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 30th 2003
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from___________ to ____________
Commission file number ______________
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
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(Exact name of small business issuer as specified in its charter)
Nevada, USA 91-1922863
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(State or other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
2614 Queenswood Drive, Victoria, British Columbia, Canada V8N 1X5
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(Address of principal executive offices)
Issuer's Telephone Number: 250-477-9969
Securities to be registered pursuant to Section 12(b) of the Act: None
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Securities to be registered pursuant to Section 12(g) of the Act:
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Common Stock $0.001 par value.
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(Title of Class)
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Common stock $.001 par value
11,787,916 shares as of June 30th 2003.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART 1 - 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.
During the three months ended June 30th 2003, the Company experienced a net
after tax income (loss) of ($230,078) as compared to income of $22,261 for the
three months ended June 30th 2002. The loss resulted from the following: a large
increase in wages and travel in our Water$avr division required by the world
wide sales effort begun in late 2002, bigger expenses for professional fees
including legal for the SB-2 filing, international patent prosecution and the
listing on the AMEX exchange, and currency exchange adjustments resulting from
the lower US$ and the higher CA$. Our cost of sales was severely impacted by the
currency changes, rising to 61.7% from 52.8% in the year earlier period as our
raw material and wage inputs are in CA$ while our receivables are in US$ and our
prices were set in fall 2002. Some of the increased cost of sales was also due
to the very high oil prices in the quarter leading to higher shipping, plastics
and chemical prices. Management intends to increase prices to regain margin
prior to the next sales season. Sales were flat in our swimming pool division
this quarter with the Northeast suffering a second poor spring and early summer
in a row. Water$avr division had no sales in the quarter, which was expected, as
the sales cycle in that product line is long and the next scheduled payment from
our largest distributor occurs in Q3. The overall result was a net income (loss)
of ($230,078) for the second quarter of fiscal 2003 and a net income (loss) for
the first six months of fiscal 2003 of ($49,297).
RESULTS OF OPERATIONS
Reference is made to Item 2, "Management's Discussion and Analysis" included in
the Company's registration statement on Form 10-SB for the year ended December
31st 1999, as amended, on file with the Securities and Exchange Commission. The
following analysis and discussion pertains to the Company's results of
operations for the three month and six month periods ended June 30th 2003
compared to the results of operations for the three month and six month periods
ended June 30th 2002, and to changes in the Company's financial condition from
December 31st 2002 to June 30th 2003.
THREE MONTHS ENDED June 30th 2003 and 2002
For the second quarter of the current fiscal year ending June 30th 2003, sales
were $661,296 compared to $665,245 for the same quarter of the previous year.
The flat sales were as a result of our distributors selling less into our
primary residential markets in the Northeastern US and Eastern Canada probably
due to cold weather early in the pool season leading to customers opening their
pools later and requiring less of our Tropical Fish product. In the Water$avr
division record sales in the first quarter were followed by none in second as
new prospects were acquired and the long governmental sales cycle was begun.
Operating expenses were $561,114 for the second quarter, up from 232,258 for the
second quarter of last year. This is as a result of increased costs related to
wages, professional fees, currency translation and increased expenses for sales
and marketing of our commercial pool and water conservation products. The
largest increases were in the areas of wages (to 195,202 from 75,449)
travel($44,235 from $2,725), professional fees ($104,810 from $2,545), currency
exchange ($46,793 from none) and telecom ($15,838 from $2,677).
The net income (loss) for the quarter was represents a decrease over second
quarter last year when the net income was $22,261. The decrease in income was a
result of higher cost of product sold, increased activity in all aspects of our
Water$aver division, professional fees for patents, financing documentation
(SB-2), listing costs on the American Stock Exchange and currency exchange
losses. As well, a proportion of the increased wage and administrative costs
were associated with increased research and development of new products. The
earnings (loss) per share (fully diluted) was ($0.02) for the three months ended
June 30th 2003 compared to $0.00 for the three months ended June 30th 2002.
SIX MONTHS ENDED June 30th 2003
Sales in the first six months ended June 30th 2003 were $1,942,562 compared to
$1,041,865 for the six months ended June 30th 2002. The large increase in sales
was due to much higher sales of our swimming pool products in the first 3 months
of 2003 combined with the first major sale of our Water$avr product and added to
flat pool sales in the second 3 months resulted in an increase of $900,697 for
the six months ended June 30th 2003 compared to the year earlier period.
Operating expenses for the Company were $974,108 for the six months ended June
30th 2003 up from $387,565 for the six months ended June 30th 2002. The increase
in operating expenses are a result of increased salaries, wages, professional
fees, travel, telecom and research and development and expansion of sales and
marketing for commercial pool products and water conservation products.
The net income (loss) for the six months ended June 30th 2003 was ($49,297)
compared to a net income of $43,282 for the six months ended June 30th 2002 The
decrease in income was due to the increase in expenses related to new product
research, development and marketing. The US$ dropped versus the CA$ for the
entire six month period and this had the effect of increasing our input costs
for product manufactured in Canada for our swimming pool division increasing our
cost of goods sold to 56% from 42% in the year earlier period. International
uncertainty drove oil prices to very high levels throughout the period, further
adding to shipping and utility costs as well as increasing the cost of plastic
and chemicals used in our pool products.
The earnings per share (fully diluted) was $0.00 for the six month period ended
June 30th 2003 compared to $0.00 for the six month period ended June 30th 2002.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30th 2003 the Company had working capital of $6,166,723, which
represented an increase of $126,116 as compared to the working capital of
December 31st 2002. The increase was a result of operating earnings and interest
income from the six month period ending June 30th 2003.
The Company has no external sources of liquidity in the form of credit lines
from banks.
Management believes that its available cash will be sufficient to fund the
Company's working capital requirements through December 31st 2003. 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
2003. 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 primarily in Canada. 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 - None
ITEM 2. CHANGES IN SECURITIES - 116,000 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 - None
ITEM 5. OTHER INFORMATION - None
ITEM 6. REPORTS ON FORM 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, there unto duly authorized.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
(Registrant)
Dated: August 11th 2003 /s/ DAN O'BRIEN
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Dan O'Brien, President and Director
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Balance Sheets
June 30Th, 2003
(UNAUDITED - U.S. DOLLARS)
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JUNE 30 DECEMBER 31
2003 2002
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Assets
Current
Cash and cash equivalents $ 240,786 $ 556,789
Short term investments 5,153,566 5,062,495
Accounts receivable 545,709 55,222
Income tax receivable 30,990 118,014
Loan receivable 11,909 10,082
Inventory 146,241 203,830
Prepaid expenses 101,445 87,321
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6,230,646 6,093,753
Property and Equipment 154,438 128,566
Investment 303,500 32,500
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$6,688,583 $6,254,819
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Liabilities
Current
Accounts payable and accrued liabilities $ 63,923 $ 53,146
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Stockholders' Equity
Captial Stock
Authorized
50,000,000 Common shares with a par value of $0.001 each
1,000,000 Preferred shares with a par value of $0.01 each
Issued and Outstanding
11,787,916 (2002: 11,570,916) common shares 11,788 11,570
Captial in Excess of Par Value 9,710,340 9,328,648
Share Subscription Receivable (20,777) (16,217)
Other Comprehensive Income (Loss) 73,579 (21,354)
Deficit (3,150,270) (3,100,974)
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Total Stockholder's Equity 6,624,660 6,201,673
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Total Liabilites and Stockholder's Equity $6,688,583 $6,254,819
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FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Statements of Operations
Three Months Ended June 30, 2003 and 2002
(UNAUDITED - U.S. DOLLARS)
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THREE MONTHS ENDED JUNE 30
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2003 2002
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Sales $ 661,296 $ 665,245
Cost of Sales 408,835 351,048
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Gross Profit 252,461 314,197
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Operating Expenses
Wages 195,202 75,449
Administrative salaries and benefits 21,833 47,012
Advertising and promotion 13,094 3,054
Investor relations and transfer agent fee 35,547 54,477
Office and miscellaneous 4,817 9,799
Rent 23,124 13,665
Consulting 30,719 9,642
Professional fees 104,810 2,545
Travel 44,235 2,725
Telecommunications 15,838 2,677
Shipping 4,586 2,434
Research 2,173 -
Bad debt recovery - 64
Currency exchange 46,792 -
Utilities 10,227 4,290
Depreciation 8,116 4,425
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561,114 232,258
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Income (Loss) Before Interest Income and Income Tax (308,653) 81,939
Interest Income 53,978 -
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Income (Loss) Before Income Tax (254,675) 81,939
Income Tax (Recovery) (24,598) 59,678
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Net Income (Loss) $ (230,078) $ 22,261
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Net Income (Loss) Per Share $ (0.02) $ -
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Weighted Average Number of Shares 11,709,916 9,893,728
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FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Statements of Operations
Six Months Ended June 30, 2003 and 2002
(UNAUDITED - U.S. DOLLARS)
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SIX MONTHS ENDED JUNE 30
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2003 2002
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Sales $1,942,562 $1,041,865
Cost of Sales 1,095,902 538,458
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Gross Profit 846,660 503,407
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Operating Expenses
Wages 333,872 107,204
Administrative salaries and benefits 39,475 72,026
Advertising and promotion 29,158 3,054
Investor relations and transfer agent fee 68,667 58,297
Office and miscellaneous 34,775 38,948
Rent 37,522 29,437
Consulting 82,651 15,677
Professional fees 127,873 29,497
Travel 78,419 10,336
Telecommunications 24,600 4,934
Shipping 8,278 5,598
Research 19,704 -
Bad debt recovery - (346)
Currency exchange 62,959 -
Utilities 10,227 4,290
Depreciation 15,927 8,613
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974,108 387,565
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Income (Loss) Before Interest Income and Income Tax (127,448) 115,842
Interest Income 104,246 -
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Income (Loss) Before Income Tax (23,202) 115,842
Income Tax Recovery 26,094 72,560
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Net Income (Loss) $ (49,297) $ 43,282
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Net Income (Loss) Per Share $ (0.00) $ -
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Weighted Average Number of Shares 11,677,988 9,645,601
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FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2003 and 2002
(UNAUDITED - U.S. DOLLARS)
SIX MONTHS ENDED JUNE 30
2003 2002
OPERATING ACTIVITES
Net income (loss) $ (49,297) $ 43,282
Stock compensation expense 56,591 -
Depreciation 15,927 8,613
Changes in non-cash working capital items:
Accounts receivable (490,487) (203,913)
Inventory 57,589 53,648
Prepaid expenses (14,124) 22,386
Accounts payable 10,777 45,702
Income tax receivable 87,024 (4,629)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITES (325,998) (34,911)
INVESTING ACTIVITIES
Acquisition of property and equipment (41,799) (12,073)
Purchase of short-term investments (91,071) -
Acquisition of investments (271,000) (913,307)
Loan receivable (1,827) (4,356)
CASH USED IN INVESTING ACTIVITIES (405,697) (929,736)
FINANCING ACTIVITY
Proceeds from issuance of common stock 325,319 1,141,609
Subscriptions received (4,560) -
CASH PROVIDED BY FINANCING ACTIVITIES 320,760 1,141,609
Effect of exchange rate changes on cash 94,933 6,646
INFLOW (OUTFLOW) OF CASH (316,003) 183,608
Cash and cash equivalents, beginning of period 556,789 190,457
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 240,786 $ 374,065
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 78,378 $ 29,704
Interest received 104,246 -
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Issue of common stock for investment $ 271,000 $ -