrease of sales to
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which could seriously hamper sales growth:
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During Fiscal 2001/2000/1999, the Company had one major customer, Sunsolar
Energy Technologies, is distributor for Tropical Fish, which comprised 92%, 86%
and 70% of total sales, respectively.
There can be no guarantee that the Company will experience significant growth
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because it has been in operation since 1991 and to date has achieved modest
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results:
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The Company has ten years of operating history with modest results upon which to
base an evaluation of its business and prospects. Operating results for future
periods are subject to numerous uncertainties. These uncertainties include such
critical factors as historically minimal profits and uncertainty as to actual
demand for its products. There can be no assurance that the Company will achieve
or sustain profitability on an annual or quarterly basis. The Company's
prospects must be considered in light of the risks encountered by companies in
the early stage of development, particularly companies in new and rapidly
evolving markets. Future operating results will depend upon many factors,
including the demand for the Company's products, the level of product and price
competition, the Company's success in attracting and retaining motivated and
qualified personnel, and in particular, the use of chemicals to retain heat in
swimming pools instead of the historically successful use of thermal blankets
and the use of chemical to decrease evaporation from reservoirs.
12
There is no assurance that the Company will be able to grow internally to the
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level that would be necessary to support a higher level of sales:
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Should the Company be successful in the sales and marketing efforts of its water
additive products it will experience significant growth in operations. If this
occurs, management anticipates that additional expansion in the areas of both
personnel and plant and equipment will be required in order to continue product
development and product marketing. It is possible that the Company will not be
able to finance this potential additional expansion. Any expansion of the
Company's business would place further demands on its sole Executive Officer,
operational capacity and financial resources. It is possible that the Company's
President will not be able to assume any additional responsibility and that the
current operational capacity of the Company will not be able to accommodate
additional business. The Company realizes that it will need to recruit qualified
personnel in all areas of its operations, including management, sales,
marketing, and product delivery when and if growth occurs. There can be no
assurance that the Company will be effective in attracting and retaining
additional qualified personnel, expanding its operational capacity or otherwise
managing growth. In addition, there can be no assurance that the Company's
current systems, procedures or controls will be adequate to support any
expansion of it's operations. The failure to manage growth effectively could
result in the failure of the Company.
The Company could experience delays in the delivery of its products in the
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future and this delay could result in a loss of customers:
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Delays and cost overruns could affect the Company's ability to respond to
technological changes, evolving industry standards, competitive developments or
customer requirements thus causing a loss of customers.
The Company markets its products on an international level and, consequently, is
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exposed to all of the risks of doing business on a worldwide basis:
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The Company markets and sells its products in the United States, Canada, and
Australia/Asia. As such, it is subject to the normal risks of doing business
abroad. These risks include, but are not limited to, unexpected changes in
regulatory requirements, export and import restrictions, tariffs and trade
barriers, difficulties in staffing and managing foreign operations, longer
payment cycles, problems in collecting accounts receivable, potential adverse
tax consequences, exchange rate fluctuations, increased risks of piracy,
discontinuity of the Company's infrastructures, limitations on fund transfers
and other legal and political risks. Such limitations and interruptions could
have a material adverse effect on the Company's business. The Company does not
currently hedge its foreign currency exposures.
13
The Company does not pay a cash dividend to shareholders; shareholders and
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future shareholders cannot be assured that the Company will pay a dividend in
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the future:
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The Company does not presently intend to pay cash dividends in the foreseeable
future, as any earnings are expected to be retained for use in developing and
expanding its business. Further, the actual amount of any potential future
dividends received from the Company will remain subject to the discretion of the
Company's Board of Directors.
The Company has a limited cash position and there is no assurance that the
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Company will be able to meet its future capital requirements:
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The Company currently has limited sources of operating cash flow to fund future
projects or corporate overhead. The Company has limited financial resources, and
there is no assurance that additional funding will be available. The Company's
ability to continue to operate will be dependent upon its ability to raise
significant additional funds in the future.
Dilution could occur to existing and future shareholders because the Company is
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authorized to issue up to 1,000,000 shares of preferred stock:
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The Company is authorized to issue up to 1,000,000 shares of preferred stock,
$0.01 par value per share. As of the date of this Annual Report, no shares of
preferred stock have been issued. The Company's preferred stock may bear such
rights and preferences, including dividend and liquidation preferences, as the
board of Directors may fix and determine from time to time. Any such preferences
may operate to the detriment of the rights of the holders of the common stock
and would cause dilution to these shareholders.
U.S. Investors May Not Be Able to Enforce Their Civil Liabilities Against Us or
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Our Directors, Controlling Persons and Officers:
-----------------------------------------------
It may be difficult to bring and enforce suits against the Company. The
Company's sole Executive Officer and all of the directors are residents of
Canada, and all or a substantial portion of their assets are located outside of
the United States. In addition, a major portion of the Company's assets are
located in Canada. As a result, it may be difficult for U.S. holders of our
common shares to effect service of process on these persons within the United
States or to realize in the United States upon judgments rendered against them.
In addition, a shareholder should not assume that the courts of Canada (i) would
enforce judgments of U.S. courts obtained in actions against us or such persons
predicated upon the civil liability provisions of the U.S. federal securities
laws or other laws of the United States, or (ii) would enforce, in original
actions, liabilities against us or such persons predicated upon the U.S. federal
securities laws or other laws of the United States.
14
However, U.S. laws would generally be enforced by a Canadian court provided that
those laws are not contrary to Canadian public policy, are not foreign penal
laws or laws that deal with taxation or the taking of property by a foreign
government and provided that they are in compliance with applicable Canadian
legislation regarding the limitation of actions. Also, a judgment obtained in a
U.S. court would generally be recognized by a Canadian court except, for
example:
a) where the U.S. court where the judgment was rendered had no
jurisdiction according to applicable Canadian law;
b) the judgment was subject to ordinary remedy (appeal, judicial review and
any other judicial proceeding which renders the judgment not final,
conclusive or enforceable under the laws of the applicable state) or not
final, conclusive or enforceable under the laws of the applicable state;
c) the judgment was obtained by fraud or in any manner contrary
to natural justice or rendered in contravention of
fundamental principles of procedure;
d) a dispute between the same parties, based on the same subject matter has
given rise to a judgment rendered in a Canadian court or has been decided
in a third country and the judgment meets the necessary conditions for
recognition in a Canadian court;
e) the outcome of the judgment of the U.S. court was
inconsistent with Canadian public policy;
f) the judgment enforces obligations arising from foreign penal laws or laws
that deal with taxation or the taking of property by a foreign government;
or
g) there has not been compliance with applicable Canadian law dealing with the
limitation of actions.
The securities of the Company are in the "penny stock" classification and there
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are risks including, but not limited to, lack of liquidity in the market for the
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Company's stock to the shareholders as a result of this classification:
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The Company's stock is subject to "penny stock" rules as defined in 1934
Securities and Exchange Act rule 3151-1. The SEC has adopted rules that regulate
broker-dealer practices in connection with transactions in penny stocks. The
Company's common stock is subject to these penny stock rules. Transaction costs
associated with purchases and sales of penny stocks are likely to be higher than
those for other securities. Penny stocks generally are equity securities with a
price of less than US$5.00 (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ system, provided that current price
and volume information with respect to transactions in such securities is
provided by the exchange or system).
15
The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and monthly account statements showing the market value of each penny stock held
in the customer's account. The bid and offer quotations, and the broker-dealer
and salesperson compensation information, must be given to the customer orally
or in writing prior to effecting the transaction and must be given to the
customer in writing before or with the customer's confirmation.
In addition, the penny stock rules require that prior to a transaction in a
penny stock not otherwise exempt from such rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for the common shares in the United
States and shareholders may find it more difficult to sell their shares.
Significant Customers and/or Suppliers
--------------------------------------
During Fiscal 2001/2000/1999, the Company had one major customer, Sunsolar
Energy Technologies, which comprised 92%, 86%, and 70% of total sales,
respectively.
The Company has no significant suppliers.
Employees
---------
As of 3/31/2002, the Company had 20 employees, including its one Executive
Officer. The Company employs eleven full-time employees at the Calgary factory
facility. None of the Company's employees are covered by collective bargaining
agreements.
16
ITEM 2. DESCRIPTION OF PROPERTY
-------------------------------
The Company utilizes the residence of its President and director, Daniel
O'Brien, for offices. No monthly fee is paid to Mr. O'Brien for rent.
The Company also maintains an administrative facility at 3378 Burns Avenue in
Victoria, British Columbia. This facility consists of 1,400 square feet. The
Company pays $1,000 per month on a month-by-month basis.
The Company leases an 11,000 square foot factory facility at Bay 2, 701 30th
Street NE in Calgary, Alberta. The lease runs to August 2003 at $5,000 per
month. The Company believes that capacity at this facility will be adequate to
support anticipated demand for product at least through the term of the lease.
ITEM 3. LEGAL PROCEEDINGS
--------------------------
In December 2001, the Company filed suit in British Columbia Supreme Court
against Equity Trust and John Wells. The Company is claiming that Equity Trust
and John Wells did not provide the services for which they were paid 100,000
shares of common stock and loaned $25,000. The Company is seeking return (and
cancellation) of the shares, repayment of the loan, costs and penalties from
Equity Trust and John Wells. As of 3/31/2002, the BC Supreme Court has enjoined
the defendant against any transaction regarding the shares until trial is
complete. The Company has accounted for the loan as un-collectable; the 100,000
shares are included in reported issued/outstanding common stock.
Other than discussed above, the Company knows of no material, active or pending
legal proceedings against them; nor is the Company involved as a plaintiff in
any material proceeding or pending litigation.
The Company knows of no active or pending proceedings against anyone that might
materially adversely affect an interest of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
--- No Disclosure Necessary ---
17
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
----------------------------------------------------------------
Market Information
------------------
The Company's common stock trades on the NASD OTC Electronic Bulletin Board in
the United States, having the trading symbol "FXSO" and CUSIP #33938T-10-4.
High/low/closing prices and trading volume, on a quarterly basis, since the
stock began trading on 6/16/2000, are shown in Table No. 1. The closing price on
3/28/2002 was $2.75.
Table No. 1
FXSO Common Stock Trading Activity
NASD OTC Electronic Bulletin Board
==============================================================================
Quarter
Ended High Low Close Volume
-----------------------------------------------------------------
12/31/2001 $1.55 $0.73 $1.40 226,900
9/30/2001 2.60 0.67 1.10 49,100
6/30/2001 2.40 1.75 2.40 93,000
3/31/2001 3.01 0.69 2.50 577,900
12/31/2000 $0.81 $0.63 $0.69 522,100
9/30/2000 0.94 0.25 0.65 1,259,500
6/30/2000 0.27 0.27 0.27 58,000
==============================================================================
The Company's common stock also trades on the Frankfurt Stock Exchange in
Germany with the trading symbol "FXT". The stock began trading on 2/25/2002. The
closing price on 3/28/2002 was EURO 3.55.
Holders
-------
The Company's common stock is issued in registered form. The following
information is taken from the records of Computershare Inc. (located in Denver,
Colorado), the registrar and transfer agent for the common stock.
On 12/31/2001, the shareholders' list for the Company's common stock showed
twenty (20) registered shareholders and 9,272,819 shares outstanding. 6,567.919
shares are held by shareholders registered in Canada, about 70%. 2,005,000
shares are held by shareholders registered in the USA, representing about 22%.
Based on this research and other research into the indirect holdings of other
financial institutions, the Company believes that it has in excess of 250
beneficial owners of its common stock.
18
Dividends
---------
The Company has not declared any dividends since incorporation and does not
anticipate that it will do so in the foreseeable future. The present policy of
the Company is to retain future earnings for use in its operations and expansion
of its business.
There are no restrictions that limit the ability of the Company to pay dividends
on common equity or that are likely to do so in the future.
Securities Authorized For Issuance Under Equity Compensation Plans.
-------------------------------------------------------------------
Recent Sales of Unregistered Securities
---------------------------------------
--- No Disclosure Necessary ---
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------
OR PLAN OF OPERATION
--------------------
Selected Financial Data
-----------------------
The selected financial data in Table No. 2 for Fiscal 2001, Fiscal 2000 and
Fiscal 1999, ended December 31st, was derived from the consolidated financial
statements of the Company which were audited by Smythe Ratcliffe PKF,
independent Chartered Accountants, as indicated in their report which is
included elsewhere in this Annual Report.
The selected financial data was extracted from the more detailed financial
statements and related notes included herein and should be read in conjunction
with such financial statements and with the information appearing under the
heading, "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
The Company has not declared any dividends since incorporation and does not
anticipate that it will do so in the foreseeable future.
On 6/30/1998, the Company completed the acquisition of 100% of the shares of
Flexible Solutions. The acquisition was effected through the issuance of
7,000,000 shares of common stock by the Company to the former shareholders of
the now wholly-owned subsidiary. The transaction has been accounted for as a
reverse take-over. Flexible Solutions is accounted for as the acquiring party
and the surviving entity. Because Flexible Solutions is the accounting survivor,
the consolidated financial statements presented for all periods are those of
Flexible Solutions. The shares issued by the Company pursuant to the 1998
acquisition have been accounted for as if those shares had been issued upon the
organization of Flexible Solutions.
19
Table No. 2
Selected Financial Data
($ in 000, except per share data)
====================================================================
12/31/2001 12/31/2000 12/31/1999 12/31/1998
--------------------------------------------------------------------
Revenue $1,334 $1,030 $759 $84
Gross Profit 671 520 345 25
Net Income (Loss) ($234) $139 $103 ($18)
Earnings (Loss) per Share ($0.03) $0.02 $0.01 ($0.01)
Dividends per Share 0 0 0 0
Wtg. Avg. Shares 9,247,949 9,131,316 9.131,316 4,102,469
Period-End Shares O/S 9,272,819 9,131,316 9,131,316 9,131,316
Working Capital $458 $333 $206 $139
Long-Term Debt 0 0 0 3
Shareholders' Equity 531 386 256 146
Total Assets 569 489 359 174
--------------------------------------------------------------------
(1) FY2001 Net Loss reflects accounting treatment of non-cash "transactions":
a) FASB 123 treatment of stock options granted to consultants = $82,328;
b) common stock issued as compensation to employees/consultants = $140,000;
c) stock options granted at below fair market value = $173,750.
_________________________________________ ___________ ______________________
=============================================================================
Plan Of Operations
------------------
Source of Funds for Fiscal 2002
-------------------------------
Working capital at 12/31/2001: $457,861.
The Company's primary source of funds since incorporation has been through the
issuance of common stock and loans. The Company has increasingly generated sales
revenue and net income, while modest, has been sufficient in recent periods.
Anticipated gross profit for Fiscal 2002 is approximately $1 million.
The Company is in negotiations to complete a private placement in Germany of
100,000 shares of common stock at $2.50 per share; closure in anticipated during
Spring 2002.
Use of Funds for Fiscal 2002
----------------------------
During Fiscal 2002, the Company estimates that it will expend approximately $0.6
million on general/administrative expenses.
During Fiscal 2002, the Company estimates that it might expend $200,000 on
capital expenditures, primarily for faster production equipment at the Calgary,
Alberta, facility to meet increased demand for Tropical Fish and HEAT$AVR
product.
Anticipated Changes to Facilities/Employees
-------------------------------------------
The Company has no plans to acquire any new facilities. The current facilities
can accommodate anticipated growth until at least mid-2003. The Company will add
additional personnel in response to increased product demand and as needed to
support increased sales of new products.
20
Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Overview
--------
The Company was incorporated in May 1998.
Flexible Solutions Ltd. was acquired in June 1998. The acquisi-tion was effected
through the issuance of 7,000,000 shares of common stock by the Company with the
former shareholders of the now wholly-owned subsidiary; the transaction has been
accounted for as a reverse take-over.
Several private placement stock offerings were completed in 1998:
1,050,000 shares at $0.01 per share = gross proceeds of $ 10,500;
500,000 shares at $0.05 per share = gross proceeds of $ 25,000;
581,316 shares at $0.25 per share = gross proceeds of $145,329.
Since completing acquisition, the Company's operating activities have related
primarily to marketing the products of Flexible Solutions: its swimming pool
chemicals called "HEAT$AVR" and "Tropical Fish"; and its fresh water evaporation
control chemical called "WATER$AVR".
Revenue primarily has been generated by sales of Tropical Fish in the USA. the
Company has embarked on an expanded marketing program for HEAR$AVR and WATER$AVR
and has signed several large international orders. Gross profit margins from the
sale of WATER$AVR in large orders is expected to be in the 50% while gross
profit margins for HEAT$AVR are expected to exceed 60%. However, more complete
usage of the Calgary factory facility should and efficiencies from higher total
sales are expected to lead to substantially higher net income in the coming
years.
Cash Balances
-------------
The Company maintains its major cash balances at one financial institution,
Toronto Dominion Bank, located in Victoria, British Columbia, Canada. The
balances are insured up to CDNS40,200 or CDN$60,000 per account by the Canada
Deposit Insurance Corporation. At 12/31/2000 and 12/31/2001, there were no
uninsured cash balances.
Foreign Currency Risk
---------------------
The Company's facilities are located in Canada and it experiences the majority
of its costs in Canadian Dollars. Virtually all sales are booked in US Dollars
regardless of the country to which goods are sold. For Fiscal 2001, the
Company's sales were 5% in the USA and 95% in Canada. Therefore, the Company's
financial condition is only modestly sensitive to currency exchange rates.
21
Inflation
---------
The Company's operations have not been affected materially by inflation, and
management does not expect inflation to have a material impact on its operations
in the future.
Seasonality
-----------
The Company's Tropical Fish product (92% of FY2001 sales) is subject to
extensive seasonality related to the North American spring and summer. The
HEAT$AVR commercial pool product is less seasonal as there is a significant
indoor winter market. WATER$AVR has not yet recorded it's first sales; however,
there are markets for the product in some area of the world in every season.
Because of the larger land mass and population in the Northern Hemisphere, it is
anticipated that the sales will be somewhat larger in March-September.
Quantitative/Qualitative Disclosure about Market Risks
------------------------------------------------------
The Company does not have any derivative financial instruments as of 12/31/2001.
The Company has not material interest rate risk.
United States versus Foreign Assets/Sales
------------------------------------------
All the Company's long-lived assets are located in Canada.
The Company generates sales revenue worldwide:
Canada United States Australia/Asia
---------------------------------------------
2001 $1,293,000 $60,000 $nil
2000 $992,000 $30,000 $8,000
1999 $744,000 $10,000 $5,000
Liquidity and Capital Resources
-------------------------------
Fiscal 2001 and Fiscal 2000, Ended December 31st
------------------------------------------------
Working Capital at 12/31/2001: $457,861.
Working Capital at 12/31/2000: $333,307.
Working Capital at 12/31/1999: $139,139.
Cash Used by Fiscal 2001 Operating Activities totaled ($57,987), including the
($233,955) net loss; the primary adjusting items were $18,910 in depreciation,
$256,076 in non-cash, stock-option "compensation" to employees/consultants,
$141,510 in "non-cash services" (common shares issued as compensation) and
($107,636) in net non-cash working capital items. Cash Provided by Fiscal 2001
Financing Activities was $4,125. Cash Used in Fiscal 2001 Investing Activities
totaled $57,987. In addition: on 1/14/2001, the Company issued 100,000 shares of
common stock to Equity Trust SA for services to be rendered in the compilation
of an SB-2 filing document; on 7/1/2001, the Company issued 30,000 shares of
common stock (in lieu of cash) as compensation to Patrick Grant.
Cash provided by Fiscal 2000 Operating Activities totaled $158,126, including
the $138,971 net income; the primary adjusting items were $13,489 in
depreciation and $5,666 in net non-cash working capital items. Cash Provided by
Fiscal 2000
22
Financing Activities was $nil. Cash Used in Fiscal 2000 Investing Activities
totaled $16,771.
Results of Operations
---------------------
Fiscal 2001, Fiscal 2000 and Fiscal 1999, Ended December 31st
-------------------------------------------------------------
Fiscal 2001 revenue rose 30% to $1,334,273 because of more effective marketing
with the preponderance of sales continuing to be in Canada to the Company's
Montreal-based distributor. The distributor reports that 75% of his sales are in
the USA. Gross Profit margins were stable at 50.3%. Product mix shifted little
during the year with a continued emphasis on "Tropical Fish".
Fiscal 2000 revenue rose to $1,029,649 because of broader Canadian sales and
increased sales penetration into the U.S. market; these indirect USA sales are
estimated at 60% of total product. Sales of "Tropical Fish" represented 86% of
the total with HEAT$AVR representing the rest. The continued faster increase in
sales of the higher margined "Tropical Fish" was the primary factor in higher
gross profit margins: 50.5% versus 45.5% last year.
Fiscal 1999 revenue rose to $759,218 because of increased sales penetration into
the U.S. market. Sales of "Tropical Fish" represented 70% of the total with
HEAT$AVR representing the rest. The continued faster increase in sales of the
higher margined "Tropical Fish" was the primary factor in higher gross profit
margins: 46% versus 30% last year; increased productivity flowing from increased
sales also was a major factor (75 "Tropical Fish" units/employee/hour per
employee versus 37 units/employee/hour last year). Sales of "Tropical Fish"
increased from less that 50,000 units to in excess of 400,000 units. HEAT$AVR
sales also grew, but only by a small amount. The tropical fish increase in sales
occurred primarily because Fiscal 1999 was the Company's first full season of
sales for that product and the beginning of sales into the United States through
the Company's distributor.
Cash operating expenses for Fiscal 2001 totaled $406,934 versus $289,860 for
last year; the primary factor in the increase was increased corporate activity.
However, Fiscal 2001 financial statements also include "non-cash compensation"
of $397,576 resulting from: the required adoption of a new accounting standard
(FASB 123) regarding stock options granted to consultants resulting in $82,326
in "expenses"; stock options granted at below fair market value to employees
resulting in $173,750 in "expenses"; and common stock issued to an employee and
a consultant which were categorized as "non-cash services" resulting in $140,000
in expenses.
Operating expenses for Fiscal 2000 totaled $289,860 versus $175,213 for Fiscal
1999. The major expenses during this period were wages of $87,907, professional
fees of $38,701,
23
administrative salaries/benefits of $37,234, and subcontracting fees of $33,312.
The primary factor in the changes to these expenses was increased corporate
activity.
Operating expenses for Fiscal 1999 totaled $175,213 versus $43,323 for Fiscal
1998. The major expenses during this period were wages of $63,947 and
commissions of $20,957. The primary factor in the changes to these expenses was
increased corporate activity and a full year of operations.
Net Income (Loss) for Fiscal 2001/2000/1999 was ($233,955), $138,971, and
$102,848, respectively. Earnings Per Share for Fiscal 2001/2000/1999 was
($0.03), $0.02, and $0.01, respectively.
ITEM 7. FINANCIAL STATEMENTS
-----------------------------
The financial statements and notes thereto as required under ITEM #7 are
attached hereto and found immediately following the text of this Annual Report.
The audit report of Smythe Ratcliffe PFK, independent Chartered Accountants, is
included herein immediately preceding the audited financial statements.
Audited Financial Statements: Fiscal 2001/Fiscal 2000/Fiscal 1999
-----------------------------------------------------------------
Auditors' Report, dated March 19, 2002
Consolidated Balance Sheets at 12/31/2001 and 12/31/2000
Consolidated Statement of Operations
for the Years Ended 12/31/2001, 12/31/2000, and 12/31/1999
Consolidated Statements of Stockholders' Equity
for the Years Ended 12/31/2001, 12/31/2000, and 12/31/1999
Consolidated Statements of Cash Flows
for the Years Ended 12/31/2001, 12/31/2000, and 12/31/1999
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
------------------------------------------------------
--- No Disclosure Necessary ---
24
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
-------------------------------------------------------------
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
----------------------------------------------------------
Table No. 3 lists as of 3/31/2002, the names of the Directors of the Company.
The Directors have served in their respective capacities since their election
and/or appointment and will serve until the next Annual Shareholders' Meeting or
until a successor is duly elected, unless the office is vacated in accordance
with the Articles/By-Laws of the Company. All Directors are residents and
citizens of Canada.
Table No. 3
Directors
==============================================================================
Date First
Elected
Name Age or Appointed
------------------------------------------------------------------------------
Daniel B. O'Brien (1) 45 May 1998
Dr. Robert N. O'Brien (1) 80 February 2000
John H. Bientjes (1) 49 February 2000
(1) Member of Audit Committee.
==============================================================================
Table No. 4 lists, as of 3/31/2002, the names of the Executive Officers of the
Company. The Executive Officer serves at the pleasure of the Board of Directors.
The Executive Officer is a resident/citizen of Canada.
Table No. 4
Executive Officers
==============================================================================
Date of
Board
Name Position Age Approval
------------------------------------------------------------------
Daniel B. O'Brien President/Treasurer/Secretary 45 May 1998
==============================================================================
25
Business Experience
-------------------
John H. Bientjes is a member of the Company's Board of Directors. Mr. Bientjes
was graduated in 1976 from Simon Fraser University in Vancouver, British
Columbia with a Bachelor of Arts Degree in Economics and Commerce. For the past
fifteen years he has been the manager of the Commercial Aquatic Supplies
Division of D.B. Perks & Associates, Ltd., located in Vancouver, British
Columbia, a company that markets supplies and equipment to commercial pools
which are primarily owned by municipalities.
Daniel B. O'Brien is President and a Director of the Company. His
responsibilities include coordinating strategy, planning, and product
development. He has been involved in the swimming pool industry since 1991 when
he founded Flexible Solutions Ltd., purchased by the Company in August 1998.
Prior to his involvement with Flexible Solutions Ltd., Mr. O'Brien was a teacher
at Brentwood College where he was in charge of Outdoor Education. Mr. O'Brien
devotes 100% of his time to the affairs of the Company.
Dr. Robert N. O'Brien is a member of the Company's Board of Directors. O'Brien
received: his Bachelor of Applied Science in Chemical Engineering from the
University of British Columbia in 1951; his Masters of Applied Science in
Metallurgical Engineering from the University of British Columbia in 1952; his
Ph.D. in Metallurgy from the University of Manchester in 1955; and, was a Post
Doctoral Fellow in Pure Chemistry at the University of Ottawa from 1955 through
1957. He has held various academic positions since 1957 at the University of
Alberta, the University of California at Berkley, and the University of
Victoria. Most recently, he was a Professor of Chemistry at the University of
Victoria from 1968 until 1986 at which time he was given the designation of
Professor Emeritus. While teaching, Dr. O'Brien acted as a consultant and served
on the British Columbia Research Council. In 1987, Dr. O'Brien founded the
Vancouver Island Advanced Technology and Research Association.
26
Involvement in certain legal proceedings
----------------------------------------
There have been no events during the last five years that are material to an
evaluation of the ability or integrity of any director, person nominated to
become a director, executive officer, promoter or control person including:
a) any bankruptcy petition filed by or against any business of which such person
was a general partner or executive officer either at the time of the bankruptcy
or within two years prior to that time;
b) any conviction in a criminal proceeding or being subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses);
c) being subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
enjoining, barring, suspending or otherwise limiting his/her involvement in any
type of business, securities or banking activities;
d) being found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment has not been
reversed, suspended, or vacated.
Family Relationships
--------------------
Daniel O'Brien, President/Treasurer/Secretary/Director of the Company, is the
son of Dr. Robert O'Brien, a Director of the Company. Other than that, there are
no family relationships between any of the officers or directors of the Company.
Other Relationships/Arrangements
--------------------------------
There are no arrangements or understandings between any two or more Directors or
Executive Officers, pursuant to which he/she was selected as a Director or
Executive Officer. There are no material arrangements or understandings between
any two or more Directors or Executive Officers.
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
--- No Disclosure Necessary ---
27
ITEM 10. EXECUTIVE COMPENSATION
--------------------------------
The Company has no formal plan for compensating its Directors for their service
in their capacity as Directors. Directors are entitled to reimbursement for
reasonable travel and other out-of-pocket expenses incurred in connection with
attendance at meetings of the Board of Directors. The Board of Directors may
award special remuneration to any Director undertaking any special services on
behalf of the Company other than services ordinarily required of a Director.
During Fiscal 2001, no Director received and/or accrued any compensation for his
services as a Director, including committee participation and/or special
assignments; other than the granting of stock options.
During Fiscal 2001, no funds were set aside or accrued by the Company to provide
pension, retirement or similar benefits for Directors or Executive Officers.
The Company has no compensatory plan or arrangements, including payments to be
received from the Company, with respect to any Executive Officer or Director,
where such plan or arrangement would result in any compensation or remuneration
being paid resulting from the resignation, retirement or any other termination
of such Executive Officer's employment with the Registrant or from a
change-in-control of the Company or a change in such Executive Officer's
responsibilities following a change-in-control and the amount, including all
periodic payments or installments, where the value of such compensation or
remuneration exceeds $100,000 per Executive Officer.
The Company has no long-term incentive plan (LTIP) or other long-term
compensation program and no SARs have been granted in the last three years.
Daniel O'Brien currently receives a annual salary of CDN$30,000 (~US$18,800).
Compensation is set by the two independent Directors.
28
Table No. 5 details compensation paid/accrued for Fiscal 2001/2000/1999 ended
December 31st for the Executive Officers; Daniel O'Brien was the only Executive
Officer during Fiscal 2001/2000/1999.
Table No. 5
Summary Compensation Table
Executive Officers
==============================================================================
Long-Term
Compensation
-----------------------
Annual Compensation Awards
-------------------- ------------------
Name and Other Restricted All
Principal Fiscal Annual Stock Options/ LTIP Other
Position Year Salary Bonus Comp. Award(s) SARS(#) Payouts Comp.
---------------------- ------- ----- ------ -------- -------- ------- ----
Daniel O'Brien
President/ 2001 $19,332 --- --- --- 100,000 --- ---
Treasurer/ 2000 $19,250 --- --- --- 50,000 --- ---
Secretary 1999 $20,250 --- --- --- 50,000 --- ---
====================== ======= ===== ====== ======== ========= ======= =====
Stock Options
-------------
The Board of Directors may allocate non-transferable stock options to purchase
common shares of the Company to Directors, Executive Officers, employees, and
consultants of the Company and its subsidiaries. The Company has no formal
written stock option plan.
Table No. 6 details the 1,309,000 stock options granted in Fiscal 2001; no SARS
were granted.
Table No. 6
Stock Option Grants in Fiscal 2001 Ended 12/31/2001
==============================================================================
Percentage
Number of Exercise
of Total Price
Options Options Per Grant Expiration
Name Granted Granted Share Date Date
-------------- ------- ---------- -------- ---------- ----------
Daniel O'Brien 100,000 7.6% $1.40 12/01/2001 12/6/2006
Robert O'Brien 50,000 3.8% $1.40 12/01/2001 12/6/2006
John Bientjes 5,000 0.4% $1.40 12/01/2001 12/6/2006
Employees/ $1.00- 1/1/2001- 1/12/2002-
Consultants 1,154,000 88.2% $3.50 7/6/2001 7/1/2006
(1) 900,000 of the stock options granted to employees vest over
2002-2006.
==============================================================================
29
Table No. 7 details: stock options exercised in Fiscal 2001; number of
unexercised stock options at fiscal yearend; and the value of unexercised
in-the-money stock options at fiscal yearend. No SARS have been granted and
therefore none were exercised.
Table No. 7
Aggregated Stock Options Exercises in Fiscal 2001
Fiscal Yearend Unexercised Stock Options
Fiscal Yearend Stock Option Values
Executive Officers/Directors
==============================================================================
Value of
Number of Unexercised
Number Unexercised In-the-Money
of Options Options
Shares at Fiscal at Fiscal
Acquired Aggregate Yearend Yearend
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
-------------------------------------------------------------------
Daniel O'Brien --- --- 200,000 $115,000
Robert O'Brien --- --- 75,000 17,500
John Bientjes --- --- 10,000 7,000
==============================================================================
30
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
---------------------------------------------------------
AND MANAGEMENT
--------------
The Company is a publicly-owned corporation, the shares of which are owned by
United States, Canadian, and European residents. The Company is not controlled
directly or indirectly by another corporation or any foreign government.
Table No. 8 lists, as of 3/31/2002, Directors and Executive Officers who
beneficially own the Company's voting securities and the amount of the Company's
voting securities owned by the Directors and Executive Officers as a group.
Table No. 8 also includes data on Beat Aschmann, the only other
persons/companies where the Company is aware that a shareholder has 5% or
greater beneficial interest in the Company's securities. All Officer/Director
addresses c/o Flexible Solutions International Inc.; 2614 Queenswood Drive,
Victoria, British Columbia, Canada V8N 1X5.
Table No. 8
Shareholdings of Directors and Executive Officers
Shareholdings of 5% Shareholders
=================================================================
Title Amount and Nature Percent
of of Beneficial of
Class Name/Address of Beneficial Owner Ownership Class#
-----------------------------------------------------------------
Common Daniel O'Brien (1) 4,720,000 49.8%
Common Robert O'Brien (2) 1,825,000 19.2%
Common John Bientjes (3) 90,000 0.9%
Common Beat Aschmann (4) 700,000 7.5%
TOTAL 7,335,000 77.3%
-----------------------------------------------------------------
1. 100,000 represent currently exercisable stock options.
4,620,000 shares are restricted pursuant to Rule 144.
4,000,000 shares are held indirectly through Birnham Development
Company, a trust controlled by Mr. O'Brien.
2. 75,000 represent currently exercisable stock options.
1,750,000 are restricted pursuant to Rule 144.
1,750,000 shares held indirectly through RNO Holdings,
a company controlled by Mr. O'Brien.
3. 10,000 represent currently exercisable stock options.
4. 700,000 shares are restricted pursuant to Rule 144.
Address: Laerchenhofweg #3 8906 Bonastetten, Switzerland
# Based on 9,485,819 shares outstanding as of 3/31/2002 and stock options held
by each beneficial holder exercisable within 60 days.
==============================================================================
31
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
Acquisition of Flexible Solutions
---------------------------------
The Company was incorporated for the purpose of acquiring Flexible Solutions.
The value of Flexible Solutions and the determination of the number of shares to
be issued to its owners were not made independently or based on appraisals. The
two primary shareholders of Flexible Solutions were officer/directors of the
Company and/or significant shareholders of the Company: Daniel O'Brien and
Robert O'Brien. Accordingly, the transactions between the Company and Flexible
Solutions cannot be deemed to be an arm's length transaction.
The Company issued 7,000,000 shares to the three shareholders of Flexible
Solutions: Daniel O'Brien = 4,550,000 shares; Robert O'Brien = 1,750,000; and
Beat Aschmann = 700,000 shares.
Use of Home of Daniel O'Brien
-----------------------------
The Company has utilized the home of Daniel O'Brien since incorporation as a
corporate office, without compensation to Mr. O'Brien.
Other than described above, there have been no transactions since 12/31/1998, or
proposed transactions, which have materially affected or will materially affect
the Company in which any Director, Executive Officer, or beneficial holder of
more than 10% of the outstanding common stock, or any of their respective
relatives, spouses, associates or affiliates has had or will have any direct or
material indirect interest.
32
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------
a. Index to Exhibits:
---------------------
Exhibit
-------
Number Description
--------------------
2. Incorporated by reference to Form 10-SB and Form 10-Q's
3. Incorporated by reference to Form 10-SB and Form 10-Q's
5. Incorporated by reference to Form 10-SB and Form 10-Q's
9. Incorporated by reference to Form 10-SB and Form 10-Q's
10. Incorporated by reference to Form 10-SB and Form 10-Q's
11. Incorporated by reference to Form 10-SB and Form 10-Q's
13. Incorporated by reference to Form 10-SB and Form 10-Q's
16. Incorporated by reference to Form 10-SB and Form 10-Q's
18. Incorporated by reference to Form 10-SB and Form 10-Q's
21. Incorporated by reference to Form 10-SB and Form 10-Q's
23. Incorporated by reference to Form 10-SB and Form 10-Q's
23. Incorporated by reference to Form 10-SB and Form 10-Q's
24. Incorporated by reference to Form 10-SB and Form 10-Q's
99. Incorporated by reference to Form 10-SB and Form 10-Q's
b. Reports on Form 8-K:
------------------------
--- No Disclosure Necessary ---
33
SIGNATURE PAGE
Pursuant to the requirements of Section 12g of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 10-KSB and has duly caused this Annual Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Flexible Solutions International Inc. - SEC File #0-29649
---------------------------------------------------------
Registrant
Dated: April 5, 2002 By /s/ Daniel O'Brien
-------------------- ------------------------------------------------------
Daniel O'Brien, President/Treasurer/Secretary/Director
FLEXIBLE SOLUTIONS
INTERNATIONAL INC.
Consolidated Financial Statements
December 31, 2001
(U.S. Dollars)
INDEX Page
----- ----
Report of Independent Chartered Accountants to
the Board of Directors and Stockholders 1
Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-14
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF FLEXIBLE SOLUTIONS INTERNATIONAL INC.
We have audited the accompanying consolidated balance sheets of Flexible
Solutions International Inc. as of December 31, 2001 and 2000 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years ended December 31, 2001, 2000 and 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as at
December 31, 2001 and 2000 and the consolidated results of its operations and
its cash flows for each of the years ended December 31, 2001, 2000 and 1999 in
conformity with accounting principles generally accepted in the United States of
America.
"SMYTHE RATCLIFF PKF"
Chartered Accountants
Vancouver, Canada
March 19, 2002
1
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Balance Sheets
December 31
(U.S. Dollars)
-----------------------------------------------------------------------------
2001 2000
-----------------------------------------------------------------------------
Assets
Current
Cash $190,457 $192,280
Accounts receivable 46,374 144,383
Loan receivable (note 4) 9,516 0
Note receivable (note 5) 9,225 0
Inventory 181,698 93,513
Prepaid expenses 59,291 6,151
-----------------------------------------------------------------------------
Total Current Assets 496,561 436,327
Property and Equipment (note 6) 72,753 53,064
-----------------------------------------------------------------------------
Total Assets $569,314 $489,391
=============================================================================
Liabilities
Current
Accounts payable $20,592 $12,422
Income tax payable 18,108 90,598
-----------------------------------------------------------------------------
Total Current Liabilities 38,700 103,020
-----------------------------------------------------------------------------
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
9,272,816 and 9,131,316 Common shares 9,272 9,131
Capital in Excess of Par Value 563,713 163,653
Other Comprehensive Loss (23,842) (1,839)
Accumulated Earnings (Deficiency) (18,529) 215,426
-----------------------------------------------------------------------------
Total Stockholders' Equity 530,614 386,371
-----------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $569,314 $489,391
=============================================================================
See notes to consolidated financial statements.
2
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Statements of Operations
Years Ended December 31
(U.S. Dollars)
---------------------------------------------------------------------------------------
2001 2000 1999
---------------------------------------------------------------------------------------
Sales $1,334,273 $1,029,649 $759,218
Cost of Sales (Exclusive of Depreciation) 662,807 509,933 413,849
---------------------------------------------------------------------------------------
Gross Profit 671,466 519,716 345,369
---------------------------------------------------------------------------------------
Operating Expenses
Wages (note 10) 313,918 87,907 63,467
Stock promotion and transfer agent fee 241,573 568 8,048
Office 48,398 9,028 11,456
Administrative salaries and benefits 46,639 37,234 4,524
Rent 28,978 11,445 4,442
Bad debt expense 26,570 51,282 0
Professional fees 23,338 36,701 16,465
Travel 23,125 10,454 6,607
Subcontracting 16,630 33,312 12,801
Shipping 13,563 12,189 7,179
Telephone 5,616 3,613 2,359
Commission 1,130 1,982 20,957
Currency exchange (2,368) (19,344) 4,144
Depreciation 18,910 13,489 12,764
---------------------------------------------------------------------------------------
806,020 289,860 175,213
---------------------------------------------------------------------------------------
Income (Loss) Before Other Items and
Income Tax (134,554) 229,856 170,156
Other Items
Gain on sale of property and equipment 863 0 0
---------------------------------------------------------------------------------------
Income (Loss) Before Income Tax (133,691) 229,856 170,156
Income Tax 100,264 90,885 67,308
---------------------------------------------------------------------------------------
Net (Loss) Income $(233,955) $138,971 $102,848
=======================================================================================
Net (Loss) Income Per Share $ (0.03) $ 0.02 $ 0.01
=======================================================================================
Weighted Average Number of Shares 9,247,949 9,131,316 9,131,316
=======================================================================================
See notes to consolidated financial statements.
3
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2001, 2000 and 1999
(U.S. Dollars)
-----------------------------------------------------------------------------------------------------------------------------------
Capital in Accumulated Other Total
Excess of Earnings Comprehensive Stockholders'
Shares Par Value Par Value (Deficiency) Income (Loss) Equity
------------------------------------- ------------- --------------- ---------------- --------------- --------------- -------------
Balance, December 31, 1998 9,131,316 9,131 163,653 (26,393) (376) 146,015
Translation Adjustment 0 0 0 0 7,053 7,053
Net Income 0 0 0 102,848 0 102,848
------------------------------------- ------------- --------------- ---------------- --------------- --------------- -------------
Balance, December 31, 1999 9,131,316 9,131 163,653 76,455 6,677 255,916
Translation Adjustment 0 0 0 0 (8,516) (8,516)
Net Income 0 0 0 138,971 0 138,971
------------------------------------- ------------- --------------- ---------------- --------------- --------------- -------------
Balance, December 31, 2000 9,131,316 9,131 163,653 215,426 (1,839) 386,371
Shares Issued for
Cash (October and December 9,500 9 4,116 0 0 4,125
Services (January, July
and November) 132,000 132 139,868 0 0 140,000
Stock option compensation 0 0 256,076 0 0 256,076
Translation adjustment 0 0 0 0 (22,003) (22,003)
Net loss 0 0 0 (233,955) 0 (233,955)
------------------------------------- ------------- --------------- ---------------- --------------- --------------- -------------
Balance, December 31, 2001 9,272,816 $9,272 $563,713 $(18,529) $(23,842) $530,614
===================================== ============= =============== ================ =============== =============== =============
See notes to consolidated financial statements.
4
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Statements of Cash Flows
Years Ended December 31
(U.S. Dollars)
------------------------------------------------------------------------------------------------------------------
2001 2000 1999
------------------------------------------------------------------ -------------------- ---------------- ---------
Operating Activities
Net (loss) income $(233,955) $138,971 $102,848
Adjustments to reconcile net (loss) income
to net cash, provided by (used in)
operating activities
Stock option compensation 256,076 0 0
Non-cash services 141,510 0 0
Depreciation 18,910 13,489 2,764
Gain on sale of property and equipment (863) 0 0
Changes in Non-Cash Working Capital
Accounts receivable 98,009 (31,544) (111,308)
Inventory (88,185) 43,047 (131,225)
Prepaid expenses (53,140) (5,631) (520)
Accounts payable 8,170 (14,589) 5,444
Accrued liabilities 0 (6,929) 3,559
Income tax payable (72,490) 21,312 69,286
------------------------------------------------------------------ -------------------- ---------------- ---------
Cash Provided by (Used in) Operating Activities 74,042 158,126 (49,152)
------------------------------------------------------------------ -------------------- ---------------- ---------
Investing Activities
Acquisition of property and equipment (39,246) (16,771) (52,409)
Note receivable (9,225) 0 0
Loan receivable (9,516) 0 0
------------------------------------------------------------------ -------------------- ---------------- ---------
Cash Used in Investing Activities (57,987) (16,771) (52,409)
------------------------------------------------------------------ -------------------- ---------------- ---------
Financing Activities
Repayment to shareholder 0 0 (3,261)
Proceeds from issuance of common stock 4,125 0 0
------------------------------------------------------------------ -------------------- ---------------- ---------
Cash Provided by (Used in) Financing Activities 4,125 0 (3,261)
------------------------------------------------------------------ -------------------- ---------------- ---------
Effect of Exchange Rate Changes on Cash (22,003) (8,516) 7,053
------------------------------------------------------------------ -------------------- ---------------- ---------
Inflow (Outflow) of Cash (1,823) 132,839 (97,769)
Cash, Beginning of Year 192,280 59,441 157,210
------------------------------------------------------------------ -------------------- ---------------- ---------
Cash, End of Year $190,457 $192,280 $59,441
================================================================== ==================== ================ =========
Supplementary Disclosure of Cash
Flow Information
Income taxes paid $85,126 $66,748 $0
------------------------------------------------------------------ -------------------- ---------------- ---------
Supplementary Disclosure of Non-Cash
Investing Activities
Sale of trailer - exchange for rent $1,510 $0 $0
------------------------------------------------------------------ -------------------- ---------------- ---------
See notes to consolidated financial statements.
5
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2001, 2000 and 1999
(U.S. Dollars)
--------------------------------------------------------------------------------
1. OPERATIONS AND BASIS OF PRESENTATION
These consolidated financial statements include the accounts of
Flexible Solutions International Inc. and its wholly owned subsidiary
Flexible Solutions Ltd. ("the Company"). All intercompany balances and
transactions are eliminated. The parent company was incorporated May
12, 1998 in the State of Nevada and had no operations until June 30,
1998 as described below.
On June 30, 1998 the Company completed the acquisition of 100% of the
shares of Flexible Solutions Ltd. The acquisition was effected through
the issuance of 7,000,000 shares of common stock by the Company with
the former shareholders of the subsidiary receiving 100% of the total
shares then issued and outstanding. The transaction has been accounted
for as a reverse take-over.
Flexible Solutions Ltd. is accounted for as the acquiring party and the
surviving entity. Because Flexible Solutions Ltd. is the accounting
survivor, the consolidated financial statements presented for all
periods are those of Flexible Solutions Ltd. The shares issued by
Flexible Solutions International Inc. pursuant to the 1998 acquisition
have been accounted for as if those shares had been issued upon the
organization of Flexible Solutions Ltd.
2. COMPARATIVE FIGURES
Certain of the comparative figures are reclassified to conform with the
current years' presentation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) 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
the determination of income.
6
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2001, 2000 and 1999
(U.S. Dollars)
--------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b) 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 future results of
operations and cash flows.
(c) Inventory
Inventory is valued at the lower of cost and net realizable
value. Cost is determined on a first-in, first-out basis.
(d) Property and equipment
Property and equipment are recorded at cost and depreciated
using the declining balance method using the following annual
rates:
Manufacturing equipment - 20%
Trailer - 30%
Computer hardware - 30%
Furniture and fixtures - 20%
Office equipment - 20%
(e) Revenue recognition
Revenue from product sales is recognized at the time the
product is shipped. 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) Financial instruments
The Company's financial instruments consist of cash, accounts
receivable, note receivable, loan receivable and accounts
payable. It is management's opinion that the Company is not
exposed to significant interest, currency or credit risks
arising from these financial instruments. The fair value of
these financial instruments approximate their carrying values
due to their short maturities.
(g) Income (loss) per share calculation
Income (loss) per share is calculated by dividing net income
(loss) by the weighted average number of shares outstanding.
Common share equivalents consisting of stock options are not
considered in the computation because their effect would be
anti-dilutive.
7
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2001, 2000 and 1999
(U.S. Dollars)
--------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) 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 within the same
general time period.
(i) 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.
(j) Recent accounting pronouncements
(i) In December 1999, the SEC issued Staff Accounting
Bulletin ("SAB") 101, "Revenue Recognition", which
outlines the basic criteria that must be met to
recognize revenue and provides guidance for
presentation of revenue and for disclosure related to
revenue recognition policies in financial statements
filed with the SEC. The Company believes the adoption
of SAB 101 does not have a material impact on the
Company's financial position and results of
operations.
(ii) In March 2000 the Financial Accounting Standards
Board ("FASB") issued "Interpretation #44, Accounting
for Certain Transactions Involving Stock
Compensation". Among other issues, this
interpretation clarifies:
(a) The definition of employee for purposes of
applying APB Opinion No. 25.
(b) The criteria for determining whether a plan
qualifies as a noncompensatory plan.
(c) The accounting consequence of various
modifications of the terms of a previously
fixed stock option award, and
(d) The accounting for an exchange of stock
compensation awards in a business
combination.
In relation to (c) the interpretation states, "if the
exercise price of a fixed stock option award is
reduced, the award shall be accounted for as a
variable from the date of the modification to the
date the award is exercised, is forfeited, or expired
unexercised, the exercise price of an option award
has been reduced if the fair value of the
consideration required to be remitted pursuant to the
award's original terms". There is no impact on the
Company for fiscal 2001.
8
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2001, 2000 and 1999
(U.S. Dollars)
--------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(iii) On September 2000, the EITF reached a final consensus
on EITF Issue 00-10, "Accounting for Shipping and
Handling Fees and Costs." This consensus requires
that all amounts billed to a customer in a sale
transaction related to shipping and handling, if any,
represent revenue and should be classified as
revenue. Adoption of this consensus did not change
the Company's existing accounting policies or
disclosures.
4. LOAN RECEIVABLE
-----------------------------------------------------------
2001
-----------------------------------------------------------
5% loan receivable due October 17, 2002 $9,516
-----------------------------------------------------------
5. NOTE RECEIVABLE
The note receivable is without stated terms of repayment or interest
and was received in full subsequent to year end.
6. PROPERTY AND EQUIPMENT
-----------------------------------------------------------------------
2001
Accumulated
Cost Depreciation Net
-----------------------------------------------------------------------
Manufacturing equipment $110,105 $43,303 $66,802
Computer hardware 5,190 1,927 3,263
Furniture and fixtures 3,786 1,372 2,414
Office equipment 534 260 274
----------------------------------------------------------------------
$119,615 $46,862 $72,753
-----------------------------------------------------------------------
The trailer was sold on September 1, 2001 in exchange for free rent of
a month and a half at the Victoria location. Depreciation was
calculated up to date of sale.
-----------------------------------------------------------------------
2000
Accumulated Net Book
Cost Depreciation Value
-----------------------------------------------------------------------
Manufacturing equipment $75,757 $26,602 $49,155
Trailer 1,510 770 740
Computer hardware 1,039 530 509
Furniture and fixtures 3,087 769 2,318
Office equipment 534 192 342
-----------------------------------------------------------------------
$81,927 $28,863 $53,064
-----------------------------------------------------------------------
9
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2001, 2000 and 1999
(U.S. Dollars)
--------------------------------------------------------------------------------
7. COMPREHENSIVE (LOSS) INCOME
-----------------------------------------------------------------------
2001 2000 1999
-----------------------------------------------------------------------
Net income (loss) $(233,955) $138,971 $102,848
Other comprehensive
income (loss) (22,003) (8,516) 7,053
-----------------------------------------------------------------------
Comprehensive (loss) income $(255,958) $130,455 $109,901
-----------------------------------------------------------------------
8. INCOME TAX
Total income tax expense differs from the amounts computed by applying
the combined Canadian federal and provincial statutory rate of 44.62%
to income before income taxes. The income to which this is applied is
as follows:
-------------------------------------------------------------------------------
2001 2000 1999
-------------------------------------------------------------------------------
Income (loss) before income tax
per entity
Flexible Solutions International Inc. $(396,470) $0 $(10,766)
Flexible Solutions Ltd. 262,779 229,856 180,922
-------------------------------------------------------------------------------
Consolidated income (loss) before
income tax (133,691) 229,856 170,156
Permanent Difference:
Stock option benefit 256,076 0 0
Other 0
Stock issued for services 140,000 0 0
Miscellaneous 394 0 0
-------------------------------------------------------------------------------
Taxable income $262,779 $229,856 $170,156
-------------------------------------------------------------------------------
10
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2001, 2000 and 1999
(U.S. Dollars)
--------------------------------------------------------------------------------
8. INCOME TAX (Continued)
Application of the federal and provincial statutory rate results in the
following:
------------------------------------------------------------------
2001 2000 1999
------------------------------------------------------------------
Expected tax expense at
statutory rates $117,252 $104,860 $77,625
Increase (decrease) resulting
from manufacturing and
processing deduction (18,395) (16,090) (11,911)
Other 1,407 2,115 1,594
------------------------------------------------------------------
Income tax expense $100,264 $90,885 $67,308
------------------------------------------------------------------
The Company's losses for U.S. income tax purposes are U.S. $30,272
which may be carried forward to apply against future income for U.S.
income tax purposes, expiring between 2018 and 2019. The future benefit
of these loss carry-forwards has been offset with a full valuation
allowance. These losses expire as follows:
--------------------------------------- --------------------
Available to Amount
--------------------------------------- --------------------
2018 $16,858
2019 13,414
--------------------------------------- --------------------
$30,272
--------------------------------------- --------------------
9. NET (LOSS) INCOME PER SHARE
-----------------------------------------------------------------------
Net
Income (Loss) Shares Per Share
(Numerator) (Denominator) Amount
-----------------------------------------------------------------------
2001
Basic net (loss) per share
Net loss $(233,955) 9,247,949 $(0.03)
2000
Basic net income per share
Net income $138,971 9,131,316 $ 0.02
1999
Basic net income per share
Net income $102,848 9,131,316 $ 0.01
-----------------------------------------------------------------------
There were no preferred shares issued and outstanding for the years
ended December 31, 2001, 2000 and 1999.
11
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2001, 2000 and 1999
(U.S. Dollars)
--------------------------------------------------------------------------------
10. STOCK OPTIONS
The Company may issue stock options and stock bonuses for common stock
of the Company to provide incentives to directors, key employees and
other persons who contribute to the success of the Company. The
exercise price of the Incentive Options (employees of the Company or
its subsidiaries) is not less than the fair market value of the stock
at the date of the grant and for non-employees the exercise price is no
less than 80% of the fair market value (defined by the most recent
closing sale price reported by NASDAQ) on the date of the grant.
The following table summarizes the Company's stock option activity for
the year ended December 31, 2001:
------------------------------------------------------------------------------------
Weighted
Number of Exercise Price Average
Shares Per Share Exercise Price
------------------------------------------------------------------------------------
Granted during year ended
December 31, 2001 1,898,000 $ 0.25 - $ 3.50 $ 1.47
Exercised (2,000) $ 1.00 $ 1.00
------------------------------------------------------------------------------------
Balance, December 31, 2001 1,896,000 $ 0.25 - $ 3.50 $ 1.63
------------------------------------------------------------------------------------
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options granted to employees, and accordingly,
compensation expense of $173,750 was recognized as wages expense. Had
compensation expense been determined as provided in SFAS 123 using
Black-Scholes option - pricing model, the pro-forma effect on the
Company's net loss and per share amounts would have been as follows:
-----------------------------------------------------------------------
2001 2000 1999
-----------------------------------------------------------------------
Net loss, as reported $(233,955) $138,971 $102,848
Net loss, pro-forma (955,071) 138,971 102,848
Net loss per share, as reported $ (0.03) $ 0.02 $ 0.01
Net loss per share, pro-forma $ (0.10) $ 0.02 $ 0.01
-----------------------------------------------------------------------
The fair value of each option grant is calculated using the following
weighted average assumptions:
----------------------------------------------------- -------------
2001
----------------------------------------------------- -------------
Expected life (years) 3.5
Interest rate 4.00%
Volatility 58.27%
Dividend yield 0.00%
----------------------------------------------------- -------------
12
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2001, 2000 and 1999
(U.S. Dollars)
--------------------------------------------------------------------------------
10. STOCK OPTIONS (Continued)
During the year the Company granted stock options to consultants. These
options have been recognized applying SFAS 123 using the Black-Scholes
option-pricing model which resulted in additional stock promotion,
advertising, professional fees, subcontracting and office expenses of
$82,326 in the accounts.
11. CONTINGENCIES
The Company has been named plaintiff in a lawsuit demanding the return
of the share certificate for 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 by 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.
12. SEGMENTED AND SIGNIFICANT CUSTOMER INFORMATION
The Company operates in a single segment, involving the development and
marketing of two lines of energy and water conservation products.
The first line consists of a liquid swimming pool blanket which saves
energy and water by storing evaporation from the pool surface. The
second line consists of a food safe powdered form of the active
ingredient within the liquid blanket and is designed to be used in
still or slow moving drinking water sources.
The Company's sales in the United States of America and abroad amounted
to 5%, 3% and 28.8% for the years ended December 31, 2001, 2000 and
1999 respectively. The remainder were earned in Canada.
All the Company's long-lived assets are located in Canada. The Company
had one major customer, Sunsolar Energy Technologies which comprised
94%, 96% and 70% of total sales for the years ended December 31, 2001,
2000 and 1999 respectively. There were no significant concentrations of
credit risk.
13
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2001, 2000 and 1999
(U.S. Dollars)
--------------------------------------------------------------------------------
13. COMMITMENTS
Property and premises leases
The Company is committed to minimum rental payments for property and
premises aggregating approximately $235,202 over the terms of leases
expiring September 1, 2003.
Commitments in each of the next three years are approximately as
follows:
---------------------------------- ---------------------
2001 $85,528
2002 85,528
2003 64,146
---------------------------------- ---------------------
14. SUBSEQUENT EVENTS
(a) Subsequent to the year end, 47,000 common shares were issued.
(b) In January, 2002, U.S. $29,000 was received upon exercise of
options for shares of stock.
14