Good day, everyone, and welcome to today's Flexible Solutions International Second Quarter 2023 Financials Call. [Operator Instructions] It is now my pleasure to turn the conference over to Mr. Dan O'Brien.

Thank you, Jennifer. 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 FSI conference call for second quarter 2023. First, I'd like to talk about our company condition and our product lines, along with what we think might occur in Q3 and Q4, 2023. Afterward, I will comment on our financials. The NanoChem division. NCS represents approximately 70% of FSI's revenue. This division makes thermal polyaspartic acid, called TPA for short, it's 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 total operations using the spray dryer we've installed over the last several years. TPA is used in agriculture to significantly increase crop yield. It acts by slowing crystal growth between fertilizer ions and other ions in the soil, resulting in the fertilizer remaining available longer for the plants to use. TPA is also a biodegradable way of treating oilfield water to prevent pipes from plugging with mineral scale. TPA's effect is prevention of scale for minerals that are part of the water fraction of oil as it exits the rock formation, preventing the scale keeps the oil recovery pipes from clogging. TPA is also sold as a biodegradable ingredients in…

[Operator Instructions] And we will take our first question from William Gregozeski with Greenridge Global. Please go ahead.

Hi, Dan. I just wanted to clarify on the revenue for the second half. Are you saying that it's going to be less than the second half of last year or less than the first half of this year?

We believe it will be less than the second half of last year, but that may be the same number. And of course, we don't know. You're very aware that our customers drive sales and they order - when they order, we do our best to convince them to let us know what they're doing, but that's not always possible.

Okay. And then on the Florida LLC, it looks like the margins have been going back up closer to more historic levels or at least better than the last six quarters. Is maintaining around the 30% gross margin something that you think they can hold on to for the foreseeable future?

I think that they can. I don't know if it's - again, that's customer-driven and competition driven. It's good to see that they have recovered some of the margins and that they're increasing volume. I believe that their goal is to continue to increase volume as rapidly as they can and work towards recovering margins, but accept that it may take quite some time to win the competitive battle and get their margins back.

Okay. And last question was, with SG&A going up, is that - it's been $0.75 million per quarter a good number to use kind of as a base going forward?

You're talking about the profits in the $0.75 million range?

Your SG&A has been going up. It's like $1.75 million to $2 million a good number to look at going forward?

I think it's fair. We're not going to let the pull strings to let go of them. We will try and find ways to reduce that or maintain it at that level. I don't foresee it going up from here unless we can also increase our revenue dramatically. So your plan to use that as your number is probably accurate.

All right. Great. Thanks Dan.

Thanks Bill.

[Operator Instructions] We'll take our next question from Raymond Howe with Comprehensive Financial. Your line is now open.

Good morning, Dan. How're you?

I'm well Raymond. How're you?

I'm good. Let me jump back to the previous caller's Florida LLC question. Gross profit was up about $600,000, but net income was actually down $100,000 or so. Is there an unusual SG&A item over the 6 months?

Well, they are having to retain employees. They also are finding themselves in a situation where, in order to grow their volume and make sure that they get into the countries that they want to be in, they're having to do what they're having to do, and I don't delve into their management choices. Obviously, we are 50% owners. But they are intending to continue to grow their volume. And I would suggest that their additional costs are related to the growth that they're seeing. And they're doing their best. It's a tough world out there right now.

Yes. Understood. I missed some of what you were - when you mentioned the new building. You said 37 acres, how many square feet?

We believe that there's 240,000 square feet that are fully functional. There's more than that, but some of it is - it needs renovation, and we're not going to spend the money to renovate it at this time. So we're going to use 60,000 of it for ENP. We're going to put walls up to the stuff that we're not going to renovate, and we're going to, as quickly as possible, rent the other 180,000 square feet to different costs.

Got you. And the 20% owner, is that the same as the 35% ENP owner?

No, it's individuals, but many of them have relationships with the ENP owner, but it's not the ENP, it's not ATS, it's individual human beings.

Got you. And is it fairly close to take it to your existing facility?

Yes. Mendota is, I think, 14 miles of a straight road from our Peru facility. It's extremely close, and it has all the advantages that our Peru facility has in terms of labor and transport access. It's two miles from Interstate 39. Very good piece of property. The reason we got it was that the company that had it before us, Seneca Foods, was consolidating their operations, too. I believe they have one plant in New York and one in the Midwest, and they were going to consolidate everything into those two operations and their Mendota plant became extraneous. So we got it, and we feel we've got at fair price.

Got you. And the financing on that, I know it's interest only for the first 12 months, but I don't think I saw the actual interest rate in the Q. Can you tell me what that is off the top of your head?

I believe it's 6.25. It is floating. So if Mr. Powell continues to add to our costs, it will cost us as well, but it will flow downwards whenever we reach the peak and start that downside.

A couple of other just P&L type questions Trio, I know you added another $470,000 to that investment. Where does that income hit the P&L from Trio?

That - let's see. We invest in that through our Cayman subsidiary. Cayman subsidiary reports its income directly to FSI, but it's not split out, so it would show up in FSI parent. And don't quote me on this because, of course, I don't do our audit or our accounting, but I believe that's exactly how it happens.

Okay. And I'm sorry, jumping back. So am I correct to know that you own all of your manufacturing facilities?

We own everything now. But all of Peru, which is actually 127,000 square feet, not 120, but we own all the land, 20 acres. Our mortgages are relatively small, as you've seen our debts. Our debt is now largely for real estate, which is much safer than unsecured debt for other reasons. I feel that we're doing a good job of reducing our exposure to the interest world.

I guess the bright news of the slowdown in sales is it looks like cash flow was up dramatically for the six months. Are inventories about where you want them? Or are they still higher than you think they'll end up?

I think they will get a different - sorry to interrupt. I didn't mean to do that. Yes.

No, go ahead.

Yes. I think that we're probably in the right range for inventory. Pushing on $10 million was too high. The $7 million plus is probably about right. But one of the things - one of our goals will be to watch for buying opportunities. Just as we're facing headwinds from time to time, it happens that suppliers face headwinds. And we can work a deal that we know is highly probable to be less than the average volume price, in which case it makes sense for us to opportunistically increase inventory for temporary amounts.

Got you. That's all I've got. Thank you.

Thank you, Raymond. Have a great day.

You too.

And at this time, we have no further questions. I'll turn the call back over to the speaker for any closing comments or remarks.

Thank you. Everybody, thanks for coming on the call today, and I appreciate your support. I look forward to talking again in about three months, and thank you very much. Goodbye.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.