LEASES

9 Months Ended

Feb. 28, 2023

LEASES

LEASES

13. LEASES

The Company has only operating leases for real estate including corporate offices, warehouse space and certain equipment. A lease with an initial term of 12 months or less is generally not recorded on the condensed consolidated balance sheets, unless the arrangement includes an option to purchase the underlying asset, or renew the arrangement that the Company is reasonably certain to exercise (short-term leases). The Company recognizes lease expense on a straight-line basis over the lease term for short-term leases that the Company does not record on its condensed consolidated balance sheets. The Company’s operating leases have remaining lease terms of 1 year to 8 years.

The Company determines whether an arrangement is or contains a lease based on the unique facts and circumstances present at the inception of the arrangement. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use assets may be required for items such as initial direct costs paid or incentives received.

In December 2022, the Company amended its lease agreement to extend the lease term of an existing office facility located in the United States, which is considered a lease modification not accounted for as a separate contract. The total commitments, net of tenant incentives expected to be received, under the modified lease are $8.6 million. The modified lease expires in fiscal 2031 and contains an option to further extend the lease. The lease modification resulted in an increase in the Company’s operating lease right-of-use assets and operating lease liabilities of $5.9 million each.

As of February 28, 2023, the weighted-average remaining lease term for the Company’s operating leases was 7.5 years and the weighted-average discount rate was 7.5%.

The Company’s operating lease cost was $256,000 and $634,000 for the three and nine months ended February 28, 2023, respectively. For the three and nine months ended February 28, 2022, operating lease cost was $191,000 and $576,000, respectively.

The following table presents supplemental cash flow information related to the Company’s operating leases (in thousands):

	Nine Months Ended
	February 28,
	2023		2022
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases	$	624	$	612

The following table presents the maturities of the Company’s operating lease liabilities as of February 28, 2023 (in thousands):

Fiscal year	Operating Leases
2023 (remaining three months of 2023)	$	211
2024		608
2025		1,143
2026		1,174
2027		1,195
Thereafter		4,309
Total future minimum operating lease payments		8,640
Less: imputed interest		(2,248	)
Present value of operating lease liabilities	$	6,392