NOTES
TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2023
(U.S.
Dollars - Unaudited)
1.
Basis of Presentation.
BASIS
OF PRESENTATION
These
interim condensed consolidated financial statements (“consolidated financial statements”) include the accounts of Flexible
Solutions International, Inc. (the “Company”), its wholly-owned subsidiaries Flexible Fermentation Ltd., NanoChem Solutions
Inc. (“NanoChem”), Flexible Solutions Ltd., Flexible Biomass LP, FS Biomass Inc., NCS Deferred Corp., Natural Chem SEZC Ltd.,
and InnFlex Holdings Inc., its 97% controlling interest in ENP Peru Investments LLC (“ENP Peru”) and its 65% controlling
interest in ENP Investments, LLC (“ENP Investments”) and ENP Mendota, LLC (“ENP Mendota”). All inter-company
balances and transactions have been eliminated upon consolidation. The Company was incorporated on May 12, 1998 in the State of Nevada
and had no operations until June 30, 1998. In 2019, the Company redomiciled into Alberta, Canada.
In
2022, NanoChem purchased an additional 50% in ENP Peru, increasing its share to 91.67%. ENP Investments owns the remaining 8.33%, of
which the Company has a 65% interest. ENP Peru was previously accounted for under the equity method however, is now consolidated into
the financial statements from the date control was obtained. The 35% non-controlling interest portion of the 8.33% held by ENP Investments
is included in non-controlling interests in these consolidated financial statements.
The
Company and its subsidiaries develop, manufacture and market specialty chemicals which slow the evaporation of water. One product, HEATSAVR®,
is marketed for use in swimming pools and spas where its use, by slowing the evaporation of water, allows the water to retain a higher
temperature for a longer period of time and thereby reduces the energy required to maintain the desired temperature of the water in the
pool. Another product, WATERSAVR®, is marketed for water conservation in irrigation canals, aquaculture, and reservoirs where its
use slows water loss due to evaporation. In addition to the water conservation products, the Company also manufactures and markets water-soluble
chemicals utilizing thermal polyaspartate biopolymers (hereinafter referred to as “TPAs”), which are beta-proteins manufactured
from the common biological amino acid, L-aspartic. TPAs can be formulated to prevent corrosion and scaling in water piping within the
petroleum, chemical, utility and mining industries. TPAs are also used as proteins to enhance fertilizers in improving crop yields and
can be used as additives for household laundry detergents, consumer care products and pesticides. The TPA division also manufactures
two nitrogen conservation products for agriculture that slows nitrogen loss from fields.
The
outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in a widespread health crisis
that has affected economies and financial markets around the world resulting in an economic downturn. This outbreak may also cause staff
shortages, reduced customer demand, increased government regulations or interventions, all of which may negatively impact the business,
financial condition or results of operations of the Company. The duration and impact of the COVID-19 outbreak is unknown at this time
and it is not possible to reliably estimate the length and severity of these developments.
2.
Significant Accounting Policies.
SIGNIFICANT
ACCOUNTING POLICIES
The
consolidated financial statements of the Company have been prepared by management in accordance with accounting principles generally
accepted in the United States (“GAAP”) for interim financial information, applied on a basis consistent for all periods. Accordingly, they do not include
all of the information and disclosures required by U.S. GAAP for a complete set of financial statements. These consolidated
financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes
thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities
and Exchange Commission on March 31, 2023. In the opinion of management, all adjustments of a normal recurring nature considered
necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative
of the results of operations to be expected for the full fiscal year.
(a)
Cash and Cash Equivalents.
The
Company considers all highly liquid investments purchased with an original or remaining maturity of less than three months at the date
of purchase to be cash equivalents. Cash and cash equivalents are maintained with several financial institutions.
(b)
Term Deposits.
The
deposits maintained by the Company with banks comprises term deposits. The Company has two term deposits, the first for $700,000 that
matures in 2023 and pays interest at a rate of 3.0%. If withdrawn before maturity, the greater of the loss of accrued interest or $150,
plus 1% of the principal shall be levied. The other term deposit for $300,000 pays 1.3% interest, matures in 2023 and can be withdrawn
by the Company at any point without prior notice or penalty on the principal.
(c)
Inventories and Cost of Sales.
The
Company has three major classes of inventory: completed goods, work in progress and raw materials and supplies. In all classes inventories
are stated at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis or weighted average cost
formula to inventories in different subsidiaries. Cost of sales includes all expenditures incurred in bringing the goods to the point
of sale. Inventory costs and costs of sales include direct costs of the raw material, inbound freight charges, warehousing costs, handling
costs (receiving and purchasing) and utilities and overhead expenses related to the Company’s manufacturing and processing facilities.
Shipping and handling charges billed to customers are included in revenue (2023 - $143,173; 2022 - $123,894). Shipping and handling costs
incurred are included in cost of goods sold (2023 - $255,489; 2022 - $268,032).
(d)
Allowance for Doubtful Accounts.
The
Company provides an allowance for doubtful accounts when management estimates collectability to be uncertain. Accounts receivable are
continually reviewed to determine which, if any, accounts are doubtful of collection. In making the determination of the appropriate
allowance amount, the Company considers current economic and industry conditions, relationships with each significant customer, overall
customer credit-worthiness and historical experience.
(e)
Property, Equipment, Leaseholds and Intangible Assets.
The
following assets are recorded at cost and depreciated using the methods and annual rates shown below:
SCHEDULE
OF METHOD OF DEPRECIATION
| Computer
hardware |
|
30%
Declining balance |
| Manufacturing
equipment |
|
20%
Declining balance |
| Office
equipment |
|
20%
Declining balance |
| Boat |
|
20%
Declining balance |
| Building
and improvements |
|
10%
Declining balance |
| Trailer |
|
30%
Declining balance |
| Automobiles |
|
Straight-line
over 5 years |
| Patents |
|
Straight-line
over 17 years |
| Technology |
|
Straight-line
over 10 years |
| Leasehold
improvements |
|
Straight-line
over lease term |
| Customer
relationships |
|
Straight-line
over 15 years |
| Software
|
|
Straight-line
over 3 years |
(f)
Impairment of Long-Lived Assets.
In
accordance with FASB Codification Topic 360, Property, Plant and Equipment (ASC 360), the Company reviews long-lived assets, including,
but not limited to, property, equipment and leaseholds, patents and other assets, for impairment annually or whenever events or changes
in circumstances indicate the carrying amounts of assets may not be recoverable. The carrying value of long-lived assets is assessed
for impairment by evaluating operating performance and future undiscounted cash flows of the underlying assets. If the expected future
cash flows of an asset is less than its carrying value, an impairment measurement is indicated. Impairment charges are recorded to the
extent that an asset’s carrying value exceeds its fair value. Accordingly, actual results could vary significantly from such estimates.
There were no impairment charges during the periods presented.
(g)
Foreign Currency.
The
functional currency of the Company is the U.S. dollar. The functional currency of three of the Company’s subsidiaries is the Canadian
dollar. The translation of the Canadian dollar to the reporting currency of the Company, the U.S. dollar, is performed for assets and
liabilities using exchange rates in effect at the balance sheet date. Revenue and expense transactions are translated using average exchange
rates prevailing during the year. Translation adjustments arising on conversion of the Company’s financial statements from the
subsidiary’s functional currency, Canadian dollars, into the reporting currency, U.S. dollars, are excluded from the determination
of income (loss) and are disclosed as other comprehensive income in the consolidated statements of income and comprehensive income.
Foreign
exchange gains and losses relating to transactions not denominated in the applicable local currency are included in operating income
(loss) if realized during the year and in comprehensive income (loss) if they remain unrealized at the end of the year.
(h)
Revenue Recognition.
The
Company generates revenue primarily from energy and water conservation products and biodegradable polymers, as further discussed in Note
16.
The
Company follows a five-step model for revenue recognition. The five steps are: (1) identification of the contract(s) with the customer,
(2) identification of the performance obligation(s) in the contract(s), (3) determination of the transaction price, (4) allocation of
the transaction price to the performance obligation, and (5) recognition of revenue when (or as) the performance obligation is satisfied.
The Company has fulfilled its performance obligations when control transfers to the customer, which is generally at the time the product
is shipped since risk of loss is transferred to the purchaser upon delivery to the carrier. For shipments which are free-on-board shipping
point, the Company has elected to account for shipping and handling activities as a fulfillment cost rather than as an additional promised
service and performance obligation.
Since
the Company’s inception, product returns have been insignificant; therefore, no provision has been established for estimated product
returns.
Deferred
revenues consist of products sold to distributors with payment terms greater than the Company’s customary business terms due to
lack of credit history or operating in a new market in which the Company has no prior experience. The Company defers the recognition
of revenue until the criteria for revenue recognition has been met and payments become due or cash is received from these distributors.
(i)
Stock Issued in Exchange for Services.
The
Company’s common stock issued in exchange for services is valued at estimated fair market value based upon trading prices of the
Company’s common stock on the dates of the stock transactions. The corresponding expense of the services rendered is recognized
over the period that the services are performed.
(j)
Stock-based Compensation.
The
Company recognizes compensation expense for all share-based payments in accordance with FASB Codification Topic 718, Compensation
— Stock Compensation, (ASC 718). Under the fair value recognition provisions of ASC 718, the Company recognizes share-based
compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award.
The
fair value at grant date of stock options is estimated using the Black-Scholes option-pricing model. Compensation expense is recognized
on a straight-line basis over the stock option vesting period based on the estimated number of stock options that are expected to vest.
Shares are issued from treasury upon exercise of stock options.
(k)
Other Comprehensive Income.
Other
comprehensive income refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included
in comprehensive income, but are excluded from net income as these amounts are recorded directly as an adjustment to stockholders’
equity. The Company’s other comprehensive income is comprised only of unrealized foreign exchange gains and losses related to the
translation of subsidiaries’ functional currency into the reporting currency.
(l)
Income Per Share.
Basic
earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares
outstanding in the period. Diluted earnings per share are calculated giving effect to the potential dilution of the exercise of
options and warrants. Common equivalent shares, composed of incremental common shares issuable upon the exercise of stock options
and warrants are included in diluted net income per share to the extent that these shares are dilutive. Common equivalent shares
that have an anti-dilutive effect on net income per share have been excluded from the calculation of diluted weighted average shares
outstanding for the three months ended March 31, 2023 and 2022.
(m)
Use of Estimates.
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates and would impact the results of operations and cash flows.
Estimates
and underlying assumptions are reviewed at each period end. Revisions to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected.
Significant
areas requiring the use of management estimates include assumptions and estimates relating to the valuation of goodwill and intangible
assets, share-based payments, valuation allowances for deferred income tax assets, determination of useful lives of property, equipment
and leaseholds and intangible assets, recoverability of accounts receivable, recoverability of investments and the valuation of inventory.
(n)
Fair Value of Financial Instruments.
Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The standard describes a fair value hierarchy based on three levels of inputs described below, of which the first two are considered
observable and the last unobservable, that may be used to measure fair value.
| |
● |
Level
1 – Quoted prices in active markets for identical assets or liabilities |
| |
● |
Level
2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities. |
| |
● |
Level
3 — Unobservable inputs that are supported by little or no market activity which is significant to the fair value of the assets
or liabilities. |
The
fair values of cash and cash equivalents, term deposits, accounts receivable, accounts payable, accrued liabilities and the short term line of credit
for all periods presented approximate their respective carrying amounts due to the short term nature of these financial
instruments.
The
fair value of the long term debt for all periods presented approximate their respective carrying amounts due to these financial instruments
being at market rates.
(o)
Contingencies.
Certain
conditions may exist as of the date the consolidated financial statements are issued which may result in a loss to the Company but which
will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess
such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related
to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s
legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount
of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment
indicates that a potential material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would
be disclosed.
Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Legal fees associated with loss contingencies are expensed as incurred. The Company is not aware of any contingencies at the date of
these consolidated financials statements.
(p)
Income Taxes.
Income
taxes are computed by multiplying the Company’s taxable net income by the Company’s effective tax rates. Deferred income
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial
statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss carry-forwards, if any.
Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to reduce the
carrying amount of deferred income tax assets if it is considered more likely than not that some portion, or all, of the deferred income
tax assets will not be realized.
In
accordance with FASB Codification Topic 740, Income taxes (ASC 740) under the liability method, it is the Company’s policy
to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax
benefit is more likely than not to be sustained upon examination by tax authorities. At March 31, 2023, the Company believes it has appropriately
accounted for any unrecognized tax benefits. To the extent the Company prevails in matters for which a liability for an unrecognized
benefit is established or is required to pay amounts in excess of the liability, the Company’s effective tax rate in a given financial
statement period may be affected. Interest and penalties associated with the Company’s tax positions are recorded as interest expense
in the consolidated statements of income and comprehensive income.
(q)
Risk Management.
The
Company’s credit risk is primarily attributable to its accounts receivable. The amounts presented in the accompanying consolidated
balance sheets are net of allowances for doubtful accounts, estimated by the Company’s management based on prior experience and
the current economic environment. The Company is exposed to credit-related losses in the event of non-payment by customers. Credit exposure
is minimized by dealing with only credit worthy counterparties. Revenue for the Company’s three primary customers totaled $4,366,106
(44%) for the three months ended March 31, 2023 (2022 - $6,235,661 or 58%). Accounts receivable for the Company’s three primary
customers totaled $6,452,710 (59%) at March 31, 2023 (December 31, 2022 - $6,124,424 or 65%).
The
credit risk on cash is limited because the Company limits its exposure to credit loss by placing its cash with major financial institutions.
The Company maintains cash balances at financial institutions which at times exceed federally insured amounts. The Company has not experienced
any losses in such accounts.
The
Company is exposed to foreign 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.
In
order to manage its exposure to foreign exchange risks, the Company is closely monitoring the fluctuations in the foreign currency exchange
rates and the impact on the value of cash, accounts receivable, and accounts payable and accrued liabilities. The Company has not hedged
its exposure to currency fluctuations.
The
Company is exposed to interest rate risk to the extent that the fair value or future cash flows for financial liabilities will fluctuate
as a result of changes in market interest rates. The Company is exposed to interest rate risk on its long-term debt.
In
order to manage its exposure to interest rate risk, the Company is closely monitoring fluctuations in market interest risks and will
refinance its long-term debt where possible to obtain more favourable rates.
(r)
Equity Method Investment.
The
Company accounts for investments using the equity method of accounting if the investment provides the Company the ability to exercise
significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company’s
ownership interest in the voting stock of the investee ranges between 20% and 50%, although other factors, such as representation on
the investee’s board of directors, are considered in determining whether the equity method of accounting is appropriate. Under
the equity method of accounting, the investment is initially recorded at cost in the consolidated balance sheets under other assets and
adjusted for dividends received and the Company’s share of the investee’s earnings or losses together with other-than-temporary
impairments which are recorded through other income (loss), net in the consolidated statements of income and comprehensive income.
(s)
Goodwill and Intangible Assets.
Goodwill
represents the excess of the purchase price of an acquired entity over the amounts assigned to the assets acquired and liabilities assumed.
Goodwill is not amortized, but is reviewed for impairment annually or more frequently if certain impairment conditions arise. The Company
performs an annual goodwill impairment review in the fourth quarter of each year at the reporting unit level. The evaluation begins with
a qualitative assessment of the factors that could impact the significant inputs used to estimate fair value. If after performing the
qualitative assessment, it is determined that it is more likely than not that the fair value of a reporting unit is greater than its
carrying amount, including goodwill, then no further analysis is necessary. However, if the results of the qualitative test are unclear,
the Company performs a quantitative test, which involves comparing the fair value of a reporting unit with its carrying amount, including
goodwill. The Company uses an income-based valuation method, determining the present value of future cash flows, to estimate the fair
value of a reporting unit. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered
not impaired, and no further analysis is necessary. If the fair value of the reporting unit is less than its carrying amount, goodwill
impairment would be recognized equal to the amount of the carrying value in excess of the reporting unit’s fair value, limited
to the total amount of goodwill allocated to the reporting unit.
Intangible
assets primarily include trademarks and trade secrets with indefinite lives and customer-relationships with finite lives. Intangible
assets with indefinite lives are not amortized but are tested for impairment on an annual basis, or more frequently if indicators of
impairment are present. Indefinite lived intangible assets are assessed using either a qualitative or a quantitative approach. The qualitative
assessment evaluates factors including macro-economic conditions, industry and company-specific factors, legal and regulatory environments,
and historical company performance in assessing fair value. If it is determined that it is more likely than not that the fair value of
the intangible asset is less than its carrying value, a quantitative test is then performed. Otherwise, no further testing is required.
When using a quantitative approach, the Company compares the fair value of the intangible asset to its carrying amount. If the estimated
fair value of the intangible asset is less than the carrying amount of the intangible asset, impairment is indicated, requiring recognition
of an impairment charge for the differential.
In
accordance with FASB Codification Topic 350, Intangibles – Goodwill and Other, (ASC 350), qualitative assessments of goodwill
and indefinite-lived intangible assets were performed at December 31, 2022. Based on the results of the assessment, it was determined that
it is more likely than not the reporting unit, customer lists and trademarks had a fair value in excess of their carrying amounts. Accordingly,
no further impairment testing was completed and no impairment charges related to goodwill or indefinite-lived intangibles were recognized
during the three months ended March 31, 2023.
Finite-lived
intangible assets are amortized on a straight-line basis over their estimated useful lives. The Company reviews for impairment indicators
of finite-lived intangibles and other long-lived assets as described in the “Impairment of Long Lived Assets” significant
accounting policy.
(t)
Recent Accounting Pronouncements.
The
Company has implemented all applicable new accounting pronouncements that are in effect. Those pronouncements did not have any material
impact on the consolidated financial statements unless otherwise disclosed, and the Company does not believe that there are any other
new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
3.
Leases
LEASES
Accounting
and reporting guidance for leases requires that leases be evaluated and classified as either operating or finance leases by the lessee
and as either operating, sales-type or direct financing leases by the lessor. For leases with terms greater than 12 months, the Company
records the related right-of-use (“ROU”) asset and lease obligation at the present value of lease payments over the term.
Leases may include fixed rental escalation clauses, renewal options and / or termination options that are factored into the determination
of lease payments when appropriate. The Company’s operating leases are included in ROU assets, lease liabilities-current portion
and lease liability-long term portion in the accompanying consolidated balance sheets. ROU assets represent the Company’s right
to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the
lease. The Company’s leases do not usually provide a readily determinable implicit rate; therefore, an estimate of the Company’s
incremental borrowing rate is used to discount the lease payments based on information available at the lease commencement date. The
discount rate used was 5.5%.
The
table below summarizes the right-of-use asset and lease liability for the periods ended March 31, 2023 and December 31, 2022:
SUMMARY
OF RIGHT-OF-USE ASSET AND LEASE LIABILITY
| | |
March
31,
2023 | | |
December
31,
2022 | |
| Right
of Use Assets | |
| | | |
| | |
| Balance,
January 1 | |
$ | 167,222 | | |
$ | 217,267 | |
| Right of use assets, beginning balance | |
$ | 167,222 | | |
$ | 217,267 | |
| Depreciation | |
| (12,775 | ) | |
| (50,045 | ) |
| Balance, end of period | |
$ | 154,447 | | |
$ | 167,222 | |
| Right of use assets, ending balance | |
$ | 154,447 | | |
$ | 167,222 | |
| | |
| | | |
| | |
| Lease
Liability | |
| | | |
| | |
| Balance, January
1 | |
$ | 167,222 | | |
$ | 217,267 | |
| Lease liability, beginning balance | |
$ | 167,222 | | |
$ | 217,267 | |
| Lease
interest expense | |
| 1,745 | | |
| 8,566 | |
| Payments | |
| (14,520 | ) | |
| (58,611 | ) |
| Balance,
end of period | |
$ | 154,447 | | |
$ | 167,222 | |
| Lease liability, ending balance | |
$ | 154,447 | | |
$ | 167,222 | |
| | |
| | | |
| | |
| Short-term
portion | |
$ | 58,440 | | |
$ | 58,080 | |
| Long-term
portion | |
| 96,007 | | |
| 109,142 | |
| Total | |
$ | 154,447 | | |
$ | 167,222 | |
Undiscounted
rent payments for the next three years are as follows:
SCHEDULE
OF UNDISCOUNTED RENT PAYMENTS
| | |
| | |
| 2023 | |
| 43,560 | |
| 2024 | |
| 59,520 | |
| 2025 | |
| 61,020 | |
| Total | |
$ | 164,100 | |
| Impact
of discounting | |
| (9,653 | ) |
| Lease
liability, March 31, 2023 | |
$ | 154,447 | |
4.
Accounts Receivable ACCOUNTS
RECEIVABLE
SCHEDULE
OF ACCOUNTS RECEIVABLE
| | |
March
31,
2023 | | |
December
31,
2022 | |
| | |
| | |
| |
| Accounts
receivable | |
$ | 11,122,850 | | |
$ | 9,739,150 | |
| Allowances
for doubtful accounts | |
| (289,323 | ) | |
| (289,293 | ) |
| Total accounts receivable | |
$ | 10,833,527 | | |
$ | 9,449,857 | |
5.
Inventories INVENTORIES
SCHEDULE
OF INVENTORY
| | |
March
31,
2023 | | |
December
31,
2022 | |
| | |
| | |
| |
| Completed
goods | |
$ | 3,764,498 | | |
$ | 3,806,646 | |
| Raw
materials and supplies | |
| 10,615,325 | | |
| 10,612,784 | |
| Total
inventory | |
$ | 14,379,823 | | |
$ | 14,419,430 | |
6.
Property, equipment & leaseholds PROPERTY,
PLANT & EQUIPMENT
SCHEDULE
OF PROPERTY, EQUIPMENT AND LEASEHOLDS
| | |
March
31, 2023 | | |
Accumulated | | |
March
31, 2023 | |
| | |
Cost | | |
Depreciation | | |
Net | |
| Buildings
and improvements | |
$ | 8,908,989 | | |
$ | 3,437,726 | | |
$ | 5,471,263 | |
| Automobiles | |
| 196,255 | | |
| 115,979 | | |
| 80,276 | |
| Computer
hardware | |
| 43,434 | | |
| 42,722 | | |
| 712 | |
| Office
equipment | |
| 134,114 | | |
| 115,254 | | |
| 18,860 | |
| Manufacturing
equipment | |
| 8,735,408 | | |
| 5,077,897 | | |
| 3,657,511 | |
| Trailer | |
| 8,864 | | |
| 7,693 | | |
| 1,171 | |
| Boat | |
| 34,400 | | |
| 28,682 | | |
| 5,718 | |
| Leasehold
improvements | |
| 88,872 | | |
| 88,872 | | |
| — | |
| Technology | |
| 100,942 | | |
| 100,942 | | |
| — | |
| Land | |
| 384,027 | | |
| — | | |
| 384,027 | |
| | |
$ | 18,635,305 | | |
$ | 9,015,767 | | |
$ | 9,619,538 | |
| | |
December
31, 2022 | | |
Accumulated | | |
December
31, 2022 | |
| | |
Cost | | |
Depreciation | | |
Net | |
| Buildings
and improvements | |
$ | 8,775,629 | | |
$ | 3,310,920 | | |
$ | 5,464,709 | |
| Automobiles | |
| 196,255 | | |
| 107,055 | | |
| 89,200 | |
| Computer
hardware | |
| 43,432 | | |
| 42,663 | | |
| 769 | |
| Office
equipment | |
| 133,280 | | |
| 112,782 | | |
| 20,498 | |
| Manufacturing
equipment | |
| 8,634,063 | | |
| 4,891,736 | | |
| 3,742,327 | |
| Trailers | |
| 8,857 | | |
| 7,592 | | |
| 1,265 | |
| Boat | |
| 34,400 | | |
| 27,907 | | |
| 6,493 | |
| Leasehold
improvements | |
| 88,872 | | |
| 88,872 | | |
| — | |
| Technology | |
| 100,860 | | |
| 100,860 | | |
| — | |
| Land | |
| 384,027 | | |
| — | | |
| 384,027 | |
| | |
$ | 18,399,675 | | |
$ | 8,690,387 | | |
$ | 9,709,288 | |
Amount
of depreciation expense for the three months ended March 31, 2023: $302,810 (2022: $188,378) and is included in cost of sales in the
unaudited interim condensed consolidated statements of income and comprehensive income.
7.
Patents PATENTS
SCHEDULE OF PATENTS
| | |
March
31, 2023 Cost | | |
Accumulated
Amortization | | |
March
31, 2023 Net | |
| Patents | |
$ | 195,888 | | |
$ | 195,888 | | |
$ | - | |
| | |
December
31, 2022
Cost | | |
Accumulated
Amortization | | |
December
31, 2022
Net | |
| Patents | |
$ | 195,725 | | |
$ | 195,725 | | |
$ | - | |
Amount
of amortization for the period ended March 31, 2023 was $nil
(2022 - $4,110)
and was included in cost of sales in the consolidated statements of income and comprehensive income.
8.
GOODWILL AND INTANGIBLE ASSETS GOODWILL
AND INTANGIBLE ASSETS
SCHEDULE
OF GOODWILL AND INDEFINITE LIVED INTANGIBLE ASSETS
| Goodwill | |
| |
| Balance
as of December 31, 2021, 2022 and March 31, 2023 | |
$ | 2,534,275 | |
| | |
| | |
| Indefinite
Lived Intangible Assets | |
| | |
| Balance
as of December 31, 2021, 2022 and March 31, 2023 | |
$ | 770,000 | |
Goodwill
relates to the acquisition of ENP Investments. Indefinite lived intangible assets consist of trade secrets and trademarks related to
the acquisition of ENP Investments.
| Definite Life Intangible
Assets | |
| |
| Balance
as of December 31, 2021 | |
$ | 1,830,000 | |
| Amortization | |
| (160,000 | ) |
| Balance as of December
31, 2022 | |
| 1,670,000 | |
| Amortization | |
| (40,000 | ) |
| Balance
as of March 31, 2023 | |
$ | 1,630,000 | |
Definite
life intangible assets consist of customer relationships and software related to the acquisition of ENP Investments.
Estimated
amortization expense over the next five years is as follows:
SCHEDULE
OF ESTIMATED FUTURE AMORTIZATION EXPENSE
| 2023 | |
$ | 160,000 | |
| 2024 | |
| 160,000 | |
| 2025 | |
| 160,000 | |
| 2026 | |
| 160,000 | |
| 2027 | |
| 160,000 | |
9.
Long Term Deposits
LONG
TERM DEPOSITS
The
Company has reclassified certain security deposits to better reflect their long term nature. Long term deposits consist of damage deposits
held by landlords and security deposits held by various vendors.
SCHEDULE
OF LONG TERM DEPOSITS
| | |
March
31, 2023 | | |
December
31, 2022 | |
| | |
| | | |
| | |
| Long
term deposits | |
$ | 351,287 | | |
$ | 8,540 | |
10.
Investments
INVESTMENTS
(a)
The Company previously held a 50% ownership
interest in ENP Peru, split between NanoChem (41.67%) and ENP Investments (8.33%), which was acquired in fiscal 2016. ENP Peru is located
in Illinois and leases warehouse space. In June 2022, NanoChem acquired an additional 50% ownership interest at a cost of $506,659 paid
through a new $259,000 mortgage and cash on hand. The 35% non-controlling interest of the 8.33% owned by ENP Investments is included
in non-controlling interest in these consolidated financial statements. The Company’s investment in ENP Peru was previously accounted
for using the equity method, however, is now consolidated into the consolidated financial statements from the date control was obtained.
It
was determined that ENP Peru did not meet the definition of a business in accordance with FASB Codification Topic 805, Business Combinations
(ASC 805), and the acquisition was accounted for as an asset acquisition. The following table summarizes the final purchase
price allocation of the consideration paid to the respective fair values of the assets acquired and liabilities assumed in ENP Peru as
of the acquisition date. The gain on acquisition of ENP Peru represents a gain on remeasurement of the Company’s equity method
investment immediately prior to the acquisition date.
SCHEDULE
OF FAIR VALUES OF THE ASSETS ACQUIRED AND LIABILITIES ASSUMED
| | |
| | |
| Purchase
consideration | |
$ | 506,659 | |
| | |
| | |
| Assets
acquired: | |
| | |
| Cash | |
| 7,330 | |
| Building | |
| 3,750,000 | |
| Land | |
| 150,000 | |
| Liabilities
assumed: | |
| | |
| Deferred
tax liability | |
| (174,582 | ) |
| Long
term debt | |
| (2,849,500 | ) |
| Total
identifiable net assets: | |
| 883,248 | |
| Excess
of assets acquired over consideration | |
| 376,589 | |
| Less
investment eliminated upon consolidation | |
| (41,538 | ) |
| Gain
on acquisition of ENP Peru | |
$ | 335,051 | |
A
summary of the Company’s investment follows:
SCHEDULE OF EQUITY METHOD INVESTMENT
| Balance,
December 31, 2021 | |
| 22,642 | |
| Return of equity | |
| (8,750 | ) |
| Gain
in equity method investment | |
| 27,646 | |
| Investment
eliminated upon consolidation | |
| (41,538 | ) |
| Balance,
December 31, 2022 and March 31, 2023 | |
$ | - | |
(b)
In December 2018 the Company invested $200,000
in Applied Holding Corp. (“Applied”). Applied is a captive insurance company and the Company received a non-convertible promissory
note for its investment which becomes due in 2021 but may be extended with notice for a maximum of two years. During the year ended December
31, 2021, the Company entered an agreement with Applied to extend the maturity date of this promissory note to December 6, 2023. In accordance
with FASB Codification Topic 323, Investments – Equity Method and Joint Ventures (ASC 323), the Company has elected to account
for this investment at cost.
(c)
In December 2018 the Company invested $500,000
in Trio Opportunity Corp. (“Trio”), a privately held entity. Trio is a real estate investment vehicle and the Company received
50,000 non-voting Class B shares at $10.00/share. In accordance with FASB Codification Topic 321, Investments – Equity Securities
(ASC 321), the Company has elected to account for this investment at cost. See Note 18.
(d)
In January 2019, the Company invested in
a Florida based LLC that is engaged in international sales of fertilizer additives. The Company accounts for this investment using the
equity method of accounting. According to the operating agreement, the Company has a 50% interest in the profit and loss of the Florida
based LLC but does not have control. A summary of the Company’s investment follows:
SCHEDULE
OF EQUITY METHOD INVESTMENT
| Balance,
December 31, 2021 | |
| 3,701,368 | |
| Gain
in equity method investment | |
| 307,527 | |
| Return
of equity | |
| (250,000 | ) |
| Balance, December
31, 2022 | |
$ | 3,758,895 | |
| Gain
in equity method investment | |
| 69,995 | |
| Balance,
March 31, 2023 | |
$ | 3,828,890 | |
Summarized
profit and loss information related to the equity accounted investment is as follows:
SUMMARY
OF PROFIT AND LOSS INFORMATION RELATED TO EQUITY ACCOUNTED INVESTMENT
| | |
Three
months
ended
March 31, 2023 | | |
Three
months
ended
March 31, 2022 | |
| | |
| | |
| |
| Net
sales | |
$ | 3,447,125 | | |
$ | 2,201,518 | |
| Gross
profit | |
| 965,052 | | |
| 512,884 | |
| Net
income | |
| 139,990 | | |
| 73,528 | |
During
the three months ended March 31, 2023, the Company had sales of $1,778,897 (2022 - $1,672,200) to the Florida based LLC, of which $1,470,846
is included within Accounts Receivable as at March 31, 2023 (December 31, 2022 - $2,423,285).
(e)
In December 2020, the Company invested $500,000 in Lygos Inc. (“Lygos”), a privately held entity, under a Simple Agreement
for Future Equity (“SAFE”) agreement. Lygos is a company developing a sustainable aspartic acid microbe strain. In 2021,
the Company made a second SAFE investment of $500,000 for a total of $1,000,000. In accordance with ASC 321, the Company has elected
to account for this investment at cost.
11.
Short-Term Line of Credit
SHORT-TERM
LINE OF CREDIT
(a) In
June 2022, ENP Investments signed a new agreement with Stock Yards Bank and Trust (“Stock Yards”). The revolving line of
credit is for an aggregate amount of up to the lesser of (i) $4,000,000,
or (ii) 50-80% of eligible domestic accounts receivable plus 50%
of inventory, capped at $2,000,000.
Interest on the unpaid principal balance of this loan will be calculated using the greater of prime or 4.0%. The interest rate at
March 31, 2023 is 8.0% (December 31, 2022 - 7.5%).
The
revolving line of credit contains customary affirmative and negative covenants, including the following: compliance with laws, provisions
of financial statements and periodic reports, payment of taxes, maintenance of inventory and insurance, maintenance of operating accounts
at Stock Yards, Stock Yard’s access to collateral, formation or acquisition of subsidiaries, incurrence of indebtedness, dispositions
of assets, granting liens, changes in business, ownership or business locations, engaging in mergers and acquisitions, making investments
or distributions and affiliate transactions. NanoChem is a guarantor of 65% of all the principal and other loan costs not to exceed $2,600,000.
The non-controlling interest is the guarantor of the remaining 35% of all the principal and other loan costs not to exceed $1,400,000.
As of March 31, 2023, ENP Investments was in compliance with all loan covenants.
To
secure the repayment of any amounts borrowed under the revolving line of credit, the Company granted Stock Yards a security interest
in substantially all of the assets of ENP Investments, exclusive of intellectual property assets.
Short-term
borrowings outstanding under the revolving line as of March 31, 2023 were $3,663,504
(December 31, 2022 - $2,477,794). See Note 18.
(b)
In June 2022, the Company signed a new agreement with Stock Yards to replace the credit line at Midland. The revolving line of credit
is for an aggregate amount of up to the lesser of (i) $4,000,000, or (ii) 80% of eligible domestic accounts receivable and certain foreign
accounts receivable plus 50% of inventory, capped at $2,000,000. Interest on the unpaid principal balance of this loan will be calculated
using the greater of prime or 4.0%. The interest rate at March 31, 2023 was 8.0% (December 31, 2022 - 7.5%).
The
revolving line of credit contains customary affirmative and negative covenants, including the following: compliance with laws, provision
of financial statements and periodic reports, payment of taxes, maintenance of inventory and insurance, maintenance of operating accounts
at Stock Yards, Stock Yards access to collateral, formation or acquisition of subsidiaries, incurrence of indebtedness, dispositions
of assets, granting liens, changes in business, ownership or business locations, engaging in mergers and acquisitions, making investments
or distributions and affiliate transactions. The covenants also require that the Company maintain a minimum ratio of qualifying financial
assets to the sum of qualifying financial obligations. As of March 31, 2023, the Company was in compliance with all loan covenants.
To
secure the repayment of any amounts borrowed under the revolving line of credit, the Company granted Stock Yards a security interest
in substantially all of the assets of NanoChem, exclusive of intellectual property assets.
Short-term
borrowings outstanding under the revolving line as of March 31, 2023 were $nil (December 31, 2022 - $340,797).
12.
Long Term Debt
LONG
TERM DEBT
(a) In
October 2020, NanoChem signed a loan for $1,980,947 with Midland with a rate of 3.85%
to be repaid over 5
years with equal monthly payments including interest. The money was used to retire the debt at Harris related to the loan to
purchase a 65%
interest in ENP Investments. In June 2022, the loan was paid in full with funds from Stock Yards. Interest expense for the three
months ended March 31, 2022 was $15,130.
The balance owing at March 31, 2023 was $nil
(December 31, 2022 - $nil).
(b)
In October 2020, NanoChem signed a loan for
$894,253 with Midland with an interest rate 3.85% to be repaid over two years with equal monthly payments including interest. The funds
were used to replace the loan at Harris for the purchase of new manufacturing equipment. In June 2022, the loan was paid in full with
funds from Stock Yards. Interest expense for the three months ended March 31, 2022 was $3,417. The balance owing at March 31, 2023 was
$nil (December 31, 2022 - $nil).
(c)
In January 2020, ENP Mendota refinanced its mortgage
and signed a loan for $450,000
with Stock Yards to be repaid over 10
years with monthly installments plus interest.
Interest for the first five years is at 4.35%
and it will be adjusted for the last five years
to the Cincinnati Federal Home Bank Loan 5
year fixed index plus 2.5%.
Interest expense for the three months ended March 31, 2023 was $4,501
(2022 - $4,677).
The balance owing at March 31, 2023 was $412,660
(December 31, 2022 - $415,430).
(d)
In June 2022, NanoChem signed a loan for
$1,935,000 with Stock Yards with an interest rate of 4.90% to be repaid over three years with equal monthly payments including interest.
The funds were used to replace the loans at Midland for the purchase of the 65% interest in ENP Investments and the new manufacturing
equipment. Interest expense for the three months ended March 31, 2023 was $19,409 (2022 - $nil). The balance owing at March 31, 2023
was $1,478,361 (December 31, 2022 - $1,632,672).
(e)
In January 2020 ENP Peru signed a $3,000,000 loan
with an interest rate 4.35% to be repaid over ten years with equal monthly payments including interest. Upon the purchase of the remainder
of ENP Peru in June 2022, the Company assumed the first mortgage at Stock Yards with a balance of $2,849,500. Interest expense for the
three months ended March 31, 2023 was $30,530 (2022 - $nil). The balance owing at March 31, 2023 was $2,793,963 (December 31, 2022 -
$2,813,015).
(f)
In June 2022, ENP Peru Investments obtained a second mortgage for $259,000 with Stock Yards to be repaid over 10 years with monthly
installments plus interest with an interest rate of 5.4%. Interest expense for the three months ended March 31, 2023 was $3,452 (2022
- $nil). The balance owing at March 31, 2023 was $254,656 (December 31, 2022 - $256,162).
(g)
In December 2022, NanoChem signed a three year loan for up to $2,000,000 with Stock Yards with an interest rate of 6.5%. Interest
only payments are required for the first 18 months with interest and principal being paid in the last 18 months. The funds are being
used to purchase new manufacturing equipment. Interest expense for the three months ended March 31, 2023 was $15,917 (2022 - $nil). The
balance owing at March 31, 2023 was $1,036,798 (December 31, 2022 - $1,036,798).
As
of March 31, 2023, Company was in compliance with all loan covenants.
SCHEDULE
OF LOAN COVENANTS
| Continuity | |
March
31,
2023 | | |
December
31,
2022 | |
| Balance,
January 1 | |
$ | 6,154,077 | | |
$ | 2,366,598 | |
| Balance,
beginning of period | |
$ | 6,154,077 | | |
$ | 2,366,598 | |
| Plus:
Proceeds from loans | |
| - | | |
| 3,230,798 | |
| Plus:
Loan acquired with acquisition of ENP Peru | |
| - | | |
| 2,849,500 | |
| Less:
Payments on loan | |
| (177,639 | ) | |
| (2,292,819 | ) |
| Balance,
end of period | |
$ | 5,976,438 | | |
$ | 6,154,077 | |
SCHEDULE
OF OUTSTANDING BALANCE LOAN
| Outstanding
balance | |
March
31,
2023 | | |
December
31,
2022 | |
| a)
Long term debt – Midland States Bank | |
$ | - | | |
$ | - | |
| b)
Long term debt – Midland States Bank | |
| - | | |
| - | |
| c)
Long term debt – Stock Yards Bank & Trust | |
| 412,660 | | |
| 415,430 | |
| d)
Long term debt – Stock Yards Bank & Trust | |
| 1,478,361 | | |
| 1,632,672 | |
| e)
Long term debt – Stock Yards Bank & Trust | |
| 2,793,963 | | |
| 2,813,015 | |
| f)
Long term debt – Stock Yards Bank & Trust | |
| 254,656 | | |
| 256,162 | |
| g)
Long term debt – Stock Yards Bank & Trust | |
| 1,036,798 | | |
| 1,036,798 | |
| Long-term
Debt | |
$ | 5,976,438 | | |
$ | 6,154,077 | |
| Less:
current portion | |
| (719,607 | ) | |
| (717,612 | ) |
| Long-term
Debt non current | |
$ | 5,256,831 | | |
$ | 5,436,465 | |
13.
Stock Options.
STOCK
OPTIONS
The
Company has a stock option plan (“Plan”). The purpose of this Plan is to provide additional incentives to key employees,
officers, directors and consultants of the Company and its subsidiaries in order to help attract and retain the best available personnel
for positions of responsibility and otherwise promote the success of the Company’s business. It is intended that options issued
under this Plan constitute non-qualified stock options. The general terms of awards under the option plan are that 100% of the options
granted will vest the year following the grant. The maximum term of options granted is 5 years and the exercise price for all options
are issued for not less than fair market value at the date of the grant.
The
following table summarizes the Company’s stock option activities for the year ended December 31, 2022 and the three-month period
ended March 31, 2023:
SCHEDULE
OF STOCK OPTION ACTIVITIES
| | |
Number
of
shares | | |
Exercise
price
per share | | |
Weighted
average exercise
price | |
| | |
| | |
| | |
| |
| Balance,
December 31, 2021 | |
| 789,500 | | |
| $
1.42 – 4.13 | | |
$ | 2.78 | |
| Granted | |
| 981,000 | | |
| $
3.55 – 3.61 | | |
$ | 3.55 | |
| Cancelled
or expired | |
| (13,486 | ) | |
| $
1.70 – 3.61 | | |
$ | 2.32 | |
| Exercised | |
| (71,014 | ) | |
| $
1.42 – 2.44 | | |
$ | 1.98 | |
| Balance, December
31, 2022 | |
| 1,686,000 | | |
| $
1.70 – 4.13 | | |
$ | 3.26 | |
| Exercised | |
| (8,000 | ) | |
$ | 1.70 | | |
$ | 1.70 | |
| Balance,
March 31, 2023 | |
| 1,678,000 | | |
| $
1.75 – 4.13 | | |
$ | 3.27 | |
| Exercisable,
March 31, 2023 | |
| 672,000 | | |
| $
1.75 – 4.13 | | |
$ | 2.94 | |
The
weighted average remaining contractual life of options outstanding is 3.9 years.
The
fair value of each option grant is calculated using the following weighted average assumptions:
SCHEDULE
OF STOCK OPTION FAIR VALUE ASSUMPTIONS
| | |
2022 | |
| Expected
life – years | |
| 3.0 | |
| Interest
rate | |
| 1.76
– 3.64 % | |
| Volatility | |
| 66.01
- 69.66 % | |
| Weighted average
fair value of options granted | |
| $
1.46 – 1.65 | |
During
the three months ended March 31, 2023 and 2022, the Company did not grant any new options to consultants. Options granted in previous
quarters resulted in expenses in the amount of $15,797 for consultants (2022 - $15,794). During the three months ended March 31, 2023,
the Company did not grant any new options to employees (2022 – 5,000) stock options, which resulted in expenses of $nil (2022 –
$1,825). Options granted in previous quarters resulted in additional expenses in the amount of $165,431 for employees during the three
months ended March 31, 2023 (2022 - $36,652). There were 8,000 employee stock options exercised during the three months ended March 31,
2023 (2022 – 22,500 employee).
As
of March 31, 2023, there was approximately $1,251,732 of compensation expense related to non-vested awards. This expense is expected
to be recognized over a weighted average period of 2.4 years.
The
aggregate intrinsic value of vested options outstanding at March 31, 2023 is $161,430 (2022 – $578,660). The intrinsic value of
options exercised during the three months ended March 31, 2023 was $11,520 (2022 - $29,360).
14.
Capital Stock.
CAPITAL
STOCK
During
the three months ended March 31, 2023, 8,000 shares were issued upon the exercise of employee stock options (2022 – 22,500).
During
the three months ended March 31, 2023, the Company issued 1,272 shares to a consultant for services rendered, resulting in an expense
of $4,070 on the unaudited interim condensed consolidated statements of income and comprehensive income for the three months ended March
31, 2023
15.
Non-Controlling Interests
NON-CONTROLLING
INTERESTS
ENP
Investments is a limited liability corporation (“LLC”) that manufactures and distributes golf, turf and ornamental agriculture
products in Mendota, Illinois. The Company owns a 65% interest in ENP Investments through its wholly-owned subsidiary NanoChem. An unrelated
party (“NCI”) owns the remaining 35% interest in ENP Investments. ENP Mendota is a wholly owned subsidiary of ENP Investments.
ENP Mendota leases warehouse space. For financial reporting purposes, the assets, liabilities and earnings of both of the LLC’s
are consolidated into these financial statements. The NCI’s ownership interest in ENP Investments is recorded in non-controlling
interests in these consolidated financial statements. The non-controlling interest represents NCI’s interest in the earnings and
equity of ENP Investments. ENP Investments is allocated to the TPA segment.
ENP
Investments makes cash distributions to its equity owners based on formulas defined within its Ownership Interest Purchase Agreement
dated October 1, 2018. Distributions are defined in the Ownership Interest Purchase Agreement as cash on hand to the extent it exceeds
current and anticipated long-term and short-term needs, including, without limitation, needs for operating expenses, debt service, acquisitions,
reserves, and mandatory distributions, if any.
From
the effective date of acquisition onward, the minimum distributions requirements under the Ownership Interest Purchase Agreement were
satisfied. The total distribution from the effective date of acquisition onward was $2,506,518.
SCHEDULE
OF DISTRIBUTIONS
| Balance,
December 31, 2021 | |
$ | 2,602,843 | |
| Distribution | |
| (689,434 | ) |
| Non-controlling
interest share of income | |
| 691,625 | |
| Balance, December
31, 2022 | |
| 2,605,034 | |
| Non-controlling
interest share of income | |
| 80,125 | |
| Balance,
March 31, 2023 | |
$ | 2,685,159 | |
During
the three months ended March 31, 2023, the Company had sales of $1,098,948 (2022 - $1,605,736) to the party that holds 35% interest in
ENP Investments, of which $4,654,000 is included within Accounts Receivable as of March 31, 2023 (December 31, 2022 – $3,634,083).
16.
Segmented, Significant Customer Information and Economic Dependency.
SEGMENTED,
SIGNIFICANT CUSTOMER INFORMATION AND ECONOMIC DEPENDENCY
The
Company operates in two segments:
(a)
Energy and water conservation products (as shown under the column heading “EWCP” below), which consists of a (i) liquid swimming
pool blankets which save energy and water by inhibiting evaporation from the pool surface, and (ii) food-safe powdered form of the active
ingredient within the liquid blankets and which are designed to be used in still or slow moving drinking water sources.
(b)
Biodegradable polymers, also known as TPA’s (as shown under the column heading “BCPA” below), used by the petroleum,
chemical, utility and mining industries to prevent corrosion and scaling in water piping. This product can also be used in detergents
to increase biodegradability and in agriculture to increase crop yields by enhancing fertilizer uptake.
The third product line is nitrogen
conservation products used for the agriculture industry. These products decrease the loss of nitrogen fertilizer after initial application
and allows less fertilizer to be used. These products are made and sold by the Company’s TPA division.
The
accounting policies of the segments are the same as those described in Note 2, Significant Accounting Policies. The Company evaluates
performance based on profit or loss from operations before income taxes, not including nonrecurring gains and losses and foreign exchange
gains and losses.
The
Company’s reportable segments are strategic business units that offer different, but synergistic products and services. They are
managed separately because each business requires different technology and marketing strategies.
SCHEDULE
OF REPORTABLE SEGMENTS
| Three
months ended March 31, 2023: | |
| | |
| | |
| |
| | |
| | |
| | |
| |
| | |
EWCP | | |
BCPA | | |
Total | |
| Revenue | |
$ | 80,660 | | |
$ | 9,776,857 | | |
$ | 9,847,517 | |
| Interest
expense | |
| - | | |
| 134,870 | | |
| 134,870 | |
| Depreciation
and amortization | |
| 4,279 | | |
| 360,905 | | |
| 365,184 | |
| Income
tax expense | |
| 915 | | |
| 289,822 | | |
| 299,777 | |
| Segment
profit (loss) | |
| (151,728 | ) | |
| 1,116,222 | | |
| 964,494 | |
| Segment
assets | |
| 2,858,968 | | |
| 50,079,080 | | |
| 52,938,048 | |
| Expenditures
for segment assets | |
| - | | |
| (213,060 | ) | |
| (213,060 | ) |
| Three
months ended March 31, 2022: | |
| | |
| | |
| |
| | |
| | |
| | |
| |
| | |
EWCP | | |
BCPA | | |
Total | |
| Revenue | |
$ | 47,253 | | |
$ | 10,736,027 | | |
$ | 10,783,280 | |
| Interest
expense | |
| - | | |
| 57,618 | | |
| 57,618 | |
| Depreciation
and amortization | |
| 9,244 | | |
| 223,244 | | |
| 232,488 | |
| Income
tax expense | |
| - | | |
| 712,446 | | |
| 712,446 | |
| Segment
profit (loss) | |
| (124,175 | ) | |
| 1,791,711 | | |
| 1,667,536 | |
| Segment
assets | |
| 1,879,593 | | |
| 43,237,198 | | |
| 45,116,791 | |
| Expenditures
for segment assets | |
| - | | |
| (176,684 | ) | |
| (176,684 | ) |
The
sales generated in the United States and Canada are as follows:
SCHEDULE OF REVENUE GENERATED IN UNITED STATES AND CANADA
| | |
Three
months
ended
March 31, 2023 | | |
Three
months
ended
March 31, 2022 | |
| Canada | |
$ | 116,680 | | |
$ | 177,899 | |
| United
States and abroad | |
| 9,730,837 | | |
| 10,605,381 | |
| Total | |
$ | 9,847,517 | | |
$ | 10,783,280 | |
The
Company’s long-lived assets (property, equipment, intangibles, goodwill, leaseholds, patents and right of use assets) are located
in Canada and the United States as follows:
SCHEDULE OF LONG-LIVED ASSETS ARE LOCATED IN CANADA AND UNITED STATES
| | |
March
31, 2023 | | |
December
31, 2022 | |
| Canada | |
$ | 147,205 | | |
$ | 150,890 | |
| United
States | |
| 14,561,055 | | |
| 14,699,896 | |
| Total | |
$ | 14,708,260 | | |
$ | 14,850,786 | |
Three
primary customers accounted for $4,366,106 (44%) of sales during the three-month period ended March 31, 2023 (2022 - $6,235,661 or 58%).
17.
Comparative Figures.
COMPARATIVE
FIGURES
Certain
of the comparative figures have been reclassified to conform with the current period’s presentation.
18.
Subsequent Events
SUBSEQUENT
EVENTS
In
April 2023, the Company purchased a further 47,000 non-voting Class B shares at $10.00/share in Trio. The Company will continue to account
for this investment at cost (see Note 10).
In
April 2023, EnP Investments temporarily increased the limit on their line of credit held with Stock Yards. The increase of $500,000 is
available to be used until July 2023 and carries the same interest rate as the rest of the line along with the same covenants.
In
April 2023, the Company announced a special dividend of $0.05 per share to be paid on May 16, 2023 to shareholders on record on April
28, 2023.