Leases

6 Months Ended

Apr. 30, 2023

Leases

Leases

Note 10. Leases

The Company enters into operating and finance lease agreements for the use of real estate, vehicles, information technology equipment, and certain other equipment. We determine if an arrangement contains a lease at inception, which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights and obligations. Operating leases are included in Operating lease right-of-use assets, net, Operating lease liabilities, and Long-term operating lease liabilities in the Company’s Consolidated Balance Sheets. Finance leases are not considered significant to the Company’s Consolidated Balance Sheets or Consolidated Statements of Operations and Comprehensive Loss. Finance lease right-of-use (“ROU”) assets of $0.04 million at April 30, 2023 and October 31, 2022 are included in Property, plant and equipment, net in the Company’s Consolidated Balance Sheets. Finance lease liabilities of $0.04 million at April 30, 2023 and October 31, 2022 are included in Current portion of long-term debt and Long-term debt and other liabilities in the Company’s Consolidated Balance Sheets.

On January 5, 2023, the Company’s wholly-owned subsidiary, Versa Power Systems Ltd. (“Versa Ltd.”), entered in to a lease expansion, extension and amending agreement to an existing building lease that was originally entered into on May 20, 2005. The lease expansion, extension and amending agreement extended the term of the lease through September 30, 2028 and expanded the space to be leased by Versa Ltd. in Calgary, Alberta, Canada to include approximately 48,000 square feet of additional space. A ROU asset and operating lease liability was initially recorded for this lease as of the first quarter of fiscal year 2023 for CAD $2.7 million ($2.0 million USD).

On February 20, 2023, Versa Ltd. entered into a Lease Expansion and Amending Agreement – Short Term (the “Lease Expansion and Amendment”) to the existing lease for the Calgary manufacturing facility (i.e., the lease referenced in the paragraph immediately above). Under the Lease Expansion and Amendment, the space leased by Versa Ltd. has been further expanded to include, on a short-term basis, an additional space located at the same address as the original Calgary manufacturing facility (4800 – 52^nd Street SE, Calgary, Alberta, Canada) and consisting of approximately 18,627 square feet (the “Temporary Premises”). The term of the lease with respect to the Temporary Premises commenced on April 1, 2023 and will expire on July 31, 2024. The Temporary Premises is expected to be used for short term expansion of solid oxide fuel cell and stack production and commissioning of newly purchased production equipment.  A ROU asset and operating lease liability was initially recorded for the Lease Expansion and Amendment as of the second quarter of fiscal year 2023 for CAD $0.2 million ($0.1 million USD).

Operating lease expense for each of the three month periods ended April 30, 2023 and 2022 was $0.4 million and for the six months ended April 30, 2023 and 2022 was $0.7 million and $0.8 million, respectively. As of April 30, 2023, the weighted average remaining lease term (in years) was approximately 17 years and the weighted average discount rate was 6.95%. Lease payments made during each of the three month periods ended April 30, 2023 and 2022 were $0.3 million and for the six months ended April 30, 2023 and 2022 were $0.6 million and $0.7 million, respectively.

Undiscounted maturities of operating lease and finance lease liabilities as of April 30, 2023 were as follows:

	Operating Leases		Finance Leases
Due Year 1	$	1,185	$	41
Due Year 2		1,353		—
Due Year 3		1,263		—
Due Year 4		1,294		—
Due Year 5		1,313		—
Thereafter		13,303		—
Total undiscounted lease payments		19,711		41
Less imputed interest		(9,674)		(6)
Total discounted lease payments	$	10,037	$	35