Capital Leases

12 Months Ended

May 31, 2019

Leases [Abstract]

Capital Leases

Note 5. CAPITAL LEASES

Capital leases consist of the following as of May 31:

	2019			2018
Non-cancelable capital leases	$	6,754,819		$	3,893,814
Less: Current portion of capital leases		(1,516,629	)		(2,160,807	)
Non-cancelable capital leases, net of current portion	$	5,238,190		$	1,733,007

Greystone and an unrelated private company entered into three five-year lease agreements which have an effective interest rate of 7.4%. The leased equipment was placed into production during February 2018, August 2018 and December 2018, at a total cost of approximately $6.9 million. The lease agreements include bargain purchase options to acquire the production equipment at the end of the leases’ term. The leased equipment is used to manufacture pallets to sell to the private company. Rental payments are made as a credit on every sales invoice of pallets produced on the respective leased equipment at the rate of $3.32 per pallet. The aggregate monthly rental is estimated to be approximately $45,000 per machine. The agreements 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.

Yorktown and Greystone entered into a sale and leaseback agreement effective December 28, 2018, whereby Yorktown purchased certain production equipment from Greystone at its net book value of $968,168 and entered into a four-year lease agreement with Greystone at a monthly rent of $27,915 for the initial thirty-six months and $7,695 for the remaining twelve months. The lease agreement provides for a purchase option of $10,000 at the end of the lease on December 27, 2023.

In May 2019, Greystone exercised options to purchase certain production equipment pursuant to lease agreements originating in August 2016 between Greystone and the private company. This equipment with a gross carrying value of $5,365,889 is excluded from the following table at May 31, 2019.

The production equipment under the non-cancelable capital leases at May 31, 2019 and 2018 is as follows:

	2019			2018
Production equipment under capital leases	$	7,861,233		$	7,591,574
Less: Accumulated amortization		(614,909	)		(974,811	)
Production equipment under capital leases, net	$	7,246,324		$	6,616,763

Amortization of the carrying amount of the assets was $1,093,760 and $594,578 for the years ended May 31, 2019 and 2018, respectively. The amortization was included in depreciation expense.

Future minimum lease payments under non-cancelable capital leases as of May 31, 2019, are approximately:

Year ended May 31, 2020	$	1,966,428
Year ended May 31, 2021		1,966,428
Year ended May 31, 2022		1,865,328
Year ended May 31, 2023		1,443,654
Year ended May 31, 2024		605,053
Total lease payments		7,846,891
Less: Imputed interest		1,092,072
Present value of minimum lease payments	$	6,754,819