Good day, everyone, and welcome to today's Flexible Solutions International Third Quarter 2023 Financials Conference. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note, this call may be recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Dan O'Brien. Please go ahead. Dan O'Brien: Thank you, Angela. Good morning. This is Dan O'Brien, CEO of Flexible 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 third quarter 2023. First, I'd like to discuss our company condition and our product lines, along with what we think might occur in Q3 and Q4, 2023 and on into 2024. I will comment on our financials afterwards. The NanoChem division. NCS represents approximately 70% of FSI's revenue. This division makes thermal polyaspartic acid, called TPA for short, a biodegradable polymer with many valuable uses. NCS also manufactures SUN 27 and N Savr 30, which are used to reduce nitrogen fertilizer loss from soil. In 2022, NanoChem started food-grade toll operations using the spray dryer we installed over the last several years. TPA is used in agriculture to significantly increase crop yield. It acts by slowing crystal growth between fertilizer ions and other ions in the soil, resulting in the fertilizer remaining available longer for the plant to use. TPA is also a biodegradable way of treating oilfield water to prevent pipes from plugging with mineral scale. TPA’s effect is prevention of mineral scale from minerals that are part of the water fraction of oil as it exits rock formation. Preventing scale keeps the oil recovery pipes from clogging. TPA is also sold as a biodegradable ingredient and cleaning products for certain food uses and as a water treatment chemical. SUN 27 and N Savr 30 are nitrogen conservation products. Nitrogen is a critical fertilizer that can be lost through bacterial breakdown, evaporation and soil runoff. SUN 27 is used to conserve nitrogen from attack by soil bacterial enzymes, that cause evaporation, while N Savr 30 is effective at reducing nitrogen loss from leaching. Food Products. Our Illinois plant is food-grade inspected, and we have received our FDA number. We have commercialized 1 food grade product based on polyaspartate, that was developed fully in-house. We have a pipeline of additional products in development that are either our ideas, full production of outside ideas or a mixture where an outside idea is being optimized by our team. NCS will focus on our food products equally with our other market verticals because we've determined that this is an area with large markets that were skilled in servicing and that where we can obtain good margins. We have not received the food product orders we had hoped for in 2023. Although, we're still convinced that this is a viable future business, it may take several more quarters to obtain significant sales. The ENP division. ENP represents most of our other revenue. ENP is focused on sales into the greenhouse, turf and golf markets, while our NCS sales are into row crop agriculture. The opening of the economy after the pandemic has affected ENP sales into the home gardening market, especially home cannabis. We're expecting little revenue growth in 2023 and don't have any clarity regarding 2024. Our Florida LLC investment. The LLC was profitable again in Q3 2023 and was one area where some revenue growth has occurred in 2023. This company is focused on international sales into multiple countries, all of which faced different issues and respond in varied ways. Revenue was strong in Q3, but the remainder of the year can't be predicted. Also, the LLC remains exposed to high cost of goods, while experiencing difficulty passing all the costs to its customers. As a result, margins are compressed and earnings may not reach historical levels for some time. Our sales to the LLC grew in the quarter. Merger with Lygos did not proceed. On April 18, 2022, FSI and Lygos announced their intent to merge, subject to shareholder approval. The merger was not completed by the end date of the agreement, September 30 2022, and did not close. Strategic investment in Lygos, in December 2020, FSI invested $500,000 in Lygos and return for equity. We made a second investment of $500,000 in June 2021. Lygos used the investment towards development of microbial route to aspartic acid using sugar as a feedstock. FSI would be a major user of aspartic acid derived this way and believes that sustainable aspartic will allow us to obtain large new customers and develop valuable new products that both biodegrade and come from sustainable sources. Lygos has recently announced a change of focus to include other organic assets. We anticipate that this may slow their progress towards sustainable aspartic acid. FSI is researching alternatives to achieve the goal of sustainability, while continuing to support Lygos. Q4 '23 and early '24. Agricultural products were not as strong in Q3 as they were in the previous period. As a result, total revenue for the quarter was well below the previous year period. Agriculture customers are showing resistance to spending on inputs when crop prices are not increasing at the rate of inflation. We think that the remainder of '23 and all of 2024 could be difficult. Oil, gas and industrial sales of TPA have been lower in Q3 '23. This is likely to continue for the remainder of the year and into 2024. Customers are reducing inventory and reassessing their needs now that shipping has become reliable again. In addition, the possibility of reduced hydrocarbon demand could slow our sales over the next several quarters. Tariffs. Since 2019, several of our raw materials imported from China have included a 25% tariff. International customers are not charged to tariffs because we have applied for the export rebates available to recover the tariffs. These tariffs are recovering -- affecting our cost of goods, our cash flow and our profits negatively. Rebates can take many years to arrive. We submitted our initial applications more than four years ago. The total dollar amount due back to us is well in excess of $1 million, and we are going to perseverance so we succeed in covering our funds. Shipping in inventory. Ocean shipping from Asia to the U.S. and ocean shipments from the U.S. to international ports are back to pre-COVID speeds and have settled the prices very close to historic levels. Land transport inside the U.S. is continuing to stabilize, but at generally higher costs. We cope with the shipping issues by ordering far ahead and carrying additional inventory in 2022, resulting in costs that we were unable to pass on to our customers. In 2023, we've been reducing inventory to a more normal level. However, margin increases and margin maintenance has been difficult. Raw material prices do not appear to be reverting to historic levels. Instead, they seem to be stabilizing at a new base level that's also experiencing inflation. Passing price increases, even small inflation-related ones along to customers and take several months, it's not always possible and will probably result in constrained margins for the next year. We believe that the sum of the issues we faced during the rest of 2023 will result in lower revenue, lower cash flow and lower profits for the coming quarter and for the full-year. Highlights with the financial results. We're not happy with the results for Q3 '23. Year-over-year revenue and operating cash flow were down, profits were negatively affected by product mix, cost of goods and reduced sales volume. We now estimate that year-over-year revenue cash flow and profits will be down significantly in 2023. The financials show that our costs have increased as the year progressed. Wages have gone up substantially over the last year to retain staff. Raw material prices did drop from the highest level, but not back to historic norms. Volumes down, we've been unable to raise prices sufficiently to recover costs and to maintain our margin goals. Our plans to enter the food industry have been delayed into next year. Higher interest rates are consuming more of our funds. FSI and its subsidiaries will have to examine all our costs and economize where possible. Even more critical is increasing sales in our traditional businesses and obtaining sales in the food industry, to ensure that our wage and other base costs are spread over more revenue dollars. Sales for the quarter. They decreased 25% to $8.72 million compared with $11.6 million in Q3 '22. Profits. Q3 profits in 2023 resulted in a loss of $718,000 or $0.06 a share compared to a profit of $1.1 million or $0.09 a share in the year earlier period. Operating cash flow. This non-GAAP number is useful to show our progress with noncash items removed for clarity. For the 9 months of 2023, it's $3.28 million or $0.26 a share, down from $6.23 million or $0.50 a share in the '22 period. Long-term debt. We continue to pay down our long-term debt according to the terms of the loans. However, we've consolidated all our debt for ENP and NCS with Stockyards Bank. This has resulted in increased lines of credit with lower interest rates and reduced interest rates on our long-term debt. At the same time, we bought all the units we did not own in ENP, Peru Investments, LLC and guaranteed the mortgage held by the LLC also at Stockyards. The LLC owns the 5 acres and 60,000 square feet of building in Peru, Illinois, on the southwest corner of the NanoChem property. This action returns full of ownership of the 20-acre parcel and the 120,000 square feet of buildings to FSI with a mortgage at favorable terms. Additional factory space in Illinois. In the second quarter, we invested to acquire 80% of an LLC called 317 Mendota that in turn purchased a large building on 37 acres of land in Mendota, Illinois. We've determined that 240,000 square feet are available for our use or for rental. The ENP division will move all of its operations to 60,000 square feet of the building. The remaining 180,000 square feet will be rented as suitable tenants are found. This allows the NCS division to recover 30,000 square feet in Peru, Illinois from ENP making room for potential growth. Our working capital is adequate for all our purposes. We've got our lines of credit, and we're confident that we can execute our plans with our existing capital. The text of this speech will be available as an 8-K filing on www.sec.gov by Thursday, November 16th. E-mail or fax copies can be requested from Jason Bloom jason@flexiblesolutions.com. The floor is open for questions. Angela, will you please give instructions and start the process.

[Operator Instructions] Our first question comes from Tim Clarkson with Van Clemens Capital. Your line is open. Please go ahead.

Hi, Dan. Good to talk to you again. Just want to go over again some basic questions, trying to get a better understanding of the company. So what percentage of your overall revenues then would you say are tied into agriculture? Dan O’Brien: No, we don't break it out in our financials, but it's greater than 50%.

Right, right. And so obviously, the droughts and some of the issues with farmers is impacting demand for the for that product that minimizes nitrogen loss in the soil? Dan O’Brien: You'd be correct there. It's actually more of an issue. I think if you were to open up a graph of, say, corn prices for the last two years versus inflation. And I pointed this out in speech, you'll probably discover that corn prices went up for a while, and our sales went up dramatically. And then inflation took hold, but it didn't take hold of corn prices. They're back where they were before the inflationary splurge. And it's causing farmers to question inputs, which causes distributors to carry less inventory.

Sure, sure. Second question is, it looks like even as bad a quarter as the most recent quarter was, would you say that you didn't break it out. Did you have relatively breakeven free cash flow for the quarter? Dan O’Brien: I didn't break it out, but I did it in my head very early in my speech writing. It was positive, but less than $0.005. So that's pretty scary. We've got some work to do to increase prices, lower costs and find additional volume. Just nothing to do but renovate.

Sure. Now in terms of -- do you have any major plans for capital expenditures on a forward basis? Dan O’Brien: No. CapEx for our Food division has been completely done. It's now a question of finding customers and setting prices at good margins.

Sure. And then last question is, I mean, are there some logical places to do cost cutting? Dan O’Brien: We're looking at it. I would say that there are some minor cost-cutting opportunities, but they truly are minor. And the answer is a margin improvement and volume improvement. So we're going to try, but we don't want to damage our business.

Sure, sure. Well anyhow, it’s -- the current results are discouraging but long-term obviously your company's done very well so I'm still optimistic. With that I'll pass. Thanks. Dan O’Brien: Thank you.

The next question comes from William Gregowski with Greenridge Global. Please go ahead.

Hey Dan, I know you don't like talking about the customer specifically, but in the breakout of your key customers, one of them was down from $6.2 million in the nine months -- first nine months last year to $2 million this year. Is it relatively safe to assume that's an ag customer, and you're not losing them and just need to wait for the market to turn? Dan O’Brien: Good morning, Bill. The answer is, yes, that's an ag customer. And yes, they lost business, which caused us to lose business, but we did not lose the customer.

Okay. And then can you talk a little more about your business development plans for the food ingredient product? Dan O’Brien: Certainly, we are constantly engaged in outreach. We've hired some experts in the field to be both consultants and employees. Actually, we took them both on as employees, but one of them is, his job is idealized as consulting on formulation and actual sales. We are yielding many, many, many opportunities. The problem is in the food industry. It's turned out to be quite similar to the agriculture industry. Everyone says they're a $1 million customer and ready to order tomorrow. And we're sorting through the difference between the posers and the real people, and the real people like so many are slow to approve the finished products and slow to make orders. And in many cases, they pitched to us based on volumes that they actually don't intend to buy. So it's a difficult period in a company trying to enter a new market space. We know the names of the players, but we don't know how well they play their position yet. And it's been frustrating, not disappointing, but frustrating, learning that it's not an organized business, and we are going to have to figure out who's who, and who we're going to work with. And then we have to finish proving to them that the products are better than the product they current buy because we're definitely trying to replace other suppliers rather than do brand-new things. And it's taking time. Does that help you?

Yes, yes. Yes, it does. The $4 million in CapEx this year, is that related to the food product? Dan O’Brien: Yes. Although remember, we also bought 80% of a building. And so there's CapEx from the new building, and there's CapEx from the food products.

Okay. And then you guys have really, over the last year, reduced receivables and inventory quite a bit. And even after that $4 million, you still have $10 million on the balance sheet. Is there any plans for that, or is it really just to cover you guys, to wait and see how the market turns? Dan O’Brien: Yes. That's -- there is an interesting thing. I look at that and say, hey, do I have a $10 million. Can I write a $10 million check, and Bill, the answer is no, we can't write a $10 million check. Accounts receivable, cash-like items go into that cash position. Inventory is part of it. We've invested in additional inventory when we can find it at lower prices. But as you say, our inventory is down, our accounts receivable are down. The accounting definition of cash is up. But my opinion is we need to right our ship before we try anything new. And as I said to the previous question, we've got some work to do.

Okay. And last question. Why were your options that you got last year canceled? b Well, that's a personal tax situation that was the options were going to cost me more money than in taxes and then they were worth to me. So I asked to have them canceled.

Okay. And then will we get -- will you guys take a reverse on the expense you've taken on that so far in the fourth quarter? Dan O’Brien: In theory, yes. With options, I'm always surprised that there seems to be an accounting program here that the auditors use where you pay when you issue them and you pay you when you cancel them. I'm receiving information that this may not be true this time because they hadn't invested. But either way, it will be one of those noncash numbers that we strip out to show our operating performance.

Okay. Alright, thanks, Dan. Dan O’Brien: Thank you, Bill.

The next question comes from Raymond Howe with CFP. Please go ahead.

Good morning. How are you there? Dan O’Brien: Doing well, Raymond. How are you.

I’m good and thanks. A little follow-up on the question the previous caller asked about company D. Because it looks like that was the majority of the sales decline in both year-to-date and third quarter. Can you reiterate what you said about the company D's problems? Dan O’Brien: Yes. Company D had one or many. I mean, obviously, they don't share all their data with me. One or many customers buying agricultural inputs, and they were unsuccessful in resigning those customers year-over-year, and it's resulted in a -- you've seen a huge shortfall, $4 million across the nine months. Company D is attempting to recover those sales, but there's no guarantees there. Company D is in very good general shape. We just happen to be every year, every company has some wins and losses, we happen to be collateral damage to one of their losses.

Got you. Is that something that accelerated in the third quarter, it looks like? Dan O’Brien: Absolutely.

Company D. Dan O’Brien: Yes. It wasn't predictable either. Right up until we didn't get the orders, everybody was trying to give them.

Got it. Okay. Are the build-out costs already been incurred for ENP's new space, or is that CapEx that's still to come? Dan O’Brien: It's largely done. There may be somewhere between $50,000 and $200,000 still to go.

And when will they actually take that space? Dan O’Brien: They've already moved in. Their rent starts being paid to the LLC on January 1st.

Okay, great. And I take it that was a relatively smooth transition. Dan O’Brien: It was smooth at senior management. I can tell you that there were a whole pile of problems that needed to be solved and were solved by our production team, and I got to give them a call out for a really good job.

Okay, that’s all I got. Thank you. Dan O’Brien: Thank you, Raymond.

The next question comes from [Cory Pritchard] (ph). Please go ahead.

Hi, my name is Cory Pritchard. I'm a retail investor. I have two questions for you today. My first question is regarding new products, could you speak to the development of new products that you have planned for this upcoming year and maybe going into 2025? Dan O’Brien: Thanks for joining us, Cory. The new products that we're planning are all in the food industry. They are all subject to NDA with their perspective customers. So I can't tell you we're going to make X, Y, Z. But all of them are intended to either be included in finished food goods or included in finished nutrition goods, either for human consumption or pet consumption. The nutrition products and the food products, we don't make the final goods. We make ingredients and sell them on to the group who does make the finished goods, puts their label on it and sells it into the retail or industrial world.

Got it. Thank you for your answer. My last question, earlier in the year, you -- the company issued dividends based on unexpected profitability, I believe, Q1. Going forward, are there plans for maybe share buybacks, additional dividends or reinvestment into research and development, if we do achieve record profits that are unforeseen. Dan O’Brien: Returning capital to shareholders is a big goal of ours. Whether it's through share buybacks, special dividends, as you noted, we'll try and do it. Obviously, a bad quarter to ask me, when. We've got to reuse my quote from the previous customer, we need to right the ship. R&D, now that is an interesting question. We don't show it broken out as R&D in all cases. But the sales and consulting people I spoke about, our Senior Operating Officer, even myself, we're engaged consistently in R&D as part of our regular jobs. So there's an enormous amount going on. It's unlikely to result in patent because trade secret is far more valuable, especially as we learn more about this food and nutrition world, it's all about what you can do, not about talking about what you can do. And so we're developing new skills, new technology. You're just not going to see it in the financials broken out as R&D, and you're certainly not going to get the details from us because we're going to keep it as trade secret.

Alright. Much appreciated. I will yield back.

It appears we have no further questions at this time. I will now turn the program back over to our presenter for any additional remarks. Dan O’Brien: Thank you, Angela. Thanks, everybody, for joining us. We'll be back in several months with our full year numbers. And maybe this would be a great time to wish you all a great Thanksgiving, and talk to you soon. Bye.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.