1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Accounts Receivable - Trade (Policies)
|9 Months Ended|
Feb. 28, 2021
|Accounts Receivable - Trade||
Accounts Receivable Trade
Accounts receivable - trade from revenue transactions are based on invoiced prices which the Company expects to collect. In the normal course of business, the Company extends credit to customers that satisfy pre-defined credit criteria. The Company generally does not require collateral to support customer receivables. Accounts receivable - trade, as shown on the condensed consolidated balance sheets, is net of allowances when applicable. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the condensed consolidated financial statements, assessments of collectability based on an evaluation of historic and anticipated trends, the financial condition of the Companys customers, and an evaluation of the impact of economic conditions. The maximum accounting loss from the credit risk associated with accounts receivable is the amount of the receivable recorded, net of allowance for doubtful accounts. As of February 28, 2021 and May 31, 2020, the Company recorded an allowance for doubtful accounts of approximately $110,000 and $0, respectively.
Two customers represented greater than 10% of accounts receivable as of February 28, 2021. No customer represented greater than 10% of accounts receivable as of May 31, 2020. Two customers accounted for 19.7% and 26.4% of revenue, respectively, for the three months ended February 28, 2021. Two customers accounted for 28.4% and 20.8% of revenue, respectively, for the nine months ended February 28, 2021.
Off Balance Sheet Arrangements
The Company has an agreement with an unrelated third party (the Factor) for factoring of specific accounts receivable. The factoring is treated as a sale in accordance with FASB ASC 860, Transfers and Servicing, and is accounted for as an off-balance sheet arrangement. Proceeds from the transfers reflect the face value of the account less a fee, which is presented in costs and operating expenses on the Companys condensed consolidated statements of operations in the period the sale occurs. Net funds received are recorded as an increase to cash and a reduction to accounts receivable outstanding in the condensed consolidated balance sheets. The Company reports the cash flows attributable to the sale of receivables to third parties and the cash receipts from collections made on behalf of and paid to third parties, on a net basis as trade accounts receivables in cash flows from operating activities in the Companys condensed consolidated statements of cash flows. The net principal balance of trade accounts receivable outstanding in the books of the factor under the factoring agreement was approximately $33,700,000 and $3,900,000 as of February 28, 2021 and May 31, 2020, respectively.
The Company acts as the agent on behalf of the Factor for the arrangements and has no significant retained interests or servicing liabilities related to the accounts receivable sold. The agreement provides the Factor with security interests in purchased accounts until the accounts have been repurchased by the Company or paid by the customer. In order to mitigate credit risk related to the Companys factoring of accounts receivable, the Company may purchase credit insurance, from time to time, for certain factored accounts receivable, resulting in risk of loss being limited to the factored accounts receivable not covered by credit insurance, which the Company does not believe to be significant.
During the three and nine months ended February 28, 2021 the Company factored accounts receivable invoices totaling approximately $64,742,000 and $176,235,000, respectively, pursuant to the Companys factoring agreement, representing the face value of the invoices. The Company recognizes factoring costs upon disbursement of funds. The Company incurred expenses totaling approximately $1,271,000 and $3,156,000 pursuant to the agreements for the three and nine months ended February 28, 2021, respectively, which is presented in costs and operating expenses on the condensed consolidated statement of operations. The Company did not incur factor related expenses for the period from October 28, 2019 (inception), through February 29, 2020. See Note 11.
When an invoice is sold to Factor, the amount received from the Factor is credited to accounts receivable trade and a reserve is retained, less a fee, by Factor which is debited to factoring reserve on the condensed consolidated balance sheets.
In certain instances, the Company receives payment for a factored reserve directly from the customer. In these cases, until the funds are paid to the factor, the Company records the payment as factor recovery which is in accrued expenses and other current liabilities on the condensed consolidated balance sheets.
Company policy is to do a collectability review of uncollected factored receivables in conjunction with the Factor at each reporting date and assess the need to provide for risk of potential non-collection and resulting recourse.
Disclosure of accounting policy for accounts receivable.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef