United States

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K/A

Amendment No. 1

 

(Mark One)

 

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended December 31, 2018

 

OR

 

(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File No. 001-31540

 

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

Alberta   71 163 0889

(State or other jurisdiction

 

(Tax ID Number)

of incorporation or organization)  

 

6001 54 Ave.    
Taber, Alberta, Canada   T1G 1X4
(Address of Principal Executive Office)   Zip Code

 

Registrant’s telephone number, including Area Code: (403) 223-2995

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Name of each exchange on which registered
Common Stock, $0.001 par value   NYSE American

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [  ]

Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company  or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]   Accelerated filer [  ]
     
Non-accelerated filer [  ]   Smaller reporting company [X]
(Do not check if a smaller reporting company)   Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): [  ] Yes [X] No

 

As of June 30, 2018 the aggregate market value of the Company’s common stock held by non-affiliates was $11,946,764 based on the closing price for shares of the Company’s common stock on the NYSE American for that date.

 

As of March 30, 2019, the Company had 11,711,657 issued and outstanding shares of common stock.

 

Documents incorporated by reference: None

 

 

 

 
 

 

EXPLANATORY NOTE

 

The sole purpose of this Amendment No. 1 to the Annual Report on Form 10-K for the year ended December 31, 2018 of Flexible Solutions International, Inc. (the “Company”) filed with the Securities and Exchange Commission on April 1, 2019 (the “Form 10-K”) is to furnish Exhibits 101 to the Form 10-K in accordance with Rule 405 of Regulation S-T.

 

No other changes have been made to the Form 10-K. This Amendment No. 1 to the Form 10-K speaks as of the original filing date of the Form 10-K, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-K.

 

 
 

 

Item 15.Exhibits, Financial Statement Schedules.

 

Number  Description
3.1  Articles of Incorporation of the Registrant. (1)
3.2  Bylaws of the Registrant. (1)
21.1  Subsidiaries. (2)
23.1  Consent of Independent Accountants.
31.1 Certification of Principal Executive Officer Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
31.2  Certification of Principal Financial Officer Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1  Certification of Principal Executive and Financial Officer Pursuant to 18 U.S.C. §1350 and §906 of the Sarbanes-Oxley Act of 2002.

 

(1)Previously filed as an exhibit to our Registration Statement on Form 10-SB filed with the Commission on February 22, 2000, and incorporated herein by reference.

 

(2)Previously filed as an exhibit to our Registration Statement on Form SB-2 filed with the Commission on January 22, 2003, and incorporated herein by reference.

 

 
 

 

SIGNATURES

 

In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

April 2, 2019 Flexible Solutions International, Inc.
     
  By: /s/ Daniel B. O’Brien
  Name: Daniel B. O’Brien
  Title: President and Chief Executive Officer

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

 

Signature   Title   Date
         

/s/ Daniel B. O’Brien

  President, Principal Executive Officer, Principal Financial and Accounting Officer and a Director   April 2, 2019
Daniel B. O’Brien
         
/s/ John H. Bientjes   Director   April 2, 2019
John H. Bientjes        
         
/s/ Robert T. Helina   Director   April 2, 2019
Robert T. Helina        
         
/s/ Thomas Fyles   Director   April 2, 2019
Thomas Fyles        
         
/s/ Ben Seaman   Director   April 2, 2019
Ben Seaman        
         
/s/ David Fynn   Director   April 2, 2019
David Fynn      

 

 
 

 

 

Exhibit 23.1

 

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We have issued our Auditors’ report, dated March 31, 2019, accompanying the audited consolidated financial statements for the years ended December 31, 2018 and 2017 of Flexible Solutions International, Inc. We hereby consent to the incorporation by reference of such report in the Company’s registration statements on Form S-8 (File No’s.333-139815 and 333-176556).

 

   

 

Vancouver, Canada   Chartered Professional Accountants
March 31, 2019    

 

 

   
   

 

 

EXHIBIT 31.1

 

CERTIFICATIONS

 

I, Daniel B. O’Brien, certify that:

 

1. I have reviewed this annual report on Form 10-K/A of Flexible Solutions International, Inc.;

 

2. Based on my knowledge, this 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 the report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this 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 officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: April 2, 2019 /s/ Daniel B. O’Brien
  Daniel B. O’Brien
  Principal Executive Officer

 

   
   

 

 

EXHIBIT 31.2

 

CERTIFICATIONS

 

I, Daniel B. O’Brien, certify that:

 

1. I have reviewed this annual report on Form 10-K/A of Flexible Solutions International, Inc.;

 

2. Based on my knowledge, this 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 the report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this 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 officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: April 2, 2019 /s/ Daniel B. O’Brien
 

Daniel B. O’Brien

  Principal Financial Officer

 

   
   

 

 

EXHIBIT 32.1

 

CertificatION of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of

the Sarbanes-Oxley Act of 2002

 

Solely for the purposes of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned Principal Executive and Financial Officer of Flexible Solutions International, Inc. (the “Company”), hereby certify that, to the best of my knowledge, the Annual Report on Form 10-K of the Company for the year ended December 31, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: April 2, 2019 /s/ Daniel B. O’Brien
  Daniel B. O’Brien
  Principal Executive and Principal Financial Officer

 

   
   

 

v3.19.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Mar. 30, 2019
Jun. 30, 2018
Document And Entity Information      
Entity Registrant Name FLEXIBLE SOLUTIONS INTERNATIONAL INC    
Entity Central Index Key 0001069394    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Non-accelerated Filer    
Entity Small Business Flag true    
Entity Emerging Growth Company false    
Entity Ex Transition Period false    
Entity Shell Company false    
Entity Public Float     $ 11,946,764
Entity Common Stock, Shares Outstanding   11,711,657  
Trading Symbol FSI    
Document Fiscal Period Focus FY    
Document Fiscal Year Focus 2018    
v3.19.1
Consolidated Balance Sheets - USD ($)
Dec. 31, 2018
Dec. 31, 2017
Current    
Cash and cash equivalents $ 7,857,936 $ 6,912,138
Accounts receivable (see Note 4) 4,422,745 2,105,471
Inventories (see Note 5) 8,727,709 4,686,852
Prepaid expenses 200,306 255,080
Total current assets 21,208,696 13,959,541
Property, equipment and leaseholds, net (see Note 6) 2,563,261 1,938,509
Patents (see Note 7) 63,014 79,452
Intangible assets (Note 8) 3,128,000
Long term deposits (see Note 9) 30,777 18,531
Investments (Note 10) 776,357 13,414
Goodwill (Note 8) 2,534,275
Deferred tax asset (Note 14) 891,735 1,763,923
Total Assets 31,196,115 17,773,370
Current    
Accounts payable and accrued liabilities 1,050,673 939,116
Deferred revenue 127,168 208,608
Income taxes payable 1,357,299 1,101,596
Short term line of credit (Note 11) 2,798,131 250,000
Current portion of long term debt (Note 12) 771,359 201,193
Total current liabilities 6,104,630 2,700,513
Convertible note payable (Note 13) 1,000,000
Deferred income tax liability (Note 14) 989,569
Long term debt (Note 12) 3,580,384 150,896
Total liabilities 11,674,583 2,851,409
Stockholders' Equity    
Capital stock (see Note 17) 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: 11,699,657 (2017: 11,597,991) common shares 11,700 11,598
Capital in excess of par value 15,328,285 15,114,835
Other comprehensive loss (1,222,573) (656,093)
Accumulated earnings 2,941,889 451,621
Total stockholders' equity - controlling interest 17,059,301 14,921,961
Non controlling interests (Note 18) 2,462,231
Total Stockholders' Equity 19,521,532 14,921,961
Total Liabilities and Stockholders' Equity 31,196,115 17,773,370
Commitments and Subsequent events (See Notes 20 and 21)
v3.19.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Common stock, shares authorized 50,000,000 50,000,000
Common stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 1,000,000 1,000,000
Preferred stock, par value $ 0.01 $ 0.01
Common stock, shares issued 11,699,657 11,597,991
Common stock, shares outstanding 11,699,657 11,597,991
v3.19.1
Consolidated Statements of Income and Comprehensive Income - USD ($)
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Income Statement [Abstract]    
Sales $ 17,829,518 $ 15,494,325
Cost of sales 12,192,684 9,508,827
Gross profit 5,636,834 5,985,498
Operating Expenses    
Wages 1,729,467 1,647,780
Administrative salaries and benefits 1,082,991 1,007,850
Advertising and promotion 68,492 18,257
Investor relations and transfer agent fee 132,694 152,362
Office and miscellaneous 247,424 238,195
Insurance 312,275 285,418
Interest expense 93,653 44,125
Rent 249,051 241,286
Consulting 186,847 133,949
Professional fees 282,654 222,743
Travel 137,902 137,392
Telecommunications 32,315 26,071
Shipping 19,790 19,624
Research 135,930 98,928
Commissions 46,993 112,678
Bad debt expense 1,191
Currency exchange (445,443) 64,870
Utilities 16,775 21,339
Total operating expenses 4,329,810 4,474,058
Operating income 1,307,024 1,511,440
Gain on involuntary disposition (net of tax) (Note 6) 1,714,261 2,043,614
Write down of inventory (51,346)
Loss on investment (3,281) (84,066)
Interest income 36,843 913
Income before income tax 3,054,847 3,420,555
Income taxes (Note 14)    
Deferred income tax expense 100,000 (985,495)
Income tax expense (533,130) (680,319)
Net income for the year including non-controlling interests 2,421,717 1,754,741
Less: Net (loss) income attributable to non-controlling interests (68,551)
Net income attributable to controlling interest 2,490,268 1,754,741
Other comprehensive income (loss) (566,480) 431,115
Comprehensive income $ 2,023,788 $ 2,185,856
Income per share (basic and diluted) (Note 15) $ 0.21 $ 0.15
Weighted average number of common shares (basic) 11,630,136 11,485,580
Weighted average number of common shares (diluted) 11,816,054 11,725,482
v3.19.1
Consolidated Statements of Cash Flows - USD ($)
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Operating activities    
Net income $ 2,490,268 $ 1,754,741
Adjustments to reconcile net income to net cash:    
Stock based compensation 111,192 116,092
Depreciation and amortization 342,561 286,616
Loss on investment 3,281 84,066
Decrease in deferred tax asset 100,000 985,495
Write down of inventory (51,346)
Gain on involuntary disposition (1,714,261) (2,043,614)
Changes in non-cash working capital items:    
(Increase) Decrease in accounts receivable (1,048,290) 912,056
(Increase) Decrease in inventories (2,185,462) (887,339)
(Increase) Decrease in prepaid expenses 53,275 (23,758)
Increase (Decrease) in accounts payable and accrued liabilities (351,508) (407,555)
Increase (Decrease) in taxes payable 243,276 207,729
Increase (Decrease) deferred revenue (205,936) 109,242
Cash (used in) provided by operating activities (2,161,604) 1,042,425
Investing activities    
Long term deposits (1,246) 7,980
Investment (700,000)
Proceeds of equity investment distributions 27,813 25,000
Proceed from insurance 2,407,325 3,366,889
Acquisition of EnP Investments LLC (4,110,560)
Net purchase of property, equipment and leaseholds (180,830) (426,480)
Cash (used in) provided by investing activities (2,557,498) 2,973,389
Financing activities    
Draw from short term line of credit 2,462,346
Loans 3,792,734 (201,193)
Partnership distribution (299,135)
Proceeds of issuance of common stock 102,360 156,020
Cash proved by (used in) financing activities (6,128,305) (45,173)
Effect of exchange rate changes on cash (463,405) 471,430
Inflow (outflow) of cash 945,798 4,442,072
Cash and cash equivalents, beginning 6,912,138 2,470,066
Cash and cash equivalents, ending 7,857,936 6,912,138
Supplemental disclosure of cash flow information:    
Income taxes paid 288,653 833,766
Interest paid $ 94,775 $ 43,003
v3.19.1
Consolidated Statements of Stockholders' Equity - USD ($)
Common Stock [Member]
Capital in Excess of Par Value [Member]
Accumulated Earnings (Deficiency) [Member]
Other Comprehensive Income (Loss) [Member]
Total
Non-Controlling Interest [Member]
Total Stockholders' Equity [Member]
Beginning Balance at Dec. 31, 2016 $ 11,458 $ 4,842,863 $ (1,303,120) $ (1,087,208) $ 12,463,993 $ 12,463,993
Beginning Balance, shares at Dec. 31, 2016 11,457,991            
Translation adjustment 431,115 431,115 431,115
Net income (loss) 1,754,741 1,754,741 1,754,741
Comprehensive income 2,185,856 2,185,856
Common stock issued $ 140 155,880 156,020 156,020
Common Stock Issued, shares 140,000            
Stock-based compensation 116,092 116,092 116,092
Ending Balance at Dec. 31, 2017 $ 11,598 15,114,835 451,621 (656,093) 14,921,961 14,921,961
Ending Balance, shares at Dec. 31, 2017 11,597,991            
Translation adjustment (566,480) (566,480) (566,480)
Net income (loss) 2,490,268 2,490,268 (68,551) 2,421,717
Common stock issued $ 102 102,258 102,360 102,360
Common Stock Issued, shares 101,666            
Stock-based compensation 111,192 111,192 111,192
Acquisition of EnP Investments LLC 2,759,917 2,759,817
Distribution to noncontrolling interests (229,135) (229,135)
Ending Balance at Dec. 31, 2018 $ 11,700 $ 15,328,285 $ 2,941,889 $ (1,222,573) $ 17,059,301 $ 2,462,231 $ 19,521,532
Ending Balance, shares at Dec. 31, 2018 11,699,657            
v3.19.1
Basis of Presentation
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation

1. Basis of Presentation.

 

These consolidated financial statements include the accounts of Flexible Solutions International, Inc. (the “Company”), its wholly-owned subsidiaries Flexible Fermentation Ltd. (“Flexible Ltd.”), NanoChem Solutions Inc. (“NanoChem”), Flexible Solutions Ltd., Flexible Biomass LP, FS Biomass Inc., NCS Deferred Corp., Conserve H2O Ltd. and Natural Chem SEZC Ltd, and its 65% interest in EnP Investments, LLC (“ENP Investments”). All inter-company balances and transactions have been eliminated. The Company was incorporated May 12, 1998 in the State of Nevada and had no operations until June 30, 1998.

 

In 2018, NanoChem, a wholly-owned subsidiary of the Company, completed the purchase of 65% of the units of ownership interest in EnP Investments for an aggregate purchase price of $5,110,560. An unrelated party owns the remaining 35% of the units of ownership interest in EnP Investments, and EnP Investments is consolidated into the financial statements. The outside investor’s units of ownership interests in EnP Investments were included in noncontrolling interests in these consolidated financial statements from the acquisition date onward.

 

Flexible Solutions International, Inc. 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.

v3.19.1
Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Significant Accounting Policies

2. Significant Accounting Policies.

 

These consolidated financial statements have been prepared on a historical cost basis, except where otherwise noted, in accordance with accounting principles generally accepted in the United States applicable to a going concern and reflect the policies outlined below.

 

(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) 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. 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.

 

(c) 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.

 

(d) Property, Equipment, Leaseholds and Intangible Assets

.

The following assets are recorded at cost and depreciated using the methods and annual rates shown below:

 

Computer hardware   30% Declining balance
Furniture and fixtures   20% 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
Patents   Straight-line over 17 years
Technology   Straight-line over 10 years
Leasehold improvements   Straight-line over lease term

 

Property and equipment are written down to net realizable value when management determines there has been a change in circumstances which indicates their carrying amounts may not be recoverable. No write-downs have been necessary to date.

 

(e) 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.

 

(f) 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.

 

(g) 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 have fulfilled our 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 F.O.B. 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.

 

The Company recognizes revenue when there are no significant remaining performance obligations. When significant post-delivery obligations exist, revenue is deferred until such obligations are fulfilled. To date, there have been no such significant post-delivery obligations.

 

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.

 

(h) 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.

 

(i) 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.

 

(j) 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 primarily comprised of unrealized foreign exchange gains and losses.

 

(k) 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 years ended December 31, 2018 and 2017.

 

(l) 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, asset impairment analysis, share-based payments and warrants, valuation allowances for deferred income tax assets, determination of useful lives of property, equipment and leaseholds, and the valuation of inventory.

 

(m) Financial Instruments.

 

The fair market value of the Company’s financial instruments comprising cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and short term line of credit were estimated to approximate their carrying values due to immediate or short-term maturity of these financial instruments.

 

(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, accounts receivable, accounts payable and 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.

 

(o) Contingencies

 

Certain conditions may exist as of the date the 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 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.

 

(p) Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred 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 tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance so that the assets are recognized only to the extent that when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized.

 

Per FASB ASC 740 “Income taxes” 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 December 31, 2018, 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. Accounts receivable for the Company’s three primary customers totaled $1,280,406 (31%) at December 31, 2018 (December 31, 2017 - $1,247,374 or 59%).

 

The credit risk on cash and cash equivalents is limited because the Company limits its exposure to credit loss by placing its cash and cash equivalents 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 material 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 and cash equivalents, accounts receivable, and accounts payable and accrued liabilities. The Company has not hedged its exposure to currency fluctuations.

 

(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 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 interest and other 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 can begin 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 not more likely than not that the fair value of a reporting unit is less 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 positive 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 are evaluated in assessing fair value. If it is determined that it is more likely than not that the fair value of the reporting unit 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 reporting unit to its carrying amount, including goodwill. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, impairment is indicated, requiring recognition of an impairment charge for the differential.

 

Qualitative assessments of goodwill and indefinite-lived intangible assets were performed in 2018 and 2017. Based on the results of 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 carrying value. Accordingly, no further impairment testing was completed and no impairment charges related to goodwill or indefinite-lived intangibles were recognized during the fiscal period ended December 31, 2018.

 

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 “Property and Equipment” significant accounting policy.

 

(t) Adoption of new accounting principles

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which has been updated through several revisions and clarifications since its original issuance and supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. The standard requires revenue recognized to represent the transfer of promised goods or services to customers at an amount that reflects the consideration which a company expects to receive in exchange for those goods or services. The standard also requires new, expanded disclosures regarding revenue recognition. The standard was adopted for the current year and had no material effect on the consolidated financial statements.

 

On January 1, 2018, the Company adopted ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities, which changes the income statement impact of equity investments held by an entity. The amendments require the unrealized gains or unrealized losses of equity instruments measured at fair value to be recognized in net income. Our adoption of this ASU had no material effect on the consolidated financial statements.

 

(u) Accounting Pronouncements Not Yet Adopted

 

In February 2016, the FASB issued ASU 2016-02, Leases. The standard will require lessees to recognize most leases on their balance sheet and makes selected changes to lessor accounting. The standard is effective for annual and interim reporting periods beginning after December 15, 2018. A modified retrospective transition approach is required, with certain practical expedients available. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.

v3.19.1
Acquisition
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Acquisition

3. Acquisition

 

Effective October 1, 2018, the Company, through its NanoChem Solutions Inc. subsidiary, entered into an agreement to purchase 65% of EnP Investments LLC.

 

Total consideration paid of $5,110,560 was paid through a combination of $10,560 cash on hand, $4,100,000 in debt financing provided by Harris Bank (see Note 12b) and a $1,000,000 convertible note payable. The convertible note is due on or before September 30, 2023 with 5% interest due per year. At the option of the holder, the Note may be converted to 400,000 shares of the Company’s common stock. The Company has the option to extend the note to no later than September 30, 2028.

 

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 Investments LLC as of the effective date. The Company finalized its estimates after it was able to determine that is had obtained all necessary information that existed as of the acquisition date related to these matters.

 

       
Cash paid   $ 4,110,560  
Convertible note     1,000,000  
Total consideration   $ 5,110,560  
         
Assets acquired:        
Accounts receivable   $ 1,071,078  
Note receivable     60,000  
Prepaid expenses     105,473  
Inventory     1,867,137  
Investments     84,943  
Equipment     740,000  
Intangible assets     3,168,000  
Liabilities assumed:        
Account payable     520,164  
Loans payable     292,706  
Deferred income taxes     989,569  
Total identifiable net assets     5,294,192  
Non-controlling interest     2,759,917  
Goodwill   $ 2,534,275  

 

In connection with the 65% purchase of EnP Investments LLC, the Company incurred bank appraisal fees of $7,038 which was recorded as general expenses during the year ended December 31, 2018. Goodwill of $2,534,275 is the excess of total consideration less identifiable assets at fair value less debt assumed at fair value. Goodwill is attributable to EnP Investments LLC management, assembled workforce, operating model and completive presence in its respective market.

 

The operating results of EnP Investments LLC have been included in the consolidated financial statements beginning October 1, 2018.

 

Unaudited pro forma financial information

 

The following unaudited pro forma combined financial information presents combined results of the Company and EnP Investments as if the Business Combination had occurred on January 1, 2017.

 

    2018     2017  
             
Net sales   $ 23,152,539     $ 23,119,226  
Gross profit     8,428,317       12,466,963  
Net income   $ 4,422,745     $ 3,253,679  

 

The pro forma financial information is not intended to represent or be indicative of the actual results of operations of the combined entity that would have been reported had the Business Combination been completed on January 1, 2016, nor is it representative of future operating results of the Company.

v3.19.1
Accounts Receivable
12 Months Ended
Dec. 31, 2018
Receivables [Abstract]  
Accounts Receivable

4. Accounts Receivable

 

    2018     2017  
             
Accounts receivable   $ 4,459,834     $ 2,145,803  
Allowances for doubtful accounts     (37,088 )     (40,332 )
    $ 4,422,745     $ 2,105,471  

v3.19.1
Inventories
12 Months Ended
Dec. 31, 2018
Inventory Disclosure [Abstract]  
Inventories

5. Inventories

 

    2018     2017  
             
Completed goods   $ 3,770,071     $ 2,530,914  
Work in progress     150,333       183,944  
Raw materials and supplies     4,807,305       1,971,994  
    $ 8,727,709     $ 4,686,852  

v3.19.1
Property, Equipment and Leaseholds
12 Months Ended
Dec. 31, 2018
Property, Plant and Equipment [Abstract]  
Property, Equipment and Leaseholds

6. Property, Equipment and Leaseholds

 

    2018     Accumulated     2018  
    Cost     Depreciation     Net  
Buildings and improvements   $ 3,516,710     $ 2,523,148     $ 993,562  
Automobiles     193,397       74,753       118,644  
Computer hardware     43,414       40,226       3,188  
Furniture and fixtures     105,494       93,087       12,407  
Office equipment     1,740       438       1,302  
Manufacturing equipment     3,859,653       2,838,344       1,021,309  
Trailer     8,793       3,561       5,232  
Boat     34,400       18,548       15,852  
Leasehold improvements     88,872       49,937       38,935  
Technology     100,136       100,136        
Land     352,830             352,830  
    $ 8,305,439     $ 5,742,178     $ 2,563,261  

 

    2017     Accumulated     2017  
    Cost     Depreciation     Net  
Buildings and improvements   $ 3,400,792     $ 2,409,179     $ 991,613  
Computer hardware     40,904       39,398       1,506  
Furniture and fixtures     17,673       11,156       6,517  
Office equipment     1,480       148       1,332  
Manufacturing equipment     2,590,158       2,104,137       486,021  
Trailer     9,562       1,434       8,128  
Boat     34,400       14,586       19,814  
Leasehold improvements     85,432       32,506       52,926  
Technology     101,748       101,748        
Land     370,652             370,652  
    $ 6,652,801     $ 4,714,292     $ 1,938,509  

 

Amount of depreciation expense for 2018: $326,123 (2017: $270,178) and is included in cost of sales in the consolidated statements of income and comprehensive income.

 

In February of 2017, the Company lost a net carrying value total of $2,196,722CAD ($1,659,404 USD) in building and manufacturing equipment in a fire at the Taber, AB location. Insurance was in place. During the year ended December 31, 2018 the Company received the final insurance proceeds of $3,132,666 CAD ($2,349,498 USD). During the year ended 2017, the Company received interim insurance proceeds of $5,570,000 CAD ($4,207,578 USD).

v3.19.1
Patents
12 Months Ended
Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Patents

7. Patents

 

   

2018

Cost

    Accumulated
Amortization
   

2018

Net

 
Patents   $ 194,320     $ 131,306     $ 63,014  
                         

 

   

2017

Cost

    Accumulated
Amortization
   

2017

Net

 
Patents   $ 212,426     $ 132,974     $ 79,452  
                         

 

Decrease in 2018 cost was due to currency conversion. 2018 cost in Canadian dollars - $265,102 (2017 - $265,102 in Canadian dollars).

 

Amount of amortization for 2018: $16,438 (2017: $16,438) and is included in cost of sales in the consolidated statements of income and comprehensive income.

 

Estimated amortization expense over the next four years is as follows:

 

2019   $ 16,438  
2020     16,438  
2021     16,438  
2022     13,700  

v3.19.1
Goodwill and Indefinite Lived Intangible Assets
12 Months Ended
Dec. 31, 2018
Goodwill And Indefinite Lived Intangible Assets  
Goodwill and Indefinite Lived Intangible Assets

8. Goodwill and Indefinite Lived Intangible Assets

 

Goodwill      
Balance as of December 31, 2017     -  
Additions     2,534,275  
Impairment     -  
Balance as of December 31, 2018     2,534,275  

 

 

Indefinite Lived Intangible Assets      
Balance as of December 31, 2017     -  
Additions     770,000  
Impairment     -  
Balance as of December 31, 2018     770,000  

 

Indefinite lived intangible assets consist of trade secrets and trademarks related to the acquisition of EnP Investments LLC (note 3).

 

Definite Life Intangible Assets      
Balance as of December 31, 2017     -  
Additions     2,398,000  
Amortization     (40,000 )
Balance as of December 31, 2018     2,358,000  

 

Definite life intangible assets consists of customer relationships related to the acquisition of EnP Investments LLC (note 3). Customer relationships are amortized over their estimated useful life of 15 years.

 

Estimated amortization expense over the next five years is as follows:

 

2019   $ 160,000  
2020     160,000  
2021     160,000  
2022     160,000  
2023     160,000  

v3.19.1
Long Term Deposits
12 Months Ended
Dec. 31, 2018
Long Term Deposits  
Long Term Deposits

9. Long Term Deposits

 

The Company has security deposits that are long term in nature which consist of damage deposits held by landlords and security deposits held by various vendors.

 

    2018     2017  
                 
Long term deposits   $ 30,777     $ 18,531  

v3.19.1
Investments
12 Months Ended
Dec. 31, 2018
Equity Method Investments and Joint Ventures [Abstract]  
Investments

10. Investments

 

(a) The Company has a 50% ownership interest in ENP Peru Investments LLC (“ENP Peru”), which was acquired in fiscal 2016. ENP Peru is located in Illinois and leases warehouse space. The Company accounts for this investment using the equity method of accounting. A summary of the Company’s investment follows:

 

       
Balance, January 1, 2017   $ 122,480  
Return of equity     (25,000 )
Loss in equity method investment     (84,066 )
Balance, December 31, 2017   $ 13,414  
Acquisition of additional units     25,000  
Loss in equity method investment     (26,306 )
Balance, December 31, 2018   $ 12,108  

 

(b) The Company has a 24% ownership interest in ENP Realty LLC (“ENP Realty”), which was acquired in fiscal 2018. ENP Realty is located in Illinois and leases warehouse space. The Company accounts for this investment using the equity method of accounting. A summary of the Company’s investment follows:

 

Balance, January 1, 2018   $ -  
Acquisition     56,590  
Gain in equity method investment     7,659  
Balance, December 31, 2018   $ 64,249  

 

(c) In December 2018 the Company invested $200,000 in Applied Holding Corp. (“Applied”). Applied is a captive insurance company and the Company received a promissory note for its investment which becomes due in 2021 but may be extended with notice for a maximum of two years.

 

(d) 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 ASC 321-10-35, the Company has elected to accounts for this investment at cost. A summary of the Company’s investment follows:

 

Balance, January 1, 2018   $ -  
Acquisition     500,000  
Impairment     -  
Balance, December 31, 2018   $ 500,000  

v3.19.1
Short-Term Line of Credit
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Short-Term Line of Credit

11. Short-Term Line of Credit

 

(a) In September 2018, the Company signed a new agreement with Harris Bank (“Harris”) to renew the expiring credit line. The revolving line of credit is for an aggregate amount of up to the lesser of (i) $2,500,000, or (ii) 80% of eligible domestic accounts receivable and certain foreign accounts receivable plus 60% of inventory. The loan has an annual interest rate of 5.75%.

 

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 Harris, Harris’ 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 December 31, 2018, 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 Harris a security interest in substantially all of the assets of NanoChem Solutions Inc., exclusive of intellectual property assets.

 

Short-term borrowings outstanding under the revolving line as of December 31, 2018 were $1,700,000 (December 31, 2017 - $250,000).

 

(b) In February, 2018, EnP Investments, LLC signed a new agreement with Midland States Bank (“Midland”) to renew the expiring credit line. The revolving line of credit is for an aggregate amount of up to $2,500,000. The interest rate of this loan is subject to change from time to time based on changes in an independent index which is the 1 month LIBOR as published in the Wall Street Journal (the “Index”). Interest on the unpaid principal balance of this loan will be calculated using a rate of 4.060 percentage points over the Index. Under no circumstances will the interest rate of this loan be less than 4.000% per annum or more than the maximum rate allowed by applicable law. The interest rate at December 31, 2018 is 6.5296% (December 31, 2017 – 5.5550%).

 

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 Midland, Midland’s access to collateral, formation of 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. Advanced Turf Solutions, Inc., a 35% owner of EnP Investments, LLC, is a Guarantor of said loan. As of December 31, 2018, EnP Investments , LLC was in compliance with all loan covenants.

 

To secure the repayment of any amounts borrowed under the revolving line of Credit, EnP Investments, LLC granted Midland a security interest in all inventory, equipment and fixtures and acknowledges a separate commercial security agreement from guarantor to Midland dated February 15, 2011.

 

Short-term borrowings outstanding under the revolving line as of December 31, 2018 were $1,098,131 (December 31, 2017 – 1,246,647).

v3.19.1
Long Term Debt
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Long Term Debt

12. Long Term Debt

 

(a) In September 2014, NanoChem Solutions Inc. signed a $1,005,967 promissory note with Harris Bank with a rate of prime plus 0.5% (December 31, 2018 – 5.75%; December 31, 2017 – 5%) to be repaid over 5 years with equal monthly installments plus interest. This money was used to retire the previously issued and outstanding debt obligations. The balance owing at December 31, 2018 was $150,895 (December 31, 2017 - $352,089). Interest expense for the year ended December 31, 2018 was $13,123 (December 31, 2017 - $44,125). The final payment will be made in September 2019.

 

The Company has committed to the following repayments:

 

2019   $ 150,895  

 

(b) In October 2018, NanoChem Solutions Inc. signed a $4,100,000 term loan with Harris Bank with a rate of prime (December 31, 2018 – 5.5%; December 31, 2017 - nil) to be repaid over 7 years with equal monthly installments plus interest along two payments consisting of 25% prior year cash flow recapture, capped at $300,000, due May 31, 2019 and 2020. The money was used to purchase a 65% interest in EnP Investments LLC. The balance owing at December 31, 2018 was $4,002,381.

 

The Company has committed to the following repayments:

 

2019   $ 585,714  
2020   $ 585,714  
2021   $ 585,714  
2022   $ 585,714  
2023   $ 585,714  

 

(c) In January, 2018, EnP Investments, LLC signed a $200,000 promissory note with Midland States Bank with a rate of 5.250% to be repaid over 7 years with equal monthly installments plus interest. This money was used to purchase production equipment. Interest expense for the year ended December 31, 2018 was $2,415 (December 31, 2017 - $nil). The principal balance owing at December 31, 2018 is $177,794.

 

The Company has committed to the following repayments:

 

2019   $ 25,562  
2020   $ 25,562  
2021   $ 25,562  
2022   $ 25,562  
2023   $ 25,562  

 

(d) In March, 2016, EnP Investments, LLC signed a $45,941 promissory note with Ford Motor Credit Company with a rate of 0.00% interest to be repaid over 5 years with equal monthly installments. The balance owing at December 31, 2018 is $20,673 (December 31, 2017 - $29,861).

 

The Company has committed to the following repayments:

 

2019   $ 9,188  
2020   $ 9,188  
2021   $ 2,297  

 

As of December 31, 2018, Company was in compliance with all loan covenants.

 

Continuity   2018     2017  
Balance, January 1   $ 352,089       553,282  
Plus: Proceeds from loans     4,100,000       -  
Plus: Acquisition of ENP (see Note 3)     206,921          
Less: Payments on loan     (307,267 )     (201,193 )
Balance, December 31   $ 4,351,743     $ 352,089  

 

Outstanding balance at December 31,   2018     2017  
a) Long term debt – Harris Bank   $ 150,895     $ 352,089  
b) Long term debt – Harris Bank     4,002,381       -  
c) Long term debt – Midland States Bank     177,794       -  
d) Long term debt – Ford Credit     20,673       -  
Long-term Debt   $ 4,351,743     $ 352,089  
Less: current portion     (771,359 )     (201,194 )
    $ 3,580,384     $ 150,895  

v3.19.1
Convertible Note Payable
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Convertible Note Payable

13. Convertible Note Payable

 

In October 2018, the Company issued a convertible note payable in the amount of $1,000,000 to EnP Investments LLC in connection with the acquisition of EnP Investments LLC (note 3). The note is carried at fair value, considering the fair value of the equity conversion feature and the fair value of the debt component. The convertible note is due on or before September 30, 2023 with 5% interest due per year. At the option of the holder, the Note may be converted to 400,000 shares in Flexible Solutions International Inc. The Company has the option to extend the note to no later than September 30, 2028.

 

       
Carrying amount of equity component   $ 277,600  
Principal amount of liability component     722,400  
Balance, December 31, 2018   $ 1,000,000  

v3.19.1
Income Tax
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Tax

14. Income Tax

 

The provision for income tax expense (benefit) is comprised of the following:

 

    2018     2017  
Current tax, federal   $ 547,486     $ 547,486  
Current tax, state     132,833       132,833  
Current tax, foreign     -       -  
Current tax, total     680,319       680,319  
                 
Deferred income tax, federal     (11,069 )     (11,069 )
Deferred income tax, state     (2,686 )     (2,686 )
Deferred income tax, foreign     385,639       385,639  
Deferred income tax, total     371,884       371,884  
Total   $ 1,052,203     $ 1,052,203  

 

The following table reconciles the income tax benefit at the U.S. Federal statutory rate to income tax benefit at the Company's effective tax rates.

 

    2018     2017  
Income (loss) before tax, net of tax from gain on involuntary disposition     3,054,847       3,420,556  
Tax from gain on involuntary disposition     693,063       (613,611 )
Income (loss) before taxes     3,747,910       2,806,945  
US statutory tax rates     28.51 %     39.69 %
Expected income tax (recovery)     1,068,342       1,114,147  
Non-deductible items     627,995       520,665  
Change in estimates     61,361       (91,632 )
Change in enacted tax rate     -       189,626  
Option expired during the year     5,191       21,640  
Foreign tax rate difference     (396,514 )     (662,381 )
Change in valuation allowance     (36,119 )     (39,863 )
Total income taxes (recovery)     1,061,609       1,052,203  
                 
Current income tax expenses (recovery)     533,130       680,318  
Deferred tax expenses (recovery)     797,126       371,884  
Total income taxes (recovery)     1,061,609       1,052,203  

 

Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. Deferred tax assets (liabilities) at December 31, 2018 and 2017 are comprised of the following:

 

    2018     2017  
Canada                
Non capital loss carryforwards     556,462       1,378,242  
Patents     63,998       69,597  
Fixed assets     (350 )     -  
Financial instruments     -       -  
      620,110       1,447,839  
Valuation Allowance     -       -  
Net Deferred tax asset (liability)     620,110       1,447,839  

 

      2018       2017  
USA                
Fixed Assets     247,665       351,746  
Intangible assets     (989,569 )     -  
Stock-Based Compensation     173,739       154,023  
      (568,165 )     505,768  
Deferred tax asset not recognized     153,565       189,684  
Net Deferred tax asset     (721,730 )     316,084  

 

The Company has non-operating loss carryforwards of approximately $2,060,971 (2017 - $5,097,682) which may be carried forward to apply against future year income tax for Canadian income tax purposes, subject to the final determination by taxation authorities, expiring in the following years:

 

Expiry   Loss  
2032     401,480  
2037     1,659,491  
Total     2,060,971  

 

As at December 31, 2018, the Company has no net operating losses carryforward available for US tax purposes.

 

Accounting for Uncertainty for Income Tax

 

Effective January 1, 2009, the Company adopted the interpretation for accounting for uncertainty in income taxes which was an interpretation of the accounting standard accounting for income taxes. This interpretation created a single model to address accounting for uncertainty in tax positions. This interpretation clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.

 

As at December 31, 2018 and 2017, the Company’s consolidated balance sheets did not reflect a liability for uncertain tax positions, nor any accrued penalties or interest associated with income tax uncertainties. The Company has no income tax examinations in progress.

v3.19.1
Income Per Share
12 Months Ended
Dec. 31, 2018
Earnings Per Share [Abstract]  
Income Per Share

15. INCOME PER SHARE

 

We present both basic and diluted income per share on the face of our consolidated statements of operations. Basic and diluted income per share are calculated as follows:

 

    2018     2017  
Net income (loss)   $ 2,490,268     $ 1,754,741  
Weighted average common shares outstanding:                
Basic     11,630,136       11,485,580  
Diluted     11,816,054       11,725,482  
Net income (loss) per common share:                
Basic and diluted   $ 0.21     $ 0.15  

 

Certain stock options whose terms and conditions are described in Note 16, “Stock Options” could potentially dilute basic EPS in the future, but were not included in the computation of diluted EPS because to do so would have been anti-dilutive. Those anti-dilutive options are as follows.

 

    2018     2017  
Anti-dilutive options     261,000       nil  
                 

 

There were no preferred shares issued and outstanding during the years ended December 31, 2018 or 2017.

v3.19.1
Stock Options
12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Options

16. STOCK OPTIONS.

 

The Company adopted 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.

 

The Company may issue stock options and stock bonuses for shares of its common stock to provide incentives to directors, key employees and other persons who contribute to the success of the Company. The exercise price of all incentive options are issued for not less than fair market value at the date of grant.

 

The following table summarizes the Company’s stock option activity for the years ended December 31, 2018 and 2017:

 

    Number of shares     Exercise price
per share
    Weighted average exercise price  
Balance, December 31, 2016     813,000     $ 0.75 - $2.22     $ 1.19  
Granted     154,000     $ 1.70     $ 1.70  
Cancelled or expired     (114,000 )   $ 1.00 – 2.22     $ 1.75  
Exercised     (140,000 )   $ 0.75 – 1.21     $ 1.11  
Balance, December 31, 2017     713,000     $ 0.75 – 1.70     $ 1.21  
Granted     110,000     $ 1.48 – 1.75     $ 1.74  
Cancelled or expired     (61,334 )   $ 1.00 – 1.70     $ 1.09  
Exercised     (101,666 )   $ 0.75 – 1.42     $ 1.01  
Balance, December 31, 2018     660,000     $ 0.75 – 1.75     $ 1.35  
Exercisable, December 31, 2018     555,000     $ 0.75 – 1.70     $ 1.27  

 

The weighted-average remaining contractual life of outstanding options is 3.04 years.

 

The fair value of each option grant is calculated using the following weighted average assumptions:

 

    2018     2017  
Expected life – years     3.0       3.0  
Interest rate     2.8 – 2.96 %     2.23 %
Volatility     47.77 – 51.85 %     73.09 %
Dividend yield     %     %
Weighted average fair value of options granted   $ 0.4759 – 0.6313     $ 0.8344  

 

During the year ended December 31, 2018, the Company granted 100,000 (2017 – 40,000) stock options to consultants and has applied ASC 718 using the Black-Scholes option-pricing model, which resulted in additional expenses of $5,747 (2017 - $6,675). Options granted in other years resulted in additional expenses of $26,701 (2017 – $22,634). During the year ended December 31, 2018, employees were granted 10,000 (2017 – 114,000) stock options, which resulted in additional expenses of $5,150 (2017 – $19,024). Options granted in other years resulted in additional expenses in the amount of $73,594 for employees during the year ended December 31, 2018 (2017 - $67,759). There were 60,000 employee and 41,666 consultant stock options exercised during the year ended December 31, 2018 (2017 – 110,000 employee; 30,000 consultant).

 

As of December 31, 2018, there was approximately $57,383 of compensation expense related to non-vested awards. This expense is expected to be recognized over a weighted average period of 4.75 years.

 

The aggregate intrinsic value of vested options outstanding at December 31, 2018 is $43,190 (2017 – $413,410).

v3.19.1
Capital Stock
12 Months Ended
Dec. 31, 2018
Equity [Abstract]  
Capital Stock

17. CAPITAL STOCK.

 

During the year ended December 31, 2018, the Company issued 60,000 shares upon the exercise of employee stock options and 41,666 shares upon the exercise of consultant stock options.

 

During the year ended December 31, 2017, the Company issued 110,000 shares upon the exercise of employee stock options and 30,000 shares upon the exercise of consultant stock options.

v3.19.1
Non-Controlling Interests
12 Months Ended
Dec. 31, 2018
Non-controlling Interests  
Non-Controlling Interests

18. Non-Controlling Interests

 

EnP Investments is a limited liability corporation (LLC) that manufactures and distributes golf, turf and ornamental agriculture products in Mendota, IL. The Company owns 65% of the units of ownership interest EnP Investments through its wholly-owned subsidiary NanoChem. An unrelated party owns the remaining 35% of the units of ownership interest in EnP Investments. For financial reporting purposes, the assets, liabilities and earnings of the LLC are consolidated into these financial statements. The unrelated third party’s units of ownership interest in the LLC are recorded in noncontrolling interests in these consolidated financial statements. The noncontrolling interest represents the noncontrolling unitholder’s interest in the earnings and equity of EnP Investments. Effective October 1, 2018, the Company paid $4,110,560 in cash and issued a $1,000,000 convertible note (see Note 3) to acquire EnP Investments. EnP Investments is allocated to the BCPA segment.

 

EnP Investments makes cash distributions to the unitholders 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 $229,135.

 

Balance, January 1, 2018   $ -  
Acquisition     2,759,917  
Distribution     (229,135 )
Noncontrolling interest share of loss     (68,551 )
Balance, December 31, 2018   $ 2,462,231  

v3.19.1
Segmented, Significant Customer Information and Economic Dependency
12 Months Ended
Dec. 31, 2018
Segment Reporting [Abstract]  
Segmented, Significant Customer Information and Economic Dependency

19. 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 blanket which saves energy and water by inhibiting evaporation from the pool surface, and (ii) food-safe powdered form of the active ingredient within the liquid blanket and which is designed to be used in still or slow moving drinking water sources.

 

(b) Biodegradable polymers (“BCPA’s”), also known as TPA’s, 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 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.

 

Year ended December 31, 2018:

 

    EWCP     BCPA     Consolidated  
Sales   $ 314,544     $ 17,514,974     $ 17,829,518  
Interest expense     -       93,653       93,653  
Depreciation     50,920       251,641       302,561  
Income tax expense     -       533,130       533,130  
Segment profit     1,579,464       910,804       2,490,268  
Segment assets     505,124       2,121,151       2,626,275  
Expenditures for segment assets     15,032       165,798       180,830  

  

Year ended December 31, 2017:

 

    EWCP     BCPA     Consolidated  
Sales   $ 641,675     $ 14,852,650     $ 15,494,325  
Interest expense     54       44,071       44,125  
Depreciation     62,376       224,240       286,616  
Income tax expense     -       680,319       680,319  
Segment profit     2,021,289       (266,548 )     1,754,741  
Segment assets     580,304       1,437,657       2,017,961  
Expenditures for
segment assets
    287,853       138,628       426,480  

 

Sales by territory are shown below:

 

    2018     2017  
Canada   $ 364,847     $ 362,362  
United States and abroad     17,464,671       15,131,963  
Total   $ 17,829,518     $ 15,494,325  

 

The Company’s long-lived assets (property, equipment, leaseholds and patents) are located in Canada and the United States as follows:

 

    2018     2017  
Canada   $ 505,124     $ 580,304  
United States     7,783,426       1,437,657  
Total   $ 8,288,550     $ 2,017,961  

 

Three customers accounted for $6,880,598 (39%) of sales made in 2018 (2017 - $9,157,538 or 59%).

v3.19.1
Commitments
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments

20. COMMITMENTS.

 

The Company is committed to minimum rental payments for property and premises aggregating approximately $1,121,595 over the term of five leases, the last expiring on September 30, 2023.

 

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

 

2019   $ 425,995  
2020   $ 399,900  
2021   $ 276,980  
2022   $ 10,620  
2023   $ 8,100  

v3.19.1
Subsequent Events
12 Months Ended
Dec. 31, 2018
Subsequent Events [Abstract]  
Subsequent Events

21. SUBSEQUENT EVENTS.

 

In January 2019, the Company issued 5,000 shares on the exercise of employee stock options. In February 2019, the Company issued 5,000 shares on the exercise of consultant stock options.

 

In January 2019, the Company purchased membership in a profitable limited liability company engaged in international sales of fertilizer additives. This purchase will be accounted for as an investment. The price paid was an initial US$ 1 million with two further payments of US$1 million and US$ 1.5 million contingent on the investment reaching EBITDA hurdles in 2019 and 2020 respectively. The purchase was made using cash.

 

In February 2019, the Company announced the payment of a special dividend to the existing stockholders of the Company as of March 6, 2019 in the amount of five cents per share.

v3.19.1
Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Cash and Cash Equivalents

(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.

Inventories and Cost of Sales

(b) 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. 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.

Allowance for Doubtful Accounts

(c) 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.

Property, Equipment, Leaseholds and Intangible Assets

(d) Property, Equipment, Leaseholds and Intangible Assets

.

The following assets are recorded at cost and depreciated using the methods and annual rates shown below:

 

Computer hardware   30% Declining balance
Furniture and fixtures   20% 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
Patents   Straight-line over 17 years
Technology   Straight-line over 10 years
Leasehold improvements   Straight-line over lease term

 

Property and equipment are written down to net realizable value when management determines there has been a change in circumstances which indicates their carrying amounts may not be recoverable. No write-downs have been necessary to date.

Impairment of Long-lived Assets

(e) 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.

Foreign Currency

(f) 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.

Revenue Recognition

(g) 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 have fulfilled our 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 F.O.B. 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.

 

The Company recognizes revenue when there are no significant remaining performance obligations. When significant post-delivery obligations exist, revenue is deferred until such obligations are fulfilled. To date, there have been no such significant post-delivery obligations.

 

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.

Stock Issued in Exchange for Services

(h) 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.

Stock-based Compensation

(i) 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.

Comprehensive Income

(j) 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 primarily comprised of unrealized foreign exchange gains and losses.

Income Per Share

(k) 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 years ended December 31, 2018 and 2017.

Use of Estimates

(l) 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, asset impairment analysis, share-based payments and warrants, valuation allowances for deferred income tax assets, determination of useful lives of property, equipment and leaseholds, and the valuation of inventory.

Financial Instruments

(m) Financial Instruments.

 

The fair market value of the Company’s financial instruments comprising cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and short term line of credit were estimated to approximate their carrying values due to immediate or short-term maturity of these financial instruments.

Fair Value of Financial Instruments

(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, accounts receivable, accounts payable and 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.

Contingencies

(o) Contingencies

 

Certain conditions may exist as of the date the 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 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.

Income Taxes

(p) Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred 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 tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance so that the assets are recognized only to the extent that when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized.

 

Per FASB ASC 740 “Income taxes” 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 December 31, 2018, 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.

Risk Management

(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. Accounts receivable for the Company’s three primary customers totaled $1,280,406 (31%) at December 31, 2018 (December 31, 2017 - $1,247,374 or 59%).

 

The credit risk on cash and cash equivalents is limited because the Company limits its exposure to credit loss by placing its cash and cash equivalents 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 material 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 and cash equivalents, accounts receivable, and accounts payable and accrued liabilities. The Company has not hedged its exposure to currency fluctuations.

Equity Method Investment

(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 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 interest and other loss, net in the consolidated statements of income and comprehensive income.

Goodwill and Intangible Assets

(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 can begin 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 not more likely than not that the fair value of a reporting unit is less 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 positive 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 are evaluated in assessing fair value. If it is determined that it is more likely than not that the fair value of the reporting unit 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 reporting unit to its carrying amount, including goodwill. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, impairment is indicated, requiring recognition of an impairment charge for the differential.

 

Qualitative assessments of goodwill and indefinite-lived intangible assets were performed in 2018 and 2017. Based on the results of 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 carrying value. Accordingly, no further impairment testing was completed and no impairment charges related to goodwill or indefinite-lived intangibles were recognized during the fiscal period ended December 31, 2018.

 

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 “Property and Equipment” significant accounting policy.

Adoption of New Accounting Principles

(t) Adoption of new accounting principles

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which has been updated through several revisions and clarifications since its original issuance and supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. The standard requires revenue recognized to represent the transfer of promised goods or services to customers at an amount that reflects the consideration which a company expects to receive in exchange for those goods or services. The standard also requires new, expanded disclosures regarding revenue recognition. The standard was adopted for the current year and had no material effect on the consolidated financial statements.

 

On January 1, 2018, the Company adopted ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities, which changes the income statement impact of equity investments held by an entity. The amendments require the unrealized gains or unrealized losses of equity instruments measured at fair value to be recognized in net income. Our adoption of this ASU had no material effect on the consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

(u) Accounting Pronouncements Not Yet Adopted

 

In February 2016, the FASB issued ASU 2016-02, Leases. The standard will require lessees to recognize most leases on their balance sheet and makes selected changes to lessor accounting. The standard is effective for annual and interim reporting periods beginning after December 15, 2018. A modified retrospective transition approach is required, with certain practical expedients available. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.

v3.19.1
Significant Accounting Policies (Tables)
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Schedule of Method of Depreciation

The following assets are recorded at cost and depreciated using the methods and annual rates shown below:

 

Computer hardware   30% Declining balance
Furniture and fixtures   20% 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
Patents   Straight-line over 17 years
Technology   Straight-line over 10 years
Leasehold improvements   Straight-line over lease term

v3.19.1
Acquisition (Tables)
12 Months Ended
Dec. 31, 2018
Acquisition Table 0Abstract  
Schedule of Business Acquisition

       
Cash paid   $ 4,110,560  
Convertible note     1,000,000  
Total consideration   $ 5,110,560  
         
Assets acquired:        
Accounts receivable   $ 1,071,078  
Note receivable     60,000  
Prepaid expenses     105,473  
Inventory     1,867,137  
Investments     84,943  
Equipment     740,000  
Intangible assets     3,168,000  
Liabilities assumed:        
Account payable     520,164  
Loans payable     292,706  
Deferred income taxes     989,569  
Total identifiable net assets     5,294,192  
Non-controlling interest     2,759,917  
Goodwill   $ 2,534,275  

Schedule of Pro Forma Information

The following unaudited pro forma combined financial information presents combined results of the Company and EnP Investments as if the Business Combination had occurred on January 1, 2017.

 

    2018     2017  
             
Net sales   $ 23,152,539     $ 23,119,226  
Gross profit     8,428,317       12,466,963  
Net income   $ 4,422,745     $ 3,253,679  

v3.19.1
Accounts Receivable (Tables)
12 Months Ended
Dec. 31, 2018
Receivables [Abstract]  
Schedule of Accounts Receivable

    2018     2017  
             
Accounts receivable   $ 4,459,834     $ 2,145,803  
Allowances for doubtful accounts     (37,088 )     (40,332 )
    $ 4,422,745     $ 2,105,471  

v3.19.1
Inventories (Tables)
12 Months Ended
Dec. 31, 2018
Inventory Disclosure [Abstract]  
Schedule of Inventories

    2018     2017  
             
Completed goods   $ 3,770,071     $ 2,530,914  
Work in progress     150,333       183,944  
Raw materials and supplies     4,807,305       1,971,994  
    $ 8,727,709     $ 4,686,852  

v3.19.1
Property, Equipment and Leaseholds (Tables)
12 Months Ended
Dec. 31, 2018
Property, Plant and Equipment [Abstract]  
Schedule of Property, Equipment and Leaseholds

    2018     Accumulated     2018  
    Cost     Depreciation     Net  
Buildings and improvements   $ 3,516,710     $ 2,523,148     $ 993,562  
Automobiles     193,397       74,753       118,644  
Computer hardware     43,414       40,226       3,188  
Furniture and fixtures     105,494       93,087       12,407  
Office equipment     1,740       438       1,302  
Manufacturing equipment     3,859,653       2,838,344       1,021,309  
Trailer     8,793       3,561       5,232  
Boat     34,400       18,548       15,852  
Leasehold improvements     88,872       49,937       38,935  
Technology     100,136       100,136        
Land     352,830             352,830  
    $ 8,305,439     $ 5,742,178     $ 2,563,261  

 

    2017     Accumulated     2017  
    Cost     Depreciation     Net  
Buildings and improvements   $ 3,400,792     $ 2,409,179     $ 991,613  
Computer hardware     40,904       39,398       1,506  
Furniture and fixtures     17,673       11,156       6,517  
Office equipment     1,480       148       1,332  
Manufacturing equipment     2,590,158       2,104,137       486,021  
Trailer     9,562       1,434       8,128  
Boat     34,400       14,586       19,814  
Leasehold improvements     85,432       32,506       52,926  
Technology     101,748       101,748        
Land     370,652             370,652  
    $ 6,652,801     $ 4,714,292     $ 1,938,509  

v3.19.1
Patents (Tables)
12 Months Ended
Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Patents

   

2018

Cost

    Accumulated
Amortization
   

2018

Net

 
Patents   $ 194,320     $ 131,306     $ 63,014  
                         

 

   

2017

Cost

    Accumulated
Amortization
   

2017

Net

 
Patents   $ 212,426     $ 132,974     $ 79,452  

Schedule of Estimated Amortization Expense

Estimated amortization expense over the next four years is as follows:

 

2019   $ 16,438  
2020     16,438  
2021     16,438  
2022     13,700  

v3.19.1
Goodwill and Indefinite Lived Intangible Assets (Table)
12 Months Ended
Dec. 31, 2018
Goodwill And Indefinite Lived Intangible Assets Table Abstract  
Schedule of Goodwill and Indefinite Lived Intangible Assets

Goodwill      
Balance as of December 31, 2017     -  
Additions     2,534,275  
Impairment     -  
Balance as of December 31, 2018     2,534,275  

 

 

Indefinite Lived Intangible Assets      
Balance as of December 31, 2017     -  
Additions     770,000  
Impairment     -  
Balance as of December 31, 2018     770,000  

 

Indefinite lived intangible assets consist of trade secrets and trademarks related to the acquisition of EnP Investments LLC (note 3).

 

Definite Life Intangible Assets      
Balance as of December 31, 2017     -  
Additions     2,398,000  
Amortization     (40,000 )
Balance as of December 31, 2018     2,358,000  

Schedule of Estimated Future Amortization Expense

Estimated amortization expense over the next five years is as follows:

 

2019   $ 160,000  
2020     160,000  
2021     160,000  
2022     160,000  
2023     160,000  

v3.19.1
Long Term Deposits (Tables)
12 Months Ended
Dec. 31, 2018
Long Term Deposits  
Schedule of Long Term Deposits

The Company has security deposits that are long term in nature which consist of damage deposits held by landlords and security deposits held by various vendors.

 

    2018     2017  
                 
Long term deposits   $ 30,777     $ 18,531  

v3.19.1
Investments (Tables)
12 Months Ended
Dec. 31, 2018
Equity Method Investments and Joint Ventures [Abstract]  
Schedule of Equity Method Investment

A summary of the Company’s investment follows:

 

       
Balance, January 1, 2017   $ 122,480  
Return of equity     (25,000 )
Loss in equity method investment     (84,066 )
Balance, December 31, 2017   $ 13,414  
Acquisition of additional units