United
States



SECURITIES
AND EXCHANGE COMMISSION

WASHINGTON,
D.C. 20549



FORM
10-K

(Mark
One)



|(X) | ANNUAL
    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------------



For
the Fiscal Year Ended December 31, 2018



OR





|(  ) | TRANSITION
    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|---- | --------------------------------------------------------------------------------------------



Commission
File No. 001-31540



FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.

(Exact
name of registrant as specified in its charter)



|Alberta                                                               |  | 71
    163 0889                                          
|--------------------------------------------------------------------- |  | ---------------------------------------------------------
|(State
                                         or other jurisdiction |  | (I.R.S.
                                         Employer
|of
    incorporation or organization)                                 |  | Identification
    No.)                                  



|6001
    54 Ave.                            |  |             
|------------------------------------------- |  | ------------
|Taber,
    Alberta, Canada                  |  | T1G
    1X4 
|(Address
    of Principal Executive Office) |  | Zip
    Code



Registrant’s
telephone number, including Area Code: (403) 223-2995

Securities
registered pursuant to Section 12(b) of the Act:



|Title
    of each class            |  | Name
    of each exchange on which registered
|---------------------------------- |  | ---------------------------------------------
|Common
    Stock, $0.001 par value |  | NYSE
    American                            



Securities
registered pursuant to Section 12(g) of the Act: None



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes
[  ] No [X]



Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
[  ]

Yes
[  ] No [X]



Indicate
by check mark whether the registrant (1) has filed all reports 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) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]



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 (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]



Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [X]



Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company  or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.



|Large
    accelerated filer [  ]                  |  | Accelerated
    filer [  ]       
|------------------------------------------------- |  | ---------------------------------
|                                                  |  |                                  
|Non-accelerated
    filer [  ]                    |  | Smaller
    reporting company [X]
|(Do
    not check if a smaller reporting company) |  | Emerging
    growth company [  ] 



If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): [  ] Yes [X] No



As
of June 30, 2018 the aggregate market value of the Company’s common stock held by non-affiliates was $11,946,764 based on
the closing price for shares of the Company’s common stock on the NYSE American for that date.



As
of March 30, 2019, the Company had 11,711,657 issued and outstanding shares of common stock.



Documents
incorporated by reference: None




















CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS



This
Annual Report on Form 10-K for the year ended December 31, 2018 (“Annual Report”), including the Audited Consolidated
Financial Statements, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements include, without limitation, those statements relating to development of new products, our financial
condition and our ability to increase distribution of our products. Forward-looking statements can be identified by the use of
forward-looking terminology, such as “may,” “will,” “should,” “expect,” “anticipate,”
“estimate,” “continue,” “plans,” “intends,” or other similar terminology. These
forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are
difficult to predict. Therefore, actual outcomes and results may differ materially from what is anticipated or forecasted in these
forward-looking statements due to numerous factors, including, but not limited to, our ability to generate or obtain sufficient
working capital to continue our operations, changes in demand for our products, the timing of customer orders and deliveries and
the impact of competitive products and pricing. In addition, such statements could be affected by general industry and market
conditions and growth rates, and general domestic and international economic conditions.



Although
we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, such statements
involve risks and uncertainties and no assurance can be given that our actual results will be consistent with these forward-looking
statements. Except as otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason,
after the date  this Annual Report is filed with the Securities and Exchange Commission.





-ii-







PART
I



|Item
    1. | Description
    of Business
|----------- | ---------------------------



We
were incorporated as Flexible Solutions Ltd., a British Columbia corporation on January 26, 1991. On May 12, 1998, we merged Flexible
Solutions Ltd. into Flexible Solutions International, Inc., a Nevada corporation. In connection with this merger, we issued 7,000,000
shares of common stock to the former shareholders of Flexible Solutions Ltd. in exchange for all of the outstanding shares of
Flexible Solutions Ltd.



In
June 2004 we purchased 52 U.S. and 139 International patents, as well as a 56,780 sq. ft. manufacturing plant near Chicago, Illinois
from the bankruptcy estate of Donlar Corporation (“Donlar”) for $6.15 million. The patents we acquired from Donlar
relate to water-soluble chemicals (“TPAs”) which prevent corrosion and scaling in water pipes used in the petroleum,
chemical, utility and mining industries. TPAs are also used to enhance fertilizers and improve crop yields and as additives for
household laundry detergents, consumer care products and pesticides.





In
October 2018, we purchased 65% of ENP Investments LLC, a manufacturing and distribution
company active in the areas of golf, turf and ornamental agriculture products.



In
January 2019, the Company purchased membership in a profitable limited liability company
engaged in international sales of fertilizer additives. This purchase will be accounted for as an investment.



We
operate through a number of wholly-owned subsidiaries which are mentioned in Note 1 to the consolidated financial statements included
as part of this report. Unless otherwise indicated, all references to our business include the operations of these subsidiaries.



Our
website is www.flexiblesolutions.com



Our
Products



HEATSAVR®



Our
studies indicate that approximately 70% of the energy lost from a swimming pool occurs through water evaporation. HEATSAVR®
is a chemical product for use in swimming pools and spas that 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. We have received reports from our commercial
customers documenting energy savings of between $2,400 and $6,000 per year when using HEATSAVR®.



In
outdoor pools, the HEATSAVR® also provides convenience compared to pool blankets. Pool blankets are plastic covers which are
cut to the size and shape of the surface of the pool or spa. Pool blankets float on the surface and, like the HEATSAVR®, reduce
energy costs by inhibiting water evaporation. However, it is often inconvenient to use conventional pool blankets because a pool
blanket must be removed and stored before the pool can be used. Pool blankets do not provide any energy savings when not on the
pool. Conversely, HEATSAVR® eliminates the need to install, remove and store the blanket and works 24 hours a day. In addition,
the use of HEATSAVR® in an indoor pool results in even greater energy savings since indoor pool locations use energy not only
to heat the pool water, but also to air condition the pool environment. By slowing the transfer of heat and water vapor from the
pool to the atmosphere of the pool enclosure, less energy is required to maintain a pool at the desired temperature and there
is a reduced load on the air-conditioning system.



HEATSAVR®
retails for between $250 and $300 per four gallon case in the United States. We market our HEATSAVR® product to homeowners
with swimming pools and spas as well as operators of swimming pools and spas in hotels, motels, schools, and municipal and private
recreational facilities.



2







We
also manufacture and sell products which automatically dispense HEATSAVR® into commercial size swimming pools or spas at the
rate of one ounce per 400 sq. ft. of water surface per day.



We
have non-exclusive distributorships in Canada and the United States for the sale of bulk HEATSAVR® and exclusive distributorships
in several countries outside North America.



WATERSAVR®



This
product utilizes a patented variation of our HEATSAVR technology to reduce water evaporation in reservoirs, potable water storage
tanks, livestock watering ponds, aqueducts, canals and irrigation ditches. WATERSAVR may also be used for lawn and turf care and
potted and bedding plants.



WATERSAVR®
is sold in granulated form and can be applied by hand, by fully automated scheduled metering, or by an automatic dispenser.



Tests
have indicated that WATERSAVR®:



| | ● | Reduces
    daily water evaporation as much as 54%                                 
| | - | -----------------------------------------------------------------------------------
| | ● | Reduces
    monthly water evaporation as much as 37%                               
| | ● | Is
    odorless                                                                    
| | ● | Has
    no effect on invertebrates or vertebrates                                  
| | ● | Has
    no anticipated effect on any current drinking water treatment processes and
| | ● | Is
    biodegradable                                                               



We
have one full-time employee involved in the sales and marketing of WATERSAVR®.



TPAs
(thermal polyaspartate biopolymers)



TPAs
for Oilfields. TPAs are used to reduce scale and corrosion in various “topside” water systems. They are used in
place of traditional phosphonate and other products when biodegradability is required by environmental regulations. We have the
ability to custom manufacture TPAs depending on the specific water conditions associated with any oil well. TPAs are also used
in fracking fluids to reduce the toxicity while maintaining equal function.



TPAs
for the Agricultural Industry. TPAs have the ability to reduce fertilizer crystallization before, during and after application
and can also prevent crystal formation between fertilizer and minerals present in the soil. Once crystallized, fertilizer and
soil minerals are not able to provide plant nourishment. As a result, in select conditions the use of TPAs either blended with
fertilizer or applied directly to crops can increase yields significantly. TPAs are designated for crop nutrient management programs
and should not be confused with crop protection and pesticides or other agricultural chemical applications. Depending on the application,
TPA products are marketed under a variety of brands including EX-10TM, AmisorbTM, LYNXTM, MAGNETTM,
AmGroTM and VOLTTM. Markets of significance include corn, wheat, soybeans, rice, potatoes, sugar beets,
cotton, tomatoes, almonds and other high value per acre crops.



TPAs
for Irrigation. The crystallization prevention ability of TPAs can also be useful in select irrigation conditions. By reducing
calcium carbonate scale propagation, TPAs can prevent early plugging of drip irrigation ports, reduce maintenance costs and lengthen
the life of equipment. TPAs compete with acid type scale removers, but have the advantage of a positive yield effect on the plant,
as well as an easier deployment formulation with liquid fertilizers when used as part of a “fertigation” program.
Our TPAs for drip irrigation scale prevention are marketed and sold through the same channels as TPAs used by the agricultural
industry.



3









Nitrogen
conservation products for agriculture. We manufacture and sell two conservation products for slowing nitrogen loss
from fields. One significant loss route for nitrogen fertilizer is enzymatic degradation by bacteria naturally present in soil.
Our product, SUN 27TM inhibits the bacterial action and keeps the nitrogen fertilizer available for plant growth. The
second significant nitrogen loss mechanism is de-nitrification. This is also caused by bacterial activity in soil resulting in
oxygen being stripped from the fertilizer leaving nitrogen gas. The gas can’t be used by the plants and escapes into the
atmosphere. Our N Savr 30TM product uses the most effective active ingredients available to combat this cause of fertilizer
loss. We sell SUN 27TM and N Savr 30TM through distributors in North and South America under our trade names
and under private labels.



Principal
Customers



The
table below presents our revenue resulting from purchases by our three major customers for the periods presented.



|          |  | Year Ended December 31, |          
|--------- |  | ----------------------- | ---------
|          |  | 2018                    |          
|          |  |                         |          
|Company A |  | $                       | 3,245,685
|Company B |  | $                       | 1,960,074
|Company C |  | $                       | 1,674,840
|Company D |  |                         | -        



Customers
with balances greater than 10% of our receivable balances as of each of the fiscal year ends presented are shown in the following
table:



|               |  | Year Ended December 31, |          
|-------------- |  | ----------------------- | ---------
|               |  | 2018                    |          
|               |  |                         |          
|Company A      |  | $                       | 537,785  
|Company B      |  |                         | 302,782  
|Company C      |  |                         | 439,840  
|Company D      |  |                         | 96,306   
|Company E      |  |                         | 1,247,655
|*less than 10% |  |                         |          



4







Competition



HEATSAVR®



Although
we are aware of two other companies that manufacture products that compete with HEATSAVR® , we believe our products are more
effective and safer. We maintain fair pricing equal to or lower than our competitors and protect our intellectual property carefully.
Our products are expected to maintain or increase market share in the competitive pool market.



HEATSAVR®
also competes with plastic pool blanket products. However, we believe that HEATSAVR® is more effective and convenient than
pool blankets.



WATERSAVR®



Ultimate
Products (Aust) Pty Ltd. of Australia has a product called Aquatain that directly competes with WATERSAVR®. We believe our
WATERSAVR® product is superior for the following reasons: it is safer, much less expensive and has much better test data.
Aquatain has not expended the capital to test for environmental effects on insects and other aquatic life whereas WATERSAVR®
has recognized third party environmental safety documentation.



As
water conservation is an important priority throughout the world, numerous researchers are working to develop solutions that may
compete with, or be superior to, WATERSAVR.



TPAs



Our
TPA products have direct competition with Lanxess AG (spun out of Bayer AG), a German manufacturer of TPAs, which uses a patented
process different from ours. We have cross-licensed each other’s processes and either company can use either process for
the term of the patents involved. We believe that Lanxess has approximately the same production capacity and product costs as
we do. We believe that we can compete effectively with Lanxess by offering excellent customer service in oilfield sales, superior
distributor support in the agricultural marketplace and flexibility due to our relative size. In addition, we intend to continue
to seek market niches that are not the primary targets of Lanxess.



Our
TPA products face indirect competition from other chemicals in every market in which we are active. For purposes of oilfield scale
prevention, phosphonates, phosphates and molibdonates provide the same effect. For crop enhancement, increased fertilizer levels
or reduced concentrations can serve as a substitute for TPAs. In irrigation scale control, acid washes are our prime competitor.
Notwithstanding the above, we believe our competitive
advantages include:



| | ● | Biodegradability
    compared to competing oil field chemicals;                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                     
| | ● | Cost-effectiveness
    for crop enhancement compared to increased fertilizer use; and                               
| |   |                                                                                                                     
| | ● | Environmental
considerations, ease of formulation and increased crop yield opportunities in irrigation scale markets



5







Manufacturing



Our
HEATSAVR® products and dispensers are made from chemicals, plastic and other materials and parts that are readily available
from multiple suppliers. We have never experienced any shortage in the availability of raw materials and parts for these products
and we do not have any long term supply contracts for any of these items. We have these products made by outside parties without
long term contracts.



Our
WATERSAVR® products are manufactured by a third party. We are not required to purchase any minimum quantity of this product.



Our
56,780 sq. ft. facility in Peru, Illinois manufactures our TPA products. Raw materials for TPA production are sourced from various
manufacturers throughout the world and we believe they are available in sufficient quantities for any increase in sales. Raw materials
are, however, derived from crude oil and are subject to price fluctuations related to world oil prices.



In
November 2007, we purchased a building and 3.3 acres of land in Taber, Alberta, Canada. The price paid was CDN$1,325,000 and was
financed by cash of $660,000 and an interest free mortgage that was paid in June 2008. The building was operated as a fermentation
facility for the production of aspartic acid, a key ingredient in TPAs. Aspartic acid made in Taber was then shipped to our plant
in Illinois for finishing. In February 2014 we suspended production of aspartic acid at our Taber plant. The suspension was due
to the fact that since construction of the plant began in 2008, economic conditions in Alberta and worldwide have changed significantly.
In particular, plant operating costs increased and the price of aspartic acid derived from oil was less than forecast. In February
2017, the Taber plant was destroyed in a fire. However, the loss was covered by insurance.



Government
Regulations



HEATSAVR®



Chemical
products for use in swimming pools are covered by a variety of governmental regulations in all countries where we sell these products.
These regulations cover packaging, labeling, and product safety. We believe our products are in compliance with these regulations.



WATERSAVR®



Our
WATERSAVR® product is subject to regulation in most countries, particularly for agricultural and drinking water uses. We do
not anticipate that governmental regulations will be an impediment to marketing WATERSAVR® because the components in WATERSAVR®
have historically been used in agriculture for many years for other purposes. Nevertheless, we may require county or state approval
on a case by case basis to sell WATERSAVR® in the United States for agricultural and drinking water uses. We have received
National Sanitation Foundation approval for the use of WATERSAVR® in drinking water in the United States.



TPAs



In
the oil field and agricultural markets we have received government approval for all TPAs currently sold.



6







Proprietary
Rights



Our
success is dependent, in part, upon our proprietary technology. We rely on a combination of patent, copyright, trademarks, trade
secrets and nondisclosure agreements to protect our proprietary technology. We currently hold many U.S. and International patents
which expire at various dates up to 2032. We also have applied to extend some of these patents to other countries where we operate.
There can be no assurance that our foreign patent applications will be granted or that any issued patent will be upheld as valid
or prevent the development of competitive products, which may be equivalent to or superior to our products. We have not received
any claims alleging infringement of the intellectual property rights of others, but there can be no assurance that we may not
be subject to such claims in the future.



Research
and Development



We
spent $135,930 during the year ended December 31, 2018 and $98,928 during year ended December 31, 2017 on research and development.
This work relates primarily to the development of our water and energy conservation products, as well as new research in connection
with our TPA products.



Employees



As
of December 31, 2018 we had 36 employees, including one officer, fourteen sales and customer support personnel, and twenty one
manufacturing personnel. None of our employees is represented by a labor union and we have not experienced any work stoppages
to date.



Item
1A. Risk Factors



This
Form 10-K contains forward-looking information based on our current expectations. Because our actual results may differ materially
from any forward-looking statements made by us, this section includes a discussion of important factors that could affect our
future operations and result in a decline in the market price of our common stock.



We
have in the past incurred significant operating losses  and may not sustain profitability in the future.



We
have in the past experienced operating losses and negative cash flow from operations.
If our revenues decline, our results of operations and liquidity may be materially and adversely affected. If we experience slower
than anticipated revenue growth or if our operating expenses exceed our expectations, we may not be profitable. We may not remain
profitable in future periods.



Fluctuations
in our operating results may cause our stock price to decline.



Given
the nature of the markets in which we operate, we cannot reliably predict future revenues and profitability. Changes in competitive,
market and economic conditions may cause us to adjust our operations. A high proportion of our costs are fixed, due in part to
our sales, research and development and manufacturing costs. Thus, small declines in revenue could disproportionately affect our
operating results. Factors that may affect our operating results and the market price of our common stock include:



| | ● | demand
    for and market acceptance of our products;
| | - | -----------------------------------------------------



7







| | ● | competitive
    pressures resulting in lower selling prices;                                                   
| | - | ---------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                
| | ● | adverse
    changes in the level of economic activity in regions in which we do business;                      
| |   |                                                                                                                
| | ● | adverse
    changes in the oil and gas industry on which we are particularly dependent;                        
| |   |                                                                                                                
| | ● | changes
    in the portions of our revenue represented by various products and customers;                      
| |   |                                                                                                                
| | ● | delays
    or problems in the introduction of new products;                                                    
| |   |                                                                                                                
| | ● | the
    announcement or introduction of new products, services or technological innovations by our competitors;
| |   |                                                                                                                
| | ● | variations
    in our product mix;                                                                             
| |   |                                                                                                                
| | ● | the
    timing and amount of our expenditures in anticipation of future sales;                                 
| |   |                                                                                                                
| | ● | increased
    costs of raw materials or supplies; and                                                          
| |   |                                                                                                                
| | ● | changes
    in the volume or timing of product orders.                                                         



Our
operations are subject to seasonal fluctuation.



The
use of our swimming pool products increases in summer months in most markets and results in our sales from January to June being
greater than in July through December. Markets for our WATERSAVR® product are also seasonal, depending on the wet versus dry
seasons in particular countries. We attempt to sell into a variety of countries with different seasons on both sides of the equator
in order to minimize seasonality. Our TPA business is the least seasonal, however there is a small increase in the spring related
to inventory building for the crop season in the United States and a small slowdown in December as oilfield customers run down
stock in advance of year end, but otherwise, little seasonal variation. We believe we are able to adequately respond to these
seasonal fluctuations by reducing or increasing production as needed.



Interruptions
in our ability to purchase raw materials and components may adversely affect our profitability.



We
purchase certain raw materials and components from third parties pursuant to purchase orders placed from time to time. Because
we do not have guaranteed long-term supply arrangements with our suppliers, any material interruption in our ability to purchase
necessary raw materials or components could have a material adverse effect on our business, financial condition and results of
operations.



Our
WATERSAVR® product has not proven to be a revenue producing product and we may never recoup the cost associated with its development.



The
marketing efforts of our WATERSAVR® product may result in continued losses. We introduced our WATERSAVR® product in June
2002 and, to date, we have delivered quantities for testing by potential customers, but only a few customers have ordered the
product for commercial use. This product can achieve success only if it is ordered in substantial quantities by commercial customers
who have determined that the water saving benefits of the product exceed the costs of purchase and deployment of the product.
We can offer no assurance that we will receive sufficient orders of this product to achieve profits or cover the expenses incurred
to manufacture and market this product. We have received National Sanitation Foundation approval for the use WATERSAVR® in
drinking water in the United States. Neverless, we may require county or state approval on a case by case basis. We expect to
spend $200,000 on the marketing and production of our WATERSAVR® product in fiscal 2019.



8







If
we do not introduce new products in a timely manner, our products could become obsolete and our operating results would suffer.



Without
the timely introduction of new products and enhancements, our products could become obsolete over time, in which case our revenue
and operating results would suffer. The success of our new product offerings will depend upon several factors, including our ability
to:



| | ● | accurately
    anticipate customer needs;                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                     
| | ● | innovate
    and develop new products and applications;                                                             
| |   |                                                                                                                     
| | ● | successfully
    commercialize new products in a timely manner;                                                     
| |   |                                                                                                                     
| | ● | price
    our products competitively and manufacture and deliver our products in sufficient volumes and on time; and
| |   |                                                                                                                     
| | ● | differentiate
    our products from our competitors’ products.                                                      



In
developing any new product, we may be required to make a substantial investment before we can determine the commercial viability
of the new product. If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in
research and development of products that do not lead to significant revenues.



We
are dependent upon certain customers.



Among
our current customers, we have identified three that are sizable enough that the loss of any one would be significant. Any loss
of one or more of these customers could result in a substantial reduction in our revenues.



Economic,
political and other risks associated with international sales and operations could adversely affect our sales.



Revenues
from shipments made outside of the United States accounted for approximately 46% of our revenues in the year ended December 31,
2018, 72% in the year ended December 31, 2017 and 71% in the year ended December 31, 2016. Since we sell our products worldwide,
our business is subject to risks associated with doing business internationally. We anticipate that revenues from international
operations will continue to represent a sizable portion of our total revenue. Accordingly, our future results could be harmed
by a variety of factors, including:



| | ● | changes
    in foreign currency exchange rates;                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                         
| | ● | changes
    in a country’s or region’s political or economic conditions, particularly in developing or emerging markets;
| |   |                                                                                                                         
| | ● | longer
    payment cycles of foreign customers and difficulty of collecting receivables in foreign jurisdictions;       



9







| | ● | trade
    protection measures and import or export licensing requirements;
| | - | --------------------------------------------------------------------------
| |   |                                                                           
| | ● | differing
    tax laws and changes in those laws;                         
| |   |                                                                           
| | ● | difficulty
    in staffing and managing widespread operations;            
| |   |                                                                           
| | ● | differing
    laws regarding protection of intellectual property; and     
| |   |                                                                           
| | ● | differing
    regulatory requirements and changes in those requirements.  



We
are subject to credit risk and may be subject to substantial write-offs if one or more of our significant customers default on
their payment obligations to us.



We
currently allow our major customers between 30 and 90 days to pay for each sale. This practice, while customary, presents an accounts
receivable write-off risk in that if one or more of our significant customers defaulted on their payment obligations to us, such
write-off, if substantial, would have a material adverse effect on our business and results of operations.



Our
products can be hazardous if not handled, stored and used properly; litigation related to the handling, storage and safety of
our products would have a material adverse effect on our business and results of operations.



Some
of our products are flammable and must be stored properly to avoid fire risk. Additionally, some of our products may cause irritation
to a person’s eyes if they are exposed to the concentrated product. Although we label our products to warn of such risks,
our sales could be reduced if our products were considered dangerous to use or if they are implicated in causing personal injury
or property damage. We are not currently aware of any circumstances in which our products have caused harm or property damage
to consumers. Nevertheless, litigation regarding the handling, storage and safety of our products would have a material adverse
effect on our business and results of operations.



Our
failure to comply with environmental regulations may create significant environmental liabilities and force us to modify our manufacturing
processes.



We
are subject to various federal, state and local environmental laws, ordinances and regulations relating to the use, storage, handling
and disposal of chemicals. Under such laws, we may become liable for the costs of removal or remediation of these substances that
have been used by our consumers or in our operations. Such laws may impose liability without regard to whether we knew of, or
caused, the release of such substances. Any failure by us to comply with present or future regulations could subject us to substantial
fines, suspension of production, alteration of manufacturing processes or cessation of operations, any of which could have a material
adverse effect on our business, financial condition and results of operations.



Our
failure to protect our intellectual property could impair our competitive position.



While
we own certain patents and trademarks, some aspects of our business cannot be protected by patents or trademarks. Accordingly,
in these areas there are few legal barriers that prevent potential competitors from copying certain of our products, processes
and technologies or from otherwise entering into operations in direct competition with us. In particular, we have been informed
that our former exclusive agent for the sale of our products in North America is now competing with us in the swimming pool and
personal spa markets. As a former distributor, they were given access to many of our sales, marketing and manufacturing techniques.



10







Our
products may infringe on the intellectual property rights of others, and resulting claims against us could be costly and prevent
us from making or selling certain products.



Third
parties may seek to claim that our products and operations infringe on their patents or other intellectual property rights.
We may incur significant expense in any legal proceedings to protect our proprietary rights or to defend infringement claims by
third parties. In addition, claims of third parties against us could result in awards of substantial damages or court orders that
could effectively prevent us from making, using or selling our products in the United States or abroad.



A
claim for damages could materially and adversely affect our financial condition and results of operations.



Our
business exposes us to potential product liability risks. There are many factors beyond our control that could lead to liability
claims, including the failure of our products to work properly and the chance that consumers will use our products incorrectly
or for purposes for which they were not intended. There can be no assurance that the amount of product liability insurance that
we carry will be sufficient to protect us from product liability claims. A product liability claim in excess of the amount of
insurance we carry could have a material adverse effect on our business, financial condition and results of operations.



Our
ongoing success is dependent upon the continued availability of certain key employees.



Our
business would be adversely affected if the services of Daniel B. O’Brien ceased to be available to us since we currently
do not have any other employee with an equivalent level of expertise in and knowledge of our industry. If Mr. O’Brien no
longer served as our President and Chief Executive Officer, we would have to recruit one or more new executives, with no real
assurance that we would be able to engage a replacement executive with the required skills on satisfactory terms. The market for
skilled employees is highly competitive, especially for employees in the fields in which we operate. While our compensation programs
are intended to attract and retain qualified employees, there can be no assurance that we will be able to retain the services
of all our key employees or a sufficient number to execute our plans, nor can there be any assurances that we will be able to
continue to attract new employees as required.



|Item
    1B. | Unresolved
    Staff Comments.
|------------ | ------------------------------



Not
applicable.



|Item
    2. | Properties.
|----------- | -----------



We
lease a 6,400 sq. ft. facility in Naperville, Illinois which we use for offices and laboratories at a cost of $5,640 per month
with a lease effective to December 2020 and 61,200 sq. ft. of warehouse space in Peru, IL used for storage and extra capacity
at a cost of $25,800 per month with a lease effective to October 2021. We also lease a 1,300 sq. ft. facility used for offices
at a cost of $820 per month with a lease effective to September, 2023 and a 14,000 sq. ft. facility used for manufacturing in
Mendota, IL at a cost of $6,322 per month with a lease effective to June 2019. We own a 56,780 sq. ft. facility in Peru, Illinois
which is used to manufacture our TPA line of products. In 2017, we purchased a 3,000 sq ft building on 1 acre of land in Taber,
AB Canada. We also own 3.3 acres of cleared and undeveloped land in Taber, AB.



|Item
    3. | Legal
    Proceedings.
|----------- | ----------------------



None.





11







|Item
    4. | Mine
    Safety Disclosures
|----------- | ---------------------------



Not
applicable.

PART
II



|Item
5. | Market
                                         for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase
                                         of Equity Securities.
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our
common stock is traded on the NYSE American under the symbol “FSI”. The following is the range of high and low closing
prices for our common stock for the periods indicated:



|                                 |  |                |  | High |      |  | Low |  
|-------------------------------- |  | -------------- |  | ---- | ---- |  | --- | -
|                                 |  |                |  |      |      |  |     |  
|Year
    Ended December 31, 2018 |  | First Quarter  |  | $    | 1.87 |  |     | $
|                                 |  | Second Quarter |  |      | 1.69 |  |     |  
|                                 |  | Third Quarter  |  |      | 1.69 |  |     |  
|                                 |  | Fourth Quarter |  |      | 1.56 |  |     |  



|                                 |  |                |  | High |      |  | Low |  
|-------------------------------- |  | -------------- |  | ---- | ---- |  | --- | -
|                                 |  |                |  |      |      |  |     |  
|Year
    Ended December 31, 2017 |  | First Quarter  |  | $    | 1.63 |  |     | $
|                                 |  | Second Quarter |  |      | 2.48 |  |     |  
|                                 |  | Third Quarter  |  |      | 1.93 |  |     |  
|                                 |  | Fourth Quarter |  |      | 1.97 |  |     |  



As
of March 30, 2019 we had approximately 1,700 shareholders.



Our
common stock also trades on the Frankfurt stock exchange under the symbol “FXT.”



The
Company declared a special dividend of $0.05 per share on February 25, 2019, paid on March 15, 2019 to shareholders of record
on March 6, 2019. On March 12, 2019 the Company announced an annual dividend of $0.15 per share to be paid in two tranches. Shareholders
of record on March 31, 2019 will be paid $0.075 on April 15, 2019 and shareholders of record on September 30, 2019 will be paid
the same on October 15, 2019. This 15 cents per share annual dividend will continue until
such time as the Board decides to revise it.



None
of our officers or directors, nor any of our principal shareholders purchased, on our behalf, any shares of our common stock from
third parties either in a private transaction or as a result of purchases in the open market during the years ended December 31,
2017 and 2018.



As
of March 30, 2019 we had 11,711,657 outstanding shares of common stock. The following table lists additional shares of
our common stock, including shares issuable upon the exercise of options which have not yet vested, which may be issued as of
March 30, 2019:





|                                                                                                                           |  |  | Number
                                                                                Of
                                         Shares |         |  | Note
                                                                     Reference
|-------------------------------------------------------------------------------------------------------------------------- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------- | ------- |  | -----------------------------------------------------------------------------------
|Shares issuable upon exercise
    of options granted to our officers, directors, employees, consultants, and third parties |  |  |                                                                                                                                           | 648,000 |  |                                                                                    





A.
Options are exercisable at prices ranging from $0.75 to $1.75 per share. See Item 11 of this report for more information concerning
these options.



12







|Item
    6. | Selected
    Financial Data.
|----------- | ----------------------------



Not
applicable.



|Item
    7. | Management’s
    Discussion and Analysis of Financial Condition and Results of Operation.
|----------- | -----------------------------------------------------------------------------------------



Results
of Operations



We
have two product lines.



The
first is a chemical (“EWCP”) 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 thereby reducing the energy required to maintain the desired temperature of the water. A modified version of EWCP
can also be used in reservoirs, potable water storage tanks, livestock watering pods, canals, and irrigation ditches for the purpose
of reducing evaporation.



The
second product, biodegradable polymers (“TPAs”), is used by the petroleum, chemical, utility and mining industries
to prevent corrosion and scaling in water piping. TPAs can also be used to increase biodegradability in detergents and in the
agriculture industry to increase crop yields by enhancing fertilizer uptake.



Material
changes in the line items in our Statement of Operations for the year ended December 31, 2018 as compared to the same period last
year, are discussed below:



|Item                                                                  |  | Increase
                                         (I) or
        Decrease
        (D) |  | Reason                                                                                                                        
|--------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------
|                                                                      |  |                                                                                       |  |                                                                                                                               
|Sales                                                                 |  |                                                                                       |  |                                                                                                                               
|EWCP
    products                                                     |  | D                                                                                     |  | Customer
    orders were lower than prior period.                                                                             
|                                                                      |  |                                                                                       |  |                                                                                                                               
|TPA
    products                                                      |  | I                                                                                     |  | Growth
    in most product lines and sales from acquisition.                                                                  
|                                                                      |  |                                                                                       |  |                                                                                                                               
|Gross
                                         Profit, as a %of sales |  | D                                                                                     |  | Margins
    were constricted by higher raw material costs, new tariffs and inability to pass additional costs on to customers.
|                                                                      |  |                                                                                       |  |                                                                                                                               
|Wages                                                                 |  | I                                                                                     |  | Increased
    employee count.                                                                                                 
|                                                                      |  |                                                                                       |  |                                                                                                                               
|Administrativesalaries and benefits                                   |  | I                                                                                     |  | Increased
    wages to retain employees.                                                                                      
|                                                                      |  |                                                                                       |  |                                                                                                                               
|Consulting                                                            |  | I                                                                                     |  | Added
    consultant to increase future growth.                                                                               
|                                                                      |  |                                                                                       |  |                                                                                                                               
|Professional
    fess                                                 |  | I                                                                                     |  | Increased
    legal fees related to the acquisition and general legal representation.                                         
|                                                                      |  |                                                                                       |  |                                                                                                                               
|Research                                                              |  | I                                                                                     |  | New
                                         research projects started.                                                       
|                                                                      |  |                                                                                       |  |                                                                                                                               
|Commissions                                                           |  | D                                                                                     |  | Uncommissionable
                                         sales increased against commissionable sales.                       



13







The
factors that will most significantly affect future operating results will be:





| | ● | the sale price of
    crude oil which is used in the manufacture of aspartic acid we import from China. Aspartic acid is a key ingredient in our
    TPA product;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                  
| | ● | activity in the
    oil and gas industry, as we sell our TPA product to oil and gas companies; and                                                               
| |   |                                                                                                                                                                  
| | ● | drought conditions,
    since we also sell our TPA product to farmers.                                                                                           



Other
than the foregoing we do not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a
material impact on our revenues or expenses.



Capital
Resources and Liquidity



Our
sources and (uses) of cash for the years ended December 31, 2018 and 2017 are shown below:





|                                                        |  | 2018 |            |   | 2017 | 
|------------------------------------------------------- |  | ---- | ---------- | - | ---- | 
|                                                        |  |      |            |   |      | 
|Cash provided by (used by) operations                   |  |      | (2,161,604 | ) |      | 
|Long term deposits                                      |  |      | (1,246     | ) |      | 
|Investments                                             |  |      | (700,000   | ) |      | 
|Proceeds of equity investments                          |  |      | 27,813     |   |      | 
|Insurance proceeds from fire loss                       |  |      | 2,407,325  |   |      | 
|Acquisition of EnP Investments LLC                      |  |      | (4,110,560 | ) |      | 
|Sales (purchases) of equipment                          |  |      | (180,830   | ) |      | 
|Advances from (repayments of) short term line of credit |  |      | 2,462,346  |   |      | 
|Advances from (repayments of) loans                     |  |      | 3,792,734  |   |      | 
|Partnership distributions                               |  |      | (229,135   | ) |      | 
|Proceeds from issuance of common stock                  |  |      | 102,360    |   |      | 
|Changes in exchange rates                               |  |      | (463,405   | ) |      | 





We
have sufficient cash resources to meets our future commitments and cash flow requirements for the coming year. As of December
31, 2018, our working capital was $15,104,066 and we have no substantial commitments that require significant outlays of
cash over the coming fiscal year.



We
are committed to minimum rental payments for property and premises aggregating approximately $1,121,595 over the term of five
leases, the last expiring on September 30, 2023.



14







Commitments
for rent in the next five years are as follows:



|2019 |  |  | $ | 425,995 | 
|---- |  |  | - | ------- | 
|2020 |  |  | $ | 399,900 | 
|2021 |  |  | $ | 276,980 | 
|2022 |  |  | $ | 10,620  | 
|2023 |  |  | $ | 8,100   | 



Other
than as disclosed above, we do not anticipate any material capital requirements for the twelve months ending December 31, 2019.



Other
than as disclosed in Item 7 of this report, we do not know of any trends, demands, commitments, events or uncertainties that will
result in, or that are reasonable likely to result in, our liquidity increasing or decreasing in any material way.



Other
than as disclosed in Item 7 of this report, we do not know of any significant changes in our expected sources and uses of cash.



We
do not have any commitments or arrangements from any person to provide us with any equity capital.



See
Note 2 to the consolidated financial statements included as part of this report for a description of our significant accounting
policies.



Critical
Accounting Policies And Estimates



Allowances
for Product Returns. We grant certain of our customers the right to return product which they are unable to sell. Upon sale,
we evaluate the need to record a provision for product returns based on our historical experience, economic trends and changes
in customer demand.



Allowances
for Doubtful Accounts Receivable. We evaluate our accounts receivable to determine if they will ultimately be collected. This
evaluation includes significant judgments and estimates, including an analysis of receivables aging and a review of large accounts.
If, for example, the financial condition of a customer deteriorates resulting in an impairment of its ability to pay or a pattern
of late payment develops, an allowance may be required.



Provisions
for Inventory Obsolescence. We may need to record a provision for estimated obsolescence and shrinkage of inventory. Our estimates
would consider the cost of inventory, the estimated market value, the shelf life of the inventory and our historical experience.
If there are changes to these estimates, provisions for inventory obsolescence may be necessary.



Valuation of
goodwill and intangible assets. We consider goodwill and intangible assets to determine if there are qualitative factors which
exist which may indicate that the carrying value exceeds the fair value. Our estimates are based upon an assessment of market
conditions and expected future cash flows to be generated by the reporting units and related assets. If factors exist which indicate
that the carrying value exceeds the fair value, an impairment charge against the goodwill and intangible assets could be required.



Useful lives
of Property, Equipment and Leaseholds and Intangible Assets. We amortize and depreciate our property, equipment and leaseholds
and intangible assets based on their estimated useful lives. We estimate the expected useful lives based on the expected term
over which the asset is expected to continue to generate economic benefit for the company. If there are differences between the
expected useful lives and the actual useful lives of the asset, impairment of property, equipment and leaseholds or intangible
assets could be necessary.



Recent
Accounting Pronouncements



We
have evaluated recent accounting pronouncements issued since January 1, 2018 and determined that the adoption of these recent
accounting pronouncements will not have a material effect on our financial statements.



|Item
    7A. | Quantitative
    and Qualitative Disclosures About Market Risk.
|------------ | ---------------------------------------------------------------



Not
applicable.



15







|Item
    8. | Financial
    Statements and Supplementary Data.
|----------- | ------------------------------------------------



FLEXIBLE
SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                          | Page
|--------------------------------------------------------------------------------------------------------- | ----
|                                                                                                          |     
|Report of Independent Registered Public Accounting Firm, MNP LLP                                          | F-1 
|Consolidated Balance Sheets as of December 31, 2018 and 2017                                              | F-2 
|Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2018 and 2017 | F-3 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017                      | F-4 
|Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2018 and 2017            | F-5 
|Notes to Consolidated Financial Statements                                                                | F-6 



16

















To
the Board of Directors andStockholders of Flexible Solutions International, Inc.



Opinion
on the Financial Statements



We
have audited the accompanying balance sheets of Flexible Solutions International Inc. (the Company) as of December 31,
2018 and 2017, and the related statements of income, comprehensive income, stockholders’ equity, and cash flows for each
of the years in the two-year period ended December 31, 2018, and the related notes (collectively referred to as the financial
statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year
period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.



Basis
for Opinion



These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.



We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.



Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.



|                                                       
|-------------------------------------------------------
|                                                       
|We
    have served as the Company’s auditor since 2009.
|                                                       
|Vancouver,
    BC                                      
|                                                       
|March
    31, 2019                                     











F-1







FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.

Consolidated
Balance Sheets

As
at December 31

(U.S.
Dollars)





|                                                                                                                                                                                                                            |  | 2018 |            |   | 2017 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|                                                                                                                                                                                                                            |  |      |            |   |      |  
|Assets                                                                                                                                                                                                                      |  |      |            |   |      |  
|                                                                                                                                                                                                                            |  |      |            |   |      |  
|Current                                                                                                                                                                                                                     |  |      |            |   |      |  
|Cash
    and cash equivalents                                                                                                                                                                                               |  | $    | 7,857,936  |   |      | $
|Accounts receivable
    (see Note 4)                                                                                                                                                                                        |  |      | 4,422,745  |   |      |  
|Inventories (see
    Note 5)                                                                                                                                                                                                |  |      | 8,727,709  |   |      |  
|Prepaid
    expenses                                                                                                                                                                                                        |  |      | 200,306    |   |      |  
|Total current assets                                                                                                                                                                                                        |  |      | 21,208,696 |   |      |  
|Property, equipment
    and leaseholds, net (see Note 6)                                                                                                                                                                    |  |      | 2,563,261  |   |      |  
|Patents (see Note
    7)                                                                                                                                                                                                    |  |      | 63,014     |   |      |  
|Intangible
    assets (Note 8)                                                                                                                                                                                              |  |      | 3,128,000  |   |      |  
|Long
    term deposits (see Note 9)                                                                                                                                                                                         |  |      | 30,777     |   |      |  
|Investments(Note 10)                                                                                                                                                                                                        |  |      | 776,357    |   |      |  
|Goodwill
    (Note 8)                                                                                                                                                                                                       |  |      | 2,534,275  |   |      |  
|Deferred
    tax asset (Note 14)                                                                                                                                                                                            |  |      | 891,735    |   |      |  
|                                                                                                                                                                                                                            |  |      |            |   |      |  
|Total
    Assets                                                                                                                                                                                                            |  | $    | 31,196,115 |   |      | $
|                                                                                                                                                                                                                            |  |      |            |   |      |  
|Liabilities                                                                                                                                                                                                                 |  |      |            |   |      |  
|Current                                                                                                                                                                                                                     |  |      |            |   |      |  
|Accounts payable
    and accrued liabilities                                                                                                                                                                                |  | $    | 1,050,673  |   |      | $
|Deferred revenue                                                                                                                                                                                                            |  |      | 127,168    |   |      |  
|Income taxes payable                                                                                                                                                                                                        |  |      | 1,357,299  |   |      |  
|Short
    term line of credit (Note 11)                                                                                                                                                                                     |  |      | 2,798,131  |   |      |  
|Current
    portion of long term debt (Note 12)                                                                                                                                                                             |  |      | 771,359    |   |      |  
|Total
    current liabilities                                                                                                                                                                                               |  |      | 6,104,630  |   |      |  
|Convertible
    note payable (Note 13)                                                                                                                                                                                      |  |      | 1,000,000  |   |      |  
|Deferred
    income tax liability (Note 14)                                                                                                                                                                                 |  |      | 989,569    |   |      |  
|Long
    term debt (Note 12)                                                                                                                                                                                                |  |      | 3,580,384  |   |      |  
|Total
    liabilities                                                                                                                                                                                                       |  |      | 11,674,583 |   |      |  
|                                                                                                                                                                                                                            |  |      |            |   |      |  
|Stockholders’
    Equity                                                                                                                                                                                                    |  |      |            |   |      |  
|Capital
    stock (see Note 17)                                                                                                                                                                                             |  |      |            |   |      |  
|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:                                                                                                                                                                                                     |  |      |            |   |      |  
|11,699,657
    (2017: 11,597,991) common shares                                                                                                                                                                             |  |      | 11,700     |   |      |  
|Capital in excess of par value                                                                                                                                                                                              |  |      | 15,328,285 |   |      |  
|Other comprehensive
    loss                                                                                                                                                                                                |  |      | (1,222,573 | ) |      |  
|Accumulated earnings                                                                                                                                                                                                        |  |      | 2,941,889  |   |      |  
|Total stockholders’ equity
    – controlling interest                                                                                                                                                                       |  |      | 17,059,301 |   |      |  
|Non
    controlling interests (Note 18)                                                                                                                                                                                     |  |      | 2,462,231  |   |      |  
|                                                                                                                                                                                                                            |  |      |            |   |      |  
|Total
    Stockholders’ Equity                                                                                                                                                                                              |  |      | 19,521,532 |   |      |  
|                                                                                                                                                                                                                            |  |      |            |   |      |  
|Total
    Liabilities and Stockholders’ Equity                                                                                                                                                                              |  | $    | 31,196,115 |   |      | $



|Commitments
    and Subsequent events | (See
    Notes 20 and 21)
|------------------------------------- | -------------------------



See
Notes to Consolidated Financial Statements.





F-2









FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.

Consolidated
Statements of Income and Comprehensive Income

For
the Years Ended December 31

(U.S.
Dollars)



|                                                                      |  | 2018 |            |   | 2017 |  
|--------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|                                                                      |  |      |            |   |      |  
|Sales                                                                 |  | $    | 17,829,518 |   |      | $
|Cost of sales                                                         |  |      | 12,192,684 |   |      |  
|                                                                      |  |      |            |   |      |  
|Gross
    profit                                                      |  |      | 5,636,834  |   |      |  
|                                                                      |  |      |            |   |      |  
|Operating Expenses                                                    |  |      |            |   |      |  
|Wages                                                                 |  |      | 1,729,467  |   |      |  
|Administrative salaries
    and benefits                              |  |      | 1,082,991  |   |      |  
|Advertising and
    promotion                                         |  |      | 68,492     |   |      |  
|Investor relations
    and transfer agent fee                         |  |      | 132,694    |   |      |  
|Office and miscellaneous                                              |  |      | 247,424    |   |      |  
|Insurance                                                             |  |      | 312,275    |   |      |  
|Interest expense                                                      |  |      | 93,653     |   |      |  
|Rent                                                                  |  |      | 249,051    |   |      |  
|Consulting                                                            |  |      | 186,847    |   |      |  
|Professional fees                                                     |  |      | 282,654    |   |      |  
|Travel                                                                |  |      | 137,902    |   |      |  
|Telecommunications                                                    |  |      | 32,315     |   |      |  
|Shipping                                                              |  |      | 19,790     |   |      |  
|Research                                                              |  |      | 135,930    |   |      |  
|Commissions                                                           |  |      | 46,993     |   |      |  
|Bad debt expense                                                      |  |      | -          |   |      |  
|Currency exchange                                                     |  |      | (445,443   | ) |      |  
|Utilities                                                             |  |      | 16,775     |   |      |  
|                                                                      |  |      |            |   |      |  
|Total
    operating expenses                                          |  |      | 4,329,810  |   |      |  
|                                                                      |  |      |            |   |      |  
|Operating income                                                      |  |      | 1,307,024  |   |      |  
|Gain
    on involuntary disposition (net of tax) (Note 6)             |  |      | 1,714,261  |   |      |  
|Write down of inventory                                               |  |      | -          |   |      |  
|Loss on investment                                                    |  |      | (3,281     | ) |      |  
|Interest
    income                                                   |  |      | 36,843     |   |      |  
|Income before income
    tax                                          |  |      | 3,054,847  |   |      |  
|                                                                      |  |      |            |   |      |  
|Income
    taxes (Note 14)                                            |  |      |            |   |      |  
|Deferred income
    tax expense                                       |  |      | 100,000    |   |      |  
|Income
    tax expense                                                |  |      | (533,130   | ) |      |  
|                                                                      |  |      |            |   |      |  
|Net
    income for the year including non-controlling interests       |  |      | 2,421,717  |   |      |  
|Less:
    Net (loss) income attributable to non-controlling interests |  |      | (68,551    | ) |      |  
|Net
    income attributable to controlling interest                   |  | $    | 2,490,268  |   |      | $
|                                                                      |  |      |            |   |      |  
|Other comprehensive
    income (loss)                                 |  |      | (566,480   | ) |      |  
|Comprehensive income                                                  |  |      | 2,023,788  |   |      |  
|Income
    per share (basic and diluted) (Note 15)                    |  | $    | 0.21       |   |      | $
|Weighted average number of common shares
    (basic)                  |  |      | 11,630,136 |   |      |  
|Weighted average
    number of common shares (diluted)                |  |      | 11,816,054 |   |      |  





See
Notes to Consolidated Financial Statements.







F-3













FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.

Consolidated
Statements of Cash Flows

For
Years Ended December 31

(U.S.
Dollars)





|                                                                                     |  | 2018 |             |   | 2017 |  
|------------------------------------------------------------------------------------ |  | ---- | ----------- | - | ---- | -
|                                                                                     |  |      |             |   |      |  
|Operating activities                                                                 |  |      |             |   |      |  
|Net
    income                                                                       |  | $    | 2,490,268   |   |      | $
|Adjustments to reconcile
    net income to net cash:                                 |  |      |             |   |      |  
|Stock based compensation                                                             |  |      | 111,192     |   |      |  
|Depreciation and
    amortization                                                    |  |      | 342,561     |   |      |  
|Loss on investment                                                                   |  |      | 3,281       |   |      |  
|Decrease in deferred
    tax asset                                                   |  |      | 100,000     |   |      |  
|Write down of inventory                                                              |  |      | -           |   |      |  
|Gain on involuntary
    disposition                                                  |  |      | (1,714,261  | ) |      |  
|                                                                                     |  |      |             |   |      |  
|Changes in non-cash working capital
    items:                                       |  |      |             |   |      |  
|(Increase) Decrease
    in accounts receivable                                       |  |      | (1,048,290) |   |      |  
|(Increase) Decrease
    in inventories                                               |  |      | (2,185,462  | ) |      |  
|(Increase) Decrease
    in prepaid expenses                                          |  |      | 53,275      |   |      |  
|Increase (Decrease)
    in accounts payable and accrued liabilities                  |  |      | (351,508)   |   |      |  
|Increase (Decrease)
    in taxes payable                                             |  |      | 243,276     |   |      |  
|Increase
    (Decrease) deferred revenue                                             |  |      | (205,936    | ) |      |  
|                                                                                     |  |      |             |   |      |  
|Cash
    (used in) provided by operating activities                                  |  |      | (2,161,604  | ) |      |  
|                                                                                     |  |      |             |   |      |  
|Investing activities                                                                 |  |      |             |   |      |  
|Long term deposits                                                                   |  |      | (1,246      | ) |      |  
|Investment                                                                           |  |      | (700,000    | ) |      |  
|Proceeds of equity investment
                                         distributions |  |      | 27,813      |   |      |  
|Proceed from insurance                                                               |  |      | 2,407,325   |   |      |  
|Acquisition of EnP Investments
    LLC                                               |  |      | (4,110,560  | ) |      |  
|Net
    purchase of property, equipment and leaseholds                               |  |      | (180,830    | ) |      |  
|                                                                                     |  |      |             |   |      |  
|Cash
    (used in) provided by investing activities                                  |  |      | (2,557,498  | ) |      |  
|                                                                                     |  |      |             |   |      |  
|Financing activities                                                                 |  |      |             |   |      |  
|Draw from short
    term line of credit                                              |  |      | 2,462,346   |   |      |  
|Loans                                                                                |  |      | 3,792,734   |   |      |  
|Partnership distribution                                                             |  |      | (299,135    | ) |      |  
|Proceeds
    of issuance of common stock                                             |  |      | 102,360     |   |      |  
|                                                                                     |  |      |             |   |      |  
|Cash
    proved by (used in) financing activities                                    |  |      | (6,128,305  | ) |      |  
|                                                                                     |  |      |             |   |      |  
|Effect of exchange
    rate changes on cash                                          |  |      | (463,405    | ) |      |  
|                                                                                     |  |      |             |   |      |  
|Inflow (outflow)
    of cash                                                         |  |      | 945,798     |   |      |  
|Cash and cash
    equivalents, beginning                                             |  |      | 6,912,138   |   |      |  
|                                                                                     |  |      |             |   |      |  
|Cash and cash equivalents,
    ending                                                |  | $    | 7,857,936   |   |      | $
|                                                                                     |  |      |             |   |      |  
|Supplemental disclosure
    of cash flow information:                                |  |      |             |   |      |  
|Income taxes paid                                                                    |  |      | 288,653     |   |      |  
|Interest paid                                                                        |  |      | 94,775      |   |      |  







See
Notes to Consolidated Financial Statements.



F-4







FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.

Consolidated
Statements of Stockholders’ Equity

For
the Years Ended December 31, 2018 and 2017

(U.S.
Dollars)





|                                              |  |        |            |  |       |   |        |                |  |   |              |  |  |                   |            |   |       |   |            |             |  |   |               |  
|--------------------------------------------- |  | ------ | ---------- |  | ----- | - | ------ | -------------- |  | - | ------------ |  |  | ----------------- | ---------- | - | ----- | - | ---------- | ----------- |  | - | ------------- | -
|                                              |  |        |            |  |       |   |        | Capital
    in |  |   | Accumulated  |  |  | Other             |            |   |       |   |            | Non-        |  |   | Total         |  
|                                              |  |        |            |  | Par   |   |        | Excess
    of  |  |   | Earnings     |  |  | Comprehensive     |            |   |       |   |            | Controlling |  |   | Stockholders’ |  
|                                              |  | Shares |            |  | Value |   |        | Par
    Value  |  |   | (Deficiency) |  |  | Income
    (Loss) |            |   | Total |   |            | Interests   |  |   | Equity        |  
|                                              |  |        |            |  |       |   |        |                |  |   |              |  |  |                   |            |   |       |   |            |             |  |   |               |  
|Balance
    December 31, 2016                 |  |        | 11,457,991 |  |       | $ | 11,458 |                |  | $ | 4,842,863    |  |  | $                 | (1,303,120 | ) |       | $ | (1,087,208 | )           |  | $ | 12,463,993    |  
|Translation
    adjustment                    |  |        | —          |  |       |   | —      |                |  |   | —            |  |  |                   | —          |   |       |   | 431,115    |             |  |   | 431,115       |  
|Net
    income                                |  |        | —          |  |       |   | —      |                |  |   | —            |  |  |                   | 1,754,741  |   |       |   | —          |             |  |   | 1,754,741     |  
|Comprehensive
    income                      |  |        | —          |  |       |   | —      |                |  |   | —            |  |  |                   | —          |   |       |   | —          |             |  |   | 2,185,856     |  
|Common
    stock issued                       |  |        | 140,000    |  |       |   | 140    |                |  |   | 155,880      |  |  |                   | —          |   |       |   | —          |             |  |   | 156,020       |  
|Stock-based
    compensation                  |  |        | —          |  |       |   | —      |                |  |   | 116,092      |  |  |                   | —          |   |       |   | —          |             |  |   | 116,092       |  
|                                              |  |        |            |  |       |   |        |                |  |   |              |  |  |                   |            |   |       |   |            |             |  |   |               |  
|Balance
    December 31, 2017                 |  |        | 11,597,991 |  |       | $ | 11,598 |                |  | $ | 15,114,835   |  |  | $                 | 451,621    |   |       | $ | (656,093   | )           |  | $ | 14,921,961    |  
|Translation
    adjustment                    |  |        | —          |  |       |   | —      |                |  |   | —            |  |  |                   | —          |   |       |   | (566,480   | )           |  |   | (566,480      | )
|Net
    income (loss)                         |  |        | —          |  |       |   | —      |                |  |   | —            |  |  |                   | 2,490,268  |   |       |   | —          |             |  |   | 2,490,268     |  
|Common
    stock issued                       |  |        | 101,666    |  |       |   | 102    |                |  |   | 102,258      |  |  |                   | —          |   |       |   | —          |             |  |   | 102,360       |  
|                                              |  |        |            |  |       |   |        |                |  |   |              |  |  |                   |            |   |       |   |            |             |  |   |               |  
|Acquisition
    of EnP Investments LLC        |  |        | —          |  |       |   | —      |                |  |   | —            |  |  |                   | —          |   |       |   | —          |             |  |   | —             |  
|Distributions
    to noncontrolling interests |  |        | —          |  |       |   | —      |                |  |   | —            |  |  |                   | —          |   |       |   | —          |             |  |   | —             |  
|Stock-based
    compensation                  |  |        | —          |  |       |   | —      |                |  |   | 111,192      |  |  |                   | —          |   |       |   | —          |             |  |   | 111,192       |  
|Balance
    December 31, 2018                 |  |        | 11,699,657 |  |       | $ | 11,700 |                |  | $ | 15,328,285   |  |  | $                 | 2,941,889  |   |       | $ | (1,222,573 | )           |  | $ | 17,059,301    |  



See
Notes to Consolidated Financial Statements.



F-5







FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018 and 2017

(U.S.
Dollars)



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





These
consolidated financial statements include the accounts of Flexible Solutions International, Inc. (the “Company”),
its wholly-owned subsidiaries Flexible Fermentation Ltd. (“Flexible Ltd.”), NanoChem Solutions Inc. (“NanoChem”),
Flexible Solutions Ltd., Flexible Biomass LP, FS Biomass Inc., NCS Deferred Corp., Conserve H2O Ltd. and Natural Chem SEZC Ltd,
and its 65% interest in EnP Investments, LLC (“ENP Investments”). 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.



In
2018, NanoChem, a wholly-owned subsidiary of the Company, completed the purchase of 65% of the units of ownership interest in
EnP Investments for an aggregate purchase price of $5,110,560. An unrelated party owns the remaining 35% of the units of ownership
interest in EnP Investments, and EnP Investments is consolidated into the financial statements. The outside investor’s units
of ownership interests in EnP Investments were included in noncontrolling interests in these consolidated financial statements
from the acquisition date onward.



Flexible
Solutions International, Inc. and its subsidiaries develop, manufacture and market specialty chemicals which slow the evaporation
of water. One product, HEATSAVR®, 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, WATERSAVR®, 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 manufactures 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 can be used as additives for household laundry
detergents, consumer care products and pesticides.



|2. | Significant
    Accounting Policies.
|-- | ------------------------------------



These
consolidated financial statements have been prepared on a historical cost basis, except where otherwise noted, 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 three major classes of inventory: completed goods, work in progress and raw materials and supplies. In all classes,
inventories are stated at the lower of cost and net realizable value. 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.



F-6









(c)
Allowance for Doubtful Accounts



The
Company provides an allowance for doubtful accounts when management estimates collectability 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, Leaseholds and Intangible Assets

.

The
following assets are recorded at cost and depreciated using the methods and annual rates shown below:



|Computer
    hardware         |  | 30%
    Declining balance        
|----------------------------- |  | ---------------------------------
|Furniture
    and fixtures    |  | 20%
    Declining balance        
|Manufacturing
    equipment   |  | 20%
    Declining balance        
|Office
    equipment          |  | 20%
    Declining balance        
|Boat                          |  | 20%
    Declining balance        
|Building
    and improvements |  | 10%
    Declining balance        
|Trailer                       |  | 30%
    Declining balance        
|Patents                       |  | Straight-line
    over 17 years  
|Technology                    |  | Straight-line
    over 10 years  
|Leasehold
    improvements    |  | Straight-line
    over lease term



Property
and equipment are written down to net realizable value when management determines there has been a change in circumstances which
indicates their carrying amounts may not be recoverable. No write-downs have been necessary to date.



(e)
Impairment of Long-Lived Assets.



In
accordance with FASB Codification Topic 360, “Property, Plant and Equipment (ASC 360), the Company reviews long-lived assets,
including, but not limited to, property, equipment and leaseholds, 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 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 the Company is the U.S. Dollar. The functional
currency of three of the Company’s subsidiaries is the Canadian Dollar. The translation of the Canadian Dollar to the reporting
currency of the Company, 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 Company’s 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 in the consolidated statements of income and comprehensive income.



F-7









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.





We
follow a five-step model for revenue recognition. The five steps are: (1) identification of the contract(s) with the customer,
(2) identification of the performance obligation(s) in the contract(s), (3) determination of the transaction price, (4) allocation
of the transaction price to the performance obligation, and (5) recognition of revenue when (or as) the performance obligation
is satisfied. We have fulfilled our performance obligations when control transfers to the customer, which is generally at the
time the product is shipped since risk of loss is transferred to the purchaser upon delivery to the carrier. For shipments
which are F.O.B. shipping point, the Company has elected to account for shipping and handling activities as a fulfillment cost
rather than as an additional promised service and performance obligation.





The
Company recognizes revenue when 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.



Since
the Company’s inception, product returns have been insignificant; therefore, no provision has been established for estimated
product returns.



Deferred
revenues consist of products sold to distributors with payment terms greater than the Company’s customary business terms
due to lack of credit history or operating in a new market in which the Company has no prior experience. The Company defers the
recognition of revenue until the criteria for revenue recognition has been met, and payments become due or cash is received from
these distributors.



(h)
Stock Issued in Exchange for Services.



The
Company’s common stock issued in exchange for services is valued at 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 Topic718,
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.



The
fair value at grant date of stock options is estimated using the Black-Scholes 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. Shares are issued from treasury upon exercise of stock options.



(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.



F-8









(k)
Income Per Share.



Basic
earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares
outstanding in the period. Diluted earnings per share are calculated giving effect to the potential dilution of the exercise of
options and warrants. Common equivalent shares, composed of incremental common shares issuable upon the exercise of stock options
and warrants are included in diluted net income per share to the extent that these shares are dilutive. Common equivalent shares
that have an anti-dilutive effect on net income per share have been excluded from the calculation of diluted weighted average
shares outstanding for the years ended December 31, 2018 and 2017.



(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.



Estimates
and underlying assumptions are reviewed at each period end. Revisions to accounting estimates are recognized in the period in
which the estimates are revised and in any future periods affected.



Significant
areas requiring the use of management estimates include assumptions and estimates relating to the valuation of goodwill and
intangible assets, asset impairment analysis, share-based payments and warrants, valuation allowances for deferred income
tax assets, determination of useful lives of property, equipment and leaseholds, and the valuation of inventory.



(m)
Financial Instruments.



The
fair market value of the Company’s financial instruments comprising cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities, and short term line of credit were estimated to approximate their carrying values due to immediate
or short-term maturity of these financial instruments.



(n)
Fair Value of Financial Instruments



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 which is significant to the fair value of
    the assets or liabilities.                                                                                                                                                                                                



F-9









The
fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and the short term line
of credit for all periods presented approximate their respective carrying amounts due to the short term nature of these financial
instruments.



(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 therein.



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. Legal fees associated with loss contingencies are expensed as incurred.



(p)
Income Taxes



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.



Per
FASB ASC 740 “Income taxes” under the liability method, it is the Company’s policy to provide for uncertain
tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more
likely than not to be sustained upon examination by tax authorities. At December 31, 2018, the Company believes it has appropriately
accounted for any unrecognized tax benefits. To the extent the Company prevails in matters for which a liability for an unrecognized
benefit is established or is required to pay amounts in excess of the liability, the Company’s effective tax rate in a given
financial statement period may be affected. Interest and penalties associated with the Company’s tax positions are recorded
as interest expense in the consolidated statements of income and comprehensive income.



F-10







(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-payment by customers.
Credit exposure is minimized by dealing with only credit worthy counterparties. Accounts receivable for the Company’s three
primary customers totaled $1,280,406 (31%) at December 31, 2018 (December 31, 2017 - $1,247,374 or 59%).



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 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.



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 and accrued
liabilities. The Company has not hedged its exposure to currency fluctuations.



(r)
Equity Method Investment



The
Company accounts for investments using the equity method of accounting if the investment provides the Company the ability to exercise
significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company’s
ownership interest in the voting stock of the investee ranges between 20% and 50%, although other factors, such as representation
on the investee’s board of directors, are considered in determining whether the equity method of accounting is appropriate.
Under the equity method of accounting, the investment is recorded at cost in the consolidated balance sheets under other assets
and adjusted for dividends received and the Company’s share of the investee’s earnings or losses together with other-than-temporary
impairments which are recorded through interest and other loss, net in the consolidated statements of income and comprehensive
income.



(s)
Goodwill and  intangible assets





Goodwill represents
the excess of the purchase price of an acquired entity over the amounts assigned to the assets acquired and liabilities assumed.
Goodwill is not amortized, but is reviewed for impairment annually or more frequently if certain impairment conditions arise.
The Company performs an annual goodwill impairment review in the fourth quarter of each year at the reporting unit
level. The evaluation can begin with a qualitative assessment of the factors that could impact the significant inputs used
to estimate fair value. If after performing the qualitative assessment, it is determined that it is not more likely
than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, then no further analysis
is necessary. However, if the results of the qualitative test are unclear, the Company performs a quantitative test,
which involves comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses
an income-based valuation method, determining the present value of future cash flows, to estimate the fair value of a reporting
unit. If the fair value of a reporting unit exceeds its positive carrying amount, goodwill of the reporting unit is considered
not impaired, and no further analysis is necessary. If the fair value of the reporting unit is less than its carrying amount,
goodwill impairment would be recognized equal to the amount of the carrying value in excess of the reporting unit’s fair
value, limited to the total amount of goodwill allocated to the reporting unit.



F-11













Intangible
assets primarily include trademarks and trade secrets with indefinite lives and customer-relationships with finite lives. Intangible
assets with indefinite lives are not amortized but are tested for impairment on an annual basis, or more frequently if indicators
of impairment are present. Indefinite lived intangible assets are assessed using either a qualitative or a quantitative approach.
The qualitative assessment evaluates factors including macro-economic conditions, industry and company-specific factors,
legal and regulatory environments, and historical company performance are evaluated in assessing fair value. If it is determined
that it is more likely than not that the fair value of the reporting unit is less than its carrying value, a quantitative test
is then performed. Otherwise, no further testing is required. When using a quantitative approach, the Company compares the fair
value of the reporting unit to its carrying amount, including goodwill. If the estimated fair value of the reporting unit is less
than the carrying amount of the reporting unit, impairment is indicated, requiring recognition of an impairment charge for the
differential.





Qualitative assessments
of goodwill and indefinite-lived intangible assets were performed in 2018 and 2017. Based on the results of assessment, it was
determined that it is more likely than not the reporting unit, customer lists and trademarks had a fair value in excess of carrying
value. Accordingly, no further impairment testing was completed and no impairment charges related to goodwill or indefinite-lived
intangibles were recognized during the fiscal period ended December 31, 2018.



Finite-lived
intangible assets are amortized on a straight-line basis over their estimated useful lives. The Company reviews for impairment
indicators of finite-lived intangibles and other long-lived assets as described in the “Property and Equipment” significant
accounting policy.





(t)
Adoption of new accounting principles



In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which has been updated through several
revisions and clarifications since its original issuance and supersedes the revenue recognition requirements in Accounting Standards
Codification (ASC) Topic 605, Revenue Recognition. The standard requires revenue recognized to represent the transfer of promised
goods or services to customers at an amount that reflects the consideration which a company expects to receive in exchange for
those goods or services. The standard also requires new, expanded disclosures regarding revenue recognition. The standard was
adopted for the current year and had no material effect on the consolidated financial statements.



On
January 1, 2018, the Company adopted ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10) Recognition
and Measurement of Financial Assets and Financial Liabilities, which changes the income statement impact of equity investments
held by an entity. The amendments require the unrealized gains or unrealized losses of equity instruments measured at fair value
to be recognized in net income. Our adoption of this ASU had no material effect on the consolidated financial statements.



(u)
Accounting Pronouncements Not Yet Adopted



In
February 2016, the FASB issued ASU 2016-02, Leases. The standard will require lessees to recognize most leases on their balance
sheet and makes selected changes to lessor accounting. The standard is effective for annual and interim reporting periods beginning
after December 15, 2018. A modified retrospective transition approach is required, with certain practical expedients available.
We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.



|3. | Acquisition
|-- | -----------



Effective October 1,
2018, the Company, through its NanoChem Solutions Inc. subsidiary, entered into an agreement to purchase 65% of EnP
Investments LLC.



Total
consideration paid of $5,110,560 was paid through a combination of $10,560 cash on hand, $4,100,000 in debt financing provided
by Harris Bank (see Note 12b) and a $1,000,000 convertible note payable. The convertible note is due on or before September
30, 2023 with 5% interest due per year. At the option of the holder, the Note may be converted to 400,000 shares of the Company’s
common stock. The Company has the option to extend the note to no later than September 30, 2028.



The
following table summarizes the final purchase price allocation of the consideration paid to the respective fair values of the
assets acquired and liabilities assumed in EnP Investments LLC as of the effective date. The Company finalized its estimates
after it was able to determine that is had obtained all necessary information that existed as of the acquisition date related
to these matters.



|                              |  |   |          
|----------------------------- |  | - | ---------
|Cash paid                     |  | $ | 4,110,560
|Convertible note              |  |   | 1,000,000
|Total consideration           |  | $ | 5,110,560
|                              |  |   |          
|Assets acquired:              |  |   |          
|Accounts receivable           |  | $ | 1,071,078
|Note receivable               |  |   | 60,000   
|Prepaid expenses              |  |   | 105,473  
|Inventory                     |  |   | 1,867,137
|Investments                   |  |   | 84,943   
|Equipment                     |  |   | 740,000  
|Intangible assets             |  |   | 3,168,000
|Liabilities assumed:          |  |   |          
|Account payable               |  |   | 520,164  
|Loans payable                 |  |   | 292,706  
|Deferred income taxes         |  |   | 989,569  
|Total identifiable net assets |  |   | 5,294,192
|Non-controlling interest      |  |   | 2,759,917
|Goodwill                      |  | $ | 2,534,275





In
connection with the 65% purchase of EnP Investments LLC, the Company incurred bank appraisal fees of $7,038 which was recorded
as general expenses during the year ended December 31, 2018. Goodwill of $2,534,275 is the excess of total consideration
less identifiable assets at fair value less debt assumed at fair value. Goodwill is attributable to EnP Investments LLC
management, assembled workforce, operating model and completive presence in its respective market.





F-12









The
operating results of EnP Investments LLC have been included in the consolidated financial statements beginning October
1, 2018.



Unaudited
pro forma financial information



The
following unaudited pro forma combined financial information presents combined results of the Company and EnP Investments as if
the Business Combination had occurred on January 1, 2017.



|             |  | 2018 |            |  | 2017 |  
|------------ |  | ---- | ---------- |  | ---- | -
|             |  |      |            |  |      |  
|Net sales    |  | $    | 23,152,539 |  |      | $
|Gross profit |  |      | 8,428,317  |  |      |  
|Net income   |  | $    | 4,422,745  |  |      | $



The
pro forma financial information is not intended to represent or be indicative of the actual results of operations of the combined
entity that would have been reported had the Business Combination been completed on January 1, 2016, nor is it representative
of future operating results of the Company.



|4. | Accounts
    Receivable
|-- | -----------------------



|                                     |  | 2018 |           |   | 2017 |  
|------------------------------------ |  | ---- | --------- | - | ---- | -
|                                     |  |      |           |   |      |  
|Accounts receivable                  |  | $    | 4,459,834 |   |      | $
|Allowances for
    doubtful accounts |  |      | (37,088   | ) |      |  
|                                     |  | $    | 4,422,745 |   |      | $



|5. | Inventories
|-- | -----------



|                               |  | 2018 |           |  | 2017 |  
|------------------------------ |  | ---- | --------- |  | ---- | -
|                               |  |      |           |  |      |  
|Completed goods                |  | $    | 3,770,071 |  |      | $
|Work in progress               |  |      | 150,333   |  |      |  
|Raw materials
    and supplies |  |      | 4,807,305 |  |      |  
|                               |  | $    | 8,727,709 |  |      | $





|6. | Property,
                                         Equipment and Leaseholds
|-- | ---------------------------------------------------------------------------



|                           |  | 2018 |           |  | Accumulated  |   |           | 2018 | 
|-------------------------- |  | ---- | --------- |  | ------------ | - | --------- | ---- | 
|                           |  | Cost |           |  | Depreciation |   |           | Net  | 
|Buildings and improvements |  | $    | 3,516,710 |  |              | $ | 2,523,148 |      | 
|Automobiles                |  |      | 193,397   |  |              |   | 74,753    |      | 
|Computer hardware          |  |      | 43,414    |  |              |   | 40,226    |      | 
|Furniture and fixtures     |  |      | 105,494   |  |              |   | 93,087    |      | 
|Office equipment           |  |      | 1,740     |  |              |   | 438       |      | 
|Manufacturing equipment    |  |      | 3,859,653 |  |              |   | 2,838,344 |      | 
|Trailer                    |  |      | 8,793     |  |              |   | 3,561     |      | 
|Boat                       |  |      | 34,400    |  |              |   | 18,548    |      | 
|Leasehold improvements     |  |      | 88,872    |  |              |   | 49,937    |      | 
|Technology                 |  |      | 100,136   |  |              |   | 100,136   |      | 
|Land                       |  |      | 352,830   |  |              |   | —         |      | 
|                           |  | $    | 8,305,439 |  |              | $ | 5,742,178 |      | 



F-13









|                           |  | 2017 |           |  | Accumulated  |   |           | 2017 | 
|-------------------------- |  | ---- | --------- |  | ------------ | - | --------- | ---- | 
|                           |  | Cost |           |  | Depreciation |   |           | Net  | 
|Buildings and improvements |  | $    | 3,400,792 |  |              | $ | 2,409,179 |      | 
|Computer hardware          |  |      | 40,904    |  |              |   | 39,398    |      | 
|Furniture and fixtures     |  |      | 17,673    |  |              |   | 11,156    |      | 
|Office equipment           |  |      | 1,480     |  |              |   | 148       |      | 
|Manufacturing equipment    |  |      | 2,590,158 |  |              |   | 2,104,137 |      | 
|Trailer                    |  |      | 9,562     |  |              |   | 1,434     |      | 
|Boat                       |  |      | 34,400    |  |              |   | 14,586    |      | 
|Leasehold improvements     |  |      | 85,432    |  |              |   | 32,506    |      | 
|Technology                 |  |      | 101,748   |  |              |   | 101,748   |      | 
|Land                       |  |      | 370,652   |  |              |   | —         |      | 
|                           |  | $    | 6,652,801 |  |              | $ | 4,714,292 |      | 





Amount
of depreciation expense for 2018: $326,123 (2017: $270,178) and is included in cost of sales in the consolidated statements
of income and comprehensive income.





In February of 2017,
the Company lost a net carrying value total of $2,196,722CAD ($1,659,404 USD) in building and manufacturing equipment in a fire
at the Taber, AB location. Insurance was in place. During the year ended December 31, 2018 the Company received the final insurance
proceeds of $3,132,666 CAD ($2,349,498 USD). During the year ended 2017, the Company received interim insurance proceeds of $5,570,000
CAD ($4,207,578 USD).





7.
Patents





|        |  | 2018 Cost |         |  | Accumulated
    Amortization |   |         | 2018 Net | 
|------- |  | --------- | ------- |  | ---------------------------- | - | ------- | -------- | 
|Patents |  | $         | 194,320 |  |                              | $ | 131,306 |          | 



|        |  | 2017 Cost |         |  | Accumulated
    Amortization |   |         | 2017 Net | 
|------- |  | --------- | ------- |  | ---------------------------- | - | ------- | -------- | 
|Patents |  | $         | 212,426 |  |                              | $ | 132,974 |          | 





Decrease
in 2018 cost was due to currency conversion. 2018 cost in Canadian dollars - $265,102 (2017 - $265,102 in Canadian dollars).



Amount
of amortization for 2018: $16,438 (2017: $16,438) and is included in cost of sales in the consolidated statements of income and
comprehensive income.



Estimated
amortization expense over the next four years is as follows:



|2019 |  | $ | 16,438 | 
|---- |  | - | ------ | 
|2020 |  |   | 16,438 | 
|2021 |  |   | 16,438 | 
|2022 |  |   | 13,700 | 



F-14









|8. | Goodwill
    and Indefinite Lived Intangible Assets
|-- | ---------------------------------------------------



|Goodwill                        |  |  |          
|------------------------------- |  |  | ---------
|Balance as of December 31, 2017 |  |  | -        
|Additions                       |  |  | 2,534,275
|Impairment                      |  |  | -        
|Balance as of December 31, 2018 |  |  | 2,534,275





|Indefinite Lived Intangible Assets |  |  |        
|---------------------------------- |  |  | -------
|Balance as of December 31, 2017    |  |  | -      
|Additions                          |  |  | 770,000
|Impairment                         |  |  | -      
|Balance as of December 31, 2018    |  |  | 770,000



Indefinite
lived intangible assets consist of trade secrets and trademarks related to the acquisition of EnP Investments LLC (note 3).



|Definite Life Intangible Assets |  |  |          
|------------------------------- |  |  | ---------
|Balance as of December 31, 2017 |  |  | -        
|Additions                       |  |  | 2,398,000
|Amortization                    |  |  | (40,000  
|Balance as of December 31, 2018 |  |  | 2,358,000



Definite
life intangible assets consists of customer relationships related to the acquisition of EnP Investments LLC (note 3). Customer
relationships are amortized over their estimated useful life of 15 years.



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



|2019 |  | $ | 160,000 | 
|---- |  | - | ------- | 
|2020 |  |   | 160,000 | 
|2021 |  |   | 160,000 | 
|2022 |  |   | 160,000 | 
|2023 |  |   | 160,000 | 



|9. | Long
    Term Deposits
|-- | ----------------------



The
Company has security deposits that are long term in nature which consist of damage deposits held by landlords and security deposits
held by various vendors.



|                   |  | 2018 |        |  | 2017 |  
|------------------ |  | ---- | ------ |  | ---- | -
|                   |  |      |        |  |      |  
|Long term deposits |  | $    | 30,777 |  |      | $



|10. | Investments
|--- | -----------



(a)The Company has a 50% ownership
interest in ENP Peru Investments LLC (“ENP Peru”), which was acquired in fiscal 2016. ENP Peru is located in Illinois
and leases warehouse space. The Company accounts for this investment using the equity method of accounting. A summary of the Company’s
investment follows:



|                                     |  |   |        
|------------------------------------ |  | - | -------
|Balance, January 1, 2017             |  | $ | 122,480
|Return of equity                     |  |   | (25,000
|Loss in equity
    method investment |  |   | (84,066
|Balance, December 31, 2017           |  | $ | 13,414 
|Acquisition of additional units      |  |   | 25,000 
|Loss
    in equity method investment |  |   | (26,306
|Balance, December 31, 2018           |  | $ | 12,108 





(b)The Company has a 24% ownership interest in ENP Realty LLC (“ENP Realty”), which was acquired in fiscal
2018. ENP Realty is located in Illinois and leases warehouse space. The Company accounts for this investment using the equity
method of accounting. A summary of the Company’s investment follows:



|Balance, January 1, 2018         |  | $ | -      | 
|-------------------------------- |  | - | ------ | 
|Acquisition                      |  |   | 56,590 | 
|Gain in equity method investment |  |   | 7,659  | 
|Balance, December 31, 2018       |  | $ | 64,249 | 



(c)In December 2018 the Company invested $200,000 in Applied Holding Corp. (“Applied”). Applied is a captive
insurance company and the Company received a promissory note for its investment which becomes due in 2021 but may be extended
with notice for a maximum of two years.



(d)In December 2018 the Company invested $500,000 in Trio Opportunity Corp. (“Trio”), a privately held entity.
Trio is a real estate investment vehicle and the Company received 50,000 non-voting Class B shares at $10.00/share. In accordance
with ASC 321-10-35, the Company has elected to accounts
for this investment at cost. A summary of the Company’s investment follows:



|Balance, January 1, 2018   |  | $ | -       | 
|-------------------------- |  | - | ------- | 
|Acquisition                |  |   | 500,000 | 
|Impairment                 |  |   | -       | 
|Balance, December 31, 2018 |  | $ | 500,000 | 



|11. | Short-Term
    Line of Credit
|--- | -----------------------------



(a)In September 2018, the Company signed
a new agreement with Harris Bank (“Harris”) to renew the expiring credit line. The revolving line of credit is for
an aggregate amount of up to the lesser of (i) $2,500,000, or (ii) 80% of eligible domestic accounts receivable and certain foreign
accounts receivable plus 60% of inventory. The loan has an annual interest rate of 5.75%.



The
revolving line of credit contains customary affirmative and negative covenants, including the following: compliance with laws,
provision of financial statements and periodic reports, payment of taxes, maintenance of inventory and insurance, maintenance
of operating accounts at Harris, Harris’ access to collateral, formation or acquisition of subsidiaries, incurrence of indebtedness,
dispositions of assets, granting liens, changes in business, ownership or business locations, engaging in mergers and acquisitions,
making investments or distributions and affiliate transactions. The covenants also require that the Company maintain a minimum
ratio of qualifying financial assets to the sum of qualifying financial obligations. As of December 31, 2018, Company was in compliance
with all loan covenants.



To
secure the repayment of any amounts borrowed under the revolving line of credit, the Company granted Harris a security interest
in substantially all of the assets of NanoChem Solutions Inc., exclusive of intellectual property assets.



Short-term
borrowings outstanding under the revolving line as of December 31, 2018 were $1,700,000 (December 31, 2017 - $250,000).



F-15







(b)In February, 2018, EnP Investments, LLC signed a new agreement with Midland States Bank (“Midland”) to renew the
expiring credit line. The revolving line of credit is for an aggregate amount of up to $2,500,000. The interest rate of this loan
is subject to change from time to time based on changes in an independent index which is the 1 month LIBOR as published in the
Wall Street Journal (the “Index”). Interest on the unpaid principal balance of this loan will be calculated using
a rate of 4.060 percentage points over the Index. Under no circumstances will the interest rate of this loan be less than 4.000%
per annum or more than the maximum rate allowed by applicable law. The interest rate at December 31, 2018 is 6.5296% (December
31, 2017 – 5.5550%).



The
revolving line of credit contains customary affirmative and negative covenants, including the following: compliance with laws,
provisions of financial statements and periodic reports, payment of taxes, maintenance of inventory and insurance, maintenance
of operating accounts at Midland, Midland’s access to collateral, formation of acquisition of subsidiaries, incurrence of
indebtedness, dispositions of assets, granting liens, changes in business, ownership or business locations, engaging in mergers
and acquisitions, making investments or distributions and affiliate transactions. Advanced Turf Solutions, Inc., a 35% owner of
EnP Investments, LLC, is a Guarantor of said loan. As of December 31, 2018, EnP Investments , LLC was in compliance with all loan
covenants.



To
secure the repayment of any amounts borrowed under the revolving line of Credit, EnP Investments, LLC granted Midland a security
interest in all inventory, equipment and fixtures and acknowledges a separate commercial security agreement from guarantor
to Midland dated February 15, 2011.



Short-term
borrowings outstanding under the revolving line as of December 31, 2018 were $1,098,131 (December 31, 2017 – 1,246,647).







|12. | Long
                                         Term Debt
|--- | -------------------------------------------------------









(a)In September 2014, NanoChem Solutions
Inc. signed a $1,005,967 promissory note with Harris Bank with a rate of prime plus 0.5% (December 31, 2018 – 5.75%; December
31, 2017 – 5%) to be repaid over 5 years with equal monthly installments plus interest. This money was used to retire the
previously issued and outstanding debt obligations. The balance owing at December 31, 2018 was $150,895 (December 31, 2017 - $352,089).
Interest expense for the year ended December 31, 2018 was $13,123 (December 31, 2017 - $44,125). The final payment will
be made in September 2019.



The
Company has committed to the following repayments:



|2019 |  | $ | 150,895 | 
|---- |  | - | ------- | 



(b)In October 2018, NanoChem Solutions
Inc. signed a $4,100,000 term loan with Harris Bank with a rate of prime (December 31, 2018 – 5.5%; December 31, 2017 -
nil) to be repaid over 7 years with equal monthly installments plus interest along two payments consisting of 25% prior year cash
flow recapture, capped at $300,000, due May 31, 2019 and 2020. The money was used to purchase a 65% interest in EnP Investments
LLC. The balance owing at December 31, 2018 was $4,002,381.



The
Company has committed to the following repayments:



|2019 |  | $ | 585,714 | 
|---- |  | - | ------- | 
|2020 |  | $ | 585,714 | 
|2021 |  | $ | 585,714 | 
|2022 |  | $ | 585,714 | 
|2023 |  | $ | 585,714 | 



F-16









(c)In January, 2018, EnP Investments,
LLC signed a $200,000 promissory note with Midland States Bank with a rate of 5.250% to be repaid over 7 years with equal monthly
installments plus interest. This money was used to purchase production equipment. Interest expense for the year ended December
31, 2018 was $2,415 (December 31, 2017 - $nil). The principal balance owing at December 31, 2018 is $177,794.



The
Company has committed to the following repayments:





|2019 |  | $ | 25,562 | 
|---- |  | - | ------ | 
|2020 |  | $ | 25,562 | 
|2021 |  | $ | 25,562 | 
|2022 |  | $ | 25,562 | 
|2023 |  | $ | 25,562 | 









(d)In March, 2016, EnP Investments, LLC
signed a $45,941 promissory note with Ford Motor Credit Company with a rate of 0.00% interest to be repaid over 5 years with equal
monthly installments. The balance owing at December 31, 2018 is $20,673 (December 31, 2017 - $29,861).



The
Company has committed to the following repayments:



|2019 |  | $ | 9,188 | 
|---- |  | - | ----- | 
|2020 |  | $ | 9,188 | 
|2021 |  | $ | 2,297 | 



As
of December 31, 2018, Company was in compliance with all loan covenants.





|Continuity                            |  | 2018 |           |   | 2017 |  
|------------------------------------- |  | ---- | --------- | - | ---- | -
|Balance, January 1                    |  | $    | 352,089   |   |      |  
|Plus: Proceeds from loans             |  |      | 4,100,000 |   |      |  
|Plus: Acquisition of ENP (see Note 3) |  |      | 206,921   |   |      |  
|Less: Payments
    on loan            |  |      | (307,267  | ) |      |  
|Balance, December 31                  |  | $    | 4,351,743 |   |      | $



|Outstanding
    balance at December 31,     |  | 2018 |           |   | 2017 |  
|------------------------------------------- |  | ---- | --------- | - | ---- | -
|a) Long term debt –
    Harris Bank         |  | $    | 150,895   |   |      | $
|b) Long term debt – Harris Bank             |  |      | 4,002,381 |   |      |  
|c) Long term debt – Midland States
    Bank |  |      | 177,794   |   |      |  
|d) Long term
    debt – Ford Credit         |  |      | 20,673    |   |      |  
|Long-term Debt                              |  | $    | 4,351,743 |   |      | $
|Less: current
    portion                   |  |      | (771,359  | ) |      |  
|                                            |  | $    | 3,580,384 |   |      | $





F-17









13.
Convertible Note Payable



In
October 2018, the Company issued a convertible note payable in the amount of $1,000,000 to EnP Investments LLC in connection with
the acquisition of EnP Investments LLC (note 3). The note is carried at fair value, considering the fair value of the equity conversion
feature and the fair value of the debt component. The
convertible note is due on or before September 30, 2023 with 5% interest due per year. At the option of the holder, the Note may
be converted to 400,000 shares in Flexible Solutions International Inc. The Company has the option to extend the note to no later
than September 30, 2028.





|                                        |  |   |          
|--------------------------------------- |  | - | ---------
|Carrying amount of equity component     |  | $ | 277,600  
|Principal amount of liability component |  |   | 722,400  
|Balance, December 31, 2018              |  | $ | 1,000,000





14.
Income Tax



The provision for income tax expense (benefit)
is comprised of the following:



|                             |  | 2018 |           |   | 2017 |  
|---------------------------- |  | ---- | --------- | - | ---- | -
|Current tax, federal         |  | $    | 547,486   |   |      | $
|Current tax, state           |  |      | 132,833   |   |      |  
|Current tax, foreign         |  |      | -         |   |      |  
|Current tax, total           |  |      | 680,319   |   |      |  
|                             |  |      |           |   |      |  
|Deferred income tax, federal |  |      | (11,069   | ) |      |  
|Deferred income tax, state   |  |      | (2,686    | ) |      |  
|Deferred income tax, foreign |  |      | 385,639   |   |      |  
|Deferred income tax, total   |  |      | 371,884   |   |      |  
|Total                        |  | $    | 1,052,203 |   |      | $



The following table
reconciles the income tax benefit at the U.S. Federal statutory rate to income tax benefit at the Company's effective tax rates.



|                                                                              |  | 2018 |           |   | 2017 | 
|----------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | 
|Income (loss) before tax, net of tax
    from gain on involuntary disposition |  |      | 3,054,847 |   |      | 
|Tax from gain on involuntary
    disposition                                  |  |      | 693,063   |   |      | 
|Income (loss) before taxes                                                    |  |      | 3,747,910 |   |      | 
|US statutory tax rates                                                        |  |      | 28.51     | % |      | 
|Expected income tax (recovery)                                                |  |      | 1,068,342 |   |      | 
|Non-deductible items                                                          |  |      | 627,995   |   |      | 
|Change in estimates                                                           |  |      | 61,361    |   |      | 
|Change in enacted tax rate                                                    |  |      | -         |   |      | 
|Option expired during the year                                                |  |      | 5,191     |   |      | 
|Foreign tax rate difference                                                   |  |      | (396,514  | ) |      | 
|Change in valuation allowance                                                 |  |      | (36,119   | ) |      | 
|Total income taxes (recovery)                                                 |  |      | 1,061,609 |   |      | 
|                                                                              |  |      |           |   |      | 
|Current income tax expenses (recovery)                                        |  |      | 533,130   |   |      | 
|Deferred tax expenses (recovery)                                              |  |      | 797,126   |   |      | 
|Total income taxes (recovery)                                                 |  |      | 1,061,609 |   |      | 



Deferred taxes reflect
the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes.
Deferred tax assets (liabilities) at December 31, 2018 and 2017 are comprised of the following:



|                                       |  | 2018 |         |   | 2017 | 
|-------------------------------------- |  | ---- | ------- | - | ---- | 
|Canada                                 |  |      |         |   |      | 
|Non capital loss
    carryforwards     |  |      | 556,462 |   |      | 
|Patents                                |  |      | 63,998  |   |      | 
|Fixed assets                           |  |      | (350    | ) |      | 
|Financial
    instruments              |  |      | -       |   |      | 
|                                       |  |      | 620,110 |   |      | 
|Valuation Allowance                    |  |      | -       |   |      | 
|Net Deferred
    tax asset (liability) |  |      | 620,110 |   |      | 



|                                      |  |  | 2018     |   |  |  | 2017    | 
|------------------------------------- |  |  | -------- | - |  |  | ------- | 
|USA                                   |  |  |          |   |  |  |         | 
|Fixed Assets                          |  |  | 247,665  |   |  |  | 351,746 | 
|Intangible assets                     |  |  | (989,569 | ) |  |  | -       | 
|Stock-Based
    Compensation          |  |  | 173,739  |   |  |  | 154,023 | 
|                                      |  |  | (568,165 | ) |  |  | 505,768 | 
|Deferred
    tax asset not recognized |  |  | 153,565  |   |  |  | 189,684 | 
|Net Deferred
    tax asset            |  |  | (721,730 | ) |  |  | 316,084 | 



The Company has non-operating
loss carryforwards of approximately $2,060,971 (2017 - $5,097,682) which may be carried forward to apply against future year income
tax for Canadian income tax purposes, subject to the final determination by taxation authorities, expiring in the following years:



|Expiry |  | Loss |          
|------ |  | ---- | ---------
|2032   |  |      | 401,480  
|2037   |  |      | 1,659,491
|Total  |  |      | 2,060,971



As at December 31,
2018, the Company has no net operating losses carryforward available for US tax purposes.



Accounting for Uncertainty for Income
Tax



Effective January 1,
2009, the Company adopted the interpretation for accounting for uncertainty in income taxes which was an interpretation of the
accounting standard accounting for income taxes. This interpretation created a single model to address accounting for uncertainty
in tax positions. This interpretation clarifies the accounting for income taxes, by prescribing a minimum recognition threshold
a tax position is required to meet before being recognized in the financial statements.



As at December 31,
2018 and 2017, the Company’s consolidated balance sheets did not reflect a liability for uncertain tax positions, nor any
accrued penalties or interest associated with income tax uncertainties. The Company has no income tax examinations in progress.



F-18











|15. | INCOME PER SHARE
|--- | ----------------





We
present both basic and diluted income per share on the face of our consolidated statements of operations. Basic and diluted income
per share are calculated as follows:





|                                                           |  | 2018 |            |  | 2017 |  
|---------------------------------------------------------- |  | ---- | ---------- |  | ---- | -
|Net income (loss)                                          |  | $    | 2,490,268  |  |      | $
|Weighted average common shares outstanding:                |  |      |            |  |      |  
|Basic                                                      |  |      | 11,630,136 |  |      |  
|Diluted                                                    |  |      | 11,816,054 |  |      |  
|Net income (loss) per common share:                        |  |      |            |  |      |  
|Basic
                                         and diluted |  | $    | 0.21       |  |      | $



Certain
stock options whose terms and conditions are described in Note 16, “Stock Options” could potentially dilute
basic EPS in the future, but were not included in the computation of diluted EPS because to do so would have been anti-dilutive.
Those anti-dilutive options are as follows.



|                          |  | 2018 |         |  | 2017 | 
|------------------------- |  | ---- | ------- |  | ---- | 
|Anti-dilutive
    options |  |      | 261,000 |  |      | 



There
were no preferred shares issued and outstanding during the years ended December 31, 2018 or 2017.





|16. | 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 promote the success of the Company’s business. 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.



F-19









The
following table summarizes the Company’s stock option activity for the years ended December 31, 2018 and 2017:



|                               |  | Number
    of shares |          |   | Exercise
    price per share |   |                                                       | Weighted
    average exercise price | 
|------------------------------ |  | -------------------- | -------- | - | ---------------------------- | - | ----------------------------------------------------- | ----------------------------------- | 
|Balance, December 31, 2016     |  |                      | 813,000  |   |                              | $ | 0.75
                                         - $2.22 |                                     | 
|Granted                        |  |                      | 154,000  |   |                              | $ | 1.70                                                  |                                     | 
|Cancelled or expired           |  |                      | (114,000 | ) |                              | $ | 1.00
                                       – 2.22    |                                     | 
|Exercised                      |  |                      | (140,000 | ) |                              | $ | 0.75
                                         – 1.21  |                                     | 
|Balance, December 31, 2017     |  |                      | 713,000  |   |                              | $ | 0.75
                                       – 1.70    |                                     | 
|Granted                        |  |                      | 110,000  |   |                              | $ | 1.48
                                       – 1.75    |                                     | 
|Cancelled or expired           |  |                      | (61,334  | ) |                              | $ | 1.00
                                       – 1.70    |                                     | 
|Exercised                      |  |                      | (101,666 | ) |                              | $ | 0.75
                                         – 1.42  |                                     | 
|Balance, December 31, 2018     |  |                      | 660,000  |   |                              | $ | 0.75
                                         – 1.75  |                                     | 
|Exercisable, December 31, 2018 |  |                      | 555,000  |   |                              | $ | 0.75
                                         – 1.70  |                                     | 



The
weighted-average remaining contractual life of outstanding options is 3.04 years.



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



|                                                   |  | 2018 |                                                        |   | 2017 |  
|-------------------------------------------------- |  | ---- | ------------------------------------------------------ | - | ---- | -
|Expected life – years                              |  |      | 3.0                                                    |   |      |  
|Interest rate                                      |  |      | 2.8
                                         – 2.96    | % |      |  
|Volatility                                         |  |      | 47.77
                                         – 51.85 | % |      |  
|Dividend yield                                     |  |      | —                                                      | % |      |  
|Weighted average fair value of options
    granted |  | $    | 0.4759
                                       – 0.6313 |   |      | $



During
the year ended December 31, 2018, the Company granted 100,000 (2017 – 40,000) stock options to consultants and has applied
ASC 718 using the Black-Scholes option-pricing model, which resulted in additional expenses of $5,747 (2017 - $6,675). Options
granted in other years resulted in additional expenses of $26,701 (2017 – $22,634). During the year ended December 31, 2018,
employees were granted 10,000 (2017 – 114,000) stock options, which resulted in additional expenses of $5,150 (2017
– $19,024). Options granted in other years resulted in additional expenses in the amount of $73,594 for employees during
the year ended December 31, 2018 (2017 - $67,759). There were 60,000 employee and 41,666 consultant stock options exercised during
the year ended December 31, 2018 (2017 – 110,000 employee; 30,000 consultant).



As
of December 31, 2018, there was approximately $57,383 of compensation expense related to non-vested awards. This expense is expected
to be recognized over a weighted average period of 4.75 years.



The
aggregate intrinsic value of vested options outstanding at December 31, 2018 is $43,190 (2017 – $413,410).



|17. | CAPITAL STOCK.
|--- | --------------





During
the year ended December 31, 2018, the Company issued 60,000 shares upon the exercise of employee stock options and 41,666 shares
upon the exercise of consultant stock options.



F-20









During
the year ended December 31, 2017, the Company issued 110,000 shares upon the exercise of employee stock options and 30,000 shares
upon the exercise of consultant stock options.





|18. | Non-Controlling
    Interests
|--- | -----------------------------



EnP
Investments is a limited liability corporation (LLC) that manufactures and distributes golf,
turf and ornamental agriculture products in Mendota, IL. The Company owns 65% of the units of ownership interest EnP Investments
through its wholly-owned subsidiary NanoChem. An unrelated party owns the remaining 35% of the units of ownership interest in
EnP Investments. For financial reporting purposes, the assets, liabilities and earnings of the LLC are consolidated into these
financial statements. The unrelated third party’s units of ownership interest in the LLC are recorded in noncontrolling
interests in these consolidated financial statements. The noncontrolling interest represents the noncontrolling unitholder’s
interest in the earnings and equity of EnP Investments. Effective October 1, 2018, the Company paid $4,110,560 in cash and issued
a $1,000,000 convertible note (see Note 3) to acquire EnP Investments.EnP Investments is allocated to the BCPA segment.



EnP
Investments makes cash distributions to the unitholders based on formulas defined within its Ownership Interest Purchase Agreement
dated October 1, 2018. Distributions are defined in the Ownership Interest Purchase Agreement as cash on hand to the extent it
exceeds current and anticipated long-term and short-term needs, including, without limitation, needs for operating expenses, debt
service, acquisitions, reserves, and mandatory distributions, if any.



From
the effective date of acquisition onward, the minimum distributions requirements under the Ownership Interest Purchase Agreement
were satisfied. The total distribution from the effective date of acquisition onward was $229,135.





|Balance, January 1, 2018              |  | $ | -         |  
|------------------------------------- |  | - | --------- | -
|Acquisition                           |  |   | 2,759,917 |  
|Distribution                          |  |   | (229,135  | )
|Noncontrolling interest share of loss |  |   | (68,551   | )
|Balance, December 31, 2018            |  | $ | 2,462,231 |  



|19. | SEGMENTED, SIGNIFICANT CUSTOMER INFORMATION AND ECONOMIC DEPENDENCY.
|--- | --------------------------------------------------------------------





The
Company operates in two segments:



(a)
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)
Biodegradable polymers (“BCPA’s”), also known as TPA’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.



Year
ended December 31, 2018:



|                                    |  | EWCP |           |  | BCPA |   |            | Consolidated | 
|----------------------------------- |  | ---- | --------- |  | ---- | - | ---------- | ------------ | 
|Sales                               |  | $    | 314,544   |  |      | $ | 17,514,974 |              | 
|Interest expense                    |  |      | -         |  |      |   | 93,653     |              | 
|Depreciation                        |  |      | 50,920    |  |      |   | 251,641    |              | 
|Income tax expense                  |  |      | -         |  |      |   | 533,130    |              | 
|Segment profit                      |  |      | 1,579,464 |  |      |   | 910,804    |              | 
|Segment assets                      |  |      | 505,124   |  |      |   | 2,121,151  |              | 
|Expenditures
    for segment assets |  |      | 15,032    |  |      |   | 165,798    |              | 







F-21









Year
ended December 31, 2017:



|                                    |  | EWCP |           |  | BCPA |   |            | Consolidated | 
|----------------------------------- |  | ---- | --------- |  | ---- | - | ---------- | ------------ | 
|Sales                               |  | $    | 641,675   |  |      | $ | 14,852,650 |              | 
|Interest expense                    |  |      | 54        |  |      |   | 44,071     |              | 
|Depreciation                        |  |      | 62,376    |  |      |   | 224,240    |              | 
|Income tax expense                  |  |      | -         |  |      |   | 680,319    |              | 
|Segment profit                      |  |      | 2,021,289 |  |      |   | (266,548   | )            | 
|Segment assets                      |  |      | 580,304   |  |      |   | 1,437,657  |              | 
|Expenditures
    for segment assets |  |      | 287,853   |  |      |   | 138,628    |              | 





Sales
by territory are shown below:



|                             |  | 2018 |            |  | 2017 |  
|---------------------------- |  | ---- | ---------- |  | ---- | -
|Canada                       |  | $    | 364,847    |  |      | $
|United States
    and abroad |  |      | 17,464,671 |  |      |  
|Total                        |  | $    | 17,829,518 |  |      | $



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



|              |  | 2018 |           |  | 2017 |  
|------------- |  | ---- | --------- |  | ---- | -
|Canada        |  | $    | 505,124   |  |      | $
|United States |  |      | 7,783,426 |  |      |  
|Total         |  | $    | 8,288,550 |  |      | $



Three
customers accounted for $6,880,598 (39%) of sales made in 2018 (2017 - $9,157,538 or 59%).



|20. | COMMITMENTS.
|--- | ------------





The
Company is committed to minimum rental payments for property and premises aggregating approximately $1,121,595 over the term of
five leases, the last expiring on September 30, 2023.



Commitments
for rent in the next five years are as follows:



|2019 |  | $ | 425,995 | 
|---- |  | - | ------- | 
|2020 |  | $ | 399,900 | 
|2021 |  | $ | 276,980 | 
|2022 |  | $ | 10,620  | 
|2023 |  | $ | 8,100   | 









|21. | SUBSEQUENT
    EVENTS.
|--- | ----------------------











In
January 2019, the Company issued 5,000 shares on the exercise of employee stock options. In February 2019, the Company issued
5,000 shares on the exercise of consultant stock options.





In
January 2019, the Company purchased membership in a profitable limited liability company
engaged in international sales of fertilizer additives. This purchase will be accounted for as an investment. The price paid was
an initial US$ 1 million with two further payments of US$1 million and US$ 1.5 million contingent on the investment reaching
EBITDA hurdles in 2019 and 2020 respectively. The purchase was made using cash.



In
February 2019, the Company announced the payment of a special dividend to the existing stockholders of the Company as of March
6, 2019 in the amount of five cents per share.





F-22









| | Item
                                         9. | Changes
                                         in and Disagreements with Accountants on Accounting and Financial Disclosure.
| | ------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------



None.



| | Item
                                         9A. | Controls
                                         and Procedures.
| | ------------------------------------------------- | -----------------------------------------------------------------



We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic
reports to the SEC 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
officer and principal 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 our desired disclosure control objectives.



As
of the end of the period covered by this Annual Report on Form 10-K for the year ended December 31, 2018, we carried out an evaluation,
under the supervision and with the participation of management, including our principal executive officer and principal financial
officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our principal executive officer
and principal financial officer concluded that our disclosure controls and procedures are effective.



Management’s
Report on Internal Control Over Financial Reporting



Our
management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment
of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission, internal
control over financial reporting is a process designed by, or under the supervision of our principal executive officer and principal
financial officer and implemented by our Board of Directors, management and other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of our financial statements in accordance with U.S. generally accepted
accounting principles.



Our
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with U.S.
generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations
of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the financial statements.



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



In
connection with the preparation of our annual financial statements, management has undertaken an assessment of the effectiveness
of our internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the 2013 COSO Framework.
Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing
of the operational effectiveness of those controls.



17







Based
on this evaluation, management has concluded that our internal control over financial reporting was effective as of December 31,
2018.



There
was no change in our internal control over financial reporting that occurred during the period covered by this report that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



| | Item
                                         9B. | Other
                                         Information.
| | ------------------------------------------------- | -----------------------------------------------------------



None.



| | Item
                                         10. | Directors,
                                         Executive Officers and Corporate Governance.
| | ------------------------------------------------- | ------------------------------------------------------------------------------------------------





|Name                  |  | Age |    |  | Position
|--------------------- |  | --- | -- |  | --------
|Daniel
    B. O’Brien |  |     | 62 |  |         
|John H. Bientjes      |  |     | 66 |  |         
|Robert Helina         |  |     | 53 |  |         
|Tom Fyles             |  |     | 67 |  |         
|Ben Seaman            |  |     | 38 |  |         
|David Fynn            |  |     | 61 |  |         





Daniel
B. O’Brien has served as our President, Chief Executive Officer and Principal Financial and Accounting Officer, as well
as a director since June 1998. He has been involved in the swimming pool industry since 1990, when he founded our subsidiary,
Flexible Solutions Ltd. From 1990 to 1998 Mr. O’Brien was also a teacher at Brentwood College where he was in charge of
outdoor education.



John
H. Bientjes has been a director since February 2000. Since 1984, Mr. Bientjes has served as the manager of the Commercial Aquatic
Supplies Division of D.B. Perks & Associates, Ltd., located in Vancouver, British Columbia, a company that markets supplies
and equipment to commercial swimming pools which are primarily owned by municipalities. Mr. Bientjes graduated in 1976 from Simon
Fraser University in Vancouver, British Columbia with a Bachelor of Arts Degree in Economics and Commerce.



Robert
T. Helina has been a director since October 2011. Mr. Helina has been involved in the financial services industry for over 25
years which has given him extensive knowledge in business, economics and finance. His specially is in Corporate Finance and Capital
Markets. Mr. Helina holds a Bachelor of Arts degree from Trinity Western University.



Thomas
M. Fyles has been a director since August 2012. Since 1979 Dr. Fyles has been a chemistry professor at the University of Victoria
(Assistant Professor 1979-1984/Associate Professor 1984-1992/and Professor with Tenure since 1992) Dr. Fyles received his Bachelor
of Science degree (with honors) from the University of Victoria in 1974 and his Ph.D. in chemistry from York University in 1977.
Dr. Fyles was a postdoctoral fellow with Prof. J.M. Lehn, Institut Le Bel, Universite Louis Pasteur, Strasbourg, France, between
September 1977 and July 1979.



18









Ben
Seaman has been a director since 2016. Mr. Seaman has been the CEO of Eartheasy.com Sustainable Living Ltd since
2007, growing the company from $50K to over $25M in annual revenue. His company has contributed over $1M towards clean water projects
in Kenya since 2013, and has been recognized internationally by the Stockholm Challenge Award and the Outdoor Industry Inspiration
Award in 2016. Prior to that, he worked in sales and investor relations at Flexible Solutions. Mr. Seaman graduated from the University
of Victoria with a Bachelor of Science degree in 2004. He has significant experience in launching new products, marketing, distribution
and e-commerce in both the US and Canada. He’s a strong believer in the triple bottom line approach to business, giving
consideration to social and environmental issues in addition to financial performance.



David
Fynn has been a director since 2016. Mr. David Fynn is a Canadian Chartered Professional Accountant and services
individuals/companies in many sectors including mining and commodities in his private practice. David worked as a senior manager
with KPMG in Canada and Ernst & Young in the United Kingdom and Saudi Arabia. Since 1996 he has been the principal of D.A.
Fynn & Associates Inc., an accounting firm.



Directors
are elected annually and hold office until the next annual meeting of our stockholders and until their successors are elected
and qualified. All executive offices are chosen by the board of directors and serve at the board’s discretion.



John
Bientjes, Thomas Fyles, Ben Seaman and David Fynn are independent directors as that term is defined in section 803 of the listing
standards of the NYSE Amercian.



Our
Audit Committee, consisting of John Bientjes, Ben Seaman and David Fynn all of whom have strong financial backgrounds, facilitates
and maintains open communications with our board of directors, senior management and our independent auditors. Our Audit Committee
also serves as an independent and objective party which monitors our financial reporting process and internal control system.
In addition, our Audit Committee reviews and appraises the efforts of our independent auditors. Our Audit Committee meets periodically
with management and our independent auditors. John Bientjes and David Fynn meet the SEC’s definition of an audit committee
financial expert. Each member of the Audit Committee is “independent” as that term is defined in Section 803 of the
listing standards of the NYSE American.



Our
Compensation Committee, consisting of John Bientjes, Ben Seaman and David Fynn, establishes salary, incentive and other forms
of compensation for our Chief Executive Officer and administers our Stock Option Program. None of our officers participated in
deliberations of the compensation committee concerning executive officer compensation. During the year ended December 31, 2018,
none of our executive officers served as a member of the compensation committee or as a director of another entity, one of whose
executive officers served on our compensation committee or as one of our directors.



We
have adopted a Code of Ethics that applies to our Chief Executive Officer, our Chief Financial Officer and our Principal Accounting
Officer, as well as our other senior management and financial staff. Interested persons may obtain a copy of our Code of Ethics
from our website at www.flexiblesolutions.com.



19







We
believe our directors benefit us for the following reasons:



|Name              |  | Reason                                                                                                                              
|----------------- |  | ------------------------------------------------------------------------------------------------------------------------------------
|Daniel B. O’Brien |  | Long standing relationship with us.                                                                                                 
|John J. Bientjes  |  | Long standing relationship with us.                                                                                                 
|Robert Helina     |  | Corporate finance experience.                                                                                                       
|Dr. Thomas Fyles  |  | Scientific expertise.                                                                                                               
|Ben Seaman        |  | Younger generation businessman increases
    our awareness of internet sales and adds value to our audit and compensation committees
|David Fynn        |  | Experienced accountant adds value
    our audit and compensation committees                                                         



| | Item
                                         11. | Executive
                                         Compensation.
| | ------------------------------------------------- | ----------------------------------------------------------------



Summary
Compensation Table



The
following table shows in summary form the compensation earned by (i) our Chief Executive Officer and (ii) by each other executive
officer who earned in excess of $100,000 during the two fiscal years ended December 31, 2018.



|                                                                                                                   |  |                                                                                             |      |  |                                                                                            |   |         |                                                                                           |  |  |                                                                                            |  |  |                                                                                            |   |  | All                                                                                              |  |   |       | 
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------- | ---- |  | ------------------------------------------------------------------------------------------ | - | ------- | ----------------------------------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------------------ |  |  | ------------------------------------------------------------------------------------------ | - |  | ------------------------------------------------------------------------------------------------ |  | - | ----- | 
|                                                                                                                   |  |                                                                                             |      |  |                                                                                            |   |         |                                                                                           |  |  | Restricted                                                                                 |  |  |                                                                                            |   |  | Other                                                                                            |  |   |       | 
|                                                                                                                   |  |                                                                                             |      |  |                                                                                            |   |         |                                                                                           |  |  | Stock                                                                                      |  |  | Options                                                                                    |   |  | Annual                                                                                           |  |   |       | 
|Name
    and Principal Position                                                                                    |  | Fiscal
                                                                                Year |      |  | Salary
                                                                                (1) |   |         | Bonus
                                                                                (2) |  |  | Awards
                                                                                (3) |  |  | Awards
                                                                                (4) |   |  | Compensation
                                                                                (5) |  |   | Total | 
|Daniel B. O’Brien                                                                                                  |  |                                                                                             | 2018 |  |                                                                                            | $ | 898,166 |                                                                                           |  |  | —                                                                                          |  |  |                                                                                            | — |  |                                                                                                  |  | — |       | 
|President,
                                 Chief Executive Officer and Principal Financial and Accounting Officer |  |                                                                                             | 2017 |  |                                                                                            | $ | 901,605 |                                                                                           |  |  | —                                                                                          |  |  |                                                                                            | — |  |                                                                                                  |  | — |       | 







| | (1) | The
                                         dollar value of base salary (cash and non-cash) earned.
| | --- | ----------------------------------------------------------------------------------------------------







| | (2) | The
                                         dollar value of bonus (cash and non-cash) earned.
| | --- | ----------------------------------------------------------------------------------------------



| | (3) | During
                                         the periods covered by the table, the value of the shares of restricted stock issued
                                         as compensation for services to the persons listed in the table.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | The
                                         value of all stock options granted during the periods covered by the table.
| | --- | ------------------------------------------------------------------------------------------------------------------------



| | (5) | All
                                         other compensation received that we could not properly report in any other column of
                                         the table.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During
the year ended December 31, 2012, the Company determined that Daniel B. O’Brien, the Company’s President and Chief
Executive Officer, was underpaid. Accordingly, the Company increased Mr. O’Brien’s annual salary to twice that which
was paid to the highest paid employee of the Company. The Company expects that Mr. O’Brien’s salary for the year ending
December 31, 2019 will again be twice the annual salary paid to the Company’s highest paid employee, excluding Mr. O’Brien.



20







Non-Qualified
Stock Option Plan



In
August 2014 we adopted a Non-Qualified Stock Option Plan which authorizes the issuance of up to 1,500,000 shares of our common
stock to persons that exercise options granted pursuant to the Plan. Our employees, directors and officers, and consultants or
advisors are eligible to be granted options pursuant to the Non-Qualified Plan.



The
Plan is administered by our Compensation Committee. The Committee is vested with the authority to determine the number of shares
issuable upon the exercise of the options, the exercise price and expiration date of the options, and when, and upon what conditions
options granted under the Plan will vest or otherwise be subject to forfeiture and cancellation.



During
the fiscal year ended December 31, 2018 we issued 110,000 options pursuant to the Non-Qualified Plan (2017 – 154,000).





Summary



The
following table shows the weighted average exercise price of the outstanding options granted pursuant to our Non-Qualified Stock
Option Plan as of December 31, 2018, our most recently completed fiscal year.





|Plan
    Category                   |  | Number
    of Securities to be
    Issued Upon Exercise of
    Outstanding Options, Warrants and Rights |         |  | Weighted-Average
    Exercise Price of Outstanding Options, Warrants and Rights |   |      | Number
    of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities
    Reflected in Column (a)) | 
|----------------------------------- |  | ------------------------------------------------------------------------------------------------------- | ------- |  | ------------------------------------------------------------------------------- | - | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                    |  |                                                                                                         | (a)     |  |                                                                                 |   | (b)  |                                                                                                                                                     | 
|Non-Qualified Stock Option
    Plan |  |                                                                                                         | 660,000 |  |                                                                                 | $ | 1.35 |                                                                                                                                                     | 







21









Our
Non-Qualified Stock Option Plan has been approved by our shareholders.



As
of December 31,2018 options to purchase 660,000 shares of our common stock were outstanding under our Non-Qualified Stock Option
Plan. The exercise price of these options varies between $0.75 and $1.75 per share and the options expire at various dates between
on December 31, 2019 and January 31, 2024.





No
options were exercised by our executive officers during the fiscal year ended December 31, 2018.



Director
Compensation



We
reimburse directors for any expenses incurred in attending board meetings. We also compensate directors $5,000 annually for each
year that they serve.



Our
directors received the following compensation in 2018:



|Name                 |  | Paid
    in Cash |       |  | Stock
    Awards (1) |  |   | Option
    Awards (2) | 
|-------------------- |  | ---------------- | ----- |  | -------------------- |  | - | --------------------- | 
|John
    H. Bientjes |  | $                | 5,000 |  |                      |  | — |                       | 
|Tom Fyles            |  | $                | 5,000 |  |                      |  | — |                       | 
|Ben Seaman           |  | $                | 5,000 |  |                      |  | — |                       | 
|David Fynn           |  | $                | 5,000 |  |                      |  | — |                       | 



| | (1) | The
                                         fair value of stock issued for services computed in accordance with ASC 718 on the date
                                         of grant.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The
                                         fair value of options granted computed in accordance with ASC 718 on the date of grant.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------



The
terms of outstanding options granted to our directors are shown below:





|Name             |  | Option
    Price |      |  | No.
    of Options |  |       | Expiration
    Date
|---------------- |  | ---------------- | ---- |  | ------------------ |  | ----- | -------------------
|                 |  |                  |      |  |                    |  |       |                    
|John H. Bientjes |  | $                | 1.05 |  |                    |  | 5,000 |                    
|Robert Helina    |  | $                | 1.00 |  |                    |  | 5,000 |                    
|Robert Helina    |  | $                | 1.05 |  |                    |  | 5,000 |                    



Daniel
B. O’Brien was not compensated for serving as a director during 2018.



22









| | Item
                                         12. | Security
                                         Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
| | ------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------



The
following table shows the beneficial ownership of our common stock as of March 30, 2019 by (i) each stockholder who is known by
us to own beneficially more than five percent of our outstanding common stock, (ii) each of our officers and directors, and (iii)
by all of our executive officers and directors as a group.



|                                                      |  | Shares
    (1) |           |  | Ownership
    Percentage | 
|----------------------------------------------------- |  | -------------- | --------- |  | ------------------------ | 
|Daniel B. O’Brien                                     |  |                | 4,521,900 |  |                          | 
|6001 54 Ave.                                          |  |                |           |  |                          | 
|Taber, AB                                             |  |                |           |  |                          | 
|Canada T1G 1X4                                        |  |                |           |  |                          | 
|                                                      |  |                |           |  |                          | 
|John Bientjes                                         |  |                | 5,000     |  |                          | 
|#1-230 West 13th Street North                         |  |                |           |  |                          | 
|Vancouver, B.C.                                       |  |                |           |  |                          | 
|Canada V7M 1N7                                        |  |                |           |  |                          | 
|                                                      |  |                |           |  |                          | 
|Robert Helina                                         |  |                | 25,000    |  |                          | 
|6001 54 Ave.                                          |  |                |           |  |                          | 
|Taber, AB                                             |  |                |           |  |                          | 
|Canada T1G 1X4                                        |  |                |           |  |                          | 
|                                                      |  |                |           |  |                          | 
|Dr. Thomas Fyles                                      |  |                | 15,000    |  |                          | 
|Box 3065                                              |  |                |           |  |                          | 
|Victoria, BC                                          |  |                |           |  |                          | 
|Canada V8W 3V6                                        |  |                |           |  |                          | 
|                                                      |  |                |           |  |                          | 
|Ben Seaman                                            |  |                | 800       |  |                          | 
|Unit 605 5 E. Cordova St.                             |  |                |           |  |                          | 
|Vancouver BC                                          |  |                |           |  |                          | 
|Canada V6A 0A5                                        |  |                |           |  |                          | 
|                                                      |  |                |           |  |                          | 
|David Fynn                                            |  |                | 0         |  |                          | 
|202-2526 Yale Court,                                  |  |                |           |  |                          | 
|Abbotsford, BC                                        |  |                |           |  |                          | 
|Canada V2S 8G9                                        |  |                |           |  |                          | 
|                                                      |  |                |           |  |                          | 
|All officers and directors as a group
    (6 persons) |  |                | 4,567,700 |  |                          | 



| | (1) | Includes
                                         shares which may be acquired on the exercise of the stock options, all of which were
                                         exercisable as of March 30, 2019, listed below.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23







|Name          |  | No.
    of Options |       |  | Exercise
     Price |   |      | Expiration
    Date
|------------- |  | ------------------ | ----- |  | ------------------- | - | ---- | -------------------
|John Bientjes |  |                    | 5,000 |  |                     | $ | 1.05 |                    
|              |  |                    |       |  |                     |   |      |                    
|Robert Helina |  |                    | 5,000 |  |                     | $ | 1.00 |                    
|              |  |                    | 5,000 |  |                     | $ | 1.05 |                    
|              |  |                    | 5,000 |  |                     | $ | 1.42 |                    
|              |  |                    | 5,000 |  |                     | $ | 1.70 |                    





| | Item
                                         13. | Certain
                                         Relationships and Related Transactions, Director Independence.
| | ------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------



Not
applicable.



| | Item
                                         14. | Principal
                                         Accountant Fees and Services.
| | ------------------------------------------------- | --------------------------------------------------------------------------------



MNP,
LLP, Chartered Accountants, examined our financial statements for the years ended December 31, 2018 and 2017.



Audit
Fees



MNP
was paid $67,493 and $72,375 for the fiscal years ended December 31, 2018 and 2017, respectively, for professional services rendered
in the audit of our annual financial statements and for the reviews of the financial statements included in our quarterly reports
on Form 10-Q during these fiscal years.



Tax
Fees



MNP
was paid $9,090 and $1,134 for the fiscal years ended December 31, 2018 and 2017, respectively, for professional services rendered
for the preparation and filing of our income tax returns for the fiscal years ended December 31, 2017 and 2016.



All
Other Fees



MNP
was not paid any other fees for professional services during the fiscal years ended December 31, 2018 and 2017.



24







Audit
Committee Pre-Approval Policies



Rules
adopted by the SEC in order to implement requirements of the Sarbanes-Oxley Act of 2002 require public company audit committees
to pre-approve audit and non-audit services. Our Audit Committee has adopted a policy for the pre-approval of all audit, audit-related
and tax services, and permissible non-audit services provided by our independent auditors. The policy provides for an annual review
of an audit plan and budget for the upcoming annual financial statement audit, and entering into an engagement letter with the
independent auditors covering the scope of the audit and the fees to be paid. Our Audit Committee may also from time-to-time review
and approve in advance other specific audit, audit-related, tax or permissible non-audit services. In addition, our Audit Committee
may from time-to-time give pre-approval for audit services, audit-related services, tax services or other non-audit services by
setting forth such pre-approved services on a schedule containing a description of, budget for, and time period for such pre-approved
services. The policies require our Audit Committee to be informed of each service and the policies do not include any delegation
of our Audit Committee’s responsibilities to management. Our Audit Committee may delegate pre-approval authority to one
or more of its members. The member to whom such authority is delegated will report any pre-approval decisions to our Audit Committee
at its next scheduled meeting.



During
the year ended December 31, 2018 our Audit Committee approved all of the fees paid to MNP. Our Audit Committee has determined
that the rendering of all non-audit services by MNP is compatible with maintaining MNP’s independence. During the year ended
December 31, 2018, none of the total hours expended on our financial audit by MNP were provided by persons other than MNP’s
full-time permanent employees.



| | Item
                                         15. | Exhibits,
                                         Financial Statement Schedules.
| | ------------------------------------------------- | ---------------------------------------------------------------------------------





|Number |  | Description                                                                                                                           
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------
|3.1    |  | Articles of Incorporation of the Registrant. (1)                                                                                      
|3.2    |  | Bylaws of the Registrant. (1)                                                                                                         
|21.1   |  | Subsidiaries. (2)                                                                                                                     
|23.1   |  | Consent of Independent
    Accountants.                                                                                               
|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.                                  
|32.1   |  | Certification
    of Principal Executive and Financial Officer Pursuant to 18 U.S.C. §1350 and §906 of the Sarbanes-Oxley Act of 2002.





| | (1) | Previously
                                         filed as an exhibit to our Registration Statement on Form 10-SB filed with the Commission
                                         on February 22, 2000, and incorporated herein by reference.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Previously
                                         filed as an exhibit to our Registration Statement on Form SB-2 filed with the Commission
                                         on January 22, 2003, and incorporated herein by reference.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



25







SIGNATURES



In
accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.





|April
    1, 2019 | Flexible
    Solutions International, Inc.
|----------------- | ------------------------------------------
|                  |                                           
|                  | By:                                       
|                  | Name:                                     
|                  | Title:                                    



In
accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated:





|Signature                                                      |  | Title                                                                                                 |  | Date             
|-------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | -----------------
|                                                               |  |                                                                                                       |  |                  
|/s/
                                         Daniel B. O’Brien |  | President,
    Principal Executive Officer, Principal Financial and Accounting Officer and a Director |  | April
    1, 2019
|Daniel
    B. O’Brien                                         
|                                                               |  |                                                                                                       |  |                  
|/s/
    John H. Bientjes                                       |  | Director                                                                                              |  | April
    1, 2019
|John
    H. Bientjes                                           |  |                                                                                                       |  |                  
|                                                               |  |                                                                                                       |  |                  
|/s/
    Robert T. Helina                                       |  | Director                                                                                              |  | April
    1, 2019
|Robert
    T. Helina                                           |  |                                                                                                       |  |                  
|                                                               |  |                                                                                                       |  |                  
|/s/
    Thomas Fyles                                           |  | Director                                                                                              |  | April
    1, 2019
|Thomas
    Fyles                                               |  |                                                                                                       |  |                  
|                                                               |  |                                                                                                       |  |                  
|/s/
    Ben Seaman                                             |  | Director                                                                                              |  | April
    1, 2019
|Ben
    Seaman                                                 |  |                                                                                                       |  |                  
|                                                               |  |                                                                                                       |  |                  
|/s/
    David Fynn                                             |  | Director                                                                                              |  | April
    1, 2019
|David
    Fynn                                                 |  |                                                                                                       |  |                  



26