Daniel B. O'Brien - CEO

Gregg Hillman - First Wilshire Securities Management

Please standby we are about to begin. Good day and welcome to the Flexible Solutions International First Quarter 2015 Financial Results Conference Call. Today’s conference is being recorded. 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. Daniel B. O'Brien: Thank you, Levi. Good morning. This is Dan O’Brien, CEO. 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. First let me review the progress that has been made in the past year and then I will move on to the financials. The NanoChem division, or NCS. NCS makes polyaspartic acid, 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. 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, the wholesale market is 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 and have reasonable expectations of gaining new customers over the next several quarters. There is continuing research in the concept of TPA as part of tight oil and gas fracturing liquids. This research has progressed to early adoption 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 the rock pores as well its better known function of scale control and piping. Clogged rock 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 demonstrates oil industry sensitivity to environmental safety which can improve relationships with neighbors and regulators. SUN 27, NCS has been making and selling this product for a year and we are satisfied with the initial success. We expect it to become a significant revenue stream in 2016 and onward. SUN 27 is 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. 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 both the wholesale and retail levels. SUN 27 has a lower freezing point than competing urease inhibitors, resulting in reduced storage problems. SUN 27 is manufactured in the U.S. and sold by the NCS subsidiary. DCD 30, as a result of our inventive work to develop SUN 27 NCS 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, resulting 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. At this time NCS is manufacturing for distribution under trade names owned by our distributors as well as our registered trademark, DCD 30. WaterSavr may have had the breakthrough it has sought for years with the project in Wichita Falls, Texas. However, fortunately for the people of Texas there has been rain in the last month. The precipitation has been enough to raise the reservoir levels at Wichita Falls to about 50% compared to below 20% last August. Water managers are aware that the drought is not over and that the best water level at the start of the main evaporation season is full rather than half full. Our sales team is helping the professional water managers convinced funding agencies that the time to save water using WaterSavr is when you have water yet the reservoirs are far from full. The Lake Arrowhead Reservoir has twice as much surface area compared to last year, and loses twice as much water each day as a result. Early use of WaterSavr is much more valuable than waiting until most of the water is used by people and evaporated away. In fact using WaterSavr while the reservoir is the fullest can result in higher levels at the end of one dry season and help the next rainy season fill storage enough for a new dry season. The 2012 Lake Sahara project, the very positive 2013/14 AWWA 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 in Wichita Falls, Texas. There were no problems encountered during deployment and we are comfortable that we have the equipment and skills to protect much larger lakes from evaporative losses. The results of this showcase program were released by the Texas Water Development Board in January of this year and pointed to a high probability of 15% savings or greater and confirmed as always no change in water's quality or effect on wildlife. The data was received with great interest by water management groups throughout the U.S. and internationally and several groups have indicated that if funding is available they will do showcase programs in their area this year. Lake Sahara reported that for the third year in a row, they are sure they have saved money in water, water quality is exactly as it was before the introduction of WaterSavr three and half years ago and in addition the endangered fish species population of Lake Sahara is larger today than in the first year of WaterSavr years, of course they are using our product again this year. What to expect in Q2 and the rest of 2015, continued double-digit growth is our goal. We think that the combination of TPA, SUN 27, DCD 30 and WaterSavr will result in growth under most economic conditions and any weakness in a single product during the quarter should be compensated for by strength in the others. In the past, we have attempted to forecast sales based on historical results. However, none of our customers are on long-term contract and the worlds various economies are in continuous flux, so we are not able to provide numerical growth predictions. We have negative and positive surprises such as oil platform maintenance shutdowns and fast volume uptake by new distributors. Early indications are that Q2 is quite strong, which leads us to expect that first half of 2015 will be one of our best. In Q3, we have a realistic expectation of WaterSavr sales larger than Q3 2014 combined with increased TPA sales to drive growth in the quarter. In Q4, we will strive to book early sales in all three of our agricultural products to obtain growth in fourth quarter as well. The result of our anticipated success in each quarter of 2015 could be a significant revenue increase for the full year. And here are the highlights of the financial results. Sales for the quarter increased 30% to $4.96 million compared with $3.81 million in 2014. The result is a gain of 504,000 of $0.04 a share in the 2015 period compared to a loss of 156,000 of $0.01 a share in 2014. Working capital is sufficient to support our growth and is increasing as a result of retained earnings. The company is also supported by its mostly untapped line of credit with the Chicago based bank. Because of the out sized effects of depreciation, stock option expenses and one-time items on the financial of small companies, FSI also provides a non-GAAP measure useful for judging our year-over-year success. Operating cash flow, is arrived at by removing depreciation, option expenses and one-time items from the statement of operations. In the first quarter of 2015, our operating cash flow was $1.11 million, $0.08 a share compared to 65,000 of $0.00 a share in 2014. Detailed information on how to reconcile GAAP with non-GAAP numbers is included in our news release of May 15th. The text of this speech will be available on our website by Tuesday, May 19th and email or faxed copies can be requested from Jason Bloom at 1-800-661-3560 or his e-mail, jason@flexiblesolutions.com. Thank you. The floor is open for questions and Levi, will you give the instructions and take the questions. Thank you.

Certainly, thank you. [Operator Instructions]. And we will take our first question from Gregg Hillman with First Wilshire Securities Management.

Good morning Dan. Can you talk about the addressable market, the domestic and international market for the nitrogen products that you alluded to, do you have any data on that? Daniel B. O'Brien: I don’t have data, specific data near to hand but I can mention to you that when I say millions of acres I mean that in the United States at least 50 million acres a year are treated with either DCD or the SUN 27 type products which are based on NBPT. Another very large market is Brazil but as you know about us, we try to work on our nearby markets which are enormous before we expand sales energy on international markets.

And what would be the value of that nitrogen enhancer per acre sold, the dollar amount per acre that’s sold for that acres at your disposition? Daniel B. O'Brien: Well, at retail it would probably cost the grower in the range of $5 to $7 an acre and we wouldn’t realize any taker that we sold to perhaps $2 to $3. So, it is certainly valuable to the grower. Growers will put down 120 pounds of nitrogen if they were to lose half of that by not using a nitrogen conservation product that would certainly been much more expensive than the cost of the nitrogen products. It is not useful within hydrous ammonia which is one of the products that people have been using largely around North America, but from safety and health conditions and hydrous ammonia is going out of favor and other products like UAN, urea ammonium nitrate are coming in because they are safer to handle. So we expect that not only is there a very large market already available for us to work in but the market will get larger.

And do you have distributors lined up to sell it for you. I think you are not going to go direct to the farmer? Daniel B. O'Brien: We are not going direct, that’s too complicated. We have distributors and agents in place and as we become better known as successful manufacturers in this field we expect this to grow quite rapidly. And do you have a sales force talking to the distributors or are you talking yourself? Daniel B. O'Brien: Partly it’s me, I am part of the sales force but we also have three other people working the people hard.

Okay and then you expect to get some traction this year if for the first time in these products? Daniel B. O'Brien: We’ve already had traction for both products this year but we expect it to grow and in 2016 we strongly suspect that it is going to be a significant growth tool for our company.

Okay, great. Thanks for your comments. Daniel B. O'Brien: Thank you, Gregg.

[Operator Instructions]. At this time we have no further questions. Daniel B. O'Brien: Levi, I think you can ask me to close the conference call then.

Okay as we have no further questions at this time I would turn the conference back to Mr. Dan O’Brien for any additional or closing remarks. Daniel B. O'Brien: Gentlemen and ladies, thank you very much for joining the conference call. I will talk to you again in three months to tell you about the second quarter and I hope to tell you very good things. Thank you and good bye.

That concludes today's conference. We appreciate your participation.