8-K
FLEXIBLE SOLUTIONS INTERNATIONAL INC (FSI)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15\(d\) of the
Securities Exchange Act of 1934
Date of Report \(date of earliest event reported\): May 14, 2020
FLEXIBLE SOLUTIONS INTERNATIONAL INC.
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\(Exact name of Registrant as specified in its charter\)
Alberta 001-31540 71-1630889
(State or other jurisdiction (Commission File No.) (IRS Employer of incorporation) Identification No.)
6001 54 Ave.
Taber, Alberta, Canada T1G 1X4
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\(Address of principal executive offices, including Zip Code\)
Registrant's telephone number, including area code: (250) 477-9969
N/A
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\(Former name or former address if changed since last report\)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:
\[ \] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
\[ \] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
\[ \] Pre-commencement communications pursuant to Rule 14d-2\(b\) under the
Exchange Act (17 CFR 240.14d-2(b)
\[ \] Pre-commencement communications pursuant to Rule 13e-4\(c\) under the
Exchange Act (17 CFR 240.13e-14c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each Trading Name of each exchange on which
class Symbol\(s\) registered
Common Stock FSI NYSE American
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (ss.203.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (ss.204.12b-2 of this chapter.
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. [ ]
Item 2.02 Results of Operations and Financial Condition
On May 14, 2020, the Company issued a press release announcing the
Company's financial results for the three months ended March 31, 2020.
Item 8.01 Other Events
On May 15, 2020, the Company held a conference call to discuss its
financial results for the three months ended March 31, 2020, as well as other information regarding the Company.
Item 9.01 Exhibits
Exhibit Number Description of Document
99.1 May 14, 2020 Press Release
99.2 Text of opening remarks by Dan O'Brien/May 15, 2020 conference call
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: May 15, 2020 FLEXIBLE SOLUTIONS INTERNATIONAL INC.
By: /s/ Daniel B. O'Brien\_
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Daniel B. O'Brien, President and Chief
Executive Officer
EXHIBIT 99.1
NEWS RELEASE May 14, 2020
FSI ANNOUNCES First Quarter, 2020 FINANCIAL RESULTS
Conference call is scheduled for Friday May 15th , 11:00am Eastern time, 8:00am Pacific Time See dial in number and explanation below
VICTORIA, BRITISH COLUMBIA, May 14, 2020 - FLEXIBLE SOLUTIONS INTERNATIONAL, INC. (NYSE Amex: FSI, FRANKFURT: FXT), is the developer and manufacturer of biodegradable polymers for oil extraction, detergent ingredients and water treatment as well as crop nutrient availability chemistry. Flexible Solutions also manufactures biodegradable and environmentally safe water and energy conservation technologies. Today the Company announces financial results for the first quarter (Q1) ended March 31, 2020.
Mr. Daniel B. O'Brien, CEO, states, "The first quarter of 2020 has been a difficult time for many companies and millions of people. The Company is satisfied with our financial performance considering the covid crisis." Mr. O'Brien continues, "We remain in full production and are proud that our agriculture and cleaning product ingredients are aiding in the struggle against the disease."
o Sales in the first quarter \(Q1\) were $8,429,486, down less than 1%
when compared to sales of $8,471,476 in the corresponding period a
year ago. The financials show a Q1, 2020 net profit of $1,264,675, or
$0.10 per share, compared to a net profit of $1,011,150, or $0.09 per
share, in Q1, 2019.
o Basic weighted average shares used in computing earnings per share
amounts were 12,237,798 and 11,705,613 for Q1, 2020 and Q1, 2019
respectively.
o Non-GAAP operating cash flow: For the 3 months ending March 31, 2020,
net income reflects $177,640 of non-cash charges \(depreciation, stock
option expenses\), as well as gain \(loss\) on disposition \(and
involuntary disposition\) of equipment, gain on investment, interest
expense, interest income, write down of inventory, and income tax; Net
income attributable to non-controlling interests. These are items not
related to operating or current operating activities. When these items
are removed, the Company shows operating cash flow of $1,778,785, or
$0.15 per share. This compares with operating cash flow of $1,300,360,
or $0.11 per share, in the corresponding 3 months of 2019 \(see the
table that follows for details of these calculations\).
The NanoChem division continues to be the dominant source of revenue and cash flow for the Company. New opportunities continue to unfold in detergent, water treatment, oil field extraction and agricultural use to further increase sales in this division.
Conference call
A conference call has been scheduled for 11:00 am Eastern Time, 8:00 am Pacific Time, on Friday May 15th . CEO, Dan O'Brien will be presenting and answering questions on the conference call. To participate in this call please dial 800-309-1256 (or 1 856-344-9308 ) just prior to the scheduled call time. Participant code 302299 will be requested. The conference call title, "FSI First Quarter 2020 Financial Results," may be requested.
The above information and following table contain supplemental information regarding income and cash flow from operations for the period ended March 31, 2020. Adjustments to exclude depreciation, stock option expenses and one time charges are given. This financial information is a Non-GAAP financial measure as defined by SEC regulation G. The GAAP financial measure most directly comparable is net income. The reconciliation of each of the Non-GAAP financial measures is as follows:
FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
Consolidated Statement of Operations
For 3 Months Ended March 31 \(3 Months Operating Cash Flow\)
\(Unaudited\)
3 months ended March 31
2020 2019
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Revenue $ 8,429,486 $ 8,471,476 Income (loss) before income tax - GAAP $ 1,766,678 $ 1,293,495 Provision for Income tax (expense)/recovery $ (434,988) $ (253,081)
GAAP Net income (loss)- GAAP $ 1,264,675 a $ 1,011,150 a Net income (loss) per common share - basic $ 0.10 a $ 0.09 a
GAAP 3 month weighted average shares used in computing per share amounts - basic - GAAP 12,237,98 11,705,613
3 Month Operating Cash Flow Ended September 30 ------------------------------
Operating Cash flow (3 months). NON-GAAP $ 1,178,785 b,c $1,300,360 b,c
Operating Cash flow per share excluding $ 0.15 b,c $ 0.11 b,c non-operating items and items not related to current operations (9 months) - basic NON-GAAP Non-cash Adjustments (3 month) GAAP $ 177,640 d $ 154,026 d Shares (3 month basic weighted average) 12,237,798 11,705,613 used in computing per share amounts - basic GAAP
Notes: certain items not related to "operations" of the Company have been excluded from net ----- income as follows.
a) Non-GAAP -:: Flexible Solutions International purchased 65% of ENP in 4th quarter, 2018 (October 2018). Therefore 3 month Net Income is also reduced by the dollar amount of non-controlling interest in ENP(see the financials).
b) Non-GAAP - amounts exclude certain cash and non-cash items: depreciation and stock compensation expense (2020 = $177,640, 2019 = $154,026), interest expense (2020 = $101,425, 2019 = $129,007), interest income (2020 = $414, 2019 = $16,252), gain on investment (2020 = $199,529, 2019 = $230,652), net gain/(loss) on involuntary disposition of equipment (2020 = N/A, 2019 = N/A), write down of inventory (2019 = N/A, 2018 = N/A), deferred income tax recovery (2020 = N/A, 2019 = $125,999), Income tax (2020 =$434,988, 2019 = $379,080), and Net income attributable to non-controlling interests. See the financial statements for all adjustments.
c) The revenue and gain from the 50% investment in the private Florida LLC announced in January 2019 is not treated as revenue or profit from operations by Flexible Solutions given the Company only purchased 50% of the LLC. The profit is treated as investment income and therefore occurs below Operating income in the Statement of Operations. As a result the gains from all investments, including that of the Florida LLC, are removed from the calculation to arrive at Operating Cash Flow.
d) Non-GAAP - amounts represent depreciation and stock compensation expense.
Safe Harbor Provision The Private Securities Litigation Reform Act of 1995 provides a "Safe Harbor" for forward-looking statements. Certain of the statements contained herein, which are not historical facts, are forward looking statement with respect to events, the occurrence of which involve risks and uncertainties. These forward-looking statements may be impacted, either positively or negatively, by various factors. Information concerning potential factors that could affect the company is detailed from time to time in the company's reports filed with the Securities and Exchange Commission.
Flexible Solutions International
6001 54th Ave, Taber, Alberta, CANADA T1G 1X4
Company Contacts
Jason Bloom
Toll Free: 800 661 3560
Fax: 403 223 2905
E-mail: info@flexiblesolutions.com
If you have received this news release by mistake or if you would like to be removed from our update list please reply to: info@flexiblesolutions.com
To find out more information about Flexible Solutions and our products, please visit www.flexiblesolutions.com.
EXHIBIT 99.2
Q1 2020 speech
Good morning. I'm Dan O'Brien, CEO of Flexible Solutions.
Safe Harbor provision:
The Private Securities Litigation Reform Act of 1995 provides a "Safe Harbor" for forward-looking statements. Certain of the statements contained herein, which are not historical facts, are forward looking statements with respect to events, the occurrence of which involve risks and uncertainties. These forward-looking statements may be impacted, either positively or negatively, by various factors. Information concerning potential factors that could affect the company is detailed from time to time in the company's reports filed with the Securities and Exchange Commission.
Welcome to the FSI conference call for Q1 2020.
Prior to speaking about our financials, I'd like to talk about our corporate condition and product lines plus what we think might occur over the next several quarters.
Covid Virus: The NanoChem Subsidiary, the ENP Subsidiary and the Florida LLC investment are all engaged in producing for the agriculture sector. Therefore, we are currently considered essential services. Production and sales are continuing to meet customer orders. In hindsight, Inventory at Dec 31 2019 was too high. We were expecting growth in all product lines in 2020. Instead, the virus is likely to prevent growth or even cause small revenue reductions. We shrank our inventory and increased our cash position in Q1 by ordering less inventory than we consumed. This tactic will continue until we feel that we have the right level of inventory to suit the risks of covid.
Our NanoChem division: NCS represents more than 1/2 of the revenue of FSI. This division makes thermal poly-aspartic acid, called TPA for short, a biodegradable polymer with many valuable uses. NCS also manufactures SUN 27(TM) and N Savr 30(TM) which are used to reduce nitrogen fertilizer loss from soil.
TPA is used in agriculture to significantly increase crop yield. The method of action is by slowing crystal growth between fertilizer ions and other ions in the soil resulting in the fertilizer remaining available longer for the plants to use.
TPA is also a biodegradable way of treating oilfield water to prevent pipes from plugging with mineral scale. Our sales into this market are well established and normally grow steadily but slowly. A simple explanation of TPA's effect is that it prevents the scaling out of minerals that are part of the water fraction of oil as it exits the rock formation. Scale must be prevented to keep the oil recovery pipes from clogging.
SUN 27(TM) and N Savr 30(TM) are our nitrogen conservation products. Nitrogen is a critical fertilizer but it is subject to loss through bacterial breakdown, evaporation and soil runoff.
SUN 27(TM) is used to conserve nitrogen from attack by soil bacterial enzymes while N Savr 30(TM) is directed toward reducing nitrogen loss through leaching and evaporation.
ENP, the October 2018 acquisition: ENP is focused on sales into the greenhouse, turf and golf markets, whereas, our NCS sales are into row crop agriculture - two very distinct markets. We account for ENP as a subsidiary and, as expected, it generated consolidated revenue greater than $8 million in full year 2019. FSI booked annual pretax profits of greater than $1 MM from this division which saw moderate annual growth. The strong quarters for ENP are 2 and 3 to match the US spring and summer. Q1 2020 was stronger than the year earlier period. ENP is hoping for growth again in 2020 with the caution that it could face sales difficulties as a result of the virus.
Effect of the LLC investment announced in January: This investment was profitable, as usual. The company we invested in ordered similar amounts in Q1 2020 as it did in Q1 2019. The Company is focused on international sales into multiple countries all of which are facing different covid issues and responding in varied ways. The large number of variables prevents any useful prediction other than probable results similar to 2019.
Watersavr(TM): News regarding Watersavr(TM) trials and sales will be released if and when it occurs. As the rest of the company grows, Watersavr(TM) will become less of a focus but will remain available for sale to existing and prospective customers.
Q2 2020 and the rest of the year
TPA, SUN 27(TM) and N Savr 30(TM) for agricultural use have peak uptake in Q1 and Q2. 2020 appears to have more focus on just in time ordering which may increase or reduce Q2 sales depending on weather. Sales may also be pulled into Q3. Early buy orders in Q4 could be reduced if our customers decide to continue with just in time strategies.
Oil, gas and industrial sales of TPA are expected to be flat or mildly down in Q2 compared to the previous year while predictions regarding Q3 and Q4 are not possible under the circumstances. Like agriculture, our sales to cleaning products and water treatment are considered essential leaving only O&G as a market vertical at significant risk. The risk in O&G is not permanent loss of business, rather it is the possibility of some wells shutting down for maintenance while oil prices are low.
Tariffs: Since Sept 30th 2018, many of our raw materials imported from China have included a 10% additional tariff which rose to 25% in 2019. US customers received price increases from us as this inventory entered production. International customers are not charged the tariffs because we are applying for the export rebates available to recover the tariffs. As a result, the accumulating tariff payments to the Government are affecting our cost of goods, our cash flow and our profits negatively until the rebates are received. Rebates are very complicated to apply for and can take many months to arrive. The total dollar amount due back to us has become significant and continues to increase. The rebates will increase profitability and cash flow while
decreasing cost of goods for the future quarters in which the rebates are received. We are reasonably comfortable in predicting that some rebates will arrive in late Q2 or early Q3.
Highlights of the financial results:
Sales for the quarter decreased less than 1% to $8.43 million, compared with $8.47 million for Q1 2019. The result is a gain of 1.26 MM or 10 cents per share in the 2020 period, compared to a gain of 1.01 MM or 9 cents per share, in 2019.
Working capital is adequate for all our purposes and is expected to increase during 2020 as we book retained profit from sales. Effort will be made to reduce inventory and accounts receivable while increasing cash until the effects of the virus become more predictable. We also have a line of credit with BMO Harris Bank of Chicago. We are confident that we can execute our plans with our existing capital. The LLC investment in January 2019 was made with cash on hand provided by FSL, our Canadian operating company.
The text of this speech will be available on our website by Monday, May 18th. Email or fax copies can be requested from Jason Bloom at Jason@flexiblesolutions.com.
Thank you, the floor is open for questions.