{"url_path":"/sec/fsi/10-q/2026/item-2","section_key":"item-2","section_title":"Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations.**","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1069394/0001493152-26-023701-index.html","accession_number":"0001493152-26-023701","cik":"0001069394","ticker":"FSI","issuer_name":"FLEXIBLE SOLUTIONS INTERNATIONAL INC","edgar_url":"https://www.sec.gov/Archives/edgar/data/1069394/0001493152-26-023701-index.html","primary_entity_key":"0001069394","primary_entity_name":"FLEXIBLE SOLUTIONS INTERNATIONAL INC"},"word_count":925,"has_tables":true,"body_markdown":"**Item\n2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.**\n\n \n\n**Overview**\n\n \n\nThe\nCompany manufactures and markets biodegradable polymers which are used in the oil, gas and agriculture industries. The Company also develops,\nmanufactures and markets specialty chemicals that slow the evaporation of water.\n\n \n\n**Results\nof Operations**\n\n \n\nThe\nfirst is a chemical (“EWCP”) used in swimming pools and spas. The product forms a thin, transparent layer on the water’s\nsurface. The transparent layer slows the evaporation of water, allowing the water to retain a higher temperature for a longer period\nof time thereby reducing the energy required to maintain the desired temperature of the water. A modified version of EWCP can also be\nused in reservoirs, potable water storage tanks, livestock watering pods, canals, and irrigation ditches for the purpose of reducing\nevaporation.\n\n \n\nThe\nsecond product, biodegradable polymers (“TPAs”), is used by the petroleum, chemical, utility and mining industries to prevent\ncorrosion and scaling in water piping. TPAs can also be used to increase biodegradability in detergents and in the agriculture industry\nto increase crop yields by enhancing fertilizer uptake.\n\n \n\nThe\nthird product line is nitrogen conservation products used for the agriculture industry. These products decrease the loss of nitrogen\nfertilizer after initial application and allows less fertilizer to be used. These products are made and sold by the Company’s TPA\ndivision.\n\n \n\nThe\nCompany also manufactures food grade products that are made and sold by the TPA division.\n\n \n\nMaterial\nchanges in the Company’s Statement of Operations for three months ended March 31, 2026 compared to the same period in the prior\nyear are discussed below:\n\n \n\nThree\nMonths ended March 31, 2026\n\n \n\nItem\n \n\nIncrease\n(I) or\n\nDecrease\n(D)\n\n \nReason\n\n \n \n \n \n \n\nSales\n \n \n \n \n\nEWCP\nproducts\n \nI\n \nIncreased\ncustomer orders.\n\n \n \n \n \n \n\nTPA\nproducts\n \nI\n \n\nIncreased\ncustomer orders.\n\n \n\nGross\nprofit as a percentage of sales\n \nD\n \nIncreased costs associated with scaling up new products and a new manufacturing\nlocation along with an increase in sales of lower margins products in 2026 over 2025.\n\n \n \n \n \n \n\nProfessional fees\n \nD\n \nQ1 2025 included audit fees relative to the 2024 audit that were underaccrued.\n\n \n \n \n \n \n\nWages,\nadministrative salaries and benefits\n \nI\n \nIncrease\nin employees in the TPA division.\n\n \n \n \n \n \n\nIncome on investment\n \nD\n \nThe investee in which the Company applies the equity method, had a net\nloss for the period as opposed to net income as in prior year.\n\n \n \n \n \n \n\nInterest\nexpense\n \nD\n \nDecreased\ndebt resulted in decreased interest expense.\n\n \n \n \n \n \n\nInterest\nincome\n \nD\n \nDecrease\nin term deposits held.\n\n \n \n \n \n \n\nIncome\ntax expense\n \nD\n \nThe BPCA division recorded an operating loss in Q1 2026 which resulted\nin lower income taxes assessed than what was recorded in Q1 2025.\n\n \n\n19\n\n \n\n \n\nThree\nprimary customers accounted for 56% of the Company’s sales during the three months ended March 31, 2026 (2025 - 49%). The amount\nof revenue (all from the sale of TPA products) attributable to each customer is shown below.\n\n \n\n  \nThree\nMonths Ended March 31, \n\n  \n2026  \n2025 \n\n  \n   \n  \n\nCompany A \n$895,953  \n$830,483 \n\nCompany B \n$498,418* \n$1,856,395 \n\nCompany C \n$1,163,662  \n$978,357 \n\nCompany D \n$2,579,509  \n$-*\n\n \n\n*not\na primary customer in that period\n\n \n\nCustomers\nwith balances greater than 10% of our receivables as of March 31, 2026 and December 31, 2025 are shown below:\n\n \n\n  \n\nMarch\n31,\n\n2026\n  \n\nDecember\n31,\n\n2025\n \n\n  \n   \n  \n\nCompany A \n$7,554,641  \n$6,652,611 \n\nCompany D \n$1,015,838* \n$1,866,972 \n\n \n\n*less\nthan 10% at period end\n\n \n\nOther\nfactors that will most significantly affect future operating results will be:\n\n \n\n \n●\nthe\nsale price of crude oil which is used in the manufacture of aspartic acid we import from China. Aspartic acid is a key ingredient\nin our TPA products;\n\n \n \n \n\n \n●\nactivity\nin the oil and gas industry, as we sell our TPA products to oil and gas companies;\n\n \n \n \n\n \n●\ndrought\nconditions, since we also sell our TPA products to farmers; and\n\n \n \n \n\n \n●\nnew\ntariffs relating to raw materials imported from China.\n\n \n\nOther\nthan the foregoing we do not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material\nimpact on our revenues or expenses.\n\n \n\n20\n\n \n\n \n\n**Capital\nResources and Liquidity**\n\n \n\nThe\nCompany’s sources and (uses) of cash for the three months ended March 31, 2026 and 2025 are shown below:\n\n \n\n  \n2026  \n2025 \n\n  \n   \n  \n\nCash used in operating activities \n (1,818,177) \n (544,294)\n\nMaturities of term deposits \n 733,340  \n 1,019,760 \n\nPurchase of property, equipment and leaseholds \n (2,233,765) \n (354,121)\n\nProceeds of short-term lines of credit, net \n 2,648,058  \n 1,938,670 \n\nRepayment of long term debt \n (101,636) \n (616,343)\n\nDistributions to non-controlling interest \n (68,659) \n - \n\nDistribution received upon dissolution of subsidiary \n 72,953  \n - \n\nProceeds from shares issued upon exercise of\nstock options \n 50,200  \n 381,690 \n\nEffect of exchange rate changes on cash \n (86,283) \n 188,840 \n\n \n\nThe\nCompany has sufficient cash resources to meets its future commitments and cash flow requirements for the coming year. As of March 31,\n2026, working capital was $20,878,345 (December 31, 2025 - $22,173,434) and the Company has no substantial commitments that require significant\noutlays of cash over the coming fiscal year.\n\n \n\nThe Company does not anticipate any capital requirements for the twelve months ending March 31, 2027.\n\n \n\nWe do not know of any trends, demands, commitments, events or uncertainties that will result in, or that are\nreasonable likely to result in, our liquidity increasing or decreasing in any material way.\n\n \n\nOther\nthan as disclosed above, we do not know of any significant changes in our expected sources and uses of cash.\n\n \n\nWe\ndo not have any commitments or arrangements from any person to provide us with any equity capital.\n\n \n\nThere\nhave been no significant changes to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial\nCondition and Results of Operations in our 2025 Form 10-K."}