UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, November 30, 2022
☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 000-26331
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 | 74120 | ||
| (Address of principal executive offices) | (Zip 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ☒ No ☐ ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “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 ☒
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: April 8, 2022 -January 13, 2023 –
GREYSTONE LOGISTICS, INC.
FORM 10-Q
For the Period Ended February 28,November 30, 2022
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Greystone Logistics, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| February 28, 2022 | May 31, 2021 | November 30, 2022 | May 31, 2022 | |||||||||||||
| Assets | ||||||||||||||||
| Current Assets: | ||||||||||||||||
| Cash | $ | 7,982,172 | $ | 4,387,533 | $ | 1,019,246 | $ | 3,143,257 | ||||||||
| Accounts receivable - | ||||||||||||||||
| Trade | 5,585,604 | 4,586,134 | 4,386,851 | 6,001,049 | ||||||||||||
| Related parties | 112,174 | 153,550 | 212,701 | 252,112 | ||||||||||||
| Other | - | 156,162 | ||||||||||||||
| Inventory | 4,288,015 | 3,441,974 | 5,107,021 | 4,112,496 | ||||||||||||
| Prepaid expenses | 629,612 | 52,315 | 171,731 | 148,078 | ||||||||||||
| Total Current Assets | 18,597,577 | 12,621,506 | 10,897,550 | 13,813,154 | ||||||||||||
| Property, Plant and Equipment, net | 32,099,676 | 30,998,988 | 28,315,962 | 31,876,765 | ||||||||||||
| Right-of-Use Operating Lease Assets | 62,242 | 109,013 | 5,435,198 | 55,535 | ||||||||||||
| Total Assets | $ | 50,759,495 | $ | 43,729,507 | $ | 44,648,710 | $ | 45,745,454 | ||||||||
| Liabilities and Equity | ||||||||||||||||
| Current Liabilities: | ||||||||||||||||
| Current portion of long-term debt | $ | 2,818,321 | $ | 3,236,113 | $ | 2,101,460 | $ | 4,160,403 | ||||||||
| Current portion of financing leases | 1,592,166 | 1,745,535 | 47,151 | 1,630,895 | ||||||||||||
| Current portion of operating leases | 33,881 | 56,443 | 244,242 | 33,881 | ||||||||||||
| Accounts payable and accrued liabilities | 7,759,480 | 3,754,556 | 5,550,436 | 7,820,837 | ||||||||||||
| Deferred revenue | 10,218,357 | 6,430,607 | 23,007 | 5,329,047 | ||||||||||||
| Preferred dividends payable | 80,137 | - | 119,349 | 85,377 | ||||||||||||
| Total Current Liabilities | 22,502,342 | 15,223,254 | 8,085,645 | 19,060,440 | ||||||||||||
| Long-Term Debt, net of current portion and debt issue costs | 11,396,240 | 12,971,529 | ||||||||||||||
| Long-Term Debt, net of current portion and debt issuance costs | 14,964,060 | 9,306,037 | ||||||||||||||
| Financing Leases, net of current portion | 777,911 | 1,848,472 | 39,571 | 532,148 | ||||||||||||
| Operating Leases, net of current portion | 28,361 | 52,570 | 5,190,956 | 21,654 | ||||||||||||
| Deferred Tax Liability | 1,938,166 | 2,380,642 | 1,762,694 | 1,743,694 | ||||||||||||
| Equity: | ||||||||||||||||
| Preferred stock, $ par value, cumulative, shares authorized, shares issued and outstanding, liquidation preference of $5,000,000 | 5 | 5 | 5 | 5 | ||||||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding, respectively | 2,828 | 2,836 | ||||||||||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding, | 2,828 | 2,828 | ||||||||||||||
| Additional paid-in capital | 53,533,272 | 53,790,764 | 53,533,272 | 53,533,272 | ||||||||||||
| Accumulated deficit | (40,732,392 | ) | (43,776,927 | ) | (38,930,321 | ) | (39,838,449 | ) | ||||||||
| Total Greystone Stockholders’ Equity | 12,803,713 | 10,016,678 | 14,605,784 | 13,697,656 | ||||||||||||
| Non-controlling interest | 1,312,762 | 1,236,362 | - | 1,383,825 | ||||||||||||
| Total Equity | 14,116,475 | 11,253,040 | 14,605,784 | 15,081,481 | ||||||||||||
| Total Liabilities and Equity | $ | 50,759,495 | $ | 43,729,507 | $ | 44,648,710 | $ | 45,745,454 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 1 |
Greystone Logistics, Inc. and Subsidiaries
Consolidated Statements of Income
For the Six Months Ended November 30,
(Unaudited)
| 2022 | 2021 | |||||||
| Sales | $ | 31,055,273 | $ | 30,618,966 | ||||
| Cost of Sales | 27,369,753 | 28,179,906 | ||||||
| Gross Profit | 3,685,520 | 2,439,060 | ||||||
| Selling, General and Administrative Expenses | 2,311,579 | 2,352,504 | ||||||
| Operating Income | 1,373,941 | 86,556 | ||||||
| Other Income (Expense): | ||||||||
| Gain from forgiveness of debt | - | 3,068,497 | ||||||
| Gain on deconsolidation of variable interest entity | 569,997 | - | ||||||
| Other income | 6,318 | 32,043 | ||||||
| Interest expense | (507,762 | ) | (429,123 | ) | ||||
| Income before Income Taxes | 1,442,494 | 2,757,973 | ||||||
| Benefit from (Provision for) Income Taxes | (256,000 | ) | 135,000 | |||||
| Net Income | 1,186,494 | 2,892,973 | ||||||
| Income Attributable to Non-controlling Interest | (49,599 | ) | (137,951 | ) | ||||
| Preferred Dividends | (228,767 | ) | (162,945 | ) | ||||
| Net Income Attributable to Common Stockholders | $ | 908,128 | $ | 2,592,077 | ||||
| Income Per Share of Common Stock - | ||||||||
| Basic and Diluted | $ | 0.03 | $ | 0.09 | ||||
| Weighted Average Shares of Common Stock Outstanding - | ||||||||
| Basic | 28,279,701 | 28,472,676 | ||||||
| Diluted | 28,773,207 | 32,301,736 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 2 |
Greystone Logistics, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended November 30,
(Unaudited)
| 2022 | 2021 | |||||||
| Sales | $ | 12,101,674 | $ | 15,844,567 | ||||
| Cost of Sales | 10,879,300 | 14,867,601 | ||||||
| Gross Profit | 1,222,374 | 976,966 | ||||||
| Selling, General and Administrative Expenses | 1,205,988 | 1,133,900 | ||||||
| Operating Income (Loss) | 16,386 | (156,934 | ) | |||||
| Other Income (Expense): | ||||||||
| Other income | 683 | 5,218 | ||||||
| Interest expense | (288,316 | ) | (205,769 | ) | ||||
| Loss before Income Taxes | (271,247 | ) | (357,485 | ) | ||||
| Benefit from Income Taxes | 84,000 | 128,000 | ||||||
| Net Loss | (187,247 | ) | (229,485 | ) | ||||
| Income Attributable to Non-controlling Interest | - | (68,332 | ) | |||||
| Preferred Dividends | (119,349 | ) | (81,027 | ) | ||||
| Loss Attributable to Common Stockholders | $ | (306,596 | ) | $ | (378,844 | ) | ||
| Loss Per Share of Common Stock - | ||||||||
| Basic and Diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||
| Weighted Average Shares of Common Stock Outstanding - | ||||||||
| Basic and diluted | 28,279,701 | 28,561,201 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
Greystone Logistics, Inc.
Consolidated Statements of Income
For the Nine Months Ended February 28,
(Unaudited)
| 2022 | 2021 | |||||||
| Sales | $ | 53,069,648 | $ | 47,602,690 | ||||
| Cost of Sales | 47,914,061 | 38,986,912 | ||||||
| Gross Profit | 5,155,587 | 8,615,778 | ||||||
| Selling, General and Administrative Expenses | 4,033,483 | 3,639,883 | ||||||
| Operating Income | 1,122,104 | 4,975,895 | ||||||
| Other Income (Expense): | ||||||||
| Other income | 35,731 | 19,122 | ||||||
| Gain from forgiveness of debt | 3,068,497 | - | ||||||
| Interest expense | (631,115 | ) | (923,289 | ) | ||||
| Income before Income Taxes | 3,595,217 | 4,071,728 | ||||||
| Provision for Income Taxes | (99,000 | ) | (1,257,000 | ) | ||||
| Net Income | 3,496,217 | 2,814,728 | ||||||
| Income Attributable to Non-controlling Interest | (208,600 | ) | (203,918 | ) | ||||
| Preferred Dividends | (243,082 | ) | (243,973 | ) | ||||
| Net Income Attributable to Common Stockholders | $ | 3,044,535 | $ | 2,366,837 | ||||
| Income Per Share of Common Stock - | ||||||||
| Basic | $ | 0.11 | $ | 0.08 | ||||
| Diluted | $ | 0.10 | $ | 0.08 | ||||
| Basic and Diluted | ||||||||
| Weighted Average Shares of Common Stock Outstanding - | ||||||||
| Basic | 28,472,256 | 28,361,201 | ||||||
| Diluted | 32,301,084 | 32,363,012 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
Greystone Logistics, Inc.
Consolidated Statements of Income
For the Three Months Ended February 28,
(Unaudited)
| 2022 | 2021 | |||||||
| Sales | $ | 22,450,682 | $ | 14,511,196 | ||||
| Cost of Sales | 19,734,155 | 11,954,222 | ||||||
| Gross Profit | 2,716,527 | 2,556,974 | ||||||
| Selling, General and Administrative Expenses | 1,680,979 | 1,168,426 | ||||||
| Operating Income | 1,035,548 | 1,388,548 | ||||||
| Other Income (Expense): | ||||||||
| Other income | 3,688 | 10,178 | ||||||
| Interest expense | (201,992 | ) | (270,229 | ) | ||||
| Income before Income Taxes | 837,244 | 1,128,497 | ||||||
| Provision for Income Taxes | (234,000 | ) | (346,000 | ) | ||||
| Net Income | 603,244 | 782,497 | ||||||
| Income Attributable to Non-controlling Interest | (70,649 | ) | (68,904 | ) | ||||
| Preferred Dividends | (80,137 | ) | (80,137 | ) | ||||
| Net Income Attributable to Common Stockholders | $ | 452,458 | $ | 633,456 | ||||
| Income Per Share of Common Stock - | ||||||||
| Basic and Diluted | $ | 0.02 | $ | 0.02 | ||||
| Weighted Average Shares of Common Stock Outstanding - | ||||||||
| Basic | 28,472,639 | 28,361,201 | ||||||
| Diluted | 28,967,144 | 29,029,157 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
Greystone Logistics, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
For the NineSix Months Ended February 28,November 30, 2022 and 2021
(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, $ per 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 | ||||||||||||||||||||||||||
| Preferred dividends, $ per 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, 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 | |||||||||||||||||||
| Capital Contribution | - | - | - | - | - | - | - | 1,669,000 | 1,669,000 | |||||||||||||||||||||||||||
| Deconsolidation of variable interest entity | - | - | - | - | - | - | - | (3,102,424 | ) | (3,102,424 | ) | |||||||||||||||||||||||||
| Preferred dividends, $ per 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 | ||||||||||||||||||||||||||
| Preferred dividends, $ per share | - | - | - | - | - | (119,349 | ) | (119,349 | ) | - | (119,349 | ) | ||||||||||||||||||||||||
| Preferred dividends | - | - | - | - | - | (119,349 | ) | (119,349 | ) | - | (119,349 | ) | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (187,247 | ) | (187,247 | ) | - | (187,247 | ) | ||||||||||||||||||||||||
| 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 | |||||||||||||||||||
| Ending balance | 50,000 | $ | 5 | 28,279,701 | $ | 2,828 | $ | 53,533,272 | $ | (38,930,321 | ) | $ | 14,605,784 | $ | - | $ | 14,605,784 | |||||||||||||||||||
| 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, 2020 | 50,000 | $ | 5 | 28,361,201 | $ | 2,836 | $ | 53,790,764 | $ | (46,807,092 | ) | $ | 6,986,513 | $ | 1,173,020 | $ | 8,159,533 | |||||||||||||||||||
| Cash distributions | - | - | - | - | - | - | - | (52,200 | ) | (52,200 | ) | |||||||||||||||||||||||||
| Preferred dividends, $/share | - | - | - | - | - | (81,918 | ) | (81,918 | ) | - | (81,918 | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | 942,119 | 942,119 | 67,039 | 1,009,158 | |||||||||||||||||||||||||||
| Balances, August 31, 2020 | 50,000 | 5 | 28,361,201 | 2,836 | 53,790,764 | (45,946,891 | ) | 7,846,714 | 1,187,859 | 9,034,573 | ||||||||||||||||||||||||||
| Cash distributions | - | - | - | - | - | - | - | (52,200 | ) | (52,200 | ) | |||||||||||||||||||||||||
| Preferred dividends, $/share | - | - | - | - | - | (81,918 | ) | (81,918 | ) | - | (81,918 | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | 955,098 | 955,098 | 67,975 | 1,023,073 | |||||||||||||||||||||||||||
| Balances, November 30, 2020 | 50,000 | 5 | 28,361,201 | 2,836 | 53,790,764 | (45,073,711 | ) | 8,719,894 | 1,203,634 | 9,923,528 | ||||||||||||||||||||||||||
| Cash distributions | - | - | - | - | - | - | - | (52,200 | ) | (52,200 | ) | |||||||||||||||||||||||||
| Preferred dividends, $/share | - | - | - | - | - | (80,137 | ) | (80,137 | ) | - | (80,137 | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | 713,593 | 713,593 | 68,904 | 782,497 | |||||||||||||||||||||||||||
| Balances, February 28, 2021 | 50,000 | $ | 5 | 28,361,201 | $ | 2,836 | $ | 53,790,764 | $ | (44,440,255 | ) | $ | 9,353,350 | $ | 1,220,338 | $ | 10,573,688 | |||||||||||||||||||
| 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 | ||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||
| 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 | ) | ||||||||||||||||||||||||
| Preferred dividends | - | - | - | - | - | (80,137 | ) | (80,137 | ) | - | (80,137 | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | 532,595 | 532,595 | 70,649 | 603,244 | |||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | 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 | ||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Greystone Logistics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the NineSix Months Ended February 28,November 30,
(Unaudited)
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 1,186,494 | $ | 2,892,973 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities - | ||||||||
| Gain on forgiveness of debt | - | (3,068,497 | ) | |||||
| Gain on deconsolidation of variable interest entity | (569,997 | ) | - | |||||
| Gain on sale of assets | - | (22,336 | ) | |||||
| Depreciation and amortization | 2,722,174 | 2,784,864 | ||||||
| Deferred tax expense (benefit) | 19,000 | (135,000 | ) | |||||
| Decrease (increase) in trade accounts receivable | 1,770,360 | (147,493 | ) | |||||
| Decrease in related party receivables | 39,411 | 51,336 | ||||||
| Increase in inventory | (994,525 | ) | (937,363 | ) | ||||
| Increase in prepaid expenses | (23,653 | ) | (249,359 | ) | ||||
| Increase (decrease) in accounts payable and accrued liabilities | (2,153,136 | ) | 757,788 | |||||
| Increase (decrease) in deferred revenue | (5,306,040 | ) | 10,551,925 | |||||
| Net cash provided by (used in) operating activities | (3,309,912 | ) | 12,478,838 | |||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property, plant and equipment | (1,805,395 | ) | (1,538,664 | ) | ||||
| Deconsolidation of variable interest entity | (2,806 | ) | - | |||||
| Proceeds from sale of assets | - | 50,000 | ||||||
| Net cash used in investing activities | (1,808,201 | ) | (1,488,664 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from long-term debt | 8,707,426 | 837,000 | ||||||
| Payments on long-term debt and financing leases | (4,823,623 | ) | (3,146,683 | ) | ||||
| Payments on related party note payable and financing lease | (3,340,533 | ) | (277,777 | ) | ||||
| Proceeds from revolving loan | 1,090,648 | 1,400,000 | ||||||
| Payments on revolving loan | (42,867 | ) | - | |||||
| Proceeds from stock options exercised | - | 24,000 | ||||||
| Payments for debt issuance costs | (71,154 | ) | (4,752 | ) | ||||
| Dividends paid on preferred stock | (194,795 | ) | (162,945 | ) | ||||
| Capital contribution to non-controlling interest | 1,669,000 | - | ||||||
| Distributions paid by non-controlling interest | - | (52,200 | ) | |||||
| Net cash provided by (used in) financing activities | 2,994,102 | (1,383,357 | ) | |||||
| Net Increase (Decrease) in Cash | (2,124,011 | ) | 9,606,817 | |||||
| Cash, beginning of period | 3,143,257 | 4,387,533 | ||||||
| Cash, end of period | $ | 1,019,246 | $ | 13,994,350 | ||||
| Non-cash Activities: | ||||||||
| Refinancing of certain term loans | $ | 2,669,892 | $ | - | ||||
| Deconsolidation of net assets of variable interest entity | $ | 3,102,424 | $ | - | ||||
| Acquisition of equipment through financing lease | $ | - | $ | 24,441 | ||||
| Capital expenditures in accounts payable | $ | 8,863 | $ | 124,331 | ||||
| Preferred dividend accrual | $ | 119,349 | $ | - | ||||
| Supplemental information: | ||||||||
| Interest paid | $ | 505,723 | $ | 425,338 | ||||
| Income taxes paid | $ | 160,000 | $ | 255,000 | ||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 3,496,217 | $ | 2,814,728 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities - | ||||||||
| Depreciation and amortization | 4,015,292 | 4,400,422 | ||||||
| Forgiveness of debt | (3,068,497 | ) | - | |||||
| Gain on sale of assets | (22,336 | ) | - | |||||
| Deferred tax expense | 99,000 | 1,257,000 | ||||||
| Decrease (increase) in trade accounts receivable | (999,470 | ) | 2,290,113 | |||||
| Decrease (increase) in related party receivables | 41,376 | (23,889 | ) | |||||
| Decrease (increase) in inventory | (846,041 | ) | 752,526 | |||||
| Increase in prepaid expenses | (577,297 | ) | (53,564 | ) | ||||
| Increase in accounts payable and accrued liabilities | 3,258,539 | 39,602 | ||||||
| Increase (decrease) in deferred revenue | 3,787,750 | (2,911,800 | ) | |||||
| Net cash provided by operating activities | 9,184,533 | 8,565,138 | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | (4,875,530 | ) | (2,252,271 | ) | ||||
| Proceeds from sale of assets | 50,000 | - | ||||||
| Net cash used in investing activities | (4,825,530 | ) | (2,252,271 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from long-term debt | 837,000 | - | ||||||
| Payments on long-term debt and financing leases | (4,390,444 | ) | (3,631,852 | ) | ||||
| Payments on related party note payable and financing lease | (353,523 | ) | (885,206 | ) | ||||
| Proceeds from revolving loan | 3,700,000 | 1,250,000 | ||||||
| Payments on revolving loan | - | (3,190,003 | ) | |||||
| Proceeds from stock options exercised | 24,000 | - | ||||||
| Purchase of treasury stock | (281,500 | ) | - | |||||
| Payments for debt issuance costs | (4,752 | ) | - | |||||
| Dividends paid on preferred stock | (162,945 | ) | (247,946 | ) | ||||
| Distributions paid by non-controlling interest | (132,200 | ) | (156,600 | ) | ||||
| Net cash used in financing activities | (764,364 | ) | (6,861,607 | ) | ||||
| Net Increase (Decrease) in Cash | 3,594,639 | (548,740 | ) | |||||
| Cash, beginning of period | 4,387,533 | 1,131,850 | ||||||
| Cash, end of period | $ | 7,982,172 | $ | 583,110 | ||||
| Non-cash Activities: | ||||||||
| Acquisition of equipment through financing lease | $ | 24,441 | $ | - | ||||
| Capital expenditures in accounts payable | $ | 255,062 | $ | 48,379 | ||||
| Equipment transferred from inventory | $ | - | $ | 26,750 | ||||
| Preferred dividend accrual | $ | 80,137 | $ | 80,137 | ||||
| Supplemental information: | ||||||||
| Interest paid | $ | 627,555 | $ | 897,045 | ||||
| Income taxes paid | $ | 1,015,000 | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements.
GREYSTONE LOGISTICS, INC.Greystone Logistics, Inc. and Subsidiaries
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 February 28,November 30, 2022, the results of its operations for the ninesix months and three months ended February 28,November 30, 2022 and 2021 and its changes in equity and cash flows for the ninesix months ended February 28,November 30, 2022 and 2021. 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, 20212022 and the notes thereto included in the Form 10-K for such period. The results of operations for the ninesix months and three months ended February 28,November 30, 2022 and 2021 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”). GRE owns two buildings located in Bettendorf, Iowa which are leased to GSM. 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 primary manufacturing facilities which are occupied 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 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.
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) attributable to common stockholders by the weighted-average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income attributable 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 |
Schedule of Anti-dilutive SharesEarnings Per Share
| 2022 | 2021 | |||||||
| Preferred stock convertible into common stock | 3,333,333 | 3,333,333 | ||||||
| 2022 | 2021 | |||||||
| For the six months ended November 30: | ||||||||
| Preferred stock convertible into common stock | 3,333,333 | - | ||||||
| For the three months ended November 30: | ||||||||
| Preferred stock convertible into common stock | 3,333,333 | 3,333,333 | ||||||
| Warrants exercisable into common stock | 500,000 | 500,000 | ||||||
| Total | 3,833,333 | 3,833,333 | ||||||
For the nine months ended February 28, 2022 and 2021:
Schedule of Basic and Diluted Earnings Per Share
For the six months ended November 30, 2022 and 2021:
| 2022 | 2021 | |||||||
| Basic earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | 3,044,535 | $ | 2,366,837 | ||||
| Denominator - | ||||||||
| Weighted-average shares outstanding - basic | 28,472,256 | 28,361,201 | ||||||
| Income per share of common stock - basic | $ | 0.11 | $ | 0.08 | ||||
| Diluted earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | 3,044,535 | $ | 2,366,837 | ||||
| Add: Preferred stock dividends for assumed conversion | 243,082 | 243,973 | ||||||
| Net income allocated to common stockholders | $ | 3,287,617 | $ | 2,610,810 | ||||
| Denominator - | ||||||||
| Weighted-average shares outstanding – basic | 28,472,256 | 28,361,201 | ||||||
| Incremental shares from assumed conversion of options, warrants and preferred stock, as appropriate | 3,828,828 | 4,001,811 | ||||||
| Weighted average common stock outstanding – diluted | 32,301,084 | 32,363,012 | ||||||
| Income per share of common stock – diluted | $ | 0.10 | $ | 0.08 | ||||
| 2022 | 2021 | |||||||
| Basic earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | 908,128 | $ | 2,592,077 | ||||
| Denominator - | ||||||||
| Weighted-average shares outstanding - basic | 28,279,701 | 28,472,676 | ||||||
| Income per share of common stock - basic | $ | 0.03 | $ | 0.09 | ||||
| Diluted earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | 908,128 | $ | 2,592,077 | ||||
| Add: Preferred stock dividends for assumed conversion | - | 162,945 | ||||||
| Net income allocated to common stockholders | $ | 908,128 | $ | 2,755,022 | ||||
| Denominator - | ||||||||
| Weighted-average shares outstanding – basic | 28,279,701 | 28,472,676 | ||||||
| Incremental shares from assumed conversion of warrants and preferred stock, as appropriate | 493,506 | 3,829,060 | ||||||
| Weighted average common stock outstanding – diluted | 28,773,207 | 32,301,736 | ||||||
| Income per share of common stock – diluted | $ | 0.03 | $ | 0.09 | ||||
For the three months ended February 28,November 30, 2022 and 2021:
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Basic earnings per share of common stock: | ||||||||||||||||
| Numerator - | ||||||||||||||||
| Net income attributable to common stockholders | $ | 452,458 | $ | 633,456 | ||||||||||||
| Net loss attributable to common stockholders | $ | (306,596 | ) | $ | (378,844 | ) | ||||||||||
| Denominator - | ||||||||||||||||
| Weighted-average shares outstanding – basic | 28,472,639 | 28,361,201 | ||||||||||||||
| Income per share of common stock – basic | $ | 0.02 | $ | 0.02 | ||||||||||||
| Weighted-average shares outstanding - basic | 28,279,701 | 28,561,201 | ||||||||||||||
| Loss per share of common stock - basic | $ | (0.01 | ) | $ | (0.01 | ) | ||||||||||
| Diluted earnings per share of common stock: | ||||||||||||||||
| Numerator - | ||||||||||||||||
| Net income attributable to common stockholders | $ | 452,458 | $ | 633,456 | ||||||||||||
| Net loss attributable to common stockholders | $ | (306,596 | ) | $ | (378,844 | ) | ||||||||||
| Denominator - | ||||||||||||||||
| Weighted-average shares outstanding - basic | 28,472,639 | 28,361,201 | 28,279,701 | 28,561,201 | ||||||||||||
| Incremental shares from assumed conversion of warrants or options, as appropriate | 494,505 | 667,956 | ||||||||||||||
| Weighted average common stock outstanding - diluted | 28,967,144 | 29,029,157 | ||||||||||||||
| Income (loss) per share of common stock – diluted | $ | 0.02 | $ | 0.02 | ||||||||||||
| Incremental shares from assumed conversion of warrants and preferred stock, as appropriate | - | - | ||||||||||||||
| Weighted average common stock outstanding – diluted | 28,279,701 | 28,561,201 | ||||||||||||||
| Loss per share of common stock - diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||||||||||
Note 3. Inventory
Inventory consists of the following:
Schedule of Inventory
| February 28, | May 31, | November 30, | May 31, | |||||||||||||
| 2022 | 2021 | 2022 | 2022 | |||||||||||||
| Raw materials | $ | 2,054,525 | $ | 2,520,654 | $ | 2,170,635 | $ | 2,091,551 | ||||||||
| Finished goods | 2,233,490 | 921,320 | 2,936,386 | 2,020,945 | ||||||||||||
| Total inventory | $ | 4,288,015 | $ | 3,441,974 | $ | 5,107,021 | $ | 4,112,496 | ||||||||
Note 4. Property, Plant and Equipment
A summary of property, plant and equipment is as follows:
Schedule of Property, Plant and Equipment
February 28, 2022 | May 31, 2021 | November 30, 2022 | May 31, 2022 | |||||||||||||
| Production machinery and equipment | $ | 56,215,850 | $ | 52,292,733 | $ | 58,957,411 | $ | 57,341,906 | ||||||||
| Plant buildings and land | 7,020,542 | 6,970,949 | 2,364,089 | 7,020,543 | ||||||||||||
| Leasehold improvements | 1,487,398 | 1,487,398 | 1,553,138 | 1,487,398 | ||||||||||||
| Furniture and fixtures | 542,057 | 550,337 | 542,057 | 542,057 | ||||||||||||
| Property plant and equipment gross | 65,265,847 | 61,301,417 | 63,416,695 | 66,391,904 | ||||||||||||
| Less: Accumulated depreciation and amortization | (33,166,171 | ) | (30,302,429 | ) | (35,100,733 | ) | (34,515,139 | ) | ||||||||
| Net Property, Plant and Equipment | $ | 32,099,676 | $ | 30,998,988 | $ | 28,315,962 | $ | 31,876,765 | ||||||||
Production machinery includes deposits on equipment in the amount of $2,977,2302,374,216 at February 28,as of November 30, 2022, which has not been placed into service. PlantAs of May 31, 2022, plant buildings and land includeincluded two properties which are owned by GRE, a variable interest entity (“VIE”), and havehad an aggregate net book value of $2,577,9012,548,933 as of February 28,. As discussed in Note 1, GRE was deconsolidated effective July 29, 2022.
Depreciation expense, including amortization expense related to financing leases, for the ninesix months ended February 28,November 30, 2022 and 2021 was $4,011,0252,719,312 and $4,397,8902,782,057, respectively.
Note 5. Related Party Transactions/Activity
Yorktown Management & Financial Services, LLC
Yorktown Management & Financial Services, LLC (“Yorktown”), an entity wholly-owned by Greystone’s President and 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 $27,500 for use of Yorktown’s grinding equipment and pelletizing equipment. Rental fees, which are reflected as short term lease expense in Note 7, were $1,072,500715,000 for the each of the ninesix months ended February 28,November 30, 2022 and 2021.
Effective January 1, 2017, Greystone paidand Yorktown entered into a five-year lease for office rents totalingspace at a monthly rental of $38,400 4,000 per month with a one-year extension at $5,200 per month which extension was executed by Greystone. Total rent expense was $31,200and $36,000 24,000during for the ninesix months ended February 28,November 30, 2022 and 2021, respectively. Greystone prepaid $99,710 to Yorktown as a prepayment for lease rentals and rents on office space in consideration for a 50% reduction on office rent on the last scheduled payment under the office lease.
| 8 |
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 President 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 in TriEnda. Greystone may purchase pallets from TriEnda for resale or sell Greystone pallets to TriEnda. During the ninesix months ended February 28,November 30, 2022 and 2021, Greystone purchases from TriEnda totaled $4,222431 and $52,3564,222, respectively, and sales to TriEnda totaled $62,08925,039 and $54,87152,129, respectively. As of February 28,November 30, 2022, TriEnda owed $88,204177,191 to Greystone.Greystone while Greystone owed $431 to TriEnda.
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 President and CEO. Greystone had sales to Green of $348,330438,420 and $343,350300,390 for the ninesix months ended February 28,November 30, 2022 and 2021, respectively. The account receivable due from Green as of February 28,November 30, 2022 was $23,97035,510.
Note 6. Long-term Debt
Debt as of February 28,November 30, 2022 and May 31, 20212022 is as follows:
Schedule of Long-Term Debt
| February 28, | May 31, | |||||||
| 2022 | 2021 | |||||||
| Other | 120,648 | 147,914 | ||||||
| Term loan A payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.0%, maturing April 30, 2023 | $ | 973,767 | $ | 1,623,572 | ||||
| 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, 2024 | 703,855 | 905,822 | ||||||
| Term loan D payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.75%, maturing January 10, 2022 | - | 487,390 | ||||||
| Term loan E payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.75%, maturing February 28, 2023 | 253,181 | 447,551 | ||||||
| Term loan F payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 5.25%, maturing February 29, 2024 | 1,476,551 | 2,035,670 | ||||||
| Term loan G payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 5.25%, maturing April 30, 2024 | - | 789,926 | ||||||
| Revolving loan payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 5.5%, due January 31, 2024 | 3,700,000 | - | ||||||
| Paycheck Protection Program note, interest rate of 1.0%, debt forgiven June 2021 | - | 3,034,000 | ||||||
| Term loan payable by GRE to International Bank of Commerce, interest rate of 5.5%, monthly principal and interest payment of $27,688, due April 30, 2023 | 1,883,218 | 2,049,941 | ||||||
| Term note payable to Great Western Bank, interest rate of 3.7%, monthly principal and interest payments of $27,593, due March 19, 2025, secured by certain equipment | 962,651 | 1,180,470 | ||||||
| Term loan payable to Great Western Bank, interest rate of 3.5%, monthly principal and interest payments of $5,997, due August 10, 2028, secured by certain real estate | 814,758 | - | ||||||
| Note payable to Robert Rosene, 7.5% interest, due January 15, 2024 | 3,357,143 | 3,536,112 | ||||||
| Other | 120,648 | 147,914 | ||||||
| Total long-term debt | 14,245,772 | 16,238,368 | ||||||
| Debt issuance costs, net of amortization | (31,211 | ) | (30,726 | ) | ||||
| Total debt, net of debt issuance costs | 14,214,561 | 16,207,642 | ||||||
| Less: Current portion of long-term debt | (2,818,321 | ) | (3,236,113 | ) | ||||
| Long-term debt, net of current portion | $ | 11,396,240 | $ | 12,971,529 | ||||
| November 30, | May 31, | |||||||
| 2022 | 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 | $ | 7,496,498 | $ | - | ||||
| 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 | $ | 7,496,498 | $ | - | ||||
| 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 | 3,306,211 | - | ||||||
| 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 | 4,747,781 | 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 | 738,515 | 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 | 782,021 | 803,941 | ||||||
| Note payable to Robert Rosene, 7.5% interest, paid off August 3, 2022 | - | 3,295,704 | ||||||
| Other | 92,537 | 111,374 | ||||||
| Total long-term debt | 17,163,563 | 13,496,191 | ||||||
| Debt issuance costs, net of amortization | (98,043 | ) | (29,751 | ) | ||||
| Total debt, net of debt issuance costs | 17,065,520 | 13,466,440 | ||||||
| Less: Current portion of long-term debt | (2,101,460 | ) | (4,160,403 | ) | ||||
| Long-term debt, net of current portion | $ | 14,964,060 | $ | 9,306,037 | ||||
The prime rate of interest as of February 28,November 30, 2022 was 3.257.00%. Subsequent to February 28,Effective December 14, 2022, the prime rate of interest was increased to 3.507.50% on March 17, 2022..
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 $4,267 2,862and $2,5322,808 for the ninesix months ended February 28,November 30, 2022 and 2021, respectively.
Restated and Amended Loan Agreement between Greystone and IBC
TheOn July 29, 2022, Greystone and GSM (collectively “Borrowers”) and IBC entered into an Amended and Restated Loan Agreement (“IBC Restated Loan Agreement”), dated January 31, 2014 and as amended from time to time, among Greystone and GSM (the “Borrowers”) and International Bank of Commerce (“IBC”) that provides for consolidation of certain term loans and a renewed revolver loan.
The IBC term loans 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 $194,000231,000 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, to 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 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, whereby Greystone may obtain advances up to the aggregate amount of $7,000,000 (items i and ii referred to as amended, provides“Term Loans”) (iii) a renewal of the revolving loan inwith an increase of $2,000,000 to an aggregate principal amount of up to $4,000,000 6,000,000(the (the “Revolving Loan”). The amount which can be borrowed from time, subject to time is dependent upon the amount of the borrowing base as defined in the IBC Loan Agreement, not to exceed $4,000,000. The Revolving Loan bears interest at the greaterlimitations. As of the prime rate of interest plus 0.5%, or 5.50% and matures January 31, 2024. 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.November 30, 2022, Greystone’s available revolving loan borrowing capacity was approximately $300,000 1,252,000as of February 28, 2022..
The IBC Restated 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, the IBC 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, Greystone’s President and CEO, and Robert B. Rosene, Jr., a director of Greystone. Messrs. Kruger and Rosene have provided a combined limited guarantyguaranties of the Borrowers’ obligations under the IBC Restated Loan Agreement, with such guaranty beingAgreement. Mr. Kruger’s guarantee is limited to a combined32.4% 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 $6,500,000 (the “Guaranty”) subsequently amended and restated as of January 7, 2016, reducingloans after the maximum aggregate guaranty limit to $3,500,000 if Greystone maintained a Debt Coverage Ratio of at least 1.35:1.00 for a period of six consecutive quarters. Greystone has maintained a ratio of at least 1.35:1.00 for the specified time and has notified IBC accordingly. 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 herein.
Loan Agreement between GRE and IBC
On August 10, 2018, GRE and IBC entered into an amended agreement to extend the maturitydate of the note to April 30, 2023 and increase the interest rate to 5.5%. The note is secured by a mortgageagreement excluding payments on the two buildings in Bettendorf, Iowa, which are leasedrevolver and (ii) the amount owed to Greystone.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 Great WesternFirst Interstate Bank (“WesternFIB Loan Agreement”) to include prior commercial loans and subsequent loans. GSM is a named guarantor under the WesternFIB Loan Agreement.
The WesternFIB Loan Agreement includes customary events of default, including events of default relating to non-payment of principal and other amounts owing under the WesternFIB 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 WesternFIB Loan Agreement. Among other things, a default under the WesternFIB Loan Agreement would permit WesternFIB to cease lending funds under the WesternFIB Loan Agreement and require immediate repayment of any outstanding notes with interest and any unpaid accrued fees.
The WesternFIB Loan Agreement is secured by a mortgage on twoone of Greystone’s warehouses.
Note Payable between Greystone and Robert B. Rosene, Jr.Maturities
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, 2024. 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. The balance of the note as of February 28, 2022 was $3,357,143.
Maturities
Maturities of Greystone’s long-term debt for the five years subsequent to February 28,November 30, 2022, are $2,818,3212,101,460, $10,172,7156,968,620, $545,1762,147,857, $79,5021,851,171 and $50,4303,553,879 with $579,628540,576 thereafter.
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Note 7. Leases
Financing Leases
Financing leases as of February 28,November 30, 2022 and May 31, 2021:2022:
Schedule of Financing Lease
| February 28, 2022 | May 31, 2021 | November 30, 2022 | May 31, 2022 | |||||||||||||
| Non-cancellable financing leases | $ | 2,370,077 | $ | 3,594,007 | $ | 86,722 | $ | 2,163,043 | ||||||||
| Less: Current portion | (1,592,166 | ) | (1,745,535 | ) | (47,151 | ) | (1,630,895 | ) | ||||||||
| Non-cancellable financing leases, net of current portion | $ | 777,911 | $ | 1,848,472 | $ | 39,571 | $ | 532,148 | ||||||||
Greystone and an unrelated private company entered into three lease agreements for certain production equipment with a total cost of approximately $6.9 million which were effective February 24, 2018, August 2, 2018 and December 21, 2018, respectively, with five-year terms and an effective interest rate of 7.4%. Each ofEffective October 17, 2022, Greystone and the lease agreements include a bargain purchase optionprivate company entered into an agreement for Greystone to pay off the leases and acquire the production equipment at the endunamortized principal balance of the lease term. The leased equipment is principally used to produce pallets for the private company. Lease payments are made asleases or a credit on the sales invoice at the ratetotal of $3.32 for each pallet produced and shipped from the respective leased equipment. The estimated aggregate monthly rental payments are approximately $130,0001,527,293. The rent payments can vary each month depending on the quantity of pallets produced from each machine. The lease agreements provide for minimum monthly lease rental payments based upon the total pallets sold in excess of a specified amount not to exceed the monthly productive capacity of the leased machines.
Effective December 28, 2018, Yorktown purchased certain production equipment from Greystone at net book value of $968,168 and entered into a lease agreement with Greystone for the equipment with a monthly rent of $27,915 for the initial thirty-six months and $7,695 for the following twelve months and maturing December 27, 2022. The lease agreement has a $10,000 purchase option at the end of the lease.lease which was exercised and paid on December 29, 2022.
The production equipment under the remaining non-cancelable financing leases as of November 30, 2022, has a gross carrying amount of $8,473,3571,144,733 as of February 28,November 30, 2022. Amortization of the carrying amount of $721,923180,240 and $758,902505,935 was included in depreciation expense for the ninesix months ended February 28,November 30, 2022 and 2021, respectively.
Operating Leases
Greystone recognized a lease liability for each lease based on the present value of remaining minimum fixed rental payments, using a discount rate that approximates the rate of interest for a collateralized loan over a similar term. A right-of-use asset is recognized for each lease, valued at the lease liability. Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses on the consolidated statements of income. Variable and short-term rental payments are recognized as costs and expenses as they are incurred.
Greystone has twothree 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, discussed in the following paragraph, 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 properties 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 six-month periods ending February 28,November 30, 2022 and 2021:
Summary of Lease Activity
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Lease Expense | ||||||||||||||||
| Financing lease expense - | ||||||||||||||||
| Amortization of right-of-use assets | $ | 721,923 | $ | 758,902 | $ | 180,240 | $ | 505,935 | ||||||||
| Interest on lease liabilities | 119,000 | 218,088 | 25,261 | 99,412 | ||||||||||||
| Operating lease expense | 53,411 | 61,411 | 190,343 | 40,941 | ||||||||||||
| Short-term lease expense | 1,101,133 | 1,117,628 | 783,360 | 1,016,148 | ||||||||||||
| Total | $ | 1,995,467 | $ | 2,156,029 | $ | 1,179,204 | $ | 1,662,436 | ||||||||
| Other Information | ||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities for finance leases - | ||||||||||||||||
| Operating cash flows | $ | 119,000 | $ | 218,088 | $ | 25,261 | $ | 99,412 | ||||||||
| Financing cash flows | $ | 1,248,371 | $ | 1,407,081 | $ | 549,029 | $ | 832,239 | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities for operating leases - | ||||||||||||||||
| Operating cash flows | $ | 53,411 | $ | 61,411 | $ | 190,343 | $ | 40,941 | ||||||||
| Weighted-average remaining lease term (in years) - | ||||||||||||||||
| Financing leases | 1.5 | 2.8 | 1.9 | 1.9 | ||||||||||||
| Operating leases | 1.9 | 2.2 | 14.6 | 2.0 | ||||||||||||
| Weighted-average discount rate - | ||||||||||||||||
| Financing leases | 7.3 | % | 7.4 | % | 4.7 | % | 7.3 | % | ||||||||
| Operating leases | 5.4 | % | 5.2 | % | 6.0 | % | 5.4 | % | ||||||||
Future minimum lease payments under non-cancelable leases as of February 28,November 30, 2022, are approximately:
Schedule of Future Minimum Lease Payments
| Financing Leases | Operating Leases | |||||||
| Twelve months ended February 28, 2023 | $ | 1,709,132 | $ | 33,881 | ||||
| Twelve months ended February 29, 2024 | 771,741 | 24,550 | ||||||
| Twelve months ended February 28, 2025 | 22,479 | 7,468 | ||||||
| Twelve months ended February 28, 2026 | 7,807 | - | ||||||
| Twelve months ended February 28, 2027 | 502 | - | ||||||
| Total future minimum lease payments | 2,511,661 | 65,899 | ||||||
| Present value discount | 141,584 | 3,657 | ||||||
| Present value of minimum lease payments | $ | 2,370,077 | $ | 62,242 | ||||
Financing Leases | Operating Leases | |||||||
| Twelve months ended November 30, 2023 | $ | 49,880 | $ | 564,816 | ||||
| Twelve months ended November 30, 2024 | 29,720 | 546,792 | ||||||
| Twelve months ended November 30, 2025 | 9,598 | 534,000 | ||||||
| Twelve months ended November 30, 2026 | 1,503 | 534,000 | ||||||
| Twelve months ended November 30, 2027 | - | 542,920 | ||||||
| Thereafter | - | 5,560,480 | ||||||
| Total future minimum lease payments | 90,701 | 8,283,008 | ||||||
| Present value discount | 3,979 | 2,847,810 | ||||||
| Present value of minimum lease payments | $ | 86,722 | $ | 5,435,198 | ||||
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 advancesis recognized by Greystone as pallets are shipped to the customer which totaled $9,772,750 5,306,040and $4,291,800 3,008,575during the ninesix months ended February 28,November 30, 2022 and 2021, respectively. Customer advances received during the ninesix months ended February 28,November 30, 2022 and 2021 were $$-13,560,500 0- and $1,380,00013,560,500, respectively. The unrecognized balance of deferred revenue as of February 28,November 30, 2022 and May 31, 2021,2022, was $10,218,357 23,007and $6,430,6075,329,047, respectively.
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 1.61.0% and 0.81.6% of sales during the ninesix months ended February 28,November 30, 2022 and 2021, respectively.
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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 ninesix months ended February 28,November 30, 2022 and 2021, respectively, were as follows:
Schedule of Sale of Revenues for Customer Categories
| Category | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| End User Customers | 74 | % | 85 | % | 73 | % | 74 | % | ||||||||
| Distributors | 26 | % | 15 | % | 27 | % | 26 | % | ||||||||
Note 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 approximate fair value. Fixed rate notes are valued based on cash flows using estimated rates of comparable notes. The carrying amounts reported on the consolidated balance sheets approximate fair value.
Note 11. Concentrations, Risks and Uncertainties
Greystone derived approximately 7573% and 8574% of its total sales from three customers (four customers in the prior period) during the ninesix months ended February 28,November 30, 2022 and 2021, respectively. The loss of a material amount of business from one or more 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 $313,050 and $524,321 in fiscal years 2022 and 2021, respectively, were from one of its major customers.
Robert B. Rosene, Jr., a Greystone director, has provided financing and guarantees on Greystone’s bank debt. As of February 28, 2022, Greystone is indebted to Mr. Rosene in the amount of $3,357,143 for a note payable due January 15, 2024. There is no assurance that Mr. Rosene will renew the note as of the maturity date.
COVID-19 Risks. The impact of COVID-19 and the related variants has created much uncertainty in the marketplace. To date, the demand for Greystone’s products has not been affected as Greystone’s pallets are generally used logistically by essential entities. The major issue that Greystone has incurred is maintaining adequate work force to meet demand for pallets. The virus has impacted the overall workforce in our operating area as well as Greystone’s workforce due to employees electing to stay at home for protection from COVID-19 and reductions of recruitment of new employees. Management is unable to predict the stability of its workforce due to the uncertainty created as long as the virus or variants thereof continue to stay active.
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.
Note 12. Commitments
As of February 28,November 30, 2022, Greystone had commitments totaling $5,308,2625,065,888 toward the purchase of production equipment.
Note 13. Subsequent Events
By notices dated January 9, 2023, the Department of Treasury notified Greystone of Employee Retention Credits awarded under the CARES Act in the total amount of approximately $3,270,000 due to Greystone for the quarters ended June 30, 2021 and September 30, 2021. Greystone will record these credits in January 2023, which is the point in which the uncertainty surrounding them is resolved and they become realizable.
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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 the variable interest entity, Greystone Real Estate, L.L.C. (“GRE”). for the period from June 1, 2022 through July 29, 2022. Effective July 29, 2022, the relationship of Greystone as a beneficiary of GRE ceased to exist. All material intercompany accounts and transactions have been eliminated.
References to fiscal year 20222023 refer to the ninesix months and three months ended February 28,November 30, 2022. References to fiscal year 20212022 refer to the ninesix months and three months ended February 28,November 30, 2021.
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, its President and other employees.
Personnel
Greystone had full-time-equivalents of approximately 239195 and 260264 full-time employees and 8040 and 6173 temporary employees as of February 28,November 30, 2022 and 2021, respectively. Full-time equivalent is a measure based on time worked.
NineSix Months Ended February 28,November 30, 2022 Compared to NineSix Months Ended February 28,November 30, 2021
Sales
Sales for fiscal year 20222023 were $53,069,648$31,055,273 compared to $47,602,690$30,618,966 in fiscal year 20212022 for an increase of $5,466,958,$436,307, or 11.5%1.4%. Average pallet pricing from fiscal year 2021 to fiscal year 2022 isWhile the principal contributing factor to the increase salesquantity of pallets sold in fiscal year 2022. As noted herein,2023 decreased by approximately 13% from the numberprior period, the average price of major customers decreased from four to three as one customer’s demand for pallets was completed in fiscal year 2021. However, this deficiency was offsetsold increased by a substantialapproximately 15%. The increase in pallet sales to distributors in fiscal year 2022.the average price of pallets sold during the current period is the result of product mix and price increases.
Greystone had three customers (four in fiscal year 2021) which accounted for approximately 75%73% and 86%74% of sales in fiscal years 20222023 and 2021,2022, respectively. Greystone is not able to predict the future needs of these major 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 20222023 was $47,914,061,$27,369,753, or 90%88% of sales, compared to $38,986,912,$28,179,906, or 82%92% of sales, in fiscal year 2021.2022. The increasedecrease in cost of sales to sales in fiscal year 20222023 from the prior period was primarily the result of several factors, includingselling price increases as noted under Sales and the cost control measures implemented by Greystone to offset the impact of lower pallet production. Greystone’s inflexible costs of production are a significant factor impacting the profit margins realized from the sale of product. While cost of raw materials resulting from inflationary increases in prices that were occurring faster that Greystone’s abilitysales to compensate, a shortage of personnel and machine downtimesales showed improvements over the prior period, Greystone anticipates continued improvements during the first two quartersremainder of fiscalthe current year 2022 resultingas increases are anticipated in increased production costs per pallet due to Greystone’s relatively inflexible cost structure, and increased wages. To achieve a reduction in the cost of raw material, Greystone has ordered a new shredder and pelletizing system to increase the in-house capability to process unrefined recycled plastic which are expected to be operational about December 2022.
production.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) were $4,033,483$2,311,579, or 7.4% of sales, in fiscal year 2023 compared to $2,352,504, or 7.7% of sales, in fiscal year 2022 for a decrease of $(40,925). SG&A during the current period compared to $3,639,883 in fiscal year 2021 for an increase of $393,600. Legal expenses of approximately $475,000 resulting from arbitration proceedings initiated by iGPS Logistics, LLC, were the primary factor for the increased costs during fiscal year 2022. In January 2022, Greystone and iGPS entered into an agreement to terminate the arbitration proceedings without any monetary settlement.prior period shows general consistency.
Other Income (Expenses)
ADuring fiscal year 2023, Greystone recognized a gain on the deconsolidation of the variable interest entity GRE in the amount of $569,997. During fiscal year 2022, a gain was recognized on the forgiveness of debt plus accrued interest in the amount of $3,068,497 for the Paycheck Protection Program loan under the Coronavirus Aid, Relief, and Economic Security Act.
Other income was $6,318 in fiscal year 2023 and $32,043 in fiscal year 2022 from the forgivenesssale of the PPP loanscrap material and accrued interest in the amount of $3,068,497. Other income in fiscal year 2022 was $35,731 which included a gain of $22,336 fromon the sale of equipment and $13,395 from sales of scrap material while fiscal year 2021was from sales of scrap materialassets in the amount of $19,122.prior period.
Interest expense was $631,115$507,762 in fiscal year 2023 compared to $429,123 in fiscal year 2022 for an increase of $78,639. The increase is attributable to increases in the prime rate of interest which was 7.00% as of November 30, 2022 compared to $923,289 in fiscal year 2021 for a decrease of $292,174. Principal reductions in debt and financing lease obligations were the primary reason for the decline.3.25% as November 30, 2021.
Provision for Income Taxes
The provision for (benefit from) income taxes was $99,000$256,000 and $1,257,000$(135,000) in fiscal years 20222023 and 2021,2022, respectively. The effective tax rate differs from federal statutory rates principally due to state income taxes, charges or income which have no tax benefit or expense, changes in the valuation allowance, and the basis that net income from GRE is not taxable at the corporate level because GRE is a limited liability company of which Greystone 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
Greystone recorded net income of $3,496,217$1,186,494 in fiscal year 20222023 compared to $2,814,728$2,892,973 in fiscal year 20212022 primarily for the reasons discussed above.
Net Income Attributable to Common Stockholders
The net income attributable to common stockholders (net income less preferred dividends and GRE’s net income) for fiscal year 20222023 was $3,044,535,$908,128, or $0.11$0.03 per share, compared $2,366,837,$2,592,077, or $0.08$0.09 per share, in fiscal year 20212022 primarily for the reasons discussed above.
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Three Months Ended February 28,November 30, 2022 Compared to Three Months Ended February 28,November 30, 2021
Sales
Sales for fiscal year 20222023 were $22,450,682$12,101,674 compared to $14,511,196 in fiscal year 2021 for an increase of $7,939,486, or 54.7%. The number of pallets sold$15,844,567 in fiscal year 2022 reflectedfor a 34% increase over fiscal year 2021. Factors affecting the increasedecrease of $(3,742,893). This decrease in sales duringfrom fiscal year 2022 includewas principally the result of a substantial contract from a major retailer, the return business from a customerdecrease of approximately 27% in the beer industry, andquantity of pallets sold offset somewhat by an increase of approximately 91% increase5% in sales to distributors. Customer changes that occurred was the number of major customers decreasing from four to three as one customer’s demand for pallets was completed in fiscal year 2021.average price per pallet sold.
Greystone had three customers (four in fiscal year 2021) which accounted for approximately 78%66% and 82%78% of sales in fiscal years 20222023 and 2021,2022, respectively. Greystone is not able to predict the future needs of these major 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 20222023 was $19,734,155,$10,879,300, or 88%90% of sales, compared to $11,954,222,$14,867,601, or 82%94% of sales, in fiscal year 2021.2022. The increasedecrease in cost of sales to sales in fiscal year 2022 over fiscal year 20212023 from the prior period was primarily the result of various factors, includingselling price increases as noted under Sales and cost control measures implemented by Greystone to offset the impact of lower pallet production during the current period. Greystone’s inflexible costs of production are a significant factor impacting the profit margins realized from the sale of product. While cost of raw materials from inflationarysales to sales showed improvements over the prior period, Greystone anticipates continued improvements during the remainder of the current year as increases are anticipated in prices that were occurring faster that Greystone’s ability to compensate and increased wages. To achieve a reduction in the cost of raw material, Greystone has ordered a new shredder and pelletizing system to increase the in-house capability to process unrefined recycled plastic which are expected to be operational about December 2022.pallet production.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) were $1,680,979$1,205,988, or 10.0% of sales, in fiscal year 2023 compared to $1,133,900, or 7.2% of sales, in fiscal year 2022 compared to $1,168,426 in fiscal year 2021 for an increase of $512,553. Legal expenses of approximately $291,000 resulting from arbitration proceedings initiated by iGPS Logistics, LLC, were a primary factor for the increased$72,088. SG&A costs during fiscal year 2022. In January 2022, Greystone and iGPS entered into an agreement to terminate the arbitration proceedings without any monetary settlement. Additionally, compensation bonuses paid during fiscal year 2022 contributedcurrent period compared to the increase.prior period showed general consistency. The increase in the percent of SG&A to sales results from the decline of sales in the current period.
Other Income (Expenses)
Other income from sales of scrap material was $3,688$683 in fiscal year 20222023 compared to $10,178$5,218 in fiscal year 2021.2022.
Interest expense was $201,922$288,316 in fiscal year 2023 compared to $205,769 in fiscal year 2022 for an increase of $82,547. The increase is attributable to increases in the prime rate of interest which was 7.00% as of November 30, 2022 compared to $270,229 in fiscal year 2021 for a decrease of $68,237. The decrease from fiscal year 2021 to fiscal year 2022 was primarily due to the decrease in the principal balances for debt and financing lease obligations.3.25% as November 30, 2021.
Provision for Income Taxes
The provision forbenefit from income taxes was $234,000$84,000 and $346,000$128,000 in fiscal years 20222023 and 2021,2022, respectively. The effective tax rate differs from federal statutory rates due principally to state income taxes, charges or income which have no tax benefit or expense, changes in the valuation allowance, and the basis that the net income from GRE is not taxable at the corporate level because GRE is a limited liability company of which Greystone 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.
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Net IncomeLoss
Greystone recorded net incomelosses of $603,244$(187,247) in fiscal year 20222023 compared to $782,497$(229,485) in fiscal year 20212022 primarily for the reasons discussed above.
Net IncomeLoss Attributable to Common Stockholders
The net incomeloss attributable to common stockholders (net incomeloss less preferred dividends and GRE’s net income) for fiscal year 20222023 was $452,458,$(306,596), or $0.02$(0.01) per share, compared $633,456,$(378,844), or $0.02$(0.01) per share, in fiscal year 20212022 primarily for the reasons discussed above.
Liquidity and Capital Resources
A summary of cash flows for the ninesix months ended February 28,November 30, 2022 is as follows:
| Cash provided by operating activities | $ | 9,184,533 | ||
| Cash used in investing activities | $ | (4,825,530 | ) | |
| Cash used in financing activities | $ | (764,364 | ) |
| Cash used in operating activities | $ | (3,309,912 | ) | |
| Cash used in investing activities | $ | (1,808,201 | ) | |
| Cash provided by financing activities | $ | 2,994,102 |
The contractual obligations of Greystone are as follows:
| Total | Less than 1 year | 1-3 years | 4-5 years | Thereafter | ||||||||||||||||
| Long-term debt | $ | 17,163,563 | $ | 2,101,460 | $ | 9,116,477 | $ | 5,405,050 | $ | 540,576 | ||||||||||
| Financing lease rents | $ | 90,701 | $ | 49,880 | $ | 39,318 | $ | 1,503 | $ | - | ||||||||||
| Operating lease rents | $ | 8,283,008 | $ | 564,816 | $ | 1,080,792 | $ | 1,076,920 | $ | 5,560,480 | ||||||||||
| Commitments | $ | 5,065,888 | $ | 5,065,888 | $ | - | $ | - | $ | - | ||||||||||
| Total | Less than 1 year | 1-3 years | 4-5 years | Thereafter | ||||||||||||||||
| Long-term debt | $ | 14,245,772 | $ | 2,818,321 | $ | 10,717,891 | $ | 129,932 | $ | 579,628 | ||||||||||
| Financing lease rents | $ | 2,511,661 | $ | 1,709,132 | $ | 794,220 | $ | 8,309 | $ | - | ||||||||||
| Operating lease rents | $ | 65,899 | $ | 33,881 | $ | 24,550 | $ | 7,468 | $ | - | ||||||||||
| Commitments | $ | 5,308,262 | $ | 5,308,262 | $ | - | $ | - | $ | - | ||||||||||
Greystone had a working capital deficit of $(3,904,765)$2,811,905 as of February 28,November 30, 2022. To provide for the funding to meet Greystone’s operating activities and contractual obligations as of February 28,November 30, 2022, 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 January 9, 2023, the Department of Treasury notified Greystone issued purchase ordersof Employee Retention Credits awarded under the CARES Act in January 2022the total amount of approximately $3,270,000 due to Greystone for equipment including two injection molding machinesthe quarters ended June 30, 2021 and one pelletizing system for about $5.5 millionSeptember 30, 2021. Greystone anticipates the receipt of these funds during its fiscal third quarter 2023, and plans to increaseuse the funds to improve its pallet production capacities. Because of the significant decrease inworking capital, reduce debt, and cover portions of our unfinanced commitments.
As of November 30, 2022, Greystone had commitments for capital expenditures of approximately $5.0 million of which $3.5 million is available under the advancing term loan with IBC, see Note 6 to the consolidated financial lease balances through February 28, 2022, management believes funding will be achieved through financial institutions.statements.
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A substantial amount of the Greystone’s debt financing has resulted primarily from bank notes which are guaranteed by certain officers and directors of Greystone and from 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.
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 Form 10-K for the fiscal year ended May 31, 2021,2022, which was filed on August 20, 2021.19, 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, 2021,2022, Warren F. Kruger, Greystone’s Chief Executive Officer, and William W. Rahhal, Greystone’s Chief Financial Officer, identified no material weakness in Greystone’s internal control over financial reporting. As a result, 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 effective as of February 28,November 30, 2022.
During the three months ended February 28,November 30, 2022, 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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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
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.
Item 5. Other Information.
None.
Item 6. Exhibits.
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.
Index to Exhibits The following exhibits are filed or furnished as part of this Quarterly Report on Form 10-Q.
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