Leases

6 Months Ended

Jul. 31, 2019

Leases [Abstract]

Leases

Note 7 - Leases

The Company determines if an arrangement contains a lease at inception. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

The Company’s leases consist of leaseholds on office space, manufacturing space and machinery and equipment. The Company utilized a portfolio approach in determining the discount rate. The portfolio approach takes into consideration the range of the term, the range of the lease payments, the category of the underlying asset and the Company’s estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. The Company also considered its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating the incremental borrowing rates.

The lease term includes options to extend the lease when it is reasonably certain that the Company will exercise that option. These operating leases contain renewal options for periods ranging from three to five years that expire at various dates with no residual value guarantees. Future obligations relating to the exercise of renewal options is included in the measurement if, based on the judgment of management, the renewal option is reasonably certain to be exercised. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of the renewal rate compared to market rates, and the presence of factors that would cause a significant economic penalty to the Company if the option is not exercised. Management reasonably plans to exercise all options, and as such, all renewal options are included in the measurement of the right-of-use assets and operating lease liabilities.

Leases with a term of 12 months or less are not recorded on the balance sheet, per the election of the practical expedient noted above.

The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company recognizes variable lease payments in the period in which the obligation for those payments is incurred. Variable lease payments that depend on an index or a rate are initially measured using the index or rate at the commencement date, otherwise variable lease payments are recognized in the period incurred.

The components of lease expense were as follows:

	Six Months Ended July 31, 2019
Finance leases:
Depreciation of assets		47,009
Interest on lease liabilities		14,113
Operating leases		132,749
Short-term lease		5,566
Total net lease cost	$	199,437

Supplemental balance sheet information related to leases was as follows:

	July 31, 2019
Operating leases:
Operating lease ROU assets	$	1,556,873
Current operating lease liabilities, included in current liabilities	$	124,500
Noncurrent operating lease liabilities, included in long-term liabilities		1,432,372
Total operating lease liabilities	$	1,556,872
Finance leases:
Property and equipment, at cost	$	510,866
Accumulated depreciation		103,921
Property and equipment, net	$	406,945
Current obligations of finance leases, included in current portion of long-term debt	$	125,264
Finance leases, net of current obligations, included in long-term debt		313,946
Total finance lease liabilities	$	439,210

Supplemental cash flow and other information related to leases was as follows:

	Six Months Ended July 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	42,958
Financing cash flows from finance leases		31,213
ROU assets obtained in exchange for lease liabilities:
Operating leases	$	1,599,830
Finance leases		254,166
Weighted average remaining lease term (in years):
Operating leases		9.0
Finance leases		3.9
Weighted average discount rate:
Operating leases		6.54	%
Finance leases		5.85	%

Total future minimum payments required under the lease obligations as of July 31, 2019 are as follows:

Twelve Months Ending July 31,
2020	$	350,693
2021		354,728
2022		371,686
2023		268,175
2024		252,288
Thereafter		988,697
Total lease payments	$	2,586,867
Less: amounts representing interest		(596,061	)
Total lease obligations	$	1,990,806