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 JUNE 30, 2005
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[ ] 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
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(IRS Employer Identification No.)
615 Discovery Street, Victoria BC V8T 5G4
-----------------------------------------
(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[X] 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
12,831,316 shares as of July 29, 2005.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Attached hereto and incorporated herein by reference.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information contains certain forward-looking statements that
anticipate future trends or events. These statements are based on certain
assumptions that may prove to be erroneous and are subject to certain risks
including but not limited to the risks of increased competition in the Company's
industry and other risks detailed in the Company's Securities and Exchange
Commission filings. Accordingly, actual results may differ, possibly materially,
from the predictions contained herein.
RESULTS OF OPERATIONS
Separate financial data for each of the Company's operating segments is provided
below. Segment Gross Profit Margin is defined in the discussion below. The
Company evaluates the performance of the Company's operating segments based on
the following:
JUNE 30
% CHANGE % CHANGE
2005 2004 2003 2005-2004 2004-2003
Sales
Energy Segment $ 765,621 $ 759,744 $ 1,942,562 1% (61%)
Polymer Segment 3,122,093 276,127 -- * 1031% -- *
Consolidated 3,887,714 1,035,871 1,942,562 275% (47%)
Gross Profit Margin
Energy Segment 310,557 357,257 846,660 (13%) (58%)
Polymer Segment 1,445,212 267,537 -- * 440% -- *
Consolidated 1,755,769 624,864 846,660 181% (26%)
SG&A
Energy Segment 1,293,921 994,893 974,108 30% 2%
Polymer Segment 889,583 238,591 -- * 273% -- *
Consolidated 2,183,504 1,233,484 974,108 77% 27%
Interest Income
Energy Segment 3,616 30,470 102,246 (88%) (70%)
Polymer Segment 0 0 -- * 0% -- *
Consolidated 3,616 30,470 102,246 (88%) (70%)
Write Down of Investments
Energy Segment 0 0 0 0 0
Polymer Segment 0 0 -- * -- * -- *
Consolidated 0 0 0
Net Income (Loss) $ (424,119) $ (578,150) $ (49,297) 27% (1072%)
---------------
* Polymer segment data is not available as indicated. The Company's polymer
segment was formed after the acquisition of certain assets of the Donlar
Corporation in June 2004.
SIX MONTHS ENDED JUNE 30 2005 AND 2004
--------------------------------------
Sales for the six months ended June 30, 2005 were $3,887,714, compared to
$1,035,871 for the six months ended June 30, 2004, an increase of $2,851,843, or
275%. The increase in sales was primarily attributable to the new revenue
provided by the Company's wholly-owned subsidiary, NanoChem Solutions Inc.,
which was formed as the corporate entity used to acquire certain assets from the
bankruptcy estate of the Donlar Corporation.
The Company's Energy segment had sales of $765,621 for the six months ended June
30, 2004, compared to $759,744 for the six months ended June 30, 2004, an
increase of 1%. The Company expects revenue in this segment to increase in 2006
as brand recognition of its ECO$AVR(R) product line continues to grow and the
Company's marketing efforts of its WATER$AVR(R) product line begin to produce
increased sales. The Company's Polymer segment achieved sales of $3,122,093 for
the six months ended June 30, 2005, compared to $276,127 for the six months
ended June 30, 2004. This increase is in part due to a full six months of sales
from the new NanoChem Solutions subsidiary.
The Company had a loss of $424,119, or $0.03 per share, compared to a loss of
$578,150, or $0.05 per share in the same period in 2004. The three largest
contributing factors to the loss were:
o The brand building, marketing and extra staffing costs in connection
with sales of the Company's ECO$AVR(R) product incurred throughout the
year that were not reflected in sales because there was still
substantial "Tropical Fish" product with dealers that had been sold by
the Company's discontinued distributor, Sunsolar Technologies.
Management believes that very little old product is on shelves and that
costs and revenue for the ECO$AVR(R) product will be better balanced in
2006.
o All divisions maintained or increased sales and marketing costs in the
fourth quarter in order to increase the probability of sales increases
in all of fiscal 2005. The extra costs were considered to be necessary
to position the Company for future growth.
o Non cash transactions such as stock option expense significantly
increased. This was a one time only event, related to the private
placement in April 2005.
The Company's overall gross profit margin on product sales decreased to 45% in
the six months ended June 30, 2005, down from 60% in the six months ended June
30, 2004. This decrease in gross margin was primarily due to the rise in oil and
its affect on raw material pricing and shipping. There were also extra costs
related to the labor and material inputs for the Company's swimming pool
products as a result of the significant rise of the Canadian dollar versus the
U.S. dollar. For more information regarding this result, see Note 2(e) to the
Company's Notes to Consolidated Financial Statements, Foreign Currency.
Gross profit margin represents sales less cost of sales and producing. The major
categories of costs included in cost of sales and producing are cost of goods,
distribution costs, and costs of the Company's buying department. Distribution
costs consist of all warehouse receiving and inspection costs, warehousing
costs, all transportation costs associated with shipping goods from the
Company's facilities to its customers, and other costs of distribution. The
Company does not exclude any portion of distribution costs from cost of sales.
The Company's gross margins may not be comparable to those of other entities
because some entities include all of the costs related to their overhead in cost
of sales, as compared to the Company, which excludes a portion of cost of sales
from gross profit and instead includes such costs as a line item in operating
expenses.
For the six months ended June 30, 2005, there was an increase in sales and
marketing costs in connection with the Company's WATER$AVR(R) product, which was
reflected in increased wages, office, rent, telephone and travel expenses. The
Company incurred higher professional fees in the six months ended June 30, 2005
primarily due to increased legal and accounting expenses and increased
consultant expenses resulting from the cost of integrating the functions and
sales of the Company's NanoChem subsidiary as quickly as possible. Depreciation
expense was $388,086 for the six months ended June 30, 2005, compared to
$185,547 for the six months ended June 30, 2004, reflecting depreciation for
additional property and equipment added mid 2004.
The Company's Energy segment generated $1,293,291 in operating expenses in the
six months ended June 30, 2005, an increase of 30% over the same 2004 period.
The increase is primarily attributable to the Company's extraordinary stock
option expense related to the capital raising in the six months ended June 30,
2005. The Company's Polymer segment incurred $889,583 in operating expenses in
the six months ended June 30, 2005, and increase of 77% over the same period the
previous year. This is attributable to the fact the NanoChem Solutions
subsidiary operated for the full 6 months in 2005 compared to 20 days in 2004,
during the same period.
There was no income tax provision for the six months ended June 30, 2005, as no
tax installment payments were made during the year, same as the same period in
the previous year.
The Company's Energy segment reported interest income of $3,616 in the first six
months of 2005, compared to $30,470 in the same period in 2004, a decrease of
approximately 88% from 2004. This decrease in interest income is due to the
Company's use of capital to purchase assets and develop its business.
The Company reported a net loss of $424,119 for the six months ended June 30,
2005, compared to a net loss of $578,150 for the six months ended June 30, 2004.
With the addition of the assets acquired from the Donlar Corporation, the
Company became a much larger company with commensurate increases in most expense
segments. However, the Company was able to reduce certain expenses such as
advertising ($44,685 down from $56,792) and consulting ($91,787 down from
$188,816) as a direct result of better cost control in these areas instituted by
management over the past year and are expected to maintain at these levels. The
large increase in investor relations ($509,588 versus $122,625) has to do with
the stock options that vested in relation to the capital raising that closed on
April 14, 2005. This resulted in a non-cash transaction of $447,500 and without
this, the company would have seen a decrease in this expense.
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
---------------------------------------
The discussion in this section does not include a true comparison of Polymer
segment data for this period. The Company's Polymer segment was formed after the
acquisition of certain assets of the Donlar Corporation in June 2004.
Sales for the six months ended June 30, 2004 were $1,035,871, compared to
$1,942,562 for the six months ended June 30, 2003, a decrease of $906,691, or
47%. This decrease is primarily the result of substantial "Tropical Fish"
product still in the market, which product is being sold by the Company's
discontinued distributor, Sunsolar Technologies, and the Company's brand
building efforts in connection with its ECO$AVR(R) product line. The Company
expects revenue in this segment to increase in 2006 as brand recognition of its
ECO$AVR(R) product line continues to grow and the Company's marketing efforts of
its WATER$AVR(R) product line begin to produce increased sales.
The Company's Energy segment had sales of $759,744 for the six months ended June
30, 2004, compared to $1,942,562 for the six months ended June 30, 2003, a
decrease of 61%. The Company expects revenue in this segment to increase in 2006
as brand recognition of its ECO$AVR(R) product line continues to grow and the
Company's marketing efforts of its WATER$AVR(R) product line begin to produce
increased sales. The Company's Polymer segment achieved sales of $276,127 for
the six months ended June 30, 2004 with no comparable data for 2003.
The Company's overall gross profit margin on product sales increased to 60% in
the six months ended June 30, 2004, up from 45% in the six months ended June 30,
2003. This increase in gross margin was primarily due to the addition of the
Company's Polymer segment.
For the six months ended June 30, 2004, there was an increase in sales and
marketing costs in connection with the Company's WATER$AVR(R) and ECO$AVR(R)
products, which was also reflected in increased office and rent expenses. The
Company incurred higher professional fees in the six months ended June 30, 2004
primarily due to increased legal and accounting expenses and increased
consultant expenses resulting from the cost of integrating the functions and
sales of the Company's NanoChem subsidiary as quickly as possible. Depreciation
expense was $185,547 for the six months ended June 30, 2004, compared to $15,927
for the six months ended June 30, 2003, reflecting depreciation for additional
property and equipment added mid 2004.
The Company's Energy segment generated $994,893 in operating expenses in the six
months ended June 30, 2004, an increase of 2% over the same 2003 period. The
Company's Polymer segment incurred $238,591 in operating expenses in the six
months ended June 30, 2004 with no comparable data for the 2003 period.
There was no income tax provision for the six months ended June 30, 2004, as no
tax installment payments were made during this period. The Company's income tax
provision for the six months ended June 30, 2003 was made by installment
payments totaling $26,094. The Company had interest income of $30,470 in the six
months ended June 30, 2004, as compared to interest income of $104,246 in the
six months ended June 30, 2003, a decrease of 70%. The Company reported net loss
of $578,150 in the six months ended June 30, 2004, compared to a net loss of
$49,295 for the six months ended June 30, 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company has cash on hand of $752,130 as of the end of June 2005 compared to
$558,795 on December 31st 2004.
As of June 30th 2005 the Company had working capital of $3,590,510 as compared
to a working capital shortage of $101,121 on December 31st 2004. The increase
was mainly the result of the cash raised in the private placement that was used
to pay off the loan taken out for the purchase of the Donlar Corp. assets that
became the NanoChem division as well as from the increase in sales.
The Company has no external sources of liquidity in the form of credit lines
from banks.
Management believes that its available cash will be sufficient to fund the
Company's working capital requirements through December 31st 2005. Management
further believes that available cash will be sufficient to implement the
Company's expansion plans. No investment banking agreements are in place and
there is no guarantee that the Company will be able to raise capital in the
future should that become necessary.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS:
The Company does not have any derivative financial instruments as of June 30th
2005. However, the Company is exposed to interest rate risk.
The Company's interest income and expense are most sensitive to changes in the
general level of U.S. and Canadian interest rates. In this regard, changes in
U.S. and Canadian interest rates affect the interest paid on the Company's cash
equivalents as well as the interest paid on debt.
FOREIGN CURRENCY RISK
The Company operates extensively in both Canada and the USA. Therefore, the
Company's business and financial condition is sensitive to currency exchange
rates or any other restriction imposed on its currency.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
a) On November 13, 2003, Patrick Grant filed a lawsuit in the Circuit Court of
Cook County, Illinois against the Company, Water$avr Global Solutions Inc.
("WGS"), the wholly-owned subsidiary of the Company, and Daniel B. O'Brien , the
Company's Chief Executive Officer. The plaintiff claims damages for breach of
contract, tortious interference with an agreement and various wrongful discharge
claims. The plaintiff seeks monetary damages in excess of $1,020,000 for the
breach of contract and tortious interference claims and unspecified compensatory
and punitive damages in the wrongful discharge claims. The parties completed
mandatory mediation ordered by the Circuit Court and will next appear in court
for case management, at which time the court will set discovery deadlines. The
Company considers the case without merit and is planning to dispute the matter
vigorously. In addition, the Company intends to file counterclaims against the
plaintiff for failure to repay financial obligations owed to the Company of
almost $40,000, as well as unspecified damages arising out of Plaintiff's
disclosure of confidential information to a client during his employment at WGS.
No amounts have been recorded as receivable and no accrual has been made for any
loss in the Company's consolidated financial statements as the outcome of the
claim filed by Mr. Grant is not determinable.
b) On May 1, 2003, the Company filed a lawsuit in the Supreme Court of British
Columbia, Canada, against John Wells and Equity Trust, S.A. seeking return of
100,000 shares of the Company's common stock and repayment of a $25,000 loan,
which were provided to defendants for investment banking services consisting of
securing a $5 million loan and a $25 million stock OFFERING. Such services were
not performed and in the proceeding, the Company seeks return of such shares
after defendant's failure to both return the shares voluntarily and repay the
note. On May 7, 2003 the Company obtained an injunction freezing the transfer of
the shares. On May 24, 2004 there was a hearing on defendant's motion to set
aside the injunction, which motion was denied by the trial court on May 29,
2004. The proceeding is still in a discovery phase. On the date of issuance, the
share transaction was recorded as shares issued for services at fair market
value, a value of $0.80 per share. No amounts have been recorded as receivable
in the Company's consolidated financial statements as the outcome of this claim
is not determinable.
c) On May 28, 2004, Sunsolar Energy Technologies Inc. ("SET"), filed a lawsuit
in the Federal Court of Canada, against the Company, Flexible Solutions, Ltd.,
the Company's wholly-owned subsidiary ("FSL"), and Mr. O'Brien. SET is seeking:
(a) a declaration that the trademark "Tropical Fish" is available for use by
SET; (b) injunctive relief against further use of the "Tropical Fish" trademark
by the Company; and (c) monetary damages exceeding $7,000,000 for the alleged
infringement by the Company, FSL and Mr. O'Brien of the "Tropical Fish"
trademark, as well as any other "confusingly similar trademarks" or proprietary
trade dresses. On August 9, 2004, the Company, FSL and Mr. O'Brien filed their
defense and filed a counterclaim against SET. The counterclaim seeks: (x)
injunctive relief against further use of the "Tropical Fish" trademark by SET;
(y) a declaration that the "Tropical Fish" trademark is owned by the Company,
or, in the alternative, is not distinctive and should be struck from the
trademark registry; and (z) monetary damages exceeding $50,000. The parties have
completed documentary discovery, and examinations for discovery of all parties
have been scheduled for July 2005. No amounts have been recorded as receivable
in the Company's consolidated financial statements and no amounts have been
accrued as potential losses as the outcome of this claim is not determinable.
d) On July 23, 2004, the Company filed a breach of contract suit in the Circuit
Court of Cook County, Illinois against Tatko Biotech Inc. ("Tatko"). The action
arises out of a joint product ----- development agreement entered into between
the Company and Tatko in which the Company agreed to invest $10,000 toward the
product development venture and granted to Tatko 100,000 shares of the Company's
restricted common stock. In return, Tatko granted the Company a five-year option
to purchase 20% of Tatko's outstanding capital stock. Tatko has since refused to
collaborate on the agreement and the Company seeks declaratory relief stating
that Tatko is not entitled to the 100,000 shares of the Company's restricted
common stock. The litigation is still pending at this time.
In addition, Tatko filed its own suit on September 24, 2004 in the Circuit Court
of Cook County, Illinois seeking declaratory relief of its entitlement to the
Company's restricted common stock. On May 23, 2005, the Tatko suit was dismissed
with prejudice by the District Court.
No amounts have been recorded as receivable in the Company's consolidated
financial statements and no amount has been accrued as a loss as the outcome of
the claim against Tatko is not determinable.
e) The Company is the plaintiff in a lawsuit filed in the Court of the Queen's
Bench of Alberta, where the subsidiary Flexible Solutions Ltd. is
inter-provincially registered. The company is seeking undetermined damages
resulting from breach of contract against Calgary Diecast Corporation. The
contract was never completed and the Company's raw materials remain in the
possession Calgary Diecast Corp. On April 25th, 2005, the Court ordered a
judgment in favor of Flexible Solutions Ltd. in the amount of $48,723 and FSL
intends to collect using all available means.
ITEM 2. CHANGES IN SECURITIES
989,400 common shares were issued during the quarter
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On June 10, 2005, the annual general meeting of shareholders was held
in Vancouver, BC. The results are as follows:
- Mr. Dan O'Brien, Mr. Robert O'Brien, Ms. Dale Friend, Mr. John
Bientjes and Mr. Eric Hodges were confirmed as directors for the
following year
- Stock option compensation to officers and insiders were approved
- Election to approve the Annual Report as filed with the SEC was
approved
- Cinnamon Jang Willoughby were confirmed as Auditors for the year
ending December 31, 2005
ITEM 5. OTHER INFORMATION
None
ITEM 6.(B) REPORTS ON FORM 8-K
June 29, 2005 - AGM shareholder votes
June 9, 2005 - Private Placement
May 16, 2005 - Release of Q1 Financials
April 14, 2005 - Private Placement
April 6, 2005 - Revenue Prediction
ITEM 14. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the
Company's Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-14(c). In designing and evaluating
the disclosure controls and procedures, management recognized that any
controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures.
Within 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive
Officer and the Company's Chief Financial Officer, of the effectiveness
of the design and operation of the Company's disclosure controls and
procedures. Based on the foregoing, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect the
internal controls subsequent to the date the Company completed its
evaluation.
SIGNATURE
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: August 12, 2005 /s/ DAN O'BRIEN, President and Director
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Balance Sheets
June 30, 2005
(U.S. Dollars)
---------------------------------------------------------------------------------------------------------
June 30 December 31
2005 2004
---------------------------------------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 752,130 $ 558,795
Short term investments - 559,440
Accounts receivable 1,028,236 501,372
Income tax 27,033 92,963
Loan receivable 38,286 38,570
Inventory 1,912,912 1,416,588
Prepaid expenses 117,979 131,280
---------------------------------------------------------------------------------------------------------
3,876,576 3,299,008
Property, equipment and leaseholds 4,984,801 5,250,346
Investment 347,000 271,000
---------------------------------------------------------------------------------------------------------
$9,208,377 $8,820,354
------------------------------------------------------------------==========------------------==========-
Liabilities
Current
Accounts payable and accrued liabilities $ 286,066 $ 250,129
Short term loan 3,150,000
---------------------------------------------------------------------------------------------------------
286,066 3,400,129
---------------------------------------------------------------------------------------------------------
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
12,821,316 (2004: 11,831,916) Common shares 11,832 11,832
Capital in excess of par Value 11,616,621 7,663,421
Other comprehensive income 73,184 100,179
Deficit (2,779,326) (2,355,207)
---------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 8,922,311 5,420,225
---------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $9,208,377 $8,820,354
------------------------------------------------------------------==========------------------==========-
Commitments and Contingencies (Notes 14 & 15)
See accompanying condensed notes to unaudited interim consolidated financial
statements.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Statements of Operations
For Six Months Ended June 30, 2005 and 2004
(U.S. Dollars)
--------------------------------------------------------------------------------
Six Months Ended June 30
--------------------------------------------------------------------------------
2005 2004
--------------------------------------------------------------------------------
Sales $ 3,887,714 $ 1,035,871
Cost of sales 2,131,945 411,007
--------------------------------------------------------------------------------
Gross profit 1,755,769 624,864
--------------------------------------------------------------------------------
Operating Expenses
Wages 436,825 257,716
Administrative salaries and benefits 109,076 57,544
Advertising and promotion 44,685 56,792
Investor relations and transfer agent fee 509,588 122,625
Office and miscellaneous 69,531 96,922
Insurance 62,787 -
Interest expense 62,189 -
Rent 103,672 52,216
Consulting 91,787 188,816
Professional fees 126,449 107,714
Travel 78,866 49,514
Telecommunications 22,890 14,714
Shipping 23,036 10,797
Research 18,404 15,842
Commissions 87,998 -
Bad debt expense (recovery) - (797)
Currency exchange (6,867) 3,324
Utilities 11,502 14,198
Depreciation 331,086 185,547
--------------------------------------------------------------------------------
2,183,504 1,233,484
--------------------------------------------------------------------------------
Income (loss) before other items and income tax (427,735) (608,620)
Interest income 3,616 30,470
--------------------------------------------------------------------------------
Income (loss) before income tax (424,119) (578,150)
Income tax (recovery) - -
--------------------------------------------------------------------------------
Net income (loss) $ (424,119) $ (578,150)
Deficit, beginning $(2,355,207) $(1,097,662)
--------------------------------------------------------------------------------
Deficit, ending $(2,779,326) $(1,675,812)
------------------------------------------------============--------============
Net income (loss) per share $ (0.03) $ (0.05)
------------------------------------------------============--------============
Weighted average number of shares 12,256,208 11,819,916
------------------------------------------------============--------============
See accompanying condensed notes to unaudited interim consolidated financial
statements.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Statements of Operations
For Three Months Ended June 30, 2005 and 2004
(U.S. Dollars)
--------------------------------------------------------------------------------
Three Months Ended June 30
-------------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------------
Sales $ 1,868,133 $ 547,761
Cost of sales 1,053,644 105,088
-------------------------------------------------------------------------------
Gross profit $ 814,489 $ 442,673
-------------------------------------------------------------------------------
Operating Expenses
Wages 202,388 143,246
Administrative salaries and benefits 71,071 32,697
Advertising and promotion 13,414 49,062
Investor relations and transfer agent fee 484,950 57,947
Office and miscellaneous 28,076 62,332
Insurance 34,468 -
Interest expense 24,514 -
Rent 47,866 30,867
Consulting 47,535 114,138
Professional fees 65,607 71,206
Travel 41,101 25,938
Telecommunications 12,602 9,014
Shipping 10,397 7,655
Research 2,896 6,681
Commissions 47,073 -
Bad debt expense (recovery) - (797)
Currency exchange (7,585) 2,902
Utilities 4,336 8,833
Depreciation 162,983 175,595
-------------------------------------------------------------------------------
1,293,692 797,316
-------------------------------------------------------------------------------
Income (loss) before other items and income tax $ (479,203) $ (354,643)
Interest income 886 27,354
-------------------------------------------------------------------------------
Income (loss) before income tax $ (478,317) $ (327,289)
Income tax (recovery) - -
-------------------------------------------------------------------------------
Net income (loss) $ (478,317) $ (327,289)
Deficit, beginning (2,301,009) (1,348,523)
-------------------------------------------------------------------------------
Deficit, ending $(2,779,326) $(1,675,812)
-------------------------------------------------============------============
Net income (loss) per share $ (0.04) $ (0.03)
-------------------------------------------------============------============
Weighted average number of shares 12,675,837 11,819,916
-------------------------------------------------============------============
See accompanying condensed notes to unaudited interim consolidated financial
statements.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Statements of Cash Flows
For The Six Months Ended June 30, 2005 and 2004
(U.S. Dollars)
-------------------------------------------------------------------------------
Six Months June 30
2005 2004
-------------------------------------------------------------------------------
Operating activities
Net income (loss) $ (424,119) $ (578,150)
Stock compensation expense 503,650 135,230
Depreciation 331,086 185,547
-------------------------------------------------------------------------------
410,617 (257,373)
Changes in non-cash working capital items:
(Increase) Decrease in accounts receivable (526,864) (238,982)
(Increase) Decrease in inventory (496,324) (628,460)
(Increase) Decrease in prepaid expenses 13,301 (33,719)
Increase (Decrease) in accounts payable 35,937 31,552
Increase (Decrease) in Income taxes 65,930 2,240
Increase (Decrease) in amounts due to shareholders - (7,700)
-------------------------------------------------------------------------------
Cash (used in) operating activities (497,405) (1,132,442)
-------------------------------------------------------------------------------
Investing activities
Short-term investments 559,440 3,699,188
Investments (76,000) -
Loan receivable 284 45
Acquisition of property and equipment (65,541) (5,270,011)
-------------------------------------------------------------------------------
Cash provided by (used in) investing activities 418,183 (1,570,778)
-------------------------------------------------------------------------------
Financing activities
Short term loan (3,150,000) 3,150,000
Proceeds from issuance of common stock 3,449,550 57,500
-------------------------------------------------------------------------------
Cash provided by financing activities 299,550 3,207,500
-------------------------------------------------------------------------------
Effect of exchange rate changes on cash (26,993) (3,023)
-------------------------------------------------------------------------------
Inflow (outflow) of cash 193,335 501,257
Cash and cash equivalents, beginning 558,795 237,080
-------------------------------------------------------------------------------
Cash and cash equivalents, ending $ 752,130 $ 738,337
-----------------------------------------------------===========---============
Supplemental disclosure of cash flow information:
Interest received $ 2,730 $ 30,470
-----------------------------------------------------===========---============
See accompanying condensed notes to unaudited interim consolidated financial
statements.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
(US DOLLARS)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION:
These consolidated financial statements include the accounts of Flexible
Solutions International Inc., and its wholly owned subsidiaries Flexible
Solutions Ltd., NanoChem Solutions Inc. and Water$aver Global Solutions
Inc. All intercompany balances and transactions have been eliminated. The
parent company was incorporated May 12, 1998 in the State of Nevada and
had no operations until June 30, 1998 as described below.
On June 30, 1998 the company completed the acquisition of 100% of the
shares of Flexible Solutions Ltd. The acquisition was effected through the
issuance of 7,000,000 shares of common stock by the company with former
shareholders of the subsidiary receiving 100% of the total shares then
issued and outstanding. The transaction has been accounted for as a
reverse-takeover.
Flexible Solutions Ltd. is accounted for as the acquiring party and the
surviving entity. As Flexible Solutions Ltd. is the accounting survivor,
the consolidated financial statements presented for all periods are those
of Flexible Solutions Ltd. The shares issued by Flexible Solutions
International Inc. pursuant to the 1998 acquisition have been accounted
for as if those shares had been issued upon the organization of Flexible
Solutions Ltd.
On May 2, 2002, the company established Water$aver Global Solutions Inc.
through issuance of 100 shares of common stock.
Pursuant to a purchase agreement dated May 26, 2004, the company acquired
the assets of Donlar Corporation on June 9, 2004 and created a new
company, NanoChem Solutions Inc.
The purchase price of the transaction was $6,150,000 with consideration
being a combination of cash and debt. Under the purchase agreement and as
part of the consideration, the company issued a promissory note bearing
interest at 4 % to the vendor to satisfy $3,150,000 of the purchase price.
This note is due June 2, 2005 and all of the former Donlar assets are used
as security.
The following table summarizes the estimated fair value of the assets
acquired at the date of acquisition:
As at June 9, 2004:
Current assets $ 1,126,805
Property and equipment 5,023,195
-----------
6,150,000
Acquisition costs assigned to property and equipment 314,724
------------
Total assets acquired $ 6,464,724
============
On February 7, 2005 the Company incorporated two new subsidiaries in
Nevada. SeaHorse Systems Inc. was incorporated to research new
applications of our patented dispensing mechanism currently used for
Ecosavr. NanoDetect Technologies Inc. is focusing on ways to use our
current technologies to detect pathogens.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
(US DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES:
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles accepted in the United
States of America applicable to a going concern and reflect the policies
outlined below.
a) Cash and Cash Equivalents -
The company considers all highly liquid investments purchased with an
original or remaining maturity of less than three months at the date
of purchase to be cash equivalents. Cash and cash equivalents are
maintained with several financial institutions.
b) Inventory -
Inventory is valued at the lower of cost and net realizable value.
Cost is determined on a first-in, first-out basis.
c) Property, Equipment and Leaseholds -
The following assets are recorded at cost and depreciated using the
following methods and using the following annual rates:
Computer hardware 30% Declining balance
Furniture and fixtures 20% Declining balance
Manufacturing equipment 20% Declining balance
Office equipment 20% Declining balance
Building 10% Declining balance
Leasehold improvements Over lease term
Property and equipment are written down to net realizable value when
management determines there has been a change in circumstances which
indicates its carrying amount may not be recoverable. No write downs
have been necessary to date.
d) Impairment of Long Lived Assets -
The company assesses the recoverability of its long lived assets by
determining whether the carrying value of the long lived assets can
be recovered over their remaining lives through undiscounted future
operating cash flows using a discount rate reflecting the company's
average cost of funds. The assessment of the recoverability will be
impacted if estimated future operating cash flows are not achieved.
For the year ended December 31, 2004, no impairment charges have been
recognized.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
(US DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
e) Foreign Currency -
The functional currency of Flexible Solutions Ltd. is the Canadian
dollar. The translation of the Canadian dollar to the reporting
currency of the U.S. dollar is performed for assets and liabilities
using exchange rates in effect at the balance sheet date. Revenue and
expense transactions are translated using average exchange rates
prevailing during the year. Translation adjustments arising on
conversion of the financial statements from the company's functional
currency, Canadian dollars, into the reporting currency, U.S.
dollars, are excluded from the determination of income and disclosed
as other comprehensive income (loss) in stockholders' equity.
Foreign exchange gains and losses relating to transactions not
denominated in the applicable local currency are included in income
if realized during the year and in comprehensive income if they
remain unrealized at the end of the year.
f) Revenue Recognition -
Revenue from product sales is recognized at the time the product is
shipped since title and risk of losses is transferred to purchaser
upon delivery to the carrier. Shipments are made F.O.B. shipping
point. Provisions are made at the time the related revenue is
recognized for estimated product returns. Since the company's
inception, product returns have been insignificant, therefore no
provision has been established for estimated product returns.
g) Stock Issued in Exchange for Services -
The valuation of the common stock issued to non-employees in exchange
for services is valued at an estimated fair market value as
determined by officers and directors of the company based upon
trading prices of the company's common stock on the dates of the
stock transactions.
h) Stock Based Compensation -
The company applies the fair value based method of accounting
prescribed by the Statement of Financial Accounting Standards
("SFAS") No. 123 in accounting for stock issued in exchange for
services.
i) Comprehensive Income -
Other comprehensive income refers to revenues, expenses, gains and
losses that under generally accepted accounting principles are
included in comprehensive income but are excluded from net income as
these amounts are recorded directly as an adjustment to stockholders'
equity. The company's other comprehensive income is primarily
comprised of unrealized foreign exchange gains and losses.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
(US DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
j) Income (Loss) Per Share -
Income (loss) per share is calculated by dividing net income (loss)
by the weighted average number of shares outstanding. Diluted income
(loss) per share is computed by giving effect to all potential
dilutive options that were outstanding during the year. For the years
ending December 31, 2004, 2003 and 2002 all outstanding options were
anti-dilutive.
k) Use of Estimates -
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of
the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates and would impact the results of
operations and cash flows.
l) Financial Instruments -
i) Fair Values -
The fair market value of the financial instruments comprising
cash, short-term investment, accounts receivable, loan
receivable, accounts payable and accrued liabilities, and
short-term loan payable were estimated to approximate their
carrying values due to immediate or short-term maturity of these
financial instruments.
ii) Foreign Exchange and Interest Rate Risks -
The company is exposed to foreign exchange and interest rate
risk to the extent that market value rate fluctuations
materially differ from financial assets and liabilities subject
to fixed long-term rates.
m) Recent Accounting Pronouncements -
i) In June 2001, the Financial Accounting Standards Board (FASB)
issued FAS 142, Goodwill and Other Intangible Assets. Under FAS
142, goodwill and intangible assets with indefinite lives are no
longer amortized but are reviewed at least annually for
impairment. The amortization provisions of FAS 142 apply to
goodwill and intangible assets acquired after June 30, 2001.
With respect to goodwill and intangible assets acquired prior to
July 1, 2001, the company adopted FAS 142 effective January 1,
2002. Application of the non-amortization provisions of FAS 142
for goodwill did not have any impact on its financial reporting.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
(US DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ii) In October 2001, the FASB issued Statement of Financial
Accounting Standards for FAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." FAS 144 addresses significant
issues relating to the implementation of FAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," and develops a single accounting
model, based on the framework established in FAS 121 for
long-lived assets to be disposed of by sale, whether such assets
are or are not deemed to be a business. FAS 144 also modifies
the accounting and disclosure rules for discontinued operations.
The standard was adopted on January 1, 2002 and did not have any
impact on the financial statements.
iii) In November 2001, the FASB issued EITF Issue No. 01-14,. "Income
Statement Characterization of Reimbursements Received for "Out
of Pocket" Expenses Incurred." This guidance requires companies
to recognize the recovery of reimbursable expenses such as
travel costs on service contracts as revenue. These costs are
not to be netted as a reduction of cost. This guidance was
implemented January 1, 2002. The company does not expect this
guidance to have a material impact on the financial statements.
3. LOAN RECEIVABLE:
2005 2004
--------- ----------
5% loan receivable due on demand $ 38,286 $ 38,570
========= ==========
4. PREPAID EXPENSES:
2005 2004
--------- ----------
Security deposit and prepaids $ 117,969 $ 131,280
========= ==========
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
(US DOLLARS)
--------------------------------------------------------------------------------
5. PROPERTY, EQUIPMENT AND LEASEHOLDS:
Accumulated 2005 2004
Cost Amortization NET Net
----------- ----------- ----------- -----------
Buildings $ 3,144,259 $ 303,488 $ 2,840,771 $ 2,987,046
Computer hardware 44,302 18,068 26,234 27,511
Furniture and fixtures 15,265 4,674 10,591 11,515
Office equipment 28,322 12,233 16,089 18,421
Manufacturing equipment 2,141,071 491,376 1,649,695 1,785,858
Trailer 1,865 912 953 1,146
Leasehold improvements 30,560 13,786 16,774 14,533
Trade Show Booth 6,985 1,885 5,100 6,130
Patents 20,408 - 20,408
-
Land 398,186 - 398,186 398,186
----------- ---------- ----------- -----------
$ 5,831,223 $ 846,422 $ 4,984,801 $ 5,250,346
=========== ========== =========== ===========
6. INVESTMENT:
2005 2004
----------------------------------------------------------------------------------------------
Tatko Inc. - Option to purchase 20% interest in common stock $ 271,000
Air Water Interface Delivery & Detection Inc. 76,000 -
$ 347,000 $ 271,000
==============================================================================================
On May 31, 2003 the company acquired an option to purchase a 20% interest
in the outstanding shares of Tatko Inc. for consideration of the issuance
of 100,000 shares of Flexible Solutions International Inc. common stock.
The option to purchase the shares of Taiko Inc. expires on May 31, 2008.
The cost of the investment has been accounted for based on the original
fair market value of Flexible Solutions International Inc. stock on May
31, 2003.
See Contingencies (Note 11d)
On 2005, NanoDetect Technologies Inc., a new subsidiary of Flexible
Solutions International Inc., purchased 25.3 shares in Air Water Interface
Delivery and Detection Inc. for a total cost of $76,000. This investment
represents only 2.5% of the issued and outstanding shares of AWD, and
accordingly will be accounted for under the cost method.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
(US DOLLARS)
--------------------------------------------------------------------------------
7. 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 all incentive options are issued for not less than fair market value.
The following table summarizes stock option activity for the years ended
December 31, 2004 and 2003 and the six months ended March 31, 2005:
Number Exercise price Weighted average
of shares per share exercise price
--------------------------- ------------ ------------- ------------------
Balance, December 31, 2002 3,686,800 $0.25 - $3.50 $3.79
Granted 256,000 $3.60 - $4.25 $3.61
Exercised (124,000) $0.25 - $2.28 $0.48
Expired (2,107,800) $0.25 - $5.50 $4.72
--------------------------- ------------ ------------- ------------------
Balance, December 31, 2003 1,711,000 $1.00 - $4.25 $2.84
Granted 572,740 $3.00 - $4.60 $3.46
Exercised (37,000) $1.00 - $2.50 $1.55
Expired (5,000) $4.25 $4.25
Cancelled (1,000,000) $1.50 - $3.50 $2.50
--------------------------- ------------ ------------- ------------------
Balance, December 31, 2004 1,241,740 $1.00 - $4.60 $2.87
Granted 30,000 $3.85 $3.85
Exercised (2,000) $1.40 $1.40
--------------------------- ------------ ------------- ------------------
Balance, June 30, 2005 1,269,740 $1.00 - $4.60 $3.19
======================================= ============== ==================
The fair value of each option grant is calculated using the following
weighted average assumptions:
2004 2003 2002
------------------------------------------------------------------------
Expected life - years 5.0 5.0 5.0
Interest rate 3.50% 2.87% 3.00%
Volatility 49.0% 49.0% 72.3%
Dividend yield - % - % - %
During the previous year, the company granted 275,400 (2003 - 205,000)
stock options to consultants and have been recognized applying SFAS 123
using the Black-Scholes Option Pricing Model which resulted in additional
consulting expense of $299,345 (2003 - $122,570). During the year ended
December 31, 2003, the company cancelled 2,000,000 stock options to
consultants pursuant to the terms of the contract, resulting in a recovery
of consulting expense of $2,480,200.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
(US DOLLARS)
--------------------------------------------------------------------------------
8. CAPITAL STOCK:
During the six months ended June 30, 2005:
i) issued 2,000 shares of common stock at $1.40 upon exercise of
options
(ii) issued 900,000 shares of common stock with 900,000 warrants
attached for the price of 3.75 a share
(iii) issued 87,400 shares of common stock with 87,400 warrants
attached for the price of $3.75 a share to allow a shareholder to
maintain their position after the capital raising
During the year ended December 31, 2004 the company:
(i) issued 37,000 shares of common stock at prices ranging from $1.00
to $2.50 per share upon exercise of stock options.
During the year ended December 31, 2003 the company:
(i) issued 100,000 shares of common stock valued at $271,000 to
acquire an option to purchase a 20% interest in Tatko Inc. (Note
7); and
(ii) issued 124,000 shares of common stock at prices ranging from
$0.25 to $2.28 per share upon exercise of stock options.
9. SEGMENTED, SIGNIFICANT CUSTOMER INFORMATION AND ECONOMIC DEPENDENCY:
The company operates in two segments:
(a) 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.
(b) Manufacture of biodegradable polymers and chemical additives:
Biodegradable polymers are used within the petroleum, chemical,
utility and mining industries to prevent corrosion and scaling in
water piping. Chemical additives are manufactured for use in laundry
and dish detergents, as well as in products to reduce levels of
insecticides, herbicides and fungicides.
The sales in the United States of America and abroad amounted to 79% (2003
- 28%). The remainder was earned in Canada.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
(US DOLLARS)
--------------------------------------------------------------------------------
The long-lived assets are located in Canada and the United States as
follows:
2005 2004
--------------------------- -------------- --------------
Canada $ 273,130 $ 238,807
United States 4,711,671 5,011,539
--------------------------- -------------- --------------
Total $ 4,984,801 $ 5,250,346
=========================== ============== ==============
10. COMMITMENTS:
Property and Premises Leases -
The company is committed to minimum rental payments for property and
premises aggregating approximately $326,538 over the term of two leases,
the last expiring on June 30, 2009.
Commitments in each of the next five years are approximately as follows:
2005 $ 67,145
2006 114,752
2007 55,169
2008 55,654
2009 33,818
11. CONTINGENCIES:
a) On November 13, 2003, Patrick Grant filed a lawsuit in the Circuit
Court of Cook County, Illinois against the Company, Water$avr Global
Solutions Inc. ("WGS"), the wholly-owned subsidiary of the Company, and
Daniel B. O'Brien , the Company's Chief Executive Officer. The
plaintiff claims damages for breach of contract, tortious interference
with an agreement and various wrongful discharge claims. The plaintiff
seeks monetary damages in excess of $1,020,000 for the breach of
contract and tortious interference claims and unspecified compensatory
and punitive damages in the wrongful discharge claims. The parties
completed mandatory mediation ordered by the Circuit Court and will
next appear in court for case management, at which time the court will
set discovery deadlines. The Company considers the case without merit
and is planning to dispute the matter vigorously. In addition, the
Company intends to file counterclaims against the plaintiff for failure
to repay financial obligations owed to the Company of almost $40,000,
as well as unspecified damages arising out of Plaintiff's disclosure of
confidential information to a client during his employment at WGS. No
amounts have been recorded as receivable and no accrual has been made
for any loss in the Company's consolidated financial statements as the
outcome of the claim filed by Mr. Grant is not determinable.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004
(US DOLLARS)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
11. CONTINGENCIES: (CONTINUED)
b) On May 1, 2003, the Company filed a lawsuit in the Supreme Court of
British Columbia, Canada, against John Wells and Equity Trust, S.A.
seeking return of 100,000 shares of the Company's common stock and
repayment of a $25,000 loan, which were provided to defendants for
investment banking services consisting of securing a $5 million loan
and a $25 million stock offering. Such services were not performed and
in the proceeding, the Company seeks return of such shares after
defendant's failure to both return the shares voluntarily and repay the
note. On May 7, 2003 the Company obtained an injunction freezing the
transfer of the shares. On May 24, 2004 there was a hearing on
defendant's motion to set aside the injunction, which motion was denied
by the trial court on May 29, 2004. The proceeding is still in a
discovery phase. On the date of issuance, the share transaction was
recorded as shares issued for services at fair market value, a value of
$0.80 per share. No amounts have been recorded as receivable in the
Company's consolidated financial statements as the outcome of this
claim is not determinable.
c) On May 28, 2004, Sunsolar Energy Technologies Inc. ("SET"), filed a
lawsuit in the Federal Court of Canada, against the Company, Flexible
Solutions, Ltd., the Company's wholly-owned subsidiary ("FSL"), and Mr.
O'Brien. SET is seeking: (a) a declaration that the trademark "Tropical
Fish" is available for use by SET; (b) injunctive relief against
further use of the "Tropical Fish" trademark by the Company; and (c)
monetary damages exceeding $7,000,000 for the alleged infringement by
the Company, FSL and Mr. O'Brien of the "Tropical Fish" trademark, as
well as any other "confusingly similar trademarks" or proprietary trade
dresses. On August 9, 2004, the Company, FSL and Mr. O'Brien filed
their defense and filed a counterclaim against SET. The counterclaim
seeks: (x) injunctive relief against further use of the "Tropical Fish"
trademark by SET; (y) a declaration that the "Tropical Fish" trademark
is owned by the Company, or, in the alternative, is not distinctive and
should be struck from the trademark registry; and (z) monetary damages
exceeding $50,000. The parties have completed documentary discovery,
and examinations for discovery of all parties have been scheduled for
July 2005. No amounts have been recorded as receivable in the Company's
consolidated financial statements and no amounts have been accrued as
potential losses as the outcome of this claim is not determinable.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
(US DOLLARS)
--------------------------------------------------------------------------------
11. CONTINGENCIES: (CONTINUED)
d) On July 23, 2004, the Company filed a breach of contract suit in the
Circuit Court of Cook County, Illinois against Tatko Biotech Inc.
("Tatko"). The action arises out of a joint product development
agreement entered into between the Company and Tatko in which the
Company agreed to invest $10,000 toward the product development venture
and granted to Tatko 100,000 shares of the Company's restricted common
stock. In return, Tatko granted the Company a five-year option to
purchase 20% of Tatko's outstanding capital stock. Tatko has since
refused to collaborate on the agreement and the Company seeks
declaratory relief stating that Tatko is not entitled to the 100,000
shares of the Company's restricted common stock. The litigation is
still pending at this time.
In addition, Tatko filed its own suit on September 24, 2004 in the
Circuit Court of Cook County, Illinois seeking declaratory relief of
its entitlement to the Company's restricted common stock. On May 23,
2005, the Tatko suit was dismissed with prejudice by the District
Court.
No amounts have been recorded as receivable in the Company's
consolidated financial statements and no amount has been accrued as a
loss as the outcome of the claim against Tatko is not determinable.
e) The Company is the plaintiff in a lawsuit filed in the Court of the
Queen's Bench of Alberta, where the subsidiary Flexible Solutions Ltd.
is inter-provincially registered. The company is seeking undetermined
damages resulting from breach of contract against Calgary Diecast
Corporation. The contract was never completed and the Company's raw
materials remain in the possession Calgary Diecast Corp. On April 25th,
2005, the Court ordered a judgment in favor of Flexible Solutions Ltd.
in the amount of $48,723 and FSL intends to collect using all available
means.
12. COMPARATIVE FIGURES:
Certain of the comparative figures have been reclassified to conform with
the current year's presentation.