Good day, everyone, and welcome to today's program on Flexible Solutions International First Quarter 2022 Financial Results. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note that this call may be recorded. 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. Daniel O’Brien: Thank you, Bobby. 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 Q1 FSI conference call. Prior to discussing our financials, I'd like to update our company condition and our product lines, along with what, in our opinion, might occur in the second and third quarter of 2022. Covid virus, the NanoChem subsidiary, the ENP subsidiary and the Florida, LLC investment are all engaged in producing for agriculture and/or the cleaning product sector. All our employees or virtually all our employees are fully vaccinated. COVID lockdowns in China will have effects on our supply chains out of Asia that may cause delays from time to time. Our NanoChem division, NCS, represents more than half of the revenue of FSI. This division makes thermal poly-aspartic acid, called TPA for short. It's a biodegradable polymer with many valuable uses. NCS…

Yes, sir. We'll take our first question from William Gregozeski with Greenridge Global.

Hey, Dan. The sales to the Florida LLC only accounted for 16% this quarter, which was among the lowest despite a record revenue for the quarter for the company as a whole. Do you think the non-Florida LSE revenue will continue to grow this fast? Or is a lot of that related to the more onetime oil-related sales you just mentioned? Daniel O’Brien: Well, it's two things. First thing two things, are you absolutely certain you've got the right customer because we don't declare my name. And then the second point and really to the number of your question, we saw very significant increases in many of our agricultural customers in Q1. We're seeing a continuation of that in Q2. And we expect that because of the good work we're doing for these people that we will be able to continue on this way over the years. The actual mix is going to be whatever the actual mix comes, and that will be related to the ratio of growth that's existing and new customers compared to the ratio of growth at the LLC. So I really can't predict whether the percent will stay the same.

Okay. And you mentioned about the Fort LC 30% year-over-year growth is what they're looking for, for '22 over '21? Daniel O’Brien: Correct. That's their internal target.

Okay. And then gross margins still - when you talk about returning to a normal level kind of the rest of the year, what do you define as a normal level? Daniel O’Brien: I'm not going to put a number on it, Bill, but I would say that compared to - if you look at Q4 versus Q1, you can see that in Q4, we were really hurting - we were, in some cases, some very, very few cases. We were only breakeven for customers. We've come most of the way back. I think there's still a little bit left, but we're - it's not going to be a massive change between now and the end of the year.

Okay. And it looks like you've been building inventories as you mentioned. Do you expect any shortages or delays in getting product from China that might impact sales at some point this year? Daniel O’Brien: It's possible. Why - the reason we've been building inventory is that obtaining product is not the problem. It's obtaining it on time. And the bottlenecks don't necessarily always occur in China. I mean the most recent ones have been Shanghai port, which we've managed to circumvent. But back in February, we had an issue with a rail strike in Prince Rupert, Canada. So the world's shipping world of shipping is fairly messed up, and you're never quite sure where the next problem will occur. So when we have cash available or as we have cash available and our suppliers have raw material available, we will continue to build inventory because we would expect the opportunity to sell it in the future. Now that may mean that we hold on to any particular kilogram a little longer, but that is much better than losing a customer due to reduced ability to perform. As of right now, we're not short of anything, but that doesn't mean it won't change tomorrow.

Okay. Great. And last question is, do you have any estimate on when the S-4 might be able to be filed? Daniel O’Brien: I kind of expected this question coming, and I think I'm actually not supposed to answer. What I do know from my experience is that everybody is working really hard on it. So nobody is trying to delay it. It's just - it's going to be done to the best possible level of quality, and everyone is working as fast as they can.

All right. Sounds good. Thanks, Dan. Daniel O’Brien: Thank you, Bill.

We'll take our next question from Tim Clarkson with Van Clemens.

Hey, Dan, I'm Tim Clarkson. I started watching your company maybe a year or so ago and then got real interested with all the changes in the fertilizer business, and I'm very interested in the fact that it's green technology. So all in all, I bought a bunch of it. And then the kind of the deal has changed now with this Lygos merger. And as an investor, we're going from a company that's profitable to a company that's potentially development only kind of a developmental company. And obviously, you're all in on it and you're making a huge bet personally. I guess, I mean, the question is, is you must be convinced this is going to turn into a profitable venture. Daniel O’Brien: Kim, thanks for the question. Yes, I am. And I also believe that it's the right thing for the company. If any company goes on simply doing what it's done before in a world that is changing as rapidly as ours is your risk is increasing even if it's not obvious. So how I feel about this change - it's not even a change of direction. We tried to do this 15 years ago, and the technology was not ready. We failed. I directed that. We used old technology, it was uneconomic. So sustainable aspartic acid has been something that - something of a quest for FSI for almost two decades. Lygos is the next generation of this. They modify the microbes themselves. They have produced aspartic acid for us in small amounts already. The goal of switching most of our supply for aspartic acid from oil-based aspartic acid out of China to corn sugar-based aspartic acid out of America, essentially solves almost all the problems that I was speaking about earlier in this speech. How do we get products into our factory on time and how do we get it reliably. And how do we deal with the shipping issues. They all get solved at least to a large extent by moving forward into sustainable work. And then I guess the last thing I'd like to say about this is the customers that we have now are measured in millions of dollars, the customers that are available for polyaspartate and other specialty chemicals that we can make from sustainable aspartic acid are measured in tens of millions of dollars a year and hundreds of millions of dollars a year. So yes, we are temporarily increasing risk, but I believe that we're also increasing the magnitude of the eventual reward by orders of magnitude.

Sure. Now in terms of the risk, is the risk more in terms of being able to produce this product cheaply and expensively? Or is it more in terms of being able to produce it in volume? Daniel O’Brien: It's the classic issue of finishing microbial development, which is well underway. Second part of the problem will be building the production capacity and getting it operating. These are time risks, not what I would call existential risks because the fermentations have already been successful, and we've already tested the output this is something that it's not if, it's when. And I think you may have noticed that there's $160 million being invested that is available immediately on approval of the merger. All the evidence that I can see indicates that, that amount of funding is going to allow us to get to the end of the process.

Okay. And I suppose that you don't even know how long it's going to take before this is going to be profitable? Daniel O’Brien: I don't know. And I would - it would be against my - it would be a bad idea for me to speculate.

Right, right. I get it. I get it. All right. Well, I mean I'm very enthusiastic about what you're trying to do there. And this is the absolute home run if you can pull it off. So we'll have to give it some time and see how it all develops out. So, than you. Daniel O’Brien: Thanks, Jim. I'm going to continue to work the way I've always worked, which is to solve the problems as they come up and move on to the next one.

All right. I appreciate. Thank you.

And our next question comes from David James, investor.

Hey, Dan, I just got the follow just asked a lot of the questions I was curious about. And I have been following TimBiospace recently and well for quite some time, looking at Amyris and Solazyme and those kind of people. And I know Amyris has blown about $3 billion into the process of scaling, which they always have said is doing it on small scale is one thing but scaling it to hundreds of thousands of leaders is an entire another problem. So if you could - I don't know if you can talk to that idea that they have spent so much money and still are running a lot of negative gross margins and how - what gives you confidence that Lygos can do this with $160 million? Daniel O’Brien: Well, absolutely brilliant question. And I don't have enough data to answer for what Amyris has done, but I am aware that there's a lot of failure in this marketplace. Much of the failure tends to be in the back end of what are you going to do with it. In this case, we've already got customers saying our existing customers all specifically want this sustainable product. So in the closest to scaling, we're going to be able to go through steps that will - at each step, let's say, 10,000 kilograms a year, we'll be able to show at that level that the customers we've got are being supplied technically with material that's costing less than what we're selling the finished products for. And as we gain the larger customers, I think we're going to be able to prove the same at each stage. I'm also relatively sure that, the business plan will use both infrastructure built by us and infrastructure contracted to others. And I think…

Got it. Thank you. I appreciate that. And just like the other fellows said, it's just such a change from a company that was growing profitably and now the risk not only in the tech, but in the debt, just kind of really changes the calculations. So yes, it's an interesting time for you guys clearly. Daniel O’Brien: Absolutely. But as I keep saying, I believe this is something that needs to be done and that we're going to do it right. And as you pointed out or the previous man, I've taken a whole lot of personal risk as well.

Yes, we'll hang in there for now. Thank you so much for taking the questions, Daniel O’Brien: Take care.

And there are no further questions at this time. I'll turn the call back to Dan O'Brien for closing remarks. Daniel O’Brien: Thank you, Bobby. Everybody, thanks for coming in today and listening, and I appreciate the questions and the opportunity to explain to you where we're going and why we're doing it to the best of my ability. Look forward to talking to you again in three months. Bye for now.

And thank you for your participation. This does conclude today's program. You may now disconnect.