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 Sept. 30th 2002
[ ] 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.
-------------------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 91-1922863
------ ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2614 Queenswood Dr. Victoria BC Canada V8N 1X5
----------------------------------------------------
(Address of principal executive offices)
( 250 ) 477 - 9969
----------------------
(Issuer's telephone number)
(Former name, former address and former fiscal year if changed
since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12,13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes[ ] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Common stock $.001 par value
11,568,416 shares as of Sept. 30th 2002.
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 Sept 30th 2002 the Company recorded two
significant events. On July 25th the Company closed a private placement of
1,428,600 shares at price of $3.50 per share for gross proceeds of $5,000,100.00
and net proceeds of $4,800,100.00. As a result of this financing and exercise of
options during the period, a net total of $5,880,610.00 in cash was provided by
financing activities.
On Sept 1st 2002, the Company signed a distribution agreement with Ondeo Nalco
Company of Naperville IL. The agreement assigns Ondeo Nalco exclusive sales
rights for Flexible Solutions' new product Water$avr in the North American
municipal market and in the world mining markets ex India and Pakistan. The term
of the agreement is 5 years, and provides for sales totaling 25 million dollars
over the term of the agreement. A further provision in the distribution
agreement granted one million options at $4.25 and one million options at $5.50
to Ondeo Nalco. These options have been recorded as consultant expenses in the
quarter at a cost of $2,704,000.00. If the options are exercised, the Company
will receive $9,750,000 in cash to our treasury as the exercise price. The
non-cash expense related to these options account for all but $.01 of the loss
recorded in the quarter and non-cash expenses represent all of the losses
recorded in the 9 months ended Sept 30th 2002.
For the three months ended Sept. 30th 2002, the Company experienced a net after
tax loss of $2,806,010 (see option expensing discussion above) as compared to a
net after tax loss of $28,560 for the three months ended Sept. 30th 2001. As in
the quarter ending Sept. 30th 2001, the end of the Northeastern USA pool season
reduces demand for our products in the usual cyclical manner. This year the
sales season in the US Northeast and Eastern Canada was severely affected by
unseasonably cold weather leading to a late start followed by extremely hot
weather requiring less of our products and resulting in very low production
requirements in 3rd quarter and revenue of $55,257 compared to $148,177 in the
year earlier quarter. In addition, the Company increased expenditures in the
areas of WATER$AVR sales and marketing and production equipment development.
Finally, the Company did better at producing the correct amount of product in
Q-1 and Q-2 2002 as a percentage of annual sales and therefore did not have to
carry high production rates as far into Q-3 2002 as was the case in Q-3 2001 and
our swimming pool product distributor is carrying a much lower quantity of
inventory as of Sept 30 2002 compared to Sept 30 2003.
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, and the Company's 10K-SB for the years ended Dec. 31st
2000 and 2001 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 nine month periods ended Sept. 30th 2002, compared to the
results of operations for the three month and nine month periods ended Sept.
30th 2001, and to changes in the Company's financial condition from December
31st 2001 to Sept. 30th 2002.
THREE MONTHS ENDED Sept. 30th 2002 and 2001
For the third quarter of the current fiscal year ending Sept. 30th 2002, sales
were $55,257 compared to $148,177 for the same quarter of the previous year. The
decrease in sales was caused by poor weather in the beginning of the Northeast
pool season followed by extremely hot weather both of which reduced the need for
our products.
Operating expenses were $2,865,049 for the third quarter, up from $101,552 for
the third quarter of last year. This is as a result of a non-cash expense
($2,704,000) to account for options granted to Ondeo Nalco Company, increased
spending on sales and marketing for Water$avr and development of advanced
production machinery . The largest real increases were in the areas of office
and factory rent (33,686) and professional fees ($37,478). The net loss for the
quarter was $2,806,010 a huge increase from third quarter last year when the net
loss was $28,560. The increased loss was almost all related to non-cash option
expenses as the cash flow statement shows only $61,399 in cash consumed by
operations. Cost of sales increased to 99% from 48% as a result of lower sales
without concurrent reduction in costs.
The earnings per share was ($0.25) for the three months ended Sept. 30th 2002
compared to $0.00 for the three months ended Sept. 30th 2001.
NINE MONTHS ENDED Sept. 30th 2002 and 2001
Sales in the nine months ended Sept. 30th 2002 were $1,089,164 compared to
$1,307,649 for the nine months ended Sept. 30th 2001. The reduction was a result
of the poor season in the Northeast of the US and Eastern Canada.
Operating expenses for the Company were $3,381,707 for the nine months ended
Sept. 30th 2002 up from $290,105 for the nine months ended Sept. 30th 2001. The
increase in operating expenses were as a result of increases in sales and
marketing costs for Water$avr and more than $3 million in non-cash expenses to
account for option grants.
The net income for the nine months ended Sept. 30th 2002 was ($2,871,363)
compared to a net income of $232,249 for the nine months ended Sept. 30th 2001.
The decrease in income was due to the decrease in sales compared to the year
earlier period and the non-cash accounting entry to expense options.
The earnings per share was ($0.27) for the nine month period ended Sept. 30th
2002 compared to ($0.03) for the nine month period ended Sept. 30th 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company sold 400,000 shares at a price of $2.50 per share in the second
quarter for net proceeds of $.95 million and 1,428,600 shares at $3.50 per share
for net proceeds of $4.8 million in the 3rd quarter. This in addition to other
paid up capital resulted in cash on hand of $5,939,446.
As of Sept. 30th 2002 the Company had working capital of $6,279,429 which
represented an increase of $5,782,868 as compared to the working capital of Dec
31st 2001. The increase was a result of the financings concluded during the 9
months ended Sept 30th 2002.
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 Sept. 30th
2001. 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 - 1,428,600 restricted
shares were issued at $3.50 per share for gross
proceeds of $5,000,100 and net proceeds of
$4,800,100.
114,000 shares were issued for options
exercised during the quarter. Proceeds To the Company
were $33,500.
1 million options at a strike price of $4.25 and a
term of 5 years were issued to a consultant.
1 million options at a strike price of $5.50 and a
term of 5 years were issued to a consultant.
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.(a) Exhibit 27 - Financial Data Schedule
Item 6.(b) Reports on Form 8-K
July 25th 2002
Oct 2nd 2002
Item 14. Controls and procedures
The Company maintains disclosure controls and
procedures that are designed to ensure that
information required to be disclosed in the Company's
Exchange Act reports is recorded, processed,
summarized and reported within the time periods
specified in the SEC's rules and forms, and that such
information is accumulated and communicated to the
Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required
disclosure based closely on the definition of
"disclosure controls and procedures" in Rule
13a-14(c). In designing and evaluating the disclosure
controls and procedures, management recognized that
any controls and procedures, no matter how well
designed and operated, can provide only reasonable
assurance of achieving the desired control
objectives, and management necessarily was required
to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Within 90 days prior to the date of this report, the
Company carried out an evaluation, under the
supervision and with the participation of the
Company's management, including the Company's Chief
Executive Officer and the Company's Chief Financial
Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and
procedures. Based on the foregoing, the Company's
Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and
procedures were effective.
There have been no significant changes in the
Company's internal controls or in other factors that
could significantly affect the internal controls
subsequent to the date the Company completed its
evaluation.
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, thereunto duly authorized.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
(Registrant)
Dated: November 10th 2002 /s/ DAN O'BRIEN
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Dan O'Brien, President and Director
I, Dan O'Brien, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Flexible Solutions
International Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 10th 2002
/s/ DAN O'BRIEN
----------------------------
Dan O'Brien, CEO and CFO
CERTIFICATION PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Flexible Solutions International Inc.
on form 10-Q for the period ended Sept 30th 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Dan O'Brien, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as
adopted pursuant to section 906 of the Sarbanes -Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ DAN O'BRIEN
-------------------
Dan O'Brien,
CEO, Nov 8th 2002
CERTIFICATION PURSUANT TO
18 U.S.C. 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Flexible Solutions International Inc.
(the Company) on form 10-Q for the period ended Sept 30th 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Dan
O'Brien, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
1. The Report fully complies with the requirements of Section 13(a) or 15(b) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly represents, in all material
respects, the financial condition and results of operations of the Company.
/s/ DAN O'BRIEN
---------------
Dan O'Brien
CFO, Nov 8th 2002
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Balance Sheets
(U.S. Dollars)
--------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2002 2001
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ASSETS
CURRENT
Cash and cash equivalents $5,969,446 $190,457
Accounts receivable 75,419 46,374
Income tax receivable 72,298 0
Loan receivable 9,585 9,516
Note receivable 0 9,225
Inventory 163,193 181,698
Prepaid expenses 19,488 59,291
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TOTAL CURRENT ASSETS 6,309,429 496,561
PROPERTY AND EQUIPMENT 111,717 72,753
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TOTAL ASSETS $6,421,146 $569,314
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LIABILITIES
CURRENT
Accounts payable $31,606 $20,592
Income tax payable 0 18,108
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TOTAL CURRENT LIABILITIES 31,606 38,700
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STOCKHOLDERS' EQUITY
CAPITAL STOCK
Authorized
50,000,000 Common shares with a par value of $0.001 each
1,000,000 Preferred shares with a par value of $0.01 each
Issued and Outstanding
11,568,416 and 9,272,816 Common shares 11,568 9,272
CAPITAL IN EXCESS OF PAR VALUE 9,306,775 563,713
SHARE SUBSCRIPTION RECEIVABLE (19,990) 0
OTHER COMPREHENSIVE LOSS (18,921) (23,842)
ACCUMULATED DEFICIENCY (2,889,892) (18,529)
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TOTAL STOCKHOLDERS' EQUITY 6,389,540 530,614
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,421,146 $569,314
--------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Statements of Operations
(U.S. Dollars)
--------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, Nine Months Ended September 30,
2002 2001 2002 2001
--------------------------------------------------------------------------------------------------------------------
SALES $55,257 $148,177 $1,089,164 $1,307,649
COST OF SALES
(Exclusive of depreciation) 54,782 67,358 594,041 642,949
--------------------------------------------------------------------------------------------------------------------
Gross Profit 475 80,819 495,123 664,700
--------------------------------------------------------------------------------------------------------------------
Operating Expenses
Consulting (note 2) 2,704,000 0 2,736,608 0
Wages 28,880 33,820 248,933 106,165
Professional fees 37,478 17,131 67,283 37,141
Office 16,898 5,089 60,943 15,438
Rent 16,788 5,624 46,356 16,595
Stock promotion and
transfer agent fee 15,510 (6,406) 41,156 1,802
Travel 13,608 8,900 24,023 18,768
Subcontracting 7,958 11,330 23,667 21,946
Administrative salaries
and benefits 5,202 18,802 77,228 50,605
Currency exchange 4,797 0 20,205 0
Shipping 3,462 1,846 9,087 7,471
Telephone 2,124 1,322 7,074 4,068
Utilities 1,953 0 4,159 0
Bad debt expense 1 0 (350) 0
Commission 0 694 0 1,138
Depreciation 6,390 3,400 15,335 8,968
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2,865,049 101,552 3,381,707 290,105
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Income (Loss) Before Other
Item and Income Tax (2,864,574) (20,733) (2,886,584) 374,595
Interest Income 15,221 0 15,221 0
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Income (Loss) Before
Income Tax (2,849,353) (20,733) (2,871,363) 374,595
Income Tax (Recovery) (43,343) 7,827 0 142,346
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Net Income (Loss) $(2,806,010) $(28,560) $(2,871,363) $232,249
--------------------------------------------------------------------------------------------------------------------
Net Income (Loss) Per Share $ (0.25) $ (0.00) $ (0.27) $ (0.03)
--------------------------------------------------------------------------------------------------------------------
Weighted Average Number of 11,448,128 9,233,816 10,555,256 9,232,705
Shares
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See notes to consolidated financial statements.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Statements of Stockholders' Equity
Periods Ended September 30
(U.S. Dollars)
-------------------------------------------------------------------------------------------------------------------------
Capital in Share Accumulated Other Total
Shares Par Excess of Subscription Earnings Comprehensive Stockholders'
Value Par Value Receivable (Deficiency) Income (Loss) Equity
------------------------------- ----------- -------- ------------ ------------ ------------- -------------- --------------
BALANCE, DECEMBER 31, 1998 9,131,316 $9,131 $163,653 0 $(26,393) $(376) $146,015
Translation adjustment 0 0 0 0 0 7,053 7,053
Net income 0 0 0 0 102,848 0 102,848
------------------------------- ----------- -------- ------------ ------------ ------------- -------------- --------------
BALANCE, DECEMBER 31, 1999 9,131,316 9,131 163,653 0 76,455 6,677 255,916
Translation adjustment 0 0 0 0 0 (8,516) (8,516)
Net income 0 0 0 0 138,971 0 138,971
------------------------------- ----------- -------- ------------ ------------ ------------- -------------- --------------
BALANCE, DECEMBER 31, 2000 9,131,316 9,131 163,653 0 215,426 (1,839) 386,371
SHARES ISSUED FOR
Cash (October and December 9,500 9 4,116 0 0 0 4,125
Services (January, July
and November) 132,000 132 139,868 0 0 0 140,000
Stock option compensation 0 0 256,076 0 0 0 256,076
Translation adjustment 0 0 0 0 0 (22,003) (22,003)
Net loss 0 0 0 0 (233,955) 0 (233,955)
------------------------------- ----------- -------- ------------ ------------ ------------- -------------- --------------
BALANCE, DECEMBER 31, 2001 9,272,816 9,272 563,713 0 (18,529) (23,842) 530,614
Issued for cash
Private placement 2,151,600 2,152 6,064,948 0 0 0 6,067,100
Exercise of stock options 114,000 114 33,386 0 0 0 33,500
Services 30,000 30 44,370 0 0 0 44,400
Share issue costs 0 0 (200,000) 0 0 0 (200,000)
Share subscription 0 0 0 (33,000) 0 0 (33,000)
Payment of subscriptions
receivable 0 0 0 13,010 0 0 13,010
Stock option compensation 0 0 2,800,358 0 0 0 2,800,358
Translation adjustment 0 0 0 0 0 4,921 4,921
Net loss, period ended
September 30, 2002 0 0 0 0 (2,871,363) 0 (2,871,363)
------------------------------- ----------- -------- ------------ ------------ ------------- -------------- --------------
Balance, September 30, 2002 11,568,416 $11,568 $9,306,775 $(19,990) $(2,889,892) $(18,921) $6,389,540
------------------------------- ----------- -------- ------------ ------------ ------------- -------------- --------------
See notes to consolidated financial statements.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Consolidated Statements of Cash Flows
(U.S. Dollars)
--------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
2002 2001
--------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $(2,871,363) $232,249
Adjustments to reconcile net income (loss)
to net cash, provided by operating activities
Stock option compensation 2,800,358 0
Non-cash services 44,400 0
Depreciation 15,335 8,968
Changes in Non-Cash Working Capital
Accounts receivable (29,045) 80,424
Inventory 18,505 (99,939)
Prepaid expenses 39,803 (3,615)
Accounts payable 11,014 27,774
Income tax receivable (90,406) (11,357)
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CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (61,399) 234,504
--------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of property and equipment (54,299) (28,448)
Note receivable 9,225 (31,359)
Loan receivable (69) 0
--------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (45,143) (59,807)
--------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 5,867,600 0
Subscriptions received 13,010 0
--------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 5,880,610 0
--------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 4,921 (6,722)
--------------------------------------------------------------------------------------------------------------------
INFLOW OF CASH 5,778,989 167,975
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 190,457 192,280
--------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $5,969,446 $360,255
--------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Issue of common stock
For service $44,400 $140,000
--------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
Periods Ended September 30
(U.S. Dollars)
1. BASIS OF PRESENTATION
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States
for interim financial information. These financial statements are condensed
and do not include all disclosures required for annual financial statements.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the Company's
audited consolidated financial statements filed as part of the Company's
September 30, 2002 Form 10-KSB.
In the opinion of the Company's management, these consolidated financial
statements reflect all adjustments necessary to present fairly the Company's
consolidated financial position at September 30, 2002 and December 31, 2001
and the consolidated results of operations and the consolidated statements of
cash flows for the nine months ended September 30, 2002 and 2001. The results
of operations for the nine months ended September 30, 2002 are not
necessarily indicative of the results to be expected for the entire fiscal
year.
2. STOCKHOLDERS' EQUITY
(a) During the period, pursuant to the 2002 plan, the Company granted a total of
2,000,000 fully vested stock to consultants of the Company at an exercise
price of $4.25 per share as to 1,000,000 shares and $5.50 per share as to an
additional 1,000,000 shares which will expire September 1, 2007. These
options have been recognized applying FASB 123 using the Black-Scholes option
pricing model which resulted in additional consulting expense of $2,704,000
for the three months ended September 30, 2002.
(b) The following table summarizes the Company's stock option activity for the
period:
---------------------------------------------------------------------------------------------------
2002
---------------------------------------------------------------------------------------------------
Weighted
Exercise Average
Number Price Exercise
of Shares Per Share Price
---------------------------------------------------------------------------------------------------
Balance, June 30, 2002 1,640,800 $ 0.25 to $ 3.70 $ 3.14
Granted during the period 1,000,000 $4.25 4.25
Granted during the period 1,000,000 $5.50 5.50
Exercised (114,000) $ 0.25 to $ 0.30 (0.29)
---------------------------------------------------------------------------------------------------
Balance, September 30, 2002 3,526,800 $ 0.25 to $ 5.50 $ 4.22
---------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
Periods Ended September 30
(U.S. Dollars)
2. STOCKHOLDERS' EQUITY (Continued)
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options granted to employees, and accordingly,
compensation expense of $21,250 was recognized as wages expense for the three
months ended September 30, 2002. Had compensation expense been determined as
provided in SFAS 123 using the Black-Scholes option - pricing model, the
pro-forma effect on the Company's net loss and per share amounts for the
three months ended September 30, 2002 would have been as follows:
------------------------------------------------------ --------------------
Net loss, as reported $(2,871,363)
Net loss, pro-forma $ (3,047,318)
Net loss per share, as reported $ (0.27)
Net loss per share, pro-forma $ (0.29)
------------------------------------------------------ --------------------
The fair value of each option grant is calculated using the
following weighted average assumption:
------------------------------------------------------ --------------------
Expected life (years) 5 years
Interest rate 3%
Volatility 72.3%
Dividend yield 0
------------------------------------------------------ --------------------
(c) During the period, the Company issued common stock as follows:
------------------------------------------------------ --------------------
Number
of Shares Total
------------------------------------------------------ --------------------
Private placement 1,428,600 $5,000,100
Exercise of stock options 114,000 33,500
------------------------------------------------------ --------------------
During the quarter ended September 30, 2002, the Companies completed a
private placement whereby 1,428,600 shares of common stock were issued at a
price of $3.50 per share to independent third parties.
(d) Share subscription receivable represents amount due from stock purchased on
exercise of options on June 30, 2002.
See notes to consolidated financial statements.