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 ROU asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the ROU asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the ROU 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 ROU 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 USD

$0.8

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

4.0%

7.8%

per annum with monthly principal and interest payments of less than

$0.1

million. These leases mature between

April

2021

September

2022.

2019,

the Company obtained

two

finance leases for CAD

1.1

million (approximately USD

$0.8

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

8.0%

per annum with monthly principal and interest payments of less than

$0.1

million. These leases mature in

August 2023.

August

2016,

the Company obtained a finance lease for

0.6

million Indian Rupees (approximately USD

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

15.6%

per annum with monthly principal and interest payments of less than USD

thousand. This lease expired in

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 ROU 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.

January 31, 2020,

the Company had operating lease liabilities of

$12.3

million and operating ROU assets of

$11.5

million, which are reflected in the consolidated balance sheet. At

January 31, 2020,

the

Company also had finance lease liabilities of

$1.1

million included in current maturities of long-term debt and long-term debt less current maturities, and finance ROU assets of

$1.2

million which were included in property plant and equipment, net of accumulated depreciation in the consolidated balance sheet.

Supplemental balance sheet information related to leases follows:

Operating and Finance leases:	January 31, 2020
Finance leases assets:
Property and Equipment - gross	$	1,696
Accumulated depreciation and amortization		(551	)
Property and Equipment - net	$	1,145

Finance lease liabilities:
Finance lease liability short-term	$	417
Finance lease liability long-term		677
Total finance lease liabilities	$	1,094

Operating lease assets:
Operating lease ROU assets	$	11,475

Operating lease liabilities:
Operating lease liability short-term	$	1,040
Operating lease liability long-term		11,214
Total operating lease liabilities	$	12,254

Total lease costs consist of the following:

Lease costs	Consolidated Statements of Operations Classification	Year Ended January 31, 2020
Finance Lease Costs
Amortization of ROU assets	Cost of sales	$	208
Interest on lease liabilities	Interest expense		58
Operating lease costs	Cost of sales, SG&A expenses		2,326
Short-term lease costs (1)	Cost of sales, SG&A expenses		425
Sub-lease income	SG&A expenses		(81	)
Total Lease costs		$	2,936

(

) Includes variable lease costs, which are immaterial

Supplemental cash flow information related to leases is as follows:

	Year Ended January 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases	$	287
Operating cash flows from finance leases		58
Operating cash flows from operating leases		2,287

	Three Months Ended January 31, 2020
ROU Assets obtained in exchange for new lease obligations:
Finance leases liabilities	$	-
Operating leases liabilities		94

Weighted-average lease terms discount rates are as follows:

	January 31, 2020
Weighted-average remaining lease terms (in years):
Finance leases		3.0
Operating leases		8.5

Weighted-average discount rates:
Finance leases		7.0	%
Operating leases		8.2	%

January 31, 2020,

future minimum annual rental commitments under non-cancelable lease obligations were as follows:

Year:	Operating Leases			Finance Leases
For the year ended January 31, 2021	$	2,312		$	487
For the year ended January 31, 2022		2,315			331
For the year ended January 31, 2023		2,180			269
For the year ended January 31, 2024		2,012			145
For the year ended January 31, 2025		1,319			-
Thereafter		7,358			-
Total lease payments		17,496			1,232
Less: amount representing interest		(5,242	)		(138	)
Total lease liabilities at January 31, 2020	$	12,254		$	1,094

January 31, 2019,

under previous lease accounting guidance, future minimum annual rental commitments under non-cancelable lease obligations were as follows:

Year:	Operating Leases		Capital Leases
For the year ended January 31, 2020	$	2,516	$	241
For the year ended January 31, 2021		2,193		240
For the year ended January 31, 2022		2,149		82
For the year ended January 31, 2023		2,110		21
For the year ended January 31, 2024		1,979		-
Thereafter		8,997		-
Subtotal		19,944		584
Less Amount representing interest		-		(48	)
Future minimum lease payments	$	19,944	$	536

Rental expense for operating leases was

$2.8

million and

$2.6

million in

2019

and

2018,

respectively.

The Company has several significant operating lease agreements as follows

•

Office space of approximately

31,650

square feet in Niles, IL is leased until

October 2023.

•

Five acres of land in Louisiana is leased through

March 2022.

•

Twenty acres of land in Canada leased through

December 2022.

•

Nine acres of land in the Kingdom of Saudi Arabia is leased through

April 2030.

•

Production facilities in the U.A.E. of approximately

80,200

square feet on approximately

107,600

square feet of land is leased until

June 2030.

•

Office space of approximately

21,500

square feet and open land for production facilities of approximately

423,000

square feet in the U.A.E. is leased until

July 2032.

•

Production facilities in the U.A.E. of approximately

78,100

square feet is leased until

December 2032.