Leases

9 Months Ended

Oct. 31, 2019

Leases [Abstract]

Leases

We lease real property, equipment and certain automobiles. The Company made the accounting policy election to account for short-term leases as described herein. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

The Company determines if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty. All of the Company’s real estate leases are classified as operating leases.

Most of our real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term for an additional four to five years. The exercise of lease renewal options is at the Company’s discretion. The Company evaluates renewal options at lease inception and on an ongoing basis, and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.

Leases recorded on the unaudited condensed consolidated balance sheet consist of the following:

Leases (000’s)	Classification	October 31, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	2,482
Liabilities
Current
Operating	Current portion of operating lease liabilities	$	254
Noncurrent
Operating	Long-term portion of operating lease liabilities		2,243
Total Lease Obligations		$	2,497

Lease cost

The components of lease expense are included on the unaudited condensed consolidated statement of operations as follows (in 000’s):

	Classification	Three Months Ended October 31, 2019		Nine Months Ended October 31, 2019
Operating lease cost	Cost of goods sold	$	53	$	342
	Operating expenses	$	269	$	507
Short-term lease cost		$	444	$	572

Maturity of Lease Liabilities

Maturity of lease liabilities as of October 31, 2019 was as follows (in $000’s):

Year ending January 31,	Operating Leases (a)
Remainder of fiscal year 2020		254
2021		955
2022		802
2023		686
2024		23
Thereafter		81
Total lease payments		2,801
Less: Interest		304
Present value of lease liability	$	2,497

(a) Operating leases payments include $34,000 related to options to extend lease terms that are reasonably certain of being exercised and new leases entered into during the quarter.

Weighted-average lease terms and discount rates are as follows:

	October 31, 2019
Weighted-average remaining lease term (years)
Operating leases		2.72
Weighted-average discount rate
Operating leases		5.83	%

Supplemental cash flow information related to leases for the nine months ended October 31, 2019 were as follows (in 000’s):

Cash paid for amounts included in the measurement of lease liabilities;	Nine Months Ended October 31, 2019
Operating cash flows from operating leases	$	783
Leased assets obtained in exchange for new operating lease liabilities	$	3,218

Disclosures related to periods prior to adoption of ASU 2016-02

The Company adopted ASU 2016-02 using a modified retrospective adoption method at February 1, 2019 as noted in Note 3. "Recent Accounting Pronouncements." As required, the following disclosure is provided for periods prior to adoption. Minimum lease commitments as of January 31, 2019 that have initial or remaining lease terms in excess of one year are as follows:

Leases

Total rental costs under all operating leases are summarized as follows (in 000’s):

Year ended January 31,	Gross rental
2019	$	1,022
2018	$	841

Minimum annual rental commitments for the remaining term of the Company’s noncancelable operating leases relating to manufacturing facilities, office space and equipment rentals at January 31, 2019, including lease renewals subsequent to year end, are summarized as follows (in 000’s):

Year ending January 31
2020	$	761
2021		447
2022		435
2023		314
2024		8
and thereafter		9
Total	$	1,974