FLEXIBLE SOLUTIONS INTERNATIONAL INC

December 31, 2024 and 2023

1. BASIS OF PRESENTATION

These 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., InnFlex Holdings Inc., ENP Peru Investments LLC (“ENP Peru”), Pana Chem Solutions Inc., its 80% controlling interest in 317 Mendota LLC (“317 Mendota”), and its 65% controlling 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 in 2019, the Company redomiciled into Alberta, Canada.

In 2022, 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. In 2023, NanoChem purchased the remaining 8.33% of shares to become sole owner. ENP Peru was previously accounted for under the equity method however, it is now consolidated into the financial statements from the date control was obtained.

In 2023, the Company purchased an 80% interest in 317 Mendota, a newly incorporated company established to purchase a large manufacturing building. ENP Investments will occupy part of this building, freeing up more space in the building owned by ENP Peru for NanoChem. The Company intends to rent the remainder of the space to suitable tenants. The remaining 20% non-controlling interest is held by unrelated parties.

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 and has installed custom equipment used to produce food and nutritional materials. All the ingredients we produce are custom products for specific clients and are confidential. We anticipate that this market vertical will grow over time.

2. SIGNIFICANT ACCOUNTING POLICIES

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

(a)Cash and Cash Equivalents.

The Company considers all highly liquid investments purchased with an original or remaining maturity of less than three months at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained with several financial institutions. As of December 31, 2024 and 2023, the Company did not have any cash equivalents.

(b)Term Deposits.

The Company has four term deposits that are maintained by commercials banks. The first term deposit is for $303,954 and matures in February 2025. This deposit pays 3% interest and if withdrawn before maturity, a penalty may be applied. The second term deposit is for $742,834, matures in March 2025 and pays interest at a rate of 2.65%. If withdrawn before maturity, the greater of the loss of accrued interest or $150, plus 1% of the principal shall be levied. The third term deposit is for $1,038,721 and matures in March 2025. This deposit pays 2.5% and if withdrawn before maturity, the greater of the loss of accrued interest or $150, plus 1% of the principal shall be levied. The fourth term deposit is for $315,407, matures in February 2025 and pays interest at a rate of 3%. If withdrawn before maturity, a penalty may be applied.

(c)Inventories and Cost of Sales.

The Company has three major classes of inventory: completed goods, work in progress and raw materials and supplies. In all classes inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis or weighted average cost formula 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 (2024 - $473,843; 2023 - $522,033). Shipping and handling costs incurred are included in cost of goods sold (2024 - $895,463; 2023 - $944,811).

(d)Allowance for Doubtful Accounts.

The Company’s expected credit losses are determined through a review using historical credit loss experience; changes in asset specific characteristics, current conditions, and reasonable and supportable future forecasts, among other specific account data, and is performed at least quarterly. The Company develops and documents its methodology to determine its allowance for expected credit losses. Risk characteristics used by the Company may include customer mix, knowledge of customers and general economic conditions of the various local economics, among others. Specific account balances are written off when management determines the amounts to be uncollectible. Management has reviewed the balance reserved through the allowance for expected losses and believes it is reasonable.

(e)Property, Equipment, Leaseholds and Intangible Assets.

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

The Company capitalizes expenditures for improvements that significantly extend the useful life of an asset. The Company recognizes a gain (loss) on a sale of property, equipment, leaseholds and intangible assets based upon the proceeds received on the sale less the net carrying value of the asset. The Company charges expenditures for maintenance and repairs to operations when incurred.

(f)Impairment of Long-Lived Assets.

Property, Equipment, Leasehold, and Definite-lived Intangible Assets:

The Company reviews the carrying amount of our property, equipment, leasehold, and definite-lived intangible assets for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows that the assets or asset group are expected to generate. If the carrying value of the assets or asset group are not recoverable, impairment is measured and recognized as the amount by which the carrying value exceeds its fair value. Fair value is generally determined based on discounted future cash flows.

Goodwill and Indefinite-lived Intangible Assets:

Goodwill and indefinite-lived intangible assets are tested for impairment annually by the Company on December 31 or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is tested for impairment at the reporting unit level using a two-step process which includes a qualitative and quantitative assessment. Indefinite-lived intangible assets are tested for impairment by comparing their fair value to their carrying amount. If the carrying amount exceeds the fair value, an impairment loss is recognized in the period it is identified. The Company determines fair value using appropriate valuation methodologies, including discounted cash flow models and market-based approaches, which incorporate assumptions regarding future performance, growth rates, discount rates, and other relevant factors. Any impairment losses recognized are recorded as an expense in the consolidated statements of income.

(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 period. Translation adjustments arising on conversion of the Company’s financial statements from the subsidiary’s functional currency, Canadian dollars, into the reporting currency, U.S. dollars, are excluded from the determination of income (loss) and are disclosed as other comprehensive income in the consolidated statements of 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 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 free-on-board 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 fair 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)Stock-based Compensation.

Stock-based compensation expense is recognized for equity awards granted to employees, directors and other eligible participants based on the fair value of the awards at the grant date. For stock options, fair value is estimated using an appropriate valuation model such as the Black-Scholes option pricing model. The fair value of stock options is recognized as an expense of the requisite service period, typically the vesting period, using the graded-vesting method. The Company estimates expensed forfeitures based on historical data and adjusts stock-based compensation expenses accordingly. 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 related to the translation of subsidiaries’ functional currency into the reporting currency.

(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 years ended December 31, 2024 and 2023.

(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 costing and recoverable value 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.

The fair values of cash, term deposits, investments and the 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 approximate their respective carrying amounts due to these financial instruments being at market rates.

(o)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. The Company is not aware of any contingencies at the date of these consolidated financial statements.

(p)Income Taxes.

Income taxes are computed by multiplying the Company’s taxable net income by the Company’s effective tax rates. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss carry-forwards, if any. Deferred income 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 income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to reduce the carrying amount of deferred income tax assets if it is considered more likely than not that some portion, or all, of the deferred income tax assets will not be realized.

It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. At December 31, 2024, the Company believes it has appropriately accounted for any unrecognized tax benefits.

To the extent the Company prevails in matters for which a liability for an unrecognized benefit is established or is required to pay amounts in excess of the liability, the Company’s effective tax rate in a given financial statement period may be affected. Interest and penalties associated with the Company’s tax positions are recorded as interest expense in the consolidated statements of income and comprehensive income.

(q)Risk Management.

The Company’s credit risk is primarily attributable to its accounts receivable. The amounts presented in the accompanying consolidated balance sheets are net of allowances for doubtful accounts, estimated by the Company’s management based on prior experience and the current economic environment. The Company is exposed to credit-related losses in the event of non-payment by customers. Credit exposure is minimized by dealing with only credit worthy counterparties. Revenue for the Company’s three primary customers totaled $20,779,311 (54%) for the year ended December 31, 2024 (2023 - $20,482,798 or 53%). Accounts receivable for the Company’s three primary customers totaled $7,585,199 (65%) at December 31, 2024 (2023 - $6,561,164 or 67%).

The credit risk on cash is limited because the Company limits its exposure to credit loss by placing its cash 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 risk to the extent that market value rate fluctuations materially differ for financial assets and liabilities denominated in foreign currencies.

In order to manage its exposure to foreign exchange risks, the Company closely monitors the fluctuations in the foreign currency exchange rates and the impact on the value of cash, 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 subject to fixed long-term interest rates.

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

(r)Leases.

Leases are 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-long term 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.

(s)Investments.

Investment, at cost

The Company accounts for investments in equity securities that do not have a readily determinable fair value using the cost method. These investments are initially recorded at cost and are not subsequently remeasured unless impaired. Dividends received from cost-method investments are recognized as income when declared, provided they do not represent a return of capital. The Company evaluates these investments for impairment at each reporting period based on qualitative factors, such as financial condition, operational performance, and general market conditions affecting the investee. If an investment is determined to be impaired and the impairment is considered other than temporary, the carrying amount is reduced to its estimated recoverable value, with the impairment loss recognized in earnings.

Investment, equity method

The Company accounts for investments in entities over which it has significant influence, but not control, using the equity method of accounting. Under the equity method, the investment is initially recorded at cost, and the carrying amount is subsequently adjusted for the Company’s share of the investee’s income, losses, and dividends received. When a portion of an equity-method investment is sold, the Company recognizes a gain or loss on the sale based on the difference between the carrying amount of the investment sold and the proceeds received. The Company adjusts the carrying amount of the remaining investment based on its proportionate share of the investee’s equity after the sale. The Company assesses its equity-method investments for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying amount of an equity-method investment exceeds its recoverable amount, an impairment loss is recognized.

(t)Reclassification.

Certain prior year amounts have been reclassified to conform to the 2024 financial statements presentation. Reclassifications had no effect on net income, cash flows, or stockholders’ equity as previously reported.

(u)Goodwill and Intangible Assets.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill is assigned to reporting units at the date of acquisition and is not amortized but is subject to periodic impairment testing. The carrying amount of goodwill is adjusted only in the event of impairment or upon the disposal of a business.

Intangible Assets

Intangible assets acquired separately are recorded at cost, while those acquired in a business combination are recognized at fair value as of the acquisition date. Intangible assets are classified into the following categories:

(v)Recent Accounting Pronouncements.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07 (Topic 280) Improvements to Reportable Segment Disclosures. The new guidance requires disclosure of significant segment expenses that are (1) regularly provided to or easily computed from information regularly provided to the chief operating decision maker and (2) included in the reported measure of segment profit or loss. The new standard also allows companies to disclose multiple measures of segment profit or loss if those measures are used to assess performance and allocate resources. We adopted this guidance which resulted in additional required disclosures included in our consolidated financial statements for the year ended December 31, 2024 and segment disclosure for the comparative year ended December 31, 2023 were modified retrospectively to include the new requirements.

In December 2023, the FASB issued ASU 2023-09 (Topic 740) Improvements to Income Tax Disclosures. The new guidance is intended to enhance annual income tax disclosures to address investor requests for more information about the tax risks and opportunities present in an entity’s operations. The amendments in this standard require disclosure of additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate (the rate reconciliation) for federal, state, and foreign income taxes. They also require greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. In addition to new disclosures associated with the rate reconciliation, the amendments in this update require information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. The amendments in this update are effective on January 1, 2025 for annual periods beginning after December 15, 2024, and early adoption is permitted. The Company does not expect the adoption to have a material impact on the consolidated financial statements and has not early adopted the standard.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure about the types of costs and expenses included in certain expense captions presented on the income statement. The new disclosure requirements are effective for the Company’s annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted, and may be applied either prospectively or retrospectively. The Company is currently evaluating the ASU to determine its impact on our consolidated financial statements and disclosures.

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

3. LEASES

In January 2016, NanoChem Solutions Inc. leased a space in Naperville, IL for office and research and development. The lease was for an initial five years and renewable every five years for a further five years. In March 2024, the Company consolidated NanoChem operations into the Peru, IL locations and terminated the lease in Naperville, IL. The Company had to pay a penalty of $35,910 and forfeited the $5,440 security deposit to terminate the lease early and incurred a loss of $41,350 on early termination of the lease that is shown on the consolidated statement of income and comprehensive income as a part of non-operating income (loss). The table below summarizes the right-of-use asset and lease liability for the periods ended December 31, 2024 and 2023.

4. ACCOUNTS RECEIVABLE

5. INVENTORIES

6. PROPERTY, EQUIPMENT AND LEASEHOLDS

Amount of depreciation expense for 2024 was: $1,797,476 (2023 - $1,526,319) and is included in cost of sales in the consolidated statements of income and comprehensive income.

In 2023, the Company sold the boat and $4,589 was recognized as a gain on sales of asset in the consolidated statements of income and comprehensive income.

7. GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangibles assets, all of which relates to the acquisition of ENP Investments in 2018, at December 31, 2024 and 2023 consisted of the following:

The amount of amortization for 2024 was $160,000 (2023 - $160,000) and was included in cost of sales in the consolidated statements of income and comprehensive income. Estimated amortization expense over the next five years is as follows:

8. LONG TERM DEPOSITS

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

9. INVESTMENTS

The Company’s investments at December 31, 2024 and 2023 consisted of the following:

In January 2019, the Company invested in a Florida based LLC that is engaged in international sales of fertilizer additives. According to the operating agreement, the Company had a 50% interest in the profit and loss of the Florida based LLC but does not have control. In August 2024, the Company sold a 30.1% interest in the Florida based LLC to a third party for consideration of $2,000,000. In addition, the Company entered a subsequent agreement for the sale of its remaining 19.9% interest over the next five years for an additional $4,000,000. Starting in 2025, the Company will sell a further 3.98% per year upon receipt of that years $800,000 payment. At December 31, 2024, the Company continues to account for this investment using the equity investment as it exercises significant influence.

A summary of the activity associated with the Company’s investment in the Florida based LLC during the years ended December 31, 2024 and 2023 is follows:

Summarized profit and loss information related to the Florida based LLC is as follows:

During the year ended December 31, 2024, the Company had sales of $8,235,394 (2023 - $10,260,870) to the Florida based LLC, of which $1,866,645 is included within Accounts Receivable as at December 31, 2024 (2023 - $2,073,813).

10. LINE OF CREDIT

**(****a)**In June 2024, ENP Investments renewed the line of credit with Stock Yards Bank and Trust (“Stock Yards”). The revolving line of credit is for an aggregate amount of up to the lesser of (i) $4,500,000, 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 December 31, 2024 is 7.5% (2023 -8.5%).

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 $2,925,000. The non-controlling interest is the guarantor of the remaining 35% of all the principal and other loan costs not to exceed $1,575,000.

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.

The balance outstanding under this revolving line as of December 31, 2024 was $2,052,159 (2023 - $1,810,479).

**(b)**In August 2024, the Company renewed the line of credit with Stock Yards Bank and Trust (“Stock Yards”). The revolving line of credit is for an aggregate amount of up to the lesser of (i) $2,000,000, or (ii)80% of eligible domestic accounts receivable and certain foreign accounts receivable plus 50% of inventory, capped at $1,000,000. Interest on the unpaid principal balance of this loan will be calculated using the greater of prime or 4.0%. The interest rate at December 31, 2024 is 8% (2023 -8.5%).

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.

To secure 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 NanoChem, exclusive of intellectual property assets.

The balance outstanding under this revolving line as of December 31, 2024 were $nil (2023 - $nil).

11. LONG TERM DEBT

Debt, all of which is with StockYards Bank and Trust, at December 31, 2024 and 2023 consisted of the following:

The following table summarizes the scheduled annual future principal payments as of December 31, 2024

12. INCOME TAXES

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

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

Included in current income tax expense for the year ended December 31, 2024 is a recovery of $621,959 (2023 - $1,127,689) for a revision of estimated current taxes payable for previous years.

Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. Deferred tax assets (liabilities) at December 31, 2024 and 2023 are comprised of the following:

The Company has non-capital loss carryforwards of approximately $4,606,383 which may be carried forward to apply against future year income tax for Canadian income tax purposes, subject to the final determination by taxation authorities, expiring in the following years:

As at December 31, 2024, the Company has federal and state income tax net operating loss carryforwards of $623,028 available for US tax purposes. The NOLs carry forward indefinitely, with utilization limited to offsetting up to 80% of taxable income in any given year.

Accounting for Uncertainty for Income Tax

The Company recognizes income tax liabilities from uncertain tax positions where there is uncertainty as to a tax position being sustainable using the more-likely-than-not threshold. During the years ended December 31, 2024 and 2023, the total liability for uncertain tax positions increased by $419,214 and $464,185 respectively, primarily due to increased liabilities based on existing tax positions. As of December 31, 2024 and 2023, the Company has recognized liabilities for uncertain tax positions of $2,754,007 and $2,334,793, respectively, which is included in income taxes payable on the consolidated balance sheets. All recorded uncertain tax positions impact the Company’s effective tax rate. The timing of any future settlements or payments related to uncertain tax positions is uncertain.

Additionally, the Company has accrued interest and penalties related to these unrecognized tax benefits and other items, which are recorded as a component of income tax expense (benefit). As of December 31, 2024 and 2023, the Company recorded an additional $333,086 and $193,551 in accrued interest and penalties. At December 31, 2024 and 2023, the Company had accrued interest and penalties related to unrecognized tax benefits of $1,237,637 and $904,549 respectively, which is included in income taxes payable on the consolidated balance sheets.

13. INCOME PER SHARE

The Company presents both basic and diluted income per share on the face of its consolidated statements of income and comprehensive income. Basic and diluted income per share are calculated as follows:

Certain stock options whose terms and conditions are described in Note 14, “Stock Options” could potentially dilute basic EPS in the future, but were not included in the computation of diluted EPS because to do so would have been anti-dilutive. Those anti-dilutive options are as follows.

There wereno preferred shares issued and outstanding during the years ended December 31, 2024 and 2023.

14. 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 unless a executive employee is granted a multi-year stock option grant where an equal amount vests over the next 5 years. The maximum term of options granted is 5 years and the exercise price for all options are issued for not less than fair market value at the date of the grant.

The following table summarizes the Company’s stock option activities for the years ended December 31, 2024 and 2023:

During the years ended December 31, 2024 and 2023, the Company recognized stock based compensation associated with stock options as follows:

During the year ended December 31, 2024, the Company granted 102,000 (2023 –nil) stock options to consultants and 979,000 (2023 –nil) stock options to employees. The fair value of options granted during 2024 was calculated using the following range of assumptions:

As of December 31, 2024, the weighted-average remaining contractual life of outstanding and exercisable options is 3.4 years and 3.1 years, respectively. As of December 31, 2024, there was approximately $603,850 of compensation expense related to non-vested awards that is expected to be recognized over a weighted average period of 1.9 years.

The aggregate intrinsic value of options outstanding and exercisable at December 31, 2024 is $1,709,850 (2023 - $nil) and $843,790 (2023 - $nil), respectively. During the year ended December 31, 2024, the intrinsic value of stock options exercised was $88,730 (2023 - $11,520).

15. CAPITAL STOCK

During the year ended December 31, 2024,47,000 shares were issued upon the exercise of employee stock options (2023 –8,000) and 33,000 shares were issued upon the exercise of consultant stock options (2023 –nil).

During the year ended December 31, 2024, the Company announced a special dividend of $0.10 per share that was paid on May 16, 2024 to shareholders for a total of $1,255,053 (2023 - $0.05/share for a total of $626,777).

During the year ended December 31, 2023, the Company issued 1,272 shares to a consultant for services rendered, resulting in an expense of $4,070 on the consolidated statements of income and comprehensive income.

16. NON-CONTROLLING INTERESTS

**(****a)**ENP Investments is a limited liability corporation (“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 (“NCI”) owns the remaining 35% interest in ENP Investments. ENP Mendota is a wholly owned subsidiary of ENP Investments. ENP Mendota is a LLC that 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 NCI’s ownership interest in ENP Investments is recorded in non-controlling interests in these consolidated financial statements. The non-controlling interest represents NCI’s interest in the earnings and equity of ENP Investments. ENP Investments is allocated to the TPA segment. See Note 17.

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 $4,020,679.

During the year ended December 31, 2024, the Company had sales of $8,050,462 (2023 - $6,811,083) to the NCI, of which $5,377,088 is included within Accounts Receivable as of December 31, 2024 (2023 – $4,225,028).

**b)**317 Mendota is a LLC that owns real estate that the Company occupies part of while renting out the excess. The Company owns a 80% interest in 317 Mendota and an unrelated party (“317 NCI”) owns the remaining 20% interest in 317 Mendota. For financial reporting purposes, the assets, liabilities and earnings of 317 Mendota are consolidated into these financial statements. The 317 NCI’s ownership interest in 317 Mendota is recorded in non-controlling interests in these consolidated financial statements. The non-controlling interest represents 317 NCI’s interest in the earnings and equity of 317 Mendota. 317 Mendota is allocated to the TPA segment as that is the intended use of the building.

17. SEGMENTS AND SIGNIFICANT CONCENTRATIONS

The Company operates intwo 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 save 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, also known as TPA’s (as shown under the column heading “BCPA” below), 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 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.

The Company also manufactures food grade products that are made and sold by the TPA division.

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. The economic factors that impact the nature, amount, timing, and uncertainty of revenue and cash flows vary among the Company’s operating segments and the geographical regions in which they operate. This operating segment structure is used by the Chief Operating Decision Maker (“CODM”), who has been determined to be the Chief Executive Officer, to make key operating decisions and assess performance of the Company. The CODM evaluates segment operating performance, and makes resource allocation and performance evaluation decisions, based on gross profit and net operating income.

Year ended December 31, 2024:

Year ended December 31, 2023:

Sales by territory are shown below:

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

Three customers accounted for $20,779,311 (54%) of sales made in 2024 (2023 - $20,482,798 or 53%).

18. SUBSEQUENT EVENTS

In the three months ended March 31, 2025, the Company issued 67,000 shares to employees and 65,000 shares to consultants upon the exercise of stock options.