UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended ~~March 31,~~June 30, 2022

☐	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.~~INC.

(Exact Name of Issuer as Specified in Its Charter)

Alberta		71-1630889
(State or other jurisdiction of		(Employer
of 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: (~~(403)~~403) 223-2995

N/A

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

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 ~~$0.001 par value~~		FSI		NYSE American

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

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

Act. Yes ☐ No ☒

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically 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 ☒ 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 ☒	Smaller reporting company ☒
	Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

☐ Yes ☒ No

Class of Stock		No. Shares Outstanding		Date
Common		~~12,377,246~~12,384,746		~~May 16,~~August 15, 2022

FORM 10-Q

Index

PART I.	FINANCIAL INFORMATION		43

Item 1.	Financial Statements.		43

	(a)	Unaudited Condensed Interim ~~Condensed~~ Consolidated Balance Sheets at ~~March 31,~~June 30, 2022 and December 31, 2021.	43

	(b)	Unaudited Condensed Interim ~~Condensed~~ Consolidated Statements of ~~Income~~Operations and Comprehensive Income for the Three Months Ended ~~March 31,~~June 30, 2022 and 2021.	4

	(c)	Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Income for the Six Months Ended June 30, 2022 and 2021.	5

	~~(c)~~(d)	Unaudited Condensed Interim ~~Condensed~~ Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2022 and 2021.	6

	~~(d)~~(e)	Unaudited Condensed Interim ~~Condensed~~ Consolidated Statements of Stockholders’ Equity for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2022 and 2021.	7

	~~(d)~~(f)	Notes to Unaudited Condensed Interim ~~Condensed~~ Consolidated Financial Statements for the ~~Three Months~~Period Ended ~~March 31, 2022 and 2021.~~June 30, 2022.	89

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operation.		2427

Item 44.	Controls and Procedures.		2630

PART II.	OTHER INFORMATION		2631

Item 6.	Exhibits.		2631

SIGNATURES			2732

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;

	●	~~International tariff treatment of products, both inputs and outputs;~~

	●	Loss of customers or sales weakness;

	●	Inability to achieve future sales levels or other operating results;

	●	The unavailability of funds for capital expenditures;

	●	Operational inefficiencies in distribution or other systems.

	●	New tariffs relating to raw materials imported from China; and

	●	Impact of the COVID-19 virus

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/A for the year ended December 31, 2021.

PART I FINANCIAL INFORMATION

Item 1. Financial Statements.

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.

CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS

(U.S. Dollars)

	March 31, 2022			December 31, 2021			June 30, 2022			December 31, 2021
	(Unaudited)						(Unaudited)
Assets
Current
Cash and cash equivalents	$	5,371,608		$	5,710,227		$	4,488,626		$	5,710,227
Term deposits		1,025,347			1,025,347			1,025,347			1,025,347
Accounts receivable (Note 4)		9,943,148			7,129,329			6,663,077			7,129,329
Inventories (Note 5)		12,214,651			9,502,005			15,185,520			9,502,005
Prepaid expenses		859,922			442,161			562,053			442,161
Total current assets		29,414,676			23,809,069			27,924,623			23,809,069
Property, equipment and leaseholds, net (Note 6)		4,920,019			4,931,713			8,869,721			4,931,713
Patents (Note 7)		9,589			13,699			5,479			13,699
Right of use assets (Note 3)		203,721			217,267			191,684			217,267
Intangible assets (Note 8)		2,560,000			2,600,000			2,520,000			2,600,000
Long term deposits (Note 9)		8,540			8,540			8,540			8,540
Investments (Note 10)		5,453,274			5,424,010			5,488,038			5,424,010
Goodwill (Note 8)		2,534,275			2,534,275			2,534,275			2,534,275
Deferred tax asset		12,697			12,697			12,697			12,697
Total Assets	$	45,116,791		$	39,551,270		$	47,555,057		$	39,551,270

Liabilities
Current
Accounts payable	$	1,362,779		$	1,283,486		$	1,926,937		$	1,283,486
Accrued liabilities		1,318,503			457,062			1,230,070			457,062
Deferred revenue		271,426			349,004			238,244			349,004
Income taxes payable		5,273,842			4,561,396			5,816,644			4,561,396
Short term line of credit (Note 11)		4,948,545			2,300,819			1,149,654			2,300,819
Current portion of lease liability (Note 3)		57,045			77,715			57,390			77,715
Current portion of long term debt (Note 12)		665,614			793,574			700,278			793,574
Total current liabilities		13,897,754			9,823,056			11,119,217			9,823,056
Lease liability (Note 3)		146,676			139,552			134,294			139,552
Deferred income tax liability		310,162			310,162			484,744			310,162
Long term debt (Note 12)		1,491,355			1,573,024			4,763,955			1,573,024
Total Liabilities	$	15,845,947			11,845,794			16,502,210			11,845,794

Stockholders’ Equity
Capital stock (Note 14)
Capital stock (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:
12,377,746 (December 31, 2021: 12,355,246) common shares		12,378			12,355
Capital stock (Note 14) 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: 12,377,746 (December 31, 2021: 12,355,246) common shares		12,378			12,355
12,384,746 (December 31, 2021: 12,355,246) common shares								12,385			12,355
Capital stock (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 12,384,746 (December 31, 2021: 12,355,246) common shares								12,385			12,355

Capital in excess of par value		17,094,836			16,983,648			17,167,103			16,983,648
Other comprehensive loss		(733,187	)		(775,730	)		(735,094	)		(775,730	)
Accumulated earnings		10,415,419			8,882,360			12,077,874			8,882,360
Total stockholders’ equity – controlling interest		26,789,446			25,102,633			28,522,268			25,102,633
Non-controlling interests (Note 15)		2,481,398			2,602,843
Non-controlling interests (Note 16)								2,530,579			2,602,843
Total Stockholders’ Equity		29,270,844			27,705,476			31,052,847			27,705,476
Total Liabilities and Stockholders’ Equity	$	45,116,791		$	39,551,270		$	47,555,057		$	39,551,270

— See Notes to Unaudited Condensed Interim ~~Condensed~~ Consolidated Financial Statements —

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

(U.S. Dollars — Unaudited)

	2022			2021
	Three Months Ended June 30,
	2022			2021
Sales	$	11,165,143		$	8,535,451
Cost of sales		7,303,537			5,575,213
Gross profit		3,861,606			2,960,238

Operating Expenses
Wages		679,289			420,120
Professional fees		415,322			40,286
Administrative salaries and benefits		227,026			223,520
Insurance		137,325			73,360
Office and miscellaneous		123,342			95,584
Consulting		86,417			75,579
Commissions		57,506			52,482
Advertising and promotion		52,176			45,754
Interest expense		52,139			51,055
Lease expense		51,614			64,215
Travel		47,718			21,310
Investor relations and transfer agent fee		28,780			23,019
Research		26,561			15,947
Telecommunications		11,103			10,208
Shipping		8,907			2,908
Utilities		7,566			7,843
Currency exchange		99			25,526
Total operating expenses		2,012,890			1,248,716

Operating income		1,848,716			1,711,522


PPP loan forgiveness		-			-
Gain on acquisition of ENP Peru		335,051			-
Gain on investment		177,552			190,268
Interest income		10,053			22,147
Income before income tax		2,371,372			1,923,937

Income taxes

Income tax expense		(542,802	)		(478,727	)
Net income for the period including non-controlling interests		1,828,570			1,445,210
Less: Net income attributable to non-controlling interests		(166,115	)		(268,449	)
Net income attributable to controlling interest	$	1,662,455		$	1,176,761
Income per share (basic)	$	0.13		$	0.10
Income per share (diluted)		0.13			0.09

Weighted average number of common shares (basic)		12,384,131			12,304,163
Weighted average number of common shares (diluted)		12,478,751			12,510,281
Other comprehensive income (loss):
Net income		1,828,570			1,445,210
Unrealized gain (loss) on foreign currency translations		(1,907	)		37,593
Total comprehensive income	$	1,826,663		$	1,482,803
Comprehensive income – non-controlling interest		(166,115	)		(268,449	)
Comprehensive income attributable to Flexible Solutions International Inc.	$	1,660,548		$	1,214,354

— See Notes to Unaudited Condensed Interim Consolidated Financial Statements —

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS AND

COMPREHENSIVE INCOME

(U.S. Dollars — Unaudited)

	2022			2021
	Three Months Ended March 31,						2022			2021
	2022			2021			Six Months Ended June 30,
							2022			2021
Sales	$	10,783,280		$	7,624,697		$	21,948,423		$	16,160,148
Cost of sales		6,971,379			4,916,776			14,274,916			10,491,989

Gross profit		3,811,901			2,707,921			7,673,507			5,668,159

Operating Expenses
Wages		623,503			579,355			1,302,792			999,475
Professional fees								465,903			93,975
Administrative salaries and benefits		233,585			222,490			460,611			446,010
Insurance		185,360			124,458			322,685			197,818
Consulting		76,274			72,961			162,691			148,540
Office and miscellaneous								159,312			137,703
Interest expense		57,618			62,274			109,757			113,329
Professional fees		50,581			53,689
Lease expense								93,839			130,243
Travel		44,808			10,994			92,526			32,304
Lease expense		42,225			66,028
Advertising and promotion		40,029			34,770			92,205			80,524
Investor relations and transfer agent fee		37,097			25,087			65,877			48,106
Office and miscellaneous		35,970			42,119
Commissions								60,930			57,250
Research		17,696			18,275			44,257			34,222
Telecommunications								20,559			20,199
Shipping								12,901			7,263
Utilities								15,184			10,565
Currency exchange		11,533			8,300			11,632			33,826
Telecommunications		9,456			9,991
Utilities		7,618			2,722
Shipping		3,994			4,355
Commissions		3,424			4,768

Total operating expenses		1,480,771			1,342,636			3,493,661			2,591,352

Operating income		2,331,130			1,365,285			4,179,846			3,076,807
PPP loan forgiveness		-			537,960			-			537,960
Gain on investments		36,764			208,968
Gain on acquisition of ENP Peru								335,051			-
Gain on investment								214,316			399,236
Interest income		22,088			10,298			32,141			32,445
Income before income tax		2,389,982			2,122,511			4,761,354			4,046,448

Income taxes
Income tax expense - current		(712,446	)		(485,456	)

Income tax expense								(1,255,248	)		(964,183	)
Net income for the period including non-controlling interests		1,677,536			1,637,055			3,506,106			3,082,265
Less: Net income attributable to non-controlling interests		(144,477	)		(186,484	)		(310,592	)		(454,933	)
Net income attributable to controlling interest	$	1,533,059		$	1,450,571		$	3,195,514		$	2,627,332

Income per share (basic and diluted)	$	0.12		$	0.12		$	0.26		$	0.21
Weighted average number of common shares (basic)		12,361,313			12,292,452			12,372,785			12,315,746
Weighted average number of common shares (diluted)		12,543,674			12,518,331			12,511,400			12,503,371
Other comprehensive income:
Net income		1,677,536			1,637,055			3,506,106			3,082,265
Unrealized gain on foreign currency translations		42,543			82,352
Unrealized gain (loss) on foreign currency translations								40,636			119,945
Total comprehensive income		1,720,079			1,719,407		$	3,546,742		$	3,202,210
Comprehensive income – non-controlling interest		(144,477	)		(186,484	)		(310,592	)		(454,933	)
Comprehensive income attributable to Flexible Solutions International Inc.	$	1,575,602		$	1,532,923		$	3,236,150		$	2,747,277

— See Notes to Unaudited Condensed Interim ~~Condensed~~ Consolidated Financial Statements —

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. Dollars — Unaudited)

	2022			2021			2022			2021
	Three Months Ended March 31,						Six Months Ended June 30,
	2022			2021			2022			2021

Operating activities
Net income for the period including non-controlling interests	$	1,677,536		$	1,637,055
Adjustments to reconcile net income to net cash:
Net income for the period including non-controlling interest							$	3,506,106		$	3,082,265
Adjustments to reconcile net income to cash provided by operations:
Stock based compensation		54,271			39,589			109,465			78,730
Depreciation and amortization		232,488			232,965			472,278			479,850
Lease right of use amortization								25,583			151,551
Lease right of use financing		2,539			8,187			4,678			14,589
Lease right of use amortization		13,546			74,884
Gain on investments		(36,764	)		(208,968	)
Gain on investment								(214,316	)		(399,236	)
Gain on acquisition of ENP Peru								(335,051	)		-
PPP loan forgiveness		-			(537,960	)		-			(537,960	)

Changes in non-cash working capital items:
Increase in accounts receivable		(2,813,819	)		(1,649,501	)
Increase in inventories		(2,712,646	)		(1,616,862	)
(Increase) Decrease in accounts receivable								466,252			1,739,376
(Increase) Decrease in inventories								(5,683,515	)		(1,348,809	)
(Increase) Decrease in prepaid expenses		(417,761	)		59,204			(119,892	)		61,345
Increase (Decrease) in accounts payable and accrued liabilities		940,734			(872,823	)		1,416,460			(185,089	)
Increase in taxes payable		712,446			513,323
Decrease in deferred revenue		(77,578	)		(35,860	)
Increase (Decrease) in taxes payable								1,255,248			991,877
Increase (Decrease) deferred revenue								(110,760	)		(63,295	)

Cash used in operating activities		(2,425,008	)		(2,356,767	)
Cash provided by operating activities								792,536			4,065,194

Investing activities
Proceeds of equity investment distributions		7,500			12,500
Additional investment in Lygos								-			(500,000	)
Acquisition of ENP Peru								(499,329	)		-
Proceeds of equity method investment								108,750			119,999
Net purchase of property, equipment and leaseholds		(176,684	)		(96,136	)		(422,067	)		(451,728	)

Cash used in investing activities		(169,184	)		(83,636	)
Cash (used in) investing activities								(812,646	)		(831,729	)

Financing activities
Draw from short term line of credit		2,647,726			1,112,361
Repayment of short term line of credit								(1,151,165	)		(626,919	)
Repayment of long term debt		(209,629	)		(208,857	)		(1,945,865	)		(530,311	)
Proceeds from loans								2,194,000			-
Lease financing costs		(16,085	)		(83,070	)		(30,261	)		(166,140	)
Distributions to non-controlling interests		(265,922	)		(157,952	)
Proceeds from issuance of common stock		56,940			76,360
Distributions to non-controlling interest								(382,856	)		(309,666	)
Proceeds of issuance of common stock								74,020			76,360

Cash provided by financing activities		2,213,030			738,842
Cash (used in) financing activities								(1,242,127	)		(1,556,676	)

Effect of exchange rate changes on cash		42,543			82,352			40,636			119,945

Outflow of cash		(338,619	)		(1,619,209	)
Cash and cash equivalents, beginning		6,735,574			4,472,776
Inflow (outflow) of cash								(1,221,601	)		1,796,734
Cash, cash equivalents and restricted cash, beginning								6,735,574			4,472,776

Cash and cash equivalents, ending	$	6,396,955		$	2,853,567
Cash, cash equivalents and restricted cash, ending							$	5,513,973		$	6,269,510

Cash and cash equivalents are comprised of:
Cash, cash equivalents and restricted cash are comprised of:
Cash and cash equivalents	$	5,371,608		$	1,853,567		$	4,488,626		$	5,269,510
Term deposits		1,025,347			1,000,000			1,025,347			1,000,000
Cash, cash equivalents and restricted cash, ending	$	6,396,955		$	2,853,567

Supplemental disclosure of cash flow information:
Income taxes paid	$	-		$	-		$	-		$	-
Interest paid	$	57,618		$	62,274		$	109,457		$	113,329

— See Notes to Unaudited Condensed Interim ~~Condensed~~ Consolidated Financial Statements —

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.

CONDENSED INTERIM ~~CONSOLIDATED STATEMENTS OF~~ Consolidated Statements of Stockholders’ Equity

(U.S. Dollars —– Unaudited)

Shares Capital
Stock Capital in
Excess of
Par Value Accumulated
Earnings Other
Comprehensive
Income (Loss) Total Non-
Controlling Interests Total
Stockholders’
Equity

Balance December 31, 2021 12,355,246 $ 12,355 $ 16,983,648 $ 8,882,360 $ (775,730 ) $ 25,102,633 $ 2,602,843 $ 27,705,476
Translation adjustment — — — — 42,543 42,543 — 42,543
Net income — — — 1,533,059 — 1,533,059 144,477 1,677,536
Common stock issued 22,500 23 56,917 — — 56,940 — 56,940
Distributions to non-controlling interests — — — — — — (265,922 ) (265,922 )
Stock-based compensation — — 54,271 — — 54,271 — 54,271

Balance March 31, 2022 12,377,746 $ 12,378 $ 17,094,836 $ 10,415,419 $ (733,187 ) $ 26,789,446 $ 2,481,398 $ 29,270,844

	Shares		Capital Stock		Capital in Excess of Par Value		Accumulated Earnings		Other Comprehensive Income (Loss)			Total		Non- Controlling Interests			Total Stockholders’ Equity
																				Shares		Par Value		Capital in Excess of Par Value		Accumulated Earnings		Other Comprehensive Income (Loss)			Total			Non- Controlling Interests			Total Stockholders’ Equity
Balance December 31, 2020		12,260,545	$	12,261	$	16,633,190	$	5,433,198	$	(872,121	)	$	21,206,528	$	2,561,751		$	23,768,279
Balance		12,260,545	$	12,261	$	16,633,190	$	5,433,198	$	(872,121	)	$	21,206,528	$	2,561,751		$	23,768,279

Balance December 31, 2021																					12,355,246	$	12,355	$	16,983,648	$	8,882,360	$	(775,730	)	$	25,102,633		$	2,602,843		$	27,705,476
Translation adjustment		—		—		—		—		82,352			82,352		—			82,352			—		—		—		—		42,543			42,543			—			42,543
Net income		—		—		—		1,450,571		—			1,450,571		186,484			1,637,055			—		—		—		1,533,059		—			1,533,059			144,477			1,677,536
Common stock issued		55,201		55		76,305		—		—			76,360		—			76,360			22,500		23		56,917		—		—			56,940			—			56,940
Distributions to non-controlling interests		—		—		—		—		—			—		(157,952	)		(157,952	)		—		—		—		—		—			—			(265,922	)		(265,922	)
Stock-based compensation		—		—		39,589		—		—			39,589		—			39,589			—		—		54,271		—		—			54,271			—			54,271

Balance March 31, 2021		12,315,746	$	12,316	$	16,749,084	$	6,883,769	$	(789,769	)	$	22,855,400	$	2,590,283		$	25,445,683
Balance		12,315,746	$	12,316	$	16,749,084	$	6,883,769	$	(789,769	)	$	22,855,400	$	2,590,283		$	25,445,683
Balance March 31, 2022																					12,377,746	$	12,378	$	17,094,836	$	10,415,419	$	(733,187	)	$	26,789,446		$	2,481,398		$	29,270,844
Translation adjustment																					—		—		—		—		(1,907	)		(1,907	)		—			(1,907	)
Net income																					—		—		—		1,662,455		—			1,662,455			166,115			1,828,570
Common stock issued																					7,000		7		17,073		—		—			17,080			—			17,080
Distributions to noncontrolling interests																					—		—		—		—		—			—			(116,934	)		(116,934	)
Stock-based compensation																					—		—		55,194		—		—			55,194			—			55,194
Balance June 30, 2022																					12,384,746	$	12,385	$	17,167,103	$	12,077,874	$	(735,094	)	$	28,522,268		$	2,530,579		$	31,052,847

— See Notes to Unaudited Condensed Interim ~~Condensed~~ Consolidated Financial Statements —–

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.

CONDENSED INTERIM Consolidated Statements of Stockholders’ Equity

(U.S. Dollars – Unaudited)


	Shares		Par Value		Capital in Excess of Par Value		Accumulated Earnings		Other Comprehensive Income (Loss)			Total		Non- Controlling Interests			Total Stockholders’ Equity

Balance December 31, 2020		12,260,545	$	12,261	$	16,633,190	$	5,433,198	$	(872,121	)	$	21,206,528	$	2,561,751		$	23,768,279
Translation adjustment		—		—		—		—		82,352			82,352		—			82,352
Net income		—		—		—		1,450,571		—			1,450,571		186,484			1,637,055
Common stock issued		55,201		55		76,305		—		—			76,360		—			76,360
Distributions to non-controlling interests		—		—		—		—		—			—		(157,952	)		(157,952	)
Stock-based compensation		—		—		39,589		—		—			39,589		—			39,589

Balance March 31, 2021		12,315,746	$	12,316	$	16,749,084	$	6,883,769	$	(789,769	)	$	22,855,400	$	2,590,283		$	25,445,683
Balance		12,315,746	$	12,316	$	16,749,084	$	6,883,769	$	(789,769	)	$	22,855,400	$	2,590,283		$	25,445,683
Translation adjustment		—		—		—		—		37,593			37,593		—			37,593
Net income (loss)		—		—		—		1,176,761		—			1,176,761		268,449			1,445,210
Distributions to noncontrolling interests		—		—		—		—		—			—		(151,714	)		(151,714	)
Stock-based compensation		—		—		39,141		—		—			39,141		—			39,141
Balance June 30, 2021		12,315,746	$	12,316	$	16,788,225	$	8,060,530	$	(752,176	)	$	24,108,895	$	2,707,018		$	26,815,913
Balance		12,315,746	$	12,316	$	16,788,225	$	8,060,530	$	(752,176	)	$	24,108,895	$	2,707,018		$	26,815,913

— See Notes to Unaudited Condensed Interim Consolidated Financial Statements —

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED INTERIM ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

For the ~~Three Months~~Period Ended ~~March 31,~~June 30, 2022

(U.S. ~~Dollars - Unaudited)~~Dollars)

1. ~~Basis of Presentation~~BASIS OF PRESENTATION.

~~BASIS OF PRESENTATION~~

These interim condensed consolidated financial statements (“consolidated financial statements”) include the accounts of Flexible Solutions International, Inc. (the “Company”), its wholly-owned subsidiaries Flexible Fermentation Ltd. , NanoChem Solutions Inc. (“NanoChem”), Flexible Solutions Ltd., Flexible Biomass LP, FS Biomass Inc., NCS Deferred Corp., Natural Chem SEZC Ltd., and InnFlex Holdings Inc., its 97% controlling interest in ENP Peru Investments LLC (“ENP Peru”) and its 65% interest in ENP Investments, LLC (“ENP Investments”) and ENP Mendota, LLC (“ENP Mendota”). All inter-company balances and transactions have been eliminated upon consolidation. The Company was incorporated on May 12, 1998 in the State of Nevada and had no operations until June 30, 1998. In 2019, the Company redomiciled into Alberta, Canada.

In 2018, NanoChem completed the purchase of a 65% interest in ENP Investments for an aggregate purchase price of $5,110,560. An unrelated party owns the remaining 35% interest in ENP Investments, and ENP Investments is consolidated into the financial statements. The outside investor’s ownership interest in ENP Investments is included in noncontrolling interests in these consolidated financial statements from the acquisition date onward. In 2020, ENP Investments increased its investment in ENP Realty from 24% to 100%, making ENP Realty a wholly-owned subsidiary of ENP Investments. In 2021, ENP Realty was renamed ENP Mendota and is consolidated into the financial statements.

In 2022, the NanoChem purchased an additional 50% in ENP Peru, increasing its share to 91.67%. ENP Investments owns the remaining 8.33%, of which the Company has a 65% interest. ENP Peru was previously equity accounted however, is now consolidated into the financial statements from the date control was obtained. The 35% non-controlling interest portion of the 8.33% is included in non-controlling interests in these unaudited condensed interim consolidated financial statements.

The Company 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. The TPA division also manufactures two nitrogen conservation products for agriculture that slows nitrogen loss from fields.

The outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in a widespread health crisis that has affected economies and financial markets around the world resulting in an economic downturn. This outbreak may also cause staff shortages, reduced customer demand, increased government regulations or interventions, all of which may negatively impact the business, financial condition or results of operations of the Company. The duration and impact of the COVID-19 outbreak is unknown at this time and it is not possible to reliably estimate the length and severity of these developments.

2. ~~Significant Accounting Policies~~SIGNIFICANT ACCOUNTING POLICIES.

~~SIGNIFICANT ACCOUNTING POLICIES~~

The consolidated financial statements of the Company have been prepared by management in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), applied on a basis consistent for all periods. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for a complete set of financial statements. These consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2021, filed with the Securities and Exchange Commission on May 13, 2022. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year.

(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) Term Deposits

~~(b)~~ ~~Term Deposits~~

The deposits maintained by the Company with banks comprises term deposits, which can be withdrawn by the Company at any point without prior notice or penalty on the principal.

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. The Company applies the first-in, first-out or weighted average cost formulae to inventories in different subsidiaries. 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 (2022 - $~~123,894~~231,106; 2021 –- $~~131,348~~236,614). Shipping and handling costs incurred are included in cost of goods sold (2022 - $~~268,032~~580,697; 2021 –- $~~263,089~~559,905).

(d) 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.

(e) Property, Equipment, Leaseholds and Intangible Assets

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

SCHEDULE OF METHOD OF DEPRECIATION

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
Automobiles		Straight-line over 5 years
Patents		Straight-line over 17 years
Technology		Straight-line over 10 years
Leasehold improvements		Straight-line over lease term
Customer relationships – ENP Investments		Straight-line over 15 years
Software – ENP Investments		Straight-line over 3 years

(f) 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.

(g) 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 unaudited interim condensed consolidated statements ~~of income~~operations 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.

(h) Revenue Recognition

The Company generates revenue primarily from energy and water conservation products and biodegradable polymers, as further discussed in Note ~~16.~~17.

The Company follows 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. The Company has fulfilled its 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.

(i)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.

j) (j) Stock-based Compensation

The Company recognizes compensation expense for all share-based payments in accordance with FASB Codification Topic 718, “Compensation — Stock ~~Compensation~~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.

(k) 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.

(l) 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 and six months ended ~~March 31,~~June 30, 2022 and 2021.

(m) 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, valuation of assets acquired at fair value, asset impairment analysis, share-based payments, valuation allowances for deferred income tax assets, determination of useful lives of property, equipment and leaseholds and intangible assets, recoverability of accounts receivable, recoverability of investments, discount rates for right of use assets and the valuation of inventory.

(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, term deposits, accounts receivable, accounts payable, 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.

The fair value of the long term debt for all periods presented approximates their respective carrying amounts due to these financial instruments being at market rates.

(o) Contingencies~~Contingencies~~

Certain conditions may exist as of the date the consolidated 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 consolidated 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.

In accordance with FASB ~~ASC~~Codification Topic 740, “Income taxes” (ASC 740) 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 ~~March 31,~~June 30, 2022, 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 operations 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. Revenue for the Company’s three primary customers totaled $~~6,235,661~~11,597,726 (5853%) for the ~~three~~six months ended ~~March 31,~~June 30, 2022 (2021 - $~~3,120,819~~6,871,156 or 4143%). Accounts receivable for the Company’s three primary customers totaled $~~6,367,303~~2,409,089 (6436%) at ~~March 31,~~June 30, 2022 (December 31, 2021 - $4,940,995 or 69%).

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 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.

The Company is exposed to interest rate risk to the extent that the fair value or future cash flows for financial liabilities will fluctuate as a result of changes in market interest rates. The Company is exposed to interest rate risk on its long-term debt.

In order to manage its exposure to interest rate risk, the Company is closely monitoring fluctuations in market interest risks and will refinance its long-term debt where possible to obtain more favourable rates.

(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 initially 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 other income (loss), net in the condensed interim consolidated statements of ~~income~~operations 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 begins 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 more likely than not that the fair value of a reporting unit is greater 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 in assessing fair value. If it is determined that it is more likely than not that the fair value of the intangible asset 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 intangible asset to its carrying amount, including goodwill. If the estimated fair value of the intangible asset is less than the carrying amount of the intangible asset, impairment is indicated, requiring recognition of an impairment charge for the differential.

Qualitative assessments of goodwill and indefinite-lived intangible assets were performed inat December 31, 2021 and 2020. Based on the results of the 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 their 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 or six months ended ~~March 31,~~June 30, 2022.

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 “Impairment of Long Lived Assets” significant accounting policy.

(t) Recent Accounting Pronouncements

The Company has implemented all applicable new accounting pronouncements that are in effect. Those pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

3. ~~Leases~~LEASES

~~LEASES~~

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. For leases with terms greater than 12 months, the Company records the related right-of-use (“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 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. 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%.

The table below summarizes the right-of-use asset and lease liability for the ~~period~~six months ended ~~March~~June 30, 2022 and the year ended December 31, ~~2022:~~2021:

SUMMARY OF RIGHT-OF-USE ASSET AND LEASE LIABILITY

	March 31, 2022			December 31, 2021			June 30, 2022			December 31, 2021
Right of Use Assets
Balance, January 1	$	217,267		$	483,113		$	217,267		$	483,113
Right of use assets, beginning balance							$	217,267		$	483,113
Depreciation		(13,546	)		(265,846	)		(25,583	)		(265,846	)
Balance, end of period	$	203,721		$	217,267		$	191,684		$	217,267
Right of use assets, ending balance							$	191,684		$	217,267

Lease Liability
Balance, January 1	$	217,267		$	483,113		$	217,267		$	483,113
Lease liability, beginning balance							$	217,267		$	483,113
Lease interest expense		2,539			22,057			4,678			22,057
Payments		(16,085	)		(287,903	)		(30,261	)		(287,903	)
Balance, end of period	$	203,721		$	217,267		$	191,684		$	217,267
Lease liability, ending balance							$	191,684		$	217,267

Short-term portion	$	57,045		$	77,715		$	57,390		$	77,715
Long-term portion		146,676			139,552			134,294			139,552
Total	$	203,721		$	217,267		$	191,684		$	217,267
Lease liability, ending balance							$	191,684		$	217,267

Undiscounted rent payments for the next ~~four~~five years are as follows:

SCHEDULE OF UNDISCOUNTED RENT PAYMENTS


2022	$	42,525			28,350
2023		58,080			58,080
2024		59,520			59,520
2025		61,020			61,020
Total	$	221,145		$	206,970
Impact of discounting		(17,424	)		(15,286	)
Lease liability, March 31, 2022	$	203,721
Lease liability, June 30, 2022				$	191,684

4. ~~Accounts Receivable~~ACCOUNTS RECEIVABLE

~~ACCOUNTS RECEIVABLE~~

SCHEDULE OF ACCOUNTS RECEIVABLE

	March 31, 2022			December 31, 2021			June 30, 2022			December 31, 2021

Accounts receivable	$	10,217,709		$	7,403,308		$	6,936,409		$	7,403,308
Allowances for doubtful accounts		(274,561	)		(273,979	)		(273,332	)		(273,979	)
Total accounts receivable	$	9,943,148		$	7,129,329		$	6,663,077		$	7,129,329

5. ~~Inventories~~INVENTORIES

~~INVENTORIES~~

SCHEDULE OF INVENTORIES

	March 31, 2022		December 31, 2021		June 30, 2022		December 31, 2021

Completed goods	$	3,816,366	$	3,417,829	$	4,916,142	$	3,417,829
Raw materials and supplies		8,398,285		6,084,176		10,269,378		6,084,176
Total inventory	$	12,214,651	$	9,502,005	$	15,185,520	$	9,502,005

6. ~~Property, equipment &~~ ~~leaseholds~~

PROPERTY, EQUIPMENT & LEASEHOLDS

SCHEDULE OF PROPERTY, EQUIPMENT AND LEASEHOLDS

	March 31, 2022		Accumulated		March 31, 2022		June 30, 2022		Accumulated		June 30, 2022
	Cost		Depreciation		Net		Cost		Depreciation		Net
Buildings and improvements	$	4,870,778	$	3,018,920	$	1,851,858	$	8,643,465	$	3,051,682	$	5,591,783
Automobiles		196,255		80,207		116,048		196,255		89,156		107,099
Computer hardware		43,644		42,571		1,073		43,561		42,595		966
Furniture and fixtures		130,714		108,421		22,293		130,596		110,642		19,954
Office equipment		1,899		1,208		691		1,842		1,207		635
Manufacturing equipment		6,999,195		4,314,689		2,684,506		7,218,063		4,461,725		2,756,338
Trailer		9,601		7,788		1,813		9,309		7,694		1,615
Boat		34,400		26,690		7,710		34,400		27,096		7,304
Leasehold improvements		88,872		88,872		—		88,872		88,872		—
Technology		109,370		109,370		—		106,010		106,010		—
Land		234,027		—		234,027		384,027		—		384,027
	$	12,718,755	$	7,798,736	$	4,920,019	$	16,856,400	$	7,986,679	$	8,869,721

	December 31, 2021		Accumulated		December 31, 2021
	Cost		Depreciation		Net
Buildings and improvements	$	4,823,708	$	2,983,589	$	1,840,119
Automobiles		196,255		71,258		124,997
Computer hardware		43,605		42,456		1,149
Furniture and fixtures		130,658		106,101		24,557
Office equipment		1,872		1,155		717
Manufacturing equipment		6,867,799		4,171,699		2,696,100
Trailer		9,463		7,532		1,931
Boat		34,400		26,284		8,116
Leasehold improvements		88,872		88,872		—
Technology		107,759		107,759		—
Land		234,027		—		234,027
	$	12,538,418	$	7,606,705	$	4,931,713

Amount of depreciation expense for the ~~three~~six months ended ~~March 31, 2022:~~June 30, 2022 was $~~188,378~~384,058 (2021: $~~184,855~~383,631) and is included in cost of sales in the unaudited condensed interim ~~condensed~~ consolidated statements of ~~income~~operations and comprehensive income.

7. ~~Patents~~PATENTS

~~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.

SCHEDULE OF PATENTS

March 31, 2022
Cost
Accumulated
Amortization
March 31, 2022
Net

Patents $ 212,161 $ 202,572 $ 9,589

June 30, 2022
Cost
Accumulated
Amortization
June 30, 2022
Net

Patents $ 205,719 $ 200,240 $ 5,479

December 31,
2021 Cost
Accumulated
Amortization
December 31,
2021 Net

Patents $ 208,079 $ 194,380 $ 13,699

The ~~increase~~decrease in the carrying amount of patents is primarily due to foreign currency translation effects. The 2022 cost in Canadian dollars - $265,102 (December 31, 2021 - $265,102 in Canadian dollars).

Amount of amortization for the six months ended June 30, 2022 was - $~~4,110~~8,220 (2021 - $~~4,110~~8,219) and is included in cost of sales in the unaudited condensed interim consolidated statements of ~~income~~operations and comprehensive income.

Estimated amortization expense over ~~this~~the year is as follows:
SCHEDULE OF ESTIMATED AMORTIZATION EXPENSE
2022 ~~13,699~~ 13,699

8. GOODWILL AND INDEFINITE LIVED INTANGIBLE ASSETS
~~GOODWILL AND INTANGIBLE ASSETS~~
SCHEDULE OF GOODWILL AND INDEFINITE LIVED INTANGIBLE ASSETS
Goodwill
Balance as of December 31, 2020 $ 2,534,275 $ 2,534,275
Additions - -
Impairment - -
Amortization (176,000 )
Balance as of December 31, 2021 and March 31, 2022 $ 2,534,275
Balance as of December 31, 2021 and June 30, 2022 $ 2,534,275
Indefinite Lived Intangible Assets
Balance as of December 31, 2020 $ 770,000 $ 770,000
Additions - -
Impairment - -
Amortization (40,000 )
Balance as of December 31, 2021 and March 31, 2022 $ 770,000
Balance as of December 31, 2021 and June 30, 2022 $ 770,000
17

Goodwill relates to the acquisition of ENP Investments. Indefinite lived intangible assets consist of trade secrets and trademarks related to the acquisition of ENP Investments.

Definite Life Intangible Assets
Balance as of December 31, 2020 $ 2,006,000
Balance as of December 31, 2019 $ 2,006,000
Amortization (176,000 ) (176,000 )
Balance as of December 31, 2021 1,830,000 1,830,000
Amortization (40,000 ) (80,000 )
Balance as of March 31, 2022 $ 1,790,000
Balance as of June 30, 2022 $ 1,750,000

Definite life intangible assets consist of customer relationships and software related to the acquisition of ENP Investments. Customer relationships and software are amortized over their estimated useful life of 15 years ~~years~~ and 3 years ~~years,~~, respectively.

Estimated amortization expense over the next five years is as follows:
SCHEDULE OF ESTIMATED FUTURE AMORTIZATION EXPENSE
2022 $ 160,000
2023 160,000
2024 160,000
2025 160,000
2026 160,000

16
9. ~~Long Term Deposits~~
LONG TERM DEPOSITS
The Company has ~~reclassified~~ certain security deposits ~~to better reflect their long term nature. Long term deposits~~which consist of damage deposits held by landlords and security deposits held by various vendors.
SCHEDULE OF LONG TERM DEPOSITS
March 31, 2022 December 31, 2021

Long term deposits $ 8,540 $ 8,540
June 30, 2022 December 31, 2021

Long term deposits $ 8,540 $ 8,540

10. ~~Investments~~
INVESTMENTS
(a) (a) The Company ~~has~~previously held a 50% ownership interest in ENP Peru, split between NanoChem (41.67%) and ENP Investments ~~LLC (“ENP Peru”~~(8.33%)., which was acquired in fiscal 2016. ENP Peru is located in Illinois and leases warehouse space. In June 2022, the nanoChem acquired an additional 50% ownership interest at a cost of $506,659 paid through a new $259,000 mortgage and cash on hand. The ~~Company accounts~~35% non-controlling interest of the 8.33% owned by ENP Investments is included in non-controlling interest in these unaudited condensed interim consolidated financial services.
It was determined that ENP Peru did not meet the definition of a business in accordance with FASB Codification Topic 805, Business Combinations (ASC 805), and the acquisition was accounted for ~~this investment using~~as an asset acquisition. The following table summarizes the ~~equity method~~final purchase price allocation of ~~accounting.~~ the consideration paid to the respective fair values of the assets acquired and liabilities assumed in ENP Realty as of the acquisition date.
SCHEDULE OF FAIR VALUES OF THE ASSETS ACQUIRED AND LIABILITIES ASSUMED

Purchase consideration $ 506,659

Assets acquired:
Cash 7,330
Building 3,750,000
Land 150,000
Liabilities assumed:
Deferred tax liability (174,582 )
Long term debt (2,849,500 )
Total identifiable net assets: 883,248
Excess of assets acquired over consideration 376,589
Less investment eliminated upon consolidation (41,538 )
Gain on acquisition of ENP Peru $ 335,051
18
A summary of the Company’s investment follows:
SCHEDULE OF EQUITY METHOD INVESTMENT
Balance, December 31, 2020 $ 3,822 $ 3,822
Return of equity (3,822 ) (3,822 )
Gain in equity method investment 22,642 22,642
Balance, December 31, 2021 22,642 22,642
Return of equity (7,500 ) (8,750 )
Balance, March 31, 2022 $ 15,142
Gain in equity method investment 27,646
Investment eliminated upon consolidation (41,538 )
Balance, June 30, 2022 $ -

Summarized profit and loss information related to the equity accounted investment is as ~~follows for the full year:~~follows:
SUMMARY OF PROFIT AND LOSS INFORMATION RELATED TO EQUITY ACCOUNTED INVESTMENT
2021 Six months ended
June 30, 2022 Full year ended
December 31, 2021

Net sales $ 322,079 $ 162,000 $ 322,079
Gross profit
Net income $ 45,285 55,292 $ 45,285

(b) In December 2018 the Company invested $200,000 in Applied Holding Corp. (“Applied”). Applied is a captive insurance company and the Company received a non-convertible promissory note for its investment which becomes due in 2021 but may be extended with notice for a maximum of two years. In accordance with FASB Codification Topic 323, Investments – Equity Method and Joint Ventures (ASC 323), the Company has elected to account for this investment at cost. During the year ended December 31, 2021, the Company entered an agreement with Applied to extend the maturity date of this promissory note to December 6, 2023.

(c) In December 2018 the Company invested $500,000in Trio Opportunity Corp. (“Trio”), a privately held entity. Trio is a real estate investment vehicle and the Company received 50,000non-voting Class B shares at $10.00/share. In accordance with FASB Codification Topic 321, Investments – Equity Securities (ASC 321), the Company has elected to account for this investment at cost.

(d) 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 Florida based LLC but does not have control. A summary of the Company’s investment follows:
SCHEDULE OF EQUITY METHOD INVESTMENT
Balance, December 31, 2020 $ 3,572,345
Gain in equity method investment 454,023
Return of equity (325,000 )
Balance, December 31, 2021 3,701,368
Gain in equity method investment 36,764
Balance, March 31, 2022 $ 3,738,132
17
Balance, December 31, 2020 $ 3,572,345
Gain in equity method investment 454,023
Return of equity (325,000 )
Balance, December 31, 2021 3,701,368
Gain in equity method investment 186,670
Return of equity (100,000 )
Balance, June 30, 2022 $ 3,788,038

~~Further to the original investment amount, the Company had placed $1,000,000~~ in trust, which was released during the year ended December 31, 2020 upon the Florida based LLC reaching a milestone related to earnings before interest, taxes and depreciation (“EBITDA”) targets. The additional payments of $~~2,518,684~~ ~~made during the year ended December 31, 2020 related to contingent consideration which was dependent on the Florida based LLC meeting certain performance millstones during the year.~~ Summarized profit and loss information related to the equity accounted investment is as follows:

19
SUMMARY OF PROFIT AND LOSS INFORMATION RELATED TO EQUITY ACCOUNTED INVESTMENT
Three months
ended
March 31, 2022 Three months
ended
March 31, 2021 Six months ended
June 30, 2022 Six months ended
June 30, 2021

Net sales $ 2,201,518 $ 2,332,304 $ 7,326,021 $ 4,987,836
Gross profit 512,884 860,676 1,697,739 1,850,172
Net income 73,528 400,580 373,340 $ 766,167

During the ~~three~~six months ended ~~March 31,~~June 30, 2022, the Company had sales of $~~1,672,200~~5,450,698 (2021 - $~~1,434,684~~3,096,253) to the Florida Based LLC, of which $~~1,419,306~~2,091,753 is included within ~~Accounts Receivable~~accounts receivable as at ~~March 31,~~June 30, 2022 (December 31, 2021 ~~-2020~~ - $2,202,345).

(e) In December 2020, the Company invested $500,000in Lygos Inc. (“~~Lygo’s”~~Lygos”), a privately held entity, under a Simple Agreement for Future Equity agreement. Both companies intend to work together in pursuit of sustainable aspartic acid through synthetic biology (Note ~~18)~~19). In 2021, a second investment of $500,000was in order to continue development of the aspartic acid microbe strain. The Company has elected to account for this investment at cost. A summary of the Company’s investment follows:
SCHEDULE OF EQUITY METHOD INVESTMENT
Balance, December 31, 2020 $ 500,000 $ 500,000
Additional payment 500,000 500,000
Balance, December 31, 2021 and March 31, 2022 $ 1,000,000
Balance, December 31, 2021 and June 30, 2022 $ 1,000,000
11. ~~Short-Term Line of Credit~~
SHORT-TERM LINE OF CREDIT
(a) In March 2022, ENP Investments signed a new agreement with Midland to renew the credit line. In June 2022, ENP Investments closed the account. The revolving line of credit iswas for an aggregate amount up to $4,000,000. The interest rate of this loan iswas 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~~was calculated using a rate of 1.000 percentage points over the Index. Under no circumstances ~~will~~was the interest rate of this loan be less than 4.25% per annum or more than the maximum rate allowed by applicable law. The interest rate at ~~March 31, 2022 is~~ ~~4.50% (December~~December 31, 2021 -was 4.25%).

The revolving line of credit ~~contains~~contained 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 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. NanoChem iswas a guarantor of65% of all the principal and other loan costs not to exceed $2,600,000. ~~As of March 31, 2022, ENP Investments was in compliance with all loan covenants.~~

To secure the repayment of any amounts borrowed under the revolving line of credit, ENP Investments 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.~~2011 which has now been terminated.

Short-term borrowings outstanding under the revolving line as of ~~March 31,~~June 30, 2022 were $~~3,459,391~~nil (December 31, 2021 - $811,665).

18
(b) In October 2021, the Company signed a new agreement with Midland to replace the expiring credit line at Harris. In June 2022, the Company closed the account. The revolving line of credit iswas for an aggregate amount of up to the lesser of (i) $3,500,000, or (ii) 80% of eligible domestic accounts receivable and certain foreign accounts receivable plus 50% of inventory. Interest on the unpaid principal balance of this loan ~~will be~~was calculated using a rate of 0.500 percentage points over the Index. Under no circumstances ~~will~~was the interest rate of this loan be less than 4.50% per annum or more than the maximum rate allowed by applicable law. The interest rate at ~~March~~December 31, ~~2022 is~~2021 was 4.50% ~~(December 31, 2021 -~~ ~~4.50~~%).
20

The revolving line of credit ~~contains~~contained 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 Midland, Midland’s 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 required that the Company maintain a minimum ratio of qualifying financial assets to the sum of qualifying financial obligations.
To secure the repayment of any amounts borrowed under the revolving line of credit, the Company had granted Midland a security interest in substantially all of the assets of NanoChem, exclusive of intellectual property assets which has been revoked.
Short-term borrowings outstanding under the revolving line as of June 30, 2022 were $nil (December 31, 2021 - $1,489,154).
(c) In June 2022, ENP Investments signed a new agreement with Stock Yards Bank and Trust (“Stock Yards”) to replace the credit line at Midland. The revolving line of credit is for an aggregate amount of up to the lesser of (i) $4,000,000, or (ii) 50-80% of eligible domestic accounts receivable plus 50% of inventory, capped at $2,000,000. Interest on the unpaid principal balance of this loan will be calculated using the greater of prime or 4.0%. The interest rate at June 30, 2022 is 5.50%.
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 Stock Yards, Stock Yard’s 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. NanoChem is a guarantor of 65% of all the principal and other loan costs not to exceed $2,600,000. As of June 30, 2022, ENP Investments was in compliance with all loan covenants.
To secure the repayment of any amounts borrowed under the revolving line of credit, the Company granted Stock Yards a security interest in substantially all of the assets of ENP Investments, exclusive of intellectual property assets.
Short-term borrowings outstanding under the revolving line as of June 30, 2022 were $nil.
(d) In June 2022, the Company signed a new agreement with Stock Yards to replace the credit line at Midland. The revolving line of credit is for an aggregate amount of up to the lesser of (i) $4,000,000, or (ii) 80% of eligible domestic accounts receivable and certain foreign accounts receivable plus 50% of inventory, capped at $2,000,000. Interest on the unpaid principal balance of this loan will be calculated using the greater of prime or 4.0%. The interest rate at June 30, 2022 is 5.50%.
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 Stock Yards, Stock Yards 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,~~June 30, 2022, 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 ~~Midland~~Stock Yards a security interest in substantially all of the assets of NanoChem, exclusive of intellectual property assets.

Short-term borrowings outstanding under the revolving line as of ~~March 31,~~June 30, 2022 were $~~1,489,154~~1,149,654 ~~(December 31, 2021 - $1,489,154~~).

21
12. ~~Long Term Debt~~
LONG TERM DEBT
(a) In January 2018, ENP Investments signed a $200,000promissory note with Midland with a rate of 5.250% to be repaid over 7years with equal monthly installments plus interest. This money was used to purchase production equipment and interest for the ~~three~~six months ended ~~March 31,~~June 30, 2021 was $~~1,510~~2,788. In May 2021, ENP Investments paid the loan in full with cash on hand.

(b) In April 2020, NanoChem received a two year ~~year~~ loan of $322,000 through the Paycheck Protection Program with a rate of 1%. In March, 2021, the loan was forgiven by the SBA and has been recorded as Other Income ofin the condensed interim consolidated statements of operations and comprehensive income for the ~~three~~six month period ended ~~March 31,~~June 30, 2021.

((c) c) In April 2020, ENP Investments received a two yearloan of $215,960through the Paycheck Protection Program with a rate of 1%. In March, 2021, the loan was forgiven by the SBA and has been recorded as Other Income ofin the condensed interim consolidated statements of operations and comprehensive income for the ~~three~~six month period ended ~~March 31,~~June 30, 2021.

((d) d) In October 2020, NanoChem signed a $1,980,947term loan with Midland with a rate of 3.85% to be repaid over 5years with equal monthly payments including interest. The money was used to retire the debt at Harris related to the loan to purchase a 65% interest in ENP Investments. In June 2022, the loan was paid in full with funds from Stock Yards. Interest expense for the ~~three months~~six ended ~~March 31,~~June 30, 2022 was $~~15,130~~ 30,334~~(2021~~ (2021 - $36,798~~18,606~~). The balance owing at ~~March 31,~~June 30, 2022 iswas $nil~~1,459,983~~ ~~(December~~ (December 31, 2021 - $1,554,044).

~~The Company has committed to the following repayments:~~
~~SCHEDULE OF INTEREST LOAN REPAYMENT~~
2022 $ 382,705
2023 $ 397,414
2024 $ 413,516
2025 $ 360,409
((e) e) In October 2020, NanoChem signed a loan for $894,253 with Midland with an interest rate 3.85% to be repaid over two years with equal monthly payments including interest. The funds were used to replace the loan at Harris for the purchase of new manufacturing equipment. In June 2022, the loan was paid in full with funds from Stock Yards. Interest expense for the ~~three~~six months ended ~~March 31,~~June 30, 2022 was $~~3,417~~5,816 (2021 - $~~7,739~~14,670). The balance owing at ~~March 31,~~June 30, 2022 iswas $~~268,708~~nil (December 31, 2021 - $381,674).

19
~~The Company has committed to the following repayments:~~
~~SCHEDULE OF INTEREST LOAN REPAYMENT~~
~~2022~~ $ ~~381,674~~
(f) In January 2020, ENP ~~Realty~~Mendota refinanced its mortgage and signed a loan for $450,000with Stock Yards ~~Bank & Trust~~ to be repaid over 10years with monthly installments plus interest. Interest for the first five years is at ~~4.35~~4.35%% and it will be adjusted for the last five years to the Cincinnati Federal Home Bank Loan 5year fixed index plus ~~2.5~~2.5%. Interest expense for the six months ended June 30, 2022 was $4,635 (2021 - $9,512). The balance owing at June 30, 2022 is $420,733 (December 31, 2021 - $430,880).
(g) In June 2022, NanoChem signed a loan for $1,935,000 with Stock Yards with a variable interest rate of 2.25% over index to be repaid over three years with equal monthly payments including interest. The funds were used to replace the loans at Midland for the purchase of the 65% interest in ENP Investments and the new manufacturing equipment. Interest expense for the six months ended June 30, 2022 was $nil (2021 - $nil). The balance owing at June 30, 2022 is $1,935,000 (December 31, 2021 - $nil).
(h) In January 2020 ENP Peru signed a $3,000,000 loan with an interest rate 4.35% to be repaid over ten years with equal monthly payments including interest. Upon the purchase of the remainder of ENP Peru in June 2022, the Company assumed the first mortgage at Stock Yards with a balance of $2,849,500. The balance owing at June 30, 2022 was $2,849,500 (December 31, 2021 - $nil).
(i) In June 2022, ENP Peru Investments obtained a second mortgage for $259,000 with Stock Yards to be repaid over 10 years with monthly installments plus interest with an interest rate of 5.4%. Interest expense for the ~~three~~six months ended ~~March 31,~~June 30, 2022 was $~~4,677~~ nil~~(2021~~ (2021 - $~~4,766~~nil). The balance owing at ~~March 31,~~June 30, 2022 iswas $~~428,278~~ 259,000~~(December~~ (December 31, 2021 - $~~430,779~~nil).

~~The Company has committed to the following repayments:~~
~~SCHEDULE OF INTEREST LOAN REPAYMENT~~

2023 $ 29,749
2024 $ 29,749
2025 $ 29,749
As of ~~March 31,~~June 30, 2022, Company was in compliance with all loan covenants.

22
SCHEDULE OF LOAN COVENANTS
Continuity March 31, 2022 December 31, 2021
Balance, January 1 $ 2,366,598 $ 3,847,638
Less: Forgiveness on PPP loans - (537,960 )
Less: Payments on loan (206,629 ) (943,080 )
Balance, end of period $ 2,156,969 $ 2,366,598
Continuity June 30, 2022 December 31, 2021
Balance, January 1 $ 2,366,598 $ 3,847,638
Balance, beginning of period $ 2,366,598 $ 3,847,638
Plus: Proceeds from loans 2,194,000 -
Plus: Loan acquired with acquisition of ENP Peru 2,849,500 -
Less: Forgiveness on PPP loans - (537,960 )
Less: Payments on loan (1,945,865 ) (943,080 )
Balance, end of period $ 5,464,233 $ 2,366,598

SCHEDULE OF OUTSTANDING BALANCE LOAN
Outstanding balance March 31, 2022 December 31, 2021
a) Long term debt – Midland States Bank $ - -
b) Long term debt – PPP - -
c) Long term debt – PPP - -
d) Long term debt – Midland States Bank 1,459,983 1,554,044
e) Long term debt – Midland States Bank 268,708 381,674
f) Long term debt – Stock Yards Bank & Trust 428,278 430,880
Long-term Debt 2,156,969 2,366,598
Less: current portion (665,614 ) (793,574 )
$ 1,491,355 $ 1,573,024
Outstanding balance at December 31, June 30, 2022 December 31, 2021
a) Long term debt – Midland States Bank $ - $ -
b) Long term debt – PPP - -
c) Long term debt – PPP - -
d) Long term debt – Midland States Bank - 1,554,044
e) Long term debt – Midland States Bank - 381,674
f) Long term debt – Stock Yards Bank & Trust 420,733 430,880
g) Long term debt – Stock Yards Bank & Trust 1,935,000 -
h) Long term debt – Stock Yards Bank & Trust 2,849,500 -
i) Long term debt – Stock Yards Bank & Trust 259,000 -
Long-term debt 5,464,233 2,366,598
Less: current portion (700,278 ) (793,574 )
Long-term Debt, non-current $ 4,763,955 $ 1,573,024

13. ~~Stock Options~~STOCK OPTIONS
~~STOCK OPTIONS~~
The Company has 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 and the exercise price for all options ~~are~~ issued ~~for~~is not less than fair market value at the date of the grant.
20

The following table summarizes the Company’s stock option activities for the year ended December 31, 2021 and the ~~three-month~~six month period ended ~~March 31,~~June 30, 2022:
SCHEDULE OF STOCK OPTION ACTIVITIES
Number of
shares Exercise price
per share Weighted
average exercise
price Number of
shares Exercise price
per share Weighted
average exercise
price

Balance, December 31, 2020 749,000 $ 0.75 – 4.13 $ 2.42 749,000 $ 0.75 – 4.13 $ 2.42
Granted 170,000 $ 3.61 $ 3.61 170,000 $ 3.61 $ 3.61
Cancelled or expired (34,799 ) $ 1.42 – 3.46 $ 2.30 (34,799 ) $ 1.42 – 3.46 $ 2.30
Exercised (94,701 ) $ 0.75 – 3.46 $ 1.58 (94,701 ) $ 0.75 – 3.46 $ 1.58
Balance, December 31, 2021 789,500 $ 1.42 – 4.13 $ 2.78 789,500 $ 1.42 – 4.13 $ 2.78
Granted 5,000 $ 3.61 $ 3.61 5,000 $ 3.61 $ 3.61
Cancelled or expired (3,000 ) $ 3.61 $ 3.61 (3,000 ) $ 3.61 $ 3.61
Exercised (22,500 ) $ 2.44 – 3.46 $ 2.53 (29,500 ) $ 2.44 – 3.46 $ 2.51
Balance, March 31, 2022 769,000 $ 1.42 – 4.13 $ 2.82
Exercisable, March 31, 2022 539,000 $ 1.42 – 4.13 $ 2.69
Balance, June 30, 2022 762,000 $ 1.42 – 4.13 $ 2.82
Exercisable, June 30, 2022 535,000 $ 1.42 – 4.13 $ 2.68

The weighted average remaining contractual life of options outstanding is ~~3.6~~3.2 years.
23

The fair value of each option grant is calculated using the following weighted average assumptions:
SCHEDULE OF STOCK OPTION FAIR VALUE ASSUMPTIONS
2022 2021
Expected life – years 3.0 3.0
Interest rate 1.76 % 1.23 %
Volatility 69.66 % 63.28 %
Weighted average fair value of options granted $ 1.46 $ 1.54

During the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, the Company did not grant any new options to consultants. Options granted in previous quarters resulted in expenses in the amount of $~~15,794~~ 31,587for consultants (2021 - $~~13,065~~26,131). During the ~~three~~six months ended ~~March 31,~~June 30, 2022, employees were granted 5,000 (2021 – nil~~(2021 – nil~~) stock options, which resulted in expenses of $~~1,825~~ 3,650 (2021 – $nil~~(2021 – $nil)~~). Options granted in previous quarters resulted in additional expenses in the amount of $~~36,652~~ 74,228for employees during the ~~three~~six months ended ~~March 31,~~June 30, 2022 (2021 - $~~26,524~~52,599). There were ~~22,500~~ 29,500employee and nil consultant stock options exercised during the ~~three~~six months ended ~~March 31,~~June 30, 2022 (2021 – 32,000employee; 23,201consultant).

As of ~~March 31,~~June 30, 2022, there was approximately $~~129,991~~ 112,243of compensation expense related to non-vested awards. This expense is expected to be recognized over a weighted average period of 16 ~~year.~~months.

The aggregate intrinsic value of vested options outstanding at ~~March 31,~~June 30, 2022 is $~~578,660~~ nil~~(2021~~ (2021 – $nil).

~~14.~~ 15. CAPITAL STOCK~~Capital Stock~~.
~~CAPITAL STOCK~~
During the ~~three~~six months ended ~~March 31,~~June 30, 2022, ~~22,500~~29,500 shares were issued upon the exercise of employee stock options (2021 – 32,000) and nil shares were issued upon the exercise of consultant stock options (2021 – 23,201).

~~15.~~ On March 19, 2020, the Company suspended its annual dividend until further notice due to the uncertainty surrounding the COVID-19 virus.
~~Non-Controlling Interests~~16. NON-CONTROLLING INTERESTS
~~NON-CONTROLLING INTERESTS~~
ENP Investments is a limited liability corporation ~~(LLC)~~(“LLC”) that manufactures and distributes golf, turf and ornamental agriculture products in Mendota, Illinois. The Company owns a 65% interest in ENP Investments through its wholly-owned subsidiary NanoChem. An unrelated party owns the remaining 35% interest in ENP Investments. ~~As of December 31, 2020,~~ ENP ~~Realty~~Mendota is a wholly owned subsidiary of ENP Investments. ENP ~~Realty~~Mendota leases warehouse space. For financial reporting purposes, the assets, liabilities and earnings of both of the LLC’s are consolidated into these financial statements. The unrelated third party’s ownership interest in the LLC is recorded in non-controlling interests in these consolidated financial statements. The non-controlling interest represents the non-controlling unitholder’s interest in the earnings and equity of ENP Investments. ENP Investments is allocated to the ~~BCPA~~TPA segment.
21

ENP Investments makes cash distributions to its equity owners 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 $~~2,082,947~~2,199,941.
SCHEDULE OF DISTRIBUTIONS
Balance, December 31, 2020 $ 2,561,751 $ 2,561,751
Distribution (804,003 ) (804,003 )
Non-controlling interest share of income 845,095 845,095
Balance, December 31, 2021 2,602,843 2,602,843
Distribution (265,922 ) (382,856 )
Non-controlling interest share of income 144,477 310,592
Balance, March 31, 2022 $ 2,481,398
Balance, June 30, 2022 $ 2,530,579
24

During the ~~three~~six months ended ~~March 31,~~June 30, 2022, the Company had sales of $~~1,605,736~~2,760,661 (2021 - $~~998,336~~1,292,419) to the party that holds 35% interest in ENP Investments, of which $~~3,560,534~~249,779 is included within Accounts Receivable as of ~~March 31,~~June 30, 2022 (December 31, 2021 – $2,215,119).

~~16.~~ ~~Segmented, Significant Customer Information and Economic Dependency~~.
17. SEGMENTED, SIGNIFICANT CUSTOMER INFORMATION AND ECONOMIC DEPENDENCY.
The Company operates in 2 segments:

(a) Energy and water conservation products (as shown under the column heading “EWCP” below), which consists of a (i) liquid swimming pool blankets 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 blankets and which are designed to be used in still or slow moving drinking water sources.

(b) Biodegradable polymers, ~~(“BCPA’s”),~~ also known as TPA’s, used by the petroleum, chemical, utility and mining industries to prevent corrosion and scaling in water piping. This product can also be used in detergents to increase biodegradability and in agriculture to increase crop yields by enhancing fertilizer uptake.

The accounting policies of the segments are the same as those described in Note 2, Significant Accounting Policies. The Company evaluates performance based on profit or loss from operations before income taxes, not including nonrecurring gains and losses and foreign exchange gains and losses.

The Company’s reportable segments are strategic business units that offer different, but synergistic products and services. They are managed separately because each business requires different technology and marketing strategies.
SCHEDULE OF REPORTABLE SEGMENTS
Three months ended March 31, 2022:

EWCP TPA Total
Revenue $ 47,253 $ 10,736,027 $ 10,783,280
Interest expense - 57,618 57,618
Depreciation and amortization 9,244 223,244 232,488
Income tax expense - 712,446 712,446
Segment profit (loss) (124,175 ) 1,657,234 1,533,059
Segment assets 1,879,593 43,237,198 45,116,791
Expenditures for segment assets - (176,684 ) (176,684 )
Three months ended June 30, 2022:

EWCP TPA Total
Revenue $ 189,569 $ 10,975,574 $ 11,165,143
Interest expense - 52,139 52,139
Depreciation and amortization 9,202 230,588 239,790
Income tax expense 11,306 531,496 542,802
Segment profit (loss) (84,564 ) 1,747,019 1,662,455
Segment assets 2,386,338 45,168,719 47,555,057
Expenditures for segment assets - (245,383 ) (245,383 )

Three months ended March 31, 2021:

EWCP TPA Total
Revenue $ 71,351 $ 7,553,346 $ 7,624,697
Interest expense - 62,274 62,274
Depreciation and amortization 9,977 222,988 232,965
Income tax expense - 485,456 485,456
Segment profit (loss) (219,256 ) 1,669,827 1,450,571
Segment assets 2,360,199 34,299,895 36,660,094
Expenditures for segment assets - (96,136 ) (96,136 )
Three months ended June 30, 2021:

EWCP TPA Total
Revenue $ 134,502 $ 8,400,949 $ 8,535,451
Interest expense - 51,055 51,055
Depreciation and amortization 10,209 236,676 246,885
Income tax expense 84,266 394,461 478,727
Segment profit (loss) (135,392 ) 1,312,153 1,176,761
Segment assets 1,843,384 35,188,391 37,031,775
Expenditures for segment assets - (355,592 ) (355,592 )

2225

Six months ended June 30, 2022:

EWCP TPA Total
Revenue $ 236,822 $ 21,711,601 $ 21,948,423
Interest expense - 109,757 109,757
Depreciation and amortization 18,446 453,832 472,278
Income tax expense 11,306 1,243,942 1,255,248
Segment profit (loss) (208,738 ) 3,404,251 3,195,513
Segment assets 2,386,338 45,168,719 47,555,057
Expenditures for segment assets - (422,067 ) (422,067 )
Six months ended June 30, 2021:

EWCP TPA Total
Revenue $ 205,853 $ 15,954,295 $ 16,160,148
Interest expense - 113,329 113,329
Depreciation and amortization 20,186 459,664 479,850
Income tax expense 86,090 878,093 964,183
Segment profit (loss) (199,877 ) 2,827,209 2,627,332
Segment assets 1,843,384 35,188,391 37,031,775
Expenditures for segment assets - (451,728 ) (451,728 )

The sales generated in the United States and Canada are as follows:
SCHEDULE OF REVENUE GENERATED IN UNITED STATES AND CANADA

Three months
ended
March 31, 2022 Three months
ended
March 31, 2021 Six months ended
June 30, 2022 Six months ended
June 30, 2021
Canada $ 177,899 $ 107,253 $ 279,517 $ 294,718
United States and abroad 10,605,381 7,517,444 21,668,906 15,865,430
Total $ 10,783,280 $ 7,624,697 $ 21,948,423 $ 16,160,148
Sales $ 10,783,280 $ 7,624,697

The Company’s long-lived assets (property, equipment, intangibles, goodwill, leaseholds, patents and right of use assets) are located in Canada and the United States as follows:
SCHEDULE OF LONG-LIVED ASSETS ARE LOCATED IN CANADA AND UNITED STATES

March 31, 2022 December 31, 2021 June 30, 2022 December 31, 2021
Canada $ 185,036 $ 191,752 $ 170,554 $ 191,752
United States 10,042,568 10,105,202 13,950,606 10,105,202
Total $ 10,227,604 $ 10,296,954 $ 14,121,160 $ 10,296,954
Long-lived assets $ 10,227,604 $ 10,296,954

Three primary customers accounted for $~~6,235,661~~ 11,597,726(5853%) of sales during the ~~three-month~~six month period ended ~~March 31,~~June 30, 2022 (2021 - $~~3,120,819~~ 6,871,156or 4143%).

~~17.~~ 18. COMPARATIVE FIGURES~~Comparative Figures~~.
~~COMPARATIVE FIGURES~~
Certain of the comparative figures have been reclassified to conform with the current period’s presentation.

~~18.~~ 19. SUBSEQUENT EVENTS~~Subsequent Events~~.
~~SUBSEQUENT EVENTS~~
On ~~April 17,~~July 25, 2022 the Company ~~entered into an Agreement and Plan of Merger~~filed a registration statement on Form S-4 with the SEC in relation to the proposed merger with Lygos, ~~(Note 10 (e)~~Inc. (“Lygos”)~~. Pursuant~~ previously announced on April 17, 2022. The definitive merger agreement has been approved by the boards of directors of the Company and Lygos and is subject to, among other things, the ~~Merger Agreement,~~approval of the shareholders and the satisfaction or waiver of other customary closing conditions.
If the merger is completed, the shareholders of Lygos will ~~become a wholly owned subsidiary~~own approximately 67% of the ~~Company.~~
~~At the effective time of the Merger (i) each~~ outstanding ~~share of Lygos capital stock will be converted into the right to receive a number of common~~ shares of the Company ~~equal to~~and the ~~Exchange Ratio; and (ii) each~~management of Lygos ~~option that is outstanding and unexercised immediately prior to~~will become the ~~closing~~new management of the Merger Agreement (whether vested or unvested) will automatically be assumed by the Company and converted into an option to acquire a number of the Company’s common shares at an adjusted exercise price per share. The number of shares to be acquired upon the exercise of the options will be determined by multiplying the number of Lygos shares issuable upon the exercise of the options by the Exchange Ratio.
The “Exchange Ratio” will equal the total number of the Company’s common shares on a fully diluted basis outstanding as of the end of the last trading day before the closing of the Merger Agreement multiplied by two and then divided by the total number of shares of Lygos capital stock on fully diluted basis outstanding as of the same time.
~~The closing of the Merger Agreement is subject to satisfaction or waiver of certain conditions including, among other things, the required approvals by the shareholders of the Company and Lygos.~~
In connection with the transactions contemplated by the Merger Agreement, and contingent upon the closing of the Merger (the actual date of closing, the “Closing Date”), the Company and Mr. O’Brien entered into an Employment Agreement. Under the terms of the Employment Agreement, Mr. O’Brien will be employed as the Company’s Head-Flexible Solutions Division and will receive an annual base salary of $~~500,000~~Company.~~, which will be increased each year during the Term (as defined below) based on annual increases in the Consumer Price Index. Also immediately after the Closing Date, the Company will purchase~~ ~~1,000,000~~ ~~shares of the Company’s common stock owned by Mr. O’Brien at a price of $7.50~~ per share. Additionally, on the Closing Date, Mr. O’Brien will receive an option to purchase 500,000 shares of the Company’s common stock. The Option will vest and become exercisable on the twelve-month anniversary of the grant date; provided, however, the vesting will accelerate upon Mr. O’Brien’s termination of employment for any reason. While Mr. O’Brien’s Option will be granted with an exercise price equal to the fair market value per share on the date of grant, in the event the Company grants any options during the twelve-month period following the Option grant with an exercise price that is lower than the exercise price set for the Option, the Company will reprice the Option down to such lower exercise price; provided, however, the exercise price per share will in no event be lower than the fair market value per share on the date the Option is granted or, if applicable, the date the Option is subsequently repriced. Moreover, on each of the 20- and 30-month anniversaries of the Closing Date, the Company will issue Mr. O’Brien ~~1,000,000~~ shares of the Company’s common stock as a fully vested stock grant, regardless of his employment status at such time. The term of the Employment Agreement will begin on the Closing Date of the Merger and continue for a period of five years (the “Term”) or until earlier terminated by either the Company or Mr. O’Brien as provided in the Employment Agreement.
2326

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

Overview

The Company manufactures and markets biodegradable polymers which are used in the oil, gas and agriculture industries. The Company also develops, manufactures and markets specialty chemicals that slow the evaporation of water.
For financial information concerning the Company and Lygos as a combined entity after the merger, refer to the section of the recently filed S-4 registration statement of FSI captioned “Unaudited Pro Forma Condensed Combined Consolidated Financial Information.

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.

The third product line is nitrogen conservation products used for the agriculture industry. These products decrease the loss of nitrogen fertilizer after initial application and allows less fertilizer to be used. These products are made and sold by the Company’s TPA division.

Material changes in the Company’s Statement of Operations for the six and three months ended ~~March 31,~~June 30, 2022 compared to the same period in the prior year are discussed below:
Six Months ended June 30, 2022

Item Increase (I) or Decrease (D) Reason

Sales
EWCP products DI ~~Decreased~~Increased customer orders.

TPA products I Increased customer ~~orders along with increase in pricing.~~
~~Insurance~~ I ~~Increase in assets and in sales resulted in higher insurance costs.~~
~~Interest expense~~ D ~~Decreased debt resulted in decreased interest expense.~~orders.

~~Lease expense~~Wages DI
Increased wages for employee retention.
Professional fees ~~The purchase of ENP Realty by ENP Investments reduced lease expense.~~I
Increased due to costs associated with the planned merger with Lygos.
Insurance I Increase in assets and in sales resulted in higher insurance costs.

Travel I Travel has resumed as COVID-19 has become an endemic.

Currency exchange ID Currency exchange ~~increased~~decreased as a result of movements in the US / Canadian dollar exchange rate and its effects on US dollar cash balances and US dollar payables held by the Company’s Canadian subsidiaries.

2427

Three ~~primary~~months ended June 30, 2022
Item Increase (I) or Decrease (D) Reason
Sales
EWCP products I Increased customer orders.
TPA products I Increased customer orders.
Wages I
Increased wages for employee retention.
Professional fees I Increased due to costs associated with the planned merger with Lygos.
Insurance I Increase in assets and in sales resulted in higher insurance costs.
Office and miscellaneous I
Increasd due to one-time charges associated with moving loans from Midland States Bank to Stock Yards Bank & Trust.
Travel I Travel has resumed as COVID-19 has become an endemic.
Currency exchange D Currency exchange decreased as a result of movements in the US / Canadian dollar exchange rate and its effects on US dollar cash balances and US dollar payables held by the Company’s Canadian subsidiaries.
Three customers accounted for ~~58%~~53% of ~~the Company’s~~our sales during the three months ended ~~March 31,~~June 30, 2022 (2021 ~~- 41%~~–44%) and 53% of our sales during the six months ended June 30, 2022 (2021 – 43%). The amount of revenue (all from the sale of TPA products) attributable to each customer is shown below.

Three Months Ended March 31, Three months ended
June 30, Six months ended
June 30,
2022 2021
Customer 2022 2021 2022 2021

Company A $ 1,605,736 $ 998,336 $ 1,154,925 $ 1,292,419 $ 2,760,661 $ 2,290,755
Company B $ 1,672,200 $ 1,434,684 $ 3,788,498 $ 1,661,570 $ 5,450,698 $ 3,096,253
Company C $ 2,957,725 $ 687,800 $ 428,639 * $ 796,348 $ 3,386,367 $ 1,484,148
Company D $ 955,843 $ 538,158 * $ 1,145,467 * $ 1,060,653 *
*not a primary customer in that period

Customers with balances greater than 10% of our receivables as of ~~March 31,~~June 30, 2022 and 2021 are shown below:

March 31,
2022 2021

Company A $ 3,560,534 $ 2,577,497
Company B $ 1,419,306 $ 1,138,276
Company C $ 1,387,463 $ 419,007 *
June 30,
2022 2021

Company B $ 2,091,753 $ 1,178,405
Company D $ 973,712 $ 207,597 *
*less than 10%
28

*less than 10%
~~The~~Other 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;~~products;
● activity in the oil and gas industry, as we sell our TPA ~~product~~products to oil and gas companies;
● drought conditions, since we also sell our TPA ~~product~~products to ~~farmers,~~farmers; and
● the impact of the COVID-19 virus.

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

Capital Resources and Liquidity

The Company’s sources and (uses) of cash for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021 are shown below:

2022 2021

Cash used by operations (2,425,008 ) (2,356,767 )
Proceeds of equity investment distributions 7,500 12,500
Acquisition of equipment (176,684 ) (96,136 )
Borrowings from line of credit 2,647,726 1,112,361
Repayment of loans (209,629 ) (208,857 )
Lease financing costs (16,085 ) (83,070 )
Partnership distributions (265,922 ) (157,952 )
Proceeds from sale of common stock 56,940 76,360
Changes in exchange rates 42,543 82,352
2022 2021

Cash provided by (used in) operations 792,536 4,065,194
Additional investment in Lygos - (500,000 )
Acquisition of ENP Peru (499,329 ) -
Proceeds of equity investment distributions 108,750 119,999
Purchase of equipment (422,067 ) (451,728 )
Repayments of short term line of credit (1,151,165 ) (626,919 )
Repayments of loans (1,945,865 ) (530,311 )
Proceeds of loans 2,194,000 -
Lease financing costs (30,261 ) (166,140 )
Distributions to non-controlling interest (382,856 ) (309,666 )
Proceeds from issuance of common stock 74,020 76,360
Changes in exchange rates 40,636 119,945

The Company has sufficient cash resources to meets its future commitments and cash flow requirements for the coming year. As of ~~March 31,~~June 30, 2022, working capital was ~~$15,516,922~~$16,805,406 (December 31, 2021 - $13,986,013). 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 $297,720 over the term of two leases, the last expiring on December 31, 2025.
25

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

2022 $ 78,240
2023 $ 77,100
2024 $ 70,440
2025 $ 71,940

Other than as disclosed above, we do not anticipate any material capital requirements for the twelve months ending December 31, 2022.

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

29
Other than as disclosed above, we do not know of any significant changes in our expected sources and uses of cash.

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

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

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,~~June 30, 2022. 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 ~~are~~were effective as of ~~March 31,~~June 30, 2022.

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,~~June 30, 2022. Based on that evaluation, it was concluded that there has been no change in our internal control over financial reporting during the three months ended ~~March 31,~~June 30, 2022 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

30
PART II
Item 6. Exhibits.
Number Description
3.1 Articles of Continuance (~~Articles~~(Articles of Incorporation)⁽¹⁾
3.2 Bylaws ~~(1)~~⁽²⁾
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.*
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed with this report.
(1) Incorporated by reference the same exhibit filed with the Company's March 31, 2022 10-Q report.
(2) Incorporated by reference to Exhibit 3(ii) filed the Company’s 8-K report dated April 10, 2022.
* Filed with this report.
~~(1) Incorporated by reference to the Company’s 8-K report filed on April 12, 2022.~~
2631

SIGNATURES

In accordance with the requirements of Section 13 or 15(d) of 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,~~August 15, 2022

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

2732

Goodwill
Balance as of December 31, 2020	$	2,534,275		$	2,534,275
Additions		-			-
Impairment		-			-
Amortization		(176,000	)
Balance as of December 31, 2021 and March 31, 2022	$	2,534,275
Balance as of December 31, 2021 and June 30, 2022				$	2,534,275
Indefinite Lived Intangible Assets
Balance as of December 31, 2020	$	770,000		$	770,000
Additions		-			-
Impairment		-			-
Amortization		(40,000	)
Balance as of December 31, 2021 and March 31, 2022	$	770,000
Balance as of December 31, 2021 and June 30, 2022				$	770,000

Definite Life Intangible Assets
Balance as of December 31, 2020	$	2,006,000
Balance as of December 31, 2019				$	2,006,000
Amortization		(176,000	)		(176,000	)
Balance as of December 31, 2021		1,830,000			1,830,000
Amortization		(40,000	)		(80,000	)
Balance as of March 31, 2022	$	1,790,000
Balance as of June 30, 2022				$	1,750,000

		March 31, 2022		December 31, 2021

Long term deposits	$	8,540	$	8,540


Purchase consideration	$	506,659

Assets acquired:
Cash		7,330
Building		3,750,000
Land		150,000
Liabilities assumed:
Deferred tax liability		(174,582	)
Long term debt		(2,849,500	)
Total identifiable net assets:		883,248
Excess of assets acquired over consideration		376,589
Less investment eliminated upon consolidation		(41,538	)
Gain on acquisition of ENP Peru	$	335,051

Balance, December 31, 2020	$	3,822		$	3,822
Return of equity		(3,822	)		(3,822	)
Gain in equity method investment		22,642			22,642
Balance, December 31, 2021		22,642			22,642
Return of equity		(7,500	)		(8,750	)
Balance, March 31, 2022	$	15,142
Gain in equity method investment					27,646
Investment eliminated upon consolidation					(41,538	)
Balance, June 30, 2022				$	-

	2021		Six months ended June 30, 2022		Full year ended December 31, 2021

Net sales	$	322,079	$	162,000	$	322,079
Gross profit
Net income	$	45,285		55,292	$	45,285

Balance, December 31, 2020	$	3,572,345
Gain in equity method investment		454,023
Return of equity		(325,000	)
Balance, December 31, 2021		3,701,368
Gain in equity method investment		36,764
Balance, March 31, 2022	$	3,738,132

	Three months ended March 31, 2022		Three months ended March 31, 2021		Six months ended June 30, 2022		Six months ended June 30, 2021

Net sales	$	2,201,518	$	2,332,304	$	7,326,021	$	4,987,836
Gross profit		512,884		860,676		1,697,739		1,850,172
Net income		73,528		400,580		373,340	$	766,167

Balance, December 31, 2020	$	500,000	$	500,000
Additional payment		500,000		500,000
Balance, December 31, 2021 and March 31, 2022	$	1,000,000
Balance, December 31, 2021 and June 30, 2022			$	1,000,000

Continuity	March 31, 2022			December 31, 2021
Balance, January 1	$	2,366,598		$	3,847,638
Less: Forgiveness on PPP loans		-			(537,960	)
Less: Payments on loan		(206,629	)		(943,080	)
Balance, end of period	$	2,156,969		$	2,366,598

Outstanding balance	March 31, 2022			December 31, 2021
a) Long term debt – Midland States Bank	$	-			-
b) Long term debt – PPP		-			-
c) Long term debt – PPP		-			-
d) Long term debt – Midland States Bank		1,459,983			1,554,044
e) Long term debt – Midland States Bank		268,708			381,674
f) Long term debt – Stock Yards Bank & Trust		428,278			430,880
Long-term Debt		2,156,969			2,366,598
Less: current portion		(665,614	)		(793,574	)
	$	1,491,355		$	1,573,024

Outstanding balance at December 31,	June 30, 2022			December 31, 2021
a) Long term debt – Midland States Bank	$	-		$	-
b) Long term debt – PPP		-			-
c) Long term debt – PPP		-			-
d) Long term debt – Midland States Bank		-			1,554,044
e) Long term debt – Midland States Bank		-			381,674
f) Long term debt – Stock Yards Bank & Trust		420,733			430,880
g) Long term debt – Stock Yards Bank & Trust		1,935,000			-
h) Long term debt – Stock Yards Bank & Trust		2,849,500			-
i) Long term debt – Stock Yards Bank & Trust		259,000			-
Long-term debt		5,464,233			2,366,598
Less: current portion		(700,278	)		(793,574	)
Long-term Debt, non-current	$	4,763,955		$	1,573,024

	Number of shares			Exercise price per share		Weighted average exercise price		Number of shares			Exercise price per share		Weighted average exercise price

Balance, December 31, 2020		749,000		$	0.75 – 4.13	$	2.42		749,000		$	0.75 – 4.13	$	2.42
Granted		170,000		$	3.61	$	3.61		170,000		$	3.61	$	3.61
Cancelled or expired		(34,799	)	$	1.42 – 3.46	$	2.30		(34,799	)	$	1.42 – 3.46	$	2.30
Exercised		(94,701	)	$	0.75 – 3.46	$	1.58		(94,701	)	$	0.75 – 3.46	$	1.58
Balance, December 31, 2021		789,500		$	1.42 – 4.13	$	2.78		789,500		$	1.42 – 4.13	$	2.78
Granted		5,000		$	3.61	$	3.61		5,000		$	3.61	$	3.61
Cancelled or expired		(3,000	)	$	3.61	$	3.61		(3,000	)	$	3.61	$	3.61
Exercised		(22,500	)	$	2.44 – 3.46	$	2.53		(29,500	)	$	2.44 – 3.46	$	2.51
Balance, March 31, 2022		769,000		$	1.42 – 4.13	$	2.82
Exercisable, March 31, 2022		539,000		$	1.42 – 4.13	$	2.69
Balance, June 30, 2022									762,000		$	1.42 – 4.13	$	2.82
Exercisable, June 30, 2022									535,000		$	1.42 – 4.13	$	2.68

	2022			2021
Expected life – years		3.0			3.0
Interest rate		1.76	%		1.23	%
Volatility		69.66	%		63.28	%
Weighted average fair value of options granted	$	1.46		$	1.54

Three months ended March 31, 2022:

	EWCP			TPA			Total
Revenue	$	47,253		$	10,736,027		$	10,783,280
Interest expense		-			57,618			57,618
Depreciation and amortization		9,244			223,244			232,488
Income tax expense		-			712,446			712,446
Segment profit (loss)		(124,175	)		1,657,234			1,533,059
Segment assets		1,879,593			43,237,198			45,116,791
Expenditures for segment assets		-			(176,684	)		(176,684	)

Three months ended March 31, 2021:

	EWCP			TPA			Total
Revenue	$	71,351		$	7,553,346		$	7,624,697
Interest expense		-			62,274			62,274
Depreciation and amortization		9,977			222,988			232,965
Income tax expense		-			485,456			485,456
Segment profit (loss)		(219,256	)		1,669,827			1,450,571
Segment assets		2,360,199			34,299,895			36,660,094
Expenditures for segment assets		-			(96,136	)		(96,136	)

Item	Increase (I) or Decrease (D)	Reason

Sales

EWCP products	DI	~~Decreased~~Increased customer orders.

TPA products	I	Increased customer ~~orders along with increase in pricing.~~

~~Insurance~~	I	~~Increase in assets and in sales resulted in higher insurance costs.~~

~~Interest expense~~	D	~~Decreased debt resulted in decreased interest expense.~~orders.

~~Lease expense~~Wages	DI	Increased wages for employee retention.
Professional fees	~~The purchase of ENP Realty by ENP Investments reduced lease expense.~~I	Increased due to costs associated with the planned merger with Lygos.
Insurance	I	Increase in assets and in sales resulted in higher insurance costs.

Travel	I	Travel has resumed as COVID-19 has become an endemic.

Currency exchange	ID	Currency exchange ~~increased~~decreased as a result of movements in the US / Canadian dollar exchange rate and its effects on US dollar cash balances and US dollar payables held by the Company’s Canadian subsidiaries.

	Three Months Ended March 31,				Three months ended June 30,						Six months ended June 30,
	2022		2021
Customer					2022			2021			2022			2021

Company A	$	1,605,736	$	998,336	$	1,154,925		$	1,292,419		$	2,760,661		$	2,290,755
Company B	$	1,672,200	$	1,434,684	$	3,788,498		$	1,661,570		$	5,450,698		$	3,096,253
Company C	$	2,957,725	$	687,800	$	428,639	*	$	796,348		$	3,386,367		$	1,484,148
Company D					$	955,843		$	538,158	*	$	1,145,467	*	$	1,060,653	*
*not a primary customer in that period

	March 31,
	2022		2021

Company A	$	3,560,534	$	2,577,497
Company B	$	1,419,306	$	1,138,276
Company C	$	1,387,463	$	419,007	*

	June 30,
	2022		2021

Company B	$	2,091,753	$	1,178,405
Company D	$	973,712	$	207,597	*
*less than 10%

	●	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;~~products;

	●	activity in the oil and gas industry, as we sell our TPA ~~product~~products to oil and gas companies;

	●	drought conditions, since we also sell our TPA ~~product~~products to ~~farmers,~~farmers; and

	●	the impact of the COVID-19 virus.

	2022			2021

Cash used by operations		(2,425,008	)		(2,356,767	)
Proceeds of equity investment distributions		7,500			12,500
Acquisition of equipment		(176,684	)		(96,136	)
Borrowings from line of credit		2,647,726			1,112,361
Repayment of loans		(209,629	)		(208,857	)
Lease financing costs		(16,085	)		(83,070	)
Partnership distributions		(265,922	)		(157,952	)
Proceeds from sale of common stock		56,940			76,360
Changes in exchange rates		42,543			82,352

	2022			2021

Cash provided by (used in) operations		792,536			4,065,194
Additional investment in Lygos		-			(500,000	)
Acquisition of ENP Peru		(499,329	)		-
Proceeds of equity investment distributions		108,750			119,999
Purchase of equipment		(422,067	)		(451,728	)
Repayments of short term line of credit		(1,151,165	)		(626,919	)
Repayments of loans		(1,945,865	)		(530,311	)
Proceeds of loans		2,194,000			-
Lease financing costs		(30,261	)		(166,140	)
Distributions to non-controlling interest		(382,856	)		(309,666	)
Proceeds from issuance of common stock		74,020			76,360
Changes in exchange rates		40,636			119,945

Number		Description
3.1		Articles of Continuance (~~Articles~~(Articles of Incorporation)⁽¹⁾
3.2		Bylaws ~~(1)~~⁽²⁾
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.*
101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

*	Filed with this report.

(1)	Incorporated by reference the same exhibit filed with the Company's March 31, 2022 10-Q report.

(2)	Incorporated by reference to Exhibit 3(ii) filed the Company’s 8-K report dated April 10, 2022.

	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