Good day, everyone, and welcome to today's Flexible Solutions International Second Quarter 2024 financials. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions]. It is now my pleasure to turn the conference over to Dan O'Brien. Daniel O'Brien: Thanks, Madison. 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 FSI conference call for Q2 2024. To start, I'd like to discuss our company condition and our product lines, along with what we think might occur in the remainder of 2024. I will comment on our financials in the second part of the speech. 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 were used to reduce nitrogen fertilizer loss from soil. In 2022, NCS 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 the crystal growth between fertilizer ions and other ions in the soil, resulting in the fertilizer remaining available longer for the plants to use. TPA is a biodegradable way of treating oilfield water to prevent pipes from clogging with mineral scale. And TPA is also sold as a biodegradable ingredient in cleaning products, and there's a water treatment chemical. In our food division, our special version of TPA is sold as a liquid stability aid. 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 qualified, and we've received our FDA certification. We've commercialized one food product based on polyaspartates that we developed fully in-house. This product had normal sales in Q2, which contributed to the good results for the quarter. The customer has indicated their orders for the full-year will substantially exceed full-year 2023. So we expect solid performance in Q3 and Q4. NCS now has a pipeline of five products, each with seven figure revenue potential at the final stages prior to purchase orders. We believe that purchase orders will be received for at least two of these products in 2024. ENP division, ENP represents most of our other revenue. ENP is focused on sales into the greenhouse, turf and golf markets, while NCS sells into row crop agriculture. We expect some ENP revenue growth in 2024 with the growth concentrated in Q3 and Q4. Florida LLC investment. The LLC was profitable in second quarter and the better results for this investment in Q2 carried through -- in Q1 carried through into Q2. The company is focused on international agriculture sales into multiple countries. Subsequent to the end of the quarter, we sold this asset for $2 million in cash and $800,000 per year for five years. Our total purchase price was $3.5 million. The LLC has retained us as an exclusive supplier for five years and we hope to extend the contract even longer by being better than any competitors. We expect sales to the LLC to grow in 2024. Agricultural products in the U.S. are selling reasonably well, but crop prices are still not increasing at the rate of inflation. The recent reduction in inflation rates may have a positive impact on 2025 early buy decisions that take place in Q4. We think the growth in 2024 remains probable, but most of it will be international and recognized through sales to the Florida LLC. Oil, gas and industrial sales of TPA were stable in Q2 and this is likely to continue throughout 2024. Food division. Sales are sure to grow based on our customers' order schedule and they may grow even further if POs are received for any of the products in development. Tariffs. Since 2019, several of our raw materials imported from China have included a 25% tariff. International customers are not charged the tariffs because we've applied for the export rebates available to recover them. The tariffs are affecting our cost of goods, our cash flow and our profits negatively. The rebates are extremely difficult to obtain even though we're entitled to them. We submitted initial applications more than five years ago. The total dollar amount due back to us is well in excess of $1 million and it grows each quarter. We will persevere until we succeed in recovering our funds. Shipping and inventory. Shipping prices are stable, but higher than prior to COVID. Shipping times are reasonable on the routes we use. None of our products or raw materials shipped through the Red Sea area. Raw material prices do not appear to be reverting to historic levels. Instead, they're stable, but increasing with inflation. Passing our price increases, even small inflation related ones along to customers, takes several months and it's not always possible. We believe that some of the issues we faced last year, which resulted in lower revenue, lower cash flow and lower profits for the full-year, have partly resolved. Progress is being made. We streamlined our operations by closing our Naperville R&D facility and moving all the work to our Peru, Illinois building. The exit costs from this action were completed in Q2, so the benefits will become fully evident in Q3. Some price increases have been possible. Several large new opportunities have been found in the food nutraceutical market and are proceeding toward revenue in the 2024 year. Therefore, we expect the growth will continue in sales, cash flow and profit for the rest of the year. Option grants. In the first half of 2024, company granted many more options than our usual. $850,000 were granted to employees and consultants for prospective activity in the medical drug compounding field. The Board set harsh vesting terms for these option grants. In general, none will vest unless the company successfully begins operating as a drug compounder and drug revenue reaches $100 million per year. The company believes that if vesting is attained, the shareholders will be well compensated for the dilution. It should also be said that the board does not expect further grants other than our small annual employee consultant grant. GLP-1 drug production line. The drug compounding industry is a logical progression for FSI. So when a production line for injectable drugs became available at an extremely low price, we bought it. We intend to derisk our possible entry by securing sales prior to further expenditure and by looking for partners. Only if we can derisk sufficiently will we proceed. FSI has progressed from good manufacturing practice to food grade certification and production over the last three years. We've developed the skills to operate in clean room environments as part of our food nutrition division, and we're comfortable that our skills are transferrable to the drug operations. Senior executives are spending portions of their time searching for customers and for potential partners. There's no guarantee that we will succeed in either, but if we do, there's a very large revenue and profit opportunity in injectable diabetes, weight loss drugs. Other highly profitable drug categories can also be serviced by the production line we own. Highlights of the financial results. FSI and its subsidiaries will continue to examine all our costs and economics where possible. Even more critical is obtaining new sales in the food industry to ensure that our wage and other base costs are spread over more revenue dollars. We resumed growth in Q2 at a low rate, but with better profits and we expect to show incremental success in these areas during course of the 2024 year. Sales for the quarter increased 2% to $10.53 million compared to $10.33 million in Q2 '23. Profits, Q2 2024 shows a profit of $1.29 million or $0.10 a share compared to a profit of $810,000 or $0.07 a share in Q2 2023. Operating cash flow. This is a non-GAAP number and it's useful to show our progress with non-cash items removed for clarity. For the first half of 2024, it was $3.85 million or $0.31 a share, up from $3.22 million or $0.26 a share in the first half of 2023. Long-term debt. We continue to pay it down according to the firm's loans. Additional factory space in Illinois. In the second quarter of 2023, 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 have determined that 240,000 square feet is available for our use or for rental. The ENP division has moved all operations to 60,000 square feet of this building. The remaining 180,000 square feet will be rented when suitable tenants are found. Working capital is adequate for all our purposes. We have lines of credit with Stock Yards Bank for the ENP and NCS subsidiaries. We're confident that we can execute our plans with our existing capital. The text of this speech will be available in 8-K filing on www.sec.gov by Friday, tomorrow 16th and email or FAX copies can be requested from jasonbloom@jason@flexiblesolutions.com. Thank you. The floor is open for questions. And Madison, will you set that up for us please?

Thank you. [Operator Instructions]. And we will take our first question from Tim Clarkson with Van Clemens.

Hey, Dan. This is Tim Clarkson. Hey, you're a pretty amazing guy. I have to admit great things going on. What do you -- I know that you're looking at the chance of getting into this drug business. I mean at this point you've had some discussions. I mean is it more likely you're going to be able to get into it or less likely? Or is it still too soon to know? Daniel O'Brien: It's too soon to predict a date, Tim, and thanks for the compliment. This is a place we're going in the future. We're not going to store that machinery forever. But there's a need for more capital than we have access to in order to move forward in the drug industry. So we will have to save our earnings for several years or find a partner who would like to invest in a structure like an LLC to allow us to move forward. We're going to work on it. We're going to assume that it will take quite some period of time. And while we're waiting and saving and meeting people, we will concentrate on that food and nutrition division that's got very good opportunities as well. The drug ones it's a very big blue sky, but the food and nutrition is blue sky also and far more accessible to us, because we have all the equipment up running in clean rooms operational and making test samples for customers.

Right. So I'm just going back to the food business, you're using your specialty chemical expertise that you're bringing from agricultural and into the food end. Is it TPC, is that the chemical that you're using? Daniel O'Brien: TPA.

TPA [indiscernible]. And I get everything names confused, letters confused. Anyhow, so the -- and the function -- and the value of that is as a preservative or does it have value in terms of improving flavor? Or is it both? Daniel O'Brien: No. It's a -- it prevents the precipitation of crystals in various fluids from fruit juices to wine to beer. And as a result, it reduces the need to chill things down to zero Celsius prior to shipping, which is a big deal. That chilling cost of bringing liquids down to zero and holding it there for two or three days as the stabilization process. We can do that stabilizing with a chemical that does not change anything, a TPA format. And that's a valuable effect or effect for the fruit juice, the wine and the beer industries.

Sure. And the FDA has already approved this as a safe additive? Daniel O'Brien: Absolutely. And the EFSA in Europe.

Right. Okay. And do you have a name of a company that's going to be providing this so I can sample it? Or is it or is that proprietary at this point? Daniel O'Brien: Its proprietary and won't be released until the other company allows us to. But I would say that, if you were to select a dozen nice wines with a vintage later than 2020 and drank them all, you would definitely have sampled our product.

Cool. Cool. And in terms of, I mean, what would be the potential size of this market? Is this a $100 million market or is it too early to know that it too? Daniel O'Brien: It's probably a $7 million to $10 million market for just that one product. But as I mentioned in the speech, we have five more products that are already being test produced and we're waiting for purchase orders.

Well, cool. It's very impressive. So, yes, I'd like to at some point visit you out there in Canada. So that's on my list of things to do. So, carry on with the other questions. Thank you. Daniel O'Brien: Thanks, Tim.

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

Hey, Dan. Pretty surprised on the Florida LLC sale. Can you kind of talk about why you decided to do that? And then if there's anything you can share about the buyer of that. What their plans are? The press release kind of implied they had big plans for it, if you can give any color on what they're looking at. Daniel O'Brien: Yes. Good morning, Bill. Our decision tree on that was that the greatest value in our relationship was with that group was the exclusive manufacturing and supply agreement, which we've retained. We were and are a wonderful supplier, but we were not particularly adept at helping them find additional customers and close them. It's just not one of our good skill sets. So when a fair price with a significant profit was offered by an executive entering the company who wanted to be a significant owner, When he made a fair and full offer and suggested that his main goal in joining the company was going to be growing the sales, which would then grow our sales to them, it was apparent that we were going to be making a profit, adding sales ability to a customer through allowing a new ownership and not losing anything. So it wasn't a difficult decision.

Okay. And then any plans for the cash? I know you talked on the last question about the drug business and the line, you need a lot of cash to that. Is there any plan to put it advance or the food business or something else? Daniel O'Brien: At this point, I think we sit back for a little bit. It will get invested at the six month treasury bill rates. And we'll sit back for a little bit and look around because, yes, it will be useful if we move into the drug field, but it's not enough to do the job. So unless you can finish the job, we don't usually start it. So, yes, it's going to be spare capital for the at least the next little bit.

Okay. On the option grants you mentioned in the prepared remarks, did you say those best at $100 million in revenue per year? Daniel O'Brien: Yes. And very specifically, $100 million, in drug revenue, not they don't get the free ride on our existing revenue.

Yes. Right, right. Okay. On the gross margins on the existing business, they were up quite a bit. Is that kind of a mid to upper 30s range we can expect going forward or is this more of a quarterly anomaly with just how prices shook out? Daniel O'Brien: I'd have to say that this is a partial anomaly. We go through cycles where we buy very large amounts of product and have to work our way through it. We have to try and raise prices. Sometimes we win, sometimes we lose. But our inventory is now shrinking and we don't know what price our next inventory will be at and what level of success we'll have in matching our inventory prices to our selling prices. This is probably the top end of what we can achieve, but I again product mix is a big thing as well. That was -- the product mix in this quarter was very good in terms of which ones have which margins. And Bill, it's going to change again once we start getting more of the food and nutrition contracts operating and bringing in significant funds. Those have higher margins because of the greater difficulty in operating at food grade levels. So I hate being like this, but it's going to be a moving target somewhere in the range of where we're at now.

Okay. Okay. And then you mentioned on the Ag business, you've said in the past corn prices are kind of correlated with how your sales are and those have been pretty rough this year. But it sounded like you're seeing some bright spots at least or not as bad maybe for your sales. Is that a fair assessment? Daniel O'Brien: It's a fair assessment and we haven't done badly. I think if you look at our agriculture sales such as we do break them out, which is not much. Our feeling is that it was relatively flat. So our customers are now walking away. They're just not able to push more through the systems. And I think my point about the 2025 early buy season is appropriate. That's when we'll see whether growers have managed to organize their lives so that they can operate and buy the ingredients they want with the crop prices wherever they are. So, I think it's a positive forward look, but not a highly positive one.

Okay. All right. Great. Thanks, Dan. Daniel O'Brien: Thank you, Bill.

Thank you. And it appears that we have no further questions at this time. I will now turn the program back to Dan O'Brien for closing remarks. Daniel O'Brien: Thank you, Madison. Well, I have no closing remarks other than to say looking forward to talking to you all in about three months. Have a good rest of your summer. The call is over.

Thank you. This does conclude today's Flexible Solutions International second quarter 2024 financials. Thank you for your participation. You may disconnect at any time.