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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, 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, 2010                                              
|                                                       | OR                                                                                       
|o                                                      | 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)

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

|                                         |  |         
|---------------------------------------- |  | --------
|615 Discovery Street                     |  |         
|Victoria, British Columbia, Canada       |  | V8T 5G4 
|                                         |  |         
|(Address of
 Principal Executive Office) |  | Zip Code

Registrants
telephone number, including Area Code: (250) 477-9969
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 AMEX

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. o

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

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
o

Indicate by check mark whether
the registrant has submitted electronically and posted on its corporate Web
site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§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 o

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. See the definitions of large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act.

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

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

As of June 30, 2010 the aggregate market value of the Companys common
stock held by non-affiliates was approximately $12,549,377 based on the closing
price for shares of the Companys common stock on the NYSE AMEX for that date.

As of March 15, 2011, the Company had 13,169,991 issued and outstanding
shares of common stock.

|                                      |  |     
|------------------------------------- |  | ----
|Documents
 incorporated by reference: |  | None

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS

This Annual
Report on Form 10-K for the year ended December 31, 2010 (Annual Report),
including the Notes to 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 of this Annual
Report.

-iii-

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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.

We operate
through two wholly-owned subsidiaries: Flexible Solutions Ltd., and NanoChem
Solutions Inc. Unless otherwise indicated, all references to our business
include the operations of these subsidiaries.

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 will be renovated
and operated as a fermentation facility for the production of aspartic acid, a
key ingredient in TPAs. Aspartic acid made in Taber will be shipped to our
plant in Illinois for finishing.

Our website
is www.flexiblesolutions.com

Our Products

HEAT$AVR®/ECO$AVR

Our studies
indicate that approximately 70% of the energy lost from a swimming pool occurs
through water evaporation. HEAT$AVR® 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 to $6,000 per year when using HEAT$AVR®.

ECO$AVR® is
a patented, disposable dispenser designed for the residential pool and spa
market. ECO$AVR® is made of molded plastic in the form of a ten-inch long
colorful fish that is filled with enough HEAT$AVR® to cover the surface of a
400 sq. ft. swimming pool for about one month. The HEAT$AVR® solution inside
the ECO$AVR® escapes into the water and rises to the surface to form a
transparent layer on the waters surface. Once the ECO$AVR® is empty the
dispenser is removed and replaced.

In outdoor
pools, the HEAT$AVR® also provides convenience compared to pool blankets. Pool
blankets are plastic covers, which are cut to the size and shape of the surface
of the pool or spa. Pool blankets float on the surface and, like the HEAT$AVR®,
reduce energy costs by inhibiting water

2

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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, HEAT$AVR® eliminates the need to install, remove and store the
blanket and works 24 hours a day. In addition, the use of HEAT$AVR® 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.

HEAT$AVR®
retails for between $250 and $300 per four gallon case in the United States.
ECO$AVR® has a suggested retail price of $11.99 in the United States. We market
our HEAT$AVR® and ECO$AVR® products 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.

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

We have 18
non-exclusive distributorships in Canada and the United States for the sale of
bulk HEAT$AVR® (without the ECO$AVR® dispenser) and exclusive distributorships
in Australia, Chile, Korea, Argentina, Taiwan, Romania and Western Europe. We
support our distributors and seek additional market opportunities by annually
attending the major pool industry trade shows in the United States. We also
advertise in trade magazines and maintain a website which has information about
our products.

WATER$AVR®

This
product utilizes our HEAT$AVR technology to reduce water evaporation in
reservoirs, potable water storage tanks, livestock watering ponds, aqueducts,
canals and irrigation ditches. WATER$AVR may also be used for lawn and turf
care and potted and bedding plants.

WATER$AVR®
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 WATER$AVR®:

| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | 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 and one part-time employee who are involved in the sales and
marketing of WATER$AVR®.

3

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WATER$AVRBTI

WATER$AVRBTI
combines evaporation control with an environmentally friendly method of killing
mosquito larvae during the first, second and third stages of development.
Combined with our original WATER$AVR® product, WATER$AVRBTI can be quickly
and evenly spread across large and small water surfaces where larvae must go to
obtain air. Tests conducted by the Entomology Department at the Louisiana State
University Agricultural Center showed that the use of WATER$AVRBTI resulted in
a 100% kill rate of mosquito larvae in contact with the product.

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 phosphate 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 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 Amisorb, LYNX, MAGNET, AmGro and VOLT. Markets of
significance include 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 at an early stage of commercialization and will be marketed and sold
through the same channels as TPAs used by the agricultural industry.

TPAs for
Detergent. In detergents, TPAs are a biodegradable substitute for
poly-acrylic acid. In select markets, the use of this substitute outweighs the
added cost of TPAs, which has allowed for the continued growth of this TPA
product line. However, to increase penetration of this market beyond specialty
detergent manufacturers, we will need to decrease the cost of this product or
wait for legislative intervention regarding biodegradability of detergent
components. In the meantime, we are researching various methods to reduce
production costs.

TPAs for
Personal Care Products. TPAs can also be used in shampoo and cosmetic
products for increased hydration that improves the feel of the core product to
consumers. TPAs may also be used as an additive to toothpaste with the
documented effect of reducing decay bacteria adhesion to tooth enamel and
presumed reduction in total decay. We do not currently sell TPAs for use in
personal care products.

4

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Competition

HEAT$AVR®
and ECO$AVR

We are
aware of two other companies that manufacture products that compete with
HEAT$AVR® and ECO$AVR® and 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.

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

WATER$AVR®

Ultimate
Products (Aust) Pty Ltd. of Australia has a product called Aquatain that
directly competes with WATER$AVR®. We believe our WATER$AVR® 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 WATER$AVR® 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, WATER$AVR.

WATER$AVRBTI

Although we
are not aware of any direct competition with WATER$AVRBTI, the pest control
industry is very large and well funded and there are a multitude of alternative
methods and materials that can be used for mosquito control. We believe that we
will be able to compete by providing an environmentally sensitive product which
is less expensive than traditional products.

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. In
detergent, poly-acrylic acid is most often used due to price advantage.
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;                                             
| |  | Environmental
 considerations, ease of formulation and increased crop yield opportunities in
 irrigation scale markets; and

5

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| |   |                                                                
| | - | ---------------------------------------------------------------
| |  | Biodegradability
 compared to poly-acrylic acid for detergents.

Manufacturing

Our
HEAT$AVR® and ECO$AVR® 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 manufacture these products in our plant in
Taber, Alberta, Canada.

Our
WATER$AVR® 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. Once renovated, the building
will operate as a fermentation facility for the production of aspartic acid, a
key ingredient in TPAs. Aspartic acid made in Taber will be shipped to our
plant in Illinois for finishing.

Government Regulations

HEAT$AVR®
and ECO$AVR®

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.

WATER$AVR®

Our WATER$AVR®
product is subject to regulation in most countries, particularly for
agricultural and drinking water uses. We do not anticipate that governmental
regulations will be an impediment to marketing WATER$AVR® because the
components in WATER$AVR® have historically been used in agriculture for many
years for other purposes. Nevertheless, we will need to obtain approval to sell
WATER$AVR® in the United States for agricultural and drinking water uses. We
have received National Sanitation Foundation approval for the use of WATER$AVR
in drinking water in the United States.

WATER$AVRBTI

As a
pesticide, WATER$AVRBTI was approved by the EPA for commercial sale in the
United States on November 30, 2005. We began marketing this product commercially
in 2006. While EPA approval applies only to registration of the product in the
United States, we believe EPA approval may expedite product registration and
approval processes in other parts of the world. We will apply for certification
in any country where significant markets are identified.

6

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TPAs

In the oil
field and agricultural markets we have received government approval for all
TPAs currently sold. In the detergent market, there are currently no regulatory
requirements for use of TPAs in detergent formulations. For personal care
products such as shampoo and toothpaste, there are various regulatory bodies,
including the National Sanitation Foundation and the United States Food and
Drug Administration, that regulate TPA use. If we begin to market our TPA
products for personal care use, we will need to satisfy applicable regulatory
requirements.

Proprietary Rights

Our success
is dependent, in part, upon our proprietary technology. We rely on a
combination of patent, copyright and trade secret laws and nondisclosure
agreements to protect our proprietary technology. We currently hold 56 U.S.
patents and 139 International patents which expire at various dates between
2011 and 2020. We also have three U.S. patent applications pending and have
applied to extend these pending patents to certain other countries where we
operate. There can be no assurance that our pending 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
$70,993 for the year ended December 31, 2010 and $30,078 for the year ended
December 31, 2009 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, 2010 we had 33 employees, including one officer, twelve sales and
customer support personnel, and twenty 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 incurred significant operating losses since inception and may not sustain
profitability in the future.

We have
experienced operating losses and negative cash flow from operations and we
currently have an accumulated deficit. If our revenues do not increase, our
results of operations and liquidity will be materially adversely affected. If
we experience slower than anticipated revenue growth or if our operating
expenses exceed our expectations, we may not be profitable. Even if we become
profitable in the future, we may not remain profitable.

7

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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;                                                           
| |   |                                                                                                              
| |  | 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 WATER$AVR® 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.

8

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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
WATER$AVR® 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 WATER$AVR® product may result in continued losses. We
introduced our WATER$AVR® 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
additional expenses incurred to manufacture and market this product. We expect
to spend $200,000 on the marketing and production of our WATER$AVR® product in
fiscal 2011.

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 six 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.

9

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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
79% of our revenues in the year ended December 31, 2010, 83% in the year
ended December 31, 2009 and 79% in the year ended December 31, 2008.
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 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;     
| |   |                                                                                                                     
| |  | 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
 protection of intellectual property and changes in that protection; 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 45 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.

10

---



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.

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 their
patent 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, particularly with
respect to our consumer swimming pool and consumer TPA products. 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 because 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

11

---



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 4,300 sq. ft. in Victoria, British Columbia for administration and sales
and research at $6,238 per month, effective to June 2014, as well as 7,000 sq.
ft. in Bedford Park, Illinois for offices and laboratories at a cost of $6,548
per month with a year to year lease. We own a 56,780 sq. ft. facility in Peru,
Illinois which is used to manufacture our TPA line of products as well as a
building and 3.3 acres of land in Taber, Alberta, Canada. Our building in Taber
will be renovated and operated as a fermentation facility for the production of
aspartic acid, a key ingredient in TPAs. Aspartic acid made in Taber will be
shipped to Illinois for finishing as well as for manufacturing our swimming
pool products. Our former manufacturing location in Calgary, AB, Canada was
sublet through until the end of the lease, September 2009. Our former sales
office in Richmond, BC, Canada has been sublet through the end of the lease
pertaining to this location.

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

None.

|        |  |                       
|------- |  | ----------------------
|Item 4. |  | (Removed and Reserved)

12

---



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 AMEX 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, 2010 |  | First Quarter  |  | $    | 2.29 |     | $ | 1.55  | 
|                              |  | Second Quarter |  |      | 1.68 |     |   | 1.61  | 
|                              |  | Third Quarter  |  |      | 1.88 |     |   | 1.10  | 
|                              |  | Fourth Quarter |  |      | 1.50 |     |   | 1.00  | 
|                              |  |                |  |      |      |     |   |       | 
|                              |  |                |  | High |      | Low |  
|                              |  |                |  |      |      |     |  
|                              |  |                |  |      |      |     |   |       | 
|Year
 Ended December 31, 2009 |  | First Quarter  |  | $    | 1.89 |     | $ | 1.01  | 
|                              |  | Second Quarter |  |      | 1.42 |     |   | 0.98  | 
|                              |  | Third Quarter  |  |      | 1.80 |     |   | 1.20  | 
|                              |  | Fourth Quarter |  |      | 2.47 |     |   | 1.641 | 

As of
December 31, 2010 we had approximately 1,700 shareholders.

Our common
stock also trades on the Frankfurt stock exchange under the symbol FXT.

We have not
paid any dividends on our common stock and it is not anticipated that any
dividends will be paid in the foreseeable future. Our board of directors
intends to follow a policy of retaining earnings, if any, to finance our
growth. The declaration and payment of dividends in the future will be
determined by our directors in light of conditions then existing, including our
earnings, financial condition, capital requirements and other factors.

During the
year ended December 31, 2009 and 2010 we did not purchase any shares of our
common stock from third parties in a private transaction or as a result of any
purchase in the open market. 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 year ended December 31, 2009 and 2010

As of March
15, 2011 we had 13,169,991 outstanding shares of common stock. The following
table lists additional shares of our common stock which may be issued as of
March 15, 2011:

|                                                                                                                        |  |                   |           |                 |  |   | 
|----------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | --------------- |  | - | 
|                                                                                                                        |  | Number
 Of Shares |           | Note
 Reference | 
|                                                                                                                        |  |                   |           |                 | 
|                                                                                                                        |  |                   |           |                 |  |   | 
|Shares issuable upon exercise of options
 granted to our officers, directors, employees, consultants, and third parties |  |                   | 1,836,700 |                 |  | A | 

13

---



A.      Options
are exercisable at prices ranging from $1.50 to $3.60 per share. See Item 11 of
this report for more information concerning these options.

On December
31, 2010 warrants to purchase 490,040 shares of our common stock expired. The
warrants had an exercise price of $3.00 per share.

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

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

Material
changes in our Statement of Operations for the periods presented are discussed
below:

Year Ended December 31, 2010

|                                     |  |                                |   |                       |                                                                
|------------------------------------ |  | ------------------------------ | - | --------------------- | ---------------------------------------------------------------
|Item                                 |  | Increase
 (I) or
 Decrease (D) |   | Reason               
|                                     |  |                                |   |                      
|                                     |  |                                |   |                       |                                                                
|Sales - EWCP                         |  |                                | I |                       | Increase in
 customers inventories to more normal levels.     
|                                     |  |                                |   |                       |                                                                
|TPAs                                 |  |                                | I |                       | Return to
 more normalized business in 2010 as opposed to 2009.
|                                     |  |                                |   |                      
|Gross
 profit, as a percent of sales |  | I                              |   | Reduced
 input costs.

14

---



|                                     |  |   |  |                                                                                      
|------------------------------------ |  | - |  | -------------------------------------------------------------------------------------
|Wages                                |  | I |  | Annual wage
 increases.                                                              
|                                     |  |   |  |                                                                                      
|Administrative salaries and benefits |  | D |  | Reduced
 stock option expenses.                                                      
|                                     |  |   |  |                                                                                      
|Rent                                 |  | D |  | Lease at former
 location expired in 2009.                                           
|                                     |  |   |  |                                                                                      
|Consulting                           |  | D |  | More
 efficient allocation of staff resulted in a decrease in consulting expenses.   
|                                     |  |   |  |                                                                                      
|Commissions                          |  | I |  | Increase in
 sales.                                                                  
|                                     |  |   |  |                                                                                      
|Income Tax                           |  | I |  | Net income
 in the United States cannot be offset by losses in foreign jurisdictions.

Capital Resources and Liquidity

Our material sources and
<uses> of cash during the year ended December 31, 2010 were:

| |                                                                                 |  |   |           |  
| | ------------------------------------------------------------------------------- |  | - | --------- | -
| | Cash
 provided by operations                                                    |  | $ | 1,319,151 |  
| | Equipment
 purchases, primarily related to our new
 facility in Alberta, Canada |  |   | (613,902  | )
| | Loans                                                                           |  |   | (82,995   | )
| | Exchange
 rate changes                                                          |  |   | 15,016    |  

Our material sources and
<uses> of cash during the year ended December 31, 2009 were:

| |                                                                                |  |   |            |  
| | ------------------------------------------------------------------------------ |  | - | ---------- | -
| | Cash (used
 by) operations                                                     |  | $ | 788,313    |  
| | Patent
 (used) development                                                     |  |   | (715       | )
| | Equipment
 purchases, primarily related to our new facility in Alberta, Canada |  |   | (1,275,719 | )
| | Loan
 repayments                                                               |  |   | (633,472   | )
| | Loans                                                                          |  |   | 462,155    |  
| | Exchange
 rate changes                                                         |  |   | 231,626    |  
| | Other                                                                          |  |   | 26,481     |  

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

We have
sufficient cash resources to meets our future commitments and cash flow
requirements for the coming year. As of December 31, 2010 our working capital
was $5,188,710 and we have no substantial commitments that require significant
outlays of cash over the coming fiscal year.

15

---



We are
committed to minimum rental payments for property and premises aggregating
approximately $365,688 over the term of three leases, the last expiring on July
31, 2014.

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

| |      |  |   |         | 
| | ---- |  | - | ------- | 
| |      |  |   |         | 
| | 2011 |  | $ | 163,608 | 
| | 2012 |  | $ | 75,760  | 
| | 2013 |  | $ | 78,837  | 
| | 2014 |  | $ | 47,463  | 
| |      |  |   |         | 

Other than
as disclosed above, we do not anticipate any capital requirements for the
twelve months ending December 31, 2011.

Other than
as disclosed in 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 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
additional capital.

See Note 2
to the 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 our customers deteriorates resulting in an impairment of
their ability to pay or a pattern of late payment develops, allowances 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.

Recent Accounting Pronouncements

We have
evaluated recent accounting pronouncements issued since January 1, 2010 and
determined that the adoption of this recent accounting pronouncements will not
have a material effect on our financial statements.

|         |                                                            
|-------- | -----------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk.
|         | Not
 applicable.                                           

16

---



|        |                                             
|------- | --------------------------------------------
|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, Meyers, Norris, Penny LLP              |  | F-1 
|                                                                                                 |  |     
|Consolidated
 Balance Sheet as of December 31, 2010 and 2009                                     |  | F-2 
|                                                                                                 |  |     
|Consolidated
 Statements of Operations for the Years Ended December 31, 2010 and 2009            |  | F-3 
|                                                                                                 |  |     
|Consolidated
 Statements of Cash Flows for the Years Ended December 31, 2010 and 2009            |  | F-4 
|                                                                                                 |  |     
|Consolidated
 Statements of Stockholders Equity for the Years Ended December 31, 2010 and
 2009 |  | F-5 
|                                                                                                 |  |     
|Notes
 to Consolidated Financial Statements                                                      |  | F-6 

17

---



(MEYERS NORRIS PENNY LOGO)

REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of FLEXIBLE SOLUTIONS INTERNATIONAL,
INC.:

We
have audited the accompanying consolidated balance sheets of Flexible Solutions
International, Inc. (the Company) as of December 31, 2010 and 2009 and the
consolidated statements of operations, stockholders equity and cash flows for
each of the years in the two year period ended December 31, 2010. The Companys
management is responsible for these consolidated financial statements. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform an audit to obtain reasonable assurance whether the
consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, 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. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In
our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as at
December 31, 2010 and 2009 and the consolidated results of its operations and
its cash flows for each of the years in the two year period ended December 31,
2010 then ended in conformity with accounting principles generally accepted in
the United States of America.

-s- MEYERS NORRIS PENNY

MEYERS NORRIS PENNYLLP

Vancouver, Canada 
March 25, 2011

|          |                |                                                                                                                                              
|--------- | -------------- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(5C LOGO) | (PRAXITY LOGO) | CHARTERED
 ACCOUNTANTS & BUSINESS ADVISORS2300
  1055 DUNSMUIR STREET VANCOUVER, BC V7X 1J1PH.
 (604) 685-8408 FAX (604) 685-8594 www.mnp.ca

---



|                                      
|--------------------------------------
|FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
|Consolidated
 Balance Sheet           
|As at
 December 31                    
|(U.S.
 Dollars)                       

|                                                                                                |  |      |            |      |   |            |  
|----------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                                                | 
|                                                                                                |  | 2010 |            | 2009 |  
|                                                                                                | 
|                                                                                               
|Assets                                                                                          |  |      |            |      |   |            |  
|                                                                                                |  |      |            |      |   |            |  
|Current                                                                                         |  |      |            |      |   |            |  
|Cash and cash equivalents                                                                       |  | $    | 2,763,420  |      | $ | 2,126,150  |  
|Accounts receivable (see Note 3)                                                                |  |      | 1,198,939  |      |   | 1,544,364  |  
|Inventories (see Note 4)                                                                        |  |      | 2,539,190  |      |   | 2,796,307  |  
|Prepaid expenses                                                                                |  |      | 192,269    |      |   | 121,353    |  
|                                                                                                |  |      |            |      |   |            |  
|Total current assets                                                                            |  |      | 6,693,819  |      |   | 6,588,174  |  
|                                                                                                |  |      |            |      |   |            |  
|Property, equipment and leaseholds, net (see Note 5)                                            |  |      | 7,867,672  |      |   | 7,314,926  |  
|Patents (see Note 6)                                                                            |  |      | 225,180    |      |   | 224,505    |  
|Long term deposits (see Note 7)                                                                 |  |      | 7,895      |      |   | 7,499      |  
|Deferred tax asset (see Note 11)                                                                |  |      | 199,000    |      |   | 119,000    |  
|                                                                                                |  |      |            |      |   |            |  
|                                                                                               
|Total Assets                                                                                    |  | $    | 14,993,565 |      | $ | 14,254,104 |  
|                                                                                                |  |      |            |      |   |            |  
|                                                                                                |  |      |            |      |   |            |  
|Liabilities                                                                                     |  |      |            |      |   |            |  
|                                                                                                |  |      |            |      |   |            |  
|Current                                                                                         |  |      |            |      |   |            |  
|Accounts payable and accrued liabilities                                                        |  | $    | 512,380    |      | $ | 597,307    |  
|Deferred revenue                                                                                |  |      | 250,000    |      |   |           |  
|Income taxes payable                                                                            |  |      | 620,000    |      |   | 304,000    |  
|Current portion of long term debt (see Note 8)                                                  |  |      | 122,726    |      |   | 74,146     |  
|                                                                                                |  |      |            |      |   |            |  
|Total current liabilities                                                                       |  |      | 1,505,106  |      |   | 975,453    |  
|Long term debt (see Note 8)                                                                     |  |      | 2,206,075  |      |   | 2,211,168  |  
|                                                                                                |  |      |            |      |   |            |  
|Total liabilities                                                                               |  |      | 3,711,181  |      |   | 3,186,621  |  
|                                                                                                |  |      |            |      |   |            |  
|Stockholders Equity                                                                            |  |      |            |      |   |            |  
|                                                                                                |  |      |            |      |   |            |  
|Capital stock (see Note 14)                                                                     |  |      |            |      |   |            |  
|Authorized                                                                                      |  |      |            |      |   |            |  
|50,000,000 common shares with a par value of $0.001 each                                        |  |      |            |      |   |            |  
|1,000,000 preferred shares with a par value of $0.01 each                                       |  |      |            |      |   |            |  
|Issued and outstanding:                                                                         |  |      |            |      |   |            |  
|13,962,567 (2009: 13,962,567) common shares                                                     |  |      | 13,963     |      |   | 13,963     |  
|Capital in excess of par value                                                                  |  |      | 16,638,227 |      |   | 16,456,903 |  
|Other comprehensive income (see Note 10)                                                        |  |      | 554,865    |      |   | 331,208    |  
|Accumulated Deficit                                                                             |  |      | (5,924,671 | )    |   | (5,734,591 | )
|                                                                                                |  |      |            |      |   |            |  
|                                                                                                |  |      |            |      |   |            |  
|Total Stockholders Equity                                                                      |  |      | 11,282,384 |      |   | 11,067,483 |  
|                                                                                                |  |      |            |      |   |            |  
|                                                                                                |  |      |            |      |   |            |  
|Total Liabilities and Stockholders Equity                                                      |  | $    | 14,993,565 |      | $ | 14,254,104 |  
|                                                                                                |  |      |            |      |   |            |  
|                                                                                               
|Commitments,
 Contingencies and Subsequent events                    (See Notes
 16, 17 and 18) | 

See
Notes to Consolidated Financial Statements.

---



|                                      
|--------------------------------------
|FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
|Consolidated
 Statements of Operations
|For the
 Years Ended December 31      
|(U.S.
 Dollars)                       

|                                                               |  |      |            |      |   |            |  
|-------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                               | 
|                                                               |  | 2010 |            | 2009 |  
|                                                               | 
|Sales                                                          |  | $    | 11,491,401 |      | $ | 9,783,496  |  
|Cost of
 sales                                                 |  |      | 7,018,339  |      |   | 6,502,446  |  
|                                                               |  |      |            |      |   |            |  
|                                                               |  |      |            |      |   |            |  
|Gross
 profit                                                  |  |      | 4,473,062  |      |   | 3,281,050  |  
|                                                               |  |      |            |      |   |            |  
|                                                               |  |      |            |      |   |            |  
|Operating Expenses                                             |  |      |            |      |   |            |  
|Wages                                                          |  |      | 1,652,814  |      |   | 1,381,183  |  
|Administrative salaries and benefits                           |  |      | 336,769    |      |   | 391,519    |  
|Advertising and promotion                                      |  |      | 92,051     |      |   | 71,170     |  
|Investor relations and transfer agent fee                      |  |      | 132,138    |      |   | 154,883    |  
|Office and miscellaneous                                       |  |      | 478,286    |      |   | 457,578    |  
|Insurance                                                      |  |      | 205,459    |      |   | 171,638    |  
|Interest expense                                               |  |      | 77,216     |      |   | 66,068     |  
|Rent                                                           |  |      | 169,829    |      |   | 230,531    |  
|Consulting                                                     |  |      | 99,451     |      |   | 162,900    |  
|Professional fees                                              |  |      | 212,608    |      |   | 252,159    |  
|Travel                                                         |  |      | 130,149    |      |   | 133,732    |  
|Telecommunications                                             |  |      | 39,047     |      |   | 32,526     |  
|Shipping                                                       |  |      | 35,237     |      |   | 41,427     |  
|Research                                                       |  |      | 70,993     |      |   | 30,078     |  
|Commissions                                                    |  |      | 133,275    |      |   | 74,156     |  
|Bad debt expense (recovery)                                    |  |      | 5,253      |      |   | (695       | )
|Currency exchange (gain)                                       |  |      | 8,720      |      |   | 117,479    |  
|Utilities                                                      |  |      | 93,667     |      |   | 60,176     |  
|                                                               |  |      |            |      |   |            |  
|                                                               |  |      |            |      |   |            |  
|Total operating expenses                                       |  |      | 3,972,962  |      |   | 3,828,508  |  
|                                                               |  |      |            |      |   |            |  
|                                                               |  |      |            |      |   |            |  
|Operating income (loss)                                        |  |      | 500,100    |      |   | (547,458   | )
|Gain on settlement of lawsuit (Note 17)                        |  |      |           |      |   | 80,000     |  
|                                                               |  |      |            |      |   |            |  
|Income (loss) before income tax                                |  |      | 500,100    |      |   | (467,458   | )
|                                                               |  |      |            |      |   |            |  
|Income taxes (Note 10)                                         |  |      |            |      |   |            |  
|Deferred income tax recovery                                   |  |      | (80,000    | )    |   | (119,000   | )
|Income tax expense                                             |  |      | 770,180    |      |   | 394,983    |  
|                                                               |  |      |            |      |   |            |  
|                                                               |  |      | (690,180   | )    |   |            |  
|                                                               |  |      |            |      |   |            |  
|Loss for the year                                              |  | $    | (190,080   | )    | $ | (743,441   | )
|                                                               |  |      |            |      |   |            |  
|                                                               |  |      |            |      |   |            |  
|Loss per share (basic and diluted)                             |  | $    | (0.01      | )    | $ | (0.05      | )
|                                                               |  |      |            |      |   |            |  
|                                                               |  |      |            |      |   |            |  
|Weighted average number of common 
 shares (basic and diluted) |  |      | 13,962,567 |      |   | 14,020,375 |  
|                                                               |  |      |            |      |   |            |  

See Notes to Consolidated Financial Statements.

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
Consolidated Statements of Cash Flows 
For Years Ended December 31 
(U.S. Dollars)

|                                                  |  |      |           |      |   |            |  
|------------------------------------------------- |  | ---- | --------- | ---- | - | ---------- | -
|                                                  |  |      |           |      |  
|                                                  |  | 2010 |           | 2009 |  
|                                                  |  |      |           |      |   |            |  
|                                                 
|Operating activities                              |  |      |           |      |   |            |  
|Net income (loss)                                 |  | $    | (190,080  | )    | $ | (743,441   | )
|Adjustments to reconcile net loss to net
 cash:   |  |      |           |      |   |            |  
|Stock based compensation                          |  |      | 181,232   |      |   | 277,202    |  
|Depreciation                                      |  |      | 356,797   |      |   | 402,115    |  
|Gain on settlement of lawsuit                     |  |      |          |      |   | (80,000    | )
|Deferred tax recovery                             |  |      | (80,000   | )    |   | (119,000   | )
|                                                 
|Changes in
 non-cash working capital items:       |  |      |           |      |   |            |  
|(Increase) Decrease in accounts receivable        |  |      | 349,083   |      |   | 137,270    |  
|(Increase) Decrease in inventories                |  |      | 292,049   |      |   | 759,643    |  
|(Increase) Decrease in prepaid expenses           |  |      | (67,398   | )    |   | (7,062     | )
|Increase (Decrease) in accounts payable           |  |      | (88,532   | )    |   | (142,414   | )
|Increase (Decrease) in taxes payable              |  |      | 316,000   |      |   | 304,000    |  
|Increase (Decrease) deferred revenue              |  |      | 250,000   |      |   |           |  
|                                                  |  |      |           |      |   |            |  
|                                                  |  |      |           |      |   |            |  
|Cash provided by (used in) operating activities   |  |      | 1,319,151 |      |   | 788,313    |  
|                                                  |  |      |           |      |   |            |  
|                                                  |  |      |           |      |   |            |  
|Investing activities                              |  |      |           |      |   |            |  
|Proceeds from disposal of long term
 deposits     |  |      |          |      |   | 26,481     |  
|(Increase) Decrease in development of
 patents    |  |      |          |      |   | (751       | )
|Acquisition of equipment                          |  |      | (613,902  | )    |   | (1,275,719 | )
|                                                  |  |      |           |      |   |            |  
|                                                  |  |      |           |      |   |            |  
|Cash provided by (used in) investing activities   |  |      | (613,902  | )    |   | (1,249,989 | )
|                                                  |  |      |           |      |   |            |  
|                                                  |  |      |           |      |   |            |  
|Financing activities                              |  |      |           |      |   |            |  
|Proceeds
 from long-term debt                     |  |      | (82,995   | )    |   | 462,155    |  
|                                                  |  |      |           |      |   |            |  
|                                                  |  |      |           |      |   |            |  
|Cash provided by (used in) financing activities   |  |      | (82,995   | )    |   | 462,155    |  
|                                                  |  |      |           |      |   |            |  
|                                                  |  |      |           |      |   |            |  
|Effect of
 exchange rate changes on cash          |  |      | 15,016    |      |   | 231,626    |  
|                                                  |  |      |           |      |   |            |  
|                                                  |  |      |           |      |   |            |  
|Inflow (outflow) of cash                          |  |      | 637,270   |      |   | 232,105    |  
|Cash and
 cash equivalents, beginning             |  |      | 2,126,150 |      |   | 1,894,045  |  
|                                                  |  |      |           |      |   |            |  
|                                                  |  |      |           |      |   |            |  
|Cash and cash equivalents, ending                 |  | $    | 2,763,420 |      | $ | 2,126,150  |  
|                                                  |  |      |           |      |   |            |  
|                                                  |  |      |           |      |   |            |  
|Supplemental disclosure of cash flow information: |  |      |           |      |   |            |  
|Income taxes
 paid                                |  |      | 454,180   |      |   | 394,983    |  
|Interest
 paid                                    |  |      | 77,216    |      |   | 66,068     |  
|                                                  |  |      |           |      |   |            |  

See Notes to Consolidated Financial
Statements.

---



FLEXIBLE SOLUTIONS INTERNATIONAL, INC. 
Consolidated Statements of Stockholders Equity 
For the Years Ended December 31, 2009 and 2008 
(U.S. Dollars)

|                           |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |   |   |          |   |   |            |  
|-------------------------- |  | ------ | ---------- | --------- | - | -------------------------------- | - | ----------------------------------- | ---------- | ----------------------------------- | - | ---------------------------- | - | - | -------- | - | - | ---------- | -
|                           |  | Shares |            | Par Value |   | Capital in
 Excess of
 Par Value |   | Accumulated
 Earnings
 (Deficiency) |            | Other
 Comprehensive
 Income (Loss) |   | Total
 Stockholders
 Equity |  
|                           |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |  
|                          
|Balance December 31, 2008  |  |        | 14,062,567 |           | $ | 14,063                           |   | $                                   | 16,259,614 |                                     | $ | (4,991,149                   | ) | $ | (244,788 | ) | $ | 11,037,740 |  
|                           |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |   |   |          |   |   |            |  
|Translation
 adjustment    |  |        |           |           |   |                                 |   |                                     |           |                                     |   |                             |   |   | 575,990  |   |   | 575,990    |  
|Net income                 |  |        |           |           |   |                                 |   |                                     |           |                                     |   | (734,441                     | ) |   |         |   |   | (734,441   | )
|                           |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |   |   |          |   |   |            |  
|                           |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |   |   |          |   |   |            |  
|Comprehensive
 income      |  |        |           |           |   |                                 |   |                                     |           |                                     |   |                             |   |   |         |   |   | (167,451   | )
|                           |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |   |   |          |   |   |            |  
|Shares
 issued:            |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |   |   |          |   |   |            |  
|Cancellation
 of stock     |  |        | (100,000   | )         |   | (100                             | ) |                                     | (79,900    | )                                   |   |                             |   |   |         |   |   | (80,000    | )
|Stock option
 compensation |  |        |           |           |   |                                 |   |                                     | 277,195    |                                     |   |                             |   |   |         |   |   | 277,195    |  
|                           |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |   |   |          |   |   |            |  
|Balance December 31, 2009  |  |        | 13,062,567 |           | $ | 13,963                           |   | $                                   | 16,456,909 |                                     | $ | (5,734,591                   | ) | $ | 331,202  |   | $ | 11,067,483 |  
|                           |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |   |   |          |   |   |            |  
|Translation
 adjustment    |  |        |           |           |   |                                 |   |                                     |           |                                     |   |                             |   |   | 223,663  |   |   | 223,663    |  
|                           |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |   |   |          |   |   |            |  
|Net loss                   |  |        |           |           |   |                                 |   |                                     |           |                                     |   | (190,080                     | ) |   |         |   |   | (190,080   | )
|                           |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |   |   |          |   |   |            |  
|                           |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |   |   |          |   |   |            |  
|Comprehensive
 income      |  |        |           |           |   |                                 |   |                                     |           |                                     |   |                             |   |   |         |   |   | 33,583     |  
|                           |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |   |   |          |   |   |            |  
|Stock option
 compensation |  |        |           |           |   |                                 |   |                                     | 181,318    |                                     |   |                             |   |   |         |   |   | 181,318    |  
|                           |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |   |   |          |   |   |            |  
|                           |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |   |   |          |   |   |            |  
|Balance December 31, 2010  |  |        | 13,962,567 |           | $ | 13,963                           |   | $                                   | 16,638,227 |                                     | $ | (5,924,671                   | ) | $ | 554,865  |   | $ | 11,282,384 |  
|                           |  |        |            |           |   |                                  |   |                                     |            |                                     |   |                              |   |   |          |   |   |            |  

See Notes to Consolidated Financial Statements.

---



FLEXIBLE
SOLUTIONS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
(U.S. Dollars)

|   |                       
|-- | ----------------------
|1. | BASIS OF PRESENTATION.

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

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

|   |                                  
|-- | ---------------------------------
|2. | SIGNIFICANT
 ACCOUNTING POLICIES.

These
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States applicable to a
going concern and reflect the policies outlined below.

| |     |                           
| | --- | --------------------------
| | (a) | Cash and Cash Equivalents.

The Company
considers all highly liquid investments purchased with an original or remaining
maturity of less than three months at the date of purchase to be cash equivalents.
Cash and cash equivalents are maintained with several financial institutions.

| |     |                              
| | --- | -----------------------------
| | (b) | Inventories and Cost of Sales

The Company
has four major classes of inventory: finished goods, work in progress, raw
materials and supplies. In all classes, inventory is valued at the lower of
cost or market. Cost is determined on a first-in, first-out basis. Cost of
sales includes all expenditures incurred in bringing the goods to the point of
sale. Inventory costs and costs of sales include direct costs of the raw
material, inbound freight charges, warehousing costs, handling costs (receiving
and purchasing) and utilities and overhead expenses related to the Companys
manufacturing and processing facilities.

| |     |                                
| | --- | -------------------------------
| | (c) | Allowance for Doubtful Accounts

The Company
provides an allowance for doubtful accounts when management estimates
collectibility to be uncertain. Accounts receivable are continually reviewed to
determine which, if any,

---



accounts are doubtful of collection. In making the determination of the
appropriate allowance amount, the Company considers current economic and
industry conditions, relationships with each significant customer, overall
customer credit-worthiness and historical experience.

| |     |                                    
| | --- | -----------------------------------
| | (d) | Property, Equipment and Leaseholds.

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

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

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

Costs
capitalized on self-constructed assets classified as plant under construction,
include contracted costs and supplies, but do not capitalize interest costs.
The Company does not commence depreciating its plant under construction until
it becomes operational.

| |     |                                 
| | --- | --------------------------------
| | (e) | Impairment of Long-Lived Assets.

In
accordance with FASB Codification Topic 360, Property, Plant and Equipment
(ASC 360), the Company reviews long-lived assets, including, but not limited
to, property and equipment, patents and other assets, for impairment annually
or whenever events or changes in circumstances indicate the carrying amounts of
assets may not be recoverable. The carrying value of long-lived assets is
assessed for impairment by evaluating operating performance and future
undiscounted cash flows of the underlying assets. If the sum of the expected
future cash flows of an asset is less than its carrying value, an impairment
measurement is indicated. Impairment charges are recorded to the extent that an
assets carrying value exceeds its fair value. Accordingly, actual results
could vary significantly from such estimates. There were no impairment charges
during the periods presented.

| |     |                  
| | --- | -----------------
| | (f) | Foreign Currency.

The
functional currency of one of the Companys subsidiaries is the Canadian
Dollar. The translation of the Canadian Dollar to the reporting currency of the
U.S. Dollar is performed for assets and liabilities using exchange rates in effect
at the balance sheet date. Revenue and expense transactions are translated
using average exchange rates prevailing during the year. Translation
adjustments arising on conversion of the financial statements from the
subsidiarys functional currency, Canadian Dollars, into the reporting
currency, U.S. Dollars, are excluded from the determination of income (loss)
and are disclosed as other comprehensive income (loss) in stockholders equity.

Foreign
exchange gains and losses relating to transactions not denominated in the
applicable local currency are included in operating income (loss) if realized
during the year and in comprehensive income (loss) if they remain unrealized at
the end of the year.

---



| |     |                     
| | --- | --------------------
| | (g) | Revenue Recognition.

Revenue
from product sales is recognized at the time the product is shipped since title
and risk of loss is transferred to the purchaser upon delivery to the carrier.
Shipments are made F.O.B. shipping point. The Company recognizes revenue when
there is persuasive evidence of an arrangement, delivery to the carrier has
occurred, the fee is fixed or determinable, collectability is reasonably
assured and there are no significant remaining performance obligations. When
significant post-delivery obligations exist, revenue is deferred until such
obligations are fulfilled. To date there have been no such significant
post-delivery obligations.

Provisions
are made at the time the related revenue is recognized for estimated product
returns. Since the Companys inception, product returns have been
insignificant; therefore no provision has been established for estimated
product returns.

| |     |                                       
| | --- | --------------------------------------
| | (h) | Stock Issued in Exchange for Services.

The
Companys common stock issued in exchange for services is valued at an
estimated fair market value based upon trading prices of the Companys common
stock on the dates of the stock transactions. The corresponding expense of the
services rendered is recognized over the period that the services are
performed.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |     |                           
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | --------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | (i) | Stock-based
 Compensation.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |     |                           
|The Company
 recognizes compensation expense for all share-based payments, in accordance
 with FASB Codification Topic 718, Compensation 
 Stock Compensation, (ASC 718). Under the fair value recognition
 provisions of ASC 718, the Company recognizes share-based compensation
 expense, net of an estimated forfeiture rate, over the requisite service
 period of the award.                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |     |                           
|The
 fair value at grant date of stock options is estimated using the
 Black-Scholes-Merton option-pricing model. Compensation expense is recognized
 on a straight-line basis over the stock option vesting period based on the
 estimated number of stock options that are expected to vest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |     |                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | (j) | Comprehensive
 Income.    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |     |                           
|Other
 comprehensive income refers to revenues, expenses, gains and losses that
 under generally accepted accounting principles are included in comprehensive
 income, but are excluded from net income as these amounts are recorded
 directly as an adjustment to stockholders equity. The Companys other
 comprehensive income is primarily comprised of unrealized foreign exchange
 gains and losses.                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |     |                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | (k) | Income (loss) Per
 Share. 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |     |                           
|Basic
 earnings (loss) per share is computed by dividing income (loss) available to
 common stockholders by the weighted
 average number of common shares outstanding in the period. Diluted earnings
 (loss) per share are
 calculated giving effect to the potential dilution of the exercise of options
 and warrants. 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, 2010 and 2009.

---



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | ------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | (l) | Use of Estimates.                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                     
|The
 preparation of consolidated financial statements in conformity with
 accounting principles generally accepted in the United States requires
 management to make estimates and assumptions that affect the reported amounts
 of assets and liabilities at the date of the consolidated financial
 statements and the reported amounts of revenues and expenses during the
 reporting period. Actual results could differ from those estimates and would
 impact the results of operations and cash flows.                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | (m) | Financial
 Instruments.             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                     
|The fair
 market value of the Companys financial instruments comprising cash and cash
 equivalents, accounts receivable, and accounts payable were estimated to
 approximate their carrying values due to immediate or short-term maturity of
 these financial instruments. The Company maintains cash balances at financial
 institutions which at times, exceed federally insured amounts. The Company
 has not experienced any material losses in such accounts.                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                     
|The
 Company is exposed to foreign exchange and interest rate risk to the extent
 that market value rate fluctuations materially differ from financial assets
 and liabilities, subject to fixed long-term rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | (n) | Fair Value of
 Financial Instruments
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                     
|In August
 2009, an update was made to Fair Value
 Measurements and Disclosures  Measuring Liabilities at Fair Value.This
 update permits entities to measure the fair value of liabilities, in
 circumstances in which a quoted price in an active market for an identical
 liability is not available, using a valuation technique that uses a quoted
 price of an identical liability when traded as an asset, quoted prices for
 similar liabilities or similar liabilities when traded as assets or the
 income or market approach that is consistent with the principles of Fair Value Measurements and Disclosures.
 Effective upon issuance, the Company has adopted this guidance with no
 material impact to the Companys consolidated financial statements.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                                     
|Fair
 value is defined as the exchange price that would be received for an asset or
 paid to transfer a liability (an exit price) in the principal or most
 advantageous market for the asset or liability in an orderly transaction
 between market participants on the measurement date. Valuation techniques
 used to measure fair value must maximize the use of observable inputs and
 minimize the use of unobservable inputs. The standard describes a fair value
 hierarchy based on three levels of inputs described below, of which the first
 two are considered observable and the last unobservable, that may be used to
 measure fair value.                                                                                                                

|  |                                                                                                                                                                                                                                                                                                                                                       
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Level 1 
 Quoted prices in active markets for identical assets or liabilities                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                       
| | Level 2 
 Inputs other than Level 1 that are observable, either directly or indirectly,
 such as quoted prices for similar assets or liabilities; quoted prices in
 markets that are not active; or other inputs that are observable or can be
 corroborated by observable market data for substantially the full term of the
 assets or liabilities.
|  |                                                                                                                                                                                                                                                                                                                                                       
| | Level 3 
 Unobservable inputs that are supported by little or no market activity and
 that are significant to the fair value of the assets or liabilities.                                                                                                                                                                                           

The fair
values of cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities for all periods presented approximate their respective
carrying amounts due to the short term nature of these financial instruments.
Long term debt relates to borrowings from governmental entities and as such no
interest has been imputed on the non-interest bearing loan.

---



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|(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,
 2010, 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.                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|(q)          Risk
 Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|The
 Companys credit risk is primarily attributable to its account receivables.
 The amounts presented in the accompanying consolidated balance sheets are net
 of allowances for doubtful accounts, estimated by the Companys management
 based on prior experience and the current economic environment. The Company
 is exposed to credit-related losses in the event of non-performance by
 counterparties to the financial instruments. Credit exposure is minimized by
 dealing with only credit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

---



worthy counterparties. Accounts receivable for the three primary
customers totals $702,486 (59%) as at December 31, 2010 (2009 - $1,030,960 or
67%).

The credit
risk on cash and cash equivalents is limited because the Company limits its
exposure to credit loss by placing its cash and cash equivalents with major
financial institutions.

The Company
is not exposed to significant interest rate risk to the extent that the long
term debt maintained from the foreign government agencies is subject to a fixed
rate of interest.

In order to
manage its exposure to foreign exchange risks, the Company is closely
monitoring the fluctuations in the foreign currency exchange rates and the
impact on the value of cash and cash equivalents, accounts receivable, and
accounts payable.

| |     |                                 
| | --- | --------------------------------
| | (r) | Recent Accounting Pronouncements

In December
2010, the FASB issued ASU No. 2010-29, ―Business Combinations (Topic
805): Disclosure of Supplementary Pro Forma Information for Business
Combinations (―ASU 2010-29). The amendments in this ASU specifies that if
a public entity presents comparative financial statements, the entity should
disclose revenue and earnings of the combined entity as though the business
combination(s) that occurred during the current year had occurred as of the
beginning of the comparable prior annual reporting period only. The amendments
also expand the supplementary pro forma disclosures to include a description of
the nature and amount of material, nonrecurring pro forma adjustments directly
attributable to the business combination included in the reported pro forma revenue
and earnings. The amendments are effective prospectively for business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2010. The
adoption of ASU 2010-29 is not expected to have a material impact on our
Consolidated Financial Statements.

In December
2010, the FASB issued ASU No. 2010-28, ―Intangibles  Goodwill and Other
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts (―ASU 2010-28).
For reporting units with zero or negative carrying amounts, this ASU requires
that an entity perform Step 2 of the goodwill impairment test if it is more
likely than not that a goodwill impairment exists. In determining whether it is
more likely than not that a goodwill impairment exists, an entity should
consider whether there are any adverse qualitative factors indicating that an
impairment may exist. The qualitative factors are consistent with the existing
guidance and examples, which require that goodwill of a reporting unit be tested
for impairment between annual tests if an event occurs or circumstances change
that would more likely than not reduce the fair value of a reporting unit below
its carrying amount. The amendments in this ASU are effective for fiscal years,
and interim periods within those years, beginning after December 15, 2010. The
adoption of ASU 2010-28 is not expected to have an impact on our Consolidated
Financial Statements.

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

|                                  |  |      |           |      |   |           |  
|--------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                  | 
|                                  |  | 2010 |           | 2009 |  
|                                  |  |      |          
|                                  |  |      |           |      |   |           |  
|Accounts receivable               |  | $    | 1,212,428 |      | $ | 1,552,723 |  
|Allowances for doubtful
 accounts |  |      | (13,489   | )    |   | (8,359    | )
|                                  |  |      |           |      |   |           |  
|                                  |  | $    | 1,198,939 |      | $ | 1,544,364 |  
|                                 

---



The
Company has pledged $190,889 (2009 - $231,676) of the above listed accounts
receivable as collateral for the Flexible Solutions Ltd. loan from AFSC (see
Note 8b)

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

|                 |  |      |           |      |   |           | 
|---------------- |  | ---- | --------- | ---- | - | --------- | 
|                 | 
|                 |  | 2010 |           | 2009 |  
|                 |  |      |          
|                 |  |      |           |      |   |           | 
|Completed goods  |  | $    | 1,354,578 |      | $ | 1,670,485 | 
|Work in progress |  |      | 142,824   |      |   | 96,935    | 
|Raw materials    |  |      | 1,041,788 |      |   | 1,028,887 | 
|                 |  |      |           |      |   |           | 
|                 |  | $    | 2,539,190 |      | $ | 2,796,307 | 
|                

|   |                                   
|-- | ----------------------------------
|5. | PROPERTY, EQUIPMENT AND LEASEHOLDS

|                                        |  |            |            |                           |   |           |  |   |           | 
|--------------------------------------- |  | ---------- | ---------- | ------------------------- | - | --------- |  | - | --------- | 
|                                        | 
|                                        |  | 2010
 Cost |            | Accumulated
 Depreciation |   | 2010
 Net | 
|                                        |  |            |            |                           |   |           | 
|Buildings                               |  | $          | 3,216,859  |                           | $ | 1,566,462 |  | $ | 1,650,397 | 
|Plant under construction and
 equipment |  |            | 4,922,148  |                           |   |          |  |   | 4,922,148 | 
|Computer hardware                       |  |            | 100,733    |                           |   | 72,557    |  |   | 28,176    | 
|Furniture and fixtures                  |  |            | 28,391     |                           |   | 18,654    |  |   | 9,737     | 
|Office equipment                        |  |            | 23,954     |                           |   | 19,028    |  |   | 4,926     | 
|Manufacturing equipment                 |  |            | 2,392,162  |                           |   | 1,772,207 |  |   | 619,955   | 
|Trailer                                 |  |            | 28,0654    |                           |   | 17,566    |  |   | 10,498    | 
|Technology                              |  |            | 137,349    |                           |   |          |  |   | 137,349   | 
|Trade show booth                        |  |            | 8,736      |                           |   | 7,863     |  |   | 873       | 
|Truck                                   |  |            | 11,954     |                           |   | 6,975     |  |   | 4,979     | 
|Land                                    |  |            | 478,634    |                           |   |          |  |   | 478,634   | 
|                                        |  |            |            |                           |   |           |  |   |           | 
|                                        |  | $          | 11,348,985 |                           | $ | 3,481,313 |  | $ | 7,867,672 | 
|                                        | 

|                                        |  |            |            |                           |   |           |  |   |           | 
|--------------------------------------- |  | ---------- | ---------- | ------------------------- | - | --------- |  | - | --------- | 
|                                        | 
|                                        |  | 2009
 Cost |            | Accumulated
 Depreciation |   | 2009
 Net | 
|                                        |  |            |            |                           |   |           | 
|Buildings                               |  | $          | 3,168,248  |                           | $ | 1,385,381 |  | $ | 1,782,867 | 
|Plant under construction and
 equipment |  |            | 4,190,271  |                           |   |          |  |   | 4,190,271 | 
|Computer hardware                       |  |            | 83,725     |                           |   | 63,022    |  |   | 20,703    | 
|Furniture and fixtures                  |  |            | 26,170     |                           |   | 15,693    |  |   | 10,477    | 
|Office equipment                        |  |            | 21,973     |                           |   | 16,929    |  |   | 5,044     | 
|Manufacturing equipment                 |  |            | 2,297,561  |                           |   | 1,608,101 |  |   | 689,460   | 
|Trailer                                 |  |            | 26,560     |                           |   | 12,000    |  |   | 14,560    | 
|Technology                              |  |            | 129,985    |                           |   |          |  |   | 129,985   | 
|Trade show booth                        |  |            | 8,268      |                           |   | 7,088     |  |   | 1,180     | 
|Truck                                   |  |            | 11,313     |                           |   | 4,582     |  |   | 6,731     | 
|Land                                    |  |            | 463,648    |                           |   |          |  |   | 463,648   | 
|                                        |  |            |            |                           |   |           |  |   |           | 
|                                        |  | $          | 10,427,722 |                           | $ | 3,112,796 |  | $ | 7,314,926 | 
|                                        | 

Amount
of depreciation expense for 2010: $343,215 (2009: $402,115)

---



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

|                        |  |           |           |           |   |           | 
|----------------------- |  | --------- | --------- | --------- | - | --------- | 
|                        | 
|                        |  | 2010 Cost |           | 2009 Cost |  
|                        |  |           |           |           |  
|                       
|Building                |  | $         | 1,063,471 |           | $ | 1,003,057 | 
|Building improvements   |  |           | 1,085,613 |           |   | 1,003,156 | 
|Manufacturing equipment |  |           | 2,773,064 |           |   | 2,184,058 | 
|Technology              |  |           | 137,349   |           |   | 129,985   | 
|                        |  |           |           |           |   |           | 
|                        |  | $         | 5,059,497 |           | $ | 4,320,256 | 
|                        | 

The
following carrying amount of capital assets held by Flexible Solutions Ltd.
serves as collateral for the AFSC loan (see Note 8b):

|                        |  |   |           | 
|----------------------- |  | - | --------- | 
|                        | 
|Land                    |  | $ | 279,541   | 
|Building                |  |   | 1,059,878 | 
|Building improvements   |  |   | 1,085,878 | 
|Manufacturing equipment |  |   | 2,845,205 | 
|Trailer                 |  |   | 10,498    | 
|Truck                   |  |   | 4,979     | 
|Trade show booth        |  |   | 873       | 
|Technology              |  |   | 137,349   | 
|                        | 

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

In
fiscal 2005, the Company started the patent process for additional WATER$AVR®
products. Patents associated with these
costs were granted in 2006 and they have been amortized over their legal life
of 17 years.

Of
the patents costs listed below, $79,582 (2009 - $75,347) are not subject to
amortization as at December 31, 2010, as the patents are still in the process
of being approved.

|        |  |          |         |                           |   |         |  |   |         | 
|------- |  | -------- | ------- | ------------------------- | - | ------- |  | - | ------- | 
|        |  | 2010Cost |         | Accumulated
 Amortization |   | 2010Net | 
|        | 
|        |  |          |         |                           |   |         |  |   |         | 
|Patents |  | $        | 266,530 |                           | $ | 41,350  |  | $ | 225,180 | 
|        | 

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

Increase in
2010 cost was due to currency conversion. 2010 cost in Canadian dollars -
$265,102 (2009 - $265,102 in Canadian dollars).

---



Amount of
depreciation for 2010: $13,582 (2009: $13,762).

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

|     |  |   |        | 
|---- |  | - | ------ | 
|     |  |   |        | 
|2011 |  | $ | 12,224 | 
|2012 |  |   | 12,224 | 
|2013 |  |   | 12,224 | 
|2014 |  |   | 12,224 | 
|2015 |  |   | 12,224 | 
|     |  |   |        | 

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

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

|                    |  |      |       |      |   |       | 
|------------------- |  | ---- | ----- | ---- | - | ----- | 
|                    |  |      |       |      |   |       | 
|                    |  | 2010 |       | 2009 |  
|                    |  |      |       |      |  
|                    |  |      |       |      |   |       | 
|Long term
 deposits |  | $    | 7,896 |      | $ | 7,499 | 
|                    |  |      |       |      |   |       | 

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

(a)Flexible
Solutions Ltd. has received a non-interest bearing loan from the Department of
Agriculture and Agri-Food Canada (AAFC). Eligible for up to $1,000,000 in
Canadian funds, the Company had borrowed $910,801 in Canadian funds
(US$915,719) as of December 31, 2010 on an unsecured basis (2009 - $910,801CDN;
US$866,627). If the full amount is drawn, the repayment schedule is as follows:

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

(b)Flexible
Solutions Ltd. has also received a 5% simple interest loan from Agriculture
Financial Services Corp. (AFSC). Eligible for up to $2,000,000 in Canadian
funds, the Company had borrowed $1,491,000 in Canadian funds ($1,499,051 US) as
of December 31, 2010. The Company is required to make interest payments until
May 1, 2010 and then must pay down the principal in equal payments until May 1,
2014. The Company has pledged the assets of the Taber, AB building, including
equipment, inventory and accounts receivable (see Notes 3 and 5) as collateral,
as well as signed a promissory note guaranteeing the amount of the loan.

---



|                                    |  |      |           |      |   |           |  
|----------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|Continuity                          |  | 2010 |           | 2009 |  
|                                    |  |      |           |      |  
|Balance,
 January 1                 |  | $    | 2,285,314 |      |   | 1,546,836 |  
|Less:
 Payments on loan             |  |      | 75,642    |      |   | 462,155   |  
|                                    |  |      |           |      |   |           |  
|Effect of
 exchange rate            |  |      | (32,155   | )    |   | 276,323   |  
|                                    |  |      |           |      |   |           |  
|Balance,
 December 31               |  | $    | 2,328,801 |      | $ | 2,285,314 |  
|                                    |  |      |           |      |   |           |  
|                                    |  |      |           |      |   |           |  
|Outstanding balance at December 31, |  | 2010 |           | 2009 |  
|                                    |  |      |           |      |   |           |  
|a) Long term
 debt - AAFC           |  | $    | 915,719   |      | $ | 866,627   |  
|                                    |  |      |           |      |   |           |  
|a) Long term
 debt - AFSC           |  |      | 1,413,082 |      |   | 1,418,687 |  
|                                    |  |      |           |      |   |           |  
|Long-term
 Debt                     |  | $    | 2,328,801 |      | $ | 2,285,314 |  
|Less:
 current portion              |  |      | (122,726  | )    |   | (74,146   | )
|                                    |  |      |           |      |   |           |  
|                                    |  | $    | 2,206,075 |      | $ | 2,211,168 |  
|                                    |  |      |           |      |   |           |  

|   |                     
|-- | --------------------
|9. | COMPREHENSIVE INCOME

|                                                |  |      |          |      |   |          |  
|----------------------------------------------- |  | ---- | -------- | ---- | - | -------- | -
|                                                |  |      |          |      |   |          |  
|                                                |  | 2010 |          | 2009 |  
|                                                |  |      |          |      |  
|                                               
|Net income
 (loss)                              |  | $    | (190,080 | )    | $ | (743,441 | )
|Other
 comprehensive income                     |  |      | 223,655  |      |   | 575,990  |  
|Comprehensive
 income (loss)                    |  | $    | 33,575   |      | $ | (234,451 | )
|Basic and
 diluted comprehensive loss per share |  |      | 0.00     |      |   | (0.02    | )
|                                                |  |      |          |      |   |          |  

---



|    |           
|--- | ----------
|10. | INCOME TAX

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

|                              |  |      |         |      |   |          |  
|----------------------------- |  | ---- | ------- | ---- | - | -------- | -
|                              |  | 2010 |         | 2009 |  
|                              |  |      |         |      |  
|Current tax,
 federal         |  | $    | 604,340 |      | $ | 281,225  |  
|Current tax,
 state           |  |      | 165,840 |      |   | 113,758  |  
|Current tax,
 foreign         |  |      |        |      |   |         |  
|                              |  |      |         |      |   |          |  
|Current tax,
 total           |  |      | 770,180 |      |   | 394,983  |  
|                              |  |      |         |      |   |          |  
|Deferred
 income tax, federal |  |      | (80,000 | )    |   | (119,000 | )
|Deferred
 income tax, state   |  |      |        |      |   |         |  
|Deferred
 income tax, foreign |  |      |        |      |   |         |  
|                              |  |      |         |      |   |          |  
|Deferred
 income tax, total   |  |      | (80,000 | )    |   | (119,000 | )
|                              |  |      |         |      |   |          |  
|Total                         |  | $    | 690,180 |      | $ | 275,983  |  
|                              |  |      |         |      |   |          |  

Income
taxes vary from the amount that would be computed by applying the U.S.
statutory federal income tax rate (34%) to income (loss) before income tax
expense (benefit):

|                                                             |  |      |            |      |   |            |  
|------------------------------------------------------------ |  | ---- | ---------- | ---- | - | ---------- | -
|                                                             |  | 2010 |            | 2009 |  
|                                                             |  |      |            |      |  
|                                                             |  |      |            |      |   |            |  
|Income
 before taxes, domestic                               |  | $    | 1,864,781  |      | $ | 947,312    |  
|Income
 before taxes, foreign                                |  |      | (1,364,681 | )    |   | (1,414,771 | )
|                                                             |  |      |            |      |   |            |  
|Income
 before taxes, total                                  |  | $    | 500,100    |      | $ | (467,458   | )
|                                                             |  |      |            |      |   |            |  
|Expense
 (recovery) for income taxes at statutory rate (34%) |  | $    | 170,034    |      | $ | (173,745   | )
|Impact of
 lower statutory rates on foreign subsidiary       |  |      | 81,881     |      |   | 70,739     |  
|Impact of
 change in tax rate on foreign subsidiary          |  |      | 111,348    |      |   |           |  
|Permanent
 difference  stock based compensation             |  |      | 61,651     |      |   | 94,246     |  
|Permanent
 difference - research                             |  |      |           |      |   | 7,696      |  
|Non-deductible
 expenses                                     |  |      | 19,980     |      |   | 6,192      |  
|Change in
 valuation allowance                               |  |      | 245,285    |      |   | 270,856    |  
|                                                             |  |      |            |      |   |            |  
|Income tax
 expense (recovery)                               |  | $    | 690,180    |      | $ | 275,983    |  
|                                                             |  |      |            |      |   |            |  

---



Deferred
income taxes reflect the tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The Companys deferred tax assets are
consisting of the following:

|                                 |  |    |         |         |   |            |   |            |           
|-------------------------------- |  | -- | ------- | ------- | - | ---------- | - | ---------- | ----------
|                                 |  | US |         | Foreign |   | Total 2010 |   | Total 2009 |           
|                                 |  |    |         |         |   |            |   |            |           
|Non-capital
 loss carry forwards |  | $  |        |         | $ | 1,507,733  |   | $          | 1,507,733 
|Property and
 equipment          |  |    | 199,000 |         |   | (61,395    | ) |            | 137,605   
|Stock based
 compensation        |  |    | 44,862  |         |   |           |   |            | 44,862    
|                                 |  |    |         |         |   |            |   |            |           
|Valuation
 allowance             |  |    | (44,862 | )       |   | (1,446,338 | ) |            | (1,491,200
|                                 |  |    |         |         |   |            |   |            |           
|Net deferred
 tax assets         |  | $  | 199,000 |         | $ |           |   | $          | 199,000   
|                                 |  |    |         |         |   |            |   |            |           

A valuation
allowance of $1,491,200 has been recorded as of December 31, 2010 (2009 -
$1,160,879). Due to uncertainties related to Companys ability to utilize some
of the deferred income tax assets, primarily consisting of the foreign
operations in Canada. The valuation allowance is based on the estimates of
taxable income in the various jurisdictions in which the company operates and
the period over which deferred income tax assets will be recoverable. The
realization of net deferred income tax assets of $199,000 as of December 31,
2010 (2009 - $119,000) is primarily dependent upon the ability to generate
future taxable income in the U.S.

The
Companys foreign subsidiary in Canada carried losses for foreign income tax
purposes of $6,030,934 (2009 - $4,297,876), which may be carried forward to
apply against future income tax in Canada, expiring between 2014 and 2030. The
deferred tax benefit of these loss carry-forwards has been offset with a full
valuation allowance, due to uncertainties related to the foreign subsidiary to
utilize those deferred tax assets before they expire. These losses expire as
follows:

|     |  |  |          
|---- |  |  | ---------
|     |  |  |          
|2014 |  |  | 457,940  
|2025 |  |  | 727,789  
|2026 |  |  | 939,633  
|2027 |  |  | 843,817  
|2028 |  |  | 756,095  
|2029 |  |  | 1,041,470
|2030 |  |  | 1,264,190
|     |  |  |          

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, 2010 and 2009, 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 is subject to
income taxation at the federal and state levels. The Company is subject to US
federal tax examinations for the tax years 2007 through 2010. Loss
carryforwards generated or utilized in years earlier than 2007 are also subject
to examination and adjustment. The Company has no income tax examinations in
process.

---



The
operating income shown in the income statement is on a consolidated basis. As
shown in the income tax reconciliation in Note 10, net income and net loss has
been segregated so that the financial statement reader can see that the company
has a significant net income before tax in the United States, and a significant
loss before tax in foreign jurisdictions. On a consolidated basis, the net income
earned in the States is being offset by the losses in Canada.

11.          EARNINGS (LOSS) PER SHARE.

|                     |  |                   |          |                       |  |                                    |  |   |       |  
|-------------------- |  | ----------------- | -------- | --------------------- |  | ---------------------------------- |  | - | ----- | -
|                     |  | Net income (loss) |          | Shares
 (denominator) |  | Earnings (loss)
 per share
 amount | 
|                     |  |                   |          |                       |  |                                    | 
|                    
|2010 Basic
 net loss |  | $                 | (190,080 | )                     |  | 13,962,567                         |  | $ | (0.01 | )
|                     |  |                   |          |                       |  |                                    |  |   |       |  
|2009 Basic
 net loss |  | $                 | (743,441 | )                     |  | 14,020,375                         |  | $ | (0.05 | )
|                     |  |                   |          |                       |  |                                    |  |   |       |  

Options to
purchase 1,836,700 shares of the Companys common stock at prices ranging from
$1.50 to $3.60 per share were outstanding during the year ended December 31,
2010 (2009: options to purchase 1,546,700 shares of the Companys common stock
at prices ranging from $2.25 to $3.85 per share were outstanding during the
year ended December 31, 2009), but were excluded from the computation of diluted
earnings per share because the options exercise prices were greater than the
average market price of the Companys common stock and were anti-dilutive.
There were no preferred shares issued and outstanding during the years ended
December 31, 2010 or 2009.

12.          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.

---



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

|                                |  |                  |           |                           |  |                                  |  |  |       | 
|------------------------------- |  | ---------------- | --------- | ------------------------- |  | -------------------------------- |  |  | ----- | 
|                                | 
|                                |  | Number of shares |           | Exercise price
 per share |  | Weighted average
 exercise price | 
|                                |  |                  |           |                           |  |                                  | 
|                               
|Balance,
 December 31, 2008     |  |                  | 1,910,700 |                           |  | $3.00 - $4.55                    |  |  | $3.38 | 
|Granted                         |  |                  | 122,000   |                           |  | $2.25                            |  |  | $2.25 | 
|Cancelled or
 expired           |  |                  | (204,740  | )                         |  | $3.00 - $4.60                    |  |  | $3.74 | 
|                                |  |                  |           |                           |  |                                  |  |  |       | 
|Balance,
 December 31, 2009     |  |                  | 1,546,700 |                           |  | $2.25 - $3.85                    |  |  | $3.25 | 
|Granted                         |  |                  | 315,000   |                           |  | $1.50  2.25                     |  |  | $1.87 | 
|Cancelled or
 expired           |  |                  |           |                           |  |                                  |  |  |       | 
|                                |  |                  | (25,000   | )                         |  | $1.50 - $3.85                    |  |  | $1.97 | 
|                                |  |                  |           |                           |  |                                  |  |  |       | 
|Balance,
 December 31, 2010     |  |                  | 1,836,700 |                           |  | $1.50  $3.60                    |  |  | $3.03 | 
|                                |  |                  |           |                           |  |                                  |  |  |       | 
|Exercisable,
 December 31, 2010 |  |                  | 1,708,700 |                           |  | $1.50  3.60                     |  |  | $3.03 | 
|                                | 

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

|                                                |  |      |             |      |   |      |  
|----------------------------------------------- |  | ---- | ----------- | ---- | - | ---- | -
|                                                |  | 2010 |             | 2009 |  
|                                                |  |      |             |      |  
|                                               
|Expected
 life  years                          |  |      | 5.0         |      |   | 5.0  |  
|Interest
 rate                                  |  |      | 1.40  2.49 | %    |   | 1.14 | %
|Volatility                                      |  |      | 60          | %    |   | 65   | %
|Dividend
 yield                                 |  |      |            | %    |   |     | %
|Weighted
 average fair value of options granted |  | $    | 0.29  0.70 |      | $ | 1.01 |  

During the
year ended December 31, 2010, the Company granted 61,000 (2009  61,000) stock
options to consultants and has applied ASC 718 using the Black-Scholes
option-pricing model, which resulted in additional expenses of $20,032 (2009 -
$61,384). During the year ended December 31, 2010, employees were granted
254,000 (2009  61,000) stock options, which resulted in additional expenses of
$65,801 (2009  $61,384). Options granted in previous years resulted in
additional expenses in the amount of $34,690 for consultants and $60,801 for
employees during the year ended December 31, 2010. No stock options were
exercised during this period.

13. WARRANTS

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

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

---



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

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

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

The
following table summarizes the Companys warrant activity for the three years
ended December 30, 2010:

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

|    |               
|--- | --------------
|14. | CAPITAL STOCK.

During the
year ended December 31, 2010, the Company did not issue any stock.

During the
year ended December 31, 2009, the Company did not issue any stock. The Company
cancelled 100,000 shares during the year ended December 31, 2009 (see Note 17).

|    |                                                                      
|--- | ---------------------------------------------------------------------
|15. | SEGMENTED, SIGNIFICANT CUSTOMER INFORMATION
 AND ECONOMIC DEPENDENCY.

The
Company operates in two segments:

(a) Development
and marketing of two lines of energy and water conservation products (as shown
under the column heading EWCP below), which consists of a (i) liquid swimming
pool blanket which saves energy and water by inhibiting evaporation from the
pool surface, and (ii) food-safe powdered form of the active ingredient within
the liquid blanket and which is designed to be used in still or slow moving
drinking water sources.

(b)
Manufacture of biodegradable polymers and chemical additives used within the petroleum,
chemical, utility and mining industries to prevent corrosion and scaling in
water piping (as shown under the column heading TPA below). These chemical
additives are also manufactured for use in laundry and dish detergents, as well
as in products to reduce levels of insecticides, herbicides and fungicides.

---



The
Companys traditional operating activities related to the production and sale
of its energy conversation product line. Upon acquiring the Donlar assets, the
Company formed NanoChem, which was formed as its wholly-owned subsidiary in
exchange for the capital contribution necessary to purchase the Donlar assets.
The assets the Company acquired from Donlar include domestic and international
patents and business processes relating to the production of TPAs and other
environmental products and technologies, as well as a manufacturing plant.
These assets are currently used by NanoChem for its revenue-producing
activities.

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, 2010:

|                                            |  |      |            |     |   |            |  |   |            |  
|------------------------------------------- |  | ---- | ---------- | --- | - | ---------- |  | - | ---------- | -
|                                            | 
|                                            |  | EWCP |            | TPA |   | Total      | 
|                                            |  |      |            |     |   |            | 
|                                            |  |      |            |     |   |            | 
|Revenue                                     |  | $    | 936,832    |     | $ | 10,554,569 |  | $ | 11,491,401 |  
|Interest
 expense                           |  |      | 75,951     |     |   | 1,265      |  |   | 77,216     |  
|Depreciation                                |  |      | 46,337     |     |   | 313,205    |  |   | 359,542    |  
|Income tax
 expense                         |  |      |           |     |   | 690,180    |  |   | 690,180    |  
|Segment
 profit (loss)                      |  |      | (1,634,570 | )   |   | 1,444,490  |  |   | (190,080   | )
|Segment
 property, equipment and leaseholds |  |      | 5,449,885  |     |   | 2,417,787  |  |   | 7,867,672  |  
|Expenditures
 for segment assets            |  |      | 479,811    |     |   | 134,091    |  |   | 613,902    |  
|                                            | 

Year ended
December 31, 2009:

|                                            |  |      |            |     |   |           |  |   |           |  
|------------------------------------------- |  | ---- | ---------- | --- | - | --------- |  | - | --------- | -
|                                            | 
|                                            |  | EWCP |            | TPA |   | Total     | 
|                                            |  |      |            |     |   |           | 
|                                            |  |      |            |     |   |           | 
|Revenue                                     |  | $    | 852,079    |     | $ | 8,931,417 |  | $ | 9,783,496 |  
|Interest
 expense                           |  |      | 61,383     |     |   | 4,685     |  |   | 66,068    |  
|Depreciation                                |  |      | 51,714     |     |   | 350,401   |  |   | 402,115   |  
|Income tax
 expense                         |  |      |           |     |   | 394,983   |  |   | 394,983   |  
|Segment
 profit (loss)                      |  |      | (1,636,424 | )   |   | 892,983   |  |   | (743,441  | )
|Segment
 property, equipment and leaseholds |  |      | 4,718,733  |     |   | 2,596,193 |  |   | 7,314,926 |  
|Expenditures
 for segment assets            |  |      | 1,236,204  |     |   | 39,515    |  |   | 1,275,719 |  
|                                            | 

---



Sales by
territory are shown below:

|                          |  |      |            |      |   |           | 
|------------------------- |  | ---- | ---------- | ---- | - | --------- | 
|                          | 
|                          |  | 2010 |            | 2009 |  
|                          |  |      |            |      |  
|                          |  |      |            |      |   |           | 
|Canada                    |  | $    | 357,646    |      | $ | 309,502   | 
|United
 States and abroad |  |      | 11,133,755 |      |   | 9,473,994 | 
|                          |  |      |            |      |   |           | 
|Total                     |  | $    | 11,491,401 |      | $ | 9,783,946 | 
|                          | 

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

|               |  |      |           |      |   |           | 
|-------------- |  | ---- | --------- | ---- | - | --------- | 
|               | 
|               |  | 2010 |           | 2009 |  
|               |  |      |           |      |  
|               |  |      |           |      |   |           | 
|Canada         |  | $    | 5,675,065 |      | $ | 4,943,238 | 
|United
 States |  |      | 2,417,787 |      |   | 2,596,193 | 
|               |  |      |           |      |  
|Total          |  | $    | 8,092,852 |      | $ | 7,539,431 | 
|               | 

Three
customers accounted for $7,033,072 (61%) of sales made in the year (2009 -
$6,277,651 or 64%).

|    |             
|--- | ------------
|16. | COMMITMENTS.

We are
committed to minimum rental payments for property and premises aggregating
approximately $365,688 over the term of three leases, the last expiring on July
31, 2014.

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

|     |  |   |         | 
|---- |  | - | ------- | 
|     | 
|2011 |  | $ | 163,608 | 
|2012 |  | $ | 75,760  | 
|2013 |  | $ | 78,837  | 
|2014 |  | $ | 47,463  | 
|     | 

|    |               
|--- | --------------
|17. | CONTINGENCIES.

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

---



|    |                   
|--- | ------------------
|18. | SUBSEQUENT EVENTS.

Subsequent
to the year ended December 31, 2010:

On January
1, 2011, the Company issued 157,000 stock options to employees and 201,000
stock options to consultants. The strike price varies from $1.50  2.00, with
vesting dates varying from December 31, 2011 to December 31, 2015 and all
expire December 31, 2015.

In February
2011, the Company purchased and cancelled 792,576 shares of its common stock.
The stock was purchased from an institutional fund that would have
preferred to retain its position, but due to a change in mandate was required
to divest. The purchase price was $1.30 per share for a total expenditure of
$1,030,349. The issued and outstanding shares of the company are reduced by
5.7% to 13,169,991 from 13,962,567.

|    |                    
|--- | -------------------
|19. | COMPARATIVE FIGURES

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

---



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

On January
4, 2010, Cinnamon Jang Willoughby & Company (CJW) resigned as our
independent registered public accounting firm as CJW was merged with Meyers
Norris Penny LLP, Chartered Accountants (MNP). Most of the professional staff
of CJW continued with MNP either as employees or partners of MNP and will
continue their practice with MNP. On March 19, 2010, we, through and with the
approval of our Board of Directors, engaged MNP as our independent registered
public accounting firm.

Prior to
engaging MNP, we did not consult with MNP regarding the application of
accounting principles to a specific completed or contemplated transaction or regarding
the type of audit opinions that might be rendered by MNP on our financial
statements, and MNP did not provide any written or oral advice that was an
important factor considered by us in reaching a decision as to any such
accounting, auditing or financial reporting issue.

The reports
of CJW regarding our financial statements for the fiscal years ended December
31, 2008 and 2007 did not contain any adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting
principles. During the years ended December 31, 2009 and 2008, and during the
period from December 31, 2009 through January 4, 2010 there were no
disagreements with CJW on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of CJW would have caused it
to make reference to such disagreement in its reports.

|         |                         
|-------- | ------------------------
|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, 2010, 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.

1

---



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, 2010, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission, or the 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.

Based on this evaluation, management has concluded that our internal
control over financial reporting was effective as of December 31, 2010.

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.

2

---



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

|                       |  |     |  |                     
|---------------------- |  | --- |  | --------------------
|Name                   |  | Age |  | Position            
|                       |  |     |  |                     
|                      
|Daniel B.
 OBrien     |  | 54  |  | President,
 Director
|John H.
 Bientjes      |  | 57  |  | Director            
|Dr. Robert
 N. OBrien |  | 89  |  | Director            
|Dale Friend            |  | 56  |  | Director            
|Eric Hodges            |  | 67  |  | Director            

Daniel B.
OBrien has served as our President and Chief Executive 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.

Dr. Robert
N. OBrien has been a director since June 1998. Dr. OBrien was a Professor of
Chemistry at the University of Victoria from 1968 until 1986 at which time he
was given the designation of Professor Emeritus. He held various academic
positions since 1957 at the University of Alberta, the University of California
at Berkley, and the University of Victoria. While teaching, Dr. OBrien acted
as a consultant and served on the British Columbia Research Council from 1968
to 1990. In 1987, Dr. OBrien founded the Vancouver Island Advanced Technology
and Research Association. Dr. OBrien received his Bachelor of Applied Science
in Chemical Engineering from the University of British Columbia in 1951; his
Masters of Applied Science in Metallurgical Engineering from the University of
British Columbia in 1952; his Ph.D. in Metallurgy from the University of
Manchester in 1955; and was a Post Doctoral Fellow in Pure Chemistry at the
University of Ottawa from 1955 through 1957. Dr. OBrien is the father of
Daniel B. OBrien.

Dale Friend
has been a director since December 2002. She has a diversified background in
the area of accounting and her experience has been primarily in business,
offering a wide range of accounting knowledge. Ms. Friend has worked for a
number of companies in their accounting departments, including Novas Capital
Corp. and DB Perks & Associates. She is currently working as Contract
Accountant for Monexa Solutions as well as Delcor Holdings. Monexa is a leader
in Flexible Subscription Billing and recurring payments and Delcor is a
privately held investment company.

Eric Hodges
has been a director since September 2004. Mr. Hodges is an accountant from
Victoria who has over three decades of experience. He received his financial
education from the University of Washington in Seattle where he played for the
Huskies football program. Mr. Hodges continued playing football after college,
with a successful, multiyear professional career with the British Columbia
Lions of the Canadian Football League. Since 2001, Mr. Hodges has owned and
operated Eric G. Hodges & Associates, a Victoria-based accounting firm with
both Canadian and U.S. clientele. Mr. Hodges is extremely familiar with both
Canadian and United States generally accepted accounting principles (GAAP),
since he has clients in both countries. Furthermore, his wide range of
experience with small and quickly growing companies is an asset to the board of
directors.

3

---



Directors
are elected annually and hold office until the next annual meeting of our
stockholders and until their successors are elected and qualified. There have
been no material changes to the procedures by which security holders may
recommend nominees to our board of directors. All executive offices are chosen
by the board of directors and serve at the boards discretion.

John
Bientjes, Dale Friend, and Eric Hodges are independent directors as that term
is defined in section 803 of the listing standards of the NYSE AMEX.

Our Audit
Committee, consisting of John Bientjes, Dale Friend and Eric Hodges, all of
whom are independent directors and 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 to monitor 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. Mr. Hodges
meets the SECs definition of 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 AMEX.

Our
Compensation Committee, consisting of John Bientjes, Dale Friend and Eric
Hodges, 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, 2010, no
director was also an executive officer of another entity, which had one of our
executive officers serving as a director of such entity or as a member of the
compensation committee of such entity.

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 also obtain a
copy of our Code of Ethics from our website at www.flexiblesolutions.com.

We believe
our directors are qualified to act as such due to their longstanding
relationship with us.

|         |                        
|-------- | -----------------------
|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, 2010.

|                                       |  |              |  |             |         |            |   |                                |   |                      |   |                                       |   |       |   |         | 
|-------------------------------------- |  | ------------ |  | ----------- | ------- | ---------- | - | ------------------------------ | - | -------------------- | - | ------------------------------------- | - | ----- | - | ------- | 
|Name and
 Principal
 Position          |  | Fiscal
 Year |  | Salary
 (1) |         | Bonus
 (2) |   | Restricted
 Stock
 Awards
 (3) |   | Options
 Awards
 (4) |   | All
 Other
 Annual
 Compensation
 (5) |   | Total |  
|                                       |  |              |  |             |         |            |   |                                |   |                      |   |                                       |   |       |  
|                                       |  |              |  |             |         |            |   |                                |   |                      |   |                                       |   |       |   |         | 
|Daniel B.
 OBrien                     |  | 2010         |  | $           | 175,624 |            |  |                                |  |                      |  |                                       |  |       | $ | 175,624 | 
|President
 and Chief Executive Officer |  | 2009         |  | $           | 177,000 |            |  |                                |  |                      |  |                                       |  |       |   | 177,000 | 

4

---



|    |                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.                                                          

Stock Option Program

Our Stock
Option Program involves the issuance of options, from time to time, to our employees,
directors, officers, consultants and advisors. Options are granted by means of
individual option agreements. Each option agreement specifies the shares
issuable upon the exercise of the option, the exercise price and expiration
date and other terms and conditions of the option.

If the
option holder is an employee, and if he or she ceases to be employed by us, the
option holder may, during the 30-day period following termination of
employment, exercise the option to the extent the option was exercisable on the
date of termination. In the case of death or disability, the option holder (or
his or her administrator) has twelve months from the date of death or
disability to exercise the option to the extent the option was exercisable on
the date of death or disability.

The options
are subject to adjustment by reason of a recapitalization, reclassification,
stock split, combination of shares, dividend or other distribution payable in
capital stock. Upon a merger, liquidation, dissolution or other consolidation,
we will provide each option holder with one-months prior written notice
informing the option holder that he or she may exercise the option in full (to
the extent it has not been previously exercised) within the one-month period.
Following the expiration of the one month period, the option will terminate.

The options
may not be transferred, assigned, pledged or hypothecated in any way (except by
will or the laws of descent) and are not subject to execution, attachment or
similar process.

All options
expire between one and five years after the date of grant and reflect exercise
prices equal to the fair market value of a share of our common stock as
determined by our board of directors on the date of grant. All of the options
contain vesting provisions pursuant to which the options are 100% exercisable
within a fixed number of months after the date of grant.

All option
grants made during a fiscal year are submitted for shareholder approval at the
next annual shareholder meeting. To date, our shareholders have approved all of
the grants.

The
following table shows the weighted average exercise price of the outstanding
options granted pursuant to our Stock Option Program as of December 31, 2010,
our most recently completed fiscal year.

5

---



|                     |  |                                                                                                 |           |                                                                                |   |                                                                                                                                                  |  |  |                | 
|-------------------- |  | ----------------------------------------------------------------------------------------------- | --------- | ------------------------------------------------------------------------------ | - | ------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | -------------- | 
|Plan
 Category       |  | Number of
 Securities to be
 Issued UponExercise 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)                                                                                                                                              |  |  | (c)            | 
|                     |  |                                                                                                 |           |                                                                                |   |                                                                                                                                                  |  |  |                | 
|Stock Option Program |  |                                                                                                 | 1,836,700 |                                                                                | $ | 3.03                                                                                                                                             |  |  | Not Applicable | 
|                     |  |                                                                                                 |           |                                                                                |   |                                                                                                                                                  |  |  |                | 
|Total                |  |                                                                                                 | 1,836,700 |                                                                                | $ | 3.03                                                                                                                                             |  |  |                | 
|                     |  |                                                                                                 |           |                                                                                |   |                                                                                                                                                  |  |  |                | 

As of
December 31, 2010 options to purchase 1,836,700 shares of our common stock were
outstanding under our Stock Option Program. The exercise price of these options
varies between $1.50 and $3.60 per share. The options expire at various dates
between January 5, 2011 and April 16, 2015.

The
following tables show, during the fiscal year ended December 31, 2010, the
options granted to, and the options exercised and held by, the persons named
below. All options were granted pursuant to our Stock Option Program.

|               |  |                 |   |                      |  |                          |  |                  |   |  |  |   | 
|-------------- |  | --------------- | - | -------------------- |  | ------------------------ |  | ---------------- | - |  |  | - | 
|               |  | Options Granted |  
|               |  |                 |  
|Name           |  | Grant
 Date     |   | Options
 Granted (#) |  | ExercisePrice Per
 Share |  | Expiration
 Date |  
|               |  |                 |   |                      |  |                          |  |                  |  
|               |  |                 |   |                      |  |                          |  |                  |   |  |  |   | 
|Daniel OBrien |  |                 |  |                      |  |                         |  |                  |  |  |  |  | 

|                |  |                                 |   |                     |  |   | 
|--------------- |  | ------------------------------- | - | ------------------- |  | - | 
|                |  | Options Exercised               |  
|                |  |                                 |  
|Name            |  | SharesAcquired On
 Exercise (1) |   | Value
 Realized (2) | 
|                |  |                                 |   |                     | 
|                |  |                                 |   |                     |  |   | 
|Daniel
 OBrien |  |                                 |  |                     |  |  | 

|    |                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The number of shares
 received upon exercise of options during the fiscal year ended December 31,
 2010.                                                                                                                                                 
|    |                                                                                                                                                                                                                                                          
|(2) | With respect to options
 exercised during the fiscal year ended December 31, 2010, the dollar value of
 the difference between the option exercise price and the market value of the
 option shares purchased on the date of the exercise of the options.

|               |  |                                                   |         |                 |  |                   |  |  |      |  |  |          | 
|-------------- |  | ------------------------------------------------- | ------- | --------------- |  | ----------------- |  |  | ---- |  |  | -------- | 
|               |  | Shares underlying unexercised
 options which are: |         |                 |  |                   |  |  |     
|               |  |                                                   |         | Exercise
 Price |  | Expiration 
 Date | 
|Name           |  | Exercisable                                       |         | Unexercisable   |  |                   | 
|               |  |                                                   |         |                 |  |                   |  |  |     
|               |  |                                                   |         |                 |  |                   |  |  |      |  |  |          | 
|Daniel OBrien |  |                                                   | 500,000 |                 |  |                  |  |  | 3.25 |  |  | 01/05/11 | 

6

---



Director Compensation

We
reimburse directors for any expenses incurred in attending board meetings. We
also compensate directors $2,000 annually and grant our directors options to
purchase shares of our common stock each year that they serve.

Our
directors received the following compensation in 2010:

|                  |  |               |       |                   |  |                    |  |   |       | 
|----------------- |  | ------------- | ----- | ----------------- |  | ------------------ |  | - | ----- | 
|Name              |  | Paid in
 Cash |       | Stock
 Awards (1) |  | Option
 Awards (2) | 
|                  |  |               |       |                   |  |                    | 
|                 
|Robert N. OBrien |  |               |      |                   |  |                   |  |   |      | 
|John H. Bientjes  |  | $             | 2,000 |                   |  |                   |  | $ | 2,178 | 
|Dale Friend       |  | $             | 2,000 |                   |  |                   |  | $ | 2,178 | 
|Eric Hodges       |  | $             | 2,000 |                   |  |                   |  | $ | 2,178 | 

|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|(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 | 
|                   |  |              |      |                |  |         |                 | 
|                  
|Robert N.
 OBrien |  | $            | 3.25 |                |  | 250,000 |                 |  | January 5, 2011   | 
|John H.
 Bientjes  |  | $            | 3.25 |                |  | 5,000   |                 |  | January 5, 2011   | 
|John H.
 Bientjes  |  | $            | 3.60 |                |  | 5,000   |                 |  | December 18, 2012 | 
|John H.
 Bientjes  |  | $            | 3.60 |                |  | 5,000   |                 |  | January 31, 2013  | 
|John H.
 Bientjes  |  | $            | 2.25 |                |  | 5,000   |                 |  | January 1, 2014   | 
|John H.
 Bientjes  |  | $            | 1.50 |                |  | 5,000   |                 |  | December 31, 2014 | 
|Dale Friend        |  | $            | 3.25 |                |  | 5,000   |                 |  | January 5, 2011   | 
|Dale Friend        |  | $            | 3.60 |                |  | 5,000   |                 |  | December 18, 2012 | 
|Dale Friend        |  | $            | 3.60 |                |  | 5,000   |                 |  | January 31, 2013  | 
|Dale Friend        |  | $            | 2.25 |                |  | 5,000   |                 |  | January 1, 2014   | 
|Dale Friend        |  | $            | 1.50 |                |  | 5,000   |                 |  | December 31, 2014 | 
|Eric Hodges        |  | $            | 3.25 |                |  | 5,000   |                 |  | January 5, 2011   | 
|Eric Hodges        |  | $            | 3.60 |                |  | 5,000   |                 |  | December 18, 2012 | 
|Eric Hodges        |  | $            | 3.60 |                |  | 5,000   |                 |  | January 31, 2013  | 
|Eric Hodges        |  | $            | 2.25 |                |  | 5,000   |                 |  | January 1, 2014   | 
|Eric Hodges        |  | $            | 1.50 |                |  | 5,000   |                 |  | December 31, 2014 | 

Daniel
B. OBrien is not compensated for serving as a director.

|         |                                                                                                 
|-------- | ------------------------------------------------------------------------------------------------
|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
10, 2011 by (i) each stockholder who is known by us to own beneficially more
than five percent of our outstanding

7

---



common stock, (ii) each of our officers and directors, and (iii) by all
of our executive officers and directors as a group.

|                                                    |  |            |           |                      |  |       |  
|--------------------------------------------------- |  | ---------- | --------- | -------------------- |  | ----- | -
|                                                    |  | Shares (1) |           | Percentage Ownership | 
|                                                    |  |            |          
|                                                   
|Daniel B.
 OBrien                                  |  |            | 4,521,900 |                      |  | 34.3  | %
|2614
 Queenswood Dr.                                |  |            |           |                      |  |       |  
|Victoria, BC                                        |  |            |           |                      |  |       |  
|Canada V8N
 1X5                                     |  |            |           |                      |  |       |  
|                                                    |  |            |           |                      |  |       |  
|Dr. Robert
 N. OBrien                              |  |            | 1,775,000 |                      |  | 13.5  | %
|2614
 Queenswood Dr.                                |  |            |           |                      |  |       |  
|Victoria, BC                                        |  |            |           |                      |  |       |  
|Canada V8N
 1X5                                     |  |            |           |                      |  |       |  
|                                                    |  |            |           |                      |  |       |  
|John
 Bientjes                                      |  |            | 35,000    |                      |  | 0.3   | %
|#1-230 West
 13th Street North                      |  |            |           |                      |  |       |  
|Vancouver,
 B.C.                                    |  |            |           |                      |  |       |  
|Canada V7M
 1N7                                     |  |            |           |                      |  |       |  
|                                                    |  |            |           |                      |  |       |  
|Dale Friend                                         |  |            | 20,000    |                      |  | 0.2   | %
|3009 E. Kent
 Ave.                                  |  |            |           |                      |  |       |  
|Vancouver,
 BC                                      |  |            |           |                      |  |       |  
|Canada V5S
 4P6                                     |  |            |           |                      |  |       |  
|                                                    |  |            |           |                      |  |       |  
|Eric Hodges                                         |  |            | 20,000    |                      |  | 0.2   | %
|#110 - 4252
 Commerce Circle                        |  |            |           |                      |  |       |  
|Victoria, BC
 V8Z 4M2                               |  |            |           |                      |  |       |  
|                                                    |  |            |           |                      |  |       |  
|                                                    |  |            |           |                      |  |       |  
|All officers
 and directors as a group
 (5 persons) |  |            | 6,371,900 |                      |  | 48.38 | %
|                                                    |  |            |           |                      |  |       |  

|    |                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes shares which may be acquired on the exercise of the stock
 options, all of which were exercisable as of March 10, 2011, listed below.

|               |  |                |       |                 |   |      |                 |  |                   | 
|-------------- |  | -------------- | ----- | --------------- | - | ---- | --------------- |  | ----------------- | 
|Name           |  | No. of Options |       | Exercise  Price |   |      | Expiration Date | 
|               |  |                |       |                 |   |      |                 | 
|              
|John
 Bientjes |  |                | 5,000 |                 | $ | 3.60 |                 |  | December 18, 2012 | 
|               |  |                | 5,000 |                 | $ | 3.60 |                 |  | January 31, 2013  | 
|               |  |                | 5,000 |                 | $ | 2.25 |                 |  | January 1, 2014   | 
|               |  |                | 5,000 |                 | $ | 1.50 |                 |  | December 31, 2014 | 
|               |  |                |       |                 |   |      |                 |  |                   | 
|Dale Friend    |  |                | 5,000 |                 | $ | 3.60 |                 |  | December 18, 2012 | 
|               |  |                | 5,000 |                 | $ | 3.60 |                 |  | January 31, 2013  | 
|               |  |                | 5,000 |                 | $ | 2.25 |                 |  | January 1, 2014   | 
|               |  |                | 5,000 |                 | $ | 1.50 |                 |  | December 31, 2014 | 
|               |  |                |       |                 |   |      |                 |  |                   | 
|Eric Hodges    |  |                | 5,000 |                 | $ | 3.60 |                 |  | December 18, 2012 | 
|               |  |                | 5,000 |                 | $ | 3.60 |                 |  | January 31, 2013  | 
|               |  |                | 5,000 |                 | $ | 2.25 |                 |  | January 1, 2014   | 
|               |  |                | 5,000 |                 | $ | 1.50 |                 |  | December 31, 2014 | 
|               |  |                |       |                 |   |      |                 |  |                   | 

8

---



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

Our
director, Dr. Robert N. OBrien, developed substantially all of our products
and has assigned the patent rights to these products to us. We have no
agreement with Dr. OBrien requiring him to conduct any research and
development activities for us, but we anticipate that any future inventions
which may be of interest to us will continue to be assigned to us by Dr.
OBrien, although he has no legal obligation to do so. Dr. OBrien does not
receive any salary or royalties from us for any research and development
activities, although our board of directors does consider such activities
undertaken by Dr. OBrien when it grants stock options to Dr. OBrien. Dr.
OBrien is a member of our board of directors, but abstains from all
proceedings of the board concerning his stock option grants. Please refer to
Item 10 of this report for further information. Dr. OBrien is the father of
our Chief Executive Officer, Daniel B. OBrien.

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

Meyers
Norris Penny LLP, Chartered Accountants (MNP) examined our financial statements
for the year ended December 31, 2010 and 2009. . Since we did not engage MNP
until March 2010, MNP did not bill us for any services during the year ended
December 31, 2009. See Item 9 of this report.

Audit Fees

MNP was
paid $55,809 and CJW was paid $51,596 for the for the fiscal years ended
December 31, 2010 and 2009, 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.

Audit-Related Fees

MNP was
paid $7,376 and CJW was paid $7,130 for the fiscal years ended December 31,
2010 and 2009, respectively, for the audit or review of our financial
statements

Tax Fees

MNP was
paid $9,706 and CJW was paid $28,143 for the fiscal years ended December 31,
2010 and 2009, respectively, for professional services rendered for the
preparation and filing of our income tax returns for the fiscal years ended
December 31, 2009 and 2008.

All Other Fees

MNP nor CJW
was paid no other fees for professional services during the fiscal years ended
December 31, 2010 and 2009.

9

---



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, 2010 our Audit Committee approved all of the fees paid
to MNP. Our Audit Committee has determined that the rendering of all other
non-audit services by MNP is compatible with maintaining MNPs independence.
During the year ended December 31, 2010, 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 Officer Pursuant to 18 U.S.C.
 §1350 and §906 of the Sarbanes-Oxley Act of 2002.
|32.2   |  | Certification of Principal 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.  

10

---



SIGNATURES

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

|                        |                                                    |                                       
|----------------------- | -------------------------------------------------- | --------------------------------------
|Dated: March
 31, 2011. |                                                    |                                       
|                        |                                                    |                                       
|                        |                                                    | FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
|                        |                                                    |                                       
|                        | By:                                                |                                       
|                        |                                                    |                                       
|                       
|                        | Name:    Daniel B.
 OBrien                       
|                        | Title:      President
 and Chief Executive Officer
|                        |                                                    |                                       

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 | 
|                   |           |                                   |  |                |       |  |  |  |      | 
|                   |           |                                   |  |               
|                   |           | President,
 Chief Executive       |  | March 31, 2011
|Daniel B.
 OBrien |           | Officer,
 Principal Financial and |  |               
|                   |           | Accounting
 Officer and a         |  |               
|                   |           | Director                          |  |               
|                   |           |                                   |  |               
|                   |           | Director                          |  | March 31, 2011
|                   |           |                                   |  |               
|John H.
 Bientjes  |           |                                   |  |               
|                   |           |                                   |  |               
|                   |           | Director                          |  | March 31, 2011
|                   |           |                                   |  |               
|Robert N.
 OBrien |           |                                   |  |               
|                   |           |                                   |  |               
|                   |           | Director                          |  | March 31, 2011
|                   |           |                                   |  |               
|Dale Friend        |           |                                   |  |               
|                   |           |                                   |  |               
|                   |           | Director                          |  | March 31, 2011
|                   |           |                                   |  |               
|Eric G.
 Hodges    |           |                                   |  |               

---