Daniel O'Brien - President and CEO

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the First Quarter 2013 Financials Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. I would now like to turn the conference over to Mr. O'Brien. Please go ahead. Daniel O'Brien: Good morning. I'm Dan O'Brien, CEO of Flexible Solutions. The Safe Harbor provision; the Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statements. Certain of the statements contained herein which are not historical facts are forward-looking statements with respect to events, the occurrence of which involve risks and uncertainties. These forward-looking statements may be impacted, either positively or negatively, by various factors. Information concerning potential factors that could affect the company is detailed from time to time in the company's reports filed with the Securities and Exchange Commission. Welcome to the FSI conference call for the first quarter of 2013. Before commenting on the financials specifically, I'd like to speak about where we are on our major projects and what we expect for the next quarters. Our sugar to aspartic acid plant in Alberta has been in operation for over a year. We do not provide volume information or details of production. However, revenue generation is continuing, depreciation of the factory is included in our financials and the Taber production team is focused on steady increase in quantity, efficiency and quality. The goal of the Taber plant is to eventually supply most of the aspartic acid we require from local sustainable feedstocks. The aspartic acid made in Taber combined with the aspartic acid we purchased from our key suppliers is the primary raw material for the finished product made by our NanoChem subsidiary. Thermal polyaspartic acid or TPA; sales of TPA from the NanoChem division now represent more than 90% of our revenue and have become the main sales and profit driver for our company. By backward integrating our business to control our raw material supply, Flexible Solutions can ensure that NanoChem's TPA is always competitive and we remain the leading supplier as the use of TPA increases. TPA is used in agriculture to increase crop yield. The mechanism of action is through limiting crystal embryo growth between positive and negative fertilizer ions in the soil. When embryonic crystals are prevented from transforming into a fully crystalline form by TPA, the fertilizer remains available at a lower energetic cost to the plant. Keeping fertilizer easily available to crops results in bigger yields with the same level of fertilization. Treating an acre of land cost the grower $20 or less and may result in $50 or more in extra yield even when low price crops like winter wheat. High value crops such as potatoes have net returns to the grower measured in hundreds of dollars per acre. In North America alone, the wholesale market is estimated at over $2 billion a year and most crops are able to use TPA profitably. This year, there was a significant decrease in first quarter agriculture revenue which we considered largely a result of the aftereffects of last season's drought and because of late planting season this year. We believe that agriculture distributors have delayed orders and the spring in response to last year's weather and really that's the way it is. TPA is also a biodegradable way of treating oilfield water to prevent pipes from plugging with mineral scale. Our sales into this market are well established and growing steadily, but can be subject to temporary reductions when production is cut back or when platforms are shut down for reconditioning. In some areas including many of the Nordic countries and companies operating in the North Sea, TPA is mandated as part of an environmental regulation. Q2 and the rest of 2013; we're optimistic but cautious. Our products are best in their class and in the past, we've attempted to forecast sales based on historical results. However, none of our customers are on long-term contracts, as the world's various economies are in continuous [floods], so we're not able to provide numerical growth predictions. It's simply too difficult to give accurate guidance. We do have very early indications that Q2 may [regroup] most of their revenue decline experienced in Q1 and we continue to predict that full year 2013 should be higher than full year 2012. We hope to succeed even during these difficult times and we're going to do our best to provide upside surprises. 2013 swimming pool sales did increase compared to the same quarter of 2012. The oil sector is providing us with new opportunities to grow and, of course, when we get the Alberta plant to significant volume levels, profit margins will start to improve and new customers and systems on sustainable products may become available. We continue to caution that continuous high oil prices have increased aspartic acid prices. This increases our cost of goods substantially and affects margins until production gains at the Alberta plant can relieve the pressure. We do our best to increase prices to our customers but we are not able to do so immediately. Highlights of the financial results; sales for the quarter decreased 13% to $4.5 million compared with $5.19 million in 2012. The result is a profit of $65,000 or $0.00 per share in the 13 period, compared to a profit of $223,000 or $0.02 a share in 2012. Now that the Alberta factory is operating, a biomass expense line is no longer given in the news release. Instead, due to the generation of revenue from that facility, depreciation has begun. This results in significantly higher depreciation expense in the financials. Our working capital is more than adequate. FSI's sales tend to be larger during the first half of the year, resulting in higher accounts receivable, lower cash and higher inventory. The company's growth is supported by its mostly untapped, 6.4 million credit line with the Chicago based bank. Because of the out-size effects of depreciation, stock option expenses and one-time items on the financials of small companies, FSI also provides a non-GAAP measure useful for judging year-over-year success. Operating cash flow is arrived at by removing depreciation, options and one-time items from the statement of operations. For first quarter 2013, operating cash flow was 474,000 or $0.04 a share compared to 1.12 million and $0.08 a share in 2012. We're pleased with these results but the pressure on margins from raw material costs is evident here as well. Detailed information on how to reconcile GAAP with non-GAAP numbers is included in our news release of May 15. Regarding our other product lines, Watersavr and pool products are being emphasized less than the NanoChem division while maintaining the long-term opportunities and limiting the cash and the management costs. Swimming pool sales are back to pre-recession levels and we are planning for growth in the division through '13. Watersavr sales are very difficult to predict because the prospects aren't nearly all government organizations. We are continuing our efforts in Turkey, Morocco, parts of East Asia, Australia, Singapore and the U.S. The recently announced 31% water savings from a trial on Lake Sahara in Las Vegas done by the Southern Nevada Water Authority has stimulated dozens of inquiries from around the world with many of them from water-stressed parts of the United States. More sales are expected throughout the year. The text of this speech will be available on our website by Friday May 17th. An email or fax copies can be requested from Jason Bloom at 1800-661-3560, jason@flexiblesolutions.com. Thank you. The floor is open for questions. Calvin, will you take over and give the instructions please.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). I'm showing no questions at this time. Daniel O'Brien: Thank you, Calvin. In closing remarks, thank you all for joining me on the conference call. I look forward to speaking to you again in three months and (inaudible) if possible in the interim. Thank you so much. Goodbye.

We are now back in private speaker, O'Brien. Is there anything else you need? Daniel O'Brien: No. That was quite surprising. Usually, there's 20 minutes of questions; but thank you so much, Calvin.

You're welcome. Daniel O'Brien: I don't know whether I told them everything they needed to know or they just don't care anymore. Thanks very much.

Sure. Have a great day. Daniel O'Brien: You too. Bye.