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Commitments and Contingencies

3 Months Ended

Aug. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Note 10 – Commitments and Contingencies

Leases

As discussed in Note 2 above, the Company adopted ASU No. 2016-02, Leases on June 1, 2019, which require lessees to report on their balance sheets a right-of-use asset and a lease liability in connection with most lease agreements classified as operating leases under the prior guidance. The Company has a lease agreement in connection with its office and warehouse facility in California under an operating lease which expired in October 2019. On December 1, 2019, the Company signed an extension of the lease for 3 years. The rent will be $7,567 per month for the first year and increase by a certain amount each year.

The Company treats a contract as a lease when the contract conveys the right to use a physically distinct asset for a period of time in exchange for consideration, or the Company directs the use of the asset and obtains substantially all the economic benefits of the asset. These leases are recorded as right-of-use (“ROU”) assets and lease obligation liabilities for leases with terms greater than 12 months. ROU assets represent the Company’s right to use an underlying asset for the entirety of the lease term. Lease liabilities represent the Company’s obligation to make payments over the life of the lease. A ROU asset and a lease liability are recognized at commencement of the lease based on the present value of the lease payments over the life of the lease. Initial direct costs are included as part of the ROU asset upon commencement of the lease. Since the interest rate implicit in a lease is generally not readily determinable for the operating leases, the Company uses an incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar lease term to obtain an asset of similar value.

The Company reviews the impairment of ROU assets consistent with the approach applied for the Company’s other long-lived assets. The Company reviews the recoverability of long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations.

Lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Variable payments change due to facts or circumstances occurring after the commencement date, other than the passage of time, and do not result in a remeasurement of lease liabilities. The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants.

Pursuant to the new standard, the Company recorded an initial lease liability of $235,748 and an initial right of use asset in the same amount. During the three months ended August 31, 2020, the Company recorded a lease expense in the amount of $23,559. As of August 31, 2020, the lease liability balance was $186,939 and the right of use asset balance was $184,370. A lease term of three years and a discount rate of 12% was used.

Supplemental balance sheet information related to leases was as follows:

	August 31, 2020
Assets
Right of use assets	$	235,748
Accumulated reduction		(51,378	)
Operating lease assets, net	$	184,370

Liabilities
Lease liability	$	235,748
Accumulated reduction		(48,809	)
Total lease liability, net		186,939
Current portion		(74,939	)
Non-current portion	$	112,000

Maturities of operating lease liabilities were as follows as of August 31, 2020:

Operating Lease
Year 1	$	93,378
Year 2		96,805
Year 3		24,415
Total		214,598
Less: Imputed interest		(27,659	)
Present value of lease liabilities		186,939
Less: current portion		(74,939	)
Non- current portion	$	112,000

Rent expense, prior to the signing of the new lease agreement, amounted to $0 and $23,666 for the three months ended August 31, 2020 and 2019, respectively.