UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
FOR☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2023
☐TRANSITION PERIOD FROM ______ TO ________REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number000-26331
GREYSTONE LOGISTICS, INC.
(Exact name of registrant as specified in its charter)
| Oklahoma | 75-2954680 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 1613 East 15th Street, Tulsa, Oklahoma | 74120 | |
| (Address of principal executive offices) | (Zip Code) |
| (918)583-7441 |
| (Registrant’s telephone number, including area code) |
(918) 583-7441
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| NONE | GLGI | NONE |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] ☒ No [ ]☐
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to post and submit such files). Yes [X] ☒ No [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by checkmark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes [ ] ☐ No [X] ☒
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:JanuaryApril 10, 20182023 - 28,361,201
GREYSTONE LOGISTICS, INC.
FORM 10-Q
For the Period Ended November 30, 2017February 28, 2023
Greystone Logistics, Inc. and Subsidiaries
(Unaudited)
| February 28, 2023 | May 31, 2022 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 876,626 | $ | 3,143,257 | ||||
| Accounts receivable - | ||||||||
| Trade | 5,066,680 | 6,001,049 | ||||||
| Related parties | 120,834 | 252,112 | ||||||
| Inventory | 4,827,079 | 4,112,496 | ||||||
| Prepaid expenses | 644,384 | 304,240 | ||||||
| Total Current Assets | 11,535,603 | 13,813,154 | ||||||
| Property, Plant and Equipment, net | 28,519,162 | 31,876,765 | ||||||
| Right-of-Use Operating Lease Assets | 5,402,769 | 55,535 | ||||||
| Total Assets | $ | 45,457,534 | $ | 45,745,454 | ||||
| Liabilities and Equity | ||||||||
| Current Liabilities: | ||||||||
| Current portion of long-term debt | $ | 2,217,304 | $ | 4,160,403 | ||||
| Current portion of financing leases | 41,487 | 1,630,895 | ||||||
| Current portion of operating leases | 243,951 | 33,881 | ||||||
| Accounts payable and accrued liabilities | 4,881,056 | 7,820,837 | ||||||
| Deferred revenue | 23,007 | 5,329,047 | ||||||
| Preferred dividends payable | 132,500 | 85,377 | ||||||
| Total Current Liabilities | 7,539,305 | 19,060,440 | ||||||
| Long-Term Debt, net of current portion and debt issue costs | 12,523,087 | 9,306,037 | ||||||
| Financing Leases, net of current portion | 27,850 | 532,148 | ||||||
| Operating Leases, net of current portion | 5,158,818 | 21,654 | ||||||
| Deferred Tax Liability | 2,039,694 | 1,743,694 | ||||||
| Equity: | ||||||||
| Preferred stock, $ par value, cumulative, shares authorized, shares issued and outstanding, liquidation preference of $5,000,000 | 5 | 5 | ||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding | 2,828 | 2,828 | ||||||
| Additional paid-in capital | 53,533,272 | 53,533,272 | ||||||
| Accumulated deficit | (35,367,325 | ) | (39,838,449 | ) | ||||
| Total Greystone Stockholders’ Equity | 18,168,780 | 13,697,656 | ||||||
| Non-controlling interest | - | 1,383,825 | ||||||
| Total Equity | 18,168,780 | 15,081,481 | ||||||
| Total Liabilities and Equity | $ | 45,457,534 | $ | 45,745,454 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| 1 |
Greystone Logistics, Inc.
Consolidated Statements of Income
For the Nine Months Ended February 28,
(Unaudited)
| November 30, 2017 | May 31, 2017 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 528,450 | $ | 579,021 | ||||
| Accounts receivable - | ||||||||
| Trade, net of allowance for doubtful accounts of $31,660 at November 30, 2017 and May 31, 2017 | 1,940,167 | 6,160,145 | ||||||
| Related party receivables | 73,027 | 73,578 | ||||||
| Inventory | 3,039,936 | 1,587,552 | ||||||
| Prepaid expenses | 113,158 | 136,395 | ||||||
| Total Current Assets | 5,694,738 | 8,536,691 | ||||||
| Property and Equipment, net | 21,053,357 | 19,706,782 | ||||||
| Deferred Tax Asset | 38,915 | 281,415 | ||||||
| Total Assets | $ | 26,787,010 | $ | 28,524,888 | ||||
| Liabilities and Equity | ||||||||
| Current Liabilities: | ||||||||
| Current portion of long-term debt | $ | 2,794,286 | $ | 2,493,236 | ||||
| Current portion of capital lease | 2,194,217 | 2,261,560 | ||||||
| Accounts payable and accrued expenses | 3,921,631 | 5,727,903 | ||||||
| Accrued expenses - related parties | - | 29,076 | ||||||
| Preferred dividends payable | 30,822 | 29,726 | ||||||
| Total Current Liabilities | 8,940,956 | 10,541,501 | ||||||
| Long-Term Debt, net of current portion | 15,803,513 | 15,310,754 | ||||||
| Capital Lease, net of current portion | 518,072 | 1,532,503 | ||||||
| Equity: | ||||||||
| Preferred stock, $0.0001 par value, cumulative, 20,750,000 shares authorized, 50,000 shares issued and outstanding, liquidation preference of $5,000,000 | 5 | 5 | ||||||
| Common stock, $0.0001 par value, 5,000,000,000 shares authorized, 28,361,201 shares issued and outstanding | 2,836 | 2,836 | ||||||
| Additional paid-in capital | 53,790,764 | 53,790,764 | ||||||
| Accumulated deficit | (53,361,620 | ) | (53,724,991 | ) | ||||
| Total Greystone Stockholders’ Equity | 431,985 | 68,614 | ||||||
| Non-controlling interest | 1,092,484 | 1,071,516 | ||||||
| Total Equity | 1,524,469 | 1,140,130 | ||||||
| Total Liabilities and Equity | $ | 26,787,010 | $ | 28,524,888 | ||||
| 2023 | 2022 | |||||||
| Sales | $ | 44,633,542 | $ | 53,069,648 | ||||
| Cost of Sales | 38,590,544 | 47,914,061 | ||||||
| Gross Profit | 6,042,998 | 5,155,587 | ||||||
| Selling, General and Administrative Expenses | 3,918,205 | 4,033,483 | ||||||
| Operating Income | 2,124,793 | 1,122,104 | ||||||
| Other Income (Expense): | ||||||||
| Federal tax credits realized | 3,270,424 | - | ||||||
| Gain from forgiveness of debt | - | 3,068,497 | ||||||
| Gain from deconsolidation of variable interest entity | 569,997 | - | ||||||
| Other income | 189,914 | 35,731 | ||||||
| Interest expense | (821,138 | ) | (631,115 | ) | ||||
| Income before Income Taxes | 5,333,990 | 3,595,217 | ||||||
| Provision for Income Taxes | (452,000 | ) | (99,000 | ) | ||||
| Net Income | 4,881,990 | 3,496,217 | ||||||
| Income Attributable to Non-controlling Interest | (49,599 | ) | (208,600 | ) | ||||
| Preferred Dividends | (361,267 | ) | (243,082 | ) | ||||
| Net Income Attributable to Common Stockholders | $ | 4,471,124 | $ | 3,044,535 | ||||
| Income Per Share of Common Stock - | ||||||||
| Basic | $ | 0.16 | $ | 0.11 | ||||
| Diluted | $ | 0.15 | $ | 0.10 | ||||
| Weighted Average Shares of Common Stock Outstanding - | ||||||||
| Basic | 28,279,701 | 28,472,256 | ||||||
| Diluted | 32,105,424 | 32,301,084 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 2 |
Greystone Logistics, Inc.
Consolidated Statements of Income
For the Three Months Ended February 28,
(Unaudited)
| 2023 | 2022 | |||||||
| Sales | $ | 13,578,269 | $ | 22,450,682 | ||||
| Cost of Sales | 11,220,791 | 19,734,155 | ||||||
| Gross Profit | 2,357,478 | 2,716,527 | ||||||
| Selling, General and Administrative Expenses | 1,606,626 | 1,680,979 | ||||||
| Operating Income | 750,852 | 1,035,548 | ||||||
| Other Income (Expense): | ||||||||
| Federal tax credits realized | 3,270,424 | - | ||||||
| Other income | 183,596 | 3,688 | ||||||
| Interest expense | (313,376 | ) | (201,992 | ) | ||||
| Income before Income Taxes | 3,891,496 | 837,244 | ||||||
| Provision for Income Taxes | (196,000 | ) | (234,000 | ) | ||||
| Net Income | 3,695,496 | 603,244 | ||||||
| Income Attributable to Non-controlling Interest | - | (70,649 | ) | |||||
| Preferred Dividends | (132,500 | ) | (80,137 | ) | ||||
| Net Income Attributable to Common Stockholders | $ | 3,562,996 | $ | 452,458 | ||||
| Income Per Share of Common Stock - | ||||||||
| Basic | $ | 0.13 | $ | 0.02 | ||||
| Diluted | $ | 0.12 | $ | 0.02 | ||||
| Weighted Average Shares of Common Stock Outstanding - | ||||||||
| Basic | 28,279,701 | 28,472,639 | ||||||
| Diluted | 32,104,265 | 28,967,144 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
Greystone Logistics, Inc.
Consolidated Statements of Changes in Equity
For the Nine Months Ended February 28, 2023 and 2022
(Unaudited)
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Interest | Equity | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Greystone Stockholders’ | Non- controlling | Total | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Interest | Equity | ||||||||||||||||||||||||||||
| Balances, May 31, 2021 | 50,000 | $ | 5 | 28,361,201 | $ | 2,836 | $ | 53,790,764 | $ | (43,776,927 | ) | $ | 10,016,678 | $ | 1,236,362 | $ | 11,253,040 | |||||||||||||||||||
| Stock options exercised | - | - | 200,000 | 20 | 23,980 | - | 24,000 | - | 24,000 | |||||||||||||||||||||||||||
| Cash distributions | - | - | - | - | - | - | - | (52,200 | ) | (52,200 | ) | |||||||||||||||||||||||||
| Preferred dividends, $/share | - | - | - | - | - | (81,918 | ) | (81,918 | ) | - | (81,918 | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | 3,052,839 | 3,052,839 | 69,619 | 3,122,458 | |||||||||||||||||||||||||||
| Balances, August 31, 2021 | 50,000 | 5 | 28,561,201 | 2,856 | 53,814,744 | (40,806,006 | ) | 13,011,599 | 1,253,781 | 14,265,380 | ||||||||||||||||||||||||||
| Balances | 50,000 | 5 | 28,561,201 | 2,856 | 53,814,744 | (40,806,006 | ) | 13,011,599 | 1,253,781 | 14,265,380 | ||||||||||||||||||||||||||
| Preferred dividends, $/share | - | - | - | - | - | (81,027 | ) | (81,027 | ) | - | (81,027 | ) | ||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | (297,817 | ) | (297,817 | ) | 68,332 | (229,485 | ) | ||||||||||||||||||||||||
| Balances, November 30, 2021 | 50,000 | 5 | 28,561,201 | 2,856 | 53,814,744 | (41,184,850 | ) | 12,632,755 | 1,322,113 | 13,954,868 | ||||||||||||||||||||||||||
| Balances | 50,000 | 5 | 28,561,201 | 2,856 | 53,814,744 | (41,184,850 | ) | 12,632,755 | 1,322,113 | 13,954,868 | ||||||||||||||||||||||||||
| Common stock purchase | - | - | (281,500 | ) | (28 | ) | (281,472 | ) | - | (281,500 | ) | - | (281,500 | ) | ||||||||||||||||||||||
| Cash distributions | - | - | - | - | - | - | - | (80,000 | ) | (80,000 | ) | |||||||||||||||||||||||||
| Preferred dividends, $/share | - | - | - | - | - | (80,137 | ) | (80,137 | ) | - | (80,137 | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | 532,595 | 532,595 | 70,649 | 603,244 | |||||||||||||||||||||||||||
| Balances, February 28, 2022 | 50,000 | $ | 5 | 28,279,701 | $ | 2,828 | $ | 53,533,272 | $ | (40,732,392 | ) | $ | 12,803,713 | $ | 1,312,762 | $ | 14,116,475 | |||||||||||||||||||
| Balances | 50,000 | $ | 5 | 28,279,701 | $ | 2,828 | $ | 53,533,272 | $ | (40,732,392 | ) | $ | 12,803,713 | $ | 1,312,762 | $ | 14,116,475 | |||||||||||||||||||
| Balances, May 31, 2022 | 50,000 | $ | 5 | 28,279,701 | $ | 2,828 | $ | 53,533,272 | $ | (39,838,449 | ) | $ | 13,697,656 | $ | 1,383,825 | $ | 15,081,481 | |||||||||||||||||||
| Balances | 50,000 | $ | 5 | 28,279,701 | $ | 2,828 | $ | 53,533,272 | $ | (39,838,449 | ) | $ | 13,697,656 | $ | 1,383,825 | $ | 15,081,481 | |||||||||||||||||||
| Capital contribution | - | - | - | - | - | - | - | 1,669,000 | 1,669,000 | |||||||||||||||||||||||||||
| Deconsolidation of variable interest entity | - | - | - | - | - | - | - | (3,102,424 | ) | (3,102,424 | ) | |||||||||||||||||||||||||
| Preferred dividends, /share | - | - | - | - | - | (109,418 | ) | (109,418 | ) | - | (109,418 | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | 1,324,142 | 1,324,142 | 49,599 | 1,373,741 | |||||||||||||||||||||||||||
| Balances, August 31, 2022 | 50,000 | 5 | 28,279,701 | 2,828 | 53,533,272 | (38,623,725 | ) | 14,912,380 | - | 14,912,380 | ||||||||||||||||||||||||||
| Balances | 50,000 | 5 | 28,279,701 | 2,828 | 53,533,272 | (38,623,725 | ) | 14,912,380 | - | 14,912,380 | ||||||||||||||||||||||||||
| Preferred dividends, $/share | - | - | - | - | - | (119,349 | ) | (119,349 | ) | - | (119,349 | ) | ||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | (187,247 | ) | (187,247 | ) | - | (187,247 | ) | ||||||||||||||||||||||||
| Balances, November 30, 2022 | 50,000 | 5 | 28,279,701 | 2,828 | 53,533,272 | (38,930,321 | ) | 14,605,784 | - | 14,605,784 | ||||||||||||||||||||||||||
| Balances | 50,000 | 5 | 28,279,701 | 2,828 | 53,533,272 | (38,930,321 | ) | 14,605,784 | - | 14,605,784 | ||||||||||||||||||||||||||
| Preferred dividends, $/share | - | - | - | - | - | (132,500 | ) | (132,500 | ) | - | (132,500 | ) | ||||||||||||||||||||||||
| Preferred dividends | - | - | - | - | - | (132,500 | ) | (132,500 | ) | - | (132,500 | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | 3,695,496 | 3,695,496 | - | 3,695,496 | |||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | 3,695,496 | 3,695,496 | - | 3,695,496 | |||||||||||||||||||||||||||
| Balances, February 28, 2023 | 50,000 | $ | 5 | 28,279,701 | $ | 2,828 | $ | 53,533,272 | $ | (35,367,325 | ) | $ | 18,168,780 | $ | - | $ | 18,168,780 | |||||||||||||||||||
| Balance | 50,000 | $ | 5 | 28,279,701 | $ | 2,828 | $ | 53,533,272 | $ | (35,367,325 | ) | $ | 18,168,780 | $ | - | $ | 18,168,780 | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Greystone Logistics, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended February 28,
(Unaudited)
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 4,881,990 | $ | 3,496,217 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities - | ||||||||
| Depreciation and amortization | 3,958,766 | 4,015,292 | ||||||
| Gain on forgiveness of debt | - | (3,068,497 | ) | |||||
| Gain on deconsolidation of variable interest entity | (569,997 | ) | - | |||||
| Gain on sale of assets | - | (22,336 | ) | |||||
| Deferred tax expense | 296,000 | 99,000 | ||||||
| Decrease (increase) in trade accounts receivable | 934,369 | (999,470 | ) | |||||
| Decrease in related party receivables | 131,278 | 41,376 | ||||||
| Increase in inventory | (714,583 | ) | (846,041 | ) | ||||
| Increase in prepaid expenses | (340,144 | ) | (577,297 | ) | ||||
| Increase (decrease) in accounts payable and accrued liabilities | (2,865,056 | ) | 3,258,539 | |||||
| Increase (decrease) in deferred revenue | (5,306,040 | ) | 3,787,750 | |||||
| Net cash provided by operating activities | 406,583 | 9,184,533 | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | (3,201,187 | ) | (4,875,530 | ) | ||||
| Deconsolidation of variable interest entity | (2,806 | ) | - | |||||
| Proceeds from sale of assets | - | 50,000 | ||||||
| Net cash used in investing activities | (3,203,993 | ) | (4,825,530 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from long-term debt | 8,707,426 | 837,000 | ||||||
| Payments on long-term debt and financing leases | (5,412,171 | ) | (4,390,444 | ) | ||||
| Payments on related party note payable and financing lease | (3,348,178 | ) | (353,523 | ) | ||||
| Proceeds from revolving loan | 1,090,648 | 3,700,000 | ||||||
| Payments on revolving loan | (1,790,648 | ) | - | |||||
| Proceeds from stock options exercised | - | 24,000 | ||||||
| Purchase of treasury stock | - | (281,500 | ) | |||||
| Payments for debt issuance costs | (71,154 | ) | (4,752 | ) | ||||
| Dividends paid on preferred stock | (314,144 | ) | (162,945 | ) | ||||
| Capital contribution on non-controlling interest | 1,669,000 | - | ||||||
| Distributions paid by non-controlling interest | - | (132,200 | ) | |||||
| Net cash provided by (used in) financing activities | 530,779 | (764,364 | ) | |||||
| Net Increase (Decrease) in Cash | (2,266,631 | ) | 3,594,639 | |||||
| Cash, beginning of period | 3,143,257 | 4,387,533 | ||||||
| Cash, end of period | $ | 876,626 | $ | 7,982,172 | ||||
| Non-cash Activities: | ||||||||
| Deconsolidation of variable interest entity | $ | 3,102,424 | $ | - | ||||
| Refinancing of certain term loans | $ | 2,669,892 | $ | - | ||||
| Capital expenditures in accounts payable | $ | 51,403 | $ | 255,062 | ||||
| Acquisition of equipment through financing lease | $ | - | $ | 24,441 | ||||
| Preferred dividend accrual | $ | 132,500 | $ | 80,137 | ||||
| Supplemental information: | ||||||||
| Interest paid | $ | 818,222 | $ | 627,555 | ||||
| Income taxes paid | $ | 510,000 | $ | 1,015,000 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
Greystone Logistics, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| For the Six Months Ended November 30, | ||||||||
| 2017 | 2016 | |||||||
| Sales | $ | 20,009,177 | $ | 17,065,972 | ||||
| Cost of Sales | 16,976,241 | 14,868,884 | ||||||
| Gross Profit | 3,032,936 | 2,197,088 | ||||||
| General, Selling and Administrative Expenses | 1,452,416 | 1,387,304 | ||||||
| Operating Income | 1,580,520 | 809,784 | ||||||
| Other Income (Expense): | ||||||||
| Other income | 12,069 | - | ||||||
| Interest expense | (658,736 | ) | (542,800 | ) | ||||
| Income before Income Taxes | 933,853 | 266,984 | ||||||
| Provision for Income Taxes | 259,500 | 54,550 | ||||||
| Net Income | 674,353 | 212,434 | ||||||
| Income Attributable to Variable Interest Entity | (122,968 | ) | (119,552 | ) | ||||
| Preferred Dividends | (188,014 | ) | (169,212 | ) | ||||
| Net Income (Loss) Attributable to Common Stockholders | $ | 363,371 | $ | (76,330 | ) | |||
| Income (Loss) Per Share of Common Stock - | ||||||||
| Basic and Diluted | $ | 0.01 | $ | (0.00 | ) | |||
| Weighted Average Shares of Common Stock Outstanding - | ||||||||
| Basic | 28,361,201 | 28,283,332 | ||||||
| Diluted | 28,988,701 | 28,283,332 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
Greystone Logistics, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| For the Three Months Ended November 30, | ||||||||
| 2017 | 2016 | |||||||
| Sales | $ | 9,722,102 | $ | 9,221,711 | ||||
| Cost of Sales | 8,588,065 | 7,992,441 | ||||||
| Gross Profit | 1,134,037 | 1,229,270 | ||||||
| General, Selling and Administrative Expenses | 621,013 | 664,275 | ||||||
| Operating Income | 513,024 | 564,995 | ||||||
| Other Income (Expense): | ||||||||
| Other income | 3,806 | - | ||||||
| Interest expense | (334,059 | ) | (306,169 | ) | ||||
| Income before Income Taxes | 182,771 | 258,826 | ||||||
| Provision for Income Taxes | 38,700 | 73,400 | ||||||
| Net Income | 144,071 | 185,426 | ||||||
| Income Attributable to Variable Interest Entity | (61,915 | ) | (60,173 | ) | ||||
| Preferred Dividends | (93,493 | ) | (84,144 | ) | ||||
| Net Income (Loss) Attributable to Common Stockholders | $ | (11,337 | ) | $ | 41,109 | |||
| Income (Loss) Per Share of Common Stock - | ||||||||
| Basic and Diluted | $ | (0.00 | ) | $ | 0.00 | |||
| Weighted Average Shares of Common Stock Outstanding - | ||||||||
| Basic | 28,361,201 | 28,361,201 | ||||||
| Diluted | 28,361,201 | 28,940,368 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
Greystone Logistics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| For the Six Months Ended November 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 674,353 | $ | 212,434 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities - | ||||||||
| Depreciation and amortization | 1,612,143 | 1,222,574 | ||||||
| Decrease in deferred tax asset | 242,500 | 54,550 | ||||||
| Decrease in trade accounts receivable | 4,219,978 | 2,486,129 | ||||||
| (Increase) Decrease in related party receivables | 551 | (22,142 | ) | |||||
| (Increase) Decrease in inventory | (1,452,384 | ) | 8,953 | |||||
| (Increase) Decrease in prepaid expenses | 23,237 | (157,932 | ) | |||||
| Increase (Decrease) in accounts payable and accrued expenses | (1,733,329 | ) | 239,547 | |||||
| Net cash provided by operating activities | 3,587,049 | 4,044,113 | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | (2,996,530 | ) | (2,095,073 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from long-term debt | 1,795,000 | - | ||||||
| Payments on long-term debt and capitalized lease | (2,387,172 | ) | (1,619,936 | ) | ||||
| Proceeds from revolving loan | 240,000 | - | ||||||
| Payments on revolving loan | - | (275,000 | ) | |||||
| Debt issue costs | - | (64,000 | ) | |||||
| Proceeds from exercised stock options | - | 57,000 | ||||||
| Dividends paid on preferred stock | (186,918 | ) | (172,813 | ) | ||||
| Distributions paid by variable interest entity | (102,000 | ) | (102,000 | ) | ||||
| Net cash used in financing activities | (641,090 | ) | (2,176,749 | ) | ||||
| Net Decrease in Cash | (50,571 | ) | (227,709 | ) | ||||
| Cash, beginning of period | 579,021 | 897,377 | ||||||
| Cash, end of period | $ | 528,450 | $ | 669,668 | ||||
| Non-cash Activities: | ||||||||
| Acquisition of equipment by capital lease | $ | - | $ | 5,450,474 | ||||
| Conversion of related party accrued interest to long-term debt | $ | - | $ | 2,475,690 | ||||
| Warrants to purchase common stock issued | $ | - | $ | 120,000 | ||||
| Preferred dividend accrual | $ | 30,822 | $ | 56,404 | ||||
| Supplemental information: | ||||||||
| Interest paid | $ | 658,736 | $ | 527,800 | ||||
| Taxes paid | $ | 10,000 | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements.
GREYSTONE LOGISTICS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Financial Statements
In the opinion of Greystone Logistics, Inc. (“Greystone”), the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications, which are of a normal recurring nature, necessary to present fairly its financial position as of November 30, 2017,February 28, 2023, the results of its operations for the six-monthnine months and three-month periodsthree months ended November 30, 2017February 28, 2023 and 2016,2022 and its cash flows for the six-month periodsnine months ended November 30, 2017February 28, 2023 and 2016.2022. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the fiscal year ended May 31, 20172022 and the notes thereto included in Greystone’sthe Form 10-K for such period. The results of operations for the six-monthnine months and three-month periodsthree months ended November 30, 2017February 28, 2023 and 20162022 are not necessarily indicative of the results to be expected for the full fiscal year.
The consolidated financial statements of Greystone include its wholly-owned subsidiaries, Greystone Manufacturing, L.L.C. (“GSM”) and Plastic Pallet Production, Inc. (“PPP”), and the variable interest entity, Greystone Real Estate, L.L.C. (“GRE”). for the period from June 1, 2022 through July 29, 2022. All material intercompany accounts and transactions have been eliminated in the consolidated financial statements.
GRE, which is wholly-owned by a member of Greystone’s Board of Directors, owns two buildings located in Bettendorf, Iowaprimary manufacturing facilities which are leasedoccupied by Greystone. Effective July 29, 2022, GRE paid off its mortgage payable and, in conjunction with Greystone’s refinancing described in Note 6, GRE was removed from the cross-collateralization in the loan agreement between Greystone and International Bank of Commerce. Following these transactions, Greystone was no longer determined to GSM.be the primary beneficiary of GRE. Accordingly, GRE was deconsolidated from Greystone’s consolidated financial statements as of July 29, 2022, resulting in the recognition of a gain in the amount of $569,997. Subsequent to the deconsolidation, Greystone entered into a new lease agreement with the related party and recorded right-of-use assets and liabilities for the new lease, see Note 7.
Certain balances in the consolidated balance sheet as of May 31, 2022, have been restated for comparative purposes.
Basic earnings per share is based on the weighted-average effect of all common shares issued and outstanding and is calculated by dividing net income (loss) availableattributable to common stockholders by the weighted-average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income (loss) availableattributable to common stockholders by the weighted-average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding.
| 6 |
Greystone excludes equity instruments from the calculation of diluted earnings per share if the effect of including such instruments is anti-dilutive. Instruments which have an anti-dilutive as follows:effect are the preferred stock convertible into shares of common stock for the three months ended February 28, 2022.
| 2017 | 2016 | |||||||
| Six-month periods ended November 30: | ||||||||
| Options to purchase common stock | - | 200,000 | ||||||
| Warrants to purchase common stock | - | 500,000 | ||||||
| Preferred stock convertible into common stock | 3,333,333 | 3,333,333 | ||||||
| Total | 3,333,333 | 4,033,333 | ||||||
| Three-month periods ended November 30: | ||||||||
| Options to purchase common stock | 200,000 | - | ||||||
| Warrants to purchase common stock | 500,000 | - | ||||||
| Preferred stock convertible into common stock | 3,333,333 | 3,333,333 | ||||||
| Total | 4,033,333 | 3,333,333 | ||||||
The following tables set forth the computation of basic and diluted earnings per share for.
Schedule of Basic and Diluted Earnings Per Share
For the following periods:nine months ended February 28, 2023 and 2022:
| 2023 | 2022 | |||||||
| Basic earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | 4,471,124 | $ | 3,044,535 | ||||
| Denominator - | ||||||||
| Weighted-average shares outstanding - basic | 28,279,701 | 28,472,256 | ||||||
| Income per share of common stock - basic | $ | 0.16 | $ | 0.11 | ||||
| Diluted earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | 4,471,124 | $ | 3,044,535 | ||||
| Add: Preferred stock dividends for assumed conversion | 361,267 | 243,082 | ||||||
| Net income allocated to common stockholders | $ | 4,832,391 | $ | 3,287,617 | ||||
| Denominator - | ||||||||
| Weighted-average shares outstanding – basic | 28,279,701 | 28,472,256 | ||||||
| Incremental shares from assumed conversion of options, warrants and preferred stock, as appropriate | 3,825,723 | 3,828,828 | ||||||
| Weighted average common stock outstanding – diluted | 32,105,424 | 32,301,084 | ||||||
| Income per share of common stock – diluted | $ | 0.15 | $ | 0.10 | ||||
For the three months ended February 28, 2023 and 2022:
| 2023 | 2022 | |||||||
| Basic earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | 3,562,996 | $ | 452,458 | ||||
| Denominator - | ||||||||
| Weighted-average shares outstanding – basic | 28,279,701 | 28,472,639 | ||||||
| Income per share of common stock – basic | $ | 0.13 | $ | 0.02 | ||||
| Diluted earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | 3,562,996 | $ | 452,458 | ||||
| Add: Preferred stock dividends for assumed conversion | 132,500 | - | ||||||
| Net income attributable to common stockholders | $ | 3,695,496 | $ | 452,458 | ||||
| Denominator - | ||||||||
| Weighted-average shares outstanding - basic | 28,279,701 | 28,472,639 | ||||||
| Incremental shares from assumed conversion of warrants or options, as appropriate | 3,824,564 | 494,505 | ||||||
| Weighted average common stock outstanding - diluted | 32,104,265 | 28,967,144 | ||||||
| Income per share of common stock – diluted | $ | 0.12 | $ | 0.02 | ||||
| 7 |
Note 3. Inventory
| 2017 | 2016 | |||||||
| Six-month periods ended November 30: | ||||||||
| Numerator - | ||||||||
| Net income (loss) attributable to common stockholders | $ | 363,371 | $ | (76,330 | ) | |||
| Denominator - | ||||||||
| Weighted-average shares outstanding - basic | 28,361,201 | 28,283,332 | ||||||
| Incremental shares from assumed conversion of options and warrants | 627,500 | - | ||||||
| Diluted shares | 28,988,701 | 28,283,332 | ||||||
| Loss per share - | ||||||||
| Basic and Diluted | $ | 0.01 | $ | (0.00 | ) | |||
| Three-month periods ended November 30: | ||||||||
| Numerator - | ||||||||
| Net income (loss) attributable to common stockholders | $ | (11,337 | ) | $ | 41,109 | |||
| Denominator - | ||||||||
| Weighted-average shares outstanding - basic | 28,361,201 | 28,361,201 | ||||||
| Incremental shares from assumed conversion of options and warrants | - | 579,167 | ||||||
| Diluted shares | 28,361,201 | 28,940,368 | ||||||
| Loss per share - | ||||||||
| Basic and Diluted | $ | (0.00 | ) | $ | 0.00 | |||
Note 3. Inventory
Inventory consists of the following:
Schedule of Inventory
| November 30, 2017 | May 31, 2017 | |||||||
| Raw materials | $ | 774,037 | $ | 669,083 | ||||
| Finished goods | 2,265,899 | 918,469 | ||||||
| Total inventory | $ | 3,039,936 | $ | 1,587,552 | ||||
| February 28, | May 31, | |||||||
| 2023 | 2022 | |||||||
| Raw materials | $ | 2,109,820 | $ | 2,091,551 | ||||
| Finished goods | 2,717,259 | 2,020,945 | ||||||
| Total inventory | $ | 4,827,079 | $ | 4,112,496 | ||||
Note 4. Property, Plant and Equipment
A summary of the property, plant and equipment for Greystone is as follows:
Schedule of Property, Plant and Equipment
November 30, 2017 | May 31, 2017 | February 28, 2023 | May 31, 2022 | |||||||||||||
| Production machinery and equipment | $ | 30,314,497 | $ | 27,493,614 | $ | 60,395,743 | $ | 57,341,906 | ||||||||
| Plant buildings and land | 5,296,784 | 5,296,784 | 2,364,089 | 7,020,543 | ||||||||||||
| Leasehold improvements | 337,339 | 263,710 | 1,553,138 | 1,487,398 | ||||||||||||
| Furniture and fixtures | 392,370 | 392,371 | 542,057 | 542,057 | ||||||||||||
| 36,340,990 | 33,446,479 | |||||||||||||||
| Property plant and equipment gross | 64,855,027 | 66,391,904 | ||||||||||||||
| Less: Accumulated depreciation and amortization | (15,287,633 | ) | (13,739,697 | ) | (36,335,865 | ) | (34,515,139 | ) | ||||||||
| Net Property, Plant and Equipment | $ | 21,053,357 | $ | 19,706,782 | $ | 28,519,162 | $ | 31,876,765 | ||||||||
Production machinery and equipment includes equipment capitalized pursuant to a capital lease in the amount of $5,323,864. The equipment is being amortized using the straight-line method over 10 years.
Production machinery includes deposits on equipment in the amount of $149,220 that had$3,494,467 as of February 28, 2023, which has not been placed into service asservice. As of November 30, 2017. TwoMay 31, 2022, plant buildings and land included two properties which are owned by GRE, a VIE, having avariable interest entity (“VIE”), and had an aggregate net book value of $3,070,357 at November 30, 2017.$2,548,933. As discussed in Note 1, GRE was deconsolidated effective July 29, 2022.
Depreciation and amortization expense, including amortization expense related to assets under capital leasefinancing leases, for the sixnine months ended November 30, 2017February 28, 2023 and 20162022 was approximately $1,547,936$3,954,444 and $1,187,544,$4,011,025, respectively.
Note 5. Related Party Transactions/Activity
Yorktown Management & Financial Services, LLC
Yorktown Management & Financial Services, LLC (“Yorktown”), an entity wholly ownedwholly-owned by Greystone’s CEOPresident and President,CEO, owns and rents to Greystone (1) grinding equipment used to grind raw materials for Greystone’s pallet production and (2) extruders for pelletizing recycled plastic into pellets for resale and for use as raw material in the manufacture of pallets. GSM pays weekly rental fees to Yorktown of $22,500$27,500 for use of Yorktown’s grinding equipment and $5,000pelletizing equipment. Rental fees were $1,072,500 for the useeach of Yorktown’s pelletizing equipment for which GSM paid Yorktown rental fees of $742,500 and $715,000 for the sixnine months ended November 30, 2017February 28, 2023 and 2016, respectively.2022
| 8 |
In addition,Effective January 1, 2017, Greystone and Yorktown providesentered into a five-year lease for office space for Greystone in Tulsa, Oklahoma at a monthly rental of $4,000.$4,000 per month with a one-year extension at $5,200 per month which extension was executed by Greystone. Subsequent to the maturity on December 31, 2022, Greystone pays rent to Yorktown at the monthly rate of $5,200 on a month-to-month basis. Total rent expense was $46,800 and $36,000 for the nine months ended February 28, 2023 and 2022, respectively.
TriEnda Holdings, L.L.C.
TriEnda Holdings, L.L.C. (“TriEnda”) is a manufacturer of plastic pallets, protective packing and dunnage utilizing thermoform processing for which Warren F. Kruger, Greystone’s presidentPresident and CEO, serves TriEnda as the non-executive Chairman of the Board and is a partner in a partnership which has a majority ownership interest.interest in TriEnda. Greystone provided tolling services, blendingmay purchase pallets from TriEnda for resale or sell Greystone pallets to TriEnda. During the nine months ended February 28, 2023 and pelletizing plastic resin, for TriEnda through March 2017. Revenue2022, Greystone purchases from TriEnda totaled $-0-$431 and $368,690 for the six months ended November 30, 2017$4,222, respectively, and 2016,sales to TriEnda totaled $31,231 and $62,089, respectively. As of February 28, 2023, TriEnda owed $ to Greystone.
Green Plastic Pallets
Greystone periodically purchases material and pallets from TriEnda. Purchases for the six months ended November 30, 2017 and 2016 totaled $45,467 and $24,265, respectively.
Green Plastic Pallets
Greystone sells plastic pallets to Green Plastic Pallets (“Green”), an entity that is owned by James Kruger, brother to Warren Kruger, Greystone’s presidentPresident and CEO. Greystone had sales to Green of $256,819$574,768 and $146,885$348,330 for the sixnine months ended November 30, 2017February 28, 2023 and 2016,2022, respectively. The account receivable due from Green at November 30, 2017as of February 28, 2023 was $73,027.$.
Note 6. Long-term Debt
Debt as of November 30, 2017February 28, 2023 and May 31, 20172022 is as follows:
| November 30, 2017 | May 31, 2017 | |||||||
| Term loan A payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.0%, maturing January 7, 2019 | $ | 4,287,282 | $ | 4,626,191 | ||||
| Term loan B payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.0%, maturing January 7, 2019 | 1,215,061 | 1,715,132 | ||||||
| Term loan C payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.0%, maturing August 4, 2020 | 1,721,667 | - | ||||||
| Revolving loan payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.0%, due January 31, 2019 | 2,500,000 | 2,260,000 | ||||||
| Note payable to First Bank, prime rate of interest plus 1.45% but not less than 4.95%, monthly principal and interest payment of $30,628, due August 21, 2021, secured by production equipment | 1,248,240 | 1,396,448 | ||||||
| Term loan payable by GRE to International Bank of Commerce, interest rate of 4.5%, monthly principal and interest payment of $26,215, due January 31, 2019 | 2,748,105 | 2,841,285 | ||||||
| Note payable to Robert Rosene, 7.5% interest, due January 15, 2019 | 4,469,355 | 4,469,355 | ||||||
| Note payable to Yorktown Management & Financial Services, LLC, 5% interest, due February 28, 2019, monthly principal and interest payments of $20,629 | 299,358 | 413,969 | ||||||
| Other | 272,950 | 310,036 | ||||||
| Total Debt | 18,762,018 | 18,032,416 | ||||||
| Debt issue costs, net of amortization | (164,219 | ) | (228,426 | ) | ||||
| Less: Current portion | (2,794,286 | ) | (2,493,236 | ) | ||||
| Long-term debt | $ | 15,803,513 | $ | 15,310,754 | ||||
Schedule of Long-Term Debt
| February 28, | May 31, | |||||||
| 2023 | 2022 | |||||||
| Term loan A dated July 29, 2022, payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.50%, maturing July 29, 2027 | $ | 7,281,420 | $ | - | ||||
| Term loan A dated July 29, 2022, payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.50%, maturing July 29, 2027 | $ | 7,281,420 | $ | - | ||||
| Term loan B dated July 29, 2022, payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.50%, maturing July 29, 2027 | 3,039,219 | - | ||||||
| Term loans payable to International Bank of Commerce, prime rate of interest plus 0.5% with interest floors between 4.0% and 5.25%. These loans were refinanced by the IBC Restated Loan Agreement dated July 29, 2022, and rolled into Term Loan A above | - | 2,870,169 | ||||||
| Revolving loan payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.5%, due July 29, 2024 | 3,000,000 | 3,700,000 | ||||||
| Term loan payable by GRE to International Bank of Commerce, interest rate of 5.5%, paid off July 27, 2022 | - | 1,826,361 | ||||||
| Term loan payable to First Interstate Bank, interest rate of 3.7%, monthly principal and interest payments of $27,593, due March 19, 2025, secured by certain equipment | 662,485 | 888,642 | ||||||
| Term loan payable to First Interstate Bank, interest rate of 3.5%, monthly principal and interest payments of $5,997, due August 10, 2028, secured by certain real estate | 770,840 | 803,941 | ||||||
| Note payable to Robert Rosene, 7.5% interest, paid off August 3, 2022 | - | 3,295,704 | ||||||
| Other | 83,010 | 111,374 | ||||||
| Total long-term debt | 14,836,974 | 13,496,191 | ||||||
| Debt issuance costs, net of amortization | (96,583 | ) | (29,751 | ) | ||||
| Total debt, net of debt issuance costs | 14,740,391 | 13,466,440 | ||||||
| Less: Current portion of long-term debt | (2,217,304 | ) | (4,160,403 | ) | ||||
| Long-term debt, net of current portion | $ | 12,523,087 | $ | 9,306,037 | ||||
The prime rate of interest as of November 30, 2017February 28, 2023, was 4.25%7.75%. Effective December 14, 2017,Subsequent to February 28, 2023, the prime rate of interest was increased to 4.50%.8.00% on March 23, 2023.
Debt issuance costs consists of the amounts paid to third parties in connection with the issuance and modification of debt instruments. These costs are shown on the consolidated balance sheet as a direct reduction to the related debt instrument. Amortization of these costs is included in interest expense. Greystone recorded amortization of debt issuance costs of $4,322 and $4,267 for the nine months ended February 28, 2023 and 2022, respectively.
Restated and Amended Loan Agreement between Greystone and IBC
On January 31, 2014,July 29, 2022, Greystone and GSM (the(collectively “Borrowers”) and International Bank of Commerce (“IBC”) entered into a Loan Agreement (the “IBC Loan Agreement”). The IBC Loan Agreement provided for a revolving loan in an aggregate principal amount of up to $2,500,000 (the “Revolving Loan”) and a term loan in the aggregate principal amount of $9,200,000 (the “Term Loan”). The exact amount which can be borrowed under the Revolving Loan from time to time is dependent upon the amount of the borrowing base, but can in no event exceed $2,500,000. On January 7, 2016, the Borrowers and IBC entered into the First Amendment to the IBCan Amended and Restated Loan Agreement (the “First Amendment”(“IBC Restated Loan Agreement”) wherebythat provides for consolidation of certain term loans and a renewed revolver loan.
The IBC made an additional term loan to Borrowers in the original principal amount of $2,530,072 (“New Equipment Loan”). The New Equipment Loan and $2,917,422 of the principal amount outstanding on the Term Loan were consolidated into a new loan in the combined principal amount of $5,447,504 (“Term Loan A”). The Term Loan’s remaining principal balance of $3,000,000 was deemed to be a separate term loan (“Term Loan B”). Effective August 4, 2017, the Borrowers and IBC entered into the Fourth Amendment to the IBC Loan Agreement whereby IBC made an additional loan (“Term Loan C”) to the Borrowers in the amount of $1,795,000. The proceeds from Term Loan C were used to purchase production equipment.
The Term Loans A, B and C bear interest at the New York Prime Rate plus 0.5% but not less than 4.0%. Term Loans A and B mature January 7, 2019; Term Loan C matures August 4, 2020. The Borrowers are required toloans make equal monthly payments of principal and interest in such amounts sufficient to amortize the principal balance of the loans over the remaining lives. The monthly payments of principal and interest on the IBC term loans may vary due to changes in the prime rate of interest. Currently, the aggregate payments for the IBC term loans are approximately $232,000 per month.
The IBC Restated Loan Agreement provides for IBC to make to Greystone (i) a term loan in the amount of $7,854,708, Term Loan A, overto consolidate all existing term loans in the aggregate amount of $2,669,892 with Lender, extend credit in the amount of $3,271,987 to pay off a seven-year period beginning January 31, 2016 (currently $74,455 per month),note payable to Robert B. Rosene, Jr. and extend additional credit to fund the purchase in the amount of $1,912,829 of the equipment subject to the iGPS Logistics, LLC, leases and (ii) an advancing term loan facility, Term Loan B, overwhereby Greystone may obtain advances up to the three-year lifeaggregate amount of $7,000,000 (items i and ii referred to as “Term Loans”) (iii) a renewal of the note (currently $89,424 per month) and (iii)revolving loan with an increase of $2,000,000 to an aggregate principal amount of $6,000,000 (the “Revolving Loan”), subject to borrowing base limitations. As of February 28, 2023, Greystone’s available revolving loan borrowing capacity was approximately $3,000,000. In addition, there is approximately $3,477,000 available to Greystone under the advancing Term Loan C over a seven-year period beginning August 31, 2017 (currently $25,205 per month).B for the purchase of equipment.
The Revolving Loan bears interest at the New York Prime Rate plus 0.5% but not less than 4.0%. Effective December 12, 2016, the Revolving Loan was amended and restated to extend the maturity of the loan to January 31, 2019. The Borrowers are required to pay all interest accrued on the outstanding principal balance of the Revolving Loan on a monthly basis. Any principal on the Revolving Loan that is prepaid by the Borrowers does not reduce the original amount available to the Borrowers.
The IBC Loan Agreement includes customary representations and warranties and affirmative and negative covenants which include (i) requiring the Borrowers to maintain a debt service coverage ratio of 1:25 to 1:00 and a funded debt to EBIDA ratio not exceeding 3:00 to 1:00 measured quarterly, (ii) subject to certain exceptions, limiting the Borrowers’ combined capital expenditures on fixed assets to $1,000,000 per year, (iii) prohibiting Greystone, without IBC’s prior written consent, from declaring or paying any dividends, redemptions of stock or membership interests, distributions and withdrawals (as applicable) in respect of its capital stock or any other equity interest, other than additional payments to holders of its preferred stock in an amount not to exceed $500,000 in any fiscal year, (iv) subject to certain exceptions, prohibiting the incurrence of additional indebtedness by the Borrowers, and (v) requiring the Borrowers to prevent (A) any change in capital ownership such that there is a material change in the direct or indirect ownership of (1) Greystone’s outstanding preferred stock, and (2) any equity interest in GSM, or (B) Warren Kruger from ceasing to be actively involved in the management of Greystone as President and/or Chief Executive Officer. The foregoing list of covenants is not exhaustive and there are several other covenants contained in the IBC Loan Agreement.
Greystone’s debt service coverage ratio as of November 30, 2017 was 1:27 to 1:00 which meets the minimum requirement as discussed above.
The IBCRestated Loan Agreement includes customary events of default, including events of default relating to non-payment of principal and other amounts owing under the IBC Restated Loan Agreement from time to time, inaccuracy of representations, violation of covenants, defaults under other agreements, bankruptcy and similar events, the death of a guarantor, certain material adverse changes relating to a Borrower or guarantor, certain judgments or awards against a Borrower, or government action affecting a Borrower’s or guarantor’s ability to perform under the IBC Restated Loan Agreement or the related loan documents. Among other things, a default under the IBC Restated Loan Agreement would permit IBC to cease lending funds under the IBC Restated Loan Agreement and require immediate repayment of any outstanding notes with interest and any unpaid accrued fees.
The IBC Restated Loan Agreement is secured by a lien on substantially all of the assets of the Borrowers. In addition,Warren F. Kruger, President and CEO, and Robert B. Rosene, Jr. have provided limited guaranties of the Borrowers’ obligations under the IBC Restated Loan Agreement. Mr. Kruger’s guarantee is limited to 32.4% of all debt obligations to IBC. Mr. Rosene’s limited guaranty is the lesser of (i) $3,500,000 less all amounts paid on the principal amount of the loans after the date of the agreement excluding payments on the revolver and (ii) the amount owed to IBC of the loans outstanding from time to time including accrued interest and fees.
Loan Agreement with First Interstate Bank, formerly Great Western Bank
On August 23, 2021, Greystone entered into a loan agreement with First Interstate Bank (“FIB Loan Agreement”) to include prior commercial loans and subsequent loans. GSM is a named guarantor under the FIB Loan Agreement.
The FIB Loan Agreement includes customary events of default, including events of default relating to non-payment of principal and other amounts owing under the FIB Loan Agreement from time to time, inaccuracy of representations, violation of covenants, defaults under other agreements, bankruptcy and similar events, certain material adverse changes relating to a Borrower, certain judgments or awards against a Borrower, or guarantor’s ability to perform under the FIB Loan Agreement. Among other things, a default under the FIB Loan Agreement would permit FIB to cease lending funds under the FIB Loan Agreement and require immediate repayment of any outstanding notes with interest and any unpaid accrued fees.
The FIB Loan Agreement is secured by a mortgage granted by GRE on the real property owned by GRE in Bettendorf, Iowa (the “Mortgage”). GRE is owned by Warren F. Kruger,one of Greystone’s President and CEO, and Robert B. Rosene, Jr., a director of Greystone. Messrs. Kruger and Rosene have provided a combined limited guaranty of the Borrowers’ obligations under the IBC Loan Agreement, with such guaranty being limited to a combined amount of $6,500,000 (the “Guaranty”). The Mortgage and the Guaranty also secure or guaranty, as applicable, the obligations of GRE under the Loan Agreement between GRE and IBC dated January 31, 2014 as discussed in the following paragraph.warehouses.
Loan Agreement between GRE and IBCMaturities
On January 31, 2014, GRE and IBC entered into a Loan Agreement which provided for a mortgage note to GRE of $3,412,500. The note provides for a 4.5% interest rate and a maturity of January 31, 2019 and is secured by a mortgage on the two buildings in Bettendorf, Iowa which are leased to Greystone.
Note Payable between Greystone and Robert B. Rosene, Jr.
Effective December 15, 2005, Greystone entered into an agreement with Robert B. Rosene, Jr., a member of Greystone’s board of directors, to convert $2,066,000 of advances into an unsecured note payable at 7.5% interest. Effective June 1, 2016, the note was restated (the “Restated Note”) to combine the outstanding principal, $2,066,000, and accrued interest, $2,475,690, into an unsecured note payable of $4,541,690 with an extended maturity date of January 15, 2019. The Restated Note provides that accrued interest is payable monthly and allows Greystone to use commercially reasonable efforts to pay such amounts as allowed by the IBC Loan Agreement against the interest accrued prior to the restatement.
Note Payable between Greystone and Yorktown Management Financial Services, LLC (“Yorktown”)
On February 29, 2016, Greystone entered into an unsecured note payable to Yorktown in the amount of $688,296 in connection with the acquisition of equipment from Yorktown. The note payable bears interest at the rate of 5% and is payable over three years with monthly principal and interest payments of $20,629.
Maturities
Maturities of Greystone’s long-term debt for the five years subsequent to November 30, 2017February 28, 2023, are $2,794,286, $13,895,875, $1,638,153, $433,704$2,217,304, $5,387,090, $2,228,841, $1,215,659 and $-0-.$3,260,851 with $527,229 thereafter.
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Note 7. Capital LeaseLeases
Financing Leases
Capital leaseFinancing leases as of November 30, 2017February 28, 2023 and May 31, 2017:2022:
Schedule of Financing Lease
February 28, 2023 | May 31, 2022 | |||||||
| Non-cancellable financing leases | $ | 69,337 | $ | 2,163,043 | ||||
| Less: Current portion | (41,487 | ) | (1,630,895 | ) | ||||
| Non-cancellable financing leases, net of current portion | $ | 27,850 | $ | 532,148 | ||||
| November 30, 2017 | May 31, 2017 | |||||||
| Non-cancellable capital lease with private company, interest rate of 5%, due August 7, 2019 | $ | 2,712,289 | $ | 3,794,063 | ||||
| Less: Current portion | (2,194,217 | ) | (2,261,560 | ) | ||||
| Non-cancellable capital lease, net of current portion | $ | 518,072 | $ | 1,532,503 | ||||
In August, 2016, Greystone entered into a three-year lease agreement withand an unrelated private company to provideentered into three lease agreements for certain production equipment with a total cost of approximately $5.4 million. The$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%. Effective October 17, 2022, Greystone and the private company entered into an agreement for Greystone to pay off the leases and acquire the equipment at the unamortized principal balance of the leases or a total of $1,527,293.
Effective December 29, 2022, Greystone exercised its option under a lease agreement includes a bargaindated December 28, 2017, with Yorktown to purchase option to acquire the production equipment at the end of the lease term. Monthly lease payments, estimated at approximately $200,000 per month, are payable on a per invoice basis at the rate of $6.25therein for each pallet produced by the leased production equipment and shipped to the private company. The lease bears an interest rate of 5%, has a three-year maturity and provides for minimum monthly lease rental payment based upon the total pallets sold in excess of a specified amount not to exceed the monthly productive capacity of the leased machines.$10,000.
The production equipment under the remaining non-cancelable capital lease hasfinancing leases as of February 28, 2023, have a gross carrying amount of $5,323,864 at November 30, 2017. $176,565.
Amortization of the carrying amount of approximately $266,000$189,927 and $111,000$721,923 was included in depreciation expense for the sixnine months ended November 30, 2017February 28, 2023 and 2016,2022, 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 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) two buildings on a ten year lease with a five year renewal option and a discount rate of 6.0%. The leases are single-term with defined constant monthly rental rates.
As discussed in Note 1, effective August 1, 2022, Greystone and GRE entered into a non-cancellable ten-year lease agreement with a five-year extension for which Greystone recorded a right-of-use asset and liability based on the present value of the lease payments in the amount of $5,516,006, using a term of one hundred eighty (180) months and a discount rate of 6.00%.
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Lease Summary Information
For the periods ending February 28, 2023 and 2022:
Summary of Lease Activity
| 2023 | 2022 | |||||||
| Lease Expense | ||||||||
| Financing lease expense - | ||||||||
| Amortization of right-of-use assets | $ | 189,927 | $ | 721,923 | ||||
| Interest on lease liabilities | 30,614 | 119,000 | ||||||
| Operating lease expense | 335,378 | 53,411 | ||||||
| Short-term lease expense | 1,217,095 | 1,101,133 | ||||||
| Total | $ | 1,773,014 | $ | 1,995,467 | ||||
| Other Information | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities for finance leases - | ||||||||
| Operating cash flows | $ | 30,614 | $ | 119,000 | ||||
| Financing cash flows | $ | 626,329 | $ | 1,248,371 | ||||
| Cash paid for amounts included in the measurement of lease liabilities for operating leases - | ||||||||
| Operating cash flows | $ | 335,378 | $ | 53,411 | ||||
| Right-of-use assets obtained in exchange for lease liabilities - | ||||||||
| Financing leases | $ | - | $ | 24,441 | ||||
| Operating leases | $ | 5,516,006 | $ | - | ||||
| Weighted-average remaining lease term (in years) - | ||||||||
| Financing leases | 1.9 | 1.5 | ||||||
| Operating leases | 14.4 | 1.9 | ||||||
| Weighted-average discount rate - | ||||||||
| Financing leases | 4.4 | % | 7.3 | % | ||||
| Operating leases | 6.0 | % | 5.4 | % | ||||
Future minimum lease payments under the non-cancelable capital leaseleases as of November 30, 2017,February 28, 2023, are approximately:
| Twelve months ended November 30, 2018 | $ | 2,280,000 | ||
| Twelve months ended November 30, 2019 | 521,607 | |||
| Total lease payments | 2,801,607 | |||
| Imputed interest | 89,318 | |||
| Present value of minimum lease payments | $ | 2,712,289 |
Schedule of Future Minimum Lease Payments
Financing Leases | Operating Leases | |||||||
| Twelve months ended February 29, 2024 | $ | 42,185 | $ | 561,947 | ||||
| Twelve months ended February 28, 2025 | 22,440 | 543,612 | ||||||
| Twelve months ended February 28, 2026 | 7,811 | 534,000 | ||||||
| Twelve months ended February 28, 2027 | - | 534,000 | ||||||
| Twelve months ended February 29, 2028 | - | 549,610 | ||||||
| Thereafter | - | 5,420,290 | ||||||
| Total future minimum lease payments | 72,436 | 8,143,459 | ||||||
| Present value discount | 3,099 | 2,740,690 | ||||||
| Present value of minimum lease payments | $ | 69,337 | $ | 5,402,769 | ||||
Note 8. Deferred Revenue
Advances from a customer pursuant to a contract for the sale of plastic pallets is recognized as deferred revenue. Revenue related to these advances is recognized by Greystone as pallets are shipped to the customer which totaled $6,378,040 and $9,772,750 during the nine months ended February 28, 2023 and 2022, respectively. Customer advances received during the nine months ended February 28, 2023 and 2022 were $1,072,000 and $13,560,500, respectively. The unrecognized balance of deferred revenue as of February 28, 2023 and May 31, 2022, was $23,007 and $5,329,047, respectively.
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Note 9. Revenue and Revenue Recognition
Revenue is recognized at the time a good or service is transferred to a customer and the customer obtains control of that good or receives the service performed. Sales arrangements with customers are short-term in nature involving single performance obligations related to the delivery of goods and generally provide for transfer of control at the time of shipment. In limited circumstances, where acceptance of the goods is subject to approval by the customer, revenue is recognized upon approval by the customer unless, historically, there have been insignificant rejections of goods by the customer. Contract liabilities associated with sales arrangements primarily relate to deferred revenue on prepaid sales of goods. Greystone generally permits returns of product due to defects; however, product returns are historically insignificant. The amount of revenue recognized reflects the consideration to which Greystone expects to be entitled to receive in exchange for its products.
Greystone’s principal product is plastic pallets produced from recycled plastic resin. Sales are primarily to customers in the continental United States of America. International sales are made to customers in Canada and Mexico which totaled approximately 0.8% and 1.6% of sales during the nine months ended February 28, 2023 and 2022, respectively.
Greystone’s customers include stocking and non-stocking distributors and direct sales to end-user customers. Sales to the following categories of customers for the nine months ended February 28, 2023 and 2022, respectively, were as follows:
Schedule of Sale of Revenues for Customer Categories
| Category | 2023 | 2022 | ||||||
| End User Customers | 71 | % | 74 | % | ||||
| Distributors | 29 | % | 26 | % | ||||
Note 8. 10. Fair Value of Financial Instruments
The following methods and assumptions are used in estimating the fair-value disclosures for financial instruments:
Debt: The carrying amount of notes with floating rates of interest approximateapproximates fair value. Fixed rate notes are valued based on cash flows using estimated rates of comparable notes. The carrying amounts reported inon the balance sheetsheets approximate fair value.
Note 9. 11. Concentrations, Risks and Uncertainties
Greystone derived approximately 73%71% and 67%74% of its total sales from twothree customers in fiscal years 2018during the nine months ended February 28, 2023 and 2017,2022, respectively. The loss of a material amount of business from one or bothmore of these customers could have a material adverse effect on Greystone.
Greystone purchases damaged pallets from its customers at a price based on the value of the raw material content in the pallet. A majority of these purchases, totaling $890,562$599,700 and $864,874$313,050 in fiscal years 20182023 and 2017,2022, respectively, iswere from one of its majorprincipal customers.
Greystone is subject to litigation, claims and other commitments and contingencies arising in the ordinary course of business. Although the asserted value of these matters may be significant, the company currently does not expect that the ultimate resolution of any open matters will have a material adverse effect on its consolidated financial position or results of operations.
Robert B. Rosene, Jr., a Greystone director, has provided financing and guarantees on Greystone’s bank debt. Note 12. Commitments
As of November 30, 2017,February 28, 2023, Greystone is indebted to Mr. Rosene inhad commitments totaling approximately $5.3 million toward the amountpurchase of $4,469,355 for a note payable due January 15, 2019. There is no assurance that Mr. Rosene will renew the note as of the maturity date.
Note 10. Recent Accounting Pronouncementsproduction equipment.
In May 2014,
Note 13. Employee Retention Credits
As a response to the Financial Accounting Standards BoardCOVID-19 outbreak, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASU 14-09”CARES Act”) which creates a comprehensive setauthorized emergency loans to businesses by establishing, and providing funding for, forgivable loans under the Paycheck Protection Program (PPP). The PPP provided loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of guidelinesthe qualifying business.
In June 2021, the Company received forgiveness of its $3,034,000 PPP loan plus accrued interest by the Small Business Administration (“SBA”). The Company recognized the forgiveness as other income for the recognitionyear ended May 31, 2022.
The CARES Act also provided an Employee Retention Credit (“ERC”) which is a refundable tax credit against certain employment taxes equal to 50% of revenuequalified wages paid, up to $10,000 per employee annually for wages paid. Additional relief provisions were passed by the United States government, which extended and expanded the qualified wage caps on these credits to 70% of qualified wages paid, up to $10,000 per employee per quarter, through September 30, 2021.
By notices dated January 9, 2023, the Department of Treasury notified Greystone of ERC credits awarded under the principle: “Recognize revenueCARES Act in the total amount of $3,270,424 due to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The requirements of ASU 14-09 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and will require either retrospective application to each prior period presented or retrospective application with the cumulative effect of initially applying the standard recognized at the date of adoption. Greystone is currently evaluating the impact this ASU will have on our financial position and results of operations.
In February 2016, the FASB issued Accounting Standards 2016-02,Leases (Topic 842), which is intended to improve financial reporting about leasing transactions. The ASU will require organizations (“lessees”) that lease assets with lease terms of more than twelve months to recognize on the balance sheet the assets and liabilities for the rightsquarters ended June 30, 2021 and obligations created by those leases. In addition,September 30, 2021. Due to the ASU will require disclosuressubjectivity of the credit, the Company elected to help investors and other financial statement users better understandaccount for the ERC as a gain analogizing to ASC 450-30, Gain Contingencies. The Company recognized the amount timing and uncertainty of cash flows arising from leases. The effective date of this ASU isas other income for fiscal years beginning after December 31, 2018 and interim periods within that year. Greystone is currently reviewing the ASU to assess the potential impact on the consolidated financial statements.
Note 11. Income Taxes
On December 22, 2017, the President signed into legislation The Tax Cuts and Jobs Act (the Act). The Act changes existing U.S. tax law and includes numerous provisions that will affect our business, including our income tax accounting, disclosure and tax compliance. We believe the most impactful changes within the Act are those that will reduce the U.S. corporate tax rates, business-related exclusions and deductions and credits. ASC 740, “Income Taxes” (Topic 740), requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. Consequently, as of the date of enactment, and during the threenine months ended February 28, 2018, 2023.
By notice dated March 27, 2023, the Department of Treasury notified Greystone of ERC credits awarded under the CARES Act in the total amount of approximately $1,641,000 due to Greystone for the quarter ended March 31, 2021. Greystone will value all deferred tax assetsrecord these credits in March 2023, which is the point in which the uncertainty surrounding them is resolved and liabilities at the newly enacted Corporate U.S. income tax rate. Greystone is currently evaluating the impact of the Act, which will include revaluing the deferred tax assets and liabilities and will disclose the estimated impact upon recognition in the third quarter of fiscal 2018.they become realizable.
Note 12. Subsequent Event
On January 10, 2018, Greystone and International Bank of Commerce (“IBC”) entered into the Fifth Amendment to the IBC Loan Agreement dated January 31, 2014 (the “Fifth Amendment”) whereby (i) the existing Revolver Note with a current balance of $2,500,000 was converted into a term loan (Term Loan D) with principal and interest amortized over four years and a maturity date of January 10, 2022, (ii) an additional term loan from IBC to Borrowers in the original principal amount of $1,000,000 (Term Loan E) to provide funding for procurement of production equipment with interest only for one year and amortization of principal and interest over four years beginning at the end of the first year and a maturity date of January 10, 2022, and (iii) a new $3,000,000 revolving loan to provide working capital with the same lending conditions as the existing Revolver Note and a maturity date of January 10, 2020. The three new notes will bear interest at the greater of the prime rate of interest plus 0.5% or 4.75%.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
General to All Periods
The unaudited consolidated statements include Greystone Logistics, Inc., and its two wholly-owned subsidiaries, Greystone Manufacturing, L.L.C. (“GSM”) and Plastic Pallet Production, Inc. (“PPP”). Greystone also consolidates itsconsolidated the variable interest entity, Greystone Real Estate, L.L.C. (“GRE”). through July 29, 2022 at which time a deconsolidation of the entity occurred. All material intercompany accounts and transactions have been eliminated.
References to fiscal year 20182023 refer to the sixnine months and three month periodsmonths ended November 30, 2017.February 28, 2023. References to fiscal year 20172022 refer to the sixnine months and three month periodsmonths ended November 30, 2016.February 28, 2022.
Sales
Greystone’s primary focus is to provide quality plastic pallets to its existing customers while continuing its marketing efforts to broaden its customer base. Greystone’s existing customers are primarily located in the United States and engaged in the beverage, pharmaceutical and other industries. Greystone has generated, and plans to continue to generate, interest in its pallets by attending trade shows sponsored by industry segments that would benefit from Greystone’s products. Greystone hopes to gain wider product acceptance by marketing the concept that the widespread use of plastic pallets could greatly reduce the destruction of trees on a worldwide basis. Greystone’s marketing is conducted through contract distributors, contract sales personnel and its President and other employees.
Personnel
Personnel
Greystone had full-time-equivalents of approximately 167189 and 200239 full-time employees and 56 and 80 temporary employees as of November 30, 2017February 28, 2023 and 2016,2022, respectively. Full-time equivalent is a measure based on time worked.
Six-Month PeriodNine Months Ended November 30, 2017February 28, 2023 Compared to Six-Month PeriodNine Months Ended November 30, 2016February 28, 2022
Sales
Sales for fiscal year 20182023 were $20,009,177$44,633,542 compared to $17,065,972$53,069,648 in fiscal year 20172022 for an increasea decrease of $2,943,205.$8,436,106, or 15.9%. The increase in pallet salesnumber of pallets sold in fiscal year 2018 over 2017 was2023 decreased by about 24% from the prior period primarily duerelated to sales growth to atwo principal customers. However, the average price per pallet leasing company, onesold in fiscal year 2023 increased by about 10% from the prior period. Sales to these two customers may vary by period and the decrease in fiscal year 2023 is not considered indicative of Greystone’s major customers.future sales therein.
Greystone has two majorhad three customers whowhich accounted for approximately 73%71% and 67%74% of sales in fiscal years 20182023 and 2017,2022, respectively. Pallet sales to Greystone’s major customers are generally based on the customers’ need which may vary by period. Greystone is not able to predict the future needs of these majorprincipal customers and will continue its efforts to grow sales through the addition of new customers developed through Greystone’s marketing efforts.
Cost of Sales
Cost of sales in fiscal year 20182023 was $16,976,241,$38,590,544, or 85%86% of sales, compared to $14,868,884,$47,914,061, or 87%90% of sales, in fiscal year 2017.2022. The decrease in the ratio of cost of sales as a percentage ofto sales in fiscal year 2018 compared2023 was primarily the result of declines in the cost of raw material coupled with increases in the average price per pallet sold. Management continues to strive for additional reductions in the cost to produce pallets due to anticipated savings from scheduled increases in the capacity for internally refining unprocessed recycled plastic. While production decreases during fiscal year 2017 was principally due2023 adversely affected the cost to setupproduce pallets because of Greystone’s inflexible fixed costs, incurredmanagement believes that increases in fiscal year 2017 to fulfill thepallet production requirements for the pallet leasing company.will assist in further decreases in production costs.
Selling, General and Administrative Expenses
General, Selling, and Administrative Expenses
General, sellinggeneral and administrative expenses were $1,452,416$3,918,205 in fiscal year 20182023 compared to $1,387,304$4,033,483 in fiscal year 20172022 for a decrease of $115,278. Legal fees decreased by approximately $501,000 from fiscal year 2022 as a result of settlement of an arbitration dispute. However, the decrease in legal expenses was somewhat offset by increases in personnel costs during fiscal year 2023.
Other Income (Expenses)
During fiscal year 2023, Greystone received $3,270,424 from the Department of Treasury for claims filed pursuant to the Employee Retention Credits (“ERC”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Also in fiscal year 2023, Greystone recognized a gain of $569,997 upon the deconsolidation GRE, a variable interest entity GRE.
During fiscal year 2022, a gain was recognized on the forgiveness of debt plus accrued interest in the amount of $3,068,497 from the Paycheck Protection Program loan under the CARES Act.
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Other income in fiscal year 2023 of $189,914 resulted primarily from interest income related to the payment of the ERC award. Other income in fiscal year 2022 of $35,731 was primarily from gain on sale of equipment and scrap sales.
Interest expense was $821,138 in fiscal year 2023 compared to $631,115 in fiscal year 2022 for an increase of $65,112, or approximately 5%. The increase$190,023. Increases in fiscal year 2018 over fiscal year 2017 was attributable to general business growth.
Other Income (Expenses)
Other income was $12,069 and $-0- in fiscal years 2018 and 2017, respectively. The source of other income is the sale of scrap material.
Interest expense was $658,736 and $542,800 in fiscal years 2018 and 2017 for an increase of $115,936. The increase in interest expense in fiscal year 2018 over fiscal year 2017 is principally due to an increase in debt, a 0.75% increase in theU.S. prime rate of interest and an increase in amortization expense associated with debt service costs.was the primary cause of the increase.
Provision for Income Taxes
The provision for income taxes was $259,500$452,000 and $54,550$99,000 in fiscal years 20182023 and 2017,2022, respectively. The provision foreffective tax rate differs from federal statutory rates principally due to state income taxes, does not includecharges or income which have no tax benefit or expense, changes in the valuation allowance, and the basis that net income from the variable interest entity as the entityGRE is not included intaxable at the income tax returnscorporate level because GRE is a limited liability company of which Greystone and the taxable income of the entity is passed-through to the respective owners.has no equity ownership.
Based upon a review of its income tax filing positions, Greystone believes that its positions would be sustained upon an audit by the Internal Revenue Service and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded.
Net Income
Net Income
Greystone recorded net income of $674,353$4,881,990 in fiscal year 20182023 compared to $212,434$3,496,217 in fiscal year 20172022 primarily for the reasons discussed above.
Net Income (Loss) Attributable to Common Stockholders
NetThe net income attributable to common stockholders (net income less preferred dividends and GRE’s net income) for fiscal year 20182023 was $363,371,$4,471,124, or $0.01$0.16 per share, compared to a net loss attributable to common stockholders $(76,330),$3,044,535, or $(0.00)$0.11 per share, in fiscal year 20172022 primarily for the reasons discussed above.
Three-Month PeriodThree Months Ended November 30, 2017February 28, 2023 Compared to Three-Month PeriodThree Months Ended November 30, 2016February 28, 2022
Sales
Sales for fiscal year 20182023 were $9,722,102$13,578,269 compared to $9,221,711$22,450,682 in fiscal year 20172022 for an increasea decrease of $500,391.$8,872,413, or 39.5%. The increase in pallet salesnumber of pallets sold in fiscal year 2018 over 2017 was2023 decreased approximately 41% from fiscal year 2022 primarily duerelated to sales growth to atwo principal customers. However, the average price per pallet leasing company, onesold in fiscal year 2023 increased by about 3% from the comparable prior period. Sales to these two customers may vary by period and the decrease in fiscal year 2023 is not considered indicative of Greystone’s major customers.future sales therein.
Greystone has two majorhad three customers whowhich accounted for approximately 73%65% and 70%71% of sales in fiscal years 20182023 and 2017,2022, respectively. Pallet sales to Greystone’s major customers are generally based on the customers’ need which may vary by period. Greystone is not able to predict the future needs of these majorprincipal customers and will continue its efforts to grow sales through the addition of new customers developed through Greystone’s marketing efforts.
Cost of Sales
Cost of Sales
Cost of sales in fiscal year 20182023 was $8,588,065,$11,220,791, or 88%83% of sales, compared to $7,992,441,$19,734,155, or 87%88% of sales, in fiscal year 2017. Cost2022. The decrease in the ratio of cost of sales to sales in fiscal year 2018 were adversely affected because2023 was primarily the result of (a) two injection molding machines that were out-of-service duringdeclines in the monthcost of November 2017raw material coupled with increases in the average price per pallet sold. Management continues to strive for maintenance and (b) setup costs incurredadditional reductions in the cost to place an additional injection molding machine into serviceproduce pallets due to anticipated savings from scheduled increases in November 2017.the capacity for internally refining unprocessed recycled plastic.
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Selling, General Selling and Administrative Expenses
General, sellingSelling, general and administrative expenses were $621,013$1,606,626 in fiscal year 20182023 compared to $664,275$1,680,979 in fiscal year 20172022 for a decrease of $43,262 or 7%. The$74,353. Legal fees decreased by approximately $297,000 from fiscal year 2022 as a result of the settlement of an arbitration dispute. However, the decrease in legal expenses was somewhat offset by increases in personnel costs during fiscal year 2023.
Other Income (Expenses)
During fiscal year 2023, Greystone received $3,270,424 from the Department of Treasury for claims filed pursuant to the Employee Retention Credits (“ERC”) under the CARES Act.
Other income in fiscal year 2018 over2023 of $183,596 primarily related to interest income received upon the payment of the ERC award. Oher income of $3,688 in fiscal year 2017 is2022 was primarily attributable to timing of expenses for the respective periods.from scrap sales.
Other Income (Expenses)
Other income was $3,806 and $-0- in fiscal years 2018 and 2017, respectively. The source of other income is the sale of scrap material.
Interest expense was $334,059$313,376 in fiscal year 20182023 compared to $306,169$201,992 in fiscal year 20172022 for an increase of $27,890. The increase is principally attributable to increases$111,384. Increases in debt and an increase in the U.S. prime rate of interest by 0.75% at November 30, 2017 compared to November 30, 2016.was the primary cause of the increase.
Provision for Income Taxes
The provision for income taxes was $38,700$196,000 and $73,400$234,000 in fiscal years 20182023 and 2017,2022, respectively. The provision foreffective tax rate differs from federal statutory rates due principally to state income taxes, does not includecharges or income which have no tax benefit or expense, changes in the valuation allowance, and the basis that the net income from the variable interest entity as the entityGRE is not included intaxable at the income tax returnscorporate level because GRE is a limited liability company of which Greystone and the taxable income from this entity is passed-through to the respective owners.has no equity ownership.
Based upon a review of its income tax filing positions, Greystone believes that its positions would be sustained upon an audit by the Internal Revenue Service and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded.
Net Income
Net Income
Greystone recorded net income of $144,071$3,695,496 in fiscal year 20182023 compared to $185,426$603,244 in fiscal year 20172022 primarily for the reasons discussed above.
Net Income (Loss) Attributable to Common Stockholders
The net lossincome attributable to common stockholders (net income less preferred dividends and GRE’s net income) for fiscal year 20182023 was $(11,337),$3,562,996, or $(0.00)$0.13 per share, compared to net income of $41,109,$452,458, or $0.00$0.02 per share, in fiscal year 20172022 primarily for the reasons discussed above.
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Liquidity and Capital Resources
A summary of cash flows for the six-month periodnine months ended November 30, 2017February 28, 2023, is as follows:
| Cash provided by operating activities | $ | 406,583 | ||
| Cash used in investing activities | $ | (3,203,993 | ) | |
| Cash provided by financing activities | $ | 530,779 |
| Cash provided by operating activities | $ | 3,587,049 | ||
| Cash used in investing activities | (2,996,530 | ) | ||
| Cash used in financing activities | (641,090 | ) |
The cash provided by operating activities was impacted by the utilization of approximately $5.3 million of customer deposits during the current fiscal year. The cash provided by financing operations included new term loans of approximately $8.7 million for the acquisition of equipment and approximately $1.7 in capital provided by the non-controlling interest to pay off the mortgage loan of GRE.
The contractual obligations of Greystone are as follows:
Total | Less than 1 year |
1-3 years |
4-5 years |
Thereafter | ||||||||||||||||
| Long-term debt | $ | 14,836,974 | $ | 2,217,304 | $ | 7,615,931 | $ | 4,476,510 | $ | 527,229 | ||||||||||
| Financing lease rents | $ | 72,436 | $ | 42,185 | $ | 30,251 | $ | - | $ | - | ||||||||||
| Operating lease rents | $ | 8,143,459 | $ | 561,947 | $ | 1,077,612 | $ | 1,083,610 | $ | 5,420,290 | ||||||||||
| Commitments | $ | 5,317,935 | $ | 5,317,935 | $ | - | $ | - | $ | - | ||||||||||
| Total | Less than 1 year | 1-3 years | 4-5 years | More than 5 years | ||||||||||||||||
| Long-term debt | $ | 18,762,018 | $ | 2,794,286 | $ | 15,534,028 | $ | 433,704 | $ | -0- | ||||||||||
Greystone had a working capital deficit of $(3,246,218) at November 30, 2017.$3,996,298 as of February 28, 2023. To provide for the funding to meet Greystone’s operating activities and contractual obligations as of November 30, 2017,February 28, 2023, Greystone will have to continue to produce positive operating results or explore various options including additional long-term debt and equity financing. However, there is no guarantee that Greystone will continue to create positive operating results or be able to raise sufficient capital to meet these obligations.
By notice dated March 27, 2023, the Department of Treasury notified Greystone of Employee Retention Credits awarded under the CARES Act in the total amount of approximately $1,641,000 due to Greystone for the quarter ended March 31, 2021. Greystone anticipates the receipt of these funds during its fiscal fourth quarter 2023 and plans to use the funds to improve its working capital, reduce debt, and cover portions of our unfinanced commitments.
As discussed inof February 28, 2023, Greystone had commitments for capital expenditures of approximately $5.3 million of which approximately $3.5 million is available under the advancing term loan with IBC, see Note 6 to the consolidated financial statements, Greystone has one relatively near-term loan with IBC, Term Loan statements.
A which had an outstanding balance of $4,287,282 at November 30, 2017 with a maturity date of January 7, 2019. Greystone’s management believes that IBC will renew this note at the appropriate time under similar terms. Effective January 10, 2018 and as discussed further in Note 12 to the consolidated financial statements, Greystone and IBC entered into the Fifth Amendment to the IBC Loan Agreement dated January 31, 2014 which provided for (1) converting the existing revolving loan with a balance of $2,500,000 at November 30, 2017 into a four-year term loan, (2) new funding in thesubstantial amount of $1,000,000 for the purchase of production equipment with interest only for one year and principal and interest to be amortized over four years and (3) a new revolving loan for $3,000,000 with a maturity date of January 31, 2020.
Substantially all of theGreystone’s debt financing that Greystone has received through the last few fiscal years resulted primarily from loans providedbank notes which are guaranteed by certain officers and directors of Greystone and bank notes which are guaranteedfrom loans provided by certain officers and directors of Greystone. Greystone continues to be dependent upon its officers and directors to provide and/or secure additional financing and there is no assurance that its officers and directors will continue to do so. As such, there is no assurance that funding will be available for Greystone to continue operations.
Greystone has 50,000 outstanding shares of cumulative 2003 Preferred Stock with a liquidation preference of $5,000,000 and a preferred dividend rate of the prime rate of interest plus 3.25%. Greystone does not anticipate that it will make cash dividend payments to any holders of its common stock unless and until the financial position of Greystone improves through increased revenues, another financing transaction or otherwise. Pursuant to the IBC Loan Agreement, as discussed in Note 6 to the consolidated financial statements, Greystone may pay dividends on its preferred stock in an amount not to exceed $500,000 per year.
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Forward Looking Statements and Material Risks
This Quarterly Report on Form 10-Q includes certain statements that may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are made in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, that address activities, events or developments that Greystone expects, believes or anticipates will or may occur in the future, including decreased costs, timing of manufacturing enhancements, securing financing, the profitability of Greystone, potential sales of pallets or other possible business developments, are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties. The forward-looking statements contained in this Quarterly Report on Form 10-Q could be affected by any of the following factors: Greystone’s prospects could be affected by changes in availability of raw materials, competition, rapid technological change and new legislation regarding environmental matters; Greystone may not be able to secure additional financing necessary to sustain and grow its operations; and a material portion of Greystone’s business is and will be dependent upon a few large customers and there is no assurance that Greystone will be able to retain such customers. These risks and other risks that could affect Greystone’s business are more fully described in Greystone’s Amended Form 10-K for the fiscal year ended May 31, 2017,2022, which was filed on August 25, 2017.23, 2022. Actual results may vary materially from the forward-looking statements. Greystone undertakes no duty to update any of the forward-looking statements contained in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
As of the end of the period covered by this Quarterly Report on Form 10-Q, Greystone carried out an evaluation under the supervision of Greystone’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of Greystone’s disclosure controls and procedures pursuant to the Securities Exchange Act Rules 13a-15(e) and 15d-15(e). Based on an evaluation as of May 31, 2017,2022, Warren F. Kruger, Greystone’s Chief Executive Officer, and William W. Rahhal, Greystone’s Chief Financial Officer, identified oneno material weakness in Greystone’s internal control over financial reporting. As of the end of the period covered by this Quarterly Report on Form 10-Q, such material weakness had not been rectified. As a result, of the continuation of this material weakness, Greystone’s CEO and Chief Financial Officer concluded that the design and operation of Greystone’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) were not effective at November 30, 2017.as of February 28, 2023.
During the six-month periodthree months ended November 30, 2017,February 28, 2023, there were no changes in Greystone’s internal controls over financial reporting that have materially affected, or that are reasonably likely to materially affect, Greystone’s internal control over financial reporting.
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None.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3.Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
The following exhibits are filed or furnished as part of this Quarterly Report on Form 10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GREYSTONE LOGISTICS, INC. | |
| (Registrant) | |
| Date: | /s/ Warren F. Kruger |
| Warren F. Kruger, President and Chief | |
| Executive Officer (Principal Executive Officer) | |
| Date: | /s/ William W. Rahhal |
| William W. Rahhal, Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting Officer) |
Index to Exhibits
The following exhibits are filed or furnished as part of this Quarterly Report on Form 10-Q.