Leases

9 Months Ended

Feb. 28, 2022

Leases

Leases

Note 7. Leases

Financing Leases

Financing leases as of February 28, 2022 and May 31, 2021:

	February 28, 2022			May 31, 2021
Non-cancellable financing leases	$	2,370,077		$	3,594,007
Less: Current portion		(1,592,166	)		(1,745,535	)
Non-cancellable financing leases, net of current portion	$	777,911		$	1,848,472

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 an effective 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 $130,000. The rent payments can vary each month depending on the quantity of pallets produced from each machine. 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 $8,473,357 as of February 28, 2022. Amortization of the carrying amount of $721,923 and $758,902 was included in depreciation expense for the nine months ended February 28, 2022 and 2021, respectively.

Operating Leases

Greystone recognized 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 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 statements of income. Variable and short-term rental payments are recognized as costs and expenses as they are incurred.

Greystone has two non-cancellable operating leases for equipment with a fifty-two month term and a forty-eight month term and a discount rate of 5.40%. The leases are single-term with constant monthly rental rates.

Lease Summary Information

For the periods ending February 28, 2022 and 2021:

	2022			2021
Lease Expense
Financing lease expense -
Amortization of right-of-use assets	$	721,923		$	758,902
Interest on lease liabilities		119,000			218,088
Operating lease expense		53,411			61,411
Short-term lease expense		1,101,133			1,117,628
Total	$	1,995,467		$	2,156,029
Other Information
Cash paid for amounts included in the measurement of lease liabilities for finance leases -
Operating cash flows	$	119,000		$	218,088
Financing cash flows	$	1,248,371		$	1,407,081
Cash paid for amounts included in the measurement of lease liabilities for operating leases -
Operating cash flows	$	53,411		$	61,411
Weighted-average remaining lease term (in years) -
Financing leases		1.5			2.8
Operating leases		1.9			2.2
Weighted-average discount rate -
Financing leases		7.3	%		7.4	%
Operating leases		5.4	%		5.2	%

Future minimum lease payments under non-cancelable leases as of February 28, 2022, are approximately:

	Financing Leases		Operating Leases
Twelve months ended February 28, 2023	$	1,709,132	$	33,881
Twelve months ended February 29, 2024		771,741		24,550
Twelve months ended February 28, 2025		22,479		7,468
Twelve months ended February 28, 2026		7,807		-
Twelve months ended February 28, 2027		502		-
Total future minimum lease payments		2,511,661		65,899
Present value discount		141,584		3,657
Present value of minimum lease payments	$	2,370,077	$	62,242