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Note 7 - Leases

9 Months Ended

Jul. 31, 2024

Lessee, Operating and Finance Leases Disclosure [Text Block]

(7)

Leases

The Company has an operating lease agreement for approximately 34,000 square feet of office, manufacturing and warehouse space in Plano, Texas (near Dallas). The lease term expires on November 30, 2024.

The Company has an operating lease agreement for approximately 36,000 square feet of warehouse space in Roanoke, Virginia. The lease term expires on April 30, 2026.

The Company also leases certain office equipment under operating leases with initial 60 month terms. The lease terms expire in February and April of 2025.

OCC leases printers that are used in the Roanoke, Virginia manufacturing facility. The lease term expires on August 22, 2026. The right-of-use asset is being amortized on a straight line basis over seven years. When the lease term ends, the remaining net book value of the right-of-use asset will be classified as property and equipment.

The Company’s lease contracts may include options to extend or terminate the leases. The Company exercises judgment to determine the term of those leases when such options are present and include such options in the calculation of the lease term when it is reasonably certain that it will exercise those options.

The Company includes contract lease components in its determination of lease payments, while non-lease components of the contracts, such as taxes, insurance, and common area maintenance, are expensed as incurred. At commencement, right-of-use assets and lease liabilities are measured at the present value of future lease payments over the lease term. The Company uses its incremental borrowing rate based on information available at the time of lease commencement to measure the present value of future payments.

Operating lease expense is recognized on a straight-line basis over the lease term. Short term leases with an initial term of 12 months or less are expensed as incurred. The Company’s short term leases have month-to-month terms.

Operating lease right-of-use assets of $310,932 and $596,578 were included in other assets at July 31, 2024 and October 31, 2023, respectively. Operating lease liabilities of $242,591 and $91,983 respectively, were included in accounts payable and accrued expenses, and other noncurrent liabilities, at July 31, 2024. Operating lease liabilities of $414,159 and $227,925, respectively, were included in accounts payable and accrued expenses, and other noncurrent liabilities at October 31, 2023. Operating lease expense recognized during the three months and nine months ended July 31, 2024 totaled $109,143 and $327,431, respectively. Operating lease expense recognized during the three months and nine months ended July 31, 2023 totaled $109,145 and $321,621, respectively.

The weighted average remaining lease term was 14.9 months and the weighted average discount rate was 7.9% as of July 31, 2024.

For the three months and nine months ended July 31, 2024, cash paid for operating lease liabilities totaled $112,670 and $335,628, respectively. For the three months and nine months ended July 31, 2023, cash paid for operating lease liabilities totaled $110,025 and $328,992, respectively.

For the nine months ended July 31, 2024 and 2023, there were no right-of-use assets obtained in exchange for new operating lease liabilities.

Finance lease right-of-use assets of $119,219 and $141,342 were included in other assets at July 31, 2024 and October 31, 2023, respectively. Finance lease liabilities of $38,814 and $64,169, respectively, were included in accounts payable and accrued expenses, and other noncurrent liabilities at July 31, 2024. Finance lease liabilities of $37,459 and $93,451, respectively, were included in accounts payable and accrued expenses, and other noncurrent liabilities at October 31, 2023. Interest expense related to the finance lease totaled $1,297 and $4,224, respectively, for the three months and nine months ended July 31, 2024. Interest expense related to the finance lease totaled $1,734 and $5,517, respectively, for the three months and nine months ended July 31, 2023. For the three months ended July 31, 2024 and 2023, amortization expense related to the finance lease totaled $7,374. For the nine months ended July 31, 2024 and 2023, amortization expense related to the finance lease totaled $22,123.

The remaining lease term for the finance lease is 25 months and the discount rate is 4.75% as of July 31, 2024.

For the three months ended July 31, 2024, cash paid for the finance lease liability totaled $1,297 for interest and $9,419 for principal. For the nine months ended July 31, 2024, cash paid for the finance lease liability totaled $4,224 for interest and $27,927 for principal.

For the three months ended July 31, 2023, cash paid for the finance lease liability totaled $1,734 for interest and $8,983 for principal. For the nine months ended July 31, 2023, cash paid for the finance lease liability totaled $5,517 for interest and $26,635 for principal.

The Company’s future payments due under leases reconciled to the lease liabilities are as follows:

Fiscal Year	Operating leases			Finance lease
2024 (1)	$	112,670		$	10,717
2025		177,997			42,868
2026		63,644			55,714
Total undiscounted lease payments		354,311			109,299
Present value discount		(19,737	)		(6,316	)
Total lease liability	$	334,574		$	102,983

(1) Remaining three months of fiscal year 2024.