Leases

9 Months Ended

Feb. 29, 2020

Leases [Abstract]

Leases

Note 7. Leases

Financing Leases

Financing leases as of February 29, 2020 and May 31, 2019:

	February 29, 2020			May 31, 2019
Present value of non-cancellable financing leases	$	5,922,843		$	6,754,819
Less: Current portion		(2,146,923	)		(1,516,629	)
Present value of non-cancellable financing leases, net of current portion	$	3,775,920		$	5,238,190

Greystone and an unrelated private company entered into three lease agreements for certain production equipment with a total cost of approximately $7.4 million during the period from February 24, 2018 through December 21, 2018 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 from the respective leased equipment and shipped to the private company. The estimated aggregate monthly rental payments are approximately $178,500. 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 annual future rental payments and a corresponding reduction in the estimated term of the lease. 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-nine 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 $8,473,357 at February 29, 2020. Amortization of the carrying amount of $653,942 and $775,530 was included in depreciation expense for the nine months ended February 29(28), 2020 and 2019, 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 ninety-month term and a discount rate of 5.0%. The leases are single-term with constant monthly rental rates.

Lease Summary Information

For the nine months ended February 29(28), 2020 and 2019:

	2020			2019
Lease Expense
Financing lease expense -
Amortization of right-of-use assets	$	653,942		$	775,530
Interest on lease liabilities		355,692			236,875
Operating lease expense		63,185			36,000
Short-term lease expense		1,207,008			1,136,617
Total	$	2,279,827		$	2,185,022
Other Information
Cash paid for amounts included in the measurement of lease liabilities for finance leases -
Operating cash flows	$	355,692		$	236,875
Financing cash flows	$	1,487,489		$	644,677
Cash paid for amounts included in the measurement of lease liabilities for operating leases -
Operating cash flows	$	63,185		$	36,000
Right-of-use assets obtained in exchange for lease liabilities -
Financing leases	$	612,124		$	4,667,380
Operating leases	$	67,750		$	-
Weighted-average remaining lease term (in years) -
Financing leases		3.6			3.1
Operating leases		3.0			2.8
Weighted-average discount rate -
Financing leases		7.1	%		7.2	%
Operating leases		5.2	%		5.0	%

Future minimum lease payments under non-cancelable leases as of February 29, 2020, are approximately:

	Financing Leases		Operating Leases
Twelve months ended February 28, 2021	$	2,513,000	$	81,881
Twelve months ended February 28, 2022		2,395,000		73,881
Twelve months ended February 28, 2023		1,552,000		33,881
Twelve months ended February 29, 2024		149,000		23,154
Twelve months ended February 28, 2025		20,000		-
Total future minimum lease payments		6,629,000		212,797
Present value discount		706,157		13,144
Present value of minimum lease payments	$	5,922,843	$	199,653