XML 26 R14.htm IDEA: XBRL DOCUMENT

Leases

3 Months Ended

Aug. 31, 2019

Note 7. Leases

Effective June 1, 2019, Greystone adopted ASU 2016-02, Leases (Topic 842), utilizing the modified-retrospective transition approach. which is intended to improve financial reporting about leasing transactions. The standard requires the recognition of right-of-use assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. We elected to use the transition option that allows us to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the year of adoption. Comparable periods reflect the new guidance under ASC 842. The adoption of ASC 842 did not result in any adjustments to retained earnings.

In accordance with ASC 842, Greystone has made accounting policy elections (1) to not apply the new standard to lessee arrangements with a term of twelve months or less and (2) to combine lease and non-lease components. The non-lease components are not material and do not result in significant timing differences in the recognition of lease expense. In addition, Greystone elected the practical expedients upon adoption which permits the Company to not reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. Depending on the terms, leases are classified as either operating or finance leases.

Financing Leases

Financing leases as of August 31, 2019 and May 31, 2019:

	August 31, 2019			May 31, 2019
Non-cancellable financing leases	$	6,335,642		$	6,754,819
Less: Current portion		(1,952,140	)		(1,516,629	)
Non-cancellable financing leases, net of current portion	$	4,383,502		$	5,238,190

Greystone and an unrelated private company entered into three lease agreements for certain production equipment with a total cost of approximately $6.9 million which were effective February 24, 2018, August 2, 2018 and December 21, 2018, respectively, with five-year terms and a capitalized interest rate of 7.4%. Each of the lease agreements include a bargain purchase option to acquire the production equipment at the end of the lease term. The leased equipment is principally used to produce pallets for the private company. Lease payments are made as a credit on the sales invoice at the rate of $3.32 for each pallet produced and shipped from the respective leased equipment. The estimated aggregate monthly rental payments are approximately $168,000. The rent payments can vary each month depending on the quantity of pallets produced from each machine. Due to improvements in the production process, pallet production has increased since May 31, 2019 thereby resulting in an increase in the estimated aggregate future rental payments. The lease 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.

Effective December 28, 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, 2022. The lease agreement has a $10,000 purchase option at the end of the lease.

The production equipment under the non-cancelable financing leases has a gross carrying amount of $7,861,233 at August 31, 2019. Amortization of the carrying amount of $208,157 and $208,245 was included in depreciation expense for the three months ended August 31, 2019 and 2018, respectively.

Operating Leases

Greystone recognize a lease liability for each lease based on the present value of remaining minimum fixed rental payments, using a discount rate that approximates the rate of interest for a collateralized loan over a similar term. A right-of-use asset, reported in property, plant and equipment on the consolidated balance sheets, is recognized for each lease, valued at the lease liability. Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses on the consolidated statement of income. Variable and short-term rental payments are recognized as costs and expenses as they are incurred.

Greystone has three non-cancellable operating leases for (i) equipment with a fifty-two month term and a forty-eight month term and a discount rate of 5.40% and (ii) office space on a sixty month term and a discount rate of 5.0%. The leases are single-term with constant monthly rental rates.

Lease Summary Information

For the periods ending August 31, 2019 and 2018:

	2019			2018
Lease Expense
Financing lease expense -
Amortization of right-of-use assets	$	208,157		$	208,245
Interest on lease liabilities		121,151			67,656
Operating lease expense		19,179			12,000
Short-term lease expense		368,611			342,819
Total	$	717,098		$	630,720

Other Information
Cash paid for amounts included in the measurement of lease liabilities for finance leases -
Operating cash flows	$	121,151		$	67,656
Financing cash flows	$	419,177		$	608,094
Cash paid for amounts included in the measurement of lease liabilities for operating leases -
Operating cash flows	$	19,179		$	12,000
Right-of-use assets obtained in exchange for lease liabilities -
Financing leases	$	-		$	2,333,333
Operating leases	$	67,750		$	-
Weighted-average remaining lease term (in years) -
Financing leases		3.2			3.2
Operating leases		3.4			3.3
Weighted-average discount rate -
Financing leases		7.5	%		6.9	%
Operating leases		5.2	%		5.0	%

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

	Financing Leases		Operating Leases
Twelve months ended August 31, 2020	$	2,355,000	$	81,881
Twelve months ended August 31, 2021		2,355,000		81,881
Twelve months ended August 31, 2022		1,889,000		49,881
Twelve months ended August 31, 2023		525,000		32,348
Twelve months ended August 31, 2024		-		12,910
Total future minimum lease payments		7,124,000		258,901
Present value discount		788,358		22,835
Present value of minimum lease payments	$	6,335,642	$	236,066