Note 11 - Leases

9 Months Ended

Oct. 31, 2022

Notes to Financial Statements

Lessee, Operating and Finance Leases [Text Block]

Note 11 - Leases

Operating Leases. In August 2020, the Company entered into a new lease in Abu Dhabi for land upon which the Company intends to build a facility. The annual payments are initially expected to be approximately 1.2 million U.A.E. Dirhams (approximately $0.3 million at October 31, 2022), inclusive of rent and common charges, with escalation clauses in the agreement. Rent payments were deferred until August 2022 and have now commenced. The lease expires in August 2050. 

In March 2022, the Company served a Notice of Termination to its lessor for a portion of the Company's lease of certain land and buildings in Fujairah in the U.A.E. The Company served the Notice of Termination in connection with the Company's intended relocation to a different facility under a new lease in Abu Dhabi. The termination took effect in September 2022 and the Company expects to vacate the space in December 2022. The Company is required to pay an additional amount equal to three months' rent after the termination to enable the lessor to prepare the assets for lease by another party. As a result of the termination, the Company has recognized adjustments to the amounts recorded in the consolidated financial statements as of October 31, 2022. The termination resulted in decreases of $0.3 million, $4.0 million and $3.6 million to operating lease liability short-term, operating lease liability long-term and operating lease right-of-use asset, respectively, in the consolidated balance sheets as of October 31, 2022. The termination also resulted in a decrease in rent expense of $0.8 million in the consolidated statement of operations for the nine months ended October 31, 2022. The Company will continue to lease the remaining land and buildings under the Fujairah lease until 2032.

Finance Leases. In 2019, the Company obtained two finance leases for a total of 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 8.0% per annum with monthly principal and interest payments of less than $0.1 million. These leases mature in August 2023.  

The Company has several significant operating lease agreements, with lease terms of one to thirty 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 ("ROU") assets as the Company is not reasonably certain to exercise the options.  The Company does not have any arrangements where it acts as a lessor, other than one sub-lease arrangement. 

At October 31, 2022, the Company had total operating lease liabilities of $7.5 million and operating ROU assets of $6.6 million, which are reflected in the consolidated balance sheets. At October 31, 2022, the Company also had total finance lease liabilities of $0.2 million included in current maturities of long-term debt, and total finance ROU assets of $0.5 million which were included in property plant and equipment, net of accumulated depreciation in the consolidated balance sheets.

Supplemental balance sheet information related to leases is as follows (in thousands): 

Operating and Finance leases:	October 31, 2022			January 31, 2022
Finance leases assets:
Property and Equipment - gross	$	1,140		$	1,221
Accumulated depreciation and amortization		(635	)		(490	)
Property and Equipment - net	$	505		$	731
Finance lease liabilities:
Finance lease liability short-term	$	242		$	357
Finance lease liability long-term		-			173
Total finance lease liabilities	$	242		$	530
Operating lease assets:
Operating lease ROU assets	$	6,616		$	11,213
Operating lease liabilities:
Operating lease liability short-term	$	1,108		$	1,496
Operating lease liability long-term		6,387			11,270
Total operating lease liabilities	$	7,495		$	12,766

Total lease costs consist of the following (in thousands): 

		Three Months Ended October 31,						Nine Months Ended October 31,
Lease costs	Consolidated Statements of Operations Classification	2022			2021			2022			2021
Finance Lease Costs
Amortization of ROU assets	Cost of sales	$	59		$	65		$	176		$	184
Interest on lease liabilities	Interest expense		6			13			24			42
Operating lease costs	Cost of sales, SG&A expenses		608			620			1,195			1,890
Short-term lease costs (1)	Cost of sales, SG&A expenses		99			255			171			454
Sub-lease income	SG&A expenses		(20	)		(20	)		(61	)		(61	)
Total Lease costs		$	752		$	933		$	1,505		$	2,509

(1) Includes variable lease costs, which are immaterial.

Supplemental cash flow information related to leases is as follows (in thousands):

	Nine Months Ended October 31,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash outflows from finance leases	$	251	$	203
Operating cash outflows from finance leases		24		28
Operating cash outflows from operating leases		1,377		985

	Nine Months Ended October 31,
	2022		2021
ROU Assets obtained in exchange for new lease obligations:
Finance leases liabilities	$	-	$	201
Operating leases liabilities		-		89

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

	October 31, 2022
Weighted-average remaining lease terms (in years):
Finance leases		0.8
Operating leases		16.7
Weighted-average discount rates:
Finance leases		10.6	%
Operating leases		7.8	%

Maturities of lease liabilities as of October 31, 2022, are as follows (in thousands):

Year:	Operating Leases			Finance Leases
For the three months ending January 31, 2023	$	952		$	85
For the year ending January 31, 2024		1,745			165
For the year ending January 31, 2025		931			-
For the year ending January 31, 2026		725			-
For the year ending January 31, 2027		725			-
For the year ending January 31, 2028		689			-
Thereafter		8,975			-
Total lease payments		14,742			250
Less: amount representing interest		(7,247	)		(8	)
Total lease liabilities at October 31, 2022	$	7,495		$	242

Rent expense on operating leases, which is recorded on straight-line basis, was $0.7 million and $0.9 millionfor the three months ended  October 31, 2022 and 2021, respectively.