Flexible Solutions International Inc.

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.