Note 11 – Leases

Effective December 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), using the modified retrospective approach and utilizing the effective date as its date of initial application.  As a result, prior periods are presented in accordance with the previous guidance in ASC 840, Leases (“ASC 840”).  The Company has elected to apply the ‘package of practical expedients’ which allows the Company to not reassess i) whether existing or expired arrangements contain a lease, ii) the lease classification of existing or expired leases, or iii) whether previous initial direct costs would qualify for capitalization under the new lease standard.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement.  Leases with a term greater than one year are recognized on the balance sheet as a right-of-use (ROU) assets and as short-term and long-term lease liabilities, as applicable.  The Company does not have any financing leases.

Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term.  The interest rate implicit in lease contracts is typically not readily determinable.  As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company believes it could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.

The Company has elected not to recognize leases with an original term of one year or less on the balance sheet.  The Company typically only includes an initial lease term in its assessment of a lease arrangement.  Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew.

In January 2021, the Company exercised its right to extend a lease for 36 months that resulted in an increase of $780,070 to operating lease right-of-use asset and of $780,070 to operating lease liabilities.

In April 2021, the Company entered into a new lease for 24 months that resulted in an increase of $86,549 to operating lease right-of-use asset and of $86,549 to operating lease liabilities.  Further, the Company adjusted the interest rate used to discount the lease payments to its current incremental borrowing rate and this resulted in an additional increase of $38,072 to operating lease right-of-use asset and of $38,072 to operating lease liabilities.

The following table presents the right-of-use asset and short-term and long-term lease liabilities amounts recorded on the consolidated balance sheets as of May 31, 2021:

The maturity of the Company’s lease liabilities at May 31, 2021 were as follows:

The remaining lease term and discount rates are as follows:

Supplemental cash flow information related to leases is as follows: