LEASES

12 Months Ended

May 31, 2022

Leases

LEASES

Note 5. LEASES

Financing Leases

Financing leases consist of the following as of May 31:

	2022			2021
Non-cancelable financing leases	$	2,163,043		$	3,594,007
Less: Current portion of financing leases		(1,630,895	)		(1,745,535	)
Non-cancelable financing leases, net of current portion	$	532,148		$	1,848,472

Greystone and an unrelated private company entered into three separate lease agreements which have an effective interest rate of 7.4% and a term of five years. 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 $142,000. 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 31, 2022.

Effective July 29, 2022, GRE will no longer be a variable interest entity (“VIE”) as a result certain events discussed in Note 4, Long Term Debt. Currently, the rent expense that Greystone paid to GRE, as a VIE, has beeen eliminated in the consolidated financial statements of Greystone. Upon the termination of GRE as a VIE, the lease agreement between Greystone and GRE will become a right-of-use financing lease asset and the related rent expense will be recognized in the consolidated financial statements.

The production equipment under the non-cancelable financing leases as of May 31, 2022 and 2021 was as follows:

	2022			2021
Production equipment under financing leases	$	8,497,798		$	8,473,357
Less: Accumulated amortization		(3,481,223	)		(2,534,688	)
Production equipment under financing leases, net	$	5,016,575		$	5,938,669

Amortization of the carrying amount of the assets was $946,535 and $1,012,870 for the years ended May 31, 2022 and 2021, 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 two non-cancellable operating leases for equipment with terms of 4.5 and 5.0 years and a discount rate of 5.40%. 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, 2022 and 2021 is as follows:

	2022			2021
Liability under operating leases	$	55,535		$	109,013
Less: Current portion		(33,881	)		(56,443	)
Long-term portion of liability under operating leases	$	21,654		$	52,570

Lease Summary Information

For the years ended May 31, 2022 and 2021, a summary of lease activity follows:

	2022			2021
Lease Expense
Financing lease expense -
Amortization of right-of-use assets	$	946,535		$	1,012,870
Interest on lease liabilities		127,898			267,729
Operating lease expense		61,881			77,284
Short-term lease expense		1,493,169			1,481,270
Total	$	2,629,483		$	2,839,153
Other Information
Cash paid for amounts included in the measurement of lease liabilities for finance leases -
Operating cash flows	$	127,898		$	267,729
Financing cash flows	$	1,455,404		$	1,861,650
Cash paid for amounts included in the measurement of lease liabilities for operating leases -
Operating cash flows	$	61,881		$	77,284
Right-of-use assets obtained in exchange for lease liabilities – financing lease	$	24,441		$	-
Weighted-average remaining lease term (in years) -
Financing leases		1.3			2.0
Operating leases		1.6			2.1
Weighted-average discount rate -
Financing leases		7.3	%		7.4	%
Operating leases		5.4	%		5.3	%

Future minimum lease payments under non-cancelable operating and financing leases as of May 31, 2022, are approximately:

	Operating Leases			Financing Leases
Year ended May 31, 2023	$	33,881		$	1,730,278
Year ended May 31, 2024		20,535			522,249
Year ended May 31, 2025		4,082			17,708
Year ended May 31, 2026		-			4,511
Total lease payments		58,498			2,274,746
Less: Imputed interest		(2,963	)		(111,702	)
Present value of minimum lease payments	$	55,535		$	2,163,044