Edgar Filing: FLEXIBLE SOLUTIONS INTERNATIONAL INC

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

COMMISSION FILE NUMBER

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
(Name of Small Business Issuer in its charter)

NEVADA 91-1922863
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)

615 DISCOVERY STREET
VICTORIA, B.C.
V8T 5G4, CANADA
(Address of principal executive offices)

250-477-9969
(Issuers telephone number)

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

Securities registered pursuant to Section 12 (g) of the Act: Common Stock

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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( )

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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 - KSB or any amendment to
this Form 10 - KSB (X )

Issuer's revenues for its most recent fiscal year $3,392,937

The aggregate market value of the voting common stock held by non-affiliates of
the Company as of March 11, 2005 was approximately $48,155,898 based on the
closing price for shares of the Company's common stock on the American Stock
Exchange for that date.

On March 11, 2005, approximately 11,831,916 shares of the Company's common stock
were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

No documents are incorporated by reference.

Transitional Small Business Disclosure Format (check one): Yes( ) No (X)

FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
FORM 10-KSB ANNUAL REPORT

TABLE OF CONTENTS

PART I ......................................................................2

ITEM 1. DESCRIPTION OF BUSINESS........................................2

ITEM 2. DESCRIPTION OF PROPERTY.......................................10

ITEM 3. LEGAL PROCEEDINGS.............................................10

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........11

PART II.....................................................................11

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...........................................11

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.....12

ITEM 7. FINANCIAL STATEMENTS..........................................17

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...........................35

ITEM 8A. CONTROLS AND PROCEDURES.......................................35

PART III....................................................................35

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............35

ITEM 10. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE.............37

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS....................39

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................40

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K..............................40

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES........................41

ITEM 1. BUSINESS

PARENT AND SUBSIDIARIES

Flexible Solutions International, Inc. was incorporated in the State of Nevada
in May 1998. It acquired all of the outstanding shares of Flexible Solutions,
Ltd., a British Columbia corporation, in June 1998 in exchange for 7,000,000
shares of common stock, which represented all of the issued and outstanding
shares of Flexible Solutions International at the conclusion of such
acquisition. Flexible Solutions International had no other business and was
incorporated in order to acquire Flexible Solutions, Ltd. Flexible Solutions
International is the parent holding company for Flexible Solutions Ltd,
WaterSavr Global Solutions Inc and NanoChem Solutions Inc.

Flexible Solutions, Ltd.: Flexible Solutions Ltd, a British Columbia company,
was organized in 1991 to develop and market swimming pool chemical products
designed to reduce heat loss. Heatsavr and Ecosavr are a mixture of chemicals
that are lighter than water. The solution floats to the surface when introduced
into a pool or spa to form a very thin layer on the surface of the water that
slows evaporation of water from the surface of the pool. The product is not
visible on the pool surface and it cannot be seen, felt or tasted by swimmers.
After a swimmer stops disturbing the pool water, the product reforms to a
complete layer on the pool surface.

WaterSavr Global Solutions Inc.: In 2002 we established WaterSavr Global
Solutions, Inc., a corporation now registered in Nevada, as a wholly owned
subsidiary to concentrate on marketing of WaterSavr. WaterSavr is a patented
powder that when deployed onto a water surface of any size, will reduce
evaporation significantly. WaterSavr is manufactured under contract by Nalco
Corporation of Chicago at various sites and sold directly by WaterSavr Global
Solutions, as well as through non-exclusive distribution in some markets and
exclusive distribution in others. WaterSavr Global also sources and sells
application equipment for the product.

NanoChem Solutions Inc.: In June of 2004 FSI acquired the assets of Donlar
Corporation for $6.15 million from the bankruptcy estate. The $6.15 million in
assets were placed in a newly incorporated Nevada subsidiary of Flexible
Solutions International Inc called NanoChem Solutions Inc of which all the
issued and outstanding shares are owned by Flexible Solutions International Inc.
The newly acquired assets include a broad portfolio of environmentally friendly
technologies and products, 52 US and 139 International patents and the 56,780
square foot manufacturing plant on 40 acres of property. Donlar also rented
corporate offices and a laboratory in Bedford Park that will continue to be used
by the new company. The net book value of the assets is placed at around $4.45
million for property, plant and equipment, in addition to $1.7 million for
intellectual property. The water-soluble products acquired by FSI utilize
thermal polyaspartate (TPA) biopolymers [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, as well as proteins that enhance fertilizers to improve
crop yields; additives for household laundry detergents, improvement to consumer
care products and enhancement of pesticide functionality.

PRODUCTS BY SUBSIDIARY

The products of Flexible Solutions Ltd are Heatsavr and Ecosavr. Heatsavr is a
chemical product for use in swimming pools and spas that forms a thin,
transparent layer on the surface of water that reduces the amount of water
evaporation and heat loss from the pool. The product is marketed as a cost
effective and convenient way to save on the cost of energy required to heat
pools and spas. Approximately 70% of the energy lost from a swimming pool occurs
through evaporation. We completed the development of our Heatsavr product and
introduced it into the commercial marketplace in 1998, achieving sales of
$84,252 that year. Since that time the Company has expanded its Heatsavr product
to be used in the residential marketplace. This was achieved by creating a
patented, fish shaped, dispensing unit. Both Heatsavr and Ecosavr (the fish
shaped version) have grown in revenue and market share. We market Heatsavr to
the residential market primarily in the form of our "Ecosavr" dispenser,
formerly Tropical Fish. Each Ecosavr dispenser is made of molded plastic in the
form of a ten inch long colorful Ecosavr fish that is filled with enough
Heatsavr solution to cover the surface of a 400 square foot swimming pool for
about one month. The Ecosavr is deployed by cutting off the dorsal fin and
tossing the fish into the pool where it submerges to the bottom of the pool.
Differential pressure causes the Heatsavr liquid inside to escape into the water
where it rises to the surface and forms a transparent layer on the surface of
the water. Once empty, the dispenser is removed and replaced. The Ecosavr
product has a suggested retail price of $11.95 - 14.95 in the United States.
Heatsavr retails between $200 and $300 per four gallon case in the USA. In
outdoor swimming pools Heatsavr provides savings on pool heating costs and
provides convenience of use when compared to pool blankets. Pool personnel often
find it inconvenient to use conventional pool blankets correctly and
consistently. Pool blankets are plastic covers, which are cut to the size and
shape of the surface of the pool or spa. They float on the surface and perform
the same purpose as Heatsavr; reducing energy cost by inhibiting evaporation. Of
course a blanket must be removed and stored prior to swimmers entering the pool
and provides no energy savings when not on the pool. Heatsavr eliminates the
necessity of installing, removing and storing the blanket and works 24 hours a
day. We believe that the ease of use provided by Heatsavr results in more
consistent usage. Use of Heatsavr in indoor pools results in even greater energy
savings. 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 atmosphere
less energy is required to maintain a pool at the desired temperature, there is
a reduced load on the air--conditioning system because less is heat transferred
from the pool water to the surrounding air and less water vapor will have to be
removed from the air to maintain the required comfort level. Air--conditioned
indoor pools are very high users of energy because swimmers and loungers have
differing temperature expectations that require both water heat, [generally by
gas], and electric air cooling to keep both groups happy in the same room. We
market our Heatsavr product to both the residential market made up of individual
homeowners with pools and spas and the commercial market consisting of operators
of commercial swimming pools such as those located in hotels, motels, schools,
and municipal and private recreational facilities.

Pool and Spa Marketing Magazine has published the following estimates concerning
the swimming pool market and their 2002 reference and directory:
2000
-U.S in-ground pool new sales -- 170,700
-U.S. above-ground pool new sales -- 345,000
-Existing in-ground pools in U.S. -- 4,210,000
-Existing above-ground pools in U.S. -- 3,219,000
1999
-Sales for new pools in U.S. -- $3,950,000,000
-Residential pool sales in Europe -- 95,740 pools

We have received reports from some of our commercial customers documenting
energy savings of $2,400 to $6,000 per year. We also make and sell programmable
dispenser for automatically dispensing Heatsavr into a pool. The dispenser has a
reservoir holding 1gallon (140oz) supply of Heatsavr. The unit is programmed to
inject the appropriate amount of the product into the pool at the rate of 1 oz.
per 400 square feet of pool surface per day.

The Heatsavr and Ecosavr products are sold directly to our wholesale network. In
February 2004, the Company reorganized the distribution of Heatsavr and Ecosavr
which are now handled from the Company's new sales and marketing office in
Richmond BC. Bringing distribution in-house reflects the strategic approach of
fully integrating manufacturing and distribution and is expected to result in a
minimum 100% increase in revenue per unit. A re-branding of the product will
better reflect the philosophy of the Company and its commitment to the
environment. Ecosavr replaced Tropical Fish in the summer of 2004. We also have
nonexclusive distributors in Canada and the United States for Heatsavr not
packaged in our Ecosavr dispenser and exclusive distributors in Australia,
Japan, Korea, Spain and Great Britain. We support our distributors and seek
additional market opportunities by attending the major pool industry trade shows
in the United States yearly. We advertise in trade magazines and directly to
buyer associations. We maintain an Internet presence with a website containing
information about our products. We also write and publish a newsletter to 5,000
customers and potential customers twice a year.

OUR WATERSAVR PRODUCTS

We introduced our WaterSavr product in June 2002. This product utilizes our core
technology to reduce water evaporation. It is marketed as a water conservation
product for use where water is standing or gently flowing and the need for water
conservation can justify the cost of purchase and deployment of the product. We
believe that our WaterSavr product may find a market for use in:

Reservoirs, Potable water storage, Aqueducts and canals, Agricultural
irrigation, Flood water crops, Lawn and turf care, Potted and bedding
plants, Stock watering ponds, Mining

WaterSavr is sold in granulated form. It can be provided in shaker containers
holding 3/4 pound or in 50 pound weatherproof bags. We also offer a dispenser
for WaterSavr to automate deployment of the product. The product can be applied
in various ways from hand dispersal to fully automated scheduled metering.

In May 2004 the Metropolitan Water District of Southern California ("MWD")
awarded FSI a $30,000 grant under the agency's Innovation Supply Program for an
evaporation control project to start in June 2004. Positive results were
received from evaporation control testing conducted at Owens Lake, California
during September and October 2004. A simultaneous toxicity study was performed
by McGuire Environmental Consultants Inc of Denver, Colorado to determine if any
water quality change occurs as a result of application of WaterSavr to a large
body of water.

The evaporation control results were as follows:
o Evaporation reduction for 2 and 3 day application cycles over September
and October were 37% and 30% respectively.
o Evaporation savings were as high as 54% and as low as 22% on individual
days depending on environmental factors.

With respect to the environmental impact testing performed in Colorado the
results were as follows:
o No effect on odor
o No effect on invertebrates
o No effect on vertebrates
o No anticipated effect on any current drinking water treatment processes
o Biodegradability reconfirmed independently.

We anticipate our initial market for WaterSavr will be in Spain, Australia and
the USA. We have provided quantities of the product for testing in these
countries and if successful anticipate that substantial orders may be received.
The product will also be marketed in both developed and drought stricken
countries to address water conservation concerns. We are seeking to establish
strategic relationships with companies in the water processing industry who have
marketing and manufacturing operations in countries with water conservation
concerns. We have 2 full time employees and 2 other employees more than 50%
assigned to establishing sales channels throughout the world for WaterSavr.

WaterSavr - BTI: Over the last three years, research and development has
resulted in a patent pending modification of WaterSavr that combines evaporation
control with control of mosquito larvae before they reach adult stage. The BTI
portion of the product is a recognized and approved, environmentally friendly
method of killing mosquito larvae during the 1st, 2nd, and 3rd, instars of
development. Combined with WaterSavr, BTI can be effectively and quickly spread
across large and small water surfaces evenly and furthermore can be constrained
to the water/air interface where larvae must go to obtain air. We believe that
this combination may reduce the requirements of BTI in pounds per acre required
for effectiveness and also the cost of application. In November 2004 FSI
announced that after positive results from independent trials on the efficacy of
the Company's proprietary mosquito control/water conservation technology
designated as WS-BTI, conducted at LSU, the Company has filed an application to
the US Environmental Protection Agency (EPA) to obtain product registration.

Included in the registration application, Flexible Solutions submitted the
results of efficacy tests on the performance of WS-BTI. In a series of field
tests carried out by the Entomology Department at the Louisiana State University
Agricultural Center in Crowley, LA, the application of WS-BTI has been shown to
correspond to a reduction in the density of mosquito larvae present. The filed
tests conducted on WS-BTI follow laboratory tests that were completed earlier in
the year that concluded with findings of a 100% kill rate of mosquito larvae in
contact with the WS-BTI mosquito control product.

BIO-POLYMER PRODUCTS

NanoChem Solutions produces water soluble, biodegradable polymers [TPA] used in
industrial and consumer products. Biopolymers have a wide range of molecular
weights. The choice among the products depends on the application, formulation
and required performance characteristics in specific processes. These products
are customized for the particular application.

Oilfield: TPA products are used to reduce scale and corrosion in various
"topside" water systems. They are chosen over traditional phosphate and other
products when biodegradability is required by environmental regulation. Sales
are conducted by NanoChem scientists to the technicians of oil service companies
on a well-by-well basis according to the specific water conditions involved.

TPA for the Agricultural industry: TPA has the ability to reduce fertilizer
crystallization before, during and after application and can also prevent
crystal formation between fertilizer and soil present minerals. Once
crystallized, fertilizer and soil minerals are not bio-available to provide
plant nourishment. In selected conditions the use of TPA either blended with
fertilizer or applied directly to crops will increase yield values significantly
beyond the cost of the TPA used. Sales are conducted by distribution through
agricultural input companies with current emphasis on the Western United States.
These proteins are designated for crop nutrient management programs and should
not be confused with crop protection and pesticides or other agricultural
chemical application. Depending on the application, they 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.

TPA for Irrigation: The crystallization prevention ability of TPA can be useful
in select irrigation conditions. By reducing calcium carbonate scale
propagation, TPA can prevent early plugging of drip irrigation ports and reduce
maintenance costs and lengthen equipment lifetimes. It replaces and competes
with acid type scale removers but has the competitive advantages of positive
yield effect on the plant and the option of easy formulation with liquid
fertilizers when used as part of a "fertigation" program. TPA for drip
irrigation scale prevention is at an early stage of commercialization and will
be implemented through the same channels as agricultural TPA.

TPA for Detergent and Personal Care Products: In detergents, TPA is a
biodegradable substitute for poly-acrylic acid. In select markets this outweighs
the added cost of TPA and sales of our TPA for detergent continue to grow. To
increase penetration of this market beyond specialty detergent manufacturers,
NanoChem will have to find ways to decrease the cost of goods sold or wait for
legislative intervention regarding biodegradability of detergent components. The
Company is researching methods of reducing costs currently. TPA can be used in
shampoo and cosmetics for increased hydration that improves the feel to the
consumer. It 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. NanoChem does not sell into these markets but
maintains industry contacts for the future.

COMPETITION

Heatsavr and Ecosavr: One other company (Jonah) manufactures a chemical
evaporation reduction product that competes with our Heatsavr product. Their
product has had limited sales to date and does not have the huge convenience
factor of "Ecosavr". Our previous distributor, Sunsolar Technologies has
recently begun selling a product called Turbo-Tropical Fish that directly
competes with Ecosavr. It has a much higher price point and no sales history to
date but must be taken seriously because of the expertise Sunsolar derived from
working with Flexible Solutions as the exclusive North American distributor of
our product "Tropical Fish" for the six years ending February 2004. Flexible
Solutions believes that Sunsolar is infringing our trademark rights by using the
name "Turbo Tropical Fish" and we are actively litigating the issue. Heatsavr
also competes against plastic pool blanket products. We compete against pool
blankets on the basis of convenience of use of Heatsavr versus the inconvenience
of deploying and storing pool blankets. Pool owners and operators may also
decide that no evaporation control product is needed for their pools. Specialty
chemicals are a highly competitive industry with many huge multi-national firms
with large research and development operations. There are a number of firms,
which develop and market chemical products for the pool and spa industry.
Therefore, we might expect competition to arise at any time.

WaterSavr: Aegis Chemical Industries Ltd. of India competes with our WaterSavr
product. We believe WaterSavr is a superior product for the following reasons:
o Easier Application. WaterSavr may be deployed directly to the water
surface by hand or machine. The Aegis product requires premixing to
dilute it to usable strength followed by extensive pumping.
o Cost. In order to achieve comparable water savings levels, the Aegis
product would cost more than the WaterSavr product.

Water conservation is an important priority throughout the world and numerous
researchers in industry and academia are seeking to develop solutions that may
compete with, or be superior to our products. Climate changes that relieve water
shortage conditions or a technological breakthrough in water desalination could
reduce the need for water conservation products.

WaterSavr - BTI: We are not aware of any direct competition to WaterSavr - BTI,
however, the business of pest control is very large and very well funded. There
are a multitude of methods and materials that can be used for mosquito control
and all of them are competition for our product indirectly. We believe that we
will be able to compete by:
o Providing an environmentally sensitive alternative.
o Increasing effectiveness per unit cost
o Reducing cost of application respective to similar products

Biopolymers: Our TPA products have direct competition from Lanxess AG (recently
spun out of Bayer AG) of Germany who manufacture TPA of similar quality through
a different patented process from that used by NanoChem. NanoChem and Lanxess
have cross-licensed each other's processes and either company can use either
process for the term of the patents involved. It is believed that Lanxess has
approximately the same production capacity as NanoChem and it must be presumed
that their cost of goods sold is competitive. NanoChem believes that it can
compete effectively with Lanxess with excellent customer service in oilfield
sales, superior distributor support in the agricultural marketplace and the
advantage of nimbleness inherent to small companies. NanoChem will continue to
seek market niches that are not primary targets of Lanxess to avoid
confrontation with such a large company.

TPA faces indirect competition from other chemicals in every market we are
active in. In irrigation scale control, acid washes can be utilized. In
detergent, poly-acrylic acid is most often used due to price advantage. For crop
enhancement, increased fertilizer levels or reduced concentrations can
substitute for TPA. In oilfield scale prevention, phosphonates, phosphates and
molibdonates provide the same effect. NanoChem believes its competitive
advantages include:
o Biodegradability compared to poly-acrylic acid for detergents
o Biodegradability compared to competing oilfield chemicals
o Cost-effectiveness for crop enhancement compared to increased
fertilizer use
o Environmental considerations, ease of formulation and increased crop
yield opportunities in irrigation scale control markets

MANUFACTURING

Our Heatsavr products and dispensers are made from chemicals, plastic and other
materials and parts that are readily available from multiple suppliers. We have
never experienced any shortage in the availability of raw materials and parts
for our products and we do not have any long term supply contracts for any such
items. We manufacture these products in an 11,000 square foot plant in Calgary,
Alberta, Canada.

We have agreed to purchase all our requirements for WaterSavr from Nalco Company
under a five-year agreement effective April 2002 with a five year extension
available, but are not required to purchase any minimum quantity of such
product.

Our 56,780 square foot manufacturing facility in Peru, IL presently satisfies
our TPA needs for the NanoChem Solutions Division. Precursor chemicals for TPA
production are sourced from various manufacturers throughout the world and are
available in sufficient quantities for expected increases in sales. The
precursor chemicals are, however, derived from crude oil and are subject to
price fluctuations related to world oil prices.

GOVERNMENTAL REGULATIONS

Heatsavr and Ecosavr: Chemical products for use in swimming pools are covered by
a variety of governmental regulations in the countries where we sell our
products. Such regulations cover such matters as packaging, labeling and product
safety. We believe our products are in compliance with such regulations. Our
WaterSavr product will be subject to additional regulation in some countries
particularly for agricultural and drinking water uses. We will address these
issues on a country-by-country basis. We do not anticipate that governmental
regulations will be an impediment to marketing WaterSavr because the ingredients
have been used in agriculture for many years for other purposes. We will require
approval to sell WaterSavr in the United States for agricultural or drinking
water users. We have already applied for and received NSF (national sanitation
foundation) approval for drinking water in the U.S.

WS-BTI: As a new pesticide formulation, WS-BTI must be approved by the
Environmental Protection Agency of the USA [EPA] and equivalent bodies
throughout the world. An application for product approval was filed in November
2004. It has been accepted for fast track status and the application fee has
been waived. Fast track status requires the EPA to provide a decision within six
months of accepting an application, therefore, an answer is expected by May
2005. If the product is acceptable to EPA, WaterSavr Global Solutions will
proceed to apply for certification in any countries where significant markets
are identified.

TPA Oil fields and Agriculture: In these markets, NanoChem has applied for and
received government approval in all areas of current use. As new markets are
accessed, additional certification will be required and applied for. NanoChem
employees are experienced and skilled in successful prosecution of these
certifications.

TPA Detergent and personal care: There are currently no regulatory requirements
for use of TPA in detergent formulations. For personal care products such as
shampoo and toothpaste that NanoChem does not sell to yet, there are various
regulatory bodies including the National Sanitation Foundation and the Food and
Drug Administration. If these market niches become targets for NanoChem, TPA
must meet their requirements in both safety and plant operation.

PROPRIETARY RIGHTS

Our success and ability to compete 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. We also have three US patent

applications pending and applied to extend these patents to certain other
countries. 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 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.

EMPLOYEES

As of December 31, 2004, there are 34 persons including one officer, twenty-two
sales and customer support and eleven in manufacturing. None of our employees is
represented by a labor union and we have experienced no work stoppages to date.

ITEM 2. DESCRIPTION OF PROPERTY

Our President provides use of space in his residence to conduct some of his
administrative duties and we do not reimburse him for such use. The Victoria
leased spaces were amalgamated in July of 2004 to one space totaling 4,300 sq.
ft. for administration, sales and research space at $4,225 a month. We lease an
11,000 sq. foot building in Calgary, Alberta, Canada for $6,240 per month until
September 2006 for manufacture of our swimming pool products. We lease 1900
square feet in Richmond BC as additional space for sales and customer support at
a price of $1,870 per month. NanoChem leases 7,000 square feet in Bedford Park
IL as offices and laboratories at a cost of $7,367 monthly and owns 56,780
square feet of offices and factory in Peru IL, 80 miles from Chicago.

ITEM 3. LEGAL PROCEEDINGS

1. On January 15, 2002 we filed a lawsuit in the Supreme Court of British
Columbia against John Wells and Equity Trust, S.A. seeking return of 100,000
shares of our common stock and repayment of a $25,000 loan which were provided
to defendants for investment banking services to be provided to Flexible
consisting of providing a $5 million loan and a $25 million stock offering. Such
services were not performed and we filed suit for the return of such shares
after they were not returned voluntarily and the note was not paid.

2. In November 2003, an ex-employee, Patrick Grant filed suit against Flexible
Solutions in Cook County Circuit Court, Cook County IL, claiming wrongful
dismissal and seeking return of option rights or cash. Management considers the
case without merit and is disputing the suit vigorously.

3. In May 2004 - The Company is plaintiff in a lawsuit demanding the return of
the share certificate of 100,000 shares of stock originally given as payment in
advance for services, $10,000 and undetermined damages resulting from a breach
of contract. The suit has been filed in the Circuit Court of Cook County, IL
against Tatko Biotech Inc. of Peoria, IL. The services for which the advance was
given were never performed or given to the company, and the company therefore
received no consideration or value for such advance.

4. In June 2004 - The Company has been named the defendant in a lawsuit filed in
the Federal Court of Canada as well as the plaintiff in a countersuit in the
same court. In July 2004, a former distributor, Sunsolar Energy Technologies,
filed suit claiming trademark infringement. The company believes these
allegations are without merit and intends to vigorously defend against them.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to the vote of our shareholders in the quarter
ended December 31, 2004.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR SECURITIES

Our common stock began trading on the American Stock Exchange under the symbol
FSI on November 19, 2002. Prior to that, our stock traded on the
over-the-counter market and was quoted on the NASD Electronic Bulletin Board.

The following is the range of high and low closing sales or bid prices for
Flexible common stock for the periods indicated:

SALES OR BID PRICES

2004 High Low
January 2-March 31 5.20 3.92
April 1 - June 30 5.15 4.30
July 1 - September 30 5.05 3.09
October 1 - December 31 4.15 2.82

2003 High Low
January 2-March 31 3.40 2.25
April 1 - June 30 3.40 2.39
July 1 - September 30 3.60 2.90
October 1 - December 31 5.35 3.00

Prices represent high and low prices on the American Stock Exchange. We had 23
record holders of our common stock on December 31, 2004. Such shares are owned
by an estimated 1590 beneficial owners.

Our common stock also trades on the Frankfurt Germany stock market under the
symbol FXT.

DIVIDEND POLICY

Flexible has not paid any dividends on its common stock, and it is not
anticipated that any dividends will be paid in the foreseeable future. The Board
of Directors intends to follow a policy of retaining earnings, if any, to
finance the growth of the company. The declaration and payment of dividends in
the future will be determined by the Board of Directors in light of conditions
then existing, including the company's earnings, financial condition, capital
requirements and other factors.

EQUITY COMPENSATION PLAN INFORMATION

The Company issues stock options to purchase common stock the officers,
directors, employees and consultants on an individual basis. The Company adopted
an Option Granting Plan covering options to be issued December 1, 2001 to
December 31, 2002. The plan set guidelines for selecting optionees, option
pricing and authorization of issuance. All issuances are required to be approved
by the Board of Directors. The following table sets forth information about all
of our outstanding options as of December 31, 2002.

-------------- ------------------------- ------------------------ -------------------------
Number of securities to Weighted-average Number of securities
be issued upon exercise exercise price of remaining available
of outstanding options, outstanding options, for future issuance under
warrants and rights warrants and rights equity compensation plans
(excluding securities
reflected in column (A))
A B C
-------------- ------------------------- ------------------------ -------------------------
Plan category
-------------- ------------------------- ------------------------ -------------------------

Equity -0- -0- -0-
compensation
plans approved
by security
holders
-------------- ------------------------- ------------------------ -------------------------
Equity 1,241,740 $2.87 -0-
compensation
plans not
approved by
security
holders(1)
-------------- ------------------------- ------------------------ -------------------------
Total 1,241,740 $2.87 -0-
-------------- ------------------------- ------------------------ -------------------------

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Our operating activities are manufacturing and marketing our swimming pool
conservation products called "Heatsavr" and :Ecosavr", marketing the water
conservation product Watersavr manufactured under license for us by Nalco and
manufacturing and sales of thermal poly-aspartic acid products.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The SEC has recently issued Financial Reporting Release No. 60, "Cautionary
Advice Regarding Disclosure About Critical Accounting Policies" ("FRR 60"),
suggesting companies provide additional disclosure and commentary on those
accounting policies considered most critical. A critical accounting policy is
one that is both very important to the portrayal of our financial condition and
results, and requires management's most difficult, subjective or complex
judgments. Typically, the circumstances that make these judgments difficult,
subjective and/or complex have to do with the need to make estimates about the
effect of matters that are inherently uncertain. We believe the accounting
policies below represent our critical accounting policies as contemplated by FRR
60. See Note 2 of the Notes to Consolidated Financial Statements for a detailed
discussion on the application of these and other accounting policies.

Allowances for Product Returns. We still 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.

RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004 AND 2003

Sales for the year ended December 31, 2004 were $3,392,937 compared to
$2,321,120 for the 2003 period, an increase of $1,071,817 or 46 %. Our sales
increase was primarily the result of the revenue provided by NanoChem Solutions
Inc, the new subsidiary formed from the assets acquired from the Donlar
bankruptcy estate. The Company had a loss of $1,257,545 or $0.11 per share
compared to earnings of $2,003,312 in 2003. The three largest contributors to
the loss were:
o The brand building, marketing and extra staffing costs in Ecosavr sales
incurred throughout the year that were not reflected in sales because
there was still substantial "Tropical Fish" product with dealers that
had been sold by our discontinued distributor, Sunsolar Technologies.
Management is now sure that very little old product is on shelves and
that costs and revenue for Ecosavr will be better balanced in 2005.
o All divisions maintained or increased sales and marketing costs in the
fourth quarter in order to increase the probability of sales increases
in all of 2005. The extra costs were considered to be necessary to
position the Company for growth.
o Litigation costs became significant in 2004 compared to 2003 as a
result of the need to protect our assets from suit. The costs are
manageable but FSI will make every effort to reduce these costs going
forward without adversely affecting shareholder value.

Our overall gross profit margin on product sales increased to 60.8% in 2004 from
41.3% in 2003. This increase in gross margin was primarily due to the addition
of NanoChem Solutions Inc.

The Company realized a net recovery on its operating expenses in 2003 of
$816,054. We cancelled over 2 million stock options to consultants resulting in
a non-cash expense recovery of $2,282,282 in 2003. In 2004 we also increased
sales and marketing costs in connection with our WaterSavr product and this was
reflected in increased wages, office, rent, telephone and travel expenses. We
incurred higher professional fees in the 2004 period primarily due to increased
legal and accounting expenses and specific consultants directed at integrating
the functions and sales of the NanoChem subsidiary as quickly as possible.
Depreciation expense was $388,071 for the 2004 period compared to $37,714 for
2003 reflecting depreciation for additional property and equipment added in
2004.

There was no income tax provision for 2004 as no tax installment payments were
made during the year while we recorded an income tax benefit of $25,892 in 2003.
We had interest income of $34,258 in 2004 compared to $203,310 in 2003 as we
used capital to purchase assets and develop our business. There was a net loss
of $1,257,545 in 2004 compared to income of $2,003,312 in the 2003 period.

With the addition of the Donlar assets, FSI became a much larger company with
commensurate increases in most expense segments. However, note must be made of
certain expenses that were reduced such as travel ($132,632 compared to
$150,116) and telecom ($41,895 compared to $41,445 despite adding three new
locations) as a result of more careful cost control in our Watersavr subsidiary.

2003 AND 2002 RESULTS OF OPERATIONS

Year ended December 31, 2003 and 2002
Sales for the year ended December 31, 2003 were $2,321,120 compared to
$1,112,192 for the 2002 period, an increase of $1,208,928 or 109%. Our sales
increase was primarily the result of increased sales in residential swimming
pool products, increased sales in the commercial pool division and the beginning
of Water$avr sales. We increased the price of our residential product by 12.5%
in third Quarter.

Our overall gross profit margin on product sales decreased to 41.3% in 2003 from
47.7% in 2002. This decrease was primarily due to higher costs for employees,
travel and product awareness efforts at the Water$avr Global division in
Illinois. There were also extra costs related to the labor and material inputs
for the swimming pool products as a result of the significant rise of the
Canadian dollar versus the US$.

The Company realized a net recovery on its operating expenses for the year of
$816,054, compared an expense of $3,701,899 in 2002. We cancelled over 2 million
stock options to consultants which resulted in a non-cash expense recovery of
$2,282,282 in 2003. In 2003 we also increased sales and marketing costs in
connection with our WATER$AVR product and this was reflected in increased wages,
office, rent, telephone and travel expenses. We incurred higher professional
fees in the 2002 period primarily due to increased legal and accounting expenses
and specific consultants directed at increasing Water$avr sales as quickly as
possible in countries outside the USA. Depreciation expense was $37,712 for the
2003 period compared to $24,683 for 2002 reflecting depreciation for additional
property and equipment added in 2003. Our expenses to increase investor
awareness of our company were significantly more than in 2002 and this resulted
in an increase in investor relations and transfer agent's fee in 2003. We also
had credit of $31,955 in 2003 for currency exchange. There was expense of
$19,180 from such item in 2002.

Our income tax provision for 2003 reflected a benefit of $25,892 little changed
from an income tax benefit of $21,456 in 2002. We had interest income of
$203,310 in 2003. There was a net income of $2,003,316 in the 2003 period
compared to a net loss of $3,082,445 in 2002.

LIQUIDITY AND CAPITAL RESOURCES

During 2004 we invested $2.3 million of our working capital in the Donlar
Corporation bankruptcy asset purchase while continuing to introduce and market
our Watersavr product which has not yet attained significant sales. We believe
we have sufficient capital to support our business and operations for at least
the next 3 months. We anticipate utilizing approximately $500,000 in the next
twelve months attempting to close sales in California, Spain and Australia and
to extend certain core US patents to select other countries. Approximately 80%
of such expenditures are related to our recently introduced WaterSavr product.
There can be no assurance that any of the expenditures will result in additional
sales revenues. In the event that our capital resources are not sufficient for
the continued expansion of the Company, new capital will be needed or marketing
expenses will have to be curtailed until capital is available. There is no
guarantee that capital will be available on terms acceptable to the Company or
at all. There are no investment banking agreements in place at this time.

SEASONALITY

Our operations are somewhat subject to seasonal fluctuations. Use of our
swimming pool products increase in summer months in most markets and result in
our sales from January to June being greater than in July through December.
Markets for our WaterSavr product are also seasonal dependant 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. There is a small
increase in the spring related to inventory building for the crop season in
America and a small slowdown in December as oilfield customers run down stock in
advance of yearend but otherwise, little seasonal variation. We believe we are
able to adequately respond to these seasonal fluctuations by reducing or
increasing production as needed.

RISK FACTORS

We have identified the following as the most material risks of our business.

Our business would be adversely affected if we lost the services Dan O'Brien,
our chief executive officer.

We are dependent upon the services of Dan O'Brien, who serves as our president
and chief executive officer. Our business would be adversely affected if the
executive services of Mr. O'Brien ceased to be available us because none of our
other employees could take over the management activities of Mr. O'Brien.
Therefore we would have to recruit one or more new executives but there can be
no assurance that we would be able to engage a replacement executive with the
required skills on satisfactory terms.

Among our customers are six that are sizable enough that the loss of any one
would be significant and our revenues would be substantially reduced if we lost
one or more of these major customers that account for a substantial amount of
our sales.

We are no longer subjected to the concentrated credit risk from Sunsolar
Technologies for our pool products but our exposure to bad debts will increase
as we shift to servicing a larger number of customers in the swimming pool
industry.

We allow our major customers between 30 and 45 days to pay for each shipment of
product we make to them. This represents risk that we would be subject to
substantial write-off of our accounts receivable if one or more of these
customers defaulted on their payment obligations to us.

The continuing marketing efforts for our WaterSavr product may result in losses.
We introduced our WaterSavr product in June 2002. We have delivered quantities
for testing by potential customers but only one customer has 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 cannot assure 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 $400,000 on WaterSavr in
2005.

Our products can be hazardous if not handled, stored and used properly. Heatsavr
is flammable and must be stored properly to avoid fire risk. Additionally, it
may irritate eyes that are exposed to the concentrated product. Although we
label the products to warn of such risks, our sales could be reduced if our
products were to be viewed as being dangerous to use or actually been implicated
in causing personal injury or property damage, which is not currently the case.

ITEM 7. FINANCIAL STATEMENTS

CINNAMON JANG WILLOUGHBY & COMPANY

Chartered Accountants
A PARTNERSHIP OF INCORPORATED PROFESSIONALS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF FLEXIBLE SOLUTIONS INTERNATIONAL
INC.:

We have audited the consolidated balance sheets of Flexible Solutions
International Inc. as at December 31, 2004 and 2003 and the consolidated
statements of income and retained earnings and cash flows for each of the two
years in the period ended December 31, 2004. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board in the United States of America. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosure 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.

In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the company as at December
31, 2004 and 2003 and the results of its operations and cash flows for each of
the two years in the period ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of America.

The financial statements as at December 31, 2002 and for the year then
ended were audited by another firm of chartered accountants who expressed an
opinion without reservation on those statements in their report dated March 12,
2003.

/s/CINNAMON JANG WILLOUGHBY & COMPANY
Chartered Accountants

Burnaby, BC
February 11, 2005

MetroTower II - Suite 900 - 4720 Kingsway, Burnaby, BC Canada V5H 4N2.
Telephone: +1 604 435 4317. Fax: +1 604 435 4319.

HLB Cinnamon Jang Willoughby & Company is a member of HLB International. A
world-wide organziation of accounting firms and business advisors.

FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004
(U.S. DOLLARS)
---------------------------------------------- ------------ ------------
DECEMBER 31 DECEMBER 31
2004 2003
---------------------------------------------- ------------ ------------

ASSETS

CURRENT
Cash and cash equivalents $ 558,795 $ 237,080
Short term investments 559,440 5,033,837
Accounts receivable 501,372 294,238
Income tax receivable 92,963 86,243
Loan receivable 38,570 17,585
Inventory 1,416,588 212,938
Prepaid expenses 131,280 36,101
---------------------------------------------- ------------ ------------

3,299,008 5,918,022
PROPERTY AND EQUIPMENT 5,250,346 167,589
INVESTMENT 271,000 303,500
---------------------------------------------- ------------ ------------

$8,820,354 $6,389,111
============ ===========-

LIABILITIES

CURRENT

Due to shareholders - 7,700
Short term loan 3,150,000
Accounts payable and accrued liabilities 250,129 $ 157,643
---------------------------------------------- ------------ ------------
3,400,129 165,343

STOCKHOLDERS' EQUITY

CAPITAL STOCK
Authorized
50,000,000 Common shares with a par value
of $0.001 each
1,000,000 Preferred shares with a par value
of $0.01 each
Issued and Outstanding
11,831,916 (2003: 11,794,916) common shares 11,832 11,794
CAPITAL IN EXCESS OF PAR VALUE 7,663,421 7,306,613
OTHER COMPREHENSIVE INCOME (LOSS) 100,179 3,023
DEFICIT (2,355,207) (1,097,662)
---------------------------------------------- ------------ ------------

TOTAL STOCKHOLDER'S EQUITY 5,420,225 6,223,768
---------------------------------------------- ------------ ------------

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $8,820,354 $6,389,111
============ ============

SEE COMMITMENTS AND CONTINGENCIES (NOTE 15 & 16)

The accompanying notes are an integral part of these consolidated financial
statements.

FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(U.S. DOLLARS)
---------------------------------------------- ----------------------------
YEAR ENDED DECEMBER 31

2004 2003
---------------------------------------------- ------------- -------------

SALES $ 3,392,937 $ 2,321,120

COST OF SALES 1,331,075 1,363,064
---------------------------------------------- ------------- -------------

GROSS PROFIT 2,061,862 958,056
---------------------------------------------- ------------- -------------

OPERATING EXPENSES
Wages 932,283 476,931
Administrative salaries and benefits 133,120 80,999
Advertising and promotion 97,946 63,871
Investor relations and transfer agent fee 215,670 173,268
Office and miscellaneous 166,099 83,854
Insurance 73,375 -
Interest expense 68,384 -
Rent 177,667 70,538
Consulting 398,753 (2,282,282)
Professional fees 308,534 190,638
Travel 132,632 150,116
Telecommunications 41,895 41,445
Shipping 28,866 19,203
Research 58,552 67,615
Commissions 9,578 -
Bad debt expense (recovery) (10) 24,747
Currency exchange 20,000 (31,955)
Utilities 69,750 17,246
Depreciation 388,071 37,712
---------------------------------------------- ------------- -------------

3,321,165 (816,054)
---------------------------------------------- ------------- -------------

INCOME (LOSS) BEFORE OTHER ITEMS AND INCOME TAX (1,259,303) 1,774,110
INTEREST INCOME 34,258 203,310

WRITE DOWN OF INVESTMENT (32,500) -
---------------------------------------------- ------------- -------------

INCOME (LOSS) BEFORE INCOME TAX (1,257,545) 1,977,420
INCOME TAX (RECOVERY) (25,892)
---------------------------------------------- ------------- -------------

NET INCOME (LOSS) (1,257,545) $ 2,003,312
DEFICIT, BEGINNING (1,097,662) (3,100,974)
---------------------------------------------- ------------- -------------
DEFICIT, ENDING (2,355,207) (1,097,662)

NET INCOME (LOSS) PER SHARE $ (0.11) $ 0.17
---------------------------------------------- ------------- -------------

WEIGHTED AVERAGE NUMBER OF SHARES 11,827,734 11,734,880
---------------------------------------------- ------------- -------------

The accompanying notes are an integral part of these consolidated financial
statements.
19

FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
(U.S. DOLLARS)
---------------------------------------------- -------------------------------
THREE MONTHS ENDED
DECEMBER 31
2004 2003
---------------------------------------------- ------------- -------------

SALES $ 981,012 $ 338,549
COST OF SALES 501,761 232,771
---------------------------------------------- ------------- -------------

GROSS PROFIT 479,251 105,778
---------------------------------------------- ------------- -------------

OPERATING EXPENSES
Wages 325,341 68,273
Administrative salaries and benefits 38,147 20,741
Advertising and promotion 24,688 2,956
Investor relations and transfer agent fee 42,506 52,995
Office and miscellaneous 12,046 24,520
Insurance 39,900 -
Interest expense 39,020 -
Rent 62,956 21,385
Consulting 104,644 (2,404,505)
Professional fees 96,388 17,495
Travel 52,801 30,086
Telecommunications 13,431 4,869
Shipping 6,916 4,516
Research 37,552 6,317
Commissions 9,578 -
Bad debt expense (recovery) 787 23,925
Currency exchange 14,334 (52,742)
Utilities 23,281 3,308
Depreciation 28,535 12,944
---------------------------------------------- ------------- -------------

972,853 (2,162,917)
---------------------------------------------- ------------- -------------

INCOME (LOSS) BEFORE OTHER ITEMS AND INCOME TAX (493,601) 2,268,695
INTEREST INCOME 794 48,114

WRITE DOWN OF INVESTMENT (32,500) -
---------------------------------------------- ------------- -------------

INCOME (LOSS) BEFORE INCOME TAX (525,307) 2,316,809
INCOME TAX (RECOVERY)
---------------------------------------------- ------------- -------------

NET INCOME (LOSS) (525,304) $ 2,316,809
DEFICIT, BEGINNING (1,829,901) $(3,414,471)
---------------------------------------------- ------------- -------------
DEFICIT, ENDING (2,355,208) $(1,097,662)

NET INCOME (LOSS) PER SHARE $ (0.04) $ 0.20
---------------------------------------------- ------------- -------------

WEIGHTED AVERAGE NUMBER OF SHARES 11,831,916 11,791,612
---------------------------------------------- ------------- -------------

The accompanying notes are an integral part of these consolidated financial
statements.
20

FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEAR ENDED DECEMBER 31, 2004 AND 2003
(U.S. DOLLARS)
------------------------------------------------- ------------- --------------
YEAR ENDED DECEMBER 31
2004 2003
------------------------------------------------- ------------- -------------
OPERATING ACTIVITIES

Net income (loss) $ (1,257,545) 2,003,312

Stock compensation expense 299,345 (2,357,630)

Depreciation 388,071 37,712

Write down of investments 32,500 -
Changes in non-cash working capital items:

Accounts receivable (207,134) (239,016)

Inventory (1,203,650) (9,108)

Prepaid expenses (95,179) 51,220

Accounts payable 92,486 104,497

Income tax receivable (6,720) 31,771

Decrease in due to shareholders (7,700) 7,700
------------------------------------------------- ------------- -------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,965,525) (369,542)
------------------------------------------------- ------------- -------------

INVESTING ACTIVITIES

Acquisition of property and equipment (2,320,828) (76,735)

Short-term investments 4,474,397 28,658

Loan receivable (20,985) (7,503)
------------------------------------------------- ------------- -------------
CASH USED IN INVESTING ACTIVITIES 2,132,584 (55,580)
------------------------------------------------- ------------- -------------

FINANCING ACTIVITY

Subscriptions received - 16,217

Proceeds from issuance of common stock 57,500 64,819
------------------------------------------------- ------------- -------------
CASH PROVIDED BY FINANCING ACTIVITIES 57,500 81,036
------------------------------------------------- ------------- -------------

Effect of exchange rate changes on cash 97,156 24,377
------------------------------------------------- ------------- -------------

INFLOW (OUTFLOW) OF CASH 321,715 (319,709)

Cash and cash equivalents, beginning of period 237,080 556,789
------------------------------------------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 558,795 237,080
------------------------------------------------- ============= =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Income taxes paid $ - 60,351

Interest received 34,258 203,310
------------------------------------------------- ------------- -------------

The accompanying notes are an integral part of these consolidated financial
statements.

FLEXIBLE SOLUTIONS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2004
(U.S. DOLLARS)
----------------------------------- ---------- --------- ------------ ------------ ------------ --------------- -------------

CAPITAL IN SHARE ACCUMULATED OTHER TOTAL
EXCESS OF SUBSCRIPTION EARNINGS COMPREHENSIVE STOCKHOLDERS'
SHARES PAR VALUE PAR VALUE RECEIVABLE (DEFICIENCY) INCOME (LOSS) EQUITY
----------------------------------- ---------- --------- ------------ ------------ ------------ --------------- -------------

Balance December 31, 2002 11,570,916 $ 11,570 $9,328,648 $ (16,217) $(3,100,9740 $ (21,354) $6,201,673

Shares Issued

Exercise of stock options 124,000 124 64,695 - - - 64,819

For investment 100,000 100 270,900 - - - 271,000

Payment of subscription receivable - - - 16,217 - - 16,217

Stock option compensation reversal - - (2,357,630) - - - (2,357,630)

Translation adjustment - - - - - 24,377 24,377

Net Income - - - - 2,003,312 - 2,003,312
----------------------------------- ---------- --------- ------------ ------------ ------------ --------------- -------------

Balance December 31, 2003 11,794,916 11,794 7,306,613 - (1,097,662) 3,023 6,223,768
Shares Issued

Exercise of stock options 37,000 38 57,463 - - - 57,501

Stock option compensation - - 299,345 - - - 299,345

Translation adjustment - - - - - 97,156 97,156

Net Loss - - - - (1,257,543) - (1,257,543)
----------------------------------- ---------- --------- ------------ ------------ ------------ --------------- -------------

Balance December 31, 2004 11,831,916 $ 11,832 $7,663,421 $ - $(2,355,205) $ 100,179 $5,420,227
=================================== ========== ========= ============ ============ ============ =============== =============

The accompanying notes are an integral part of these consolidated financial
statements.

FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31
(US DOLLARS)
--------------------------------------------------------------------------------

1. BASIS OF PRESENTATION:

These consolidated financial statements include the accounts of Flexible
Solutions International Inc., and its wholly owned subsidiaries Flexible
Solutions Ltd., NanoChem Solutions Inc. and WaterSavr Global Solutions
Inc. All intercompany 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 as described below.

On June 30, 1998 the company completed the acquisition of 100% of the
shares of Flexible Solutions Ltd. The acquisition was effected through the
issuance of 7,000,000 shares of common stock by the company with former
shareholders of the subsidiary receiving 100% of the total shares then
issued and outstanding. The transaction has been accounted for as a
reverse-takeover.

Flexible Solutions Ltd. is accounted for as the acquiring party and the
surviving entity. As Flexible Solutions Ltd. is the accounting survivor,
the consolidated financial statements presented for all periods are those
of Flexible Solutions Ltd. The shares issued by Flexible Solutions
International Inc. pursuant to the 1998 acquisition have been accounted
for as if those shares had been issued upon the organization of Flexible
Solutions Ltd.

On May 2, 2002, the company established WaterSavr Global Solutions Inc.
through issuance of 100 shares of common stock.

Pursuant to a purchase agreement dated May 26, 2004, the company acquired
the assets of Donlar Corporation on June 9, 2004 and created a new
company, NanoChem Solutions Inc.

The purchase price of the transaction was $6,150,000 with consideration
being a combination of cash and debt. Under the purchase agreement and as
part of the consideration, the company issued a promissory note bearing
interest at 4 % to the vendor to satisfy $3,150,000 of the purchase price.
This note is due June 2, 2005 and all of the former Donlar assets are used
as security.

The following table summarizes the estimated fair value of the assets
acquired at the date of acquisition:

As at June 9, 2004:

Current assets $ 1,126,805
Property and equipment 5,023,195
-------------------------------------------------------------------------

-------------------------------------------------------------------------
$6,150,000
Acquisition costs assigned to property and equipment 314,724
-------------------------------------------------------------------------

Total assets acquired $ 6,464,724
=========================================================================

2. SIGNIFICANT ACCOUNTING POLICIES:

These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles accepted in the United
States of America 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) Inventory -

Inventory is valued at the lower of cost and net realizable value.
Cost is determined on a first-in, first-out basis.

c) Property, Equipment and Leaseholds -

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

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

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

d) Impairment of Long Lived Assets -

The company assesses the recoverability of its long lived assets by
determining whether the carrying value of the long lived assets can
be recovered over their remaining lives through undiscounted future
operating cash flows using a discount rate reflecting the company's
average cost of funds. The assessment of the recoverability will be
impacted if estimated future operating cash flows are not achieved.
For the year ended December 31, 2004, no impairment charges have been
recognized.

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

e) Foreign Currency -

The functional currency of Flexible Solutions Ltd. 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 company's functional
currency, Canadian dollars, into the reporting currency, U.S.
dollars, are excluded from the determination of income and 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 income
if realized during the year and in comprehensive income if they
remain unrealized at the end of the year.

f) Revenue Recognition -

Revenue from product sales is recognized at the time the product is
shipped since title and risk of losses is transferred to purchaser
upon delivery to the carrier. Shipments are made F.O.B. shipping
point. 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.

g) Stock Issued in Exchange for Services -

The valuation of the common stock issued to non-employees in exchange
for services is valued at an estimated fair market value as
determined by officers and directors of the company based upon
trading prices of the company's common stock on the dates of the
stock transactions.

h) Stock Based Compensation -

The company applies the fair value based method of accounting
prescribed by the Statement of Financial Accounting Standards
("SFAS") No. 123 in accounting for stock issued in exchange for
services.

i) 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.

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

j) Income (Loss) Per Share -

Income (loss) per share is calculated by dividing net income (loss)
by the weighted average number of shares outstanding. Diluted loss
per share is computed by giving effect to all potential dilutive
options that were outstanding during the year. For the year ending
December 31, 2004, 2003 and 2002 all outstanding options were
anti-dilutive.

k) Use of Estimates -

The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America 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.

l) Financial Instruments -

The fair market value of the company's financial instruments
comprising cash, short-term investment, accounts receivable, income
tax recoverable, loan receivable, accounts payable and accrued
liabilities and amounts due to shareholders were estimated to
approximate their carrying values due to immediate or short-term
maturity of these financial instruments.

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.

m) Recent Accounting Pronouncements -

i) In June 2001, the Financial Accounting Standards Board (FASB)
issued FAS 142, Goodwill and Other Intangible Assets. Under FAS
142, goodwill and intangible assets with indefinite lives are no
longer amortized but are reviewed at least annually for
impairment. The amortization provisions of FAS 142 apply to
goodwill and intangible assets acquired after June 30, 2001. With
respect to goodwill and intangible assets acquired prior to July
1, 2001, the company adopted FAS 142 effective January 1, 2002.
Application of the non-amortization provisions of FAS 142 for
goodwill did not have any impact on its financial reporting.

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

ii) In October 2001, the FASB issued Statement of Financial Accounting
Standards for FAS 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets." FAS 144 addresses significant issues
relating to the implementation of FAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," and develops a single accounting model, based on the
framework established in FAS 121 for long-lived assets to be
disposed of by sale, whether such assets are or are not deemed to
be a business. FAS 144 also modifies the accounting and disclosure
rules for discontinued operations. The standard was adopted on
January 1, 2002 and did not have any impact on the financial
statements.

In November 2001, the FASB issued EITF Issue No. 01-14,. "Income
Statement Characterization of Reimbursements Received for "Out of
Pocket" Expenses Incurred." This guidance requires companies to
recognize the recovery of reimbursable expenses such as travel
costs on service contracts as revenue. These costs are not to be
netted as a reduction of cost. This guidance was implemented
January 1, 2002. The company does not expect this guidance to have
a material impact on the financial statements.

3. SHORT-TERM INVESTMENT:

Short-term investment consists of a certificate of deposit bearing
interest at 4.03% and maturing September 11, 2005. The company will incur
a penalty if principle is withdrawn before maturity date. The amount of
the penalty equals one half of the remaining days in the terms daily
compounded interest on the total amount withdrawn. If the accrued interest
is less than the calculated penalty at time of withdrawal, the difference
between the penalty and the accrued interest will be deducted from the
principal.

4. LOAN RECEIVABLE:
2004 2003
---------------------------------------------------------------------

=====================================================================
5% loan receivable due on demand $ 38,570 $ 17,585

5. PREPAID EXPENSES:
2004 2003
---------------------------------------------------------------------

Security deposit and prepaids $ 131,280 $ 36,101

=====================================================================

6. PROPERTY, PLANT AND EQUIPMENT:

Accumulated 2004 2003
Cost Amortization NET Net
------------------------- ----------- ------------ ---------- ----------

------------------------- ----------- ------------ ----------- ----------
Buildings $ 3,144,259 $ 157,213 $ 2,987,046 -
Computer hardware 41,123 13,612 27,511 $ 9,267
Furniture and fixtures 15,165 3,650 11,515 3,293
Office equipment 28,906 10,485 18,421 15,195
Manufacturing equipment 2,109,046 323,188 1,785,858 133,283
Trailer 1,926 780 1,146 1,518
Leasehold improvements 25,784 11,251 14,533 5,033
Trade Show Booth 7,212 1082 6,130
Land 398,186 - 398,186 -
------------------------------------- ------------ ----------- ----------

$ 5,771,607 $ 521,261 $ 5,250,346 $ 167,589
========================= =========== ============ ========== ==========

7. INVESTMENTS:

2004 2003
--------------------------------------------------------------------------

Tatko Inc. - Option to purchase 20% interest
in common stock $ 271,000 $ 271,000

==========================================================================
On May 31, 2003 the company acquired an option to purchase a 20% interest
in the outstanding shares of Taiko Inc. for consideration of the issuance
of 100,000 shares of its common stock. The option to purchase the shares
of Taiko Inc. expires on May 31, 2008. The cost of the investment has been
accounted for based on the fair market value of the company's stock on May
31, 2003.

See Contingencies (Note 16d)

8. COMPREHENSIVE INCOME (LOSS):

2004 2003 2002
--------------------------- ------------ ------------ ------------

Net income (loss) $(1,257,243) $ 2,003,312 $(3,082,445)
Other comprehensive income 97,156 24,377 2,488
--------------------------- ------------ ------------ ------------

$(1,160,087) $ 2,027,689 $(3,079,957)
=========================== ============ ============ ============

9. INCOME TAX:

Total income tax expenses differs from the amounts computed by applying
the combined Canadian federal and provincial statutory rate of 30% to
income before income taxes. The income to which this is applied is as
follows:

2004 2003 2002
--------------------------------------------- ----------- ---------- ------------

Income (loss) before income tax per entity:
Flexible Solutions International Inc. (652,196) $2,309,831 $(2,866,021)
Flexible Solutions Ltd. (677,894) 16,616 (56,264)
WaterSavr Global Solutions Inc. (195,368) (349,027) (181,616)
NanoChem Solutions Inc. 267,915 - -
--------------------------------------------- ----------- ---------- ------------

Consolidated income (loss) before income tax (1,257,543) 1,977,420 (3,103,901)
Permanent difference - stock option benefit 299,345 (2,357,630) 2,821,608
Stock issued for services - - 44,400
Miscellaneous 7,874 - -
--------------------------------------------- ----------- ---------- ------------

Taxable income (loss) for tax purposes (950,324) $ (380,210 $ (237,893)
============================================= =========== ========== ============

Application of the federal and provincial statutory rates results in the
following:
2004 2003 2002
--------------------------------------------- ----------- ---------- ------------

Expected tax expense (recovery) at
statutory rates-
From Canadian operations - $ (25,892) $ (21,456)
From US operations - (110,984) (84,691)
--------------------------------------------- ----------- ---------- ------------

Income tax expense (recovery) - $ (136,876) $(106,147)
============================================= =========== ========== ============

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 liability calculated at a 35% tax rate consists of
the following:
2004 2003
-------------------------------------------------- --------- -----------

Non-capital loss carry forwards $559,545 $ 226,931
Book over tax value of property and equipment (234,817) (17,063)
Valuation allowance (324,728) (209,868)
-------------------------------------------------- --------- -----------
- -
================================================== ========= ===========

9. INCOME TAX: (CONTINUED)

The company's losses for income tax purposes are $1,598,701 (2003 -
$648,375) which may be carried forward to apply against future income tax,
expiring between 2010 and 2023 The future tax benefit of these loss
carry-forwards has been offset with a full valuation allowance. These
losses expire as follows:

2010 $ 79,113
2011 671,177
2018 16,858
2019 13,414
2022 237,893
2023 301,097
2024 279,149

10. NET INCOME (LOSS) PER SHARE:

Net income (loss) Shares Per share
(Numerator) (Denominator) Amount
-------------------------------- ------------- -------------- ---------
2004
BASIC NET INCOME PER SHARE
NET INCOME $(1,257,543) 11,827,734 $ (0.11)

2003
Basic net income per share
Net income 2,003,312 11,734,880 0.17

2002
Basic net income per share
Net income (3,082,445) 10,555,754 (0.29)
-------------------------------- ------------- -------------- ---------

There were no preferred shares issued and outstanding for the years ended
December 31, 2004, 2003 or 2002. The 2002 denominator excludes 3,671,800
shares that may be issued upon exercise of options as to do so would have
been anti dilutive for the 2002 per share loss.

The company may issue stock options and stock bonuses for common stock of
the company 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.

The following table summarizes the company's stock option activity for the
years ended December 31, 2004 and 2003:
Weighted
Exercise average
price exercise
Number of shares per share price
--------------------------- -------------------- -------------- ---------

Balance, December 31, 2002 3,686,800 $0.25 - $3.50 $3.79
Granted 256,000 $3.60 - $4.25 $3.61
Exercised (124,000) $0.25 - $2.28 $0.48
Expired (2,107,800) $0.25 - $5.50 $4.72
--------------------------- -------------------- -------------- ---------

Balance, December 31, 2003 1,711,000 $1.00 - $4.25 $2.84
Granted 572,740 $3.00 - $4.60 $3.46
Exercised (37,000) $1.00 - $2.50 $1.55
Expired (5,000) $4.25 $4.25
Cancelled (1,000,000) $1.50 - $3.50 $2.50
--------------------------- -------------------- -------------- ---------

Balance, December 31, 2004 1,241,740 $1.00 - $4.60 $2.87
=========================== ==================== ============== =========

The company applies APB Opinion No. 25 and related interpretations in
accounting for it stock options granted to employees, and accordingly,
compensation expense of $Nil (2003 - nil) was recognized as wages expense.
Had compensation expense been determined as provided in SFAS 123 using
Black-Scholes Option Pricing Model, the pro forma effect on the company's
net income (loss) and per share amounts would be as follows:

2004 2003 2002
----------------------------------------- ------------ ------------ -------------

Net income (loss), as reported $ 1,257,543 $ 2,003,312 $ (3,082,445)
----------------------------------------- ------------ ------------ -------------
Net income (loss), pro forma 1,647,491 1,922,433 (3,704,296)
----------------------------------------- ------------ ------------ -------------
Net income (loss) per share, as reported (0.11) 0.17 (0.29)
----------------------------------------- ------------ ------------ -------------
Net income (loss) per share, pro forma (0.14) 0.16 (0.35)
----------------------------------------- ------------ ------------ -------------

FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31
(US DOLLARS

11. STOCK OPTIONS: (CONTINUED)

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

2004 2003 2002
---------------------- ----- ----- ------
Expected life - years 5.0 5.0 5.0
---------------------- ----- ----- ------
Interest rate 3.50% 2.87% 3.00%
---------------------- ----- ----- ------
Volatility 49% 49% 72.3%
---------------------- ----- ----- ------
Dividend yield - % - % - %
---------------------- ----- ----- ------

During the year, the company granted 275,400 (2003 - 205,000) stock
options to consultants and have been recognized applying SFAS 123 using
the Black-Scholes Option Pricing Model which resulted in additional
consulting expense of $299,345 (2003 - $122,570). During the year ended
December 31, 2003, the company cancelled 2,000,000 stock options to
consultants pursuant to the terms of the contract, resulting in a recovery
of consulting expense of $2,480,200.

12. CAPITAL STOCK:

During the year ended December 31, 2004 the company:

(i) issued 37,000 shares of common stock at prices ranging from
$1.00 to $2.50 per share upon exercise of stock options.

During the year ended December 31, 2003 the company:

(i) issued 100,000 shares of common stock valued at $271,000 to
acquire an option to purchase a 20% interest in Taiko Inc. (see
Note 8); and

(ii) issued 124,000 shares of common stock at prices ranging from
$0.25 to $2.28 per share upon exercise of stock options.

FLEXIBLE SOLUTIONS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31
(US DOLLARS
--------------------------------------------------------------------------------
13. 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:

The first line consists of a liquid swimming pool blanket which saves
energy and water by storing evaporation from the pool surface. The
second line consists of a food safe powdered form of the active
ingredient within the liquid blanket and is designed to be used in
still or slow moving drinking water sources.

(b) Manufacture of biodegradable polymers and chemical additives:

Biodegradable polymers are used within the petroleum, chemical,
utility and mining industries to prevent corrosion and scaling in
water piping. Chemical additives are manufactured for use in laundry
and dish detergents, as well as in products to reduce levels of
insecticides, herbicides and fungicides.

The company's sales in the United States of America and abroad amounted to
79% (2003 - 28%) . The remainder was earned in Canada.

The company's long-lived assets are located in Canada and the United
States as follows:

----------------------------- --------------- --------------
2004 2003
----------------------------- --------------- --------------
Canada $ 238,807 $ 167,589
----------------------------- --------------- --------------
United States 5,011,539 -
----------------------------- --------------- --------------
Total $ 5,250,346 $ 167589
============================= =============== ==============

14. COMMITMENTS:

Property and Premises Leases -

The company is committed to minimum rental payments for property and
premises aggregating approximately $393,683 over the term of two leases,
the last expiring on June 30, 2009.

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

2005 $134,290
2006 114,752
2007 55,169
2008 55,654
2009 33,818

a) The company has been named as a plaintiff in a lawsuit filed in the
state of Illinois by a former employee. In November 2003, an
ex-employee, Patrick Grant, filed suit against Flexible Solutions
International in Cook County Circuit Court, Cook County, IL, claiming
wrongful dismissal and seeking return of options rights or cash. The
company believes these allegations are without merit and intends to
vigorously defend against them.

b) The company is plaintiff in a lawsuit demanding return of the share
certificate of 100,000 shares of stock originally given to the defended
as payment in advance for services. The services for which the advance
was given were never performed or given to the company, and the company
therefore received no consideration or value for such advance. Return
of the share certificate for 100,000 shares was demanded within ten
(10) days, namely August 22, 2001, however, to date remains unreturned.

On date of issue, January 4, 2001, the share transaction was recorded
as shares issued for services at fair market value, a value of $0.80
per share.

c) The company has been named the defendant in a lawsuit filed in the
Federal Court of Canada as well as the plaintiff in a countersuit in
the same court. In July 2004, a former distributor, Sunsolar Energy
Technologies, filed suit claiming trademark infringement. The company
believes these allegations are without merit and intends to vigorously
defend against them.

d) The company is plaintiff in a lawsuit demanding the return of the share
certificate of 100,000 shares of stock originally given as payment in
advance for services, $10,000 and undetermined damages resulting from a
breach of contract. The suite has been filed in the Circuit Court of
Cook County, IL against Tatko Biotech Inc. of Peoria, IL. The services
for which the advance was given were never performed or given to the
company, and the company therefore received no consideration or value
for such advance.

The shares were recorded at fair marker value less 10%, resulting in an
expense of $271,000 recognized in June 2003.

16. COMPARATIVE FIGURES:

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

ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.

ITEM 8A CONTROLS AND PROCEDURES:
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-14(c). The Company's disclosure controls
and procedures are designed to provide a reasonable level of assurance of
reaching the Company's desired disclosure control objectives. In designing and
evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. The Company's
certifying officers have concluded that the Company's disclosure controls and
procedures are effective in reaching that level of assurance.

As of the end of the period of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the foregoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective.

There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date the Company completed its evaluation.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth our directors and officers and their
respective ages and positions:

Name Age Position

Daniel B. O'Brien 48 President, Director
John H. Bientjes 51 Director
Dr. Robert N. O'Brien 83 Director
Dale Friend 48 Director
Eric Hodges 56 Director

Daniel B. O'Brien has been President and a Director of Flexible since June 1998.
He has been involved in the swimming pool industry since 1990 when he founded
our subsidiary, Flexible Solutions Ltd. which was purchased by Flexible
Solutions International, Inc. in August 1998. 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 member of our Board of Directors since February
2000. Mr. Bientjes has been 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 was 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 member of the Company's Board of Directors
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.

Dale Friend was elected a Director in December, 2002. She has a diversified
background in the area of accounting. Her experience has been primarily in
business offering a wide range of accounting knowledge. Dale currently works for
a Lock and Security firm in Vancouver where she uses her skills as the company
comptroller. Previously she was a Senior Trust Analyst for Alderwoods Group,
formerly The Loewen Group from August 2002 to February 2003.. Prior to this she
was with Telus, formerly BC Tel, for almost a decade in various accounting,
auditing and financial planning positions.

Eric Hodges was elected to the Board in September 2004. He is a Victoria based
accountant with decades of experience. His financial education is from the
University of Washington in Seattle where he played for the Huskies football
program. Mr. Hodges continued playing football after college, wth a successful,
multiyear professional career with the BC Lions of the Canadian Football League.
Eric is extremely familiar with both Canadian and US GAAP (generally acceptable
accounting principles), since he has clients in both countries. Furthermore, his
wide range of experience with small and quickly growing companies will be an
asset to the Board

Dr. Robert N. O'Brien and Daniel B. O'Brien are father and son.

Directors are elected annually and hold office until the next annual meeting of
our stockholders and until their successors are elected and qualified. The Board
has established an audit committee comprised of John Bientjes, Dale Friend and
Eric Hodges, all of whom are independent Directors and have strong financial
backgrounds. Dr. Robert O'Brien and John Bientjes serve as the compensation
committee. All executive officers are chosen by the board of directors and serve
at the board's discretion.

We reimburse directors for any expenses incurred in attending board of directors
meetings. As well, Directors are compensated $1000 annually to stand on the
Board and the three independent directors receive an option to purchase 5,000
common shares each year that they serve.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon a review of the copies of Forms 3 and 4 and 5 thereto
furnished to the Company, or written representations that no annual Form 5
reports were required, the Company believes that all filing requirements under
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") applicable to its directors, officers and any persons holding ten percent
(10%) or more of the Company's Common Stock were made with respect to the
Company's fiscal year ended December 31, 2004.

ITEM 10. EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth certain information about the compensation paid
or accrued to the person who was the Company's chief executive officer during
the fiscal year ended December 31, 2004 (the "named executive officer").

---------------- ----------- --------------------------------------- -------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
---------------- ----------- --------------------------------------- -------------------------------------------------
AWARDS PAYOUTS
---------------- ----------- ----------- ----------- --------------- ------------------------- -----------------------
Year Salary Bonus Other Annual Restricted Securities All Other
Compensation Stock Underlying LTIP Compensation
Awards Option/SA Payouts
RS
---------------- ----------- ----------- ----------- --------------- ------------ ------------ ----------- -----------
($) ($) ($) ($) (#) ($) ($)
---------------- ----------- ----------- ----------- --------------- ------------ ------------ ----------- -----------

Daniel O'Brien 2004 40,000 -- -- -- 50,000 -- --
President, CEO 2003 40,000 -- -- -- 20,000 -- --
2002 40,000 -- -- -- 50,000 -- --
---------------- ----------- ----------- ----------- --------------- ------------ ------------ ----------- -----------

The following table provides certain information about the stock options granted
to the executive officer named in the Summary Compensation Table. in the year
ended December 31, 2004.

OPTIONS GRANTED IN 2004 FISCAL YEAR

--------------------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS GRANTED TO
UNDERLYING EMPLOYEES IN FISCAL YEAR
OPTIONS GRANTED EXERCISE OR BASE PRICE
NAME (#) ($/SHARE) EXPIRATION DATE
--------------------------------------------------------------------------------------------------------------------------

Daniel B. O'Brien 50,000 shares 15.3% $3.00 December 31, 2009
--------------------------- ------------------ -------------------------- ------------------------ -----------------------

The following table sets forth certain information about stock options exercised
in 2004 and the value of unexercised stock option held as of December 31, 2004
by the executive officer named in the Summary Compensation Table.

Aggregate Option Exercises in 2004 and Year-End Option Values

Value of Unexercised
Number of Unexercised Options In-The Money
at FY-End (#) Options at FY-End ($)
Shares ----------------------------- ------------------------------
Acquired on Value
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
--------- ----------- ----------- ----------- ------------- ----------- -------------

Daniel B. 170,000 50,000 $391,500 0
O'Brien

DIRECTOR COMPENSATION

We have agreed to issue our directors who are not also employed by the Company
options to purchase 5,000 shares of our common stock annually for serving as a
director. However, Dr. Robert N. O'Brien will not receive director options in
any year in which he receives options for other services. We pay Dr. Robert
O'Brien additional options for assisting in research and development and patent
prosecution. The number of said options is determined annually by the Board of
Directors with Dr. O'Brien not voting on such matter. In 2004, Dr. O'Brien
received the following options for such services and he did not receive director
options:

Option Price No. of Options Expiration Date
------------ -------------- -----------------
$3.00 25,000 December 31, 2009

Our outside directors received the following options in 2004:

Name Option Price No. of Options Expiration Date
---- ------------ -------------- ---------------
John H. Bientjes $3.00 5,000 December 31, 2009
Dale Friend $3.00 5,000 December 31, 2009
Eric Hodges $3.00 5,000 December 31, 2009

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of March 11, 2004 by (i) each stockholder who is
known by the Company to own beneficially more than five percent of the Company's
outstanding Common Stock, (ii) each director of the Company, (iii) the Company's
executive officers named in the Summary Compensation Table, and (iv) by all
executive officers and directors of the Company as a group. The information as
to each person or entity has been furnished by such person or group.

Shares Beneficially Owned (1)
-----------------------------
Common Stock Percentage
------------ ----------
Daniel O'Brien(2)(3) 4,816,200 40.7%
Dr. Robert O'Brien(2)(3) 1,825,000 15.5%

as a group [2 persons] 6,641,200 56.2%

(1) Applicable percentage of ownership at March 11, 2005, is based upon
11,831,916 shares of Common Stock outstanding. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to shares shown
as beneficially owned. Shares of Common Stock subject to options or warrants
currently exercisable or exercisable within 60 days of March 11, 2005, are
deemed outstanding for computing the shares and percentage ownership of the
person holding such options or warrants, but are not deemed outstanding for
computing the percentage ownership of any other person or entity.

(2) Address for this shareholder is 2614 Queenswood Drive, Victoria,BC, V8N 1X5,
Canada.

(3) Includes shares which may be acquired on the exercise of stock options as
follows.
Exercise
Name No. of Options Price Expiration Date
---- -------------- ----- ---------------

Daniel O'Brien 100,000 $1.40 December 21, 2006
50,000 $4.25 December 31, 2007
20,000 $3.60 December 31, 2008
Dr. Robert O'Brien 50,000 $1.40 December 21, 2006
25,000 $4.25 December 31, 2007
25,000 $3.60 December 31, 2008
John Bientjes 5,000 $4.25 December 31, 2007
5,000 $3.60 December 31, 2008
Dale Friend 5,000 $4.25 December 31, 2007
5,000 $3.60 December 31, 2008
Eric Hodges 5,000 $3.60 December 31, 2008

Does not include the following shares which may be acquired on the exercise of
stock options which are not exercisable until December 31, 2005 and must also be
approved at the annual general meeting.
Exercise
Name No. of Options Price Expiration Date
---- -------------- ----- ---------------

Daniel O'Brien 50,000 $3.00 December 31, 2009
John H. Bientjes 5,000 $3.00 December 31, 2009
Dr. Robert O'Brien 25,000 $3.00 December 31, 2009
Dale Friend 5,000 $3.00 December 31, 2009
Eric Hodges 5,000 $3.00 December 31, 2009

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.

Our director, Dr. Robert O'Brien, developed our swimming pool, water
conservation and mosquito control products and has assigned his patent rights to
such 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. The 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 the Board of Directors but does not participate in the
proceedings of the Board concerning his own stock option grants. See Item 10
above for further information.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

EXHIBITS
--------

NUMBER DESCRIPTION

21 Subsidiaries. (Incorporated by reference to Exhibit 21 to Registrant's
Registration Statement on Form SB-2 filed January 22, 2003)

31.1 Sarbanes Oxley Section 302Certification

32.1 Sarbanes Oxley Section 906 Certification

REPORTS ON FORM 8-K
-------------------

Filed January 10, 2005
On January 6, 2005 Flexible Solutions International, Inc., issued a press
release announcing results from evaporation control testing conducted at Owens
Lake, California during September and October 2004 .

Filed November 22, 2004
On November 18, 2004 Flexible Solutions International, Inc., issued a press
release announcing that it has filed with EPA for Registration of Mosquito
Control Product.

Filed November 16, 2004
On November 15, 2004 Flexible Solutions International, Inc., issued a press
release announcing financial results for the third quarter ended September 30,
2004.

Filed October 6, 2004
On October 5, 2004 Flexible Solutions International, Inc., issued a press
release announcing expected financial results for the third quarter ended
September 30, 2004.

Filed August 23, 2004
On Aug 17th 2004, Flexible Solutions International Inc. served Tatko Inc.
counsel with a suit filed in Circuit Court of Cook County IL. Flexible claims
breach of agreement by Tatko and seeks return of 100,000 shares of restricted
common stock and such other relief to which Flexible is entitled.

Filed July 26, 2004
On July 23, 2004 Flexible Solutions International, Inc., issued a press release
announcing the appointment of Fred J. Kupel as the Company's Chief Financial
Officer. In the same release, pro forma revenues for the periods ended June 30,
2004, of $1,620,700 for three months and $3,198,770 for six months were
announced.

Filed June 1, 2004
On May 27, 2004 Flexible Solutions International, Inc., issued a press release
announcing the purchase of the assets of Donlar Corporation, Bedford Park, IL.
Donlar had filed for protection under Chapter 11 of the Bankruptcy Code on
February 27, 2004. In addition to the physical assets, also included were the
products and technologies.

Filed May 18, 2004
On May 17, 2004 Flexible Solutions International, Inc., issued a press release
announcing financial results for the first quarter ended March 31, 2004.

Filed May 18, 2004
On May 13, 2004 Flexible Solutions International, Inc., issued a press release
announcing that the Company has been awarded a $30,000 grant under the
Metropolitan Water District of Southern California's Innovative Supply Program
for an evaporation control project starting in June 2004

Filed March 9, 2004
On March 8, 2004 Flexible Solutions International, Inc., issued a press release
announcing that the Company has entered into an agreement to purchase
substantially all the assets of an Illinois company engaged in manufacture and
sale of environmentally sound chemicals for the water industry.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Cinnamon Jang Willoughby, Certified Public Accountants, are the Company's
independent auditors to examine the financial statements of the Company for the
fiscal year ending December 31, 2004. Story and Company P.C. has performed the
following services and has been paid the following fees for these fiscal years.

Audit Fees

Cinnamon Jang Willoughby was paid aggregate fees of $23,240 for the for the
fiscal year ended December 31, 2004 for professional services rendered for the
audit of the Company's annual financial statements and for the reviews of the
financial statements included in Company's quarterly reports on Form 10QSB
during these fiscal years.

Audit-Related Fees

Cinnamon Jang Willoughby was not paid any additional fees for the fiscal year
ended December 31, 2004 for assurance and related services reasonably related to
the performance of the audit or review of the Company's financial statements.

Tax Fees

Cinnamon Jang Willoughby was paid aggregate fees of $2,075 for the fiscal year
ended December 31, 2004 for professional services rendered for tax compliance,
tax advice and tax planning. The nature of these services were calculation and
filing of 2004 income tax return.

Other Fees

Cinnamon Jang Willoughby was paid no other fees for professional services during
the fiscal year ended December 31, 2004.

SIGNATURES

In accordance with the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Victoria,
British Columbia, on 23rd of March 2005.

FLEXIBLE SOLUTIONS INTERNATIONAL , INC.

/s/ DANIEL B. O'BRIEN
Daniel O'Brien
President

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

Signature Title Date

/s/ Daniel B. O'Brien President and Director (Principal 23rd of March 2005
Daniel B. O'Brien Executive Officer)

/s/ John H. Bienjes Director 23rd of March 2005
John H. Bienjes

/s/ Robert N. O'Brien Director 23rd of March 2005
Robert N. O'Brien

/s/ Dale Friend Director 23rd of March 2005
Dale Friend

/s/ Eric Hodges Director 23rd of March 2005
Eric G Hodges

/s/ Fred Kupel Principal Financial Officer 23rd of March 2005
Fred Kupel