Good day, everyone, and welcome to today's Flexible Solutions International's first quarter 2025 financials conference call. At this time, all participants are in a listen-only mode. Later, you have an opportunity to ask questions during the Q&A session. You may register to ask a question at any time by pressing the star and one on your telephone keypad. Please note this call is being recorded, and I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Dan O'Brien. Please go ahead, Dan. Thank you, Rob. 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 first quarter conference call. I would like to discuss our company condition and our product lines first, along with what we think might occur in Q2 and Q3 2025. I'll 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 are used to reduce nitrogen fertilizer loss from soil. In 2022, NCS started food-grade toll operations. TPA is used in agriculture to significantly increase yields from crop yield. It acts by allowing the fertilizer to remain available longer for the plants to use. TPA is a biodegradable way of treating oilfield water to prevent scale and keep oil recovery pipes from clogging. TPA is also sold as a biodegradable ingredient in cleaning products and as a water treatment chemical. In our food division, a special version of TPA is sold as a wine 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 attacks by soil bacterial enzymes and evaporation. N Savr 30 is effective at reducing nitrogen loss from runoff. Food products. Our Illinois plant is FDA and SQF certified. We've commercialized one food product, the wine additive based on polyaspartates that was developed fully in-house. In January, we announced a new food-grade contract. In order to achieve the objectives of that contract, there are certain actions that must be completed. For example, we need to install new specialized equipment capable of manufacturing the product. In addition, we need to install a new clean room because our current clean rooms are not suitable for the processes. There will be CapEx associated with our efforts during this business because our food-grade improvements over the last two years did not anticipate this new product category. We estimate additional CapEx of approximately $4 million for equipment and plant improvements combined, and we have substantial cash on hand in our U.S. subsidiaries and access to a mostly unused LOC. There will be no equity financing needed. CapEx involving equipment and improvements requires lead time for delivery and installation prior to testing, leading hopefully to purchase orders for production. These lead times are being reduced as much as we can control, and our estimate of the earliest that production could begin is Q4. After we are satisfied that we can manufacture the product at scale and assuming that we can still meet our customers' pricing expectations, we then hope to begin receiving purchase orders. As such, we believe that revenue could begin in Q4 and could reach significant levels by the start of 2026. Earning these future purchase orders and hopefully growing them to the estimated maximum revenue of $30 million per year is the critical goal for the next four quarters to six quarters. We hope to execute this to the customer's absolute satisfaction and obtain orders before taking on additional major projects. As part of the clean room and equipment expansion program, we expect to be able to quickly increase capacity by adding duplicate equipment. In addition, we have extra capacity in certain food product categories available, and we've done R&D towards significant business in several products. We could accept new business from these potential customers in 2025, provided it does not interfere with our primary efforts. The ENP division. ENP represents most of our other revenue, and ENP is focused on sales into the greenhouse, turf, and golf markets. We expect growth to continue in 2025 with the growth occurring in the second half of the year. The Florida LLC investment. The LLC was profitable in Q1. The company focuses on international agricultural sales into multiple countries. Its management has advised us that they estimate a return to growth in 2025, which should translate into increased revenue for FSI. Agricultural products in the U.S. are under pressure. Crop prices are still not increasing at the rate of inflation, and extreme uncertainty is present due to tariff changes. Growers are facing a conflict between rising costs and low crop prices aggravated by political actions. In some cases, sales were lost for the whole crop, sales were lost for the whole season while China maintained a tariff of 125%. As a result, we are unable to predict sales. Food division. Sales are projected to grow in 2025, depending on how early production of the new food-grade product might begin and any increased uptake for our existing polymer wine food products. Tariffs. The current tariff on all imports of raw materials from China into the U.S. is between 30% and 58.5%, depending on the material. We will be very careful not to import materials unless we are sure that the U.S. customers are certain to produce—sorry, excuse me—certain to purchase and are aware that increased tariffs will be added to their invoices once any remaining inventory is consumed. The Panama factory for international sales. We are developing a duplicate agriculture and polymer factory in the country of Panama that will be capable of producing nearly all the products we sell to international customers. We estimate that first production from this factory will begin in Q3 2025. Equipment has begun to arrive, and installation will begin soon. CapEx and operational costs to develop the new plant have been funded by cash flow and retained earnings. There will be no need for debt or equity financing. Once operational, nearly all our products for international sales will be made in Panama using raw materials sourced without the U.S. tariffs. There will also be advantages related to shipping. The new plant is 30 minutes from a port. Inbound raw materials and outbound finished goods will not have to be shipped across the U.S. to and from Illinois. For our international customers, delivery times will be shortened by many days. Reduced shipping times and no exposure to U.S. tariffs on international sales could allow us to increase sales to existing customers and obtain new customers over the next two years. Moving most agriculture and polymer production to Panama free space at the Illinois plant so that food-grade production in the U.S. can be optimized and expanded substantially as U.S. customers are found. Shipping and inventory. Shipping prices are stable but higher than prior to COVID. Shipping times are reasonable on the routes we use. During the transition of agriculture and polymer production from Illinois to Panama, we may still need to bring some raw materials into the U.S., provided the U.S. customers are willing to pay the extra tariffs. The raw material prices are stable but increasing with inflation. GLP-1 drug production line. The drug compounding industry is a logical long-term progression for FSI. So when a production line for injectable drugs became available at an extremely low price, we bought it. We intend to de-risk our possible entry into this market by securing sales prior to further expenditure and by finding partners. We will proceed only when we have reduced the risk sufficiently. Highlights of the financial results. Sales for the quarter were down 19% compared to 2024, $7.47 million versus $9.22 million. Profits in Q1 2025 were a loss of $278,000 or $0.02 a share compared to a gain of $457,000 or $0.04 a share in Q1 2024. Two large customers engaged in inventory reductions during the Q, and our ENP division had reduced sales compared to the year earlier period. We expect all of these weaknesses to end in Q2. In addition, some costs incurred to prepare for the potential new revenue from the contract announced in January negatively affected Q1 profits because they're being expensed as they occur. Some costs for the Panama factory are also being expensed quarter by quarter. This will continue in Q2 for Panama expenses and in Q2 and Q3 for food products. Thereafter, we expect profits to revert to past levels and increase as revenue grows. Operating cash flow. This is a non-GAAP number useful to show our progress, especially with non-cash items removed for clarity. For Q1 2025, it was $480,000 or $0.04 a share, down from $1.38 million or $0.11 a share in 2024. Long-term debt. We continue to pay down our long-term debt according to the terms of the loans. The loan we used to buy our ENP division is paid in full in June this year. Our three-year note for equipment is fully paid in December 2025. This will free up over $2 million in cash flow per year for other purposes. Working capital. Adequate for all our purposes. We've got 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 as an 8-K filing on www.sec.gov by Monday, May 19th. Email or fax copies can be requested from Jason Bloom, jason@flexiblesolutions.com. Thank you. The floor is open for questions, and Rob, will you step that up, please? At this time, we will open the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad now, and you'll be placed into the queue in the order received. You may remove yourself from the queue at any time by pressing pound and one. Once again, to ask a question, please press star and one on your phone now. Our first question comes from Manny Stoupakis from GEO Investments. Please go ahead, Manny. Thank you. Hi, guys. How are you doing? I was wondering if you could talk more about the financial responsibility of building out the clean room required to start generating revenue from the new contract that you announced in January. Are you solely responsible for the capital expenditures for the clean room? Or is your client also putting up some of the money? We are responsible for the clean room. The client is putting up some money towards equipment. Okay. Okay. Can you talk about do you expect the margins on the new food business in general to be more stable than the previous business? What are your expectations on the gross margins of the contract beyond the initial costs you guys have? Yeah. We're not disclosing the actual margins, but your first part of your question, I like that one. We're expecting the margin to be extremely stable because it is tied to inflation, and both parties are focused on making sure that production, once started, is not hindered by negotiations over pricing. The pricing has a set equation. You'll follow a similar model on any future contracts on that line, I guess. Would that be a fair assessment? With this particular client, all future expansion would follow the same equation. In similar production situations, we will try to guide our customers into agreements, let's call them, that prevent stop and start due to pricing changes of raw materials. Can't promise that every customer will be as logical as the first one, but that's the way we would like to grow. Okay. Great. I'll jump back in the queue. I appreciate it. Thank you. Thank you. Our next question comes from William Gregozeski from Greenr idge Global. Please go ahead, William. Hey, Dan. I just got a couple of questions for you. It sounded like you did not buy any of the very high tariff products, raw materials during that window. Is that a fair assumption that there is not going to be any big margin hit from that? Correct. There will not be any big hit, but I do know that some product came in at about 20% plus 28%. It was not a lot, but we did get hit with one, sorry, at least two truckloads that were on the water when the fiat went out. Okay. Okay. You mentioned that you had some kind of more one-time expenses related to expanding Peru and then building out Panama. Is there any expectation for sustained operating expenses that will be added once those are both done? I mean, continuous cost increases. Yes, we're going to need more accounting help when you add somewhere between $10 million and $30 million of very complicated products to your bottom line. We're going to need both accounting people and a software upgrade. These are going to be part of our operating costs, and they are going to be expandable to new customers. Just going back on your other point, during this period where we're transitioning, we're carrying employees that we need for the future in both Panama and Illinois that we will not be letting go. We're going to be using them for the transition, but they're not directly responsible for additional revenue yet. There is one of the costs that ends up in expense rather than capitalized. Okay. All right. Last question is on the dividends. You've done a special dividend around this time each of the last three years. Do you think you'll ever go to a more formalized dividend policy like you had before? Or just stay with the flexibility that you have now? The flexibility is great. If the board determines that a little more transparency would be beneficial to our shareholders, a regular dividend is possible, but I think we would have to be—as a Board, my feeling is that we would be very adamant that any regular dividend would be so small that we can pay it even during strange events like the COVID issue that cut our previous dividend because our bankers went nuts on us. I think we'd have to be careful and do something like a very small dividend augmented by special dividends. That might be a logical next step, but I wouldn't want to put words in the Board's mouth until we've had plenty of time to talk and think about it. Okay. All right. Thanks, Dan. Our next question comes from Tim Clarkson from Van Clemens Capital. Please go ahead, Tim. Hey, Dan. Just want to check. You expect that the second quarter results will be better than the first quarter's results then? Absolutely. Okay. Other than buying the equipment, what would you say are the risk challenges to making this contract work? Equipment, clean room, timing. Although we feel that we're very, very good at this, there is always a risk as you go into high production mode measured in millions of units per year execution. We're pretty good. I'm going to say that the probability of failure is quite low, and I don't have the statistical skills to try and put a percentage on it, but it's pretty low. Sure. Sure. Essentially, you're going to be doing something that you've already done successfully before. You're just going to be doing it in much higher volumes. Yes. Okay. Okay. How did you come up with this idea of shifting your manufacturing to Panama? Back in 2017, when the first set of tariffs drastically impacted our international sales, we started thinking about what we could do differently. A couple of years ago, when it seemed fairly likely, even 50/50, that Trump would be reelected and that tariffs were a big thing on his mind, that's when we began to choose an international site for production that could be used for our international sales. I didn't speak about it in the body of the speech, but we are still increasing as we build and sell for international customers. We are increasing our tariff rebate account, which is now six years old, and we're trying to get our money back. There's no interest paid by the U.S. government for this money that's been held for six years and that we are legally entitled to. We've got an almost full-time person inside our group working on nothing but this, and we've now had to hire a contractor. That sort of experience over the last six years educated us that the United States is having difficulty competing as an export country and that if we wanted to compete properly, we needed to have another plan. Right. Right. I shouldn't ask this question, but I mean, what's your way of looking at it from the outside in or as a businessman? Do you think these tariff policies make a lot of sense? Interesting. I'm a Canadian citizen living in a Caribbean country operating an American-based international company. My opinion is, as a Republican especially, is that a lot needs to change in the United States, but there could have been better ways to do it. For instance, a simple change where materials that are intended for remanufacturing inside the United States are not tariffed and materials that are finished goods intended for sale should be tariffed. It would appear nobody asked me. Yeah. All right. Anyhow, we all have to deal with these frustrations. I appreciate that's the end of my questions. Thank you. Thanks, Tim. Our next question comes from Ron Richards, an investor. Please go ahead, Ron. Hey, Dan. I was just wondering if you have any other food deals coming up in the pipeline that you could talk about? We have potential deals and not able to talk about them, not even about the size. I hate doing this to investors, but I'm guessing within 95% of our food-grade business, we are always going to be constrained by contract against disclosing the customer and disclosing the exact product. The things that we're looking at are similar to what we announced in January, and obviously, things that we have machine and human resource capacity for. We're not looking at any additional contracts that would require additional capital outlays at this time. We're running full speed to try and get this big contract from January, and other things have to fit in around it. Okay. I was wondering if you have any comment. If the price of oil continues to decline, do you have any idea how it might affect your business negatively if it gets to a certain point as far as the price of oil itself? Oil prices are loosely linked to our cost for aspartic acid, one of our primary raw materials for polymer sales. The lower the oil price goes, if it stays down for quite some time, our raw material prices drop, our shipping prices drop, and our energy prices drop. Unless oil fields start shutting down and all of our customers are in Norway and the British North Sea, it is unlikely that there will be a significant drop in our revenue, and there might be a slight increase in our margins. Oil price is just something to watch. It is not something to worry about for our company. Oh, great. Thanks for the color. I appreciate it. That's it for me. Thank you, Ron. Our next question comes from Greg Hillman, investor. Please go ahead, Greg. Yeah. Hi, Dan. Hey. First of all, do any other organizations in the world have the same the main expertise in TPA that Flexible Solutions has in general or in ag and food specifically? Morning, Greg. In food, no. We're the expert for this particular wine ingredient, and our customer actually owns patents that prevent other people from being involved in it. In all the other aspects of our polyaspartate's TPA, there are expert companies in China, but nowhere else in the world anymore, who compete with us. They definitely wish or are willing to accept moderate margins, which is, of course, one of the reasons why our margins are not expandable. We do a good job of competing with them. I would honestly say that getting out from under the tariff rebate program and moving to Panama is going to help us compete for many years to come. That's good. Dan, in terms of SUN 27 and N Savr 30, what percentage of farmers in the U.S. know what it is? Perhaps not under those names because we also manufacture white-label products for multiple customers. Those are our trade names when we're selling direct to distribution. Of the farmers in North America who grow corn, beans, any other of the major crops, 100% of them know about nitrogen conservation products. Perhaps only 5% use them. I think everyone knows my stock answer for this. We are not good retail salespeople at Flexible Solutions, and we are good at either white-label or direct-to-distribution manufacturing. The key for us is finding good distribution. Okay. Just a question about keeping the same name. If a lot of distributors have various names for it, would not that hurt the use of it as opposed to just using one name anywhere? Is there any way you could get your distributors to use one name to increase recognition or use of the product and still maintain their margin? If you get a bunch of. We know of no way to get people to give up their trade names in favor of our trade names. Sorry. Okay. Finally, going to your balance sheet, I think you keep Trio and Lygos at your cost, which is like $1 million in each one. How do you know you should not have written that down to lower the value or the current value of your investment in those two entities? What was the first entity? Oh, Trio. Oh, one's Trio and the other's Lygos. Yeah. Sorry. I didn't hear you. I didn't hear I didn't hear you properly. Trio, we definitely would never write down because it has reliably been paying 8% interest on the investment per month for years now. With every three years, there is a top-up payment of a size that, on the last cycle, took the average for the three years up to 11%. No one could argue that that's a bad investment and should be written down. Lygos is actually discussed every quarter. And a little clarity about Lygos. They got exceptionally well-funded for future work. I believe they got $165 million in funding, and they are burning through that. And our question by the—sorry, backing up a tiny bit. Their funding was convertible to venture. When they get close to no funds left, that's when I think we definitely have to write it down because there would either be a new owner or a bankruptcy. We are watching it, and we're going to act when the time's right. Okay. Thanks, Dan. Appreciate your comments. Thank you, Greg. As a reminder, if you would like to ask a question, please press star one on your phone now. Dan, it appears that there are no further questions. I'll turn it back to you for closing remarks. Thanks, Rob. Everybody, thanks very much for joining us today. Looking forward to talking to you in three months and telling you about how we're moving forward. Everybody, take care and bye. This does conclude today's Flexible Solutions International's first quarter financials call. Thank you for your participation. You may now disconnect. 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