Capital Leases

9 Months Ended

Feb. 28, 2019

Leases [Abstract]

Capital Leases

Note 7. Capital Leases

Capital leases as of February 28, 2019 and May 31, 2018:

	February 28, 2019			May 31, 2018
Non-cancellable capital leases	$	7,480,097		$	3,893,814
Less: Current portion		(1,948,191	)		(2,160,807	)
Non-cancellable capital leases, net of current portion	$	5,531,906		$	1,733,007

Greystone and an unrelated private company entered into four lease agreements for certain production equipment with a total cost of approximately $12.2 million. The first agreement, dated August 7, 2016, was a three-year lease agreement for two injection molding machines and pallet molds, capitalized interest rate of 5.0% and maturity date of August 7, 2019 (“Agreement A”). The remaining three agreements, effective February 24, 2018, August 2, 2018 and December 21, 2018, were five-year lease agreements for three additional injection molding machines and one pallet mold, capitalized interest rate of 7.4% and maturity dates of February 23, 2023, August 1, 2023 and December 20, 2023, respectively, (“Agreement B”). The lease agreements include a bargain purchase option to acquire the production equipment at the end of the lease terms. Lease payments are made on a per invoice basis at rates of (i) $6.25 per pallet produced on the equipment leased pursuant to Agreement A and sold to the private company estimated at $180,000 per month and (ii) $3.32 per pallet produced on the equipment leased pursuant to Agreement B and sold to the private company estimated at an aggregate rent of $144,000 per month. Both Agreements A & B provide for minimum monthly lease rental payments based upon the total pallets sold in excess of a specified amount not to exceed the monthly productive capacity of the leased machines.

Effective December 31, 2018, Yorktown purchased certain production equipment from Greystone at net book value of $968,168 and entered into a lease agreement with Greystone for the equipment with a monthly rent of $27,915 for the initial thirty-six months and $7,695 for the following twelve months and maturing December 27, 2023. The lease agreement has a $10,000 bargain purchase option at the end of the lease.

The production equipment under the non-cancelable capital leases has a gross carrying amount of $13,227,122 at February 28, 2019. Amortization of the carrying amount of approximately $776,000 and $402,000 was included in depreciation expense for the nine months ended February 28, 2019 and 2018, respectively.

Future minimum lease payments under non-cancelable capital leases as of February 28, 2019, are approximately:

Twelve months ended February 29, 2020	$	2,435,000
Twelve months ended February 28, 2021		2,063,000
Twelve months ended February 28, 2022		2,023,000
Twelve months ended February 28, 2023		2,165,000
Total lease payments		8,686,000
Imputed interest		1,205,903
Present value of minimum lease payments	$	7,480,097