UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2019

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

Commission File Number: 001-31540

 

FLEXIBLE SOLUTIONS INTERNATIONAL INC.

(Exact Name of Issuer as Specified in Its Charter)

 

Alberta   71 163 0889
(State or other jurisdiction of   (Employer
incorporation or organization)   Identification No.)

 

6001 54 Ave.    
Taber, Alberta, Canada   T1G 1X4
(Address of Issuer’s Principal Executive Offices)   (Zip Code)

 

Issuer’s telephone number: (250) 477-9969

 

N/A

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 [X] Smaller reporting company [X]
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 Exchange Act):

[  ] Yes [X] No

 

Class of Stock   No. Shares Outstanding   Date
         
Common   11,736,545   May 15, 2019

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock   FSI   NYSE American

 

 

 

 
   

 

FORM 10-Q

 

Index

 

PART I. FINANCIAL INFORMATION 4
     
Item 1. Financial Statements. 4
     
  (a) Unaudited Interim Condensed Consolidated Balance Sheets at March 31, 2019 and December 31, 2018. 4
     
  (b) Unaudited Interim Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2019 and 2018. 5
     
  (c) Unaudited Interim Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018. 6
     
  (d) Notes to Unaudited Interim Condensed Consolidated Financial Statements for the Three Months Ended March 31, 2019. 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 26
     
Item 4 Controls and Procedures. 29
     
PART II. OTHER INFORMATION 30
     
Item 6. Exhibits. 30
     
SIGNATURES 31

 

2
 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are “forward-looking statements” for the purposes of the federal and state securities laws, including, but not limited to: any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

 

Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.

 

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include but are not limited to:

 

Increased competitive pressures from existing competitors and new entrants;
   
Increases in interest rates or our cost of borrowing or a default under any material debt agreement;
   
Deterioration in general or regional economic conditions;
   
Adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;
   
Loss of customers or sales weakness;
   
Inability to achieve future sales levels or other operating results;
   
The unavailability of funds for capital expenditures; and
   
Operational inefficiencies in distribution or other systems.
   
 

New tariffs relating to raw materials imported from China.

 

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

3
 

 

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

FLEXIBLE SOLUTIONS INTERNATIONAL INC.

CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(U.S. Dollars - Unaudited)

 

   March 31,
2019
   December 31,
2018
 
         
Assets          
           
Current          
Cash and cash equivalents  $3,695,933   $7,857,936 
Accounts receivable (see Note 4)   7,591,944    4,422,745 
Inventory (see Note 5)   8,736,736    8,727,709 
Prepaid expenses   292,753    200,306 
Total current assets   20,317,366    21,208,696 
Property, equipment and leaseholds, net (see Note 6)   3,744,510    2,563,261 
Right of use asset   

739,500

    - 
Patents (see Note 7)   58,904    63,014 
Intangible assets (Note 8)   3,084,000    3,128,000 
Long term deposits (see Note 9)   30,777    30,777 
Investments (Note 10)   2,001,759    776,357 
Goodwill (Note 8)   2,534,275    2,534,275 
Restricted cash (Note 11e)   1,000,000    - 
Deferred tax asset (Note 14)   900,893    891,735 
Total Assets  $34,411,984   $31,196,115 
           
Liabilities          
Current          
Accounts payable and accrued liabilities  $1,460,971   $1,050,673 
Deferred revenue   117,892    127,168 
Income taxes payable   1,731,156    1,357,299 
Short term line of credit (Note 11)   4,182,061    2,798,131 
Current portion of lease liability (Note 3)   343,413    - 
Current portion of long term debt (Note 12)   721,370    771,359 
Total current liabilities   8,556,863    6,104,630 
Convertible note payable(Note 13)   1,000,000    1,000,000 
Lease liabilities (Note 3)   396,087      
Deferred income tax liability   863,570    989,569 
Long term debt (Note 12)   3,425,111    3,580,384 
Total liabilities   14,241,631    11,674,583 
           
Stockholders’ Equity          
Capital stock (see Note 15)          
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:          
11,711,657 (2018: 11,699,657) common shares   11,712    11,700 
Capital in excess of par value   15,344,870    15,328,285 
Other comprehensive loss   (1,040,280)   (1,222,573)
Accumulated earnings   3,362,556    2,941,889 
Total stockholders’ equity – controlling interest   17,678,858    17,059,301 
Non-controlling interests (Note 16)   2,491,495    2,462,231 
Total Stockholders’ Equity   20,170,353    19,521,532 
           
Total Liabilities and Stockholders’ Equity  $34,411,984   $31,196,115 

 

— See Notes to Unaudited Interim Condensed Consolidated Financial Statements —

 

4
 

 

FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(U.S. Dollars — Unaudited)

 

   Three Months Ended March 31, 
   2019   2018 
         
Sales  $8,471,476   $4,201,180 
Cost of sales   5,695,889    2,233,917 
           
Gross profit   2,775,587    1,967,263 
           
Operating Expenses          
Wages   530,677    421,310 
Administrative salaries and benefits   265,092    260,593 
Advertising and promotion   52,706    4,343 
Investor relations and transfer agent fee   16,450    35,655 
Office and miscellaneous   46,882    29,673 
Insurance   102,735    62,778 
Interest expense   129,007    7,400 
Lease liability expense   20,329    - 
Lease expense   79,579    - 
Rent   14,544    61,742 
Consulting   64,779    32,854 
Professional fees   158,770    43,314 
Travel   96,284    30,150 
Telecommunications   11,028    6,156 
Shipping   4,471    4,109 
Research   20,086    37,206 
Commissions   19,757    - 
Currency exchange   92,064    (86,134)
Utilities   3,756    4,535 
           
Total operating expenses   1,728,996    955,684 
           
Operating income   1,046,591    1,011,579 
Loss on involuntary disposition (net of tax) (Note 6)   -    (7,716)
Gain on investment   230,652    - 
Interest income   16,252    1,697 
Income before income tax   1,293,495    1,005,560 
           
Income taxes (Note 14)          
Deferred income tax recovery   125,999    - 
Income tax expense   (379,080)   (301,896)
           
Net income for the year including non-controlling interests   1,040,414    703,664 
Less: Net income attributable to non-controlling interests   (29,264)   - 
Net income attributable to controlling interest  $1,011,150   $703,664 
           
Income per share (basic and diluted)  $0.09   $0.06 
Weighted average number of common shares (basic)   11,705,613    11,620,291 
Weighted average number of common shares (diluted)   11,816,585    11,847,061 
Other comprehensive income (loss):          
Net income   1,040,414    703,664 
Unrealized gain (loss) on foreign currency translations   182,293    (119,029)
Total comprehensive income   1,222,707    584,635 
Comprehensive income – non-controlling interest   (29,264)   - 
Comprehensive income attributable to Flexible Solutions International Inc.  $1,193,443   $584,635 

 

— See Notes to Unaudited Interim Condensed Consolidated Financial Statements —

 

5
 

 

FLEXIBLE SOLUTIONS INTERNATIONAL INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2019 and 2018

(U.S. Dollars — Unaudited)

 

   Three Months Ended March 31, 
   2019   2018 
         
Operating activities          
Net income including non-controlling interests  $1,040,414   $703,664 
Net income attributable to non-controlling interests   29,264    - 
Net income attributable to controlling interest   1,011,150    703,664 
Adjustments to reconcile net income to net cash:          
Stock based compensation   5,747    25,700 
Depreciation and amortization   148,279    59,700 
Gain on investment   (230,652)   - 
           
Changes in non-cash working capital items:          
(Increase) Decrease in accounts receivable   (3,222,431)   (467,008)
(Increase) Decrease in inventories   (8,764)   (111,400)
(Increase) Decrease in prepaid expenses   (92,199)   88,612 
Increase (Decrease) in accounts payable and accrued liabilities   403,062    (577,021)
Increase (Decrease) in taxes payable   379,080    301,896 
Increase (Decrease) in deferred income tax   (125,199)   - 
Increase (Decrease) deferred revenue   9,276    (205,920)
           
Cash (used in) provided by operating activities   (1,723,451)   (181,777)
           
Investing activities          
Investment   (996,001)   6,250 
Net purchase of property, equipment and leaseholds   (1,275,835)   (7,497)
           
Cash (used in) provided by investing activities   (2,271,836)   (1,247)
           
Financing activities          
Draw from short term line of credit   1,383,929    - 
Loans   (205,262)   (50,298)
Dividends paid   (590,483)   - 
Proceeds of issuance of common stock   10,850    36,360 
           
Cash proved by (used in) financing activities   599,034    (13,938)
           
Effect of exchange rate changes on cash   234,250    (101,301)
           
Inflow (outflow) of cash   (3,162,003)   (298,263)
Cash and cash equivalents, beginning   7,857,936    6,912,138 
           
Cash, cash equivalents and restricted cash, ending  $4,695,933   $6,613,875 
           
Supplemental disclosure of cash flow information:          
Income taxes paid   -    - 
Interest paid   108,084    7,356 

 

— See Notes to Unaudited Interim Condensed Consolidated Financial Statements —

 

6
 

 

FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2019

(U.S. Dollars)

 

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., Natural Chem SEZC Ltd., and InnFlexHoldings Inc. 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 ownership interest in EnP Investments for an aggregate purchase price of $5,110,560. An unrelated party owns the remaining 35% of ownership interest in EnP Investments, and EnP Investments is consolidated into the financial statements. The outside investor’s the Company’s 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.

 

These unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements. These unaudited interim financial statements are condensed and do not include all disclosures required for annual financial statements. The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to the Company’s audited consolidated financial statements filed as part of the Company’s December 31, 2018 Annual Report on Form 10-K/A. This quarterly report should be read in conjunction with such annual report.

 

In the opinion of the Company’s management, these unaudited interim condensed consolidated financial statements reflect all adjustments, all of which are of normal recurring nature, necessary to present fairly the Company’s consolidated financial position at March 31, 2019, the consolidated results of operations for the three months ended March 31, 2019 and 2018, and the consolidated statements of cash flows for the three months ended March 31, 2019 and 2018. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the entire fiscal year.

 

7
 

 

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. Shipping and handling charges billed to customers are included in revenue (2019 - $165,592; 2018 – $75,897). Shipping and handling costs incurred are included in cost of goods sold (2019 - $347, 960; 2018 – $251,909).

 

(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

Right of Use Asset

 

Straight-line over lease term

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.

 

8
 

 

(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.

 

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.

 

9
 

 

(j) Other 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 comprised only 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 three months ended March 31, 2019 and 2018.

 

(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 intangible assets, 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.

 

10
 

 

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.

 

11
 

 

(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 $3,774,617 (50%) at March 31, 2019 (December 31, 2018 - $1,280,406 or 31%).

 

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.

 

12
 

 

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 three months ended March 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 February 2016, the Financial Accounting Standards Board (“FASB”) issued ASC 842 which requires lessees to recognize a right-of-us (“ROU”) asset and lease liability on the balance sheet for virtually all leases. From a lessee perspective, ASC 842 retains a dual model requiring leases to be classified as either operating or finance leases for the income statement. Operating leases will result in straight-line expense, and financing leases will have a front-loaded expense pattern with an interest expense component. On January 1, 2019, the Company adopted ASC 842 and all related amendments using the prospective transition approach. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Adoption of the new standard resulted in the recording of lease ROU assets and lease liabilities of approximately $819,079 as of January 1, 2019. In accordance with ASC 842, the Company determines if an arrangement is a lease at inception based on whether there is an identified asset, whether the Company has the right to obtain substantially all of the economic benefits from the use of the asset and whether the Company has the right to direct the use of the asset. Currently, the Company only has operating leases and does not have any financing leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. See note 3, Leases, for further disclosures and detail regarding our operating leases.

 

In November 2016, the FASB issued ASU2016-18 “Statement of Cash Flows” (Topic230); Restricted Cash (ASU2016-18), which defines  new requirements for the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The amendments in this ASU require retrospective application to each period presented. The Company adopted this guidance effective January 1, 2018 retrospectively. This ASU requires entities to present the statement of cash flows in a manner such that it reconciles beginning and ending totals of cash, cash equivalents, restricted cash or restricted cash equivalents. Also, when cash, cash equivalents, restricted cash or restricted cash equivalents are presented in more than one line item within the statement of financial position, an entity should, for each period that a statement of financial position is presented, present on the face of the statement of cash flows or disclose in the notes to the financial statements, the line items and amounts of cash, cash equivalents, and restricted cash or restricted cash equivalents reported within the statement of financial position. The amounts, disaggregated by the line item in which they appear within the statement of financial position, shall sum to the total amount of cash, cash equivalents, and restricted cash or restricted cash equivalents at the end of the corresponding period shown in the statement of cash flows.

 

(u) Accounting Pronouncements Not Yet Adopted

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies certain disclosure requirements related to fair value measurements. ASU 2018-13 will be effective for us beginning January 1, 2020, with early adoption permitted. We do not expect this guidance to have an impact on the amounts reported on our consolidated financial statements, and we are currently evaluating the potential impact this guidance will have on our disclosures within the notes to our consolidated financial statements.

 

3. Adoption of ASC 942, Leases

 

On January 1, 2019, the Company adopted ASC 842 using the prospective transition approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented. The adoption of the lease standard did not result in a cumulative-effect adjustment to opening equity. Results for reporting periods beginning after January 1, 2019 are presented under ASC 842 while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 840, “Leases,” (“ASC 840”).

 

The Company leases office space. For leases with terms greater than 12 months, the Company records the related ROU asset and lease obligation at the present value of lease payments over the term. Leases may include fixed rental escalation clauses, renewal options and / or termination options that are factored into the determination of lease payments when appropriate. The Company’s leases do not usually provide a readily determinable implicit rate; therefore, an estimate of the Company’s incremental borrowing rate is used to discount the lease payments based on information available at the lease commencement date. The discount rate used was 5.5%.

 

Operating lease costs during the three months ended March 31, 2019 were $99,908.

 

The adoption of ASC 842 resulted in the recognition of right-of-use (“ROU”) assets and lease liabilities of approximately $819,079 as of January 1, 2019. The standard did not materially impact the Company’s consolidated statement of operations or its consolidated statement of cash flows for the three months ended March 31, 2019. See below for the Company’s updated lease policy and the required disclosures under ASC 842.

 

The Company is a lessee in five different leases that have various expiry dates within the next 5 years.

 

The table below summarizes the remaining expected lease payments under our operating leases as of March 31, 2019.

 

Future Lease Payments  March 31, 2019 
2019  $262,008 
2020   326,520 
2021   232,580 
2022   10,620 
2023   8,100 
Thereafter   - 
Less: imputed interest   (100,328)
      
Present value of operating lease liabilities  $739,500 

 

Update to Lease Policy

 

Accounting and reporting guidance for leases requires that leases be evaluated and classified as either operating or finance leases by the lessee and as either operating, sales-type or direct financing leases by the lessor. The Company’s operating leases are included in ROU assets, lease liabilities-current portion and lease liability-less current portion in the accompanying consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease.

 

13
 

 

4. Accounts Receivable

 

   March 31,
2019
   December 31,
2018
 
Accounts receivable  $7,629,806   $4,459,834 
Allowances for doubtful accounts   (37,862)   (37,088)
   $7,591,944   $4,422,745 

 

5. Inventory

 

   March 31,
2019
   December 31,
2018
 
         
Completed goods  $3,857,620   $3,770,071 
Work in progress   129,198    150,333 
Raw materials and supplies   4,749,918    4,807,305 
   $8,736,736   $8,727,709 

 

6. Property, Plant & equipment

 

   March 31, 2019   Accumulated   March 31, 2019 
   Cost   Depreciation   Net 
Buildings  $3,521,375   $2,547,462   $973,913 
Automobiles   193,397    84,262    109,135 
Computer hardware   43,466    40,476    2,990 
Furniture and fixtures   105,568    93,997    11,571 
Manufacturing equipment   5,136,488    2,902,210    2,234,278 
Boat   34,400    19,341    15,059 
Office equipment   1,776    514    1,262 
Trailer   8,977    4,036    4,941 
Leasehold Improvements   88,872    54,595    34,277 
Land   357,084    -    357,084 
Technology   102,226    102,226    - 
   $9,563,629   $5,849,119   $3,744,510 

 

14
 

 

   December 31, 2018   Accumulated   December 31, 2018 
   Cost   Depreciation   Net 
Buildings  $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 

 

Amount of depreciation expense for three months ended March 31, 2019: $144,169 (2018: $55,590) and is included in cost of sales in the unaudited interim condensed 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).

 

7. Patents

 

In fiscal 2005, the Company started the patent process for additional WATER$AVR® products. Patents associated with these costs were granted in 2006 and they have been amortized over their legal life of 17 years.

 

  

March 31, 2019

Cost

   Accumulated
Amortization
  

March 31, 2019

Net

 
Patents  $198,376   $139,472   $58,904 

 

  

December 31, 2018

Cost

   Accumulated
Amortization
  

December 31, 2018

Net

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

 

The decrease in the carrying amount of patents is primarily due to foreign currency translation effects. The 2019 cost in Canadian dollars - $265,102 (2018 - $265,102 in Canadian dollars).

 

Amount of amortization for 2019 - $4,110 (2018 - $4,110) and is included in cost of sales in the consolidated statements of income and comprehensive income.

 

15
 

 

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

 

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

 

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 and March 31, 2019  $2,534,275 

 

Indefinite Lived Intangible Assets    
Balance as of December 31, 2017   - 
Additions  $770,000 
Impairment   - 
Balance as of December 31, 2018 and March 31, 2019  $770,000 

 

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

 

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 
Amortization   (44,000)
Balance as of March 31, 2019  $2,314,000 

 

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  $176,000 
2020   176,000 
2021   176,000 
2022   160,000 
2023   160,000 

 

16
 

 

9. Long Term Deposits

 

The Company has reclassified certain security deposits to better reflect their long term nature. Long term deposits consist of damage deposits held by landlords and security deposits held by various vendors.

 

   March 31, 2019   December 31, 2018 
         
Long term deposits  $30,777   $30,777 

 

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, December 31, 2017  $13,414 
Acquisition of additional units   25,000 
Return of equity   (25,000)
Loss in equity method investment   (26,306)
Balance, December 31, 2018 and March 31, 2019  $12,108 

 

Summarized profit and loss information related to the equity accounted investment is as follows:

 

   2018 
     
Net sales  $300,210 
Net income  $17,435 

 

(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 and March 31, 2019  $64,249 

 

Summarized profit and loss information related to the equity accounted investment is as follows:

 

   2018 
     
Net sales  $78,870 
Net income  $31,913 

 

(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 account for this investment at cost less impairment. A summary of the Company’s investment follows:

 

     
Balance, January 1, 2018  $- 
Acquisition   500,000 
Impairment   - 
Balance, December 31, 2018 and March 31, 2019  $500,000 

 

17
 

 

(e) In January 2019, the company invested $1,001,000 in a Florida based LLC that is engaged in international sales of fertilizer additives. The Company accounts for this investment using the equity method of accounting. According to the operating agreement, the Company has a 50% interest in the profit and loss of the LLC but does not have control. A summary of the Company’s investment follows:

 

Balance, January 1, 2019  $- 
Acquisition   1,001,000 
Gain in equity method investment   224,402 
Balance, March 31, 2019  $1,225,402 

 

Further to the original investment amount, the Company has placed $1,000,000 in trust, to be released upon the LLC reaching a milestone related to earnings before interest, taxes and depreciation (“EBITDA”) targets. This amount is accounted for as restricted cash on the balance sheet. Further payments of $1,000,000 and $500,000 may become due should other subsequent milestones be reached. Summarized profit and loss information related to the equity accounted investment is as follows:

 

    2019  
       
Net sales   $ 3,257,350  
Gross profit     1,010,781  
Net income   $ 448,804  

 

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 50% of inventory. The loan has an annual interest rate of 5.5% at March 31, 2019 (December 31, 2018 – 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 March 31, 2019, 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 March 31, 2019 were $2,500,000 (December 31, 2018 - $1,700,000).

 

(b) In February, 2019, EnP Investments, LLC signed a promissory note maturity extension agreement with Midland States Bank (“Midland”) to renew the expiring credit line to May 15, 2019. 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 March 31, 2019 is 6.54775% (December 31, 2018 – 6.5296%).

 

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 March 31, 2019, EnP Investments , LLC was in compliance with all loan covenants.

 

18
 

 

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 March 31, 2019 were $1,682,061 (December 31, 2018 – $1,098,131).

 

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% (March 31, 2019 – 6.0%; December 31, 2018 – 5.75%) 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 March 31, 2019 was $100,597 (December 31, 2018 - $150,895). Interest expense for the three months ended March 31, 2019 was $2,009 (2018 - $4,186). The final payment will be made in September 2019.

 

The Company has committed to the following repayments:

 

2019  $100,597 

 

(b) In October 2018, NanoChem Solutions Inc. signed a $4,100,000 term loan with Harris Bank with a rate of prime (March 31, 2019 – 5.5%; December 31, 2018 – 5.5%) 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. Interest expense for the three months ended March 31, 2019 was $54,958 (2018 - nil). The balance owing at March 31, 2018 was $3,855,952 (December 31, 2018 - $4,002,381).

 

The Company has committed to the following repayments:

 

2019  $439,286 
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 three months ended March 31, 2019 was $2,333 (2018 - $nil). The principal balance owing at March 31, 2019 is $171,556 (December 31, 2018 - $177,794).

 

The Company has committed to the following repayments:

 

2019  $19,171 
2020  $25,562 
2021  $25,562 
2022  $25,562 
2023  $25,562 

 

19
 

 

(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 March 31, 2019 is $18,376 (December 31, 2018 - $20,673).

 

The Company has committed to the following repayments:

 

2019  $6,891 
2020  $9,188 
2021  $2,297 

 

As of March 31, 2019, Company was in compliance with all loan covenants.

 

Continuity   March 31, 2019     December 31, 2018  
Balance, January 1   $ 4,351,743       352,089  
Plus: Proceeds from loans     -       4,100,000  
Plus: Acquisition of ENP (see Note 3)     -       206,921  
Less: Payments on loan     (205,262 )     (307,267 )
Balance, end of period   $ 4,146,481     $ 4,351,743  

  

Outstanding balance  March 31, 2019   December 31, 2018 
a) Long term debt – Harris Bank  $100,597   $150,895 
b) Long term debt – Harris Bank   3,855,952    4,002,381 
c) Long term debt – Midland States Bank   171,556    177,794 
d) Long term debt – Ford Credit   18,376    20,673 
Long-term Debt  $4,146,481   $4,351,743 
Less: current portion   (721,370)   (771,359)
   $3,425,111   $3,580,384 

 

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 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.

 

20
 

 

14. 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 year ended December 31, 2017 and the three-month period ended March 31, 2019:

 

   Number of shares   Exercise price
per share
  

Weighted average

exercise price

 
             
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 
Cancelled or expired   (32,000)  $0.75 – 1.70   $1.38 
Exercised   (12,000)  $0.75 – 1.05   $1.10 
Balance, March 31, 2019   616,000   $0.75 – 1.75   $1.35 
Exercisable, March 31, 2019   516,000   $0.75 – 1.70   $1.27 

 

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

 

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

 

The Company did not grant any options during the three months ended March 31, 2019 or 2018. Options granted in previous quarters resulted in expenses in the amount of $5,747 for consultants (2018 - $6,675) and nil for employees (2018 - $19,025) during the quarter ended March 31, 2019. There were 12,000 employee stock options exercised during the during the three months ended March 31, 2019 (2018 – 23,000 employee stock options and 10,000 consultant stock options).

 

21
 

 

As of March 31, 2019, there was approximately $51,635 of compensation expense related to non-vested awards. This expense is expected to be recognized over a weighted average period of 4.5 years.

 

15. Capital Stock.

 

During the three months ended March 31, 2019, 12,000 shares were issued upon the exercise of employee stock options (2018 – 23,000) and nil shares were issued upon the exercise of consultant stock options (2017 – 10,000).

 

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.

 

16. 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 
Noncontrolling interest share of profit   29,264 
Balance, March 31, 2019  $2,491,495 

 

17. 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.

 

22
 

 

(b) Biodegradable polymers and chemical additives used within the petroleum, chemical, utility and mining industries to prevent corrosion and scaling in water piping (as shown under the column heading “TPA” below). These chemical additives are also manufactured for use in laundry and dish detergents, as well as in products to reduce levels of insecticides, herbicides and fungicides.

 

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.

 

Three months ended March 31, 2019:            
             
   EWCP   TPA   Total 
Revenue  $123,139   $8,348,337   $8,471,476 
Interest expense   -    127,007    127,007 
Depreciation and amortization   11,608    136,671    148,279 
Segment profit (loss)   (143,808)   1,184,222    1,040,414 
Segment assets   502,783    9,658,406    10,161,189 
Expenditures for segment assets   -    (1,275,835)   (1,275,835)

 

Three months ended March 31, 2018:            
             
   EWCP   TPA   Total 
Revenue  $75,820   $4,125,360   $4,201,180 
Interest expense   -    7,400    7,400 
Depreciation and amortization   12,640    47,060    59,700 
Segment profit (loss)   (97,834)   801,498    703,664 
Segment assets   555,710    1,396,676    1,952,386 
Expenditures for segment assets   (1,419)   (6,078)   (7,497)

 

The sales generated in the United States and Canada are as follows:

 

  

Three months ended

March 31, 2019

  

Three months ended

March 31, 2018

 
Canada  $75,952   $100,189 
United States and abroad   8,395,524    4,100,991 
Total  $8,471,476   $4,201,180 

 

23
 

 

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

 

   March 31, 2019   December 31, 2018 
Canada  $502,783   $505,124 
United States   9,658,406    7,783,426 
Total  $10,161,189   $8,288,550 

 

Three customers accounted for $3,790,213 (44%) of sales during the three-month period ended March 31, 2019 (2018 - $1,999,638 or 47%).

 

18. Commitments.

 

The Company is committed to minimum rental payments for property and premises aggregating approximately $1,005,848 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  $310,248 
2020  $399,900 
2021  $276,980 
2022  $10,620 
2023  $8,100 

 

19. Comparative Figures.

 

Certain of the comparative figures have been reclassified to conform with the current period’s presentation.

 

20. Subsequent Events

 

In April 2019, the Company issued 8,000 shares on the exercise of employee stock options and 10,888 shares on the exercise of consultant stock options. In May 2019, the Company issued 6,000 shares on the exercise of employee stock options.

 

24
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Overview

 

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

 

Results of Operations

 

The Company has two product lines:

 

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

 

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

 

Material changes in the Company’s Statement of Operations for the three months ended March 31, 2019 compared to the same period in the prior year are discussed below:

 

Item   Increase (I) or Decrease (D)   Reason
         
Sales        
EWCP products   I   Increased customer orders.
         
TPA products   I   Growth in most product lines and sales by acquisition.
         
Gross profit, as a % of sales   D   Margins were constricted by higher raw material costs, new tariffs and inability to pass additional costs on to customers.
         
Wages   I   Increased employee count.
         
Advertising and promotion   I   The ENP subsidiary makes greater use of advertising and promotion.
         
Interest expense   I   Increased debt resulted in increased interest expense.
         
Consulting   I   Added consultant to increase future growth
         
Professional fess   I   Increased accounting fees related to the acquisition and general legal representation.
         
Travel   I   Larger head count resulted in additional travel costs.

 

25
 

 

Three primary customers accounted for 45% of the Company’s sales during the three months ended March 31, 2019 (2018 - 47%). The amount of revenue (all from the sale of TPA products) attributable to each customer is shown below.

 

   Three Months Ended March 31, 
   2019   2018 
         
Company A  $1,075,569   $752,352 
Company B  $745,906    nil 
Company C  $1,968,738   $411,180 
Company D  $601,719*  $835,766 

 

*not a primary customer in that period

 

Customers with balances greater than 10% of our receivables as of March 31, 2018 and 2017 are shown below:

   March 31, 
   2019   2018 
         
Company A  $796,672   $418,389 
Company B  $1,635,125    nil 
Company C  $1,342,821   $211*
Company D  $233,342*  $468,848 

 

*less than 10%

 

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

 

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

 

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

 

Capital Resources and Liquidity

 

The Company’s sources and (uses) of cash for the three months ended March 31, 2019 and 2018 are shown below:

 

   2018   2017 
         
Cash provided (used) by operations   (1,723,451)   (181,777)
Investment   (996,001)   6,250 
Acquisition of equipment   (1,275,835)   (7,497)
Borrowings from line of credit   1,383,929    - 
Repayment of loans   (205,262)   (50,298)
Dividends paid   (590,483)     
Proceeds from sale of common stock   10,850    36,360 
Changes in exchange rates   234,250    (101,301)

 

26
 

 

The Company has sufficient cash resources to meets its future commitments and cash flow requirements for the coming year. As of March 31, 2019, working capital was $12,068,213 (December 31, 2018 - $15,104,066) and the Company has no substantial commitments that require significant outlays of cash over the coming fiscal year.

 

We are committed to minimum rental payments for property and premises aggregating approximately $1,005,848 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  $310,248 
2020  $399,900 
2021  $276,980 
2022  $10,620 
2023  $8,100 

 

Other than as disclosed above, we do not anticipate any material capital requirements for the twelve months ending December 31, 2019.

 

Other than as disclosed in Item 7 of this report, we do not know of any trends, demands, commitments, events or uncertainties that will result in, or that are reasonable likely to result in, our liquidity increasing or decreasing in any material way.

 

Other than as disclosed in Item 7 of this report, we do not know of any significant changes in our expected sources and uses of cash.

 

We do not have any commitments or arrangements from any person to provide us with any equity capital.

 

See Note 2 to the consolidated financial statements included as part of this report for a description of our significant accounting policies.

 

27
 

 

Item 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the direction and with the participation of our management, including our Principal Executive and Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2019. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations, and that such information is accumulated and communicated to our management, including our principal executive and financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching desired disclosure control objectives. Based on the evaluation, our Principal Executive and Financial Officer concluded that these disclosure controls and procedures were in effective as of March 31, 2019 as noted below.

 

Changes in Internal Control over Financial Reporting

 

Our management, with the participation of our Principal Executive and Financial Officer, evaluated whether any change in our internal control over financial reporting occurred during the three months ended March 31, 2019.

 

Based on this evaluation, management has concluded that our internal control over financial reporting was ineffective as of December 31, 2018 and March 31, 2019. During the financial reporting process, the financial statements and the Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2018 were inadvertently released prematurely, prior to the Company’s auditors full review and approval.

 

Notwithstanding the material weakness described below, we have concluded that the condensed interim consolidated financial statements included in this quarterly report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.

 

Remediation Efforts

 

Management is committed to the remediation of the material weakness described above, as well as the continued improvement of our internal control over financial reporting.  We have identified and implemented, and continue to implement, the actions described below to remediate the underlying causes of the control deficiencies that gave rise to the material weaknesses. As we continue our evaluation and improve our internal control over financial reporting, management may modify the actions described below or identify and take additional measures to address control deficiencies.  Until the remediation efforts described below, including any additional measures management identifies as necessary, are completed, the material weaknesses will continue to exist.

 

To address the material weakness noted above, the Company is in the process of:

 

-Assessing the need to increase the Company’s personnel to provide sufficient resources to complete the financial reporting process from within each subsidiary through the Company’s consolidation;
-ensuring adequate resources are allocated to the preparation of the Company’s financial statements including sufficient time for review by the Company’s management including the review and approval of the financial statements by the Audit Committee and the Company’s auditors prior to any public release;
-Performing a comprehensive review of current internal control procedures to ensure the segregation of duties and compliance with the Company’s accounting policies and GAAP and financial reporting process.

 

We believe these measures will remediate the material weakness noted.  While we have completed some of these measures as at the date of this report, we have not completed and tested all of the planned corrective processes, enhancements, procedures and related evaluation that we believe are necessary to determine whether the material weaknesses have been fully remediated.  We believe the corrective actions and controls need to be in operation for a sufficient period of time for management to conclude that the control environment is operating effectively and has been adequately tested through audit procedures.  Accordingly, the material weakness have not been fully remediated as of the date of this report. As we continue to evaluate and work to remediate the control deficiencies that gave rise to the material weakness, we may determine that additional measures or time are required to address the control deficiencies or that we need to modify or otherwise adjust the remediation measures described above.  We will continue to assess the effectiveness of our remediation efforts in connection with our evaluation of our internal control over financial reporting.

 

28
 

 

PART II

 

Item 6. Exhibits.

 

Number   Description
3.1   Amended and Restated Articles of Incorporation. (1)
3.2   Bylaws (1)
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.*

 

 

 

* Filed with this report.

 

(1) Incorporated by reference to the registrant’s Registration Statement on Form 10-SB (SEC File. No. 000-29649) filed February 22, 2000.

 

29
 

 

SIGNATURES

 

In accordance with the requirements the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

May 16, 2019

 

  Flexible Solutions International, Inc.
   
  By: /s/ Daniel B. O’Brien
  Name:  Daniel B. O’Brien
  Title: President and Principal Executive Officer
     
  By: /s/ Daniel B. O’Brien
  Name: Daniel B. O’Brien
  Title: Principal Financial and Accounting Officer

 

30
 

 

 

CERTIFICATIONS

 

I, Daniel O’Brien, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q 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 this report;

 

3. Based on my knowledge, the unaudited consolidated 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 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 cause 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 unaudited consolidated 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 the 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 significant role in the registrant’s internal control over financial reporting.

 

May 16, 2019 /s/ Daniel B. O’Brien
  Daniel O’Brien
  Principal Executive Officer

 

   
   

 

 

CERTIFICATIONS

 

I, Daniel O’Brien, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q 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 this report;

 

3. Based on my knowledge, the unaudited consolidated 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 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 cause 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 unaudited consolidated 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 the 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 significant role in the registrant’s internal control over financial reporting.

 

May 16, 2019 /s/ Daniel B. O’Brien
  Daniel O’Brien
  Principal Financial Officer

 

   
   

 

 

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 Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2019 (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.

 

May 16, 2019 /s/ Daniel B. O’Brien
 

Daniel B. O’Brien

Principal Executive and Financial Officer

 

   
   

 

v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
May 15, 2019
Document And Entity Information    
Entity Registrant Name FLEXIBLE SOLUTIONS INTERNATIONAL INC  
Entity Central Index Key 0001069394  
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Small Business Flag true  
Entity Emerging Growth Company false  
Entity Ex Transition Period false  
Entity Common Stock, Shares Outstanding   11,736,545
Trading Symbol FSI  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2019  
v3.19.1
Condensed Interim Consolidated Balance Sheets (Unaudited) - USD ($)
Mar. 31, 2019
Dec. 31, 2018
Current    
Cash and cash equivalents $ 3,695,933 $ 7,857,936
Accounts receivable (see Note 4) 7,591,944 4,422,745
Inventory (see Note 5) 8,736,736 8,727,709
Prepaid expenses 292,753 200,306
Total current assets 20,317,366 21,208,696
Property, equipment and leaseholds, net (see Note 6) 3,744,510 2,563,261
Right of use asset 739,500
Patents (see Note 7) 58,904 63,014
Intangible assets (Note 8) 3,084,000 3,128,000
Long term deposits (see Note 9) 30,777 30,777
Investments (Note 10) 2,001,759 776,357
Goodwill (Note 8) 2,534,275 2,534,275
Restricted cash (Note 11e) 1,000,000
Deferred tax asset (Note 14) 900,893 891,735
Total Assets 34,411,984 31,196,115
Current    
Accounts payable and accrued liabilities 1,460,971 1,050,673
Deferred revenue 117,892 127,168
Income taxes payable 1,731,156 1,357,299
Short term line of credit (Note 11) 4,182,061 2,798,131
Current portion of lease liability (Note 3) 343,413
Current portion of long term debt (Note 12) 721,370 771,359
Total current liabilities 8,556,863 6,104,630
Convertible note payable(Note 13) 1,000,000 1,000,000
Lease liabilities (Note 3) 396,087  
Deferred income tax liability 863,570 989,569
Long term debt (Note 12) 3,425,111 3,580,384
Total liabilities 14,241,631 11,674,583
Stockholders' Equity    
Capital stock (see Note 15) 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: 11,711,657 (2018: 11,699,657) common shares 11,712 11,700
Capital in excess of par value 15,344,870 15,328,285
Other comprehensive loss (1,040,280) (1,222,573)
Accumulated earnings 3,362,556 2,941,889
Total stockholders' equity - controlling interest 17,678,858 17,059,301
Non-controlling interests (Note 16) 2,491,495 2,462,231
Total Stockholders' Equity 20,170,353 19,521,532
Total Liabilities and Stockholders' Equity $ 34,411,984 $ 31,196,115
v3.19.1
Condensed Interim Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares
Mar. 31, 2019
Dec. 31, 2018
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 11,711,657 11,699,657
Common stock, shares outstanding 11,711,657 11,699,657
v3.19.1
Condensed Interim Consolidated Statements of Income and Comprehensive Income (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Income Statement [Abstract]    
Sales $ 8,471,476 $ 4,201,180
Cost of sales 5,695,889 2,233,917
Gross profit 2,775,587 1,967,263
Operating Expenses    
Wages 530,677 421,310
Administrative salaries and benefits 265,092 260,593
Advertising and promotion 52,706 4,343
Investor relations and transfer agent fee 16,450 35,655
Office and miscellaneous 46,882 29,673
Insurance 102,735 62,778
Interest expense 129,007 7,400
Lease liability expense 20,329
Lease expense 79,579
Rent 14,544 61,742
Consulting 64,779 32,854
Professional fees 158,770 43,314
Travel 96,284 30,150
Telecommunications 11,028 6,156
Shipping 4,471 4,109
Research 20,086 37,206
Commissions 19,757
Currency exchange 92,064 (86,134)
Utilities 3,756 4,535
Total operating expenses 1,728,996 955,684
Operating income 1,046,591 1,011,579
Loss on involuntary disposition (net of tax) (Note 6) (7,716)
Gain on investment 230,652
Interest income 16,252 1,697
Income before income tax 1,293,495 1,005,560
Income taxes (Note 14)    
Deferred income tax recovery 125,999
Income tax expense (379,080) (301,896)
Net income for the year including non-controlling interests 1,040,414 703,664
Less: Net income attributable to non-controlling interests (29,264)
Net income attributable to controlling interest $ 1,011,150 $ 703,664
Income per share (basic and diluted) $ 0.09 $ 0.06
Weighted average number of common shares (basic) 11,705,613 11,620,291
Weighted average number of common shares (diluted) 11,816,585 11,847,061
Other comprehensive income (loss):    
Net income $ 1,040,414 $ 703,664
Unrealized gain (loss) on foreign currency translations 182,293 (119,029)
Total comprehensive income 1,222,707 584,635
Comprehensive income – non-controlling interest (29,264)
Comprehensive income attributable to Flexible Solutions International Inc. $ 1,193,443 $ 584,635
v3.19.1
Condensed Interim Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Operating activities      
Net income including non-controlling interests $ 1,040,414 $ 703,664  
Net income attributable to non-controlling interests 29,264  
Net income attributable to controlling interest 1,011,150 703,664  
Adjustments to reconcile net income to net cash:      
Stock based compensation 5,747 25,700  
Depreciation and amortization 148,279 59,700  
Gain on investment (230,652)  
Changes in non-cash working capital items:      
(Increase) Decrease in accounts receivable (3,222,431) (467,008)  
(Increase) Decrease in inventories (8,764) (111,400)  
(Increase) Decrease in prepaid expenses (92,199) 88,612  
Increase (Decrease) in accounts payable and accrued liabilities 403,062 (577,021)  
Increase (Decrease) in taxes payable 379,080 301,896  
Increase (Decrease) in deferred income tax (125,199)    
Increase (Decrease) deferred revenue 9,276 (205,920)  
Cash (used in) provided by operating activities (1,723,451) (181,777)  
Investing activities      
Investment (996,001) 6,250  
Net purchase of property, equipment and leaseholds (1,275,835) (7,497)  
Cash (used in) provided by investing activities (2,271,836) (1,247)  
Financing activities      
Draw from short term line of credit 1,383,929  
Loans (205,262) (50,298)  
Dividends paid (590,483)  
Proceeds of issuance of common stock 10,850 36,360  
Cash proved by (used in) financing activities 599,034 (13,938)  
Effect of exchange rate changes on cash 234,250 (101,301)  
Inflow (outflow) of cash (3,162,003) (298,263)  
Cash and cash equivalents, beginning 7,857,936 6,912,138 $ 6,912,138
Cash, cash equivalents and restricted cash, ending 4,695,933 6,613,875 $ 7,857,936
Supplemental disclosure of cash flow information:      
Income taxes paid  
Interest paid $ 108,084 $ 7,356  
v3.19.1
Basis of Presentation
3 Months Ended
Mar. 31, 2019
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., Natural Chem SEZC Ltd., and InnFlexHoldings Inc. 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 ownership interest in EnP Investments for an aggregate purchase price of $5,110,560. An unrelated party owns the remaining 35% of ownership interest in EnP Investments, and EnP Investments is consolidated into the financial statements. The outside investor’s the Company’s 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.

 

These unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements. These unaudited interim financial statements are condensed and do not include all disclosures required for annual financial statements. The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to the Company’s audited consolidated financial statements filed as part of the Company’s December 31, 2018 Annual Report on Form 10-K/A. This quarterly report should be read in conjunction with such annual report.

 

In the opinion of the Company’s management, these unaudited interim condensed consolidated financial statements reflect all adjustments, all of which are of normal recurring nature, necessary to present fairly the Company’s consolidated financial position at March 31, 2019, the consolidated results of operations for the three months ended March 31, 2019 and 2018, and the consolidated statements of cash flows for the three months ended March 31, 2019 and 2018. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the entire fiscal year.

v3.19.1
Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
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. Shipping and handling charges billed to customers are included in revenue (2019 - $165,592; 2018 – $75,897). Shipping and handling costs incurred are included in cost of goods sold (2019 - $347, 960; 2018 – $251,909).

 

(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
Right of Use Asset   Straight-line over lease term
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.

 

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) Other 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 comprised only 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 three months ended March 31, 2019 and 2018.

 

(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 intangible assets, 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 $3,774,617 (50%) at March 31, 2019 (December 31, 2018 - $1,280,406 or 31%).

 

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 three months ended March 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 February 2016, the Financial Accounting Standards Board (“FASB”) issued ASC 842 which requires lessees to recognize a right-of-us (“ROU”) asset and lease liability on the balance sheet for virtually all leases. From a lessee perspective, ASC 842 retains a dual model requiring leases to be classified as either operating or finance leases for the income statement. Operating leases will result in straight-line expense, and financing leases will have a front-loaded expense pattern with an interest expense component. On January 1, 2019, the Company adopted ASC 842 and all related amendments using the prospective transition approach. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Adoption of the new standard resulted in the recording of lease ROU assets and lease liabilities of approximately $819,079 as of January 1, 2019. In accordance with ASC 842, the Company determines if an arrangement is a lease at inception based on whether there is an identified asset, whether the Company has the right to obtain substantially all of the economic benefits from the use of the asset and whether the Company has the right to direct the use of the asset. Currently, the Company only has operating leases and does not have any financing leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. See note 3, Leases, for further disclosures and detail regarding our operating leases.

 

In November 2016, the FASB issued ASU2016-18 “Statement of Cash Flows” (Topic230); Restricted Cash (ASU2016-18), which defines  new requirements for the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The amendments in this ASU require retrospective application to each period presented. The Company adopted this guidance effective January 1, 2018 retrospectively. This ASU requires entities to present the statement of cash flows in a manner such that it reconciles beginning and ending totals of cash, cash equivalents, restricted cash or restricted cash equivalents. Also, when cash, cash equivalents, restricted cash or restricted cash equivalents are presented in more than one line item within the statement of financial position, an entity should, for each period that a statement of financial position is presented, present on the face of the statement of cash flows or disclose in the notes to the financial statements, the line items and amounts of cash, cash equivalents, and restricted cash or restricted cash equivalents reported within the statement of financial position. The amounts, disaggregated by the line item in which they appear within the statement of financial position, shall sum to the total amount of cash, cash equivalents, and restricted cash or restricted cash equivalents at the end of the corresponding period shown in the statement of cash flows.

 

(u) Accounting Pronouncements Not Yet Adopted

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies certain disclosure requirements related to fair value measurements. ASU 2018-13 will be effective for us beginning January 1, 2020, with early adoption permitted. We do not expect this guidance to have an impact on the amounts reported on our consolidated financial statements, and we are currently evaluating the potential impact this guidance will have on our disclosures within the notes to our consolidated financial statements.

v3.19.1
Adoption of ASC 942, Leases
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Adoption of ASC 942, Leases

3. Adoption of ASC 942, Leases

 

On January 1, 2019, the Company adopted ASC 842 using the prospective transition approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented. The adoption of the lease standard did not result in a cumulative-effect adjustment to opening equity. Results for reporting periods beginning after January 1, 2019 are presented under ASC 842 while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 840, “Leases,” (“ASC 840”).

 

The Company leases office space. For leases with terms greater than 12 months, the Company records the related ROU asset and lease obligation at the present value of lease payments over the term. Leases may include fixed rental escalation clauses, renewal options and / or termination options that are factored into the determination of lease payments when appropriate. The Company’s leases do not usually provide a readily determinable implicit rate; therefore, an estimate of the Company’s incremental borrowing rate is used to discount the lease payments based on information available at the lease commencement date. The discount rate used was 5.5%.

 

Operating lease costs during the three months ended March 31, 2019 were $99,908.

 

The adoption of ASC 842 resulted in the recognition of right-of-use (“ROU”) assets and lease liabilities of approximately $819,079 as of January 1, 2019. The standard did not materially impact the Company’s consolidated statement of operations or its consolidated statement of cash flows for the three months ended March 31, 2019. See below for the Company’s updated lease policy and the required disclosures under ASC 842.

 

The Company is a lessee in five different leases that have various expiry dates within the next 5 years.

 

The table below summarizes the remaining expected lease payments under our operating leases as of March 31, 2019.

 

Future Lease Payments   March 31, 2019  
2019   $ 262,008  
2020     326,520  
2021     232,580  
2022     10,620  
2023     8,100  
Thereafter     -  
Less: imputed interest     (100,328 )
         
Present value of operating lease liabilities   $ 739,500  

 

Update to Lease Policy

 

Accounting and reporting guidance for leases requires that leases be evaluated and classified as either operating or finance leases by the lessee and as either operating, sales-type or direct financing leases by the lessor. The Company’s operating leases are included in ROU assets, lease liabilities-current portion and lease liability-less current portion in the accompanying consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease.

v3.19.1
Accounts Receivable
3 Months Ended
Mar. 31, 2019
Receivables [Abstract]  
Accounts Receivable

4. Accounts Receivable

 

    March 31,
2019
    December 31,
2018
 
Accounts receivable   $ 7,629,806     $ 4,459,834  
Allowances for doubtful accounts     (37,862 )     (37,088 )
    $ 7,591,944     $ 4,422,745  

v3.19.1
Inventory
3 Months Ended
Mar. 31, 2019
Inventory Disclosure [Abstract]  
Inventory

5. Inventory

 

    March 31,
2019
    December 31,
2018
 
             
Completed goods   $ 3,857,620     $ 3,770,071  
Work in progress     129,198       150,333  
Raw materials and supplies     4,749,918       4,807,305  
    $ 8,736,736     $ 8,727,709  

v3.19.1
Property, Plant & Equipment
3 Months Ended
Mar. 31, 2019
Property, Plant and Equipment [Abstract]  
Property, Plant & Equipment

6. Property, Plant & equipment

 

    March 31, 2019     Accumulated     March 31, 2019  
    Cost     Depreciation     Net  
Buildings   $ 3,521,375     $ 2,547,462     $ 973,913  
Automobiles     193,397       84,262       109,135  
Computer hardware     43,466       40,476       2,990  
Furniture and fixtures     105,568       93,997       11,571  
Manufacturing equipment     5,136,488       2,902,210       2,234,278  
Boat     34,400       19,341       15,059  
Office equipment     1,776       514       1,262  
Trailer     8,977       4,036       4,941  
Leasehold Improvements     88,872       54,595       34,277  
Land     357,084       -       357,084  
Technology     102,226       102,226       -  
    $ 9,563,629     $ 5,849,119     $ 3,744,510  

 

    December 31, 2018     Accumulated     December 31, 2018  
    Cost     Depreciation     Net  
Buildings   $ 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  

 

Amount of depreciation expense for three months ended March 31, 2019: $144,169 (2018: $55,590) and is included in cost of sales in the unaudited interim condensed 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
3 Months Ended
Mar. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Patents

7. Patents

 

In fiscal 2005, the Company started the patent process for additional WATER$AVR® products. Patents associated with these costs were granted in 2006 and they have been amortized over their legal life of 17 years.

 

   

March 31, 2019

Cost

    Accumulated
Amortization
   

March 31, 2019

Net

 
Patents   $ 198,376     $ 139,472     $ 58,904  
                         

 

   

December 31, 2018

Cost

    Accumulated
Amortization
   

December 31, 2018

Net

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

 

The decrease in the carrying amount of patents is primarily due to foreign currency translation effects. The 2019 cost in Canadian dollars - $265,102 (2018 - $265,102 in Canadian dollars).

 

Amount of amortization for 2019 - $4,110 (2018 - $4,110) 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
3 Months Ended
Mar. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
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 and March 31, 2019   $ 2,534,275  

 

Indefinite Lived Intangible Assets      
Balance as of December 31, 2017     -  
Additions   $ 770,000  
Impairment     -  
Balance as of December 31, 2018 and March 31, 2019   $ 770,000  

 

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

 

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  
Amortization     (44,000 )
Balance as of March 31, 2019   $ 2,314,000  

 

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   $ 176,000  
2020     176,000  
2021     176,000  
2022     160,000  
2023     160,000  

v3.19.1
Long Term Deposits
3 Months Ended
Mar. 31, 2019
Long Term Deposits  
Long Term Deposits

9. Long Term Deposits

 

The Company has reclassified certain security deposits to better reflect their long term nature. Long term deposits consist of damage deposits held by landlords and security deposits held by various vendors.

 

    March 31, 2019     December 31, 2018  
             
Long term deposits   $ 30,777     $ 30,777  
                 

v3.19.1
Investments
3 Months Ended
Mar. 31, 2019
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, December 31, 2017   $ 13,414  
Acquisition of additional units     25,000  
Return of equity     (25,000 )
Loss in equity method investment     (26,306 )
Balance, December 31, 2018 and March 31, 2019   $ 12,108  

 

Summarized profit and loss information related to the equity accounted investment is as follows:

 

    2018  
       
Net sales   $ 300,210  
Net income   $ 17,435  

 

(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 and March 31, 2019   $ 64,249  

 

Summarized profit and loss information related to the equity accounted investment is as follows:

 

    2018  
       
Net sales   $ 78,870  
Net income   $ 31,913  

 

(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 account for this investment at cost less impairment. A summary of the Company’s investment follows:

 

       
Balance, January 1, 2018   $ -  
Acquisition     500,000  
Impairment     -  
Balance, December 31, 2018 and March 31, 2019   $ 500,000  

 

(e) In January 2019, the company invested $1,001,000 in a Florida based LLC that is engaged in international sales of fertilizer additives. The Company accounts for this investment using the equity method of accounting. According to the operating agreement, the Company has a 50% interest in the profit and loss of the LLC but does not have control. A summary of the Company’s investment follows:

 

Balance, January 1, 2019   $ -  
Acquisition     1,001,000  
Gain in equity method investment     224,402  
Balance, March 31, 2019   $ 1,225,402  

 

Further to the original investment amount, the Company has placed $1,000,000 in trust, to be released upon the LLC reaching a milestone related to earnings before interest, taxes and depreciation (“EBITDA”) targets. This amount is accounted for as restricted cash on the balance sheet. Further payments of $1,000,000 and $500,000 may become due should other subsequent milestones be reached. Summarized profit and loss information related to the equity accounted investment is as follows:

 

    2019  
       
Net sales   $ 3,257,350  
Gross profit     1,010,781  
Net income   $ 448,804  

v3.19.1
Short-Term Line of Credit
3 Months Ended
Mar. 31, 2019
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 50% of inventory. The loan has an annual interest rate of 5.5% at March 31, 2019 (December 31, 2018 – 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 March 31, 2019, 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 March 31, 2019 were $2,500,000 (December 31, 2018 - $1,700,000).

 

(b) In February, 2019, EnP Investments, LLC signed a promissory note maturity extension agreement with Midland States Bank (“Midland”) to renew the expiring credit line to May 15, 2019. 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 March 31, 2019 is 6.54775% (December 31, 2018 – 6.5296%).

 

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 March 31, 2019, 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 March 31, 2019 were $1,682,061 (December 31, 2018 – $1,098,131).

v3.19.1
Long Term Debt
3 Months Ended
Mar. 31, 2019
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% (March 31, 2019 – 6.0%; December 31, 2018 – 5.75%) 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 March 31, 2019 was $100,597 (December 31, 2018 - $150,895). Interest expense for the three months ended March 31, 2019 was $2,009 (2018 - $4,186). The final payment will be made in September 2019.

 

The Company has committed to the following repayments:

 

2019   $ 100,597  

 

(b) In October 2018, NanoChem Solutions Inc. signed a $4,100,000 term loan with Harris Bank with a rate of prime (March 31, 2019 – 5.5%; December 31, 2018 – 5.5%) 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. Interest expense for the three months ended March 31, 2019 was $54,958 (2018 - nil). The balance owing at March 31, 2018 was $3,855,952 (December 31, 2018 - $4,002,381).

 

The Company has committed to the following repayments:

 

2019   $ 439,286  
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 three months ended March 31, 2019 was $2,333 (2018 - $nil). The principal balance owing at March 31, 2019 is $171,556 (December 31, 2018 - $177,794).

 

The Company has committed to the following repayments:

 

2019   $ 19,171  
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 March 31, 2019 is $18,376 (December 31, 2018 - $20,673).

 

The Company has committed to the following repayments:

 

2019   $ 6,891  
2020   $ 9,188  
2021   $ 2,297  

 

As of March 31, 2019, Company was in compliance with all loan covenants.

 

Continuity   March 31, 2019     December 31, 2018  
Balance, January 1   $ 4,351,743       352,089  
Plus: Proceeds from loans     -       4,100,000  
Plus: Acquisition of ENP (see Note 3)     -       206,921  
Less: Payments on loan     (205,262 )     (307,267 )
Balance, end of period   $ 4,146,481     $ 4,351,743  

  

Outstanding balance   March 31, 2019     December 31, 2018  
a) Long term debt – Harris Bank   $ 100,597     $ 150,895  
b) Long term debt – Harris Bank     3,855,952       4,002,381  
c) Long term debt – Midland States Bank     171,556       177,794  
d) Long term debt – Ford Credit     18,376       20,673  
Long-term Debt   $ 4,146,481     $ 4,351,743  
Less: current portion     (721,370 )     (771,359 )
    $ 3,425,111     $ 3,580,384  

v3.19.1
Convertible Note Payable
3 Months Ended
Mar. 31, 2019
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 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.

v3.19.1
Stock Options
3 Months Ended
Mar. 31, 2019
Share-based Payment Arrangement [Abstract]  
Stock Options

14. 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 year ended December 31, 2017 and the three-month period ended March 31, 2019:

 

    Number of shares     Exercise price
per share
   

Weighted average

exercise price

 
                   
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  
Cancelled or expired     (32,000 )   $ 0.75 – 1.70     $ 1.38  
Exercised     (12,000 )   $ 0.75 – 1.05     $ 1.10  
Balance, March 31, 2019     616,000     $ 0.75 – 1.75     $ 1.35  
Exercisable, March 31, 2019     516,000     $ 0.75 – 1.70     $ 1.27  

 

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

 

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

 

The Company did not grant any options during the three months ended March 31, 2019 or 2018. Options granted in previous quarters resulted in expenses in the amount of $5,747 for consultants (2018 - $6,675) and nil for employees (2018 - $19,025) during the quarter ended March 31, 2019. There were 12,000 employee stock options exercised during the during the three months ended March 31, 2019 (2018 – 23,000 employee stock options and 10,000 consultant stock options).

 

As of March 31, 2019, there was approximately $51,635 of compensation expense related to non-vested awards. This expense is expected to be recognized over a weighted average period of 4.5 years.

v3.19.1
Capital Stock
3 Months Ended
Mar. 31, 2019
Equity [Abstract]  
Capital Stock

15. Capital Stock.

 

During the three months ended March 31, 2019, 12,000 shares were issued upon the exercise of employee stock options (2018 – 23,000) and nil shares were issued upon the exercise of consultant stock options (2017 – 10,000).

 

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
Non-Controlling Interests
3 Months Ended
Mar. 31, 2019
Noncontrolling Interest [Abstract]  
Non-Controlling Interests

16. 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  
Noncontrolling interest share of profit     29,264  
Balance, March 31, 2019   $ 2,491,495  

v3.19.1
Segmented, Significant Customer Information and Economic Dependency
3 Months Ended
Mar. 31, 2019
Segment Reporting [Abstract]  
Segmented, Significant Customer Information and Economic Dependency

17. 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 and chemical additives used within the petroleum, chemical, utility and mining industries to prevent corrosion and scaling in water piping (as shown under the column heading “TPA” below). These chemical additives are also manufactured for use in laundry and dish detergents, as well as in products to reduce levels of insecticides, herbicides and fungicides.

 

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.

 

Three months ended March 31, 2019:                  
                   
    EWCP     TPA     Total  
Revenue   $ 123,139     $ 8,348,337     $ 8,471,476  
Interest expense     -       127,007       127,007  
Depreciation and amortization     11,608       136,671       148,279  
Segment profit (loss)     (143,808 )     1,184,222       1,040,414  
Segment assets     502,783       9,658,406       10,161,189  
Expenditures for segment assets     -       (1,275,835 )     (1,275,835 )

 

Three months ended March 31, 2018:                  
                   
    EWCP     TPA     Total  
Revenue   $ 75,820     $ 4,125,360     $ 4,201,180  
Interest expense     -       7,400       7,400  
Depreciation and amortization     12,640       47,060       59,700  
Segment profit (loss)     (97,834 )     801,498       703,664  
Segment assets     555,710       1,396,676       1,952,386  
Expenditures for segment assets     (1,419 )     (6,078 )     (7,497 )

 

The sales generated in the United States and Canada are as follows:

 

   

Three months ended

March 31, 2019

   

Three months ended

March 31, 2018

 
Canada   $ 75,952     $ 100,189  
United States and abroad     8,395,524       4,100,991  
Total   $ 8,471,476     $ 4,201,180  

 

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

 

    March 31, 2019     December 31, 2018  
Canada   $ 502,783     $ 505,124  
United States     9,658,406       7,783,426  
Total   $ 10,161,189     $ 8,288,550  

 

Three customers accounted for $3,790,213 (44%) of sales during the three-month period ended March 31, 2019 (2018 - $1,999,638 or 47%).

v3.19.1
Commitments
3 Months Ended
Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments

18. Commitments.

 

The Company is committed to minimum rental payments for property and premises aggregating approximately $1,005,848 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   $ 310,248  
2020   $ 399,900  
2021   $ 276,980  
2022   $ 10,620  
2023   $ 8,100  

v3.19.1
Comparative Figures
3 Months Ended
Mar. 31, 2019
Comparative Figures  
Comparative Figures

19. Comparative Figures.

 

Certain of the comparative figures have been reclassified to conform with the current period’s presentation.

v3.19.1
Subsequent Events
3 Months Ended
Mar. 31, 2019
Subsequent Events [Abstract]  
Subsequent Events

20. Subsequent Events

 

In April 2019, the Company issued 8,000 shares on the exercise of employee stock options and 10,888 shares on the exercise of consultant stock options. In May 2019, the Company issued 6,000 shares on the exercise of employee stock options.

v3.19.1
Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2019
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. Shipping and handling charges billed to customers are included in revenue (2019 - $165,592; 2018 – $75,897). Shipping and handling costs incurred are included in cost of goods sold (2019 - $347, 960; 2018 – $251,909).

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
Right of Use Asset   Straight-line over lease term
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.

 

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.

Other Comprehensive Income

(j) Other 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 comprised only 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 three months ended March 31, 2019 and 2018.

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 intangible assets, 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 $3,774,617 (50%) at March 31, 2019 (December 31, 2018 - $1,280,406 or 31%).

 

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 three months ended March 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 February 2016, the Financial Accounting Standards Board (“FASB”) issued ASC 842 which requires lessees to recognize a right-of-us (“ROU”) asset and lease liability on the balance sheet for virtually all leases. From a lessee perspective, ASC 842 retains a dual model requiring leases to be classified as either operating or finance leases for the income statement. Operating leases will result in straight-line expense, and financing leases will have a front-loaded expense pattern with an interest expense component. On January 1, 2019, the Company adopted ASC 842 and all related amendments using the prospective transition approach. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Adoption of the new standard resulted in the recording of lease ROU assets and lease liabilities of approximately $819,079 as of January 1, 2019. In accordance with ASC 842, the Company determines if an arrangement is a lease at inception based on whether there is an identified asset, whether the Company has the right to obtain substantially all of the economic benefits from the use of the asset and whether the Company has the right to direct the use of the asset. Currently, the Company only has operating leases and does not have any financing leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. See note 3, Leases, for further disclosures and detail regarding our operating leases.

 

In November 2016, the FASB issued ASU2016-18 “Statement of Cash Flows” (Topic230); Restricted Cash (ASU2016-18), which defines  new requirements for the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The amendments in this ASU require retrospective application to each period presented. The Company adopted this guidance effective January 1, 2018 retrospectively. This ASU requires entities to present the statement of cash flows in a manner such that it reconciles beginning and ending totals of cash, cash equivalents, restricted cash or restricted cash equivalents. Also, when cash, cash equivalents, restricted cash or restricted cash equivalents are presented in more than one line item within the statement of financial position, an entity should, for each period that a statement of financial position is presented, present on the face of the statement of cash flows or disclose in the notes to the financial statements, the line items and amounts of cash, cash equivalents, and restricted cash or restricted cash equivalents reported within the statement of financial position. The amounts, disaggregated by the line item in which they appear within the statement of financial position, shall sum to the total amount of cash, cash equivalents, and restricted cash or restricted cash equivalents at the end of the corresponding period shown in the statement of cash flows.

Accounting Pronouncements Not Yet Adopted

(u) Accounting Pronouncements Not Yet Adopted

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies certain disclosure requirements related to fair value measurements. ASU 2018-13 will be effective for us beginning January 1, 2020, with early adoption permitted. We do not expect this guidance to have an impact on the amounts reported on our consolidated financial statements, and we are currently evaluating the potential impact this guidance will have on our disclosures within the notes to our consolidated financial statements.

v3.19.1
Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2019
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
Right of Use Asset   Straight-line over lease term
Leasehold improvements   Straight-line over lease term

v3.19.1
Adoption of ASC 942, Leases (Tables)
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Summary of Remaining Expected Lease Payments

The table below summarizes the remaining expected lease payments under our operating leases as of March 31, 2019.

 

Future Lease Payments   March 31, 2019  
2019   $ 262,008  
2020     326,520  
2021     232,580  
2022     10,620  
2023     8,100  
Thereafter     -  
Less: imputed interest     (100,328 )
         
Present value of operating lease liabilities   $ 739,500  

v3.19.1
Accounts Receivable (Tables)
3 Months Ended
Mar. 31, 2019
Receivables [Abstract]  
Schedule of Accounts Receivable

    March 31,
2019
    December 31,
2018
 
Accounts receivable   $ 7,629,806     $ 4,459,834  
Allowances for doubtful accounts     (37,862 )     (37,088 )
    $ 7,591,944     $ 4,422,745  

v3.19.1
Inventory (Tables)
3 Months Ended
Mar. 31, 2019
Inventory Disclosure [Abstract]  
Schedule of Inventory

    March 31,
2019
    December 31,
2018
 
             
Completed goods   $ 3,857,620     $ 3,770,071  
Work in progress     129,198       150,333  
Raw materials and supplies     4,749,918       4,807,305  
    $ 8,736,736     $ 8,727,709  

v3.19.1
Property, Plant & Equipment (Tables)
3 Months Ended
Mar. 31, 2019
Property, Plant and Equipment [Abstract]  
Schedule of Property, Plant & Equipment

    March 31, 2019     Accumulated     March 31, 2019  
    Cost     Depreciation     Net  
Buildings   $ 3,521,375     $ 2,547,462     $ 973,913  
Automobiles     193,397       84,262       109,135  
Computer hardware     43,466       40,476       2,990  
Furniture and fixtures     105,568       93,997       11,571  
Manufacturing equipment     5,136,488       2,902,210       2,234,278  
Boat     34,400       19,341       15,059  
Office equipment     1,776       514       1,262  
Trailer     8,977       4,036       4,941  
Leasehold Improvements     88,872       54,595       34,277  
Land     357,084       -       357,084  
Technology     102,226       102,226       -  
    $ 9,563,629     $ 5,849,119     $ 3,744,510  

 

    December 31, 2018     Accumulated     December 31, 2018  
    Cost     Depreciation     Net  
Buildings   $ 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  

v3.19.1
Patents (Tables)
3 Months Ended
Mar. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Patents

   

March 31, 2019

Cost

    Accumulated
Amortization
   

March 31, 2019

Net

 
Patents   $ 198,376     $ 139,472     $ 58,904  
                         

 

   

December 31, 2018

Cost

    Accumulated
Amortization
   

December 31, 2018

Net

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

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)
3 Months Ended
Mar. 31, 2019
Goodwill and Intangible Assets Disclosure [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 and March 31, 2019   $ 2,534,275  

 

Indefinite Lived Intangible Assets      
Balance as of December 31, 2017     -  
Additions   $ 770,000  
Impairment     -  
Balance as of December 31, 2018 and March 31, 2019   $ 770,000  

 

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

 

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  
Amortization     (44,000 )
Balance as of March 31, 2019   $ 2,314,000  

Schedule of Estimated Future Amortization Expense

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

 

2019   $ 176,000  
2020     176,000  
2021     176,000  
2022     160,000  
2023     160,000  

v3.19.1
Long Term Deposits (Tables)
3 Months Ended
Mar. 31, 2019
Long Term Deposits  
Schedule of Long Term Deposits

The Company has reclassified certain security deposits to better reflect their long term nature. Long term deposits consist of damage deposits held by landlords and security deposits held by various vendors.

 

    March 31, 2019     December 31, 2018  
             
Long term deposits   $ 30,777     $ 30,777  
                 

v3.19.1
Investments (Tables)
3 Months Ended
Mar. 31, 2019
ENP Peru Investments LLC [Member]  
Schedule of Equity Method Investment

A summary of the Company’s investment follows:

 

Balance, December 31, 2017   $ 13,414  
Acquisition of additional units     25,000  
Return of equity     (25,000 )
Loss in equity method investment     (26,306 )
Balance, December 31, 2018 and March 31, 2019   $ 12,108  

Summary of Profit and Loss Information Related to Equity Accounted Investment

Summarized profit and loss information related to the equity accounted investment is as follows:

 

    2018  
       
Net sales   $ 300,210  
Net income   $ 17,435  

ENP Realty LLC [Member]  
Schedule of Equity Method Investment

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 and March 31, 2019   $ 64,249  

Summary of Profit and Loss Information Related to Equity Accounted Investment

Summarized profit and loss information related to the equity accounted investment is as follows:

 

    2018  
       
Net sales   $ 78,870  
Net income   $ 31,913  

Trio Opportunity Corp [Member]  
Schedule of Equity Method Investment

A summary of the Company’s investment follows:

 

       
Balance, January 1, 2018   $ -  
Acquisition     500,000  
Impairment     -  
Balance, December 31, 2018 and March 31, 2019   $ 500,000  

Florida based LLC [Member]  
Schedule of Equity Method Investment

A summary of the Company’s investment follows:

 

Balance, January 1, 2019   $ -  
Acquisition     1,001,000  
Gain in equity method investment     224,402  
Balance, March 31, 2019   $ 1,225,402  

Summary of Profit and Loss Information Related to Equity Accounted Investment

Summarized profit and loss information related to the equity accounted investment is as follows:

 

    2019  
       
Net sales   $ 3,257,350  
Gross profit     1,010,781  
Net income   $ 448,804  

v3.19.1
Long Term Debt (Tables)
3 Months Ended
Mar. 31, 2019
Schedule of Loan Covenants

As of March 31, 2019, Company was in compliance with all loan covenants.

 

Continuity   March 31, 2019     December 31, 2018  
Balance, January 1   $ 4,351,743       352,089  
Plus: Proceeds from loans     -       4,100,000  
Plus: Acquisition of ENP (see Note 3)     -       206,921  
Less: Payments on loan     (205,262 )     (307,267 )
Balance, end of period   $ 4,146,481     $ 4,351,743  

Schedule of Outstanding Balance Loan

Outstanding balance   March 31, 2019     December 31, 2018  
a) Long term debt – Harris Bank   $ 100,597     $ 150,895  
b) Long term debt – Harris Bank     3,855,952       4,002,381  
c) Long term debt – Midland States Bank     171,556       177,794  
d) Long term debt – Ford Credit     18,376       20,673  
Long-term Debt   $ 4,146,481     $ 4,351,743  
Less: current portion     (721,370 )     (771,359 )
    $ 3,425,111     $ 3,580,384  

Promissory Note One With Harris Bank [Member]  
Schedule of Interest Loan Repayment

The Company has committed to the following repayments:

 

2019   $ 100,597  

Promissory Note Two With Harris Bank [Member]  
Schedule of Interest Loan Repayment

The Company has committed to the following repayments:

 

2019   $ 439,286  
2020   $ 585,714  
2021   $ 585,714  
2022   $ 585,714  
2023   $ 585,714  

Promissory Note With Midland States Bank [Member]  
Schedule of Interest Loan Repayment

The Company has committed to the following repayments:

 

2019   $ 19,171  
2020   $ 25,562  
2021   $ 25,562  
2022   $ 25,562  
2023   $ 25,562  

Promissory Note With Ford Motor Credit Company [Member]  
Schedule of Interest Loan Repayment

The Company has committed to the following repayments:

 

2019   $ 6,891  
2020   $ 9,188  
2021   $ 2,297  

v3.19.1
Stock Options (Tables)
3 Months Ended
Mar. 31, 2019
Share-based Payment Arrangement [Abstract]  
Schedule of Stock Option Activity

The following table summarizes the Company’s stock option activity for the year ended December 31, 2017 and the three-month period ended March 31, 2019:

 

    Number of shares     Exercise price
per share
   

Weighted average

exercise price

 
                   
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  
Cancelled or expired     (32,000 )   $ 0.75 – 1.70     $ 1.38  
Exercised     (12,000 )   $ 0.75 – 1.05     $ 1.10  
Balance, March 31, 2019     616,000     $ 0.75 – 1.75     $ 1.35  
Exercisable, March 31, 2019     516,000     $ 0.75 – 1.70     $ 1.27  

Schedule of Stock Option Fair Value Assumptions

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

 

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

v3.19.1
Non-Controlling Interests (Tables)
3 Months Ended
Mar. 31, 2019
Noncontrolling Interest [Abstract]  
Schedule of Distributions

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  
Noncontrolling interest share of profit     29,264  
Balance, March 31, 2019   $ 2,491,495  

v3.19.1
Segmented, Significant Customer Information and Economic Dependency (Tables)
3 Months Ended
Mar. 31, 2019
Segment Reporting [Abstract]  
Schedule of Reportable Segments

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.

 

Three months ended March 31, 2019:                  
                   
    EWCP     TPA     Total  
Revenue   $ 123,139     $ 8,348,337     $ 8,471,476  
Interest expense     -       127,007       127,007  
Depreciation and amortization     11,608       136,671       148,279  
Segment profit (loss)     (143,808 )     1,184,222       1,040,414  
Segment assets     502,783       9,658,406       10,161,189  
Expenditures for segment assets     -       (1,275,835 )     (1,275,835 )

 

Three months ended March 31, 2018:                  
                   
    EWCP     TPA     Total  
Revenue   $ 75,820     $ 4,125,360     $ 4,201,180  
Interest expense     -       7,400       7,400  
Depreciation and amortization     12,640       47,060       59,700  
Segment profit (loss)     (97,834 )     801,498       703,664  
Segment assets     555,710       1,396,676       1,952,386  
Expenditures for segment assets     (1,419 )     (6,078 )     (7,497 )

Schedule of Revenue Generated in United States and Canada

The sales generated in the United States and Canada are as follows:

 

   

Three months ended

March 31, 2019

   

Three months ended

March 31, 2018

 
Canada   $ 75,952     $ 100,189  
United States and abroad     8,395,524       4,100,991  
Total   $ 8,471,476     $ 4,201,180  

Schedule of Long-lived Assets are Located in Canada and United States

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

 

    March 31, 2019     December 31, 2018  
Canada   $ 502,783     $ 505,124  
United States     9,658,406       7,783,426  
Total   $ 10,161,189     $ 8,288,550  

v3.19.1
Commitments (Tables)
3 Months Ended
Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Schedule of Future Minimum Rental Payments

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

 

2019   $ 310,248  
2020   $ 399,900  
2021   $ 276,980  
2022   $ 10,620  
2023   $ 8,100  

v3.19.1
Basis of Presentation (Details Narrative)
3 Months Ended
Mar. 31, 2019
USD ($)
Unrelated Party [Member]  
Ownership interest 35.00%
ENP Peru Investments LLC [Member]  
Ownership interest 65.00%
Purchase price $ 5,110,560
v3.19.1
Significant Accounting Policies (Details Narrative) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Jan. 02, 2019
Revenue $ 8,471,476 $ 4,201,180    
Cost of sales $ 5,695,889 2,233,917    
Equity method investment, description 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.      
Right use of assets and lease liabilities       $ 819,079
Three Primary Customers [Member]        
Accounts receivable $ 3,774,617   $ 1,280,406  
Concentration risk, percentage 50.00%   31.00%  
Shipping and Handling [Member]        
Revenue $ 165,592 75,897    
Cost of sales $ 347,960 $ 251,909    
v3.19.1
Significant Accounting Policies - Schedule of Method of Depreciation (Details)
3 Months Ended
Mar. 31, 2019
Computer Hardware [Member]  
Depreciation method used and annual rate 30% Declining balance
Furniture and Fixtures [Member]  
Depreciation method used and annual rate 20% Declining balance
Manufacturing Equipment [Member]  
Depreciation method used and annual rate 20% Declining balance
Office Equipment [Member]  
Depreciation method used and annual rate 20% Declining balance
Boat [Member]  
Depreciation method used and annual rate 20% Declining balance
Building and Improvements [Member]  
Depreciation method used and annual rate 10% Declining balance
Trailer [Member]  
Depreciation method used and annual rate 30% Declining balance
Patents [Member]  
Depreciation method used and annual rate Straight-line over 17 years
Technology [Member]  
Depreciation method used and annual rate Straight-line over 10 years
Right of Use Asset [Member]  
Depreciation method used and annual rate Straight-line over lease term
Leasehold Improvements [Member]  
Depreciation method used and annual rate Straight-line over lease term
v3.19.1
Adoption of ASC 942, Leases (Details Narrative) - USD ($)
3 Months Ended
Mar. 31, 2019
Jan. 02, 2019
Right use of assets and lease liabilities $ 739,500  
Operating lease term 5 years  
ASC 842 [Member]    
Lease discount rate   5.50%
Operating lease costs $ 99,908  
Right use of assets and lease liabilities   $ 819,079
Operating lease term   5 years
v3.19.1
Adoption of ASC 942, Leases - Summary of Remaining Expected Lease Payments (Details)
Mar. 31, 2019
USD ($)
Leases [Abstract]  
2019 $ 262,008
2020 326,520
2021 232,580
2022 10,620
2023 8,100
Thereafter
Less: imputed interest (100,328)
Present value of operating lease liabilities $ 739,500
v3.19.1
Accounts Receivable - Schedule of Accounts Receivable (Details) - USD ($)
Mar. 31, 2019
Dec. 31, 2018
Receivables [Abstract]    
Accounts receivable $ 7,629,806 $ 4,459,834
Allowances for doubtful accounts (37,862) (37,088)
Accounts receivable net $ 7,591,944 $ 4,422,745
v3.19.1
Inventory - Schedule of Inventory (Details) - USD ($)
Mar. 31, 2019
Dec. 31, 2018
Inventory Disclosure [Abstract]    
Completed goods $ 3,857,620 $ 3,770,071
Work in progress 129,198 150,333
Raw materials and supplies 4,749,918 4,807,305
Total inventory $ 8,736,736 $ 8,727,709
v3.19.1
Property, Plant & Equipment (Details Narrative)
3 Months Ended 12 Months Ended
Mar. 31, 2019
USD ($)
Dec. 31, 2018
USD ($)
Dec. 31, 2018
CAD ($)
Dec. 31, 2017
USD ($)
Dec. 31, 2017
CAD ($)
Feb. 28, 2017
USD ($)
Feb. 28, 2017
CAD ($)
Depreciation expense $ 144,169 $ 55,590          
Building and equipment net $ 3,744,510 2,563,261          
Building and Manufacturing Equipment [Member]              
Building and equipment net           $ 1,659,404  
Proceeds from insurance   $ 2,349,498   $ 4,207,578      
Building and Manufacturing Equipment [Member] | CAD [Member]              
Building and equipment net             $ 2,196,722
Proceeds from insurance     $ 3,132,666   $ 5,570,000    
v3.19.1
Property, Plant & Equipment - Schedule of Property, Plant & Equipment (Details) - USD ($)
Mar. 31, 2019
Dec. 31, 2018
Cost $ 9,563,629 $ 8,305,439
Accumulated Depreciation 5,849,119 5,742,178
Net 3,744,510 2,563,261
Buildings [Member]    
Cost 3,521,375 3,516,710
Accumulated Depreciation 2,547,462 2,523,148
Net 973,913 993,562
Automobiles [Member]    
Cost 193,397 193,397
Accumulated Depreciation 84,262 74,753
Net 109,135 118,644
Computer Hardware [Member]    
Cost 43,466 43,414
Accumulated Depreciation 40,476 40,226
Net 2,990 3,188
Furniture and Fixtures [Member]    
Cost 105,568 105,494
Accumulated Depreciation 93,997 93,087
Net 11,571 12,407
Manufacturing Equipment [Member]    
Cost 5,136,488 3,859,653
Accumulated Depreciation 2,902,210 2,838,344
Net 2,234,278 1,021,309
Boat [Member]    
Cost 34,400 34,400
Accumulated Depreciation 19,341 18,548
Net 15,059 15,852
Office Equipment [Member]    
Cost 1,776 1,740
Accumulated Depreciation 514 438
Net 1,262 1,302
Trailer [Member]    
Cost 8,977 8,793
Accumulated Depreciation 4,036 3,561
Net 4,941 5,232
Leasehold Improvements [Member]    
Cost 88,872 88,872
Accumulated Depreciation 54,595 49,937
Net 34,277 38,935
Land [Member]    
Cost 357,084 352,830
Accumulated Depreciation
Net 357,084 352,830
Technology [Member]    
Cost 102,226 100,136
Accumulated Depreciation 102,226 100,136
Net
v3.19.1
Patents (Details Narrative) - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Amortization $ 4,110 $ 4,110  
CAD [Member]      
Foreign currency translation effects cost $ 265,102   $ 265,102
v3.19.1
Patents - Schedule of Patents (Details) - USD ($)
Mar. 31, 2019
Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]    
Patents, Cost $ 198,376 $ 194,320
Accumulated Amortization 139,472 131,306
Patents, net $ 58,904 $ 63,014
v3.19.1
Patents - Schedule of Estimated Amortization Expense (Details)
Mar. 31, 2019
USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]  
2019 $ 16,438
2020 16,438
2021 16,438
2022 $ 13,700
v3.19.1
Goodwill and Indefinite Lived Intangible Assets (Details Narrative)
3 Months Ended
Mar. 31, 2019
ENP Peru Investments LLC [Member]  
Estimated useful life 15 years
v3.19.1
Goodwill and Indefinite Lived Intangible Assets - Schedule of Goodwill and Indefinite Lived Intangible Assets (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Begining balance $ 2,534,275    
Ending balance 2,534,275   $ 2,534,275
Begining balance 63,014    
Amortization 4,110 $ 4,110  
Ending balance 58,904   63,014
EnP Investments Limited Liability Corporation (LLC) [Member]      
Begining balance 2,534,275
Additions   2,534,275
Impairment  
Ending balance 2,534,275   2,534,275
Begining balance 770,000
Additions   770,000
Impairment  
Ending balance 770,000   770,000
Begining balance 2,358,000
Additions   2,398,000
Amortization (44,000)   (40,000)
Ending balance $ 2,314,000   $ 2,358,000
v3.19.1
Goodwill and Indefinite Lived Intangible Assets - Schedule of Estimated Future Amortization Expense (Details)
Mar. 31, 2019
USD ($)
2020 $ 16,438
2021 16,438
2022 16,438
2023 13,700
Finite-Lived Intangible Assets [Member]  
2019 176,000
2020 176,000
2021 176,000
2022 160,000
2023 $ 160,000
v3.19.1
Long Term Deposits - Schedule of Long Term Deposits (Details) - USD ($)
Mar. 31, 2019
Dec. 31, 2018
Long Term Deposits    
Long term deposits $ 30,777 $ 30,777
v3.19.1
Investments (Details Narrative) - USD ($)
1 Months Ended 12 Months Ended
Jan. 31, 2019
Dec. 31, 2018
Mar. 31, 2019
Oct. 31, 2018
Dec. 31, 2016
Restricted cash, released upon reaching milestone   $ 1,000,000    
ENP Peru Investments LLC [Member]          
Ownership interest       65.00% 50.00%
ENP Realty LLC [Member]          
Ownership interest   24.00%      
Applied Holding Corp [Member]          
Investment   $ 200,000      
Debt conversion due date   2021      
Debt term   2 years      
Trio Opportunity Corp [Member]          
Investment   $ 500,000      
Trio Opportunity Corp [Member] | Common Class B [Member]          
Non voting shares   50,000      
Share price   $ 10.00      
Florida based LLC [Member]          
Ownership interest 50.00%        
Investment $ 1,001,000        
Restricted cash, released upon reaching milestone $ 1,000,000        
Milestones, term Further payments of $1,000,000 and $500,000 may become due should other subsequent milestones be reached.        
v3.19.1
Investments - Schedule of Equity Method Investment (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2019
Dec. 31, 2018
Balance, Beginning $ 776,357  
Balance, Ending 2,001,759 $ 776,357
ENP Peru Investments LLC [Member]    
Balance, Beginning 12,108 13,414
Acquisition of additional units 25,000
Acquisition
Return of equity (25,000)
Gain (loss) in equity method investment (26,306)
Impairment
Balance, Ending 12,108 12,108
ENP Realty LLC [Member]    
Balance, Beginning 64,249
Acquisition of additional units
Acquisition 56,590
Return of equity
Gain (loss) in equity method investment 7,659
Impairment  
Balance, Ending 64,249 64,249
Trio Opportunity Corp [Member]    
Balance, Beginning 500,000 500,000
Acquisition of additional units
Acquisition 500,000
Return of equity
Gain (loss) in equity method investment
Impairment
Balance, Ending 500,000 500,000
Florida based LLC [Member]    
Balance, Beginning
Acquisition 1,001,000  
Gain (loss) in equity method investment 224,002  
Balance, Ending $ 1,225,402
v3.19.1
Investments - Summary of Profit and Loss Information Related to Equity Accounted Investment (Details)
3 Months Ended
Mar. 31, 2019
USD ($)
ENP Peru Investments LLC [Member]  
Net sales $ 300,210
Net income 17,435
ENP Realty LLC [Member]  
Net sales 78,870
Net income 31,913
Florida based LLC [Member]  
Net sales 3,257,350
Net income 448,804
Gross profit $ 1,010,781
v3.19.1
Short-Term Line of Credit (Details Narrative) - USD ($)
1 Months Ended
Feb. 28, 2019
Sep. 30, 2018
Mar. 31, 2019
Dec. 31, 2018
Line of credit     $ 4,182,061 $ 2,798,131
New Agreement [Member] | Midland States Bank [Member]        
Aggregate amount of revolving line of credit $ 2,500,000      
Annual interest rate of loan     6.5477% 6.5296%
Line of credit     $ 1,682,061 $ 1,098,131
Debt effective rate 4.06%      
New Agreement [Member] | Midland States Bank [Member] | Maximum [Member]        
Annual interest rate of loan 4.00%      
New Agreement [Member] | Midland States Bank [Member] | Extended Maturity [Member]        
Debt maturity date May 15, 2019      
New Agreement [Member] | Harris Bank [Member]        
Aggregate amount of revolving line of credit   $ 2,500,000    
Eligible percentage of domestic accounts receivable   80.00%    
Percentage of foreign accounts receivable of inventory   50.00%    
Annual interest rate of loan     5.50% 5.75%
Line of credit     $ 2,500,000 $ 1,700,000
v3.19.1
Long Term Debt (Details Narrative) - USD ($)
1 Months Ended 3 Months Ended
Oct. 31, 2018
Jan. 31, 2018
Mar. 31, 2016
Sep. 30, 2014
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Long term debt         $ 4,146,481   $ 4,351,743 $ 352,089  
Harris Bank [Member]                  
Long term debt         100,597   150,895    
Midland States Bank [Member]                  
Long term debt         171,556   177,794    
Ford Motor Credit Company [Member]                  
Long term debt         $ 18,376   $ 20,673    
NanoChem Solutions Inc [Member] | Harris Bank [Member]                  
Promissory note $ 4,100,000     $ 1,005,967          
Debt instrument, interest rate, stated percentage         6.00%   5.75%    
Debt instrument, term 7 years     5 years          
Long term debt         $ 100,597   $ 150,895    
Interest expense         $ 2,009 $ 4,186      
Debt maturity description Due May 31, 2019 and 2020     The final payment will be made in September 2019.          
Payment of monthly installments interest rate 25.00%                
Payment of monthly installment $ 300,000                
NanoChem Solutions Inc [Member] | Harris Bank [Member] | Prime Rate [Member]                  
Debt instrument, interest rate, stated percentage       0.50%          
NanoChem Solutions Inc [Member] | Harris Bank [Member]                  
Debt instrument, interest rate, stated percentage         5.50%   5.50%    
Interest expense         $ 54,958      
Debt balance owing         3,855,952   $ 4,002,381    
ENP Peru Investments LLC [Member]                  
Ownership interest percenatge of EnP 65.00%               50.00%
ENP Peru Investments LLC [Member] | Midland States Bank [Member]                  
Promissory note   $ 200,000              
Debt instrument, interest rate, stated percentage   5.25%              
Debt instrument, term   7 years              
Interest expense         2,333      
Debt balance owing         171,556   177,794    
ENP Peru Investments LLC [Member] | Ford Motor Credit Company [Member]                  
Promissory note     $ 45,941            
Debt instrument, interest rate, stated percentage     0.00%            
Debt instrument, term     5 years            
Debt balance owing         $ 18,376   $ 20,673    
v3.19.1
Long Term Debt - Schedule of Interest Loan Repayment (Details) - USD ($)
Oct. 30, 2018
Jan. 31, 2018
Mar. 31, 2016
Sep. 30, 2014
Promissory Note One With Harris Bank [Member]        
2019       $ 100,597
Promissory Note Two With Harris Bank [Member]        
2019 $ 439,286      
2020 585,714      
2021 585,714      
2022 585,714      
2023 $ 585,714      
Promissory Note With Midland States Bank [Member]        
2019   $ 19,171    
2020   25,562    
2021   25,562    
2022   25,562    
2023   $ 25,562    
Promissory Note With Ford Motor Credit Company [Member]        
2019     $ 6,891  
2020     9,188  
2021     $ 2,297  
v3.19.1
Long Term Debt - Schedule of Loan Covenants (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2019
Dec. 31, 2018
Debt Disclosure [Abstract]    
Balance, beginning of period $ 4,351,743 $ 352,089
Plus: Proceeds from loans 4,100,000
Plus: Acquisition of ENP (see Note 3) 206,921
Less: Payments on loan (205,262) (307,267)
Balance, end of period $ 4,146,481 $ 4,351,743
v3.19.1
Long Term Debt - Schedule of Outstanding Balance Loan (Details) - USD ($)
Mar. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Long-term Debt $ 4,146,481 $ 4,351,743 $ 352,089
Less: current portion (721,370) (771,359)  
Long term balance 3,425,111 3,580,384  
Harris Bank [Member]      
Long-term Debt 100,597 150,895  
Harris Bank [Member]      
Long-term Debt 3,855,952 4,002,381  
Midland States Bank [Member]      
Long-term Debt 171,556 177,794  
Ford Motor Credit Company [Member]      
Long-term Debt $ 18,376 $ 20,673  
v3.19.1
Convertible Note Payable (Details Narrative)
3 Months Ended
Mar. 31, 2019
USD ($)
shares
ENP Peru Investments LLC [Member]  
Issued a convertible note payable | $ $ 1,000,000
Debt convertible due date Sep. 30, 2023
Debt conversion ratio 5.00%
Flexible Solutions International Inc [Member]  
Debt converted to shares | shares 400,000
Debt option to extend period Sep. 30, 2028
v3.19.1
Stock Options (Details Narrative) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Options granted percentage 100.00%    
Options maximum granted term 5 years    
Stock options granted   110,000
Stock options exercised 12,000   101,666
Compensation expense related to non-vested awards $ 51,635    
Compensation expense related to non-vested awards, weighted average period 4 years 6 months    
Consultants [Member]      
Stock option expense $ 5,747 $ 6,675  
Stock options exercised 10,000 10,000
Employees [Member]      
Stock option expense $ 19,025  
Stock options exercised 12,000 23,000 23,000
v3.19.1
Stock Options - Schedule of Stock Option Activity (Details) - $ / shares
3 Months Ended 12 Months Ended
Mar. 31, 2019
Dec. 31, 2018
Number of shares, Beginning Balance 660,000 713,000
Number of shares, Granted 110,000
Number of shares, Cancelled or expired (32,000) (61,334)
Number of shares, Exercised (12,000) (101,666)
Number of shares, Ending Balance 616,000 660,000
Number of shares Exercisable, Ending Balance 516,000  
Weighted average exercise price, Beginning Balance $ 1.35 $ 1.21
Weighted average exercise price, Granted   1.74
Weighted average exercise price, Cancelled or expired 1.38 1.09
Weighted average exercise price, Exercised 1.1 1.01
Weighted average exercise price, Ending Balance 1.35 1.35
Weighted average exercise price Exercisable, Ending Balance 1.27  
Minimum [Member]    
Exercise price per share, Beginning Balance 0.75 0.75
Exercise price per share, Granted   1.48
Exercise price per share, Cancelled or expired 0.75 1.00
Exercise price per share, Exercised 0.75 0.75
Exercise price per share, Ending Balance 0.75 0.75
Exercise price per share Exercisable, Ending Balance 0.75  
Maximum [Member]    
Exercise price per share, Beginning Balance 1.75 1.70
Exercise price per share, Granted   1.75
Exercise price per share, Cancelled or expired 1.70 1.70
Exercise price per share, Exercised 1.05 1.42
Exercise price per share, Ending Balance 1.75 $ 1.75
Exercise price per share Exercisable, Ending Balance $ 1.70  
v3.19.1
Stock Options - Schedule of Stock Option Fair Value Assumptions (Details)
12 Months Ended
Dec. 31, 2018
$ / shares
Expected life - years 3 years
Dividend yield 0.00%
Minimum [Member]  
Interest rate 2.80%
Volatility 47.77%
Weighted average fair value of options granted $ 0.4759
Maximum [Member]  
Interest rate 2.96%
Volatility 51.85%
Weighted average fair value of options granted $ 0.6313
v3.19.1
Capital Stock (Details Narrative) - $ / shares
3 Months Ended 12 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Mar. 06, 2019
Stock options exercised 12,000   101,666  
Employees [Member]        
Stock options exercised 12,000 23,000 23,000  
Consultants [Member]        
Stock options exercised 10,000 10,000  
Existing Stockholders [Member]        
Payment of special dividend, per share       $ 0.05
v3.19.1
Non-Controlling Interests (Details Narrative) - USD ($)
3 Months Ended
Oct. 02, 2018
Mar. 31, 2019
Unrelated Party [Member]    
Related party owner ship percentage   35.00%
EnP Investments Limited Liability Corporation (LLC) [Member]    
Owner ship percentage   65.00%
Cash paid $ 4,110,560  
Convertible note payable $ 1,000,000  
Distributions   $ 229,135
v3.19.1
Non-Controlling Interests - Schedule of Distributions (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Distribution to noncontrolling interests $ 2,462,231    
Noncontrolling interest share of profit (loss) (29,264)  
Distribution to noncontrolling interests 2,491,495   $ 2,462,231
EnP Investments Limited Liability Corporation (LLC) [Member]      
Distribution to noncontrolling interests 2,462,231
Acquisition     2,759,917
Distribution     (229,135)
Noncontrolling interest share of profit (loss) 29,264   (68,551)
Distribution to noncontrolling interests $ 2,491,495   $ 2,462,231
v3.19.1
Segmented, Significant Customer Information and Economic Dependency (Details Narrative)
3 Months Ended 12 Months Ended
Mar. 31, 2019
USD ($)
Segments
Dec. 31, 2018
USD ($)
Number of operating segment | Segments 2  
Accounts Receivable [Member] | Three Customers [Member]    
Accounts receivable | $ $ 3,790,213 $ 1,999,638
Concentration risk percentage 44.00% 47.00%
v3.19.1
Segmented, Significant Customer Information and Economic Dependency - Schedule of Reportable Segments (Details) - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Revenue $ 8,471,476 $ 4,201,180
Interest expense 129,007 7,400
Depreciation and amortization 148,279 59,700
Segment profit (loss) 1,040,414 703,664
Segment assets 10,161,189 1,952,386
Expenditures for segment assets (1,275,835) (7,497)
EWCP [Member]    
Revenue 123,139 75,820
Interest expense
Depreciation and amortization 11,608 12,640
Segment profit (loss) (143,808) (97,834)
Segment assets 502,783 555,710
Expenditures for segment assets (1,419)
TPA [Member]    
Revenue 8,348,337 4,125,360
Interest expense 127,007 7,400
Depreciation and amortization 136,671 47,060
Segment profit (loss) 1,184,222 801,498
Segment assets 9,658,406 1,396,676
Expenditures for segment assets $ (1,275,835) $ (6,078)
v3.19.1
Segmented, Significant Customer Information and Economic Dependency - Schedule of Revenue Generated in United States and Canada (Details) - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Sales $ 8,471,476 $ 4,201,180
Canada [Member]    
Sales 75,952 100,189
United States and Abroad [Member]    
Sales $ 8,395,524 $ 4,100,991
v3.19.1
Segmented, Significant Customer Information and Economic Dependency - Schedule of Long-lived Assets are Located in Canada and United States (Details) - USD ($)
Mar. 31, 2019
Dec. 31, 2018
Long-lived assets $ 10,161,189 $ 8,288,550
Canada [Member]    
Long-lived assets 502,783 505,124
United States [Member]    
Long-lived assets $ 9,658,406 $ 7,783,426
v3.19.1
Commitments (Details Narrative)
3 Months Ended
Mar. 31, 2019
USD ($)
Commitments and Contingencies Disclosure [Abstract]  
Minimum rental payments $ 1,005,848
Lease term 5 years
Lease expiry date Sep. 30, 2023
v3.19.1
Commitments - Schedule of Future Minimum Rental Payments (Details)
Mar. 31, 2019
USD ($)
Commitments and Contingencies Disclosure [Abstract]  
2019 $ 310,248
2020 399,900
2021 276,980
2022 10,620
2023 $ 8,100
v3.19.1
Subsequent Events (Details Narrative) - shares
1 Months Ended 3 Months Ended 12 Months Ended
May 14, 2019
Apr. 30, 2019
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Stock options exercised     12,000   101,666
Employees [Member]          
Stock options exercised     12,000 23,000 23,000
Employees [Member] | Subsequent Event [Member]          
Stock options exercised 6,000 8,000      
Consultants [Member]          
Stock options exercised     10,000 10,000
Consultants [Member] | Subsequent Event [Member]          
Stock options exercised   10,888