---

---

|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington, 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 June 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             |  | August 6, 2010

---

---



FORM 10-Q

Index

|           |  |                                                             |                                                                                                     |    |  
|---------- |  | ----------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | -- | -
|PART I.    |  | FINANCIAL
 INFORMATION                                      |                                                                                                     |   
|           |  |                                                             |                                                                                                     |    |  
|Item 1.    |  | Financial Statements.                                       |                                                                                                     | 1 
|           |  |                                                             |                                                                                                     |    |  
|           |  | (a)                                                         | Unaudited Consolidated
 Balance Sheets at June 30, 2010 and December 31, 2009.                      |    | 1
|           |  |                                                             |                                                                                                     |    |  
|           |  | (b)                                                         | Unaudited Consolidated
 Statements of Operations for the Three Months Ended June 30, 2010 and 2009. |    | 2
|           |  |                                                             |                                                                                                     |    |  
|           |  | (c)                                                         | Unaudited Consolidated
 Statements of Operations for the Six Months Ended June 30, 2010 and 2009.   |    | 3
|           |  |                                                             |                                                                                                     |    |  
|           |  | (d                                                          | Unaudited Consolidated
 Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009.   |    | 4
|           |  |                                                             |                                                                                                     |    |  
|           |  | (e)                                                         | Notes to Unaudited
 Consolidated Financial Statements for the Period Ended June 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.                                                   |                                                                                                     | 25
|           |  |                                                             |                                                                                                     |    |  
|SIGNATURES |  |                                                             |                                                                                                     | 26
|           |  |                                                             |                                                                                                     |    |  

i

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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 June 30, 2010 
(U.S. Dollars)

|                                                           |  |                              |            |                    |   |            |  
|---------------------------------------------------------- |  | ---------------------------- | ---------- | ------------------ | - | ---------- | -
|                                                           |  | June 30,
 2010 
 (Unaudited) |            | December 31,
 2009 |  
|                                                           |  |                              |            |                    |  
|Assets                                                     |  |                              |            |                    |   |            |  
|Current                                                    |  |                              |            |                    |   |            |  
|Cash and cash equivalents                                  |  | $                            | 1,927,452  |                    | $ | 2,126,150  |  
|Accounts receivable                                        |  |                              | 1,807,426  |                    |   | 1,544,364  |  
|Inventory                                                  |  |                              | 2,900,271  |                    |   | 2,796,307  |  
|Prepaid expenses                                           |  |                              | 245,745    |                    |   | 121,353    |  
|                                                           |  |                              |            |                    |   |            |  
|                                                           |  |                              | 6,880,894  |                    |   | 6,588,175  |  
|                                                           |  |                              |            |                    |   |            |  
|Property, equipment and leaseholds                         |  |                              | 7,252,279  |                    |   | 7,314,926  |  
|Patents                                                    |  |                              | 215,897    |                    |   | 224,505    |  
|Long term deposits                                         |  |                              | 7,409      |                    |   | 32,713     |  
|Deferred tax asset                                         |  |                              | 89,000     |                    |   | 119,000    |  
|                                                           |  |                              |            |                    |   |            |  
|                                                           |  | $                            | 14,445,479 |                    | $ | 14,254,105 |  
|                                                           |  |                              |            |                    |   |            |  
|Liabilities                                                |  |                              |            |                    |   |            |  
|Current                                                    |  |                              |            |                    |   |            |  
|Accounts payable and accrued liabilities                   |  | $                            | 381,487    |                    | $ | 597,307    |  
|Taxes payable                                              |  |                              | 353,870    |                    |   | 304,000    |  
|Current portion of long term loan                          |  |                              | 111,824    |                    |   | 74,146     |  
|                                                           |  |                              |            |                    |   |            |  
|                                                           |  |                              | 847,181    |                    |   | 975,453    |  
|                                                           |  |                              |            |                    |   |            |  
|Long Term                                                  |  |                              |            |                    |   |            |  
|Loans                                                      |  |                              | 2,119,798  |                    |   | 2,211,168  |  
|                                                           |  |                              |            |                    |   |            |  
|                                                           |  | $                            | 2,966,979  |                    | $ | 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 (2008: 14,062,567) common shares                |  |                              | 13,963     |                    |   | 13,963     |  
|Capital in excess of par value                             |  |                              | 16,523,522 |                    |   | 16,456,903 |  
|Other comprehensive income                                 |  |                              | 293,524    |                    |   | 331,208    |  
|Deficit                                                    |  |                              | (5,352,509 | )                  |   | (5,734,591 | )
|                                                           |  |                              |            |                    |   |            |  
|                                                           |  |                              |            |                    |   |            |  
|Total Stockholders Equity                                 |  |                              | 11,478,500 |                    |   | 11,067,483 |  
|                                                           |  |                              |            |                    |   |            |  
|                                                           |  |                              |            |                    |   |            |  
|Total Liabilities and Stockholders Equity                 |  | $                            | 14,445,479 |                    | $ | 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 June 30, 2010 and 2009 
(U.S. Dollars  Unaudited)

|                                                 |  |                             |            |      |   |            |  
|------------------------------------------------ |  | --------------------------- | ---------- | ---- | - | ---------- | -
|                                                 |  | Three Months Ended June 30, |           
|                                                 |  |                             |           
|                                                 |  | 2010                        |            | 2009 |  
|                                                 |  |                             |            |      |  
|                                                 |  |                             |            |      |   |            |  
|Sales                                            |  | $                           | 2,833,552  |      | $ | 2,272,759  |  
|Cost of sales                                    |  |                             | 1,592,647  |      |   | 1,569,433  |  
|                                                 |  |                             |            |      |   |            |  
|                                                 |  |                             |            |      |   |            |  
|Gross profit                                     |  |                             | 1,240,905  |      |   | 703,326    |  
|                                                 |  |                             |            |      |   |            |  
|                                                 |  |                             |            |      |   |            |  
|Operating expenses                               |  |                             |            |      |   |            |  
|Wages                                            |  |                             | 413,638    |      |   | 373,562    |  
|Administrative salaries and benefits             |  |                             | 94,716     |      |   | 93,980     |  
|Advertising and promotion                        |  |                             | 23,424     |      |   | 21,187     |  
|Investor relations and transfer agent fee        |  |                             | 25,351     |      |   | (28,737    | )
|Office and miscellaneous                         |  |                             | 94,418     |      |   | 115,515    |  
|Insurance                                        |  |                             | 48,664     |      |   | 22,840     |  
|Interest expense                                 |  |                             | 18,352     |      |   | 16,304     |  
|Rent                                             |  |                             | 42,375     |      |   | 61,732     |  
|Consulting                                       |  |                             | 23,556     |      |   | 50,636     |  
|Professional fees                                |  |                             | 50,790     |      |   | 71,279     |  
|Travel                                           |  |                             | 25,434     |      |   | 31,419     |  
|Telecommunications                               |  |                             | 8,854      |      |   | 7,648      |  
|Shipping                                         |  |                             | 10,490     |      |   | 11,068     |  
|Research                                         |  |                             | 28,999     |      |   | 9,831      |  
|Commissions                                      |  |                             | 35,071     |      |   | 25,653     |  
|Bad debt expense (recovery)                      |  |                             |           |      |   | (105       | )
|Currency exchange                                |  |                             | (7,740     | )    |   | 20,713     |  
|Utilities                                        |  |                             | 25,023     |      |   | 13,645     |  
|                                                 |  |                             |            |      |   |            |  
|                                                 |  |                             | 961,414    |      |   | 918,170    |  
|                                                 |  |                             |            |      |   |            |  
|                                                 |  |                             |            |      |   |            |  
|Income (loss) before other items and income
 tax |  |                             | 279,490    |      |   | (214,844   | )
|Other expenses                                   |  |                             |           |      |   |           |  
|Interest income                                  |  |                             |           |      |   |           |  
|                                                 |  |                             |            |      |   |            |  
|                                                 |  |                             |            |      |   |            |  
|Income (loss) before income tax                  |  |                             | 279,490    |      |   | (214,844   | )
|Income tax (recovery)                            |  |                             | 413,080    |      |   |           |  
|                                                 |  |                             |            |      |   |            |  
|                                                 |  |                             |            |      |   |            |  
|Net income (loss)                                |  |                             | (133,590   | )    |   | (214,844   | )
|                                                 |  |                             |            |      |   |            |  
|Net income (loss) per share (basic and
 diluted) |  | $                           | (0.01      | )    | $ | (0.02      | )
|                                                 |  |                             |            |      |   |            |  
|                                                 |  |                             |            |      |   |            |  
|Weighted average number of common shares         |  |                             | 13,962,567 |      |   | 13,994,435 |  
|                                                 |  |                             |            |      |   |            |  

2

---



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

|                                                 |  |                           |            |      |   |            |  
|------------------------------------------------ |  | ------------------------- | ---------- | ---- | - | ---------- | -
|                                                 |  | Six Months Ended June 30, |           
|                                                 |  |                           |           
|                                                 |  | 2010                      |            | 2009 |  
|                                                 |  |                           |            |      |  
|                                                 |  |                           |            |      |   |            |  
|Sales                                            |  | $                         | 6,218,398  |      | $ | 4,932,307  |  
|Cost of sales                                    |  |                           | 3,445,179  |      |   | 3,581,978  |  
|                                                 |  |                           |            |      |   |            |  
|                                                 |  |                           |            |      |   |            |  
|Gross profit                                     |  |                           | 2,773,219  |      |   | 1,350,329  |  
|                                                 |  |                           |            |      |   |            |  
|                                                 |  |                           |            |      |   |            |  
|Operating expenses                               |  |                           |            |      |   |            |  
|Wages                                            |  |                           | 790,791    |      |   | 680,152    |  
|Administrative salaries and benefits             |  |                           | 179,071    |      |   | 182,411    |  
|Advertising and promotion                        |  |                           | 52,198     |      |   | 43,259     |  
|Investor relations and transfer agent fee        |  |                           | 48,847     |      |   | 9,519      |  
|Office and miscellaneous                         |  |                           | 194,624    |      |   | 172,212    |  
|Insurance                                        |  |                           | 99,280     |      |   | 75,743     |  
|Interest expense                                 |  |                           | 37,094     |      |   | 27,689     |  
|Rent                                             |  |                           | 83,558     |      |   | 121,351    |  
|Consulting                                       |  |                           | 56,783     |      |   | 78,111     |  
|Professional fees                                |  |                           | 92,401     |      |   | 113,767    |  
|Travel                                           |  |                           | 50,937     |      |   | 62,631     |  
|Telecommunications                               |  |                           | 18,626     |      |   | 14,431     |  
|Shipping                                         |  |                           | 16,358     |      |   | 21,453     |  
|Research                                         |  |                           | 47,854     |      |   | 12,725     |  
|Commissions                                      |  |                           | 77,455     |      |   | 49,358     |  
|Bad debt expense (recovery)                      |  |                           | 5,253      |      |   | (695       | )
|Currency exchange                                |  |                           | 2,544      |      |   | 7,195      |  
|Utilities                                        |  |                           | 55,382     |      |   | 27,088     |  
|                                                 |  |                           |            |      |   |            |  
|                                                 |  |                           | 1,909,057  |      |   | 1,698,400  |  
|                                                 |  |                           |            |      |   |            |  
|                                                 |  |                           |            |      |   |            |  
|Income (loss) before other items and income
 tax |  |                           | 864,162    |      |   | (348,071   | )
|Other expenses                                   |  |                           |           |      |   |           |  
|Interest income                                  |  |                           |           |      |   |           |  
|                                                 |  |                           |            |      |   |            |  
|                                                 |  |                           |            |      |   |            |  
|Income (loss) before income tax                  |  |                           | 864,162    |      |   | (348,071   | )
|Income tax (recovery)                            |  |                           | 482,080    |      |   |            |  
|                                                 |  |                           |            |      |   |            |  
|                                                 |  |                           |            |      |   |            |  
|Net income (loss)                                |  |                           | 382,082    |      |   | (348,071   | )
|                                                 |  |                           |            |      |   |            |  
|Net income (loss) per share (basic and
 diluted) |  | $                         | 0.03       |      | $ | (0.02      | )
|                                                 |  |                           |            |      |   |            |  
|                                                 |  |                           |            |      |   |            |  
|Weighted average number of common shares         |  |                           | 13,962,567 |      |   | 14,028,313 |  
|                                                 |  |                           |            |      |   |            |  

3

---



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

|                                                   |  |                           |           |      |   |           |  
|-------------------------------------------------- |  | ------------------------- | --------- | ---- | - | --------- | -
|                                                   |  | Six Months Ended June 30, |          
|                                                   |  |                           |          
|                                                   |  | 2010                      |           | 2009 |  
|                                                   |  |                           |           |      |  
|                                                   |  |                           |           |      |   |           |  
|Operating activities                               |  |                           |           |      |   |           |  
|Net income (loss)                                  |  | $                         | 382,082   |      | $ | (348,071  | )
|Stock compensation expense                         |  |                           | 66,621    |      |   | 133,854   |  
|Depreciation                                       |  |                           | 174,558   |      |   | 201,544   |  
|Judgment from lawsuit                              |  |                           |          |      |   | (80,000   | )
|Changes in non-cash working capital items:         |  |                           |           |      |   |           |  
|(Increase) Decrease in accounts receivable         |  |                           | (280,038  | )    |   | 228,671   |  
|(Increase) Decrease in inventory                   |  |                           | (106,132  | )    |   | 512,509   |  
|(Increase) Decrease in prepaid expenses            |  |                           | (94,104   | )    |   | 32,009    |  
|Increase (Decrease) in accounts payable            |  |                           | (156,220  | )    |   | (361,290  | )
|                                                   |  |                           |           |      |   |           |  
|                                                   |  |                           |           |      |   |           |  
|Cash provided by (used in) operating
 activities   |  |                           | (13,233   | )    |   | 319,226   |  
|                                                   |  |                           |           |      |   |           |  
|                                                   |  |                           |           |      |   |           |  
|Investing activities                               |  |                           |           |      |   |           |  
|Long term deposits                                 |  |                           |          |      |   | 9,809     |  
|Development of patents                             |  |                           |          |      |   | (3,973    | )
|Acquisition of property and equipment              |  |                           | (170,367  | )    |   | (975,042  | )
|                                                   |  |                           |           |      |   |           |  
|                                                   |  |                           |           |      |   |           |  
|Cash provided by (used in) investing
 activities   |  |                           | (170,367  | )    |   | (969,206  | )
|                                                   |  |                           |           |      |   |           |  
|                                                   |  |                           |           |      |   |           |  
|Financing activities                               |  |                           |           |      |   |           |  
|Loan (repayment)                                   |  |                           | (25,110   | )    |   | 271,729   |  
|                                                   |  |                           |           |      |   |           |  
|                                                   |  |                           |           |      |   |           |  
|Cash provided by financing activities              |  |                           | (25,110   | )    |   | 271,729   |  
|                                                   |  |                           |           |      |   |           |  
|                                                   |  |                           |           |      |   |           |  
|Effect of exchange rate changes on cash            |  |                           | (2,789    | )    |   | 245,338   |  
|                                                   |  |                           |           |      |   |           |  
|                                                   |  |                           |           |      |   |           |  
|Inflow (outflow) of cash                           |  |                           | (211,499  | )    |   | (132,913  | )
|Cash and cash equivalents, beginning               |  |                           | 2,138,951 |      |   | 1,894,045 |  
|                                                   |  |                           |           |      |   |           |  
|                                                   |  |                           |           |      |   |           |  
|Cash and cash equivalents, ending                  |  | $                         | 1,927,452 |      | $ | 1,761,132 |  
|                                                   |  |                           |           |      |   |           |  
|                                                   |  |                           |           |      |   |           |  
|Supplemental disclosure of cash flow
 information: |  |                           |           |      |   |           |  
|Income taxes paid                                  |  | $                         | 482,080   |      |   |          |  
|Interest paid                                      |  | $                         | 37,094    |      | $ | 27,689    |  
|                                                   |  |                           |           |      |   |           |  

 See Notes to Unaudited Consolidated Financial Statements 

4

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ended June 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 June 30, 2010, and the consolidated results
of operations and the consolidated statements of cash flows for the six months
ended June 30, 2010 and 2009. The results of operations for the three and six
months ended June 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 Flexible Solutions
International, Inc. (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
(hereinafter 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 June 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 June 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 June 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 FASB Codification Topic 718, Compensation
  Stock Compensation, (ASC 718). 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.                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Shares
 of newly issued common stock will be issued upon exercise of stock options or
 vesting of restricted share units.                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|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                                                                                                                                                                                                          

8

---



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

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.

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 June 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 $1,010,027 (56%) as at June 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 June 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 June 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 June 30, 2010
(U.S. Dollars)

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

|                                  |  |      |           |      |   |           |  
|--------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                  |  | 2010 |           | 2009 |  
|                                  |  |      |           |      |  
|                                  |  |      |           |      |   |           |  
|Accounts
 receivable              |  | $    | 1,820,027 |      | $ | 1,552,723 |  
|Allowances
 for doubtful accounts |  |      | (12,601   | )    |   | (8,359    | )
|                                  |  |      |           |      |   |           |  
|                                  |  | $    | 1,807,426 |      | $ | 1,544,364 |  

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

|                   |  |      |           |      |   |           | 
|------------------ |  | ---- | --------- | ---- | - | --------- | 
|                   |  | 2010 |           | 2009 |  
|                   |  |      |           |      |  
|                   |  |      |           |      |   |           | 
|Completed
 goods   |  | $    | 1,798,448 |      | $ | 1,670,485 | 
|Works in
 progress |  |      | 1,274     |      |   | 96,935    | 
|Raw
 materials     |  |      | 1,100,549 |      |   | 1,028,887 | 
|                   |  |      |           |      |   |           | 
|                   |  | $    | 2,900,271 |      | $ | 2,796,307 | 

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

|                         |  |               |            |                           |   |           |  |   |           | 
|------------------------ |  | ------------- | ---------- | ------------------------- | - | --------- |  | - | --------- | 
|                         |  | June 30, 2010 |           
|                         |  |               |           
|                         |  | Cost          |            | Accumulated
 Depreciation |   | Net       | 
|                         |  |               |            |                           |   |           | 
|                         |  |               |            |                           |   |           |  |   |           | 
|Buildings                |  | $             | 4,158,400  |                           | $ | 1,474,482 |  | $ | 2,683,918 | 
|Building
 Improvements   |  |               | 1,004,564  |                           |   |          |  |   | 1,004,564 | 
|Computer
 hardware       |  |               | 83,007     |                           |   | 65,549    |  |   | 17,458    | 
|Furniture and
 fixtures  |  |               | 25,928     |                           |   | 16,580    |  |   | 9,348     | 
|Office
 equipment        |  |               | 21,691     |                           |   | 17,210    |  |   | 4,481     | 
|Manufacturing
 equipment |  |               | 4,600,514  |                           |   | 1,675,436 |  |   | 2,925,078 | 
|Trailer                  |  |               | 26,220     |                           |   | 14,002    |  |   | 12,218    | 
|Technology               |  |               | 128,319    |                           |   |          |  |   | 128,319   | 
|Trade show
 booth        |  |               | 8,162      |                           |   | 7,171     |  |   | 991       | 
|Truck                    |  |               | 11,168     |                           |   | 5,520     |  |   | 5,648     | 
|Land                     |  |               | 460,256    |                           |   |          |  |   | 460,256   | 
|                         |  |               |            |                           |   |           |  |   |           | 
|                         |  | $             | 10,528,229 |                           |   | 3,275,950 |  | $ | 7,252,279 | 
|                         |  |               |            |                           |   |           |  |   |           | 

12

---



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

|                         |  |                   |            |                           |   |           |  |   |           | 
|------------------------ |  | ----------------- | ---------- | ------------------------- | - | --------- |  | - | --------- | 
|                         |  | December 31, 2009 |           
|                         |  |                   |           
|                         |  | Cost              |            | Accumulated
 Depreciation |   | Net       | 
|                         |  |                   |            |                           |   |           | 
|                         |  |                   |            |                           |   |           |  |   |           | 
|Buildings                |  | $                 | 4,171,305  |                           | $ | 1,385,381 |  | $ | 2,785,924 | 
|Building
 improvements   |  |                   | 1,003,156  |                           |   |          |  |   | 1,003,156 | 
|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 |  |                   | 4,481,619  |                           |   | 1,608,101 |  |   | 2,873,518 | 
|Trailer                  |  |                   | 26,650     |                           |   | 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 six months ended June 30, 2010: $168,695 (2009:
$201,544)

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

|                         |  |   |           | 
|------------------------ |  | - | --------- | 
|Land                     |  | $ | 261,163   | 
|Building                 |  |   | 990,196   | 
|Building
 improvements   |  |   | 1,004,564 | 
|Manufacturing
 equipment |  |   | 2,364,831 | 
|Trailer                  |  |   | 12,218    | 
|Truck                    |  |   | 5,548     | 
|Trade show
 booth        |  |   | 990       | 
|Technology               |  |   | 128,319   | 
|                         |  |   |           | 

13

---



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

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

Patents
are amortized over their legal life of 17 years.

Of the
patents costs listed below, $74,388 are not subject to amortization as of yet,
as the patents are still in the process of being approved.

|        |  |                   |         |                           |   |        |  |   |         | 
|------- |  | ----------------- | ------- | ------------------------- | - | ------ |  | - | ------- | 
|        |  | June 30, 2010     |        
|        |  |                   |        
|        |  | Cost              |         | Accumulated
 Amortization |   | Net    | 
|        |  |                   |         |                           |   |        | 
|        |  |                   |         |                           |   |        |  |   |         | 
|Patents |  | $                 | 249,046 |                           | $ | 33,149 |  | $ | 215,897 | 
|        |  |                   |         |                           |   |        |  |   |         | 
|        |  |                   |         |                           |   |        |  |   |         | 
|        |  | December 31, 2009 |        
|        |  |                   |        
|        |  | Cost              |         | Accumulated
 Amortization |   | Net    | 
|        |  |                   |         |                           |   |        | 
|        |  |                   |         |                           |   |        |  |   |         | 
|Patents |  | $                 | 252,273 |                           | $ | 27,768 |  | $ | 224,505 | 
|        |  |                   |         |                           |   |        |  |   |         | 

Amount
of depreciation for six months ended June 30, 2010 - $5,863 (2009 - $5,069)

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

|     |  |   |        | 
|---- |  | - | ------ | 
|2010 |  | $ | 11,726 | 
|2011 |  |   | 11,726 | 
|2012 |  |   | 11,726 | 
|2013 |  |   | 11,726 | 
|2014 |  |   | 11,726 | 
|     |  |   |        | 

|   |                   
|-- | ------------------
|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.

|                    |  |      |       |      |   |       | 
|------------------- |  | ---- | ----- | ---- | - | ----- | 
|                    |  | 2010 |       | 2009 |  
|                    |  |      |       |      |  
|                    |  |      |       |      |   |       | 
|Long term
 deposits |  | $    | 7,409 |      | $ | 7,499 | 
|                    |  |      |       |      |  

14

---



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

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

(a)
Flexible Solutions Ltd. 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
($896,592) as of June 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)
Flexible Solutions Ltd. 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
($1,418,687 US) as of June 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            |  |   | (53,692   | )
|                                   |  |   |           |  
|Balance at June 30, 2010           |  | $ | 2,231,622 |  
|                                   |  |   |           |  

|                            |  |   |           |   |   |           |  
|--------------------------- |  | - | --------- | - | - | --------- | -
|                            |  |   | 2010      |   |   | 2009      |  
|Outstanding
 balance at:    |  |   |           |   |   |           |  
|a)    Long term debt  AAFC |  | $ | 855,515   |   | $ | 866,627   |  
|b)    Long term debt  AFSC |  |   | 1,376,107 |   |   | 1,418,687 |  
|                            |  |   |           |   |   |           |  
|Long term debt              |  | $ | 2,231,622 |   | $ | 2,285,314 |  
|Less current portion        |  |   | (111,824  | ) |   | (74,146   | )
|                            |  |   |           |   |   |           |  
|                            |  | $ | 2,119,798 |   | $ | 2,211,168 |  
|                            |  |   |           |   |   |           |  

15

---



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

|   |              
|-- | -------------
|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 the business activities. It is intended that options issued under
this Plan constitute non-qualified stock options. 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.

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 June 30, 2010:

|                           |  |                  |           |   |                           |                 |                                  |   |      | 
|-------------------------- |  | ---------------- | --------- | - | ------------------------- | --------------- | -------------------------------- | - | ---- | 
|                           |  |                  |           |   |                           |                 |                                  |  
|                           |  | Number of shares |           |   | Exercise price
 per share |                 | Weighted average
 exercise price |  
|                           |  |                  |           |   |                           |                 |                                  |  
|                           |  |                  |           |   |                           |                 |                                 
|Balance, December 31, 2007 |  |                  | 1,912,440 |   |                           | $3.040
 - $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, June 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 |  
|                                                |  |      |             |      |   |      |  

16

---



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

During the
six months ended June 30, 2010 the Company granted 61,000 options to
consultants that resulted in $10,016 in expenses this period. During the same
period, 254,000 options were granted to employees, resulting in $24,291 in
expenses this period. Options granted in previous quarters resulted in
additional expenses in the amount of $10,570 for consultants and $21,742 for
employees during the six months ended June 30, 2010. No stock options were
exercised during the period.

During the
six months ended June 30, 2009 the Company granted 61,000 options to
consultants that resulted in $30,872 in expenses this quarter. During the same
period, 61,000 options were granted to employees, resulting in $30,872 in
expenses this quarter. No stock options were exercised during this period.

|    |         
|--- | --------
|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):

17

---



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

|                                     |  |                  |           |                            |   |                                  |  |   |      | 
|------------------------------------ |  | ---------------- | --------- | -------------------------- | - | -------------------------------- |  | - | ---- | 
|                                     |  | 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           |  |                  | 490,040   |                            | $ | 3.00                             |  | $ | 3.00 | 
|                                     |  |                  |           |                            |   |                                  |  |   |      | 

|    |              
|--- | -------------
|11. | CAPITALSTOCK.

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

The Company
did not issue nor cancel any shares of its common stock during the six months
ended June 30, 2010.

|    |                                                                 
|--- | ----------------------------------------------------------------
|12. | SEGMENTED, SIGNIFICANTCUSTOMERINFORMATION ANDECONOMICDEPENDENCY.

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.

18

---



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

|                                 |  |      |           |      |   |           |  |   |           |  
|-------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | --------- | -
|Six months
 ended June 30, 2010: |  |      |           |      |   |           |  |   |           |  
|                                 |  |      |           |      |   |           |  |   |           |  
|                                 |  |      |           |      |   |           |  |   |           |  
|                                 |  | EWCP |           | BPCA |   | Total     | 
|                                 |  |      |           |      |   |           | 
|Revenue                          |  | $    | 652,467   |      | $ | 5,565,931 |  | $ | 6,218,398 |  
|Interest
 revenue                |  |      |          |      |   |          |  |   |          |  
|Interest
 expense                |  |      | 35,829    |      |   | 1,265     |  |   | 37,094    |  
|Depreciation
 and amortization   |  |      | 22,686    |      |   | 151,872   |  |   | 174,558   |  
|Segment
 profit (loss)           |  |      | (776,937  | )    |   | 1,159,019 |  |   | 382,082   |  
|Segment
 assets                  |  |      | 5,005,246 |      |   | 2,462,930 |  |   | 7,468,176 |  
|Expenditures
 for segment assets |  |      | 151,315   |      |   | 19,053    |  |   | 170,367   |  
|                                 |  |      |           |      |   |           |  |   |           |  
|                                 |  |      |           |      |   |           |  |   |           |  
|Six months
 ended June 30, 2009: |  |      |           |      |   |           |  |   |           |  
|                                 |  |      |           |      |   |           |  |   |           |  
|                                 |  |      |           |      |   |           |  |   |           |  
|                                 |  | EWCP |           | BPCA |   | Total     | 
|                                 |  |      |           |      |   |           | 
|Revenue                          |  | $    | 513,083   |      | $ | 4,419,224 |  | $ | 4,932,307 |  
|Interest
 revenue                |  |      |          |      |   |          |  |   |          |  
|Interest
 expense                |  |      | 26,477    |      |   | 1,212     |  |   | 27,689    |  
|Depreciation
 and amortization   |  |      | 27,176    |      |   | 174,368   |  |   | 201,544   |  
|Segment
 profit (loss)           |  |      | (596,886  | )    |   | 278,815   |  |   | (348,071  | )
|Segment
 assets                  |  |      | 4,109,503 |      |   | 2,754,394 |  |   | 6,863,897 |  
|Expenditures
 for segment assets |  |      | 956,888   |      |   | 22,127    |  |   | 979,015   |  
|                                 |  |      |           |      |   |           |  |   |           |  

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

|                          |  |  |  |  |      |           |      |   |           | 
|------------------------- |  |  |  |  | ---- | --------- | ---- | - | --------- | 
|                          |  |  |  |  | 2010 |           | 2009 |  
|                          |  |  |  |  |      |           |      |  
|                          |  |  |  |  |      |           |      |   |           | 
|Canada                    |  |  |  |  | $    | 271,961   |      | $ | 221,016   | 
|United
 States and abroad |  |  |  |  |      | 5,946,437 |      |   | 4,711,291 | 
|                          |  |  |  |  |      |           |      |   |           | 
|Total                     |  |  |  |  | $    | 6,218,398 |      | $ | 4,932,307 | 
|                          |  |  |  |  |      |           |      |   |           | 

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

|               |  |  |  |  |      |           |      |   |           | 
|-------------- |  |  |  |  | ---- | --------- | ---- | - | --------- | 
|               |  |  |  |  | 2010 |           | 2009 |  
|               |  |  |  |  |      |           |      |  
|               |  |  |  |  |      |           |      |   |           | 
|Canada         |  |  |  |  | $    | 5,005,246 |      | $ | 4,943,238 | 
|United
 States |  |  |  |  |      | 2,462,930 |      |   | 2,596,193 | 
|               |  |  |  |  |      |           |      |   |           | 
|Total          |  |  |  |  | $    | 7,468,176 |      | $ | 7,539,431 | 
|               |  |  |  |  |      |           |      |   |           | 

19

---



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

Three
customers accounted for $3,472,850 (56%) of sales made in the period (2009 -
$2,693,620 or 55%).

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

The Company
is committed to minimum rental payments for property and premises aggregating
approximately $353,292 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 |  | $ | 75,984 | 
|2011 |  |   | 86,487 | 
|2012 |  |   | 71,547 | 
|2013 |  |   | 74,450 | 
|2014 |  |   | 44,824 | 
|     |  |   |        | 

|    |               
|--- | --------------
|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. | SUBSEQUENTEVENTS.  
|    |                    
|    | None.              
|    |                    
|16. | COMPARATIVEFIGURES.

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.

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

Six Months ended June 30, 2010

|              |  |                             |  |                                                                                                                                                        
|------------- |  | --------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|Item          |  | Increase (I) orDecrease (D) |  | Reason                                                                                                                                                 
|              |  |                             |  |                                                                                                                                                        
|Sales         |  |                             |  |                                                                                                                                                        
|EWCP products |  | I                           |  | Increase
 in customers inventory to more normal level has resulted in greater sales.                                                                  
|              |  |                             |  |                                                                                                                                                        
|BPCA products |  | I                           |  | Return
 to more normalized business in 2010 as opposed to 2009 has resulted in
 greater revenue across the division.                                   
|              |  |                             |  |                                                                                                                                                        
|Gross Profit  |  | I                           |  | Increased sales.                                                                                                                                       
|              |  |                             |  |                                                                                                                                                        
|Wages         |  | I                           |  | Increase of employees and annual wage increases.                                                                                                       
|              |  |                             |  |                                                                                                                                                        
|Rent          |  | D                           |  | A
 lease at a former location expired in 2009.                                                                                                         
|              |  |                             |  |                                                                                                                                                        
|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.

21

---



|                                            |  |                             |  |                                                                                                                                                                                                                                
|------------------------------------------- |  | --------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Three months
 ended June 30, 2010           | 
|                                            |  |                             |  |                                                                                                                                                                                                                                
|Item                                        |  | Increase (I) orDecrease (D) |  | Reason                                                                                                                                                                                                                         
|                                            |  |                             |  |                                                                                                                                                                                                                                
|                                            |  |                             |  |                                                                                                                                                                                                                                
|Sales                                       |  |                             |  |                                                                                                                                                                                                                                
|EWCP products                               |  | I                           |  | Increase
 in customers inventory to more normal level has resulted in greater sales.                                                                                                                                          
|                                            |  |                             |  |                                                                                                                                                                                                                                
|BPCA products                               |  | I                           |  | Return
 to more normalized business in 2010 as opposed to 2009 has resulted in
 greater revenue across the division.                                                                                                           
|                                            |  |                             |  |                                                                                                                                                                                                                                
|Gross Profit                                |  | I                           |  | Increased sales.                                                                                                                                                                                                               
|                                            |  |                             |  |                                                                                                                                                                                                                                
|Wages                                       |  | I                           |  | Increase of employees and annual wage increases.                                                                                                                                                                               
|                                            |  |                             |  |                                                                                                                                                                                                                                
|Investor
 relations and transfer agent fees |  | I                           |  | In the three months ended June 30, 2009 there as a one time reversal
 of $80,000 as shares were cancelled by the Supreme Court of British Columbia
 as per Note 14 to the financial statements included as part of this report.
|                                            |  |                             |  |                                                                                                                                                                                                                                
|Office and
 Miscellaneous                   |  | I                           |  | Various administrative costs associated with the start up of the new
 facility have been allocated to this account. Once the facility is
 operational, these costs will be allocated to overhead.                              
|                                            |  |                             |  |                                                                                                                                                                                                                                
|Rent                                        |  | D                           |  | A lease at a former location expired in 2009.                                                                                                                                                                                  
|                                            |  |                             |  |                                                                                                                                                                                                                                
|Research                                    |  | I                           |  | New product development.                                                                                                                                                                                                       

22

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Capital Resources and Liquidity

The sources
and uses of funds are directly obtainable from the Consolidated Statement of
Cash Flows included as part of the financial statements filed with this report.

The Company
has sufficient cash resources to meets its future commitments and cash flow
requirements for the coming year. As of June 30, 2010 working capital was
$6,003,713 (2009 - $5,920,624) 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 $353,292 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 |  | $ | 75,984 | 
|2011 |  |   | 86,487 | 
|2012 |  |   | 71,547 | 
|2013 |  |   | 74,450 | 
|2014 |  |   | 44,824 | 
|     |  |   |        | 

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

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|        |                         
|------- | ------------------------
|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 June 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 are effective
as of June 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 June 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 June 30, 2010
that materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

24

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|        |                  
|------- | -----------------
|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.

25

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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.

August 12, 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                        

26

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