Note 7 - Leases

6 Months Ended

Apr. 30, 2023

Notes to Financial Statements

Lessee, Operating and Finance Leases Disclosure [Text Block]

(7) Leases

The Company has an operating lease agreement for approximately 34,000 square feet of office, manufacturing and warehouse space in Plano, Texas (near Dallas). The lease term expires on November 30, 2024.

The Company has an operating lease agreement for approximately 36,000 square feet of warehouse space in Roanoke, Virginia. During the first quarter of fiscal year 2023, the lease term was extended for an additional three years. The new expiration date is April 30, 2026.

The Company also leases certain office equipment under operating leases with initial 60 month terms. The lease terms expire in February and April of 2025.

OCC leases printers that are used in the Roanoke, Virginia manufacturing facility. The lease term expires on August 22, 2026. The right-of-use asset is being amortized on a straight line basis over seven years. When the lease term ends, the remaining net book value of the right-of-use asset will be classified as property and equipment.

The Company’s lease contracts may include options to extend or terminate the leases. The Company exercises judgment to determine the term of those leases when such options are present and include such options in the calculation of the lease term when it is reasonably certain that it will exercise those options.

The Company includes contract lease components in its determination of lease payments, while non-lease components of the contracts, such as taxes, insurance, and common area maintenance, are expensed as incurred. At commencement, right-of-use assets and lease liabilities are measured at the present value of future lease payments over the lease term. The Company uses its incremental borrowing rate based on information available at the time of lease commencement to measure the present value of future payments.

Operating lease expense is recognized on a straight-line basis over the lease term. Short term leases with an initial term of 12 months or less are expensed as incurred. The Company’s short term leases have month-to-month terms.

Operating lease right-of-use assets of $779,031 and $662,328 were included in other assets at April 30, 2023 and October 31, 2022, respectively. Operating lease liabilities of $395,891 and $439,520 were included in accounts payable and accrued expenses, and other noncurrent liabilities, respectively, at April 30, 2023. Operating lease liabilities of $355,183 and $374,570 were included in accounts payable and accrued expenses, and other noncurrent liabilities, respectively, at October 31, 2022. Operating lease expense recognized during the three months and six months ended April 30, 2023 totaled $109,144 and $212,477, respectively. Operating lease expense recognized during the three months and six months ended April 30, 2022 totaled $103,333 and $206,667, respectively.

The weighted average remaining lease term was 26.2 months and the weighted average discount rate was 7.1% as of April 30, 2023.

For the three months ended April 30, 2023 and 2022, cash paid for operating lease liabilities totaled $109,151 and $107,835, respectively. For the three months ended April 30, 2023 and 2022, there were no right-of-use assets obtained in exchange for new operating lease liabilities.

Finance lease right-of-use assets of $156,091 and $170,839 were included in other assets at April 30, 2023 and October 31, 2022, respectively. Finance lease liabilities of $36,581 and $112,404 were included in accounts payable and accrued expenses, and other noncurrent liabilities, respectively, at April 30, 2023. Finance lease liabilities of $35,724 and $130,911 were included in accounts payable and accrued expenses, and other noncurrent liabilities, respectively, at October 31, 2022. Interest expense related to the finance lease totaled $1,840 and $3,784, respectively, for the three months and six months ended April 30, 2023. Interest expense related to the finance lease totaled $2,251 and $4,601, respectively, for the three months and six months ended April 30, 2022. For the three months ended April 30, 2023 and 2022, amortization expense related to the finance lease totaled $7,374. For the six months ended April 30, 2023 and 2022, amortization expense related to the finance lease totaled $14,749.

The remaining lease term for the finance lease is 40 months and the discount rate is 4.75% as of April 30, 2023.

For the three months ended April 30, 2023, cash paid for the finance lease liability totaled $1,840 for interest and $8,878 for principal. For the six months ended April 30, 2023, cash paid for the finance lease liability totaled $3,784 for interest and $17,652 for principal.

For the three months ended April 30, 2022, cash paid for the finance lease liability totaled $2,251 for interest and $8,466 for principal. For the six months ended April 30, 2022, cash paid for the finance lease liability totaled $4,601 for interest and $16,833 for principal.

The Company’s future payments due under leases reconciled to the lease liabilities are as follows:

Fiscal Year	Operating leases			Finance lease
2023 (1)	$	220,050		$	21,434
2024		448,298			42,868
2025		177,997			42,868
2026		63,644			55,715
Total undiscounted lease payments		909,989			162,885
Present value discount		(74,578	)		(13,900	)
Total lease liability	$	835,411		$	148,985

(1) Remaining six months of fiscal year 2023.