FLEXIBLE SOLUTIONS INTERNATIONAL, INC. Results of Operations We have 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.
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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 line items in our Statement of Income and Comprehensive
Income for the year ended
Increase (I)
or Decrease
Item (D) Reason
Sales
EWCP products I Increase in customer orders.
TPA products I Growth in most product lines.
Cost of goods sold I Increased raw material costs and increased
wages to retain manufacturing employees.
Wages I Increased wages for employee retention.
Administrative salaries I Increased wages for employee retention.
Professional fees I Increased due to costs associated with now
cancelled merger with Lygos Inc.
Office and miscellaneous I Increase related to fees associated with
moving loans from Midland States Bank to
Stock Yards Bank.
Insurance I Increase in assets and in sales resulted in
higher insurance costs.
Interest I Increase due to loans assumed upon purchase
of ENP Peru, LLC.
Travel I Travel has resumed as COVID-19 has become an
endemic.
Lease Expense D Purchases of ENP Mendota and ENP Peru, the
businesses we were renting from, reduced our
lease expense.
The 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 product. If
tariffs are maintained or expanded and if relief is not available, some
customers may experience price increases;
? Activity in the oil and gas industry, as we sell our TPA product to oil and
gas companies;
? Drought conditions, since we also sell our TPA product to farmers; and
? The impact of COVID-19 virus.
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.
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Capital Resources and Liquidity
Our sources and (uses) of cash for the years endedDecember 31, 2022 and 2021 are shown below: 2022 2021 Cash provided by operations$ 1,476,903 $ 4,535,746 Purchase of investments - (500,000 ) Distributions from equity investments 265,001 359,300 Acquisition of ENP Peru, LLC (499,329 ) - Sale of property and equipment - 263,380
Purchases of property, equipment and leaseholds (1,981,307 ) (782,219 ) Advances of short term line of credit
517,772 184,746
Repayment of long term debt (2,292,819 ) (943,080 )
Proceeds of long term debt 3,230,798 -
Lease payments (58,611 ) (287,903 )
Distributions to non-controlling interests (689,434 ) (804,003 )
Sale of common stock 140,620 140,440
Impact of foreign exchange rates (30,069 ) 96,391
We have sufficient cash resources to meets our future commitments and cash flow
requirements for the coming year. As of
We are committed to minimum rental payments for property and premises
aggregating approximately
Commitments for rent in the next three years are as follows:
2023$ 77,100 2024$ 70,440 2025$ 71,940
Other than as disclosed above, we do not know of any trends, demands, commitments, events or uncertainties that will result in, or that are reasonable likely to result in, our liquidity increasing or decreasing in any material way.
Other than as disclosed above, we do not know of any significant changes in our expected sources and uses of cash.
We do not have any commitments or arrangements from any person to provide us with any equity capital.
Critical Accounting Policies and Estimates
Allowances for Product Returns. We grant certain of our customers the right to return product which they are unable to sell. Upon sale, we evaluate the need to record a provision for product returns based on our historical experience, economic trends and changes in customer demand.
Allowances for Doubtful Accounts Receivable. We evaluate our accounts receivable to determine if they will ultimately be collected. This evaluation includes significant judgments and estimates, including an analysis of receivables aging and a review of large accounts. If, for example, the financial condition of a customer deteriorates resulting in an impairment of its ability to pay or a pattern of late payment develops, an allowance may be required.
Provisions for Inventory Obsolescence. We may need to record a provision for estimated obsolescence and shrinkage of inventory. Our estimates would consider the cost of inventory, the estimated market value, the shelf life of the inventory and our historical experience. If there are changes to these estimates, provisions for inventory obsolescence may be necessary.
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Valuation of
Useful Lives of Property, Equipment and Leaseholds and Intangible Assets. We amortize and depreciate our property, equipment and leaseholds and intangible assets based on their estimated useful lives. We estimate the expected useful lives based on the expected term over which the asset is expected to continue to generate economic benefit for our company. If there are differences between the expected useful lives and the actual useful lives of the asset, impairment of property, equipment and leaseholds or intangible assets could be necessary.
Revenue Recognition. We follow 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. We fulfill our performance obligations when control of product 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 F.O.B. shipping point, we have elected to account for shipping and handling activities as a fulfillment cost rather than as an additional promised service and performance obligation.
Stock Based CompensationThe fair value of share-based payments are subject to the limitations of the Black-Scholes option pricing model that incorporates market data and involves uncertainty in estimates used by management in the assumptions. Because the Black-Scholes option pricing model requires the inputs of highly subjective assumptions, including the volatility of share prices, changes in subjective input assumptions can materially affect the estimate.
Income Taxes Tax interpretations, regulations and legislation in the various jurisdictions in which the Company operates are subject to change and interpretation. As such, income taxes are subject to measurement uncertainty. Assessing the recoverability of deferred tax assets requires the Company to make estimates related to the expectations of future taxable income and the application of existing tax laws. To the extent that future taxable income differs significantly from estimates, the ability of the Company to realize deferred tax assets could be impacted.
Privately Held Equity Investments The recoverability of privately held equity investments requires management to make certain assumptions and estimates. Changes in these assumptions and estimates could result in materially different results.
See Note 2 to the consolidated financial statements included as part of this report for a description of our significant accounting policies.
Recent Accounting Pronouncements
We have evaluated recent accounting pronouncements issued since
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