Leases

12 Months Ended

May 31, 2020

Leases [Abstract]

Leases

Note 5. 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. As a result of the adoption Greystone recorded a right of use asset and right of use liability for operating leases in the amount of $180,794 as of May 31, 2019.

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 consist of the following as of May 31:

	2020			2019
Non-cancelable financing leases	$	5,455,656		$	6,754,819
Less: Current portion of financing leases		(1,838,251	)		(1,516,629	)
Non-cancelable financing leases, net of current portion	$	3,617,405		$	5,238,190

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 $152,720. 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.

The production equipment under the non-cancelable financing leases at May 31, 2020 and 2019 is as follows:

	2020			2019
Production equipment under financing leases	$	8,473,357		$	7,861,233
Less: Accumulated amortization		(1,521,818	)		(614,909	)
Production equipment under financing leases, net	$	6,951,539		$	7,246,324

Amortization of the carrying amount of the assets was $906,909 and $1,093,760 for the years ended May 31, 2020 and 2019, respectively. The amortization was included in depreciation expense.

Operating Leases

Greystone recognizes 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 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.

The outstanding liability for right to use assets under operating leases as of May 31, 2020 and 2019 is as follows:

	2020			2019
Liability under operating leases	$	181,525		$	180,794
Less: Current portion		(74,024	)		(71,763	)
Long-term portion of liability under operating leases	$	107,051		$	109,031

Lease Summary Information

For the years ended May 31, 2020 and 2019, a summary of lease activity follows:

	2020			2019
Lease Expense
Financing lease expense -
Amortization of right-of-use assets	$	906,909		$	1,093,761
Interest on lease liabilities		435,593			358,892
Operating lease expense		80,590			51,065
Short-term lease expense		1,595,311			1,600,360
Total	$	3,018,403		$	3,104,078
Other Information
Cash paid for amounts included in the measurement of lease liabilities for finance leases -
Operating cash flows	$	435,593		$	358,892
Financing cash flows	$	1,911,287		$	2,774,543
Cash paid for amounts included in the measurement of lease liabilities for operating leases -
Operating cash flows	$	80,590		$	51,065
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		3.0			3.9
Operating leases		2.8			3.1
Weighted-average discount rate -
Financing leases		7.4	%		7.5	%
Operating leases		5.2	%		5.2	%

Future minimum lease payments under non-cancelable operating and financing leases as of May 31, 2020, are approximately:

	Operating Leases			Financing Leases
Year ended May 31, 2021	$	81,881		$	2,203,790
Year ended May 31, 2022		61,881			2,102,690
Year ended May 31, 2023		33,881			1,670,293
Year ended May 31, 2024		18,557			98,231
Year ended May 31, 2025		1,291			11,704
Total lease payments		197,491			6,086,708
Less: Imputed interest		(14,966	)		(631,052	)
Present value of minimum lease payments	$	182,525		$	5,455,656