UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 2004
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
-------------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA
------
(State or other jurisdiction of incorporation or organization)
91-1922863
----------
(IRS Employer Identification No.)
2614 Queenswood Dr. Victoria BC Canada V8N 1X5
----------------------------------------------
(Address of principal executive offices)
(250) 477 - 9969
----------------
(Issuer's telephone number)
(Former name, former address and former fiscal year
if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12,13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes[ ] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common stock $.001 par value 11,819,916 shares as of April 30, 2004
-------------------------------------------------------------------
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
-1-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Attached hereto and incorporated herein by reference.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2004
(UNAUDITED - U.S. DOLLARS)
-------------------------------------------------------------------------------------------------------
MARCH 31 DECEMBER 31
2004 2003
-------------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents $ 1,657,930 $ 237,080
Short term investments 3,508,102 5,033,837
Accounts receivable 127,621 294,238
Income tax receivable 85,123 86,243
Loan receivable 32,453 17,585
Inventory 183,820 212,938
Prepaid expenses 51,910 36,101
-------------------------------------------------------------------------------------------------------
5,646,958 5,918,022
PROPERTY AND EQUIPMENT 175,975 167,589
INVESTMENT 303,500 303,500
DEFERRED ACQUISITION COSTS 90,912 -
-------------------------------------------------------------------------------------------------------
$ 6,217,346 $ 6,389,111
-------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Due to shareholders $ - $ 7,700
Accounts payable and accrued liabilities 124,656 157,643
-------------------------------------------------------------------------------------------------------
124,656 165,343
STOCKHOLDERS' EQUITY
CAPITAL STOCK
Authorized
50,000,000 Common shares with a par value of $0.001 each
1,000,000 Preferred shares with a par value of $0.01 each
Issued and Outstanding
11,819,916 (2003: 11,794,916) common shares 11,817 11,794
CAPITAL IN EXCESS OF PAR VALUE 7,414,025 7,306,613
OTHER COMPREHENSIVE INCOME (LOSS) 15,371 3,023
DEFICIT (1,348,523) (1,097,662)
-------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 6,092,690 6,223,768
-------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 6,217,346 $ 6,389,111
-------------------------------------------------------------------------------------------------------
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED - U.S. DOLLARS)
--------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31
--------------------------------------------------------------------------------------------------
2004 2003
--------------------------------------------------------------------------------------------------
SALES $ 488,110 $ 1,281,266
COST OF SALES 305,919 687,067
--------------------------------------------------------------------------------------------------
GROSS PROFIT 182,191 594,199
--------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Wages 114,470 138,670
Administrative salaries and benefits 24,847 17,642
Advertising and promotion 7,730 -
Investor relations and transfer agent fee 64,678 33,120
Office and miscellaneous 34,590 46,022
Rent 21,349 14,398
Consulting 74,678 51,932
Professional fees 36,508 23,063
Travel 23,576 34,184
Telecommunications 5,700 8,762
Shipping 3,142 3,692
Research 9,161 17,531
Currency exchange 422 16,167
Utilities 5,365 -
Depreciation 9,952 7,811
--------------------------------------------------------------------------------------------------
436,168 412,994
--------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INTEREST INCOME AND INCOME TAX (253,977) 181,205
INTEREST INCOME 3,116 50,268
--------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAX (250,861) 231,473
INCOME TAX (RECOVERY) - 50,692
--------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (250,861) $ 180,781
DEFICIT, BEGINNING (1,097,662) (3,100,974)
--------------------------------------------------------------------------------------------------
DEFICIT, ENDING (1,348,523) (2,920,193)
--------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE $ (0.02) $ 0.02
--------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES 11,807,801 11,610,138
--------------------------------------------------------------------------------------------------
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED - U.S. DOLLARS)
--------------------------------------------------------------------------------------------------------
QUARTERS ENDED MARCH 31
2004 2003
--------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ (250,861) $ 180,781
Stock compensation expense 66,935 44,184
Depreciation 9,952 7,811
Changes in non-cash working capital items:
Accounts receivable 166,617 (701,638)
Inventory 29,118 99,814
Prepaid expenses (15,809) 10,867
Accounts payable (32,987) 105,070
Income tax receivable 1,120 31,239
Decrease in due to shareholders (7,700) -
Unrealized foreign exchange gain/loss - 37,277
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (33,615) (184,595)
--------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of property and equipment (18,338) (12,226)
Purchase of short-term investments 1,525,735 -
Loan receivable (14,868) (882)
Incurred acquisition costs (90,912)
--------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES 1,401,617 (13,108)
--------------------------------------------------------------------------------------------------------
FINANCING ACTIVITY
Proceeds from issuance of common stock 40,500 38,500
--------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 40,500 38,500
--------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 12,348 7,906
--------------------------------------------------------------------------------------------------------
INFLOW (OUTFLOW) OF CASH 1,420,850 (151,297)
Cash and cash equivalents, beginning of period 237,080 556,789
--------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,657,930 $ 405,492
--------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ - $ 50,692
Interest received 3,116 50,268
--------------------------------------------------------------------------------------------------------
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED MARCH 31
(U.S. DOLLARS)
(UNAUDITED)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
These unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles in the United States for interim financial
information. These financial statements are condensed and do
not include all disclosures required for annual financial
statements. The organization and business of the Company,
accounting policies followed by the Company and other
information are contained in the notes to the Company's
audited consolidated financial statements filed as part of the
Company's December 31, 2003 Form 10-KSB.
In the opinion of the Company's management, these consolidated
financial statements reflect all adjustments necessary to
present fairly the Company's consolidated financial position
at March 31, 2004 and the consolidated results of operations
and the consolidated statements of cash flows for the nine
months ended March 31, 2004 and 2003. The results of
operations for the three months ended March 31, 2004 are not
necessarily indicative of the results to be expected for the
entire fiscal year.
2. STOCKHOLDERS' EQUITY
(a) During the prior periods, the Company granted stock
options to consultants and have recognized consulting
expense applying SFAS 123 using the Black-Scholes
option pricing model which resulted in expense of
$66,935.15 for the three months ended March 31, 2004.
(b) The following table summarizes the Company's stock option
activity for the period:
-----------------------------------------------------------------------------------------
2004
Weighted
Exercise Average
Number Price Exercise
of Shares Per Share Price
-----------------------------------------------------------------------------------------
Balance, December 31, 2004 1,694,000 $ 1.00 to $ 4.25 $ 2.84
Granted During the Period 0 0 0
Exercised (25,000) $ (1.40 to $ 2.50) (1.62)
-----------------------------------------------------------------------------------------
Balance, March 31, 2004 1,669,000 $ 1.00 to $ 4.25 $ 3.06
-----------------------------------------------------------------------------------------
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED MARCH 31ST 2004
(U.S. DOLLARS)
(UNAUDITED)
--------------------------------------------------------------------------------
3. CONTINGENCIES:
a) The company has been named as a plaintiff in a lawsuit filed in the
state of Illinois by a former employee. In November 2003, an
ex-employee, Patrick Grant filed suit against Flexible Solutions in
Cook County Circuit Court, Cook County IL, claiming wrongful dismissal
and seeking return of options rights or cash. The company believes
these allegations are without merit and intends to vigorously defend
against them.
b) The company is plaintiff in a lawsuit demanding return of the share
certificate of 100,000 shares of stock originally given to the defended
as payment in advance for services. The services for which the advance
was given were never performed or given to the company, and the company
therefore received no consideration or value for such advance. Return
of the share certificate for 100,000 shares was demanded within ten
(10) days, namely August 22, 2001, however, to date remains unreturned.
On date of issue, January 4, 2001, the share transaction was recorded
as shares issued for services at fair market value, a value of $0.80
per share.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information contains certain forward-looking statements that
anticipate future trends or events. These statements are based on certain
assumptions that may prove to be erroneous and are subject to certain risks
including but not limited to the risks of increased competition in the Company's
industry and other risks detailed in the Company's Securities and Exchange
Commission filings. Accordingly, actual results may differ, possibly materially,
from the predictions contained herein.
For the three months ended March 31, 2004, the Company experienced a loss of
$250,861 as compared to a profit of $180,781 for the three months ended March
31, 2003.The Company increased expenditures in the areas of WATER$AVR sales and
marketing as well as investor relations. In addition, the Company regained the
distribution of its residential pool products and added personnel, office space,
equipment and marketing resources during the quarter.
RESULTS OF OPERATIONS
Reference is made to Item 2, "Management's Discussion and Analysis" included in
the Company's registration statement on Form 10-SB for the year ended December
31st 1999, as amended, and the Company's 10K-SB for the years ended Dec. 31st
2002 and 2003 on file with the Securities and Exchange Commission. The following
analysis and discussion pertains to the Company's results of operations for the
three months ended March 31 2004, compared to the results of operations for the
three month ended March 31, 2003, and to changes in the Company's financial
condition from December 31st 2003 to March 31, 2004.
THREE MONTHS ENDED MARCH 31ST 2004 AND 2003
For the first quarter of the current fiscal year ending March 31st, 2004, sales
were $488,110 compared to $1,281,266 for the same quarter of the previous year.
This decrease in sales is a result of pre-sold Tropical Fish to our former
exclusive distributor, SunSolar and reduced sales in the Water$avr division. We
have changed the name of our residential pool product to Ecosavr and have taken
the distribution in house, based out of Richmond BC. The product launch is
scheduled for May 2004. There were $479,000 in Water$avr sales to Ondeo Nalco in
first quarter 2003 that were not repeated in 2004 and the last shipment of
Tropical Fish to our former distributor ($108,000) was delayed through the
quarter end and shipped on April 1st. These two items account for all of the
quarter over quarter revenue change.
Cost of sales was $305,919 for the first quarter, down from $687,067 for the
first quarter of last year. Reduction can be attributed to the lack of W$ sales
and consequent lower raw material input costs. The largest real increases were
in the area of consulting ($74,678 from $51,932) for overseas sales of W$.
Professional fees increased to ($55,920 from $23,063) and investor relations
increased to ($64,678 from $33,120) to accommodate increased efforts to raise
awareness of the Company in the investing community. There were decreases in the
areas of wages, ($114,470 from $138,670) research ($9,161 from $17,531) and
travel ($23,576 from $34,184) these decreases are related to closing the
WaterSavr Global office in Illinois, laying off non-performing sales staff and
relocating head office to Victoria BC.
The loss for the quarter was $250,861, a significant increase from first quarter
last year when there was a profit of 180,781. The increased loss was caused by
decreased sales in the Water$avr division combined with continued efforts to
close new direct sales of W$ in Asia and the USA. Cost of sales increased from
53 to 62% as a result of lower sales without an equivalent reduction in costs.
The loss per share was $0.02 for the three months ended March 31, 2004 compared
to a profit of $0.02 for the three months ended March 31, 2003.
Sales in the three months ended March 31, 2004 were $488,110 compared to
$1,281,266 for the three months ended March
-2-
31, 2003. The 62% decrease was a result of the timing in sales in our swimming
pool division and lack of significant sales in the W$ division. Our previous
exclusive distributor ordered significant product ahead of spring sales in the
4th quarter of 2003 and a shipping delay caused $108,000 in another order to be
recognized in the 2nd quarter 2004 rather than Q1.
Operating expenses for the Company were $436,168 for the three months ended
March 31, 2004 up marginally from $412,994 for the three months ended march 31,
2003. The net income for the three months ended March 31, 2004 was ($250,861)
compared to a net income of $180,781 for the three months ended March 31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash on hand of $1,657,930 as of the end of the quarter.
As of March 31, 2004 the Company had working capital of $5,646,958 as compared
to working capital of 5,918,022 on December 31st 2003. The decrease was a result
of operational costs incurred to market Water$avr during the 3 months ended
March 31, 2004 and the six months ended Dec 31st 2003.
The Company has no external sources of liquidity in the form of credit lines
from banks. Management believes that its available cash will be sufficient to
fund the Company's working capital requirements through December 31st 2004.
Management further believes that available cash will be sufficient to implement
the Company's expansion plans. No investment banking agreements are in place and
there is no guarantee that the Company will be able to raise capital in the
future should that become necessary.
ITEM 3. CONTROLS AND PROCEDURES
-------------------------------
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-14(c). The Company's disclosure controls
and procedures are designed to provide a reasonable level of assurance of
reaching the Company's desired disclosure control objectives. In designing and
evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. The Company's
certifying officer has concluded that the Company's disclosure controls and
procedures are effective in reaching that level of assurance.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
In November 2003, an ex-employee, Patrick Grant filed suit
against Flexible Solutions in Cook County Circuit Court,
Cook County IL, claiming wrongful dismissal and seeking
return of options rights or cash. Management considers the
case without merit and is disputing the suit vigorously.
Item 2. Changes in Securities
No options were granted to employees during the period.
5,000 options were exercised by consultant employees
during the period for proceeds to the Company of $12,500.
20,000 options were exercised by employees' during the
period for proceeds to the Company of $28,000
Item 3. Default upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders - None
-3-
Item 5. Other Information - None
Item 6.(b) Reports on Form 8-K
March 9, 2004
LIST OF EXHIBITS
#1 Un-audited Financial Statements - Attached
#13 Form 10-KSB Dec 31st 2004 - incorporated by reference
#31 Section 2 page 4
#32 Section 2 page 6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
(Registrant)
Dated: May 10, 2004 /s/ Dan O'Brien, President and Director
------------ ---------------------------------------
EXHIBIT 31
I, Dan O'Brien, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Flexible Solutions
International Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
-4-
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 10, 2004
/s/ Dan O'Brien
CEO and CFO
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Flexible Solutions International Inc.
on form 10-Q for the period ended Mar 31st 2004 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Dan O'Brien, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as
adopted pursuant to section 906 of the Sarbanes -Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Dan O'Brien
---------------
Dan O'Brien
CEO, May 10, 2004
CERTIFICATION PURSUANT TO
18 U.S.C. 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Flexible Solutions International Inc.
(the Company) on form 10-Q for the period ended Mar 31st 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Dan
O'Brien, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
1. The Report fully complies with the requirements of Section 13(a) or 15(b) of
the Securities Exchange Act of 1934; and
-5-
2. The information contained in the Report fairly represents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Dan O'Brien
---------------
Dan O'Brien
CFO, May 10, 2004
-6-