Note

- Leases

Effective

February 1, 2019,

the Company accounts for its leases under ASC

842,

Leases

. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities short-term, and operating lease liabilities long-term in the Company's consolidated balance sheets. Finance leases are included in property, plant and equipment, current maturities of long-term debt, and long-term debt less current maturities in the Company's consolidated balance sheets.

ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred. ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term.

As most of the Company's leases do

not

provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.

In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of

months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.

The Company continues to account for leases in the prior period financial statements under ASC Topic

840.

Finance Leases.

2017,

the Company obtained

three

finance leases for CAD

1.1

million (approximately

$0.8

million at the prevailing exchange rates on the transaction dates) to finance vehicle equipment. The interest rates for these finance leases were from

4.0%

7.8%

per annum with monthly principal and interest payments of less than

$0.1

million. These leases mature from

April

30,

2021

September

29,

2022.

August

2016,

the Company obtained a finance lease for

0.6

million Indian Rupees (approximately

thousand U.S. dollars at the prevailing exchange rate on the transaction date) to finance vehicle equipment. The interest rate for this finance lease is

15.6%

per annum with monthly principal and interest payments of less than

thousand U.S. dollars. This lease expired on

July

2019.

The Company has several significant operating lease agreements, with lease terms of

one

years, which consist of real estate, vehicles and office equipment leases. These leases do

not

require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have

not

been included in the calculation of the lease liabilities and right of use assets as the Company is

not

reasonably certain to exercise the options. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does

not

have any arrangements where it acts as a lessor, other than

one

sub-lease arrangement.

July 31, 2019

, the Company had operating lease liabilities of

$11.5

million

nd operating right of use assets o

$11.5

million, wh

ich are reflected in the consolidated balance sheet. At

July 31, 2019

, the Company also had finance lease liabilities of $

0.4

million included in current maturities of long-term debt and long-term debt less current maturities, and finance right of use assets of $

0.4

millio

which were included in

property plant and equipment, net of accumulated depreciation

in the consolidated balance sheet.

Supplemental balance sheet information related to leases is as follows:

Operating and Finance leases:	July 31, 2019
Finance leases assets:
Property and Equipment - gross	$	854
Accumulated depreciation and amortization		(451	)
Property and Equipment - net	$	403

Finance lease liabilities:
Finance lease liability short-term	$	216
Finance lease liability long-term		216
Total finance lease liabilities	$	432

Operating lease assets:
Operating lease ROU assets	$	11,453

Operating lease liabilities:
Operating lease liability short-term	$	1,056
Operating lease liability long-term		10,446
Total operating lease liabilities	$	11,502

Total lease costs consist of the following:

Lease costs	Consolidated Statements of Operations Classification	Three Months Ended July 31, 2019			Six Months Ended July 31, 2019
Finance Lease Costs
Amortization of ROU assets	Cost of sales	$	51		$	102
Interest on lease liabilities	Interest expense		8			17
Operating lease costs	Cost of sales, SG&A expenses		581			1,132
Short-term lease costs (1)	Cost of sales, SG&A expenses		82			266
Sub-lease income	SG&A expenses		(20	)		(40	)
Total Lease costs		$	702		$	1,477

(

) Includes variable lease costs, which are immaterial

Supplemental cash flow information related to leases is as follows:

	Six Months Ended July 31,
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases	$	103
Operating cash flows from finance leases		17
Operating cash flows from operating leases		1,127

	July 31, 2019
ROU Assets obtained in exchange for new lease obligations:
Finance leases liabilities	$	-
Operating leases liabilities		1,410

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

	July 31, 2019
Weighted-average remaining lease terms:
Finance leases		2.1	years
Operating leases		9.4	years

Weighted-average discount rates:
Finance leases		7.0	%
Operating leases		8.6	%

Maturities of lease liabilities

as of

July 31, 2019

, are as follows:

Year:	Operating Leases			Finance Leases
For the six months ended January 31, 2020	$	1,140		$	120
For the year ended January 31, 2021		2,179			240
For the year ended January 31, 2022		2,066			83
For the year ended January 31, 2023		2,008			21
For the year ended January 31, 2024		1,829			-
For the year ended January 31, 2025		1,160			-

Thereafter		6,656			-
Total lease payments		17,038			464
Less: amount representing interest		(5,536	)		(32	)
Total lease liabilities at July 31, 2019	$	11,502		$	432

Rent expense on operating leases, which is recorded on straight-line basis, was

$0.7

million for both of the

three

months ended

July 31, 2019

and

2018,

and

$1.4

million and

$1.3

million for the

six

months ended

July 31, 2019

and

2018,

respectively.