---

---

UNITED STATESSECURITIES
AND EXCHANGE COMMISSIONWashington, DC 20549


FORM 10-Q

|                                                  |                                                                                         
|------------------------------------------------- | ----------------------------------------------------------------------------------------
|x                                                 | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934
|                                                  |                                                                                         
|For the quarterly period ended September 30, 2010
|                                                  |                                                                                         
|OR                                               
|                                                  |                                                                                         
|o                                                 | TRANSITION REPORT PURSUANT TO 13 OR 15(D) OF THE
 SECURITIES EXCHANGE ACT OF 1934       
|                                                  |                                                                                         
|                                                  | For the
 transition period from ________ to ________                                    

Commission File Number:
001-31540

FLEXIBLE SOLUTIONS INTERNATIONAL INC.(Exact Name of Issuer as Specified in Its Charter)

|                                               |  |                                      
|---------------------------------------------- |  | -------------------------------------
|Nevada                                         |  | 91-1922863                           
|                                               |  |                                      
|(State or other jurisdiction
 of incorporation |  | (I.R.S.
 Employer Identification No.)
|or organization)                               |  |                                      

|                                                   |  |            
|-------------------------------------------------- |  | -----------
|615 Discovery St.                                  |  |            
|Victoria, British Columbia,
 Canada                |  | V8T 5G4    
|                                                   |  |            
|(Address of Issuers
 Principal Executive Offices) |  | (Zip
 Code)

Issuers telephone number: (250) 477-9969

|                                                                                   
|-----------------------------------------------------------------------------------
|N/A                                                                                
|                                                                                   
|(Former name, former address and former fiscal year, if changed since
 last report)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) had been subject to such
filing requirements for the past 90 days.

|      |     
|----- | ----
|Yes x | No o

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes o                           No o

Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check One):

|                                               |                            |                             
|---------------------------------------------- | -------------------------- | ----------------------------
|                                               | Large
 accelerated filer o | Accelerated
 filer o        
|                                              
|                                               | Non-accelerated
 filer o   | Smaller
 reporting company x
|(Do not
 check if a smaller reporting company)

Indicate by
check mark whether the Registrant is a shell company (as defined in Exchange
Act Rule 12b-2 of the Exchange Act).

|      |     
|----- | ----
|Yes o | No x

|               |  |                        |  |                 
|-------------- |  | ---------------------- |  | ----------------
|Class of Stock |  | No. Shares Outstanding |  | Date            
|               |  |                        |  |                 
|              
|Common         |  | 13,962,567             |  | November 5, 2010

---

---



FORM 10-Q

Index

|           |                                                             |                                                                                                           |    |   
|---------- | ----------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | -- | --
|PART I.    | FINANCIAL INFORMATION                                       |                                                                                                           |   
|           |                                                             |                                                                                                           |    |   
|Item
 1.   | Financial
 Statements.                                      |                                                                                                           |   
|           |                                                             |                                                                                                           |    |   
|           | (a)                                                         | Unaudited
 Consolidated Balance Sheets at September 30, 2010 and December 31, 2009.                       |    | 1 
|           |                                                             |                                                                                                           |    |   
|           | (b)                                                         | Unaudited
 Consolidated Statements of Operations for the Three Months Ended September
 30, 2010 and 2009. |    | 2 
|           |                                                             |                                                                                                           |    |   
|           | (c)                                                         | Unaudited
 Consolidated Statements of Operations for the Nine Months Ended September 30,
 2010 and 2009.  |    | 3 
|           |                                                             |                                                                                                           |    |   
|           | (d                                                          | Unaudited
 Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
 2010 and 2009.  |    | 4 
|           |                                                             |                                                                                                           |    |   
|           | (e)                                                         | Notes
 to Unaudited Consolidated Financial Statements for the Period Ended September
 30, 2010.           |    | 5 
|           |                                                             |                                                                                                           |    |   
|Item
 2.   | Managements
 Discussion and Analysis or Plan of Operation. |                                                                                                           | 21
|           |                                                             |                                                                                                           |    |   
|Item
 4.   | Controls
 and Procedures.                                   |                                                                                                           | 24
|           |                                                             |                                                                                                           |    |   
|PART II.   | OTHER INFORMATION                                           |                                                                                                           |   
|           |                                                             |                                                                                                           |    |   
|Item
 6.   | Exhibits.                                                   |                                                                                                           | 24
|           |                                                             |                                                                                                           |    |   
|SIGNATURES |                                                             |                                                                                                           |    | 25

i

---



CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS

This
document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements other than
statements of historical fact are forward-looking statements for the purposes
of the federal and state securities laws, including, but not limited to any
projections of earnings, revenue or other financial items; any statements of
the plans, strategies and objectives of management for future operations; any
statements concerning proposed new services or developments; any statements
regarding future economic conditions or performance; any statements regarding
future economic conditions or performance; any statements of belief; and any
statements of assumptions underlying any of the foregoing.

Forward-looking
statements may include the words may, could, will, estimate, intend,
continue, believe, expect or anticipate or other similar words. These
forward-looking statements present our estimates and assumptions only as of the
date of this report. Except for our ongoing obligation to disclose material
information as required by the federal securities laws, we do not intend, and
undertake no obligation, to update any forward-looking statement.

Although
we believe that the expectations reflected in any of our forward-looking
statements are reasonable, actual results could differ materially from those
projected or assumed in any of our forward-looking statements. Our future
financial condition and results of operations, as well as any forward-looking statements,
are subject to change and inherent risks and uncertainties. The factors
impacting these risks and uncertainties include but are not limited to:

| |   |                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increased competitive
 pressures from existing competitors and new entrants;                                                                                        
| |   |                                                                                                                                                                     
| |  | Increases in interest
 rates or our cost of borrowing or a default under any material debt
 agreement;                                                              
| |   |                                                                                                                                                                     
| |  | Deterioration in general
 or regional economic conditions;                                                                                                          
| |   |                                                                                                                                                                     
| |  | Adverse state or federal
 legislation or regulation that increases the costs of compliance, or adverse
 findings by a regulator with respect to existing operations;
| |   |                                                                                                                                                                     
| |  | Loss of customers or sales
 weakness;                                                                                                                               
| |   |                                                                                                                                                                     
| |  | Inability to achieve
 future sales levels or other operating results;                                                                                               
| |   |                                                                                                                                                                     
| |  | The unavailability of
 funds for capital expenditures; and                                                                                                          
| |   |                                                                                                                                                                     
| |  | Operational inefficiencies
 in distribution or other systems.                                                                                                       

For a
detailed description of these and other factors that could cause actual results
to differ materially from those expressed in any forward-looking statement,
please see Risk Factors in our Annual Report on Form 10-K for the year ended
December 31, 2009.

ii

---



|        |                      
|------- | ---------------------
|PART I  | FINANCIAL INFORMATION
|        |                      
|Item 1. | Financial Statements.

FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
CONSOLIDATED BALANCE SHEETS 
At September 30, 2010 
(U.S. Dollars)

|                                                           |  |                                  |            |                    |   |            |  
|---------------------------------------------------------- |  | -------------------------------- | ---------- | ------------------ | - | ---------- | -
|                                                           |  | September 30,
 2010
 (Unaudited) |            | December 31,
 2009 |  
|                                                           |  |                                  |            |                    |  
|Assets                                                     |  |                                  |            |                    |   |            |  
|                                                           |  |                                  |            |                    |   |            |  
|Current                                                    |  |                                  |            |                    |   |            |  
|Cash and cash equivalents                                  |  | $                                | 1,849,773  |                    | $ | 2,126,150  |  
|Accounts receivable                                        |  |                                  | 1,993,161  |                    |   | 1,544,364  |  
|Inventory                                                  |  |                                  | 2,547,337  |                    |   | 2,796,307  |  
|Prepaid expenses                                           |  |                                  | 253,105    |                    |   | 121,353    |  
|                                                           |  |                                  |            |                    |   |            |  
|                                                           |  |                                  | 6,643,377  |                    |   | 6,588,175  |  
|                                                           |  |                                  |            |                    |   |            |  
|Property, equipment and leaseholds                         |  |                                  | 7,588,409  |                    |   | 7,314,926  |  
|Patents                                                    |  |                                  | 220,379    |                    |   | 224,505    |  
|Long term deposits                                         |  |                                  | 7,648      |                    |   | 7,499      |  
|Deferred tax asset                                         |  |                                  | 89,000     |                    |   | 119,000    |  
|                                                           |  |                                  |            |                    |   |            |  
|                                                           |  | $                                | 14,548,812 |                    | $ | 14,254,105 |  
|                                                           |  |                                  |            |                    |   |            |  
|Liabilities                                                |  |                                  |            |                    |   |            |  
|                                                           |  |                                  |            |                    |   |            |  
|Current                                                    |  |                                  |            |                    |   |            |  
|Accounts payable and accrued liabilities                   |  | $                                | 420,631    |                    | $ | 597,307    |  
|Deferred revenue                                           |  |                                  | 25,000     |                    |   |            |  
|Taxes payable                                              |  |                                  | 330,000    |                    |   | 304,000    |  
|Current portion of long term loan                          |  |                                  | 117,639    |                    |   | 74,146     |  
|                                                           |  |                                  |            |                    |   |            |  
|                                                           |  |                                  | 893,270    |                    |   | 975,453    |  
|                                                           |  |                                  |            |                    |   |            |  
|Long Term                                                  |  |                                  |            |                    |   |            |  
|Loans                                                      |  |                                  | 2,162,442  |                    |   | 2,211,168  |  
|                                                           |  |                                  |            |                    |   |            |  
|                                                           |  | $                                | 3,055,713  |                    | $ | 3,186,621  |  
|Stockholders Equity                                       |  |                                  |            |                    |   |            |  
|                                                           |  |                                  |            |                    |   |            |  
|Capital stock                                              |  |                                  |            |                    |   |            |  
|Authorized                                                 |  |                                  |            |                    |   |            |  
|50,000,000 Common shares with a par value of $0.001 each   |  |                                  |            |                    |   |            |  
|1,000,000
 Preferred shares with a par value of $0.01 each |  |                                  |            |                    |   |            |  
|Issued and outstanding                                     |  |                                  |            |                    |   |            |  
|13,962,567 (2009: 13,962,567) common shares                |  |                                  | 13,963     |                    |   | 13,963     |  
|Capital in excess of par value                             |  |                                  | 16,565,441 |                    |   | 16,456,903 |  
|Other comprehensive income                                 |  |                                  | 421,621    |                    |   | 331,208    |  
|Deficit                                                    |  |                                  | (5,507,925 | )                  |   | (5,734,591 | )
|                                                           |  |                                  |            |                    |   |            |  
|                                                           |  |                                  |            |                    |   |            |  
|Total Stockholders Equity                                 |  |                                  | 11,493,100 |                    |   | 11,067,483 |  
|                                                           |  |                                  |            |                    |   |            |  
|                                                           |  |                                  |            |                    |   |            |  
|Total Liabilities and Stockholders Equity                 |  | $                                | 14,548,812 |                    | $ | 14,254,105 |  
|                                                           |  |                                  |            |                    |   |            |  

Commitments, Contingencies and Subsequent Events (Notes 13,
14 & 15)

 See Notes to Unaudited Consolidated Financial Statements 

1

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
CONSOLIDATED STATEMENTS OF OPERATIONS 
For the Three Months Ended September 30, 2010 and 2009 
(U.S. Dollars  Unaudited)

|                                                |  |                                  |            |      |   |            |  
|----------------------------------------------- |  | -------------------------------- | ---------- | ---- | - | ---------- | -
|                                                |  | Three Months Ended September 30, |           
|                                                |  |                                  |           
|                                                |  |                                  |           
|                                                |  | 2010                             |            | 2009 |  
|                                                |  |                                  |            |      |  
|                                                |  |                                  |            |      |  
|Sales                                           |  | $                                | 2,676,921  |      | $ | 2,448,994  |  
|Cost of sales                                   |  |                                  | 1,833,666  |      |   | 1,476,046  |  
|                                                |  |                                  |            |      |   |            |  
|                                                |  |                                  |            |      |   |            |  
|Gross profit                                    |  |                                  | 843,255    |      |   | 972,948    |  
|                                                |  |                                  |            |      |   |            |  
|                                                |  |                                  |            |      |   |            |  
|Operating expenses                              |  |                                  |            |      |   |            |  
|Wages                                           |  |                                  | 448,281    |      |   | 343,656    |  
|Administrative salaries and benefits            |  |                                  | 63,070     |      |   | 107,627    |  
|Advertising and promotion                       |  |                                  | 12,004     |      |   | 6,567      |  
|Investor relations and transfer agent fee       |  |                                  | 24,970     |      |   | 29,874     |  
|Office and miscellaneous                        |  |                                  | 155,294    |      |   | 159,854    |  
|Insurance                                       |  |                                  | 51,511     |      |   | 49,026     |  
|Interest expense                                |  |                                  | 17,313     |      |   | 19,741     |  
|Rent                                            |  |                                  | 42,807     |      |   | 65,859     |  
|Consulting                                      |  |                                  | 23,583     |      |   | 42,565     |  
|Professional fees                               |  |                                  | 50,634     |      |   | 58,152     |  
|Travel                                          |  |                                  | 29,741     |      |   | 34,807     |  
|Telecommunications                              |  |                                  | 8,734      |      |   | 9,319      |  
|Shipping                                        |  |                                  | 7,063      |      |   | 11,672     |  
|Research                                        |  |                                  | 18,954     |      |   | 8,300      |  
|Commissions                                     |  |                                  | 10,525     |      |   | 8,510      |  
|Currency exchange                               |  |                                  | 2,548      |      |   | 91,147     |  
|Utilities                                       |  |                                  | 22,497     |      |   | 16,762     |  
|                                                |  |                                  |            |      |   |            |  
|                                                |  |                                  | 989,530    |      |   | 1,063,447  |  
|                                                |  |                                  |            |      |   |            |  
|                                                |  |                                  |            |      |   |            |  
|Income (loss) before income tax                 |  |                                  | (146,275   | )    |   | (90,499    | )
|                                                |  |                                  |            |      |   |            |  
|                                                |  |                                  |            |      |   |            |  
|Income tax                                      |  |                                  | 9,140      |      |   | 71,183     |  
|                                                |  |                                  |            |      |   |            |  
|                                                |  |                                  |            |      |   |            |  
|Net income (loss)                               |  |                                  | (155,415   | )    |   | (161,862   | )
|                                                |  |                                  |            |      |   |            |  
|Net income (loss) per share (basic and diluted) |  | $                                | (0.01      | )    | $ | (0.01      | )
|                                                |  |                                  |            |      |   |            |  
|                                                |  |                                  |            |      |   |            |  
|Weighted average number of common shares        |  |                                  | 13,962,567 |      |   | 13,962,567 |  
|                                                |  |                                  |            |      |   |            |  

 See Notes to Unaudited Consolidated Financial Statements

2

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
CONSOLIDATED STATEMENTS OF OPERATIONS 
For the Nine Months Ended September 30, 2010 and 2009 
(U.S. Dollars  Unaudited)

|                                                |  |                                 |            |      |   |            |  
|----------------------------------------------- |  | ------------------------------- | ---------- | ---- | - | ---------- | -
|                                                |  | Nine Months Ended September 30, |           
|                                                |  |                                 |           
|                                                |  |                                 |           
|                                                |  | 2010                            |            | 2009 |  
|                                                |  |                                 |            |      |  
|                                                |  |                                 |            |      |  
|Sales                                           |  | $                               | 8,895,319  |      | $ | 7,381,301  |  
|Cost of sales                                   |  |                                 | 5,278,845  |      |   | 5,058,024  |  
|                                                |  |                                 |            |      |   |            |  
|                                                |  |                                 |            |      |   |            |  
|Gross profit                                    |  |                                 | 3,616,474  |      |   | 2,323,277  |  
|                                                |  |                                 |            |      |   |            |  
|                                                |  |                                 |            |      |   |            |  
|Operating expenses                              |  |                                 |            |      |   |            |  
|Wages                                           |  |                                 | 1,239,072  |      |   | 1,023,809  |  
|Administrative salaries and benefits            |  |                                 | 242,141    |      |   | 290,038    |  
|Advertising and promotion                       |  |                                 | 64,202     |      |   | 49,835     |  
|Investor relations and transfer agent fee       |  |                                 | 73,817     |      |   | 39,393     |  
|Office and miscellaneous                        |  |                                 | 349,918    |      |   | 332,066    |  
|Insurance                                       |  |                                 | 150,791    |      |   | 124,769    |  
|Interest expense                                |  |                                 | 54,407     |      |   | 47,431     |  
|Rent                                            |  |                                 | 126,365    |      |   | 187,211    |  
|Consulting                                      |  |                                 | 80,366     |      |   | 120,676    |  
|Professional fees                               |  |                                 | 143,035    |      |   | 171,919    |  
|Travel                                          |  |                                 | 80,678     |      |   | 97,438     |  
|Telecommunications                              |  |                                 | 27,360     |      |   | 23,749     |  
|Shipping                                        |  |                                 | 23,421     |      |   | 33,125     |  
|Research                                        |  |                                 | 66,808     |      |   | 21,025     |  
|Commissions                                     |  |                                 | 87,980     |      |   | 57,867     |  
|Bad debt expense (recovery)                     |  |                                 | 5,253      |      |   | (695       | )
|Currency exchange                               |  |                                 | 5,092      |      |   | 98,342     |  
|Utilities                                       |  |                                 | 77,879     |      |   | 43,850     |  
|                                                |  |                                 |            |      |   |            |  
|                                                |  |                                 | 2,898,588  |      |   | 2,761,848  |  
|                                                |  |                                 |            |      |   |            |  
|                                                |  |                                 |            |      |   |            |  
|Income (loss) before income tax                 |  |                                 | 717,886    |      |   | (438,571   | )
|                                                |  |                                 |            |      |   |            |  
|                                                |  |                                 |            |      |   |            |  
|Income tax                                      |  |                                 | 491,220    |      |   | 71,183     |  
|                                                |  |                                 |            |      |   |            |  
|                                                |  |                                 |            |      |   |            |  
|Net income (loss)                               |  |                                 | 226,666    |      |   | (509,754   | )
|                                                |  |                                 |            |      |   |            |  
|Net income (loss) per share (basic and diluted) |  | $                               | 0.02       |      | $ | (0.04      | )
|                                                |  |                                 |            |      |   |            |  
|                                                |  |                                 |            |      |   |            |  
|Weighted average number of common shares        |  |                                 | 13,962,567 |      |   | 14,028,313 |  
|                                                |  |                                 |            |      |   |            |  

See Notes to Unaudited Consolidated Financial Statements

3

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
For the Nine Months Ended September 30, 2010 and 2009 
(U.S. Dollars  Unaudited)

|                                                  |  |                                 |           |      |   |            |  
|------------------------------------------------- |  | ------------------------------- | --------- | ---- | - | ---------- | -
|                                                  |  | Nine Months Ended September 30, |          
|                                                  |  |                                 |          
|                                                  |  |                                 |          
|                                                  |  | 2010                            |           | 2009 |  
|                                                  |  |                                 |           |      |  
|                                                  |  |                                 |           |      |   |            |  
|Operating activities                              |  |                                 |           |      |   |            |  
|Net income (loss)                                 |  | $                               | 226,666   |      | $ | (509,754   | )
|Stock compensation expense                        |  |                                 | 108,539   |      |   | 198,875    |  
|Depreciation                                      |  |                                 | 266,483   |      |   | 301,595    |  
|Judgment from lawsuit                             |  |                                 |          |      |   | (80,000    | )
|Changes in non-cash working capital items:        |  |                                 |           |      |   |            |  
|(Increase) Decrease in accounts receivable        |  |                                 | (450,232  | )    |   | (38,251    | )
|(Increase) Decrease in inventory                  |  |                                 | 263,276   |      |   | 1,067,756  |  
|(Increase) Decrease in prepaid expenses           |  |                                 | (130,286  | )    |   | (26,307    | )
|(Increase) Decrease in deferred tax asset         |  |                                 | 30,000    |      |   |            |  
|Increase (Decrease) in accounts payable           |  |                                 | (150,133  | )    |   | (246,172   | )
|Increase (Decrease) in deferred revenue           |  |                                 | 25,000    |      |   |            |  
|                                                  |  |                                 |           |      |   |            |  
|                                                  |  |                                 |           |      |   |            |  
|Cash provided by (used in) operating activities   |  |                                 | 189,313   |      |   | 667,742    |  
|                                                  |  |                                 |           |      |   |            |  
|                                                  |  |                                 |           |      |   |            |  
|Investing activities                              |  |                                 |           |      |   |            |  
|Long term deposits                                |  |                                 |          |      |   | 13,911     |  
|Development of patents                            |  |                                 |          |      |   | (19,036    | )
|Acquisition of property and equipment             |  |                                 | (428,598  | )    |   | (1,569,395 | )
|                                                  |  |                                 |           |      |   |            |  
|                                                  |  |                                 |           |      |   |            |  
|Cash provided by (used in) investing activities   |  |                                 | (428,598  | )    |   | (1,574,520 | )
|                                                  |  |                                 |           |      |   |            |  
|                                                  |  |                                 |           |      |   |            |  
|Financing activities                              |  |                                 |           |      |   |            |  
|Loan (repayment)                                  |  |                                 | (53,629   | )    |   | 428,670    |  
|                                                  |  |                                 |           |      |   |            |  
|                                                  |  |                                 |           |      |   |            |  
|Cash provided by financing activities             |  |                                 | (53,629   | )    |   | 428,670    |  
|                                                  |  |                                 |           |      |   |            |  
|                                                  |  |                                 |           |      |   |            |  
|Effect of exchange rate changes on cash           |  |                                 | 16,537    |      |   | 493,962    |  
|                                                  |  |                                 |           |      |   |            |  
|                                                  |  |                                 |           |      |   |            |  
|Inflow (outflow) of cash                          |  |                                 | (276,377  | )    |   | 15,854     |  
|Cash and cash equivalents, beginning              |  |                                 | 2,126,150 |      |   | 1,894,045  |  
|                                                  |  |                                 |           |      |   |            |  
|                                                  |  |                                 |           |      |   |            |  
|Cash and cash equivalents, ending                 |  | $                               | 1,849,773 |      | $ | 1,909,899  |  
|                                                  |  |                                 |           |      |   |            |  
|                                                  |  |                                 |           |      |   |            |  
|Supplemental disclosure of cash flow information: |  |                                 |           |      |   |            |  
|Income taxes paid                                 |  | $                               | 491,220   |      |   |           |  
|Interest paid                                     |  | $                               | 54,407    |      | $ | 47,431     |  
|                                                  |  |                                 |           |      |   |            |  

 See Notes to Unaudited Consolidated Financial Statements 

4

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Period Ended September 30, 2010 
(U.S. Dollars)

|   |                        
|-- | -----------------------
|1. | Basis of
 Presentation.

These
unaudited consolidated financial statements of Flexible Solutions International,
Inc (the Company) have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information.
These financial statements are condensed and do not include all disclosures
required for annual financial statements. The organization and business of the
Company, accounting policies followed by the Company and other information are
contained in the notes to the Companys audited consolidated financial
statements filed as part of the Companys December 31, 2009 Annual Report on
Form 10-K. This quarterly report should be read in conjunction with the annual
report.

In
the opinion of the Companys management, these consolidated financial
statements reflect all adjustments necessary to present fairly the Companys
consolidated financial position at September 30, 2010, and the consolidated
results of operations and the consolidated statements of cash flows for the
nine months ended September 30, 2010 and 2009. The results of operations for
the three and nine months ended September 30, 2010 are not necessarily
indicative of the results to be expected for the entire fiscal year.

These
consolidated financial statements include the accounts of the Company, and its
wholly-owned subsidiaries Flexible Solutions, Ltd. (Flexible Ltd.), and
NanoChem Solutions Inc. All inter-company balances and transactions have been
eliminated. The Company was incorporated May 12, 1998 in the State of Nevada
and had no operations until June 30, 1998.

The
Company and its subsidiaries develop, manufacture and market specialty
chemicals which slow the evaporation of water. The Companys primary product,
HEAT$AVR®, is marketed for use in swimming pools and spas where its use, by
slowing the evaporation of water, allows the water to retain a higher
temperature for a longer period of time and thereby reduces the energy required
to maintain the desired temperature of the water in the pool. Another product,
WATER$AVR®, is marketed for water conservation in irrigation canals,
aquaculture, and reservoirs where its use slows water loss due to evaporation.
In addition to the water conservation products, the Company also manufacturers
and markets water-soluble chemicals utilizing thermal polyaspartate biopolymers
(referred to as TPAs), which are beta-proteins manufactured from the common
biological amino acid, L-aspartic. TPAs can be formulated to prevent corrosion
and scaling in water piping within the petroleum, chemical, utility and mining
industries. TPAs are also used as proteins to enhance fertilizers in improving
crop yields and as additives for household laundry detergents, consumer care
products and pesticides.

5

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Period Ended September 30, 2010 
(U.S. Dollars)

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                  |                                     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------- | ------------------------------------
|2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | SIGNIFICANT ACCOUNTING POLICIES.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                  |                                     
|These
 consolidated financial statements have been prepared in accordance with
 accounting principles generally accepted in the United States applicable to a
 going concern and reflect the policies outlined below.                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                  |                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | (a)                              | Cash and
 Cash Equivalents.         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                  |                                     
|The
 Company considers all highly liquid investments purchased with an original or
 remaining maturity of less than three months at the date of purchase to be
 cash equivalents. Cash and cash equivalents are maintained with several
 financial institutions.                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                  |                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | (b)                              | Inventories
 and Cost of Sales      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                  |                                     
|The
 Company has four major classes of inventory: finished goods, work in
 progress, raw materials and supplies. In all classes, inventory is valued at
 the lower of cost and market. Cost is determined on a first-in, first-out
 basis. Cost of sales includes all expenditures incurred in bringing the goods
 to the point of sale. Inventory costs and costs of sales include direct costs
 of the raw material, inbound freight charges, warehousing costs, handling
 costs (receiving and purchasing) and utilities and overhead expenses related
 to the Companys manufacturing and processing facilities.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                  |                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | (c)                              | Allowance
 for Doubtful Accounts    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                  |                                     
|The
 Company provides an allowance for doubtful accounts when management estimates
 collectibility to be uncertain. Accounts receivable are continually reviewed
 to determine which, if any, accounts are doubtful of collection. In making
 the determination of the appropriate allowance amount, the Company considers
 current economic and industry conditions, relationships with each significant
 customer, overall customer credit-worthiness and historical experience.                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                  |                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | (d)                              | Property,
 Equipment and Leaseholds.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                  |                                     
|The
 following assets are recorded at cost and depreciated using the methods and
 annual rates shown below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                          |                               
|------------------------- | ------------------------------
|                         
|Computer hardware         | 30% Declining balance         
|Automobile                | 30% Declining balance         
|Trade show booth          | 30% Declining balance         
|Furniture and fixtures    | 20% Declining balance         
|Manufacturing equipment   | 20% Declining balance         
|Office equipment          | 20% Declining balance         
|Building and improvements | 10% Declining balance         
|Leasehold improvements    | Straight-line over lease
 term
|                         

Depreciation
is recorded at half for the year the assets are first purchased. Property and
equipment are written down to net realizable value when management determines
there has been a change in circumstances which indicates its carrying amount
may not be recoverable. No write-downs have been necessary to date.

6

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Period Ended September 30, 2010 
(U.S. Dollars)

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |     |                                  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | ---------------------------------
|Costs
 capitalized on self-constructed assets are classified as plant under
 construction and include contracted costs and supplies, but do not include
 capitalized interest costs. The Company does not commence depreciating its
 plant under construction until it becomes operational.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |     |                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | (e) | Impairment
 of Long-Lived Assets.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |     |                                  
|In
 accordance with ASC 360, Property, Plant and Equipment, the Company reviews
 long-lived assets, including, but not limited to, property and equipment,
 patents and other assets, for impairment annually or whenever events or
 changes in circumstances indicate the carrying amounts of assets may not be
 recoverable. The carrying value of long-lived assets is assessed for
 impairment by evaluating operating performance and future undiscounted cash
 flows of the underlying assets. If the sum of the expected future cash flows
 of an asset is less than its carrying value, an impairment measurement is
 indicated. Impairment charges are recorded to the extent that an assets
 carrying value exceeds its fair value. Accordingly, actual results could vary
 significantly from such estimates. There were no impairment charges during
 the periods presented.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |     |                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | (f) | Foreign
 Currency.               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |     |                                  
|The
 functional currency of one of the Companys subsidiaries is the Canadian
 Dollar. The translation of the Canadian Dollar to the reporting currency of
 the U.S. Dollar is performed for assets and liabilities using exchange rates
 in effect at the balance sheet date. Revenue and expense transactions are
 translated using average exchange rates prevailing during the year.
 Translation adjustments arising on conversion of the financial statements
 from the subsidiarys functional currency, Canadian Dollars, into the
 reporting currency, U.S. Dollars, are excluded from the determination of
 income (loss) and are disclosed as other comprehensive income (loss) in
 stockholders equity.                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |     |                                  
|Foreign
 exchange gains and losses relating to transactions not denominated in the
 applicable local currency are included in operating income (loss) if realized
 during the year and in comprehensive income (loss) if they remain unrealized
 at the end of the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |     |                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | (g) | Revenue
 Recognition.            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |     |                                  
|Revenue
 from product sales is recognized at the time the product is shipped since
 title and risk of loss are transferred to the purchaser upon delivery to the
 carrier. Shipments are made F.O.B. shipping point. The Company recognizes
 revenue when there is persuasive evidence of an arrangement, delivery to the
 carrier has occurred, the fee is fixed or determinable, collectibility is
 reasonably assured and there are no significant remaining performance
 obligations. When significant post-delivery obligations exist, revenue is
 deferred until such obligations are fulfilled. To date there have been no
 such significant post-delivery obligations.                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |     |                                  
|Provisions
 are made at the time the related revenue is recognized for estimated product
 returns. Since the Companys inception, product returns have been insignificant;
 therefore no provision has been established for estimated product returns.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

7

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Period Ended September 30, 2010 
(U.S. Dollars)

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | ---------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | (h) | Stock
 Issued in Exchange for Services.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |                                        
|The
 Companys common stock issued in exchange for services is valued at an
 estimated fair market value based upon trading prices of the Companys common
 stock on the dates of the stock transactions. The corresponding expense of
 the services rendered is recognized over the period that the services are
 performed.                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | (i) | Stock-based
 Compensation.             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |                                        
|The
 Company recognizes compensation expense for all share-based payments in
 accordance with ASC 718, Compensation 
 Stock Compensation,. Under the fair value recognition provisions
 of ASC 718, the Company recognizes share-based compensation expense, net of
 an estimated forfeiture rate, over the requisite service period of the award.                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |                                        
|The
 fair value at grant date of stock options is estimated using the
 Black-Scholes-Merton option-pricing model. Compensation expense is recognized
 on a straight-line basis over the stock option vesting period based on the
 estimated number of stock options that are expected to vest.                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | (j) | Comprehensive
 Income.                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |                                        
|Other
 comprehensive income refers to revenues, expenses, gains and losses that
 under generally accepted accounting principles are included in comprehensive
 income, but are excluded from net income as these amounts are recorded
 directly as an adjustment to stockholders equity. The Companys other
 comprehensive income is primarily comprised of unrealized foreign exchange
 gains and losses.                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | (k) | Income
 (loss) Per Share.              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |                                        
|Basic
 earnings (loss) per share is computed by dividing income (loss) available to
 common stockholders by the weighted average number of common shares
 outstanding in the period. Diluted earnings (loss) per share are calculated
 giving effect to the potential dilution of the exercise of options and
 warrants.                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | (l) | Use of
 Estimates.                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |                                        
|The
 preparation of consolidated financial statements in conformity with
 accounting principles generally accepted in the United States requires
 management to make estimates and assumptions that affect the reported amounts
 of assets and liabilities at the date of the consolidated financial
 statements and the reported amounts of revenues and expenses during the
 reporting period. Actual results could differ from those estimates and would
 impact the results of operations and cash flows.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | (m) | Financial
 Instruments.                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |                                        
|The
 fair market value of the Companys financial instruments comprising cash and
 cash equivalents, accounts receivable, long term deposits and accounts
 payable were estimated to approximate their carrying values due to immediate
 or short-term maturity of these financial instruments. The Company maintains
 cash balances at financial institutions which at times, exceed federally
 insured amounts. The Company has not experienced any material losses in such
 accounts.                     

8

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Period Ended September 30, 2010 
(U.S. Dollars)

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                                                                                                                                                                                                                                                                                                                                       
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The
 Company is exposed to foreign exchange and interest rate risk to the extent
 that market value rate fluctuations materially differ from financial assets
 and liabilities, subject to fixed long-term rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | (n) | Fair
 Value of Financial Instruments                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                                                                                                                                                                                                                                                                                                                                       
|In
 August 2009, an update was made to Fair
 Value Measurements and Disclosures  Measuring Liabilities at Fair Value.This
 update permits entities to measure the fair value of liabilities, in
 circumstances in which a quoted price in an active market for an identical
 liability is not available, using a valuation technique that uses a quoted
 price of an identical liability when traded as an asset, quoted prices for
 similar liabilities or similar liabilities when traded as assets or the
 income or market approach that is consistent with the principles of Fair Value Measurements and Disclosures.
 Effective upon issuance, the Company has adopted this guidance with no
 material impact to the Companys consolidated financial statements.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                                                                                                                                                                                                                                                                                                                                       
|Fair
 value is defined as the exchange price that would be received for an asset or
 paid to transfer a liability (an exit price) in the principal or most
 advantageous market for the asset or liability in an orderly transaction
 between market participants on the measurement date. Valuation techniques
 used to measure fair value must maximize the use of observable inputs and
 minimize the use of unobservable inputs. The standard describes a fair value
 hierarchy based on three levels of inputs described below, of which the first
 two are considered observable and the last unobservable, that may be used to
 measure fair value.                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |    | Level 1  Quoted prices in
 active markets for identical assets or liabilities                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |    | Level 2  Inputs other
 than Level 1 that are observable, either directly or indirectly, such as
 quoted prices for similar assets or liabilities; quoted prices in markets
 that are not active; or other inputs that are observable or can be
 corroborated by observable market data for substantially the full term of the
 assets or liabilities.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |    | Level 3  Unobservable
 inputs that are supported by little or no market activity and that are
 significant to the fair value of the assets or liabilities.                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                                                                                                                                                                                                                                                                                                                                       
|The
 fair values of cash and cash equivalents, accounts receivable, long term
 deposits and accounts payable for all periods presented approximate their
 respective carrying amounts due to the short term nature of these financial
 instruments. The fair values of long term debt approximate their carrying
 amounts as they bear market rates of interest.                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | (o) | Contingencies                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                                                                                                                                                                                                                                                                                                                                       
|Certain
 conditions may exist as of the date the financial statements are issued,
 which may result in a loss to the Company but which will only be resolved
 when one or more future events occur or fail to occur. The Companys
 management and its legal counsel assess such contingent liabilities, and such
 assessment inherently involves an exercise of judgment. In assessing loss
 contingencies related to legal proceedings that are pending against the
 Company or unasserted claims that may result in such proceedings, the
 Companys legal counsel evaluates the perceived merits of any legal
 proceedings or unasserted claims as well as the perceived merits of the
 amount of relief sought or expected to be sought.                             

9

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Period Ended September 30, 2010 
(U.S. Dollars)

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |     |                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | ----------------
|If
 the assessment of a contingency indicates that it is probable that a material
 loss has been incurred and the amount of the liability can be estimated, the
 estimated liability would be accrued in the Companys financial statements.
 If the assessment indicates that a potential material loss contingency is not
 probable but is reasonably possible, or is probable but cannot be estimated,
 then the nature of the contingent liability, together with an estimate of the
 range of possible loss if determinable and material, would be disclosed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |     |                 
|Loss
 contingencies considered remote are generally not disclosed unless they
 involve guarantees, in which case the guarantees would be disclosed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |     |                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | (p) | Income
 Taxes   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |     |                 
|Federal,
 state and foreign income taxes are computed at current tax rates, less tax
 credits. Provisions for income taxes include amounts that are currently
 payable, plus changes in deferred income tax assets and liabilities. Income
 taxes are accounted for under the asset and liability method. Deferred tax
 assets and liabilities are recognized for the expected future tax
 consequences attributable to temporary differences between the financial
 statement carrying amounts of existing assets and liabilities and their
 respective tax bases and operating loss and tax credit carryforwards.
 Deferred tax assets and liabilities are measured using enacted tax rates
 expected to apply to taxable income in the years in which those temporary
 differences are expected to be recovered or settled. The effect on deferred
 tax assets and liabilities of a change in tax rates is recognized in income
 in the period that includes the enactment date. Deferred tax assets are
 reduced by a valuation allowance so that the assets are recognized only to
 the extent that when, in the opinion of management, it is more likely than
 not that some portion or all of the deferred tax assets will be realized.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |     |                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | (q) | Risk
 Management
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |     |                 
|The
 Companys credit risk is primarily attributable to its accounts receivable.
 The amounts presented in the accompanying consolidated balance sheets are net
 of allowances for doubtful accounts, estimated by the Companys management
 based on prior experience and the current economic environment. The Company
 is exposed to credit-related losses in the event of non-performance by
 counterparties to the financial instruments. Credit exposure is minimized by
 dealing with only credit worthy counterparties. Accounts receivable for the
 three primary customers totals $1,184,245 (59%) as at September 30, 2010
 (2009 - $1,030,960 or 67%).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |     |                 
|The
 credit risk on cash and cash equivalents is limited because the Company
 limits its exposure to credit loss by placing its cash and cash equivalents
 with major financial institutions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |     |                 
|The
 Company is not exposed to significant interest rate risk to the extent that
 long term debt owed to foreign government agencies is subject to a fixed rate
 of interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |     |                 
|In
 order to manage its exposure to foreign exchange risks, the Company is
 closely monitoring the fluctuations in the foreign currency exchange rates and
 the impact on the value of cash and cash equivalents, accounts receivable,
 and accounts payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

10

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Period Ended September 30, 2010 
(U.S. Dollars)

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |     |                                  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | ---------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | (r) | Recent
 Accounting Pronouncements
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |     |                                  
|In
 October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13, Multiple-Deliverable Revenue Arrangement(ASU
 2009-13),which amends
 Codification Topic 605, Revenue
 Recognition. This update provides amendments to the criteria for
 separating deliverables, measuring and allocating arrangement consideration
 to one or more units of accounting. This update also establishes a selling
 price hierarchy for determining the selling price of a deliverable. ASU
 2009-13 is effective for revenue arrangements entered into or materially
 modified in fiscal years beginning on or after June 15, 2010. The Company is
 currently evaluating the impact the adoption of the update may have on its
 consolidated results of operations and financial position.                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |     |                                  
|In
 June 2009, the FASB issued ASU No. 2009-1 to FASB Codification Topic 105, Generally Accepted Accounting Principles,
 based on SFAS No. 168, FASB Accounting
 Guidance Standards Codification and the Hierarchy of Generally Accepted
 Accounting Principles  a replacement of SFAS No. 162. This
 statement establishes that the FASB Codification becomes the single official
 source of authoritative U.S. GAAP superseding all non-SEC accounting and
 reporting standards and literature. Only one level of authoritative U.S. GAAP
 will exist and all other literature will be considered non-authoritative. The
 FASB Codification became effective for interim and annual periods ending on
 or after September 15, 2009. The Company adopted the FASB Codification
 beginning in the fourth quarter of fiscal 2009. Given that the FASB
 Codification does not change U.S. GAAP, this statement had no impact on the
 Companys consolidated financial condition or results of operations. Where
 possible, previously disclosed FASB references have been replaced with FASB
 Codification references.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |     |                                  
|In
 June 2009, an update was made to ASC 810, Consolidation.
 This update amends previous guidance to require the Company to perform an
 analysis to determine whether its variable interests give it a controlling
 financial interest in a variable interest entity. The update is effective for
 annual periods beginning after November 15, 2009, for interim periods within
 that first annual reporting period, and for interim and annual reporting
 periods thereafter. The Company is currently evaluating the impact the
 adoption of the update may have on its consolidated results of operations and
 financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |     |                                  
|In
 May 2009, the FASB issued guidance which is included in FASB Codification
 Topic 855, Subsequent Events,(ASC
 855). ASC 855 establishes general standards of accounting for and disclosure
 of events that occur after the balance sheet date but before financial
 statements are issued. The Company has evaluated subsequent events through
 September 30, 2010 for appropriate accounting and disclosure in accordance
 with this standard.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |     |                                  
|In
 April 2009, the FASB issued guidance which is included in FASB Codification
 Topic 320, Investments  Debt and Equity
 Securities,(ASC 320). ASC 320 amended the other-than-temporary
 impairment guidance for debt securities to make the guidance more operational
 and to improve the presentation and disclosure of other-than-temporary
 impairments on debt and equity securities. The Companys implementation of
 this standard on May 1, 2009 did not have a significant impact on its
 consolidated statements of operations and financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

11

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ended September 30, 2010
(U.S. Dollars)

|   |                    
|-- | -------------------
|3. | ACCOUNTS RECEIVABLE

|                                  |  |      |           |      |   |           |  
|--------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                  |  | 2010 |           | 2009 |  
|                                  |  |      |           |      |  
|                                  |  |      |           |      |  
|Accounts receivable               |  | $    | 2,006,199 |      | $ | 1,552,723 |  
|Allowances for doubtful
 accounts |  |      | (13,038   | )    |   | (8,359    | )
|                                  |  |      |           |      |   |           |  
|                                  |  | $    | 1,993,161 |      | $ | 1,544,364 |  

|   |            
|-- | -----------
|4. | INVENTORIES

|                 |  |      |           |      |   |           | 
|---------------- |  | ---- | --------- | ---- | - | --------- | 
|                 |  | 2010 |           | 2009 |  
|                 |  |      |           |      |  
|Completed goods  |  | $    | 1,373,884 |      | $ | 1,670,485 | 
|Work in progress |  |      | 26,843    |      |   | 96,935    | 
|Raw materials    |  |      | 1,146,610 |      |   | 1,028,887 | 
|                 |  |      |           |      |   |           | 
|                 |  | $    | 2,547,337 |      | $ | 2,796,307 | 

|   |                            
|-- | ---------------------------
|5. | PROPERTY, PLANT & EQUIPMENT

|                                       |  |                    |            |                           |   |           |  |   |           | 
|-------------------------------------- |  | ------------------ | ---------- | ------------------------- | - | --------- |  | - | --------- | 
|                                       |  | September 30, 2010 |           
|                                       |  |                    |           
|                                       |  | Cost               |            | Accumulated
 Depreciation |   | Net       | 
|                                       |  |                    |            |                           |   |           | 
|                                       |  |                    |            |                           |   |           | 
|Buildings                              |  | $                  | 3,216,859  |                           | $ | 1,521,120 |  | $ | 1,695,739 | 
|Plant under construction and equipment |  |                    | 4,576,371  |                           |   |          |  |   | 4,576,371 | 
|Computer hardware                      |  |                    | 95,730     |                           |   | 68,665    |  |   | 27,065    | 
|Furniture and fixtures                 |  |                    | 26,572     |                           |   | 17,540    |  |   | 9,032     | 
|Office equipment                       |  |                    | 23,153     |                           |   | 18,117    |  |   | 5,036     | 
|Manufacturing equipment                |  |                    | 2,379,488  |                           |   | 1,724,160 |  |   | 655,328   | 
|Trailer                                |  |                    | 27,127     |                           |   | 15,601    |  |   | 11,526    | 
|Technology                             |  |                    | 132,758    |                           |   |          |  |   | 132,758   | 
|Trade show booth                       |  |                    | 8,444      |                           |   | 7,510     |  |   | 934       | 
|Truck                                  |  |                    | 11,555     |                           |   | 6,227     |  |   | 5,328     | 
|Land                                   |  |                    | 469,292    |                           |   |          |  |   | 469,292   | 
|                                       |  |                    |            |                           |   |           |  |   |           | 
|                                       |  | $                  | 10,967,349 |                           |   | 3,378,940 |  | $ | 7,588,409 | 
|                                       |  |                    |            |                           |   |           |  |   |           | 

12

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ended September 30, 2010
(U.S. Dollars)

|                                       |  |                   |            |                           |   |           |  |   |           | 
|-------------------------------------- |  | ----------------- | ---------- | ------------------------- | - | --------- |  | - | --------- | 
|                                       |  | December 31, 2009 |           
|                                       |  |                   |           
|                                       |  | Cost              |            | Accumulated
 Depreciation |   | Net       | 
|                                       |  |                   |            |                           |   |           | 
|                                       |  |                   |            |                           |   |           |  |   |           | 
|Buildings                              |  | $                 | 3,168,247  |                           | $ | 1,385,381 |  | $ | 1,782,866 | 
|Plant under construction and equipment |  |                   | 4,190,272  |                           |   |          |  |   | 4,190,272 | 
|Computer hardware                      |  |                   | 83,725     |                           |   | 63,022    |  |   | 20,703    | 
|Furniture and fixtures                 |  |                   | 26,170     |                           |   | 15,693    |  |   | 10,477    | 
|Office equipment                       |  |                   | 21,973     |                           |   | 16,929    |  |   | 5,044     | 
|Manufacturing equipment                |  |                   | 2,297,561  |                           |   | 1,608,101 |  |   | 689,460   | 
|Trailer                                |  |                   | 26,560     |                           |   | 12,000    |  |   | 14,560    | 
|Technology                             |  |                   | 129,985    |                           |   |          |  |   | 129,985   | 
|Trade show booth                       |  |                   | 8,268      |                           |   | 7,088     |  |   | 1,180     | 
|Truck                                  |  |                   | 11,313     |                           |   | 4,582     |  |   | 6,731     | 
|Land                                   |  |                   | 463,648    |                           |   |          |  |   | 463,648   | 
|                                       |  |                   |            |                           |   |           |  |   |           | 
|                                       |  | $                 | 10,427,722 |                           | $ | 3,112,796 |  | $ | 7,314,926 | 
|                                       |  |                   |            |                           |   |           |  |   |           | 

Amount
of depreciation expense for the nine months ended September 30, 2010: $269,209
(2009: $301,595)

Capitalized
costs pertaining to our new plant in Taber, Alberta are classified as Plant
under construction and equipment and include contracted costs and supplies, but
do not include capitalized interest costs. The Company will not begin
depreciating the plant and equipment until it becomes operational.

The
following carrying amount of capital assets held by Flexible Solutions Ltd.
serves as collateral for the AFSC loan:

|                        |  |   |           | 
|----------------------- |  | - | --------- | 
|Land                    |  | $ | 270,199   | 
|Building                |  |   | 1,024,457 | 
|Building improvements   |  |   | 1,047,078 | 
|Manufacturing equipment |  |   | 2,576,925 | 
|Trailer                 |  |   | 11,525    | 
|Truck                   |  |   | 5,328     | 
|Trade show booth        |  |   | 934       | 
|Technology              |  |   | 132,759   | 
|                        |  |   |           | 

|   |        
|-- | -------
|6. | PATENTS

Patents
are amortized over their legal life of 17 years.

Patents
with a cost of, $76,942 are not subject to amortization as of September 30,
2010, since the patents are still in the process of being approved.

13

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ended September 30, 2010
(U.S. Dollars)

|        |  |                    |         |                           |   |        |  |   |         | 
|------- |  | ------------------ | ------- | ------------------------- | - | ------ |  | - | ------- | 
|        |  | September 30, 2010 |        
|        |  |                    |        
|        |  | Cost               |         | Accumulated
 Amortization |   | Net    | 
|        |  |                    |         |                           |   |        | 
|        |  |                    |         |                           |   |        |  |   |         | 
|Patents |  | $                  | 257,642 |                           | $ | 37,263 |  | $ | 220,379 | 
|        |  |                    |         |                           |   |        |  |   |         | 

|        |  |                   |         |                           |   |        |  |   |         | 
|------- |  | ----------------- | ------- | ------------------------- | - | ------ |  | - | ------- | 
|        |  | December 31, 2009 |        
|        |  |                   |        
|        |  | Cost              |         | Accumulated
 Amortization |   | Net    | 
|        |  |                   |         |                           |   |        | 
|        |  |                   |         |                           |   |        |  |   |         | 
|Patents |  | $                 | 252,273 |                           | $ | 27,768 |  | $ | 224,505 | 
|        |  |                   |         |                           |   |        |  |   |         | 

Amount
of depreciation for nine months ended September 30, 2010 - $8,844 (2009 -
$8,995)

Estimated
depreciation expense over the next five years is as follows:

|     |  |   |        | 
|---- |  | - | ------ | 
|2010 |  | $ | 11,871 | 
|2011 |  |   | 11,871 | 
|2012 |  |   | 11,871 | 
|2013 |  |   | 11,871 | 
|2014 |  |   | 11,871 | 
|     |  |   |        | 

|   |                   
|-- | ------------------
|7. | LONG TERM DEPOSITS

The
Company has reclassified certain security deposits to better reflect their long
term nature. Long term deposits consist of damage deposits held by landlords
and security deposits held by various vendors.

|                   |  |               |   |              |  |  |  |   |       |  | 
|------------------ |  | ------------- | - | ------------ |  |  |  | - | ----- |  | 
|                   |  | September 30, |   | December 31, | 
|                   |  |               |   |              | 
|                   |  | 2010          |   | 2009         | 
|                   |  |               |   |              | 
|                   |  |               |   |              | 
|Long term deposits |  |               | $ | 7,648        |  |  |  | $ | 7,499 |  | 
|                   |  |               |   |              |  |  |  |   |      

14

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ended September 30, 2010
(U.S. Dollars)

|   |               
|-- | --------------
|8. | LONG TERM DEBT

(a)The Company has received a non-interest bearing loan from the Department of Agriculture and
Agri-Food Canada (AAFC). Eligible for up to $1,000,000 Canadian funds, the
Company had borrowed $910,801 in Canadian funds ($885,116 US) as of September
30, 2010, on an unsecured basis. If the full amount is borrowed, the repayment
schedule is as follows:

|                          |  |                 
|------------------------- |  | ----------------
|Amount Due (in CDN funds) |  | Payment Due Date
|                          |  |                 
|                          |  |                 
|$200,000                  |  | January
 1, 2012
|$200,000                  |  | January
 1, 2013
|$200,000                  |  | January
 1, 2014
|$200,000                  |  | January
 1, 2015
|$200,000                  |  | January
 1, 2016

(b)The Company has also
received a 5% simple interest loan from Agriculture Financial Services Corp.
(AFSC). Eligible for up to $2,000,000 Canadian funds, the Company had
borrowed $1,491,000 in Canadian funds ($1,394,965 US) as of September 30, 2010.
The Company is required to make interest payments until May 1, 2010 and then
must pay down the principal in equal payments until May 1, 2014. The Company
has pledged its building in Taber, Alberta, as well as equipment, inventory and
accounts receivable (see Notes 3 and 5) as collateral, as well as signed a
promissory note guaranteeing the amount of the loan.

|                                   |  |   |           |   |  |  | 
|---------------------------------- |  | - | --------- | - |  |  | 
|Continuity:                        |  |   |           |   |  |  | 
|                                   |  |   |           |   |  |  | 
|Balance at December 31,
 2008      |  | $ | 1,546,836 |   |  |  | 
|Add: proceeds from long
 term debt |  |   | 462,155   |   |  |  | 
|Effect of exchange rate            |  |   | 276,323   |   |  |  | 
|                                   |  |   |           |   |  |  | 
|Balance at December 31,
 2009      |  | $ | 2,285,314 |   |  |  | 
|Effect of exchange rate            |  |   | (5,233    | ) |  |  | 
|                                   |  |   |           |   |  |  | 
|Balance at September 30,
 2010     |  | $ | 2,280,081 |   |  |  | 
|                                   |  |   |           |   |  |  | 

|                         |  |      |           |      |   |           |  
|------------------------ |  | ---- | --------- | ---- | - | --------- | -
|Outstanding
 balance at: |  |      |           |      |  
|                        
|                         |  | 2010 |           | 2009 |  
|                         |  |      |           |      |  
|                         |  |      |           |      |   |           |  
|Long term debt  AAFC    |  | $    | 885,116   |      | $ | 866,627   |  
|Long term debt  AFSC    |  |      | 1,394,965 |      |   | 1,418,687 |  
|                         |  |      |           |      |   |           |  
|Long term debt           |  | $    | 2,280,081 |      | $ | 2,285,314 |  
|Less current portion     |  |      | (117,639  | )    |   | (74,146   | )
|                         |  |      |           |      |   |           |  
|                         |  | $    | 2,162,442 |      | $ | 2,211,168 |  
|                         |  |      |           |      |   |           |  

|   |              
|-- | -------------
|9. | STOCK OPTIONS

The
Company adopted a stock option plan (Plan). The purpose of this Plan is to
provide additional incentives to key employees, officers, directors and
consultants of the Company and its subsidiaries in order to help attract and
retain the best available personnel for positions of responsibility and
otherwise promoting the success of its business activities. The general terms
of awards under the option plan are that 100% of the options granted will vest
the year following the grant. The maximum term of options granted is 5 years.

15

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Period Ended September 30, 2010 
(U.S. Dollars)

The
Company may issue stock options and stock bonuses for shares of its common
stock to provide incentives to directors, key employees and other persons who
contribute to the success of the Company. The exercise price of all incentive
options are issued for not less than fair market value at the date of grant.

The
following table summarizes the Companys stock option activity for the years
ended December 31, 2008 and, 2009 and the period ended September 30, 2010:

|                             |  |                  |           |                            |   |                                   |  |   |      | 
|---------------------------- |  | ---------------- | --------- | -------------------------- | - | --------------------------------- |  | - | ---- | 
|                             | 
|                             |  | Number of shares |           | Exercise price 
 per share |   | Weighted average 
 exercise price | 
|                             |  |                  |           |                            |   |                                   | 
|                             |  |                  |           |                            |   |                                   |  |   |      | 
|Balance, December 31, 2007   |  |                  | 1,912,440 |                            | $ | 3.04
 - $4.60                     |  | $ | 3.38 | 
|Granted                      |  |                  | 203,000   |                            |   | $3.60                             |  | $ | 3.60 | 
|Cancelled or expired         |  |                  | (204,740  | )                          | $ | 3.00
 - $4.60                     |  | $ | 3.74 | 
|                             |  |                  |           |                            |   |                                   |  |   |      | 
|Balance, December 31, 2008   |  |                  | 1,910,700 |                            | $ | 3.00
 - $4.55                     |  | $ | 3.38 | 
|Granted                      |  |                  | 122,000   |                            |   | $2.25                             |  | $ | 2.25 | 
|Cancelled or expired         |  |                  | (486,000  | )                          | $ | 3.00
 - $4.55                     |  | $ | 3.44 | 
|                             |  |                  |           |                            |   |                                   |  |   |      | 
|Balance, December 31, 2009   |  |                  | 1,546,700 |                            | $ | 2.25
  $3.85                     |  | $ | 3.25 | 
|Granted                      |  |                  | 315,000   |                            | $ | 1.50
  $2.25                     |  | $ | 1.87 | 
|Cancelled or expired         |  |                  | (25,000   | )                          | $ | 1.50
  $3.85                     |  | $ | 1.97 | 
|                             |  |                  |           |                            |   |                                   |  |   |      | 
|Balance, September 30,
 2010 |  |                  | 1,836,700 |                            | $ | 1.50
  $3.60                     |  | $ | 3.03 | 
|                             |  |                  |           |                            |   |                                   |  |   |      | 

The
fair value of each option grant is calculated using the following weighted
average assumptions:

|                                                |  |               |  |       |  |  | 
|----------------------------------------------- |  | ------------- |  | ----- |  |  | 
|                                                | 
|                                                |  | 2010          |  | 2009  | 
|                                                |  |               |  |       | 
|                                                |  |               |  |       | 
|Expected life  years                           |  | 5.0           |  | 5.0   | 
|Interest rate                                   |  | 1.4
  2.49%  |  | 1.14% | 
|Volatility                                      |  | 60%           |  | 65%   | 
|Dividend yield                                  |  | %            |  | %    | 
|Weighted average fair
 value of options granted |  | $0.29
  0.70 |  | $1.00 | 
|                                                |  |               |  |       | 

During
the nine months ended September 30, 2010 the Company granted 61,000 options to
consultants that resulted in $15,024 in expenses for the period. During the
same period, 254,000 options were granted to employees, resulting in $45,046 in
expenses for the period. Options granted in previous quarters resulted in additional
expenses in the amount of $15,855 for consultants and $32,613 for employees
during the nine months ended September 30, 2010. No stock options were
exercised during the nine months ended September 30, 2010.

During
the nine months ended September 30, 2009 the Company granted 61,000 options to
consultants that resulted in $46,038 in expenses this quarter. During the same
period, 61,000 options were granted to employees, resulting in $46,038 in
expenses. Options granted in previous years resulted in additional expenses in
the amount of $35,674 for consultants and $71,122 for employees during the nine
months ended September 30, 2009. No stock options were exercised during this
period.

16

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Period Ended September 30, 2010 
(U.S. Dollars)

|    |         
|--- | --------
|10. | WARRANTS

On
April 14, 2005, the Company announced that it had raised $3,375,000 pursuant to
a private placement. The investors in this offering purchased 900,000 shares of
the Companys common stock at a per-share price of $3.75, together with
warrants to purchase up to 900,000 additional shares of the Companys common
stock. The warrants originally had a 4 year term and were exercisable at a
price of $4.50 per share.

On
June 8, 2005, the Company announced that it had raised an additional $327,750
pursuant to a private placement. An investor purchased 87,400 shares of the
Companys common stock at a per share price of $3.75, together with a warrant
to purchase up to 87,400 additional shares of the Companys common stock. The
warrants originally had a 4 year term and were exercisable at a price of $4.50
per share.

In
February 2009, the Company amended the warrants granted in 2005 to a per share
exercise price of $4.00 and extended the exercise term until July 31, 2009.

In
May 2007 the Company closed a $3,042,455 private placement with institutional
investors. The Company sold 936,140 units at a price of $3.25 per unit. Each unit
consisted of one share of common stock and one-half warrant with a three year
term and an exercise price of $4.50 per share. The Company also issued 21,970
warrants with the same terms for investment banking services related to this
transaction.

In
February 2010, the Company amended the warrants granted in 2007 to a per share
exercise price of $3.00 and extended the exercise term until December 31, 2010.

The
following table summarizes the Companys warrant activity for the three years
ended December 31, 2009 (no subsequent activity):

|                                                   |  |                  |           |                            |   |                                   |  |   |      | 
|-------------------------------------------------- |  | ---------------- | --------- | -------------------------- | - | --------------------------------- |  | - | ---- | 
|                                                   |  | Number of shares |           | Exercise price 
 per share |   | Weighted average 
 exercise price | 
|                                                   |  |                  |           |                            |   |                                   | 
|Balance, December 31, 2007
 and 2008               |  |                  | 1,477,440 |                            | $ | 4.50                              |  | $ | 4.50 | 
|                                                   |  |                  |           |                            |   |                                   |  |   |      | 
|Granted                                            |  |                  |          |                            |   |                                  |  |   |     | 
|Exercised                                          |  |                  |          |                            |   |                                  |  |   |     | 
|Cancelled/Expired                                  |  |                  | 987,400   |                            | $ | 4.50                              |  | $ | 4.50 | 
|                                                   |  |                  |           |                            |   |                                   |  |   |      | 
|Balance, December 31, 2009
 and September 30, 2010 |  |                  | 490,040   |                            | $ | 3.00                              |  | $ | 3.00 | 
|                                                   |  |                  |           |                            |   |                                   |  |   |      | 

|    |               
|--- | --------------
|11. | CAPITAL STOCK.

The
Company did not issue any shares of its common stock during the nine months
ended September 30, 2009. The Company cancelled 100,000 shares during the nine
months ended September 30, 2009. See Note 14.

The
Company did not issue or cancel any shares of its common stock during the nine
months ended September 30, 2010.

17

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Period Ended September 30, 2010 
(U.S. Dollars)

|                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|12.                                                                                                                                                                                                                                                                                                        | SEGMENTED, SIGNIFICANT CUSTOMER INFORMATION AND ECONOMIC DEPENDENCY.                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                           | The Company operates in
 two segments:                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                           | (a)
 Development and marketing of two lines of energy and water conservation
 products (as shown under the column heading EWCP below), which consists of
 a (i) liquid swimming pool blanket which saves energy and water by inhibiting
 evaporation from the pool surface, and (ii) food-safe powdered form of the
 active ingredient within the liquid blanket and which is designed to be used
 in still or slow moving drinking water sources.
|                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                           | (b)
 Manufacture of biodegradable polymers (BCPAs) used by the petroleum,
 chemical, utility and mining industries to prevent corrosion and scaling in
 water piping. This product can also be used in detergents to increase
 biodegradability and in agriculture to increase crop yields by enhancing
 fertilizer uptake.                                                                                                                      
|                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|The
 accounting policies of the segments are the same as those described in Note
 2, Significant Accounting Policies.
 The Company evaluates performance based on profit or loss from operations
 before income taxes, not including nonrecurring gains and losses and foreign
 exchange gains and losses.

The
Companys reportable segments are strategic business units that offer
different, but synergistic products and services. They are managed separately
because each business requires different technology and marketing strategies.

|                                       |  |      |            |      |   |           |  |   |           |  
|-------------------------------------- |  | ---- | ---------- | ---- | - | --------- |  | - | --------- | -
|Nine months ended
 September 30, 2010: | 
|                                       | 
|                                       |  | EWCP |            | BPCA |   | Total     | 
|                                       |  |      |            |      |   |           | 
|                                      
|Revenue                                |  | $    | 814,613    |      | $ | 8,080,706 |  | $ | 8,895,319 |  
|Interest revenue                       |  |      |           |      |   |          |  |   |          |  
|Interest expense                       |  |      | 53,142     |      |   | 1,265     |  |   | 54,407    |  
|Depreciation and
 amortization         |  |      | 34,631     |      |   | 234,578   |  |   | 269,209   |  
|Segment profit (loss)                  |  |      | (1,208,559 | )    |   | 1,435,225 |  |   | 226,666   |  
|Segment assets                         |  |      | 5,315,657  |      |   | 2,493,131 |  |   | 7,808,788 |  
|Expenditures for segment
 assets       |  |      | 296,639    |      |   | 131,959   |  |   | 428,598   |  
|                                       | 
|                                       |  |      |            |      |   |           |  |   |           |  
|Nine months ended
 September 30, 2009: | 
|                                       | 
|                                       | 
|                                       |  | EWCP |            | BPCA |   | Total     | 
|                                       |  |      |            |      |   |           | 
|Revenue                                |  | $    | 686,811    |      | $ | 6,694,490 |  | $ | 7,381,301 |  
|Interest revenue                       |  |      |           |      |   |          |  |   |          |  
|Interest expense                       |  |      | 43,695     |      |   | 3,736     |  |   | 47,431    |  
|Depreciation and
 amortization         |  |      | 39,712     |      |   | 261,883   |  |   | 301,595   |  
|Segment profit (loss)                  |  |      | (1,130,656 | )    |   | 620,902   |  |   | (509,754  | )
|Segment assets                         |  |      | 4,701,236  |      |   | 2,672,026 |  |   | 7,373,262 |  
|Expenditures for segment
 assets       |  |      | 1,564,173  |      |   | 24,258    |  |   | 1,588,431 |  
|                                       | 

18

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ended September 30, 2010
(U.S. Dollars)

The sales
generated in the United States and Canada for the nine months ended September
30, 2010 and 2009 are as follows:

|                          |  |      |           |      |   |           | 
|------------------------- |  | ---- | --------- | ---- | - | --------- | 
|                          |  | 2010 |           | 2009 |  
|                          |  |      |           |      |  
|                          |  |      |           |      |  
|Canada                    |  | $    | 292,226   |      | $ | 276,488   | 
|United
 States and abroad |  |      | 8,603,093 |      |   | 7,104,831 | 
|                          |  |      |           |      |   |           | 
|Total                     |  | $    | 8,895,319 |      | $ | 7,381,301 | 
|                          |  |      |           |      |   |           | 

The
Companys long-lived assets (property, equipment, leaseholds and patents) are
located in Canada and the United States as follows:

|               |  |      |           |      |   |           | 
|-------------- |  | ---- | --------- | ---- | - | --------- | 
|               |  | 2010 |           | 2009 |  
|               |  |      |           |      |  
|               |  |      |           |      |  
|Canada         |  | $    | 5,315,657 |      | $ | 4,943,238 | 
|United
 States |  |      | 2,493,131 |      |   | 2,596,193 | 
|               |  |      |           |      |   |           | 
|Total          |  | $    | 7,808,788 |      | $ | 7,539,431 | 
|               |  |      |           |      |   |           | 

Three
customers accounted for $5,358,184 (60%) of sales made in the period (2009 -
$4,559,009 or 62%).

|    |             
|--- | ------------
|13. | COMMITMENTS.

The Company
is committed to minimum rental payments for property and premises aggregating
approximately $322,370 over the term of three leases, the last expiring on June
30, 2014.

Commitments
in each of the next five years are approximately as follows:

|     |  |   |        | 
|---- |  | - | ------ | 
|     |  |   |        | 
|2010 |  | $ | 35,466 | 
|2011 |  |   | 89,480 | 
|2012 |  |   | 74,023 | 
|2013 |  |   | 77,026 | 
|2014 |  |   | 46,375 | 
|     |  |   |        | 

|    |               
|--- | --------------
|14. | CONTINGENCIES.

On May 1,
2003, the Company filed a lawsuit in the Supreme Court of British Columbia,
Canada, against John Wells and Equity Trust, S.A. seeking the return of 100,000
shares of its common stock and the repayment of a $25,000 loan which were
provided to the defendants for investment banking services. The services were
not performed and in the proceedings the Company sought the return of the
shares and the repayment of the loan. On the date of issuance, the transaction
was recorded as shares issued for services at a fair market value of $0.80 per
share. On April 30, 2009 the Supreme Court of British Columbia ruled in favor
of the Company and ordered Equity Trust S.A. to return the 100,000 shares and
repay the loan with interest ($30,514US). The Company has reversed the expense
recorded for the shares in the year ended December 31, 2009.

|    |                   
|--- | ------------------
|15. | SUBSEQUENT EVENTS.

None.

19

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ended September 30, 2010
(U.S. Dollars)

|    |                     
|--- | --------------------
|16. | COMPARATIVE FIGURES.

Certain
of the comparative figures have been reclassified to conform with the current
years presentation.

20

---



|        |                                                           
|------- | ----------------------------------------------------------
|Item 2. | Managements Discussion and Analysis or Plan of Operation.

Overview

The
Company develops, manufactures and markets specialty chemicals that slow the
evaporation of water. The Company also manufactures and markets biodegradable
polymers which are used in the oil, gas and agriculture industries.

Results of Operations

The
Company has two product lines:

Energy
and Water Conservation products. The Companys HEAT$AVR® product is used in swimming pools and spas.
The product forms a thin, transparent layer on the waters surface. The
transparent layer slows the evaporation of water, allowing the water to retain
a higher temperature for a longer period of time and thereby reducing the
energy required to maintain the desired temperature of the water. WATER$AVR®, a
modified version of HEAT$AVR®, can be used in reservoirs, potable water storage
tanks, livestock watering ponds, canals, and irrigation ditches.

BCPA
products. The second
product TPAs (i.e. thermal polyaspartate biopolymers) are biodegradable
polymers used by the petroleum, chemical, utility and mining industries to
prevent corrosion and scaling in water piping. This product can also be used in
detergents to increase biodegradability and in agriculture to increase crop yields
by enhancing fertilizer uptake.

The
Companys US subsidiary, Nanochem Solutions, Inc has normally generated income
and paid income taxes on its profits. However, the Companys Canadian
subsidiary, Flexible Solutions Ltd., normally generates losses. The losses of
the Companys Canadian subsidiary cannot be used to reduce any taxes payable by
the Companys US subsidiary. As a result, and since for financial reporting
purposes the operating results of the US and Canadian subsidiaries are consolidated,
the income tax expense (benefit) shown in the Companys statements of
operations reflects the combined income tax (benefit) of the subsidiaries.

Material
changes in the Companys Statement of Operations for the periods presented are
discussed below:

Nine
Months ended September 30, 2010

|                   |  |   |                             |                                                                  |  |        | 
|------------------ |  | - | --------------------------- | ---------------------------------------------------------------- |  | ------ | 
|Item               |  |   | Increase (I) orDecrease (D) |                                                                  |  | Reason | 
|                   |  |   |                             |                                                                  |  |        | 
|                   |  |   |                             |                                                                 
|Sales:             |  |   |                             |                                                                 
|EWCP products      |  | I |                             | Increase
 in customers inventories to more normal levels.      
|                   |  |   |                             |                                                                 
|BPCA products      |  | I |                             | Return
 to more normalized business in 2010 as opposed to 2009. 
|                   |  |   |                             |                                                                 
|Gross Profit       |  | I |                             | Increase
 in sales.                                             
|                   |  |   |                             |                                                                 
|Wages              |  | I |                             | Increase
 of employees and annual wage due to increase in sales.
|                   |  |   |                             |                                                                 
|Investor relations |  | I |                             | During
 the nine months ended September 30, 2009                

21

---



|                                      |  |   |                               |                                                                                                                                                                                                                                                          |  |        | 
|------------------------------------- |  | - | ----------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------ | 
|                                      |  |   |                               | there
 as a one time reversal of $80,000 as shares of the Companys common stock
 were cancelled by the Supreme Court of British Columbia. See Note 14 to the
 financial statements included as part of this report for more information.               
|                                      |  |   |                               |                                                                                                                                                                                                                                                         
|Rent                                  |  | D |                               | A
 lease at a former location expired in 2009                                                                                                                                                                                                           
|                                      |  |   |                               |                                                                                                                                                                                                                                                         
|Consulting                            |  | D |                               | The
 granting of stock options to long-term consultants, which vest over a five
 year period beginning in 2006, resulted in a stock option expense of $11,325
 in the nine months ended September 30, 2010 compared to $25,481 in the same
 period 2009.
|                                      |  |   |                               |                                                                                                                                                                                                                                                         
|Research                              |  | I |                               | New
 product development.                                                                                                                                                                                                                               
|                                      |  |   |                               |                                                                                                                                                                                                                                                         
|Commissions                           |  | I |                               | Increased
 sales.                                                                                                                                                                                                                                       
|                                      |  |   |                               |                                                                                                                                                                                                                                                         
|Utilities                             |  | I |                               | Increased
 work at the Taber plant has required increased used of energy. Once the
 facility is operational, these costs will be allocated to overhead.                                                                                                 
|                                      |  |   |                               |                                                                                                                                                                                                                                                         
|Three months ended September 30, 2010
|                                      |  |   |                               |                                                                                                                                                                                                                                                          |  |        | 
|Item                                  |  |   | Increase (I) or
 Decrease (D) |                                                                                                                                                                                                                                                          |  | Reason | 
|                                      |  |   |                               |                                                                                                                                                                                                                                                          |  |        | 
|                                      |  |   |                               |                                                                                                                                                                                                                                                         
|Sales:                                |  |   |                               |                                                                                                                                                                                                                                                         
|BPCA products                         |  | I |                               | Return
 to more normalized business in 2010 as opposed to 2009 has resulted in an
 increase in revenue.                                                                                                                                                 
|                                      |  |   |                               |                                                                                                                                                                                                                                                         
|Gross Profit                          |  | D |                               | Increased
 costs, mainly shipping, led to a decrease in gross profit.                                                                                                                                                                                   
|                                      |  |   |                               |                                                                                                                                                                                                                                                         
|Wages                                 |  | I |                               | Increase
 of employees and annual wage increases.                                                                                                                                                                                                       
|                                      |  |   |                               |                                                                                                                                                                                                                                                         
|Rent                                  |  | D |                               | A
 lease at a former location expired in 2009 resulting in a decrease in rent
 expense.                                                                                                                                                                 

Capital Resources and Liquidity

The
Companys sources and (uses) of cash for the nine months ended September 30,
2010 and 2009 are shown below:

22

---



|                                         |  |                                 |          |      |  |            |  
|---------------------------------------- |  | ------------------------------- | -------- | ---- |  | ---------- | -
|                                         |  | Nine Months
 Ended September 30 |         
|                                         |  |                                 |         
|                                         |  | 2010                            |          | 2009 | 
|                                         |  |                                 |          |      | 
|                                        
|Cash provided by
 operations             |  |                                 | 189,313  |      |  | 667,742    |  
|Construction of plant in
 Taber, Alberta |  |                                 | (296,639 | )    |  | (1,545,137 | )
|Purchases of equipment                   |  |                                 | (131,959 | )    |  | (24,258    | )
|Proceeds from (repayment)
 of loans      |  |                                 | (53,629  | )    |  | 428,670    |  
|Changes in exchange rates                |  |                                 | 16,537   |      |  | 493,962    |  
|Other                                    |  |                                 |         |      |  | (5,125     | )
|Cash on hand at beginning
 of year       |  |                                 | 276,377  |      |  |           |  

In
2007, the Company began construction of a plant in Taber Alberta. The plant
will be used to manufacture aspartic acid which is the major component of TPAs.
Presently the Company buys its aspartic acid from China where the base raw
material is oil. The Companys plant in Taber will use sugar as the base raw
material. Although the Company expects that it will still import some aspartic
acid from China, using aspartic acid manufactured by its plant from sugar will
reduce its raw material costs, reduce price fluctuations generated by oil
prices and reduce shipping costs.

The
Company expects that the Taber plant will begin commercial production in late
2010 or early 2011 and expects to spend approximately another $500,000 before
commercial production begins.

The
Company has sufficient cash resources to meets its future commitments and cash
flow requirements for the coming year. As of September 30, 2010 working capital
was $5,796,857 (2009 - $5,724,264) and the Company has no substantial
commitments that require significant outlays of cash over the coming fiscal
year.

The
Company is committed to minimum rental payments for property and premises
aggregating approximately $322,370 over the term of three leases, the last
expiring on June 30, 2014.

Commitments
in each of the next five years are approximately as follows:

|     |  |   |        | 
|---- |  | - | ------ | 
|     |  |   |        | 
|2010 |  | $ | 35,466 | 
|2011 |  |   | 89,480 | 
|2012 |  |   | 74,023 | 
|2013 |  |   | 77,026 | 
|2014 |  |   | 46,375 | 
|     |  |   |        | 

Other
than as disclosed in this report, the Company does not know of any trends,
demands, commitments, events or uncertainties that will result in, or that are
reasonably likely to result in, the Companys liquidity increasing or
decreasing in any material way.

Other
than as disclosed in this report, the Company does not know of any significant
changes in its expected sources and uses of cash.

The
Company does not have any lines of credit or similar financing arrangements.

See
Note 2 to the financial statements included as part of this report for a
description of the Companys significant accounting policies and recent
accounting pronouncements.

23

---



|        |                        
|------- | -----------------------
|Item 4. | CONTROLS AND PROCEDURES

Evaluation of
Disclosure Controls and Procedures

Under the direction and with the participation of our management,
including our Principal Executive and Financial Officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures as of September 30, 2010. We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our periodic reports
with the Securities and Exchange Commission is recorded, processed, summarized
and reported within the time periods specified in the SECs rules and
regulations, and that such information is accumulated and communicated to our
management, including our principal executive and financial officer, as
appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are
designed to provide a reasonable level of assurance of reaching desired disclosure
control objectives. Based on the evaluation, our Principal Executive and
Financial Officer concluded that these disclosure controls and procedures were
effective at the reasonable assurance level as of September 30, 2010.

Changes in Internal
Control over Financial Reporting

Our management, with the
participation of our Principal Executive and Financial Officer, evaluated
whether any change in our internal control over financial
reporting occurred during the three months ended September 30, 2010. Based on that evaluation, it was concluded that
there has been no change in our internal control over financial reporting
during the three months ended September 30, 2010 that materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.

|        |                  
|------- | -----------------
|PART II | OTHER INFORMATION

Item 6. Exhibits.

|       |  |                                                                                                                                      | 
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------ | 
|Number |  | Description                                                                                                                          | 
|       |  |                                                                                                                                      | 
|       |  |                                                                                                                                      | 
|3.1    |  | Amended and
 Restated Certificate of Incorporation of the registrant. (1)                                                           
|       |  |                                                                                                                                     
|3.2    |  | Bylaws of
 the registrant. (1)                                                                                                      
|       |  |                                                                                                                                     
|31.1   |  | Certification of Principal Executive Officer Pursuant to §302 of the
 Sarbanes-Oxley Act of 2002.*                                  
|       |  |                                                                                                                                     
|31.2   |  | Certification of Principal Financial Officer Pursuant to §302 of the
 Sarbanes-Oxley Act of 2002.*                                  
|       |  |                                                                                                                                     
|32     |  | Certification of Principal Executive and Financial Officer Pursuant
 to 18 U.S.C. §1350 and §906 of the Sarbanes-Oxley Act of 2002.*

---

|    |                                                                                                                                        |                         
|--- | -------------------------------------------------------------------------------------------------------------------------------------- | ------------------------
|    | *                                                                                                                                      | Filed with
 this report.
|    |                                                                                                                                        |                         
|(1) | Incorporated by reference to the registrants Registration Statement
 on Form 10-SB (SEC File. No. 000-29649) filed February 22, 2000.

24

---



SIGNATURES

In accordance
with the requirements of Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

November 11, 2010

| |                                        |                                        
| | -------------------------------------- | ---------------------------------------
| | Flexible Solutions International, Inc.
| |                                       
| | By:                                    | /s/
 Daniel B. OBrien                 
| |                                        |                                        
| |                                        |                                        
| | Name:                                  | Daniel
 B. OBrien                     
| | Title:                                 | President
 and Chief Executive Officer 
| |                                        |                                        
| | By:                                    | /s/
 Daniel B. OBrien                 
| |                                        |                                        
| | Name:                                  | Daniel
 B. OBrien                     
| | Title:                                 | Chief
 Financial and Accounting Officer

25

---