Good day, and welcome to the Flexible Solutions International Second Quarter 2019 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. Please go ahead, sir. Dan O'Brien: Thank you, Wilma. Good morning. This is 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 conference call for Q2 2019. Before I speak about our financials, I'd like to talk about our product lines and what we think might occur over the next several quarters. The insurance compensation from the fire and Taber has been received in full, but the accounting and tax effects of the payments will continue to distort our financials until year-over-year comparisons that do not contain compensation or tax adjustments are available. The first quarter that this will occur is Q1, 2020.Our NanoChem Division, NCS represents more than one-half of revenue of FSI. This division makes thermal polyaspartic acid, called TPA for short, a biodegradable polymer with many valuable uses. NCS also manufacturers SUN 27 and N Savr 30, which are used to reduce nitrogen fertilizer loss from soil. TPA is used in agriculture to significantly increase crop yield. The method of action is by slowing crystal growth between fertilizer ions and other ions in the soil, resulting in fertilizer remaining available longer for the plants to use.The attraction between the TPA and the fertilizer ions also retains the nutrients closer to the plant roots, keeping fertilizer more easily available for crops to use results in better yield with the same level of fertilization. TPA and agriculture has a strong economic value for all links in the sales to end user chain. There are good profits from manufacturer through the distribution to the grower. Yet the growers still earns a great profit from the extra crops produced using the same land but no extra fertilizer.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 normally grow steadily but slowly. A simple explanation of TPA’s effect is that it prevents the scaling out of minerals that are part of the water fraction of oil as it exits the rock formation. Scale must be prevented to keep the oil recovery pipes from clogging.SUN 27 and N Savr 30 are our nitrogen conservation products. Nitrogen is a critical fertilizer but subject to loss through bacterial breakdown, evaporation and soil runoff. Both our nitrogen products are becoming well respected and sales continue to grow. They utilize much more environmentally friendly solvents than some of the competing products.SUN 27 is used to conserve nitrogen from attack by soil bacterial enzymes while N Savr 30 is directed toward nitrogen loss through leaching and evaporation. Each of our nitrogen products are equal to/or better than, the competing products.ENP, the October 2018 acquisition excuse me, ENP is focused on sales into the turf and golf markets, whereas our NCS sales are into row crop agriculture, two very distinct markets. We account for ENP as a subsidiary and expect it to generate consolidated revenue of greater than $8 million in full year 2019. Historic data suggest that FSI should expect annual pretax profits greater than $1 million from this division and moderate annual growth.The strong quarters for ENP are two and three to match the U.S. spring and summer along with Q4, when large customers engage in early buying for the year ahead. Unfortunately, second quarter this year coincided with very poor spring weather in most of ENP's territory resulting in fewer sales. The onset of summer Q3 will allow sales to recover, but the business not done in Q2 won't be available again until next year.The effect of the LLC investment announced in January. This investment generated quarterly cash flow and profits starting in Q1 2019 as shown in the financials. The company we invested in will also order substantially more product from us in each quarter of 2019 than it did in 2018. We expect this growth to continue for many quarters to come, which will further increase revenue and profitability. The LLC has recently started representing more of our product line internationally with small sales already booked.We expect this to grow over several seasons and benefit our NCS division, while increasing our share of profits from the LLC. It is worth noting that the seasonality of the LLC's sales is opposite to our North American sales most years, which will tend to smooth out our quarterly revenue numbers in a positive manner. Unfortunately, this year the tariff and currency strife delayed some international business in Q2. This business is expected to be realized in Q3 and Q4 instead.Watersavr. News regarding Watersavr trials and sales will be released if and when it occurs. Delivered wholesale water costs now exceed $1,200 per foot in many California cities, while the total cost of saving an acre foot using WaterSavr is less than $200. WaterSavr can reduce annual losses from reservoirs by up to two feet per treated acre. And municipality that pays $1,200 to $2,400 per acre foot for water and does not use WaterSavr, is wasting significant tax revenue this is about $12 million a year for San Diego. We find it extraordinary that with a decade and more of successful Watersavr trials, no government water providers in areas with high water costs have implemented our technology.Q3 2019 and the rest of the year. TPA, SUN 27 and N Savr 30 for agricultural use traditionally have peak uptake in Q1 and Q2. Q2 2019 results were damaged by the poor weather in the mid-west. We are finding success selling agricultural products into international markets with opposite seasons, which leads us to predict that our historic slow quarter, Q3 will increase substantially; perhaps becoming nearly as strong as Q1 and Q2. The effect of international sales is expected to be felt in Q4 as well. This along with the Q4 sales for U.S. early buy and winter crop programs is expected to move Q4 revenue upward towards the same level we reported for Q1 2019.Oil, gas, and industrial sales of TPA increase compared to the previous year. Increased sales into these market verticals is expected to continue throughout 2019.Full year 2019 revenue will increase very strongly compared to 2018, driven by historic operations, the ENP acquisition, and the January LLC investment. We expect that profits and cash flow will increase very significantly along with the increases in topline revenue.Our regular warning applies that we can't control customer behavior, shipping dates, weather, crop pricing, and the other variables of our business. So, quarterly results will be unlikely to form a straight line on the graph. However, we do expect the slope of the graph to be up sharply for all of 2019.Tariffs. Since September 30th, 2018, all our raw materials imported from China have included the 10% additional tariff. U.S. customers have received price increases from us now that this inventory is in use. U.S. customers will receive additional price increases as we begin using inventory to subject to the new 25% tariffs that came in June.International customers are not charged the tariff because we are applying for the export rebates available to recover the tariffs and to hedge against the chance of even higher tariffs and to service the increased production where we're going through, we've increased inventories substantially. As a result the accumulating tariff payments to the government are affecting our cost of goods, our cash flow, and our profits negatively until we receive rebates.This can take many months and the total dollar value amount due back to us has become significant and is continuing to increase. The rebates will increase profitability and cash flow, while decreasing the cost of goods for the future quarters in which rebates are received.Bad debt. Historically, our group has had nearly zero bad debt. This year we made a poor choice in extending credit to an agriculture customer who has not yet paid their bills. We intend to recover this debt, but wish to account for it now to ensure that our financials are fully transparent.Highlights of the financial results. Sales for the quarter increased 63% to $6.77 million compared to $4.14 million in Q2 2018. The result is a loss of $27,000 or $0.00 per share in the 2019 compared to a gain of $2.14 million or $0.18 per share in 2018.We attribute the lack of earnings to the bad debt mentioned above and to the tariffs paid on raw materials that will be converted and sold internationally. We expect to recover these funds, but we don't control the timing.Working capital is adequate for all of our purposes and expected to increase during the year as our revenue grows. We have a line of credit with BMO Harris Bank of Chicago. We are confident that we can execute our plans with our existing capital. The ENP acquisition was funded with a loan from BMO Harris plus a convertible note to the seller, and did not reduce our cash position. The LLC investment in January was made with cash on hand.The text of this speech will be available on our website by today August 15th. Email or fax copies can be requested from Jason Bloom, Jason@flexiblesolutions.com.Thank you, the floor is open for questions. And Emma will you train everybody on how to give questions. Thank you.

Thank you. [Operator Instructions] Our first question comes from Raymond Ho [ph] with CSP Incorporated.

Good morning, Dan. Dan O'Brien: Good morning, Ray.

Question for you, you mentioned expectation for ENP pre-tax profits 7 million, and you may have said this on this – is that FSI 65% or is that the total pre-tax? Dan O'Brien: That is the expectation for FSI 65%.

Okay. And I know you've mentioned tariffs. Is there any way you can quantify what the impact was on the quarter as far as I guess… Dan O'Brien: I would hesitate to do that Ray, because what it depends on is after a particular quarter and we have to work out, which – which sales were international and will be available for rebates and which sales were inside the United States and won't be. And we are also because of the amount of inventory that we have been carrying in order to avoid increased tariff rates, the change between the 10% and the 25% comes at different times. So it would be a complicated accounting issue. I will make a guesstimate that, it was more than two $200,000 in this quarter alone.

Okay. It looks like at least on the TPA business you got hit from four sides with weather, tariffs, bad debt and currency at least compared -- currency at least compared to Q2 of 2018. Structurally, did you see any change in terms of the TPA business or is it just bad luck? Dan O'Brien: I wouldn't call it anything structural. I would say, it's bad luck, but we find that the harder we work the luckier we get. So it indicates we've got to push even harder so that instead of three hits we only take -- instead of four hits we take three. I don't know which of the ones we're going to be able to avoid, but I would suspect that's going to be the bad debt issue, because that one it's pretty rare in our history and I feel terrible about the situation that's -- that was a decision and it started with me.

Right. And I lost my train of thought. I think I'll jump back in the queue. Thank you. Dan O'Brien: All right. Thanks Ray.

Thank you. [Operator Instructions] Our next question comes from Talha Ismail from PPCM.

Hi, Dan. Dan O'Brien: Good morning, Talha.

I just had a really quick question, so in terms of -- can you kind of quantify the fact that – can you kind of -- in the previous question you kind of quantified the effect of the tariffs being that you said it affected your profits by 200,000. Is that right? Dan O'Brien: It's an estimate of greater than 200,000 for the quarter. It's just not a -- it's not a number that we want to prepare, because it's a moving target, but that's the general position.

And that's -- is that pre-tax profits after tax profits, just want to make sure. Dan O'Brien: That is – that would be pre-tax because we would receive it as a rebate and it would reduce our future cost of goods for whatever quarter we get the check in.

Got it. And then if you had to quantify the effect of the weather, how much would that be for the quarter you think on top line or bottom line top line I guess? Dan O'Brien: Top line, it was probably about a $1 million in sales. I believe we went but that's across two American divisions. And then I think you may have noticed that I mentioned something regarding the fact that the tariff issues are -- they are having effects in every country, not just the two countries that are actively fighting.For instance, South America has had currency gyrations related to this that are switching them from holding inventory to buying just in time, because they don't know what their currency will be worth. So that's had an effect as well. I'd like to lump it all into perhaps at $1 million in foregone revenue. And then, that's an estimate of course. And some of the revenue we will see in Q3 and Q4, anything that was foregone out of South America will probably recover.We have seen some recovery in our row crop selling in the quarter that we're in now. But I have to be very blunt, the ENP, golf and turf market sales that were lost are not going to come back this year. The customers will be there and probably larger next year. But you just can't go back in time and spray a green or fairway that you didn't spray in May.

Right. Got it. In your guidance, you kind of said that you expect that Q3 will substantially increase compared to the past quarter in Q2. Do you see signs that sales already recovering that your customers are kind of reordering and all of that from the weather, probably a loss as you view. I guess, is there any sign that you're seeing that. Dan O'Brien: Yes. I think you may have misrepresented me somewhat. I can't compare Q3 to Q2 directly. I compared Q3 to the previous year and I'm expecting a --

I got it. Dan O'Brien: Yes, yes. But, yes, we are seeing signs. I can't comment. It's only half a quarter, but I can't comment on the volume, but the customers are coming back in the row crop area and in the international area, but not in the ENP, golf and terf area.

Right. And I would imagine that's because the weather has gotten better, obviously, right, in those regions. Dan O'Brien: Yes. And people are trying to get a crop and internationally inventories of our products have run down near to zero. And, now, regardless of the currency position, you have to make your order. So that's what's generating the snapback, if you will.

Got it. Perfect. All right. Thank you. Dan O'Brien: Thank you.

Thank you. [Operator Instructions] We will take our next question from William Gregozeski from Greenridge Global.

Hey, Dan. Thanks for all the detail you provided in the prepared remarks. It was very helpful. You talked about future expansion I guess, kind of, new term expansion internationally. Can you give an estimate of what percent of your sales now are outside of North America? Dan O'Brien: Yeah. Hi, Bill. I would. This is number I should have and I'll have it for the next call, an accurate one. But as an estimate right now, greater than 70%. And I need to qualify that as saying greater than 20% minus the ENP division, which has very little international sales, so let's call it greater than 50% but we will get you that number at the next call. Does that seem fair?

Yeah. Yeah, that's good. Thank you. That’s all I had. Thanks. Dan O'Brien: Okay. Thank you, Bill.

Thank you. Our next question comes from Raymond Ho with CSP Incorporated.

Thanks Dan. I'm not saying, you can remember what I wanted to ask. Any pushback only you're getting on pricing from fishing through the increased price from the tariffs? Dan O'Brien: Good question. I don't think so. I think everyone understands what's going on. We are getting -- we're not getting the margin on the increase but we are definitely getting the 25% through on our cost of raw materials.And then the other point would be is we're at the bottom of the chain. So if a product is going to cost $70 or $80 a gallon at the farmer level and we're charging $22 and then it goes through several markups, we're not the source of the greatest cost to the end users. So there is what you might call flex in the supply chain and we're not getting the pushback, but perhaps all the way along people are just taking a slightly lower margin.

Got you. Thank you.

Thank you. Our next question comes from JT Waters [ph].

Hey, Dan. How are you today? Dan O'Brien: I'm doing well. How are you?

I'm doing well. Thank you. Can you quantify, maybe you said this and I missed it, the size of the bad debt that was charges off this quarter? Dan O'Brien: Just a little less than a $1.25 million.

Okay. And the tariff call back or I'm not sure what the correct terminology is. That would not appear anywhere on the balance sheet, is that correct? Dan O'Brien: That's correct because it isn't real until it's a check is in the bank. This is a government rebate program. We've been told that anywhere between nine and 16 months is a realistic expectation for recovery. So that's why we -- that's why I was so very hesitant to put a number on it. That's also why I'm hesitant to tell you which quarter is going to happen and I have been told that once you get your first check in your first set of approvals that it's a little more orderly.

Is it something that you feel like once that begins, it could be quantified in the futures once the rates are set and we have kind of a better idea how the mechanism by which that works going forward or will always kind of be that the fake number that’s floating out there? Dan O'Brien: It's not going to be disopaque, but I'm going to try and avoid quantifying it because at any time for any reason, a bureaucrat can say, I don't believe you. And it then gets delayed for whatever period of time that particular person wants to keep the file open.

Got you. And they wouldn’t just always have to chime in with a marketing thing. I'm just saying it seems like every time you pick up a newspaper, there's something else about nitrogen runoff during the floods in the Mississippi and things like that calls and all these terrible environmental problems in the Gulf. I just have to assume that it's part of our marketing strategy to the agriculture industry that we can save and alleviate some of that. And if so, I don't -- is that kind of a point of emphasis going forward. Dan O'Brien: It is.

Thank you, again. Dan O'Brien: Well I'd like to speak a little bit more on that. We're doing some extended research and when we can make even better claims than we can about our products as a result of this research which is ongoing this fall, we will be pushing even harder because, we are starting to see state governments become quite a bit more realistic about not only making laws, but perhaps even enforcing them on the amount of nitrogen and phosphate you can put on your land.

That's great. Thank you so much.

Thank you. [Operator Instructions] We have no further questions in the queue at this time. Dan O'Brien: Thank you, Wilma. Will you close down the conference? And thank you all for joining us. It was a good one and I look forward to talking to you in three months.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.