FSI

Business Context and Reporting Period

Company: Flexible Solutions International, Inc. (FSI)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2025
Business Overview: FSI develops and manufactures specialty chemicals, primarily Thermal Polyaspartates (TPAs) for oilfield, agricultural, and industrial use, and energy/water conservation products (HEATSAVR and WATERSAVR). The company operates through subsidiaries including NanoChem Solutions Inc. and ENP Investments, LLC. In 2025, the company established a new manufacturing facility in Panama and sold a real estate asset (317 Mendota) while entering into a lease for the same space.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Composition: Total sales remained relatively flat, but the mix shifted. Product sales decreased slightly ($36.0M vs $38.2M), offset by $2.5M in new Research and Development (R&D) service revenue.
• Profitability Decline: Net income attributable to the controlling interest dropped significantly to $786,894 from $3.04M in 2024. This was driven by a $1.0M impairment loss on an investment in Lygos Inc., increased operating expenses, and higher non-controlling interest allocations.
• Asset Transactions: The company sold the 317 Mendota building for $3.75M, recognizing a gain of $1.21M. Conversely, it recognized a $183,423 loss on the write-down of a property held for sale in Mendota, IL.
• Debt Reduction: Total debt decreased by approximately $4.3M due to the payoff of the mortgage on the sold 317 Mendota property and regular debt service.
• Customer Concentration: The top three customers accounted for 50% of sales in 2025, down from 54% in 2024.

Guidance, Outlook, and Risks

• Outlook: Management anticipates growth in the food and nutritional materials vertical. A new manufacturing facility in Panama began shipments in January 2026. The company expects to spend $50,000 on marketing WATERSAVR in 2026, though this product has historically struggled to generate significant revenue.
• Key Risks:
  • Customer Concentration: Loss of any of the top three customers would materially reduce revenue.
  • Raw Material Costs: TPA production relies on aspartic acid derived from crude oil; price fluctuations and potential tariffs could impact margins.
  • Internal Controls: Management identified material weaknesses in internal controls over financial reporting (ICFR) related to the financial statement close process, concluding ICFR was ineffective as of December 31, 2025.
  • Tax Liabilities: The company has accrued significant liabilities for uncertain tax positions ($1.96M) and interest/penalties ($1.06M) related to tax positions taken since 2019.
• Dividends: A special dividend of $0.10 per share was paid in May 2025.

Investor Verification Checklist

• Internal Control Remediation: Verify the specific steps management is taking in 2026 to address the material weaknesses in ICFR identified in the audit.
• Tax Liability Resolution: Monitor the status of the $1.96M uncertain tax position liability and the associated interest/penalties to assess potential future cash outflows.
• Investment Impairment: Review the rationale for the $1.0M impairment of the Lygos Inc. investment and assess the remaining value of other equity investments.
• Customer Retention: Confirm the status of contracts with the top three customers, which represent half of total revenue.
• WATERSAVR Viability: Evaluate the commercial traction of the WATERSAVR product given the history of limited commercial orders despite ongoing marketing spend.