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EXHIBIT 99.2
Conference call FY 2014
Good morning. I'm Dan O'Brien, CEO.
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 full year 2014.
First let me review the changes that have occurred in the past year and then I
will move on to the financials.
The NanoChem Division
This division makes polyaspartic acid [TPA] a biodegradable protein with many
valuable uses. It now represents approximately 95% of revenue and is the sales
and profit driver of our company.
TPA is used in agriculture to increase crop yield. The chemical mechanism is the
ability of TPA to maintain crystal embryos of fertilizer salts in their
embryonic form in the soil for several months, which has the effect of keeping
fertilizer easier for plants to absorb. Because the plant expends less energy
getting its nutrients, it has more energy available to produce valuable crops.
In North America alone, the wholesale market is over 2 billion a year and most
crops are able to use TPA profitably. Crop prices currently available to growers
are well above the breakeven point for using TPA.
TPA is a biodegradable way of treating oilfield water to prevent pipes from
plugging with mineral scale. Our sales into this market are strong and oil
companies in the Nordic countries use TPA as part of environmental regulation.
We are experiencing interest from forward thinking oil producing countries other
than Scandinavia and have reasonable expectations of gaining new customers over
the next several quarters. There is continuing research in the concept of TPA as
part of tight oil and gas fracturing liquids. This use has progressed and we
have seen increased sales over the last year. TPA is used as part of the
fracking fluid and intended to prevent scale from destroying the permeability of
the rock pores as well as its more known function of scale control in piping.
Clogged pores reduce well production. TPA has added value compared to existing
fluid components due to its biodegradability - it does not need to be removed
when cleaning used fracking water and demonstrates driller sensitivity to
environmental safety which can improve relationships with neighbors and
regulators.
1
SUN 27(TM): We have been selling this product for a year and are satisfied with
the initial success. We expect it to be a significant revenue stream in 2016 and
onward. SUN 27(TM) is a fertilizer additive that reduces the speed of nitrogen
fertilizer degradation in soil. Most soils contain the protein urease, which is
an enzyme that degrades nitrogen fertilizer. Up to half the nitrogen applied to
a field can be lost to urease activity. This is a significant cost to the grower
and has negative environmental side effects. The size of the potential market
for urease inhibition is very large. Nitrogen, in various formats that can be
protected by SUN 27(TM), is applied to millions of acres of crop land worldwide
each year and nitrogen loss through urease enzyme activity destroys large
amounts of expensive nitrogen fertilizer. SUN 27(TM) is equal to, or better
than, competing products and pricing is set to be very competitive at both
wholesale and retail levels. SUN 27(TM) has a lower freezing point than
competing urease inhibitors resulting in reduced storage problems. SUN 27(TM) is
manufactured in the US and sold by our NanoChem subsidiary: www.nanochems.com.
SUN 27(TM) is available in multi-truckload volumes.
DCD 30(TM): As a result of our inventive work to develop SUN 27(TM), we became
expert enough in nitrogen conservation chemistry to formulate a solution to the
second major cause of nitrogen fertilizer loss; de-nitrification. This is also
caused by bacterial activity in soil - warm wet soils are the most prone -
resulting in oxygen being stripped from the fertilizer to leave nitrogen gas.
The gas can't be used by the plants and escapes to the atmosphere. The gold
standard for reducing de-nitrification is a DCD solution and we have developed
an excellent version. We have obtained orders that were delivered in Q1 2015 and
have reasonable expectation of more sales in Q2. At this time we are
manufacturing for distribution under trade names owned by our distributors as
well as our registered trademark: DCD 30(TM).
Watersavr(TM) may have had the breakthrough it has sought for years with the
project in Wichita Falls, TX. We are continuing our efforts in the USA, Turkey,
Morocco, Chile, parts of East-Asia and Australia.
The 2012 Lake Sahara project, the 2013/14 AWWA journal article that resulted
from the Lake Sahara project and the hard work over the last decade at sites
around the world led to the showcase program which completed this fall in
Wichita Falls, Texas. There were no problems encountered during the deployment
and we feel comfortable that we have the equipment and skills to protect much
larger lakes from evaporative loss. The results of the showcase program were
released by the Texas Water Development Board in January 2015, pointed to a high
probability of 15% savings or greater and confirmed no change in water quality
or effect on wildlife. Because the official results are so positive, we are
hopeful that a larger contract for 2015 may be available. The data was received
with extreme interest by water management groups throughout the US and
internationally. We hope the Wichita Falls showcase will be the tipping point
that results in mainstream use of Watersavr(TM).
We are pleased to hear from Lake Sahara, Las Vegas that for the third year in a
row, they are sure they have saved money and water. Water quality is exactly as
it was before the introduction of Watersavr(TM). In addition, the endangered
fish species population of Lake Sahara is larger today than the first year of
Watersavr(TM) use. Lake Sahara has confirmed that they will use our product
again this season.
2
Q1 AND REST OF 2015
Agriculture revenue in the first 3 months of 2015 has been stronger than 2014.
All three product lines have had increases. We have noted a trend toward more
"just in time" orders this year compared to 2014 which could be related to the
lower crop prices. This might mean the strength in agriculture sales in Q1
continues into Q2.
Oil prices remain low as of the date of this speech. This may or may not
influence our sales into the oil industry. Therefore, we will monitor the
situation closely and remain optimistic that we can continue growing our
oilfield sales in 2015.
Small WaterSavr(TM) sales have occurred already this year. The true evaporation
season is just starting in April and May so we are intent on closing sales in Q2
for delivery in late spring and through the summer. The showcase pilot program
at Wichita Falls, TX has proven yet again that WaterSavr(TM) is safe, effective
and economic. We expect to increase sales substantially in 2015.
We believe we can continue the revenue increase shown in Q3 and Q4 2014 on into
2015. Expecting smooth quarterly growth from a small company with purchase order
based sales would be unrealistic. Instead, we expect lumpy results with an
average upward trend similar to second half 2014.
Highlights of the financial results:
o Sales for the full year increased 1% to $15.9 million compared with $15.8
million for 2013. First half sales were down but strong growth in second
half compensated. The result was a gain of $403 thousand or $0.03 per share
in the 2014 period, compared to a gain of $1.82 million or $0.14 per share,
in 2013. The financials show a significantly higher accounting net income
in 2013 versus 2014. This is mostly due to a deferred tax recovery of $2.4
million which was realized as an asset on the Balance Sheet in 2013. The
deferred tax asset is the result of the commencement of the expensing of
the Alberta factory against the Company's US income. Past and current
factory construction and operating expenses not yet applied against FSI's
US income will now be carried forward to reduce the NanoChem Division's
revenue for income tax purposes. This process will take place over several
years even though the GAAP method is to assign the deferred tax asset to a
single year.
Sales in Q4 were 3.96 million up 15% compared to 3.4 million in the year earlier
period.
Because of the out-size effects of depreciation, stock option expenses and
one-time items on the financials of small companies, FSI also provides a
non-GAAP measure useful for judging year over year success. "Operating cash
flow" is arrived at by removing these items from the statement of operations.
3
For full year 2014, operating cash flow nearly tripled to $1.54 million or 12
cents per share, compared to $533 thousand and 4 cents per share [revised] in
2013. We are pleased with this improvement and hope to increase again in 2015.
Detailed information on how to reconcile GAAP with non-GAAP numbers is included
in our news release of yesterday, March 31st.
The text of this speech will be available on our website by Thursday April 2nd
and email copies can be requested from Jason Bloom at 1800 661 3560.
[Jason@flexiblesolutions.com]
Thank you, the floor is open for questions.
