Leases

6 Months Ended

Nov. 30, 2019

Leases [Abstract]

Leases

Note 7. Leases

Financing Leases

Financing leases as of November 30, 2019 and May 31, 2019:

	November 30, 2019			May 31, 2019
Non-cancellable financing leases	$	5,843,290		$	6,754,819
Less: Current portion		(2,111,028	)		(1,516,629	)
Non-cancellable financing leases, net of current portion	$	3,732,262		$	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 $178,000. 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 November 30, 2019. Amortization of the carrying amount of approximately $416,000 and $449,000 was included in depreciation expense for the six months ended November 30, 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 six months ended November 30, 2019 and 2018:

	2019			2018
Lease Expense
Financing lease expense -
Amortization of right-of-use assets	$	416,000		$	449,000
Interest on lease liabilities		220,255			126,514
Operating lease expense		39,650			24,000
Short-term lease expense		797,835			749,843
Total	$	1,473,740		$	1,349,357
Other Information
Cash paid for amounts included in the measurement of lease liabilities for finance leases -
Operating cash flows	$	220,255		$	126,514
Financing cash flows	$	911,529		$	1,333,699
Cash paid for amounts included in the measurement of lease liabilities for operating leases -
Operating cash flows	$	39,650		$	24,000
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			3.4
Operating leases		3.5			3.1
Weighted-average discount rate -
Financing leases		7.1	%		7.0	%
Operating leases		5.3	%		5.0	%

Future minimum lease payments under non-cancelable leases as of November 30, 2019, are approximately:

	Financing Leases		Operating Leases
Twelve months ended November 30, 2020	$	2,471,000	$	81,881
Twelve months ended November 30, 2021		2,471,000		81,881
Twelve months ended November 30, 2022		1,506,000		37,881
Twelve months ended November 30, 2023		-		27,751
Twelve months ended November 30, 2024		-		9,037
Total future minimum lease payments		6,448,000		238,431
Present value discount		604,710		19,798
Present value of minimum lease payments	$	5,843,290	$	218,633