Leases

3 Months Ended

Aug. 31, 2020

Leases [Abstract]

Leases

On November 22, 2019, the Company entered in a commercial lease agreement as part of the sale of the Schmitt Dynamic Balance Systems business line to Tosei Engineering Corp. and Tosei America Inc., which has been accounted for pursuant to (ASU) No. 2016-02, “Leases (Topic 842)”. The Company elected the practical expedient to not separate lease and non-lease components and will present property revenues as other income, combined based upon the lease being determined to be the predominant component.

The lessor commercial agreement contains a 10-year term with a renewal option to extend, which will be considered a new, separate contract and will be recognized at the time the option is exercised on a straight-line basis over the renewal period, and early termination options based on established terms specific to the individual agreement. Minimum future lease payments receivable are as follows:

	Years Ending May 31,
2021	$	213,732
2022		291,906
2023		300,666
2024		309,870
2025		319,164
Thereafter		1,557,600
Total undiscounted cash flow	$	2,992,938

In connection with the July 9, 2020 acquisition of Ample Hills, the Company has multiple real estate leases for its leased stores as well as a manufacturing facility that are recorded as operating leases under various non-cancellable operating leases.

To determine whether a contract is or contains a lease, the Company determines at contract inception whether it contains the right to control the use of an identified asset for a period of time in exchange for consideration to the counterparty in the transaction. If the Company determines that the contract provides the right to obtain substantially all of the economic benefit from the use of the leased asset, as well as the right for the Company to direct the asset’s use, the Company recognizes a right-of-use asset and liability upon contract inception. The initial carrying value of the operating lease liability is determined by calculating the present value of future lease payments under the contract. The Company considers the future lease payments under the original terms of the contract and also includes explicitly enumerated renewal periods where management is reasonably certain that such renewal options will be exercised. Our operating leases contain varying terms and expire at various dates through 2030. For the three months ended August 31, 2020 and 2019, lease expenses under fixed term leases amounted to $265,268 and $0, respectively.

Certain of our operating leases contain variable lease payments, either in part or in total, related to certain performance targets by the Company at the underlying store locations. These variable leases costs are recognized as incurred in accordance with ASC 842 – Leases. For the three months ended August 31, 2020 and 2019, lease expenses under such variable lease term arrangements amounted to $0 and $0, respectively.

The Company’s future minimum lease payments required under operating leases that have commenced as of August 31, 2020 were as follows:

	Fiscal Year Ended May 31,
2021	$	697,615
2022		1,457,541
2023		1,714,502
2024		1,720,065
2025		1,694,403
Thereafter		6,549,089
Total lease payments	$	13,833,215
Less: imputed interest		(2,354,172	)
Present value of lease payments		11,479,044
less: current lease obligations		(595,833	)
Long-term lease obligations	$	10,883,211

In order to calculate the operating lease asset and liability for a lease, ASC 842 – Leases requires that a lessee apply a discount rate equal to the rate implicit in a lease whenever such a rate is readily determinable. The Company’s lease agreements do not provide a readily determinable implicit rate, or is this rate available from our leasing counterparties. Consequently, the Company estimates an incremental borrowing rate to determine the present value of the lease payments. This incremental borrowing rate represents the Company’s estimate of an interest rate that the Company would be able to obtain from a lender to borrow, on a collateralized basis, over a similar term to obtain an asset of similar value.

Lease term and discount rates were as follows:

	August 31, 2020
Weighted average remaining lease term (years)		9.80
Weighted average discount rate		3.87	%