# Flexible Solutions International Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [Flexible Solutions International Inc](/companies/fsi.md) (CIK 1069394)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 21:05 ET
- Period: 2023-09-30
- Accession: 0001493152-23-041043
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1069394/000149315223041043/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1069394/000149315223041043/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $8.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $28.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $7.2m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $21.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $1.5m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $7.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $52.8k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $90.2k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$386.7k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $1.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $119.6k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $370.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $219.7k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $873.9k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$718.2k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $976.1k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.06 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.08 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.06 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.08 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 12,496,748 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 12,517,064 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $10.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $4.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $626.8k | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2023-09-30 | $8.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $28.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $53.1m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $9.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $16.6m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $7.0m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $830.8k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $33.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 8,516 characters.

### Overview

The Company manufactures and markets biodegradable polymers which are used in the oil, gas and agriculture industries. The Company also develops, manufactures and markets specialty chemicals that slow the evaporation of water.

### Results of Operations

The Company has three product lines.

The first is a chemical (“EWCP”) used in swimming pools and spas. The product forms a thin, transparent layer on the water’s surface. The transparent layer slows the evaporation of water, allowing the water to retain a higher temperature for a longer period of time thereby reducing the energy required to maintain the desired temperature of the water. A modified version of EWCP can also be used in reservoirs, potable water storage tanks, livestock watering pods, canals, and irrigation ditches for the purpose of reducing evaporation.

The second product, biodegradable polymers (“TPAs”), is used by the petroleum, chemical, utility and mining industries to prevent corrosion and scaling in water piping. TPAs can also be used to increase biodegradability in detergents and in the agriculture industry 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.

Material changes in the Company’s Statement of Operations for the nine and three months ended September 30, 2023 compared to the same period in the prior year are discussed below:

#### Nine Months ended September 30, 2023

|  |  |  |
| --- | --- | --- |
| Item | Increase (I) or Decrease (D) | Reason |
| Sales |  |  |
| EWCP products | I | Increased customer orders. |
| TPA products | D | Decreased customer orders along with decrease in pricing. |
| Cost of goods sold, as a percentage of sales | I | Increased raw material costs and increased wages to add and retain manufacturing employees along with added costs associated with obtaining new certifications. |
| Administrative salaries | I | Increased wages and stock option expense for employee retention. |
| Insurance | I | Prior year increase in assets and in sales resulted in higher insurance costs. |
| Interest expense | I | Increased debt resulted in increased interest expense. |

26

|  |  |  |
| --- | --- | --- |
| Professional fees | D | Decreased due to one time costs associated with the planned merger with Lygos in 2022. |
| Consulting | D | Addition of new employees decreased the need for consultants. |
| Travel | I | Travel has resumed as COVID-19 has become an endemic. |
| Advertising and promotion | I | Increased outreach to customers and prospects. |
| Investor relations | I | Increased due to higher stock transactions and costs associated with the dividend payment. |
| Lease expense | D | Purchases of ENP Mendota and ENP Peru, the businesses we were renting from, reduced our lease expense. |
| Currency exchange | I | Currency exchange increased as a result of movements in the US / Canadian dollar exchange rate and its effects on US dollar cash balances and US dollar payables held by the Company’s Canadian subsidiaries. |

#### Three months ended September 30, 2023

|  |  |  |
| --- | --- | --- |
| Item | Increase (I) or Decrease (D) | Reason |
| Sales |  |  |
| EWCP products | D | Decreased customer orders. |
| TPA products | D | Decreased customer orders along with decrease in pricing. |
| Cost of goods sold, as a percentage of sales | I | Increased raw material costs and increased wages to add and retain manufacturing employees along with added costs associated with obtaining new certifications. |
| Administrative salaries | I | Increased wages and stock option expense for employee retention. |
| Insurance | I | Prior year increase in assets and in sales resulted in higher insurance costs. |
| Interest expense | I | Increased debt resulted in increased interest expense. |
| Professional fees | D | Decreased due to one time costs associated with the planned merger with Lygos in 2022. |
| Travel | I | Travel has resumed as COVID-19 has become an endemic. |
| Consulting | D | Addition of new employees decreased the need for consultants. |
| Advertising and promotion | I | Increased outreach to customers and prospects. |
| Currency exchange | D | Currency exchange decreased as a result of movements in the US / Canadian dollar exchange rate and its effects on US dollar cash balances and US dollar payables held by the Company’s Canadian subsidiaries. |

Three customers accounting for 67% of our sales during the three months ended September 30, 2023 (2022 – 64%) and 49% of our sales during the nine months ended September 30, 2023 (2022 - 57%). The amount of revenue attributable to each customer is shown below.

| Customer | Three months ended September 30, 2023 |  | 2022 |  | Nine months ended September 30, 2023 |  | 2022 |  |
| --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Company A | $2,524,802 |  | $2,152,681 |  | $4,728,562 |  | $4,913,342 |  |
| Company B | $2,561,698 |  | $2,480,590 |  | $7,116,232 |  | $7,931,549 |  |
| Company C | $725,347 |  | $766,342 | \* | $2,176,042 |  | $1,912,121 | \* |
| Company D | $343,776 | \* | $2,819,590 |  | $2,035,666 | \* | 6,205,957 |  |

\*Not a primary customer in that period

Customers with balances greater than 10% of our receivables as of September 30, 2023 and 2022 are shown below:

|  | September 30, 2023 |  | 2022 |
| --- | ---: | --- | ---: |
| Company A | 2,154,033 |  | 1,904,110 |
| Company B | 2,274,958 |  | 2,422,104 |
| Company D | 1,512 | \* | 2,086,502 |
| \*less than 10% |  |  |  |

Other factors that will most significantly affect future operating results will be:

- the sale price of crude oil which is used in the manufacture of aspartic acid we import from China. Aspartic acid is a key ingredient in our TPA products;
- activity in the oil and gas industry, as we sell our TPA products to oil and gas companies;
- drought conditions, since we also sell our TPA products to farmers; and

Other than the foregoing we do not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on our revenues or expenses

### Capital Resources and Liquidity

The Company’s sources and (uses) of cash for the nine months ended September 30, 2023 and 2022 are shown below:

|  | 2023 | 2022 |
| --- | ---: | ---: |
| Cash provided (used) by operations | 10,128,066 | (658,538) |
| Long term deposits | (387,614) | - |
| Non-controlling interest of 317 Mendota | 200,000 | - |
| Proceeds of equity investment | 101,034 | 108,750 |
| Additional investment in Trio | (470,000) | - |
| Purchase of equipment | (4,326,208) | (647,232) |
| Acquisition of ENP Peru | - | (499,329) |
| Repayments of short term line of credit | (2,818,591) | (276,079) |
| Repayment of long term debt | (542,148) | (2,117,928) |
| Proceeds of long term debt | 2,248,292 | 2,194,000 |
| Dividends paid | (626,777) | - |
| Lease payments | (43,560) | (44,435) |
| Distributions to non-controlling interest | (537,314) | (499,789) |
| Proceeds from issuance of common stock | 13,600 | 74,020 |
| Changes in exchange rates | 200,334 | (29,531) |

28

The Company has sufficient cash resources to meets its future commitments and cash flow requirements for the coming year. As of September 30, 2023, working capital was $19,240,656 (December 31, 2022 - $20,692,527) and the Company has no substantial commitments that require significant outlays of cash over the coming fiscal year.

We are committed to minimum rental payments for property and premises aggregating approximately $211,380 over the term of two leases, the last expiring on December 31, 2025.

Commitments for rent in the next three years are as follows:

|  |  |
| --- | ---: |
| 2023 | $69,000 |
| 2024 | $70,440 |
| 2025 | $71,940 |

Other than as disclosed above, the Company does not anticipate any capital requirements for the twelve months ending December 31, 2024.

Other than as disclosed above, the Company does not know of any trends, demands, commitments, events or uncertainties that will result in, or that are reasonable likely to result in, its liquidity increasing or decreasing in any material way.

See Note 2 to the condensed interim consolidated financial statements included as part of this report for a description of the Company’s significant accounting policies.

## Controls and procedures

As filed, 1,709 characters.

Evaluation of Disclosure Controls and Procedures

Under the direction and with the participation of our management, including our Principal Executive and Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2023. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations, and that such information is accumulated and communicated to our management, including our principal executive and financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching desired disclosure control objectives. Based on the evaluation, our Principal Executive and Financial Officer concluded that these disclosure controls and procedures are effective as of September 30, 2023

Changes in Internal Control over Financial Reporting

Our management, with the participation of our Principal Executive and Financial Officer, evaluated whether any change in our internal control over financial reporting occurred during the three months ended September 30, 2023. Based on that evaluation, it was concluded that there has been no change in our internal control over financial reporting during the three months ended September 30, 2023 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-041043. Last ingested by Listed: Oct 24, 2026, 15:03 ET. No prices; not investment advice.