Dan O’Brien - Chief Executive Officer

William Gregozeski - Greenridge Global

Good day and welcome to the Flexible Solutions Fourth Quarter and Full Year Fiscal Results Call. Today’s conference is being recorded and at this time, I would like to turn the conference over to Dan O’Brien, Chief Executive Officer of Flexible Solutions. Please go ahead, sir. Dan O’Brien: Thank you, Chris. Good morning. This is Dan O’Brien. 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 full year 2014. First let me review the changes that have occurred over the past year and then I will move on to the financials. In the NanoChem division. This division makes polyaspartic acid, known as TPA, a biodegradable protein with many valuable uses. It now represents approximately 95% of revenue and is the sales and profit driver of our company. A TPA is used in agriculture to increase crop yield. The chemical mechanism is the ability of TPA to maintain crystal embryos of fertilizer cells in their embryonic form in the soil for several months, which has the effect of keeping fertilizer easier for plants to absorb. Because the plan expends less energy getting its nutrients, it has more energy available to produce valuable crops. In North America alone, the wholesale market is worth over $2 billion a year and most crops are able to use TPA profitably. Crop prices currently available to growers are well above the breakeven point for using TPA. TPA is a biodegradable way of treating oil field water to prevent pipes from plugging with mineral scale. Our sales into this market are strong and oil companies in the Nordic countries use TPA as part of environmental regulation. We are experiencing interest from forward thinking oil producing countries other than Scandinavia have reasonable expectations of gaining new customers over the next several quarters. There is continuing research in the concept of TPA as part of [tied] oil and gas fracturing liquids. This use has progressed and we have seen increased sales over the last year. TPA is used as part of the fracing fluid and intended to prevent scale from destroying the permeability of rock pores as well its more known function of scale control in piping. Plug pores reduce well production. TPA has added value compared to existing fluid components due to its biodegradability. It does not need to be removed when cleaning the used fracing water and it demonstrates driller sensitivity to environmental safety which can improve relationships with neighbors and regulators. SUN 27. We have been selling this product for a year now and we are satisfied with the initial success. We expect it to be a significant revenue stream in 2016 and onward. SUN 27 is a fertilizer additive that reduces the speed of nitrogen fertilizer degradation and 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. The size of the potential market for urease inhibition is very large. Nitrogen in various formats that can be protected by SUN 27 is applied to millions of acres of cropland worldwide each year, and nitrogen lost through urease enzyme activity destroys large amounts of nitrogen fertilizer. SUN 27 is equal to or better than the competing products and pricing is set to be very competitive at the wholesale and retail levels. SUN 27 has a lower freezing point than competing inhibitors, resulting in reduced storage problems. SUN 27 is manufactured here in the United States, sold by our NanoChem subsidiary and it's available in large volumes. DCD 30. As a result of our inventive work to develop SUN 27 we became expert enough in nitrogen conservation chemistry to formulate a solution to the second major cause of nitrogen fertilizer loss, denitrification. This is also caused by bacterial activity in soil and warm wet soils are the most prone. It results in oxygen being stripped from the fertilizer to leave nitrogen gas. The gas can’t be used by the plants and escapes to the atmosphere. The gold standard for reducing denitrification is the DCD solution and we have developed an excellent version. We have obtained orders that were delivered in Q1 2015 and have a reasonable expectation of more sales in Q2. At this time we are manufacturing for distribution under trade names owned by our distributors as well as our registered trademark, DCD 30 WatrSavr. We may have had the breakthrough that is sought for years with the project in Wichita Falls, Texas. We are continuing our efforts in the United States, Turkey, Morocco, Chile, part of East Asia and Australia. The 2012 Lake Sahara project, the 2013/14 American Water Work Association Journal article that resulted from the Lake Sahara project and the hard work over the last decade at sites around the world led to the showcase program which completed this fall in Wichita Falls, Texas. There were no problems encountered during the deployment and we feel comfortable that we have the equipment and skills to protect much larger lakes from evaporative loss. The results of this showcase program were released by the Texas Water Development Board in January 2015, pointing to a high probability of 15% savings or greater and confirmed that no change in water's quality or effect on wildlife was present. Because the official results are so positive, we are hopeful that a larger contract for 2015 maybe available. The data was received with extreme interest by water management groups through the United States and internationally and we hope that the Wichita Falls showcase will be the tipping point that results in mainstream use of WatrSavr. We are pleased to hear from Lake Sahara, Las Vegas that for the third year in a row they are sure they have money on water. Water quality is exactly as it was before the introduction of WatrSavr three years ago and in addition the endangered fish species population of Lake Sahara is larger today than in the first year of WatrSavr use. Lake Sahara has confirmed that they will be using our product again this season. Q1 and the rest of 2015. Agriculture revenue in the first three months of 2015 has been stronger than 2014. All three product lines have had increases. We have noted a trend towards more just in time orders this year compared to 2014, which could be related to lower crop prices. This might mean that the strength in agriculture sales in Q1 continues into Q2. Oil prices remain low as of the date of this speech. This may or may not influence our sales in to the oil industry. Therefore, we will monitor the situation closely and we remain optimistic that we can continue growing our oilfield sales in 2015. Small WatrSavr sales have occurred already this year. The true evaporation season is just starting in April and May so we are intent on closing sales in Q2 for delivery in late spring and through the summer. The showcase program at Wichita Falls, Texas has proven yet again that WatrSavr is safe, effective and economic. We expect to increase sales substantially in 2015. We believe that we can continue the revenue increase shown in Q3 and Q4 2014 on into 2015. Expecting smooth quarterly growth from a small company with purchase order based sales would be unrealistic. Instead, we expect lumpy results with an average upward trend similar to second half 2014. Highlights of the financial results. Well, sales for the full year increased 1% to $15.9 million compared to $15.8 million for 2013. First half sales were down but strong growth in second half compensated. The result was a gain of $403,000 or $0.03 a share in the 2014 compared to a gain of $1.82 million or $0.14 a share in 2013. The financials show a significantly higher accounting net income in 2013 versus 2014. This is mostly due to a deferred tax recovery of $2.4 million which was realized as an asset on the balance sheet in 2013. The deferred tax asset is a result of commencing expenses of the Alberta factory against the company's U.S. income. Past and current factory construction and operating expenses not applied against FSI's income will be carried forward to reduce the NanoChem divisions revenue for income tax purposes. This process is going to take place over several years even though the GAAP method is to assign the deferred tax asset into a single year. Our sales in Q4 were $3.96 million and that was up 15% compared to $3.4 million in the year earlier period. Because of the outsize effects of depreciation and stock option expenses and the onetime items on the financials of a small company. FSI also provides a non-GAAP measure useful for judging our year-over-year success. Operating cash flow is arrived at by removing the above items from the statement of operations. For full year 2014, operating cash flow nearly tripled to $1.54 million or $0.12 a share compared to $533,000 and $0.04 a share in 2013. We are pleased with this improvement and hope to increase again in 2015. The detailed information on how to reconcile GAAP with non-GAAP numbers is included in our news release of yesterday, March 31. The text of this speech will be available on our Web site by Thursday, April 2 and email copies can be requested from Jason Bloom at 1-800-661-3560 or by e-mail, jason@flexiblesolutions.com. Thank you. The floor is now open for questions. Chris, will you give the explanation and do the job.

[Operator Instructions] And we will take our first question from William Gregozeski of Greenridge Global.

Couple of questions for you. You mentioned the oil and you are hoping for more business in the oil field and not to loose anything with the low prices. Why didn’t that help you guys on the margins in the fourth quarter? I would have thought the low oil would reduce your cost, input cost? Dan O’Brien: Well, we buy our raw materials quite a bit ahead of time to be sure that we don’t run out. We have got a fairly long supply chain for our raw. So that’s part of the reason. We are just entering the use of the newer priced inventory now. We also -- it's kind of shorthand to say that oil is the driving factor of our raw material prices. It's one of the driving factors. We don’t see an identical drop or even an identical drop in timing because our primary raw material, aspartic acid is related to oil but it's not a true direct relation. You did see an improvement in the full year gross margins. That’s a reversion of the type of margins that we always hope for and it's going to be a moving target again. Oil is the best benchmark but it's not a very good benchmark. I think that’s the best way to put it.

Okay. And on the WatrSavr. I guess I would have thought that Wichita Falls with how bad things are there, I mean really everywhere. But I would have thought they would have put an order in already. Do you have any reason why they would not have done that yet. I mean you are obviously hopeful that it will happen but they have given you...? Dan O’Brien: Well, we have definitely found that government customers are not exactly the same as private operators. Even last year with the showcase we found that they were slow to [indiscernible], slow to get organized. We are working with them and we don’t believe that -- we are satisfied that they believe in the product and the opportunity. But we will receive the POs if they are coming, when they come and that’s unfortunately the way of the world in this type of operation.

[Operator Instructions] And we have no further questions in the queue at this time. I would like to turn the conference back over to Mr. O'Brien for concluding remarks. Dan O’Brien: Thank you, Chris. Gentlemen and ladies, thank you very much for joining me for the full year 2014. I look forward to speaking to you again in six weeks for first quarter and having some good things to report. Thank you very much for your time and good bye.

And this concludes today's presentation. Thank you all for your participation.