FLEXIBLE SOLUTIONS INTERNATIONAL INC Leases Disclosure

3. LEASES

 

Naperville Operating Lease

 

In January 2016, NanoChem Solutions Inc. leased a space in Naperville, IL for office and research and development. The lease was for an initial five years and renewable every five years for a further five years. In March 2024, the Company consolidated NanoChem operations into the Peru, IL locations and terminated the lease in Naperville, IL. The Company had to pay a penalty of $35,910 and forfeited the $5,440 security deposit to terminate the lease early and incurred a loss of $41,350 on early termination of the lease that is shown on the consolidated statement of income and comprehensive income as a part of non-operating income (loss).

 

Panama Operating Lease

 

In 2024, the Company executed a contract to lease 37,500 sq. ft for manufacturing space with a lease term of 122 months with the option to renew the lease for a further 36 months at the end and total payments during the term, starting at $31,324 per month with a 3% increase each year, or $3,461,568 in total. The Company recorded the present value of the lease payments over the term as a lease liability and an ROU asset. The Company’s incremental borrowing rate of 7% was used as the discount rate since the rate implicit in the lease was not readily determinable.

 

The lease liability related to this operating lease, which represents the present value of the lease payments, and the corresponding ROU asset were both $2,341,339 at inception of the lease. The ROU asset was $2,111,027 and the lease liability was $2,543,723 at December 31, 2025. During 2025, the Company recognized $432,696 of lease expense related to this lease in “General and administrative” in the consolidated statements of income and comprehensive income. There were no payments made or expense recorded for this lease in 2024. The Company is waiting for final requirements to be met by the lessor before starting to pay rent. At year end, the difference between the ROU asset and lease liability is attributable to the timing of the commencement of rent payments.

 

Mendota, Illinois Operating Leases

 

In October 2025, in connection with the sale of a building previously occupied by the Company’s subsidiary ENP Investments (see Note 6), ENP Investments entered into operating leases with the new owner for a total of 125,500 square feet of manufacturing and office space, comprised of two lease sections. The Company’s incremental borrowing rate of 7% was used as the discount rate for both leases as the implicit rate was not readily determinable.

 

Section A (110,000 sq. ft.): Initial term of 60 months with an option to renew. Monthly base rent begins at $27,492 and escalates at approximately 3.6% annually, for total undiscounted payments of $1,771,552. At inception, both the ROU asset and lease liability were recorded at $1,483,227. The option to renew was not considered in calculating the initial carrying values. As of December 31, 2025, both the ROU asset and lease liability were $1,426,447. For the year ended December 31, 2025, operating lease expense of $82,475 was recognized in “Selling, general and administrative” in the consolidated statements of income and comprehensive income.

 

Section B (15,500 sq. ft.): Initial term of 60 months with an option to renew. Monthly base rent begins at $4,856 and escalates at approximately 3.6% annually, for total undiscounted payments of $312,625. At inception, both the ROU asset and lease liability were recorded at $263,383. The option to renew was not considered in calculating the initial carrying values. As of December 31, 2025, both the ROU asset and lease liability were $253,213 For the year ended December 31, 2025, operating lease expense of $14,567 was recognized in “Selling, general and administrative” in the consolidated statements of income and comprehensive income.

 

 

The following table summarizes expense and cash payments for operating leases during the periods noted:

 

SCHEDULE OF CASH PAYMENTS FOR OPERATING LEASE

		2025				2024
Operating lease expense		$	529,738			$	14,880
Cash paid for rents with terms less than 1 year		$	124,237			$	72,891
Cash paid for operating lease liability		$	97,042			$	14,880
Cash paid for security deposit		$	46,875			$	93,972
Cash paid for early termination of lease		$	-			$	35,910
Security deposit forfeited upon termination of lease		$	-			$	5,440

 

The following table contains the weighted average remaining lease term and discount rate for operating leases as of the end of the period:

 

SCHEDULE OF WEIGHTED AVERAGE REMAINING LEASE TERM AND DISCOUNT RATE

		As of December 31, 2025
Remaining lease term – Panama operating lease			8.75 years
Remaining lease term – Mendota, IL operating lease			4.75 years
Discount rate - operating leases			7.0	%

 

The table below presents a maturity analysis of the future minimum lease payments for operating leases as of December 31, 2025:

 SUMMARY OF RIGHT-OF-USE ASSET AND LEASE LIABILITY 

Twelve months ending December 31,		Total
2026		$	579,639
2027			787,376
2028			813,094
2029			839,468
2030			751,668
Thereafter			1,677,458
Total operating lease payments			5,448,703
Less: discount on lease liability			(1,225,320	)
Total operating lease liability			4,223,383
Less: current portion of operating lease liability			(299,445	)
Non-current operating lease liability		$	3,923,938