Good day, everyone, and welcome to the Flexible Solutions International second quarter 2026 conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session. You may register to ask a question at any time by pressing star 1. Please note this call is being recorded, and I'll be standing by for assistance. Now, I'll turn the call over to your host, Dan O'Brien. Please go ahead.

Thank you, Alice. Good morning. I'm 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 second quarter 2026. I'll start by reviewing our company condition and our product lines, along with what we think may occur in Q3 and Q4 2026. I'll comment on our financials in the second part of the speech. Nanocam Division, NCS. It's one of the three major revenue sources for FSI. In 2022, NCS started food grade operations. The Illinois plant is FDA and SQF certified, and we have commercialized two food products. The first was a wine additive based on polyaspartates. In August 2025, we announced our second major food grade contract of 2025 and our third overall. As noted in the news releases, it's a five-year contract with protections from tariffs and inflation. It has a minimum revenue of $6.5 million per year. This contract has reached full production and is being optimized to ensure that it's profitable. In January 2025, we announced our largest food grade contract. Volume production started very late in Q2 and will be increased weekly until full production is achieved. Significant revenue from this contract will be visible in our Q3 financials and will increase rapidly in Q4. Growing these two food contracts to the estimated maximum revenues of greater than $50 million per year is our critical goal for the next four to six quarters. We hope to execute this to the customer's absolute satisfaction and obtain all their business before taking on additional major projects. This does not mean that we're not looking 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 announced. We would also like to be clear regarding margins in the food division. In order to obtain such large contracts and in order to negotiate tariff and inflation protection clauses, we have lower margins than we prefer. We hope to be in the 22% to 25% range before tax. Future customers will be selected in order to increase our average margins now that we have a base in place. The Panama Division. This division, our second major revenue source, makes thermal polyaspartic acid, called TPA for short, a biodegradable polymer with many valuable uses. Panama also manufactures SUN27 and NSAVER30, which are used to reduce nitrogen fertilizer loss from soil. Panama is taking over production of all the legacy industrial and agricultural products historically made by NCS. This is a step-by-step process that will be complete by the end of 2026. TPA is used in agriculture to significantly increase crop yield. TPA is a biodegradable way of treating oil field water for scale prevention. It's sold as a biodegradable ingredient in cleaning products and as a water treatment chemical. In Q2, Panama production increased. However, the poor performance by the Florida LLC companies Daniel O'Brien The EMP division. EMP is our third major source of revenue, and EMP is focused on sales into the greenhouse, turf, and golf markets. EMP grew in 2025. It's growth expected again in 2026. Q2 is a weak quarter, and it was very weak this year. Q3 is already showing a significant rebound. Agricultural products in the United States remain under extreme and Daniel O'Brien. The Florida LLC investment. In August 2024, the company sold 30.1% of the equity in the Florida LLC to an acquirer for $2 million and five annual payments of $800,000. The acquirer was unable to fund the annual payments. As a result, and Daniel O'Brien. Florida LLC investment can be realized again. Full revenue recovery will not be immediate, but we've made progress already. This revenue will be evident in Q3. Tariffs. The current tariff on all of our imports from raw materials from China into the U.S. is between 15% and 58%, depending on the material. Shipping and inventory. Shipping prices are not stable. Shipping times are longer than usual on the routes we use. These issues are caused by the Iran war, and they're expected to subside if the war does. Raw material prices are unstable and increasing to account for the oil prices caused by the Iran war. We have a significant inventory of most raw materials, but we anticipate that in the third or fourth quarter, unless there is a significant reduction in the price of oil that reduces our raw material costs.

The highlights of the financial results.

Sales for the quarter decreased by 14% compared to Q2 2025, 7.60 million versus 8.87 million. The 2025 quarter included 2.5 million of irregular revenue from R&D activity that did not recur in 2026. With this removed, recurring revenue was higher year over year. Profits. 2026 recorded a loss of 1.91 million, or 15 cents per share, compared to a gain of 2.03 million, or 16 cents a share in the 2025 period. costs incurred in scaling up the food-grade contracts announced in January and August of 2025 negatively affected Q2 profits because they are expensed as they occur. Scale-up costs for the Panama factory are also expensed quarter by quarter. This continued in Q2 2026 in Panama and for food products in Illinois at lower levels but without sufficient revenue to avoid the losses. We anticipate a return to profitability in Q3, followed by rapidly increasing profits in Q4. Long-term debt. We continue to pay down our long-term debt according to the terms of the loans. We have one small term loan and the small mortgage on our Illinois factory remaining. Our working capital is adequate for all our purposes. We have lines of credit with Stockyards Bank, For EMP and the NCS subsidiaries, we are 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 Tuesday, August 18th, and email copies can be requested from Jason Bloom, Jason at FlexibleSolutions.com. Thank you, Dan. Thanks for that info.

Can you elaborate a little bit more? You're mentioning the higher raw material cost.

that I believe led to the larger than expected inventories. I believe that was listed on the 10Q that the inventories were historically higher than past. Can I make that connection? Does that make sense?

Yes. We've been banking inventory rather than money because there were low prices last fall for certain of our products. and we took advantage of that, especially in Panama. We will probably try and achieve that again this fall. One of our primary products, and Alan, this is your first time asking questions, and welcome. One of our primary ingredients is aspartic acid, and we buy large numbers of tons per year. Aspartic acid is rare in the summer and the spring because it gets used for aspartame, which is still the cheap sweetener of choice for non-calorie sweeteners in the world outside of Europe and America. So we try to never buy aspartic acid in the summer or the spring and to refill our coffers dramatically in the fall and winter. So that's one of our cyclical... We do the same thing with several other products.

Interesting. All right. Yeah, thanks for sharing a little bit more color on that.

Our next question comes from William Gregorzewski of Green Ridge Global.

Hey, Dan. On the August 2025 food contract, am I correct in reading your customer list that the sales were down in the second quarter? and is there a reason for that or should we just expect that to ramp back up going forward?

For the August 2025 quarter, I know that if I remember my speech correctly, that project has reached full capacity and we are optimizing it so that it's profitable. What I'd like to share there is that We have been training large numbers of human beings to operate 24-7, four shifts, and the people do not manage to make the most per hour in the early stages of their training. This training process for both the August and the January contracts is the primary reason for the We just simply aren't efficient yet, and we are getting more efficient by the day, but it's not an easy situation to go from 15 people in Illinois to 100 people, and it's going to cost money, and some of the people aren't as good as they said they were and have to be replaced. So that's what's going on there, Bill.

Okay, so the revenue should be more stabilized on that contract going forward?

I believe it will be, and that the January one is going to continue to increase.

Okay. There was like 9 million of receivables that were cleared in the second quarter. Is that tied to anything specific, or I guess what was the reason for the big decline in receivables?

That will be written in the queue under that.

I don't have the queue open in front of me, though.

Okay. And then the last question I had was the $2.5 million in R&D fees last year, that was paid by a customer that's not the January or August customers?

That was paid by the August customer.

and in the event that we reach certain milestones, there are other R&D fees available. We're not going to share, well, did we have to share the contract? If we had to share the contract, it's on sec.gov, but there is the possibility of receiving across the next year or a couple of years up to another $3 million on that particular R&D project. We don't have any clarity about if or when, so we can't call it recurring revenue, but it definitely is revenue from work product, which is why it was shown the way it was last year. And, of course, the R&D work we did has led to the August contract being functional.

Next, we have Tim Clarkson of Van Clements Wealth Management.

Hey, Dan. How are things going out there?

Pretty good. We're having a good summer, and thanks for calling in.

Yeah. I'm up in Wisconsin, and one of my guys is a big... and he wanted to know if your boat is a sailboat or if it has a motor on it.

It has a motor. Okay.

All right. He'll be disappointed about that. But, hey, getting back to business, now, were there any other unusual dynamics going on in terms of getting the food additive contracts going other than labor issues? Was the equipment working good? No.

The equipment's working well. It's not working perfectly yet. Obviously, equipment that arrives in January of 2026 is not working optimally in Q2 of 2026, but it is putting product through and it's getting closer each day to the numbers that are on the production panel. So we don't believe that... We have problems there. We are at this point waiting for duplicate equipment so that next year we can expand even further with the larger customer.

Okay. I noticed that you had a shelf offering for a couple million shares, and I'm just wondering what's the status of that? Is that still being worked on, or is that being put aside for the time being, or where are we with that?

That is a shelf prospectus in the true color of what they're supposed to be. It's sitting there in case we find an acquisition that we simply can't pass up and don't have quite enough money for it. At the time, we have no intention of utilizing that acquisition at current prices. and it truly is going to sit on the shelf.

Okay, good. That makes a lot of sense. In terms of now, we've got the three contracts, the new contracts. One is the wine deal, and then there's the second food contract, which is the smaller one. Now the third one, which is the biggest one, at what point will we be seeing material revenues on that one?

I believe we'll see it this quarter. That project is running at medium speed right now. We're putting out finished goods. The billing for those finished goods didn't quite make the end of the second quarter, and I've already seen significant billing going through in the first six weeks of the third quarter. It's there. That's why I was comfortable enough to give forward guidance so that people did not get whipsawed by a negative quarter that was going to be followed by a good quarter.

Right. Now, I saw a buildup of $4 million in your inventory in the queue. Is that tied into the new food service deal?

It's tied into that. It's tied into Panama. We are carrying more inventory. The types of dollar volumes we're doing, and as you've seen, 22% to 25% margins mean that there's a lot of inventory going to be carried as we go forward in the food-grade world.

Now, would you say there's any particular, in terms of order of margins between the three New contracts, are the margins going to be all about the same or is one of the three likely to be higher?

The wine contract will be slightly higher, but the volume will be lower. As we all know, wine consumption is dropping around the world and our wine customer is fighting for market share. We think that that product line is going to maximize at around $3-4 million a year, possibly with margins in the 25-26% range. The two newer contracts, because we've got inflation protection and tariff protection for price rises, we're looking at 22-25% gross margins before tax and 15% to 17% net margin after tax.

Great. Well, great. That's really helpful and still excited about your guys' prospects. Thank you. I'm done.

Thanks, Tim.

Once again, everyone, press star 1 for a question. And we'll proceed with Denise Erkin of Singular Research.

Hi, Dan. Thank you for all the information. You already covered my question on the share program, so I'll just move to the Florida LLC agreement. You said that you expect to recover some of the historical business. Can you perhaps give us a sense of how much revenue could we realistically expect to see in Q3 and maybe end of year, and whether you are already working directly with those customers? Have they started putting in any orders directly yet?

I'm going to do everything except estimate the revenue on a particular customer. That wouldn't be in my normal wheelhouse. Yes, we have already had substantial orders that are directly from the historical customers of the LLC. Yes, we are dealing with the customers directly. Yes, we have hired... representatives that used to represent the Florida LLC, and those people are doing their job very well. And then your biggest question, this one I can't ask or answer, somewhere between $5 and $7 million a year is the revenue recovery expectation across the next 12 months.

Okay, thank you, Sam. Great. Thank you for taking the question. Thank you.

Dan, we have no further questions at this time. I'll turn it back over to you for any additional or closing comments.

Thank you, Elvis, and thank everybody for coming to the meeting today. We'll talk again in three months, and I plan and hope to be giving you even better news. Thank you. Bye now.