Dan O’Brien – CEO

Paul Scolardi - Super Trades

Good day everyone, and welcome to today’s Flexibility Solutions International second quarter 2014 financials conference. [Operator instructions.] At this time, I would turn the conference over to your host for today, Mr. Dan O’Brien, CEO of Flexibility Solutions. Please go ahead, sir. Dan O’Brien: Thank you, operator. Good morning, this is Dan O’Brien, CEO of Flexibility Solutions. Safe Harbor provision, the Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statements. Certain of the statements contained herein which are not historical facts are forward-looking statements with respect to events, the occurrence of which involve risks and uncertainties. These forward-looking statements may be impacted, either positively or negatively, by various factors. Information concerning potential factors that could affect the company is detailed from time-to-time in the company’s reports filed with the Securities and Exchange Commission. Welcome to the FSI conference call for second quarter 2014. Prior to speaking specifically regarding the financials, I’d like to talk about where we are in our product lines and what we expect for the next quarters. NanoChem division represents most of the revenues of FSI. This division makes polyaspartic acid, called TPA for short, a biodegradable protein with many valuable uses. TPA is used in agriculture to increase crop yield. The method of action is through limiting crystal embryo growth between fertilizer ions and other ions in the soil. When embryonic crystals are prevented from transforming into fully crystalline form by TPA, the fertilizer remains available to plants further into the growing season. The firm but light attraction between TPA and the fertilizer ions also reduces fertilizer runoff. Keeping fertilizer easily available to crops results in better yield with the same level of fertilization. In North America alone, the wholesale market is estimated at over $2 billion a year, and most crops are able to use TPA very profitably. TPA in agriculture is a unique economic system for all links in the sales to end user chain. With many products, the economic value is good for all but one party, most commonly the farmer, who’s asked to accept a soft value such as convenience instead of the cash profit accruing to the other parties. Not so for TPA. FSI earns a fair profit on manufacturing, distribution, earns a strong profit selling to dealers. Dealers make good profit selling to growers, yet the grower still earns a great profit from the extra crops he produces with the same land and fertilizer program. More than 350 trials over the last 15 years have demonstrated that investing $10 to $15 per acre in TPA can pay back $30 to $100 or more. We believe this is an excellent basis for long term growth in sales as more growers become aware of this improvement to best practices. TPA is also a biodegradable way of treating oil-filled 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. SUN 27. This is our most recent product introduction. It’s a fertilizer additive that reduces the speed of nitrogen fertilizer degradation in soil. Most soils contain the protein urease, which is an enzyme that degrades nitrogen fertilizer. Up to half the nitrogen applied to a field can be lost to urease activity. This is a significant cost to the grower and has negative environmental side effects. Sales began in first quarter 2014, and are expected to accelerate in late 2014 and into 2015 as growers and distributors become aware of the pricing and the effectiveness of the product. The size of the potential market for urease inhibition is very large, given that nitrogen in various formats is applied to millions of acres of crop land worldwide, and that nitrogen lost through urease activity destroys large amounts of nitrogen fertilizer. SUN 27 is equal to or better than competing products, and pricing is set to be very competitive at both wholesale and retail levels. SUN 27 has a lower freezing points than other urease inhibitors, resulting in reduced storage problems. SUN 27 is manufactured in the U.S. and sold by our NanoChem subsidiary, www.nanochems.com. SUN 27 is now available in truckload volumes. [laughs] Sorry for the advertising there. Q3, Q4, and the start of 201T5. Potential improvements in sales are possible in several product lines. TPA for agricultural use begins its uptake in Q4 for the 2015 season, and we’re told by our distributors that their inventory is very low. SUN 27, the nitrogen conservation product for agriculture that we introduced this year is entering the first full season of sales, which is normally Q4 and Q1. WatrSavr is experiencing sales in Q3 that will make a top line revenue increase likely for the quarter. We’re not able to provide specific growth predictions because even with loyal growing customers and new sales opportunities in multiple markets, our sales are purchase order by purchase order, rather than long term uptake contracts. It’s unrealistic to give numerical guidance under these conditions. We are comfortable predicting that full year 2015 revenue will be higher than 2014. Our best estimate is that Q3 2014 will resemble the year earlier period, but with some growth, and that in Q4 2014, we may see faster year over year growth due to preordering of the agricultural TPA and the SUN 27 for the 2015 season. In 2015, we expect additional growth in revenue with the usual lumpy quarterly numbers, because of customer behavior, weather, crop pricing, and the other variables of our business. Highlights of the financial results. Sales for the quarter decreased 12% to $4.29 million compared with $4.88 million for Q2 2013. The result was a gain of $400,000, or $0.03 per share, in the 2014 period, compared to a gain of $70,000, or $0.01 a share, in 2013. Our working capital is adequate. FSI’s sales tend to be larger in the first half of the year, resulting in higher accounts receivable, lower cash, and lower inventory, which reverses in the second half. The company’s growth is supported by its mostly unused line of credit with a Chicago-based bank. Because of the outsized effects of depreciation, stock 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. It’s arrived at by removing depreciation option expenses and one-time items from the statement of operations. For first half 2014, operating cash flow was $763,000, or $0.06 a share, compared to $975,000 and $0.07 a share in 2013. Detailed information about how to reconcile GAAP with non-GAAP numbers is included in our news release of August 14. And last, moving to our other product lines, WatrSavr and swimming pools, they’re being emphasized less than NanoChem division, but while maintaining the long term opportunities and limiting the cash and management cost. Swimming pools have been impacted by competition this year, and we’re formulating responses. WatrSavr sales are more difficult. We’re continuing our efforts in Turkey, Morocco, Chile, Senegal, parts of East Asia, and Australia. Small sales have been received at intervals through the year and are expected to continue. The successful trial in 2012 on Lake Sahara in Las Vegas provided concrete evidence that WatrSavr works safely in the U.S. Southwest and saves water at a low cost to the water owner. The Lake Sahara project, the AWWA Journal article that resulted from Lake Sahara, and the hard work over the last decade at sites around the world have led to the pilot program which is ongoing in Wichita Falls, Texas. If this pilot is completed as planned. It will result in Q3 2014 WatrSavr revenue of about $375,000 and may result in a larger contract for 2015. The pilot is being watched with extreme interest by water management groups throughout the U.S. and internationally. We hope the Wichita Falls pilot will be the tipping point that we have looked for to bring our technology into mainstream use, and I would like to thank all the people of Texas who have been instrumental in the project. The text of this speech will be on our website by Monday, August 18. Email copies can be requested from Jason Bloom by telephone at 1-800-661-3560 or Alisha at flexiblesolutions.com. And her email address is alishap@flexiblesolutions.com. Thank you. The floor is open for questions. And operator, will you give out the instructions, please?

[Operator instructions.] We’ll go first to Paul Scolardi of Super Trades. Paul Scolardi - Super Trades: I would like to know what the addressable market is for WatrSavr in the U.S. and worldwide, if you have any idea, if this trial were to be successful. Dan O’Brien: We would assume that it’s in the $300 million to $1 billion range. But the difficulty in assessing these markets is governmental action, and in some ways, how willing the government is to admit that they have a water problem. In years past, we did a full worldwide assessment of how much surface area there was to economically treat in water-starved areas, and we came up with a number of $10 million, but I don’t think that’s a realistic addressable market. I’m much more comfortable with the $300 million to $1 billion range. Paul Scolardi - Super Trades: And as far as the Texas project, do you have any idea of the timeframe, until results are determined? Dan O’Brien: Wichita Falls will have results by October, but it will be up to them when they decide to provide us with those results.

It appears we have no further questions at this time. Dan O’Brien: Thank you, operator, and to the audience, thank you very much for spending the time with me this morning. I look forward to speaking with again at the end of the third quarter to hopefully tell you about the good things that are happening.