Hey everyone, and welcome to today's Flexible Solutions International Second Quarter 2025 Financials Conference Call. At this time, all participants are in the listen-only mode. Later, you will have the opportunity to ask questions during the question -and -answer 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 will 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, sir. Thanks, Paul. 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 involves 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 Q2 Conference Call. I'd like to discuss our company condition and our product lines first, along with what we think might occur in Q3 and Q4 2025. I'll comment on our financials in the second part of the speech. Nanopam 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 operations at the same plant. TPA is used in agriculture to significantly increase crop yield, yet acts by allowing the fertilizer to remain longer for the plants to use. TPA is a biodegradable way of treating oil field 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 attack by soil bacterial enzymes and evaporation, while N Savr 30 is effective at reducing nitrogen loss from runoff. Food product. Our Illinois plant is FDA and SQS 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 process. There will be CapEx associated with our efforts to earn this business because our food-grade improvements over the last two years did not anticipate this particular product category. We estimate additional CapEx of approximately $4 million for equipment and plant improvements combined, and most of this CapEx has been deployed already, and the remainder will be spent in Q3. We have substantial cash on hand in our U.S. subsidiaries and access to an unused LLC. There will be no equity financing needed. CapEx involving equipment and improvement requires lead time for delivery and installation time 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 have 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. This week, we announced our second major food-grade contract, which is from the customer that we received the R&D revenue from in Q2. As noted in the news release, it's a five-year contract with protection from tariffs and inflation. It has a minimum revenue of $6.5 million per year and a maximum, if the customer requests it, of greater than $25 million per year. Production will utilize equipment that we have been buying and installing over the last two years, but had no customer for yet. Therefore, almost no CapEx will be needed to reach $13 million - $15 million per year in sales and mild CapEx in the $2 million - $3 million range to reach $25 million and above. Production will begin in Q3, and revenue may be significant by Q4. Earning these orders and hopefully growing them to the estimated maximum revenue of $30 million and $25 million per year is the critical goal for the next four to six quarters. We hope to execute this to both customers' absolute satisfaction and obtain all their business before taking on additional major projects. This does not mean that we are not looking for more customers, as we are already doing R&D work in certain areas. However, it does mean that several quarters are likely to elapse before other major customers are found. We would also like to be clear regarding margins in the food division. In order to obtain such large contracts from a very low base, and in order to negotiate tariff and inflation protection clauses, we have lower margins than we prefer. We hope to be in the 22% - 25% range before tax. Future customers will be selected in order to increase our average margins now that we have a base in place. EMP Division. EMP represents most of our other revenue. EMP is focused on sales into the greenhouse, turf, and golf markets. We expect growth to continue in 2025, with the growth already apparent in early Q3. Florida LLC Investment. The LLC was profitable in Q2. The company is focused on international agriculture sales into multiple countries. Its management has advised us that they estimate a return to growth in 2025 in the second half of the year, and this 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 locked for the whole season. As a result, we saw weakness in Q2, which we expect to continue in the second half. Tariffs. The current tariff on all our imports of raw materials from China into the U.S. is between 30% and 58%, depending on the material. We'll be careful not to import materials unless U.S. customers are certain to purchase and are aware that increased tariffs will be added to their invoices once any of our remaining inventory is consumed. We have not managed our transition to Panama to perfection, and have had to import some raw materials into the U.S. in Q3. Some of the tariff costs will be passed to customers, some will qualify for the rebate program, and some will reduce Q3 margins a small amount. Panama factory for international sales. We're developing a duplicate agriculture and polymer facility 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 could begin in Q3 2025. All the equipment has arrived. Raw material inventory is on hand, and installation is underway. CapEx and operational costs to develop the new plant have been funded by cash flow and retained earnings. There won't be a need for debt or equity financing. Once operational, nearly all of our products for international sale will be made in Panama using raw materials sourced without U.S. tariffs. There will also be advantages related to shipping. The new plant is 30 minutes from the port. Inbound raw materials and outbound finished goods will not have to be shipped across the United States to and from Illinois. 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 frees space at the Illinois plant so that the food-grade production in the U.S. can be optimized and expanded substantially as U.S. customers are found. Panama will become a separate reporting division in our financials as soon as it becomes full operation. Shipping and inventory. Shipping prices are stable. Shipping times are reasonable on the routes we use. No materials or finished goods transit the Red Sea. Raw material prices are stable but increasing slowly with inflation. Highlights of the financial results. Sales for the quarter were up 8% compared with 2024, $11.37 million versus $10.53 million. Profits. Q2 2025 recorded a profit of $2.03 million or $0.16 per share compared to a gain of $1.29 million or $0.10 per share in Q2 2024. We recorded unusual R&D revenue in the quarter of $2.5 million, which resulted in the exceptional profit. Our underlying business continued to see weakness caused by tariffs and general business uncertainty. Our agriculture sales have been reduced until the start of early buy season, which is now in Q3 and Q4. In addition, some costs incurred to prepare for the potential new revenue from the contract announced in January negatively affected Q2 profits because they are being expensed as they incur. Some costs for the Panama factory are also being expensed quarter -by -quarter. This will continue in Q3 for Panama expenses and in Q3 and Q4 for food products. Thereafter, we expect profits to revert to past levels and increase our revenue growth. Operating tax flow. This non-GAAP number is useful to show our progress, especially with non-cash items removed for clarity. For the first half of 2025, it was $4.25 million or $0.34 a share, up from $3.85 million or $0.31 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 that we used to buy our EMP Division was paid in full on June 30th. Our three-year note for equipment will be fully paid out in December 2025, coming up quickly. This will free up over $2 million in cash flow per year for other purposes. Our working capital is adequate for all our purposes. We have lines of credit with Stock Yards Bank for the EMP and NCS subsidiaries. We're confident that we can execute our plans with our existing capital and without resorting to any equity actions. The text of this speech will be available as an 8K filing on www.sec.gov by Monday, August 18th. Email copies can be requested from Jason Bloom at jason@flexiblesolutions.com. Thank you. The floor is open for questions, and Paul, will you set that up for us, 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, and you'll be placed into the queue in the order you queue. 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. We'll take our first question from Timothy Clarkson of Van Clemens Capital. Hey, Greg. Great results, great progress on the food. Just wanted to know, what do you think is the real business magic behind getting these new food contracts? I think that you should look at the second word in our corporate name, Solutions. When people come to us, they often have not an unfinished product idea, but not the ability to understand exactly how it should be made. That's where we do the R&D work that results in a solution that is economic and functional. We've been doing this pretty much since the beginning of the company 35 years ago. We are a solution provider. We don't always know the solution, but we're willing to go out and look for it. I think you can see that perfectly evidenced in first receiving an R&D payment and then receiving a contract based on the R&D work we did. We may not always have to do that, and sometimes people will come to us and we can do it immediately. That is the advantage we provide over many other companies. You're really good listeners and trying to understand what the problem is, and then have good engineers that can help solve those problems. I would agree with that synopsis. Yeah. Good. In terms of now, I haven't looked at the ARPU yet in terms of how this, how much was the R&D contract? Was it $2.5 million? It's about two. Yeah. Now, how did that play out? Did you treat that as a revenue item, or is that just an extraordinary income item, or how does that fit into the financials? We chose to have it as a second line in our revenue. We have our regular sales revenue followed by a second line, R&D revenue, because we feel it's likely that this type of payment is possible or even probable, intermittently over the next one to two years. It isn't really other income, or it could be classified that way. It's hard. It was hard to make a choice, but we think that by over and over emphasizing that this is intermittent, normal behavior for us, we are telling a clear story. If it went into other income, it might be a little less clear. That's how we've done it. Your follow-up question is probably, what's the percentage of the income that this special payment is responsible for? It's about $0.14 out of $0.16. I think that tells you that it was a weak quarter in general sales and a strong quarter in intermittent sales, with a very strong follow-up by getting the contracts that will last for several years. Sure. On these food contracts, you talked about a 25% growth margin. What do you think that will net out to? Is that about 5% net or 10% net, or are you not sure yet? I believe that my words were net before taxes. It's not a gross margin. It's a net margin before tax. That particular plant faces 31% income tax. It gets a little more complicated because recent work in Washington has reinstated the 100% CapEx write-offs for equipment. We're not quite sure how much of our costs in this year are going to be eligible for that. By next year, any small CapEx that we're doing is going to reduce our income tax load. I think that one, I would just use the 31% and everything else will be a bonus. Great. Great. It sounds like you finally have, looks like a longer-term solution to all this tariff stuff. I think we've got the solution now, we've got to execute. Right. Great work. I'm very excited. I'll get off the queue. Thanks. Thanks, Tim. Thank you. If there are any additional questions, please press star and one on your phone now. We'll take our next question from William Gregozeski of Greenridge Global. Hey, Dan. I have a few questions for you. On this R&D contract, were there really any expenses related to this that seemed like it pretty much all just dropped down to the bottom? The expenses were incurred in general operations over the past 18 months. We've been incurring expenses in advance of the income. Of course, the income came all at once. The answer is yes, everything drops to the bottom line in the quarter, but our previous quarters were damaged by not having any revenue from the work we do. We do have a full R&D lab with a couple of PhDs and several helpers. Plus, I got to be honest, every single person in the company is expected to pay attention to what's going on and propose solutions if they see one. We will probably continue showing lowest R&D on our line items, but basically, we're doing R&D every time we walk in the door. Okay. On the food, on the true food contracts you have, assuming they're ramped up to the full amount, does that take up all the space in Illinois, or do you have to add space, or where are you capacity-wise if those are both fully ramped up, assuming all the international TPA business is going to Panama? Good question, actually. We believe that we will still have substantial space in our buildings. We may be a little bit short of clean room for additional customers if they appear. Clean room additions are a four to six-month project. Of course, we haven't even seen how much more efficient we can get. If I had to take a rough guess, we won't have to build any more space until we've more than doubled our current maximum, which I've quoted as $55 million. Okay. All right. Great. On the existing business, it sounds like EMP is picking back up, but AG is going to be weaker for the rest of the year. Is that accurate? It's an accurate guess. EMP is definitely picking up because I've seen the July numbers. Agriculture is way worse to try and predict, especially American agriculture, because I think most of us are aware that some major soybean contracts were canceled by China, and the business went to Brazil. There's a bunch of that thing. That's the one that made the news, but there's just general weakness in the field, pun intended. Predictions are going to be difficult. We're predicting this to be weak because we're pretty sure it won't be strong. Okay, oil and gas, is that picking back up, or how is that looking? Very steady. The orders are coming in steadily. It doesn't appear as though there are any disruptions in the marketplace. Oil and gas, which when you first started knowing about us was our primary product, is now well below all of our agriculture, and it's similar to our wine products. I'm not going to give you specific numbers, but those two products, the food-grade product for wine and our annual oil industry, are similar products. Okay. Okay. Speaking about the wine product, since that's an international product, is that moving down to Panama as well, or is that staying in Illinois with the other food products? It will have to stay in Illinois with the other food products for now because it needs to be made in the food-grade plant. Panama is not food-grade, and we're not sure if or when we will do that upgrade. Okay. On the Florida LLC, are they buying from anyone else besides FSI? It just seems like from what your sales are to them and their revenue and margins, their margins should be higher if it's just you guys. We have a contract that says if we can supply, they must buy from us. If we cannot supply for some reason, they can buy from someone else. At this point, we have never turned down a PO, so we are supplying all of their business. Okay. All right. Great, great news on the food-grade stuff, Dan. It's pretty amazing. Thanks, Will. You have a good day. Thanks. Bye. Thank you. It appears we have no further questions in the Q&A time. I'll turn this call back over to our presenters for any closing remarks. Thanks, Paul. Everybody, thanks for joining us today. I'll be reporting back to you again in three months. Please, everybody have a good long weekend or a good weekend. Take care. Bye. Thank you. This concludes today's Flexible Solutions International second quarter 2025 financials conference call. Thank you for your participation. You may disconnect at any time. The host has ended this call. Goodbye.