Leases

9 Months Ended

Feb. 28, 2021

4. LEASES

We lease various manufacturing, laboratory, warehousing and distribution facilities, administrative and sales offices, equipment and vehicles under operating leases. We evaluate our contracts to determine if an arrangement is a lease at inception and classify it as a finance or operating lease. Currently, all of our leases are classified as operating leases. Leased assets and corresponding liabilities are recognized based on the present value of the lease payments over the lease term. Our lease terms may include options to extend when it is reasonably certain that we will exercise that option.

Topic ASC 842 requires the Company to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a

right-of-use

asset representing its right to use the underlying asset for the lease term.

Right-of-use

assets are recorded in other assets on our consolidated balance sheets. Current and

non-current

lease liabilities are recorded in other accruals within current liabilities and other

non-current

liabilities, respectively, on our consolidated balance sheets. Costs associated with operating leases are recognized on a straight-line basis within operating expenses over the term of the lease.

We have made certain assumptions and judgments when applying ASC 842, the most significant of which are:

•

We elected the package of practical expedients available for transition that allow us to not reassess whether expired or existing contracts contain leases under the new definition of a lease, lease classification for expired or existing leases and whether previously capitalized initial direct costs would qualify for capitalization under ASC 842.

•

We did not elect to use hindsight when considering judgments and estimates such as assessments of lessee options to extend or terminate a lease or purchase the underlying asset.

•

For all asset classes, we elected to not recognize a

right-of-use

asset and lease liability for short-term leases (i.e. leases with a term of 12 months or less).

•

For all asset classes, we elected to not separate

non-lease

components from lease components to which they relate and have accounted for the combined lease and

non-lease

components as a single lease component.

•

The determination of the discount rate used in a lease is our incremental borrowing rate that is based on what we would normally pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments.

Supplemental balance sheet information related to operating leases was as follows:


(in thousands)	February 28, 2021		May 31, 2020
Right of use - assets	$	1,269	$	1,952
Lease liabilities - current		131		1,054
Lease liabilities - non-current		1,089		913

The weighted average remaining lease term and weighted average discount rate were as follows:


	February 28, 2021			May 31, 2020
Weighted average remaining lease term		2.4 years			2.5 years
Weighted average discount rate		3.0	%		3.2	%

Operating lease expenses are classified as cost of revenues or operating expenses on the consolidated statements of income. The components of lease expense were as follows:


	Three Months Ended February 28/29,				Nine Months Ended February 28/29,
(in thousands)	2021		2020		2021		2020
Operating leases	$	372	$	316	$	1,017	$	889
Short term leases		17		25		76		106

Total lease expense	$	389	$	341	$	1,093	$	995

Cash paid for amounts included in the measurement of lease liabilities for operating leases included in cash flows from operations on the statement of cash flows were approximately $946,000 and $868,000 for the nine months ended February 28, 2021 and February 29, 2020, respectively. There were no

non-cash

additions to

right-of-use

assets obtained from new operating lease liabilities for the nine months ended February 28, 2021.

Undiscounted minimum lease payments as of February 28, 2021 were as follows:


	Amount
Years ending May 31, 2021 (1)	$	133
2022		601
2023		347
2024		176
2025		47
2026 and thereafter		—

Total lease payments		1,304
Less: imputed interest		84

Total lease liabilities	$	1,220

(1)	Excluding the nine months ended February 28, 2021.