Greystone Logistics, Inc 10-Q for FY2024 Q1
Greystone Logistics, Inc. (GLGI)
About this 10-Q
Greystone Logistics, Inc filed this 10-Q on October 16, 2023, covering the quarter ended August 31, 2023 (FY2024 Q1).
Headline figures
Quarter ended August 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $17.41M
- down 8.1% from $18.95M a year earlier
- Net income
- $1.74M
- up 27.0% from net income of $1.37M a year earlier
- Diluted EPS
- $0.05
- up 25.0% from $0.04 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ____________
Commission file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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N/A |
N/A |
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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.
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 submit such files).
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 ☐ | |
| Smaller reporting company |
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| 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
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: October 16, 2023 -
FORM 10-Q
For the Period Ended August 31, 2023
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Page |
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Consolidated Balance Sheets (Unaudited) As of August 31, 2023 and May 31, 2023 |
1 |
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Consolidated Statements of Income (Unaudited) For the Three Months Ended August 31, 2023 and 2022 |
2 |
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3 |
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4 |
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5 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
Legal Proceedings |
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Item 1A. |
18 |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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Item 1. Financial Statements
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Greystone Logistics, Inc. |
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Consolidated Balance Sheets |
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(Unaudited) |
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August 31, 2023 |
May 31, 2023 |
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Assets |
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Current Assets: |
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Cash |
$ | $ | ||||||
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Accounts receivable - |
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Trade |
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Related parties |
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Other |
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Inventory |
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Prepaid expenses |
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Total Current Assets |
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Property, Plant and Equipment, net |
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Right-of-Use Operating Lease Assets |
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Total Assets |
$ | $ | ||||||
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Liabilities and Equity |
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Current Liabilities: |
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Current portion of long-term debt |
$ | $ | ||||||
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Current portion of financing leases |
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Current portion of operating leases |
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Accounts payable and accrued expenses |
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Deferred revenue |
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Preferred dividends payable |
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Total Current Liabilities |
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Long-Term Debt, net of current portion and debt issuance costs |
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Financing Leases, net of current portion |
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Operating Leases, net of current portion |
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Deferred Tax Liability |
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Equity: |
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| Preferred stock, $ |
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| Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
( |
) |
( |
) |
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Total Equity |
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Total Liabilities and Equity |
$ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Consolidated Statements of Income |
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For the Three Months Ended August 31, 2023 and 2022 |
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(Unaudited) |
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2023 |
2022 |
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Sales |
$ | $ | ||||||
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Cost of Sales |
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Gross Profit |
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Selling, General and Administrative Expenses |
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Operating Income |
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Other Income (Expense): |
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Gain on deconsolidation of variable interest entity |
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Other income |
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Interest expense |
( |
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( |
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Income before Income Taxes |
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Provision for Income Taxes |
( |
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( |
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Net Income |
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Income Attributable to Non-controlling Interest |
( |
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Preferred Dividends |
( |
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( |
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Net Income Attributable to Common Stockholders |
$ | $ | ||||||
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Income Per Share of Common Stock - |
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Basic |
$ | $ | ||||||
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Diluted |
$ | $ | ||||||
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Weighted Average Shares of Common Stock Outstanding - |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Consolidated Statements of Changes in Equity |
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For the Three Months Ended August 31, 2023 and 2022 |
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(Unaudited) |
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Preferred Stock |
Common Stock |
Additional |
Accumulated |
Total Greystone |
Non-controlling |
Total |
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Shares |
Amount |
Shares |
Amount |
Paid-in Capital |
Deficit |
Equity |
Interest |
Equity |
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Balances, May 31, 2022 |
$ | $ | $ | $ | ( |
) |
$ | $ | $ | |||||||||||||||||||||||||||
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Capital contribution non-controlling interest |
- | - | ||||||||||||||||||||||||||||||||||
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Deconsolidation of variable interest entity |
- | - | ( |
) |
( |
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Preferred dividends ($ |
- | - | ( |
) |
( |
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Net income |
- | - | ||||||||||||||||||||||||||||||||||
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Balances, August 31, 2022 |
$ | $ | $ | $ | ( |
) |
$ | $ | $ | |||||||||||||||||||||||||||
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Balances, May 31, 2023 |
$ | $ | $ | $ | ( |
) |
$ | $ | $ | |||||||||||||||||||||||||||
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Preferred dividends ($ |
- | - | ( |
) |
( |
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( |
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Net income |
- | - | ||||||||||||||||||||||||||||||||||
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Balances, August 31, 2023 |
$ | $ | $ | $ | ( |
) |
$ | $ | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Consolidated Statements of Cash Flows |
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For the Three Months Ended August 31, 2023 and 2022 |
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(Unaudited) |
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2023 |
2022 |
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Cash Flows from Operating Activities: |
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Net income |
$ | $ | ||||||
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Adjustments to reconcile net income to net cash provided by (used in) operating activities - |
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Gain on deconsolidation of variable interest entity |
( |
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Depreciation and amortization |
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Change in deferred taxes |
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Decrease in trade accounts receivable |
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(Increase) decrease in related party receivables |
( |
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Increase in inventory |
( |
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( |
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Decrease in prepaid expenses |
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Increase in accounts payable and accrued expenses |
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Decrease in deferred revenue |
( |
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Net cash provided by (used in) operating activities |
( |
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Cash Flows from Investing Activities: |
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Purchase of property and equipment |
( |
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( |
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Deconsolidation of variable interest entity |
( |
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Net cash used in investing activities |
( |
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( |
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Cash Flows from Financing Activities: |
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Proceeds from long-term debt |
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Principal payments on long-term debt and financing leases |
( |
) |
( |
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Principal payments on related party note payable and financing lease |
( |
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Proceeds from revolving loan |
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Principal payments on revolving loan |
( |
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Payments for debt issuance costs |
( |
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( |
) |
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Dividends paid on preferred stock |
( |
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( |
) |
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Capital contribution to non-controlling interest |
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Net cash (used in) provided by financing activities |
( |
) |
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Net Increase (Decrease) in Cash |
( |
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Cash, beginning of period |
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Cash, end of period |
$ | $ | ||||||
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Non-cash Activities: |
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Deconsolidation of net assets of variable interest entity |
$ | $ | ||||||
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Refinancing of certain term loans |
$ | $ | ||||||
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Capital expenditures in accounts payable |
$ | $ | ||||||
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Preferred dividend accrual |
$ | $ | ||||||
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Supplemental information: |
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Interest paid |
$ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
Greystone Logistics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
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Note 1. |
Basis of Financial Statements |
In the opinion of Greystone Logistics, Inc. (“Greystone” or the “Company”), 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 August 31, 2023, and the results of its operations and cash flows for the three months ended August 31, 2023 and 2022. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the fiscal year ended May 31, 2023, and the notes thereto included in Greystone’s Annual Report on Form 10-K for such period, as filed with the Securities and Exchange Commission. The results of operations for the three months ended August 31, 2023 and 2022 are not necessarily indicative of the results to be expected for the full fiscal year.
The unaudited 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 unaudited consolidated financial statements.
GRE owns two buildings located in Bettendorf, IA, which are occupied by Greystone. GRE is wholly owned by Robert B. Rosene, Jr., a member of Greystone's Board of Directors. Effective July 29, 2022, GRE paid off its mortgage note payable, and in conjunction with the Company's refinancing described in Note 6, GRE was removed from the cross-collateralization agreement. Following these transactions Greystone was no longer determined to be the primary beneficiary of GRE. Accordingly, GRE was deconsolidated from the Greystone consolidated financial statements as of July 29, 2022, resulting in the recognition of a gain in the amount of $
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Note 2. |
Earnings Per Share |
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 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.
The following tables set forth the computation of basic and diluted earnings per share for the three months ended August 31, 2023 and 2022:
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2023 |
2022 |
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Basic earnings per share of common stock: |
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Numerator - |
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Net income attributable to common stockholders |
$ | $ | ||||||
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Denominator - |
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Weighted-average shares outstanding - basic |
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Income per share of common stock - basic |
$ | $ | ||||||
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Diluted earnings per share of common stock: |
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Numerator - |
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Net income attributable to common stockholders |
$ | $ | ||||||
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Add: Preferred stock dividends for assumed conversion |
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Net income allocated to common stockholders |
$ | $ | ||||||
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Denominator - |
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Weighted-average shares outstanding - basic |
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Incremental shares from assumed conversion of options, warrants and preferred stock, as appropriate |
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Weighted average common stock outstanding - diluted |
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Income per share of common stock - diluted |
$ | $ | ||||||
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Note 3. |
Inventory |
Inventory consisted of the following:
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August 31, |
May 31, |
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2023 |
2023 |
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Raw materials |
$ | $ | ||||||
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Finished goods |
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Total inventory |
$ | $ | ||||||
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Note 4. |
Property, Plant and Equipment |
A summary of property, plant and equipment for Greystone is as follows:
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August 31, 2023 |
May 31, 2023 |
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Production machinery and equipment |
$ | $ | ||||||
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Plant buildings and land |
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Leasehold improvements |
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Furniture and fixtures |
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Less: Accumulated depreciation and amortization |
( |
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( |
) |
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Net Property, Plant and Equipment |
$ | $ | ||||||
Production machinery includes deposits on equipment in the amount of $
Depreciation expense, including amortization expense related to financing leases, for the three months ended August 31, 2023 and 2022 was $
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Note 5. |
Related Party Transactions/Activity |
Yorktown Management & Financial Services, LLC
Yorktown Management & Financial Services, LLC (“Yorktown”), an entity wholly owned by Warren F. Kruger, Greystone’s CEO, President, Chairman of the Board and a significant stockholder of Greystone, 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 $
Greystone leases office space from Yorktown at a monthly rental of $
Greystone Real Estate, L.L.C. (GRE)
GRE owns two primary manufacturing facilities occupied by Greystone and is wholly owned by Robert B. Rosene, Jr., a member of Greystone’s Board of Directors. Effective August 1, 2022, Greystone and GRE entered into a non-cancellable lease agreement with a extension for the use of these manufacturing facilities at the initial rate of $
TriEnda Holdings, L.L.C.
TriEnda Holdings, L.L.C. (“TriEnda”) is a manufacturer of plastic pallets, protective packaging and dunnage utilizing thermoform processing for which Mr. Kruger, Greystone’s President, CEO, Chairman of the Board and a significant stockholder of Greystone, 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 three months ended August 31, 2023 and 2022, Greystone sales to TriEnda totaled $
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, CEO, Chairman of the Board and a significant stockholder of Greystone. Greystone had sales to Green of $
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Note 6. |
Long-term Debt |
Debt as of August 31, 2023 and May 31, 2023 was as follows:
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August 31, |
May 31, |
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2023 |
2023 |
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Term loans dated July 29, 2022, payable to International Bank of Commerce, prime rate of interest plus |
$ | $ | ||||||
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Revolving loan payable to International Bank of Commerce, prime rate of interest plus |
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Term loan payable to First Interstate Bank, interest rate of |
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Term loan payable to First Interstate Bank, interest rate of |
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Other |
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Total long-term debt |
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Debt issuance costs, net of amortization |
( |
) |
( |
) |
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Total debt, net of debt issuance costs |
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Less: Current portion of long-term debt |
( |
) |
( |
) |
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Long-term debt, net of current portion |
$ | $ | ||||||
The prime rate of interest as of August 31, 2023, was
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 sheets 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 $
Restated and Amended Loan Agreement between Greystone and IBC
On July 29, 2022, Greystone and GSM (each a “Borrower” and together, the “Borrowers”) entered into an Amended and Restated Loan Agreement (“IBC Restated Loan Agreement”) with International Bank of Commerce (“IBC”) that provided for the consolidation of certain term loans and a renewed revolver loan.
The IBC term loans require 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. As of August 31, 2023, the aggregate payments for the IBC term loans are approximately $
The IBC Restated Loan Agreement, dated July 29, 2022, as amended, provided for IBC to make certain term loans to Greystone to consolidate all existing term loans in the aggregate amount of approximately $
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. In addition, without prior written consent, Greystone shall not declare or pay any dividends, redemptions, distributions and withdrawals with respect to its equity interest other than distributions to holders of its preferred stock in the aggregate of $
The IBC Restated Loan Agreement is secured by a lien on substantially all assets of the Borrowers. Warren F. Kruger, the Company’s President, CEO and Chairman of the Board and a significant stockholder of Greystone, and Robert B. Rosene, Jr., a member of the Company’s Board of Directors, have provided limited guaranties of the Borrowers’ obligations under the IBC Restated Loan Agreement. Mr. Kruger’s guarantee is limited to
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 representations and warranties and affirmative and negative covenants which include (i) requiring the Borrowers to maintain a debt service coverage ratio of to 1:00 as of the end of each fiscal year end and debt to tangible net worth ratio of to 1:00 as of the end of each fiscal year end with a decrease of
The FIB Loan Agreement is secured by a mortgage on one of Greystone’s warehouses.
Maturities
Maturities of Greystone’s long-term debt for the five years subsequent to August 31, 2023, are $
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Note 7. |
Leases |
Financing Leases
Financing leases as of August 31, 2023 and May 31, 2023 were as follows:
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August 31, |
May 31, |
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Non-cancellable financing leases |
$ | $ | ||||||
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Less: Current portion |
( |
) |
( |
) |
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Non-cancellable financing leases, net of current portion |
$ | $ | ||||||
The production equipment under the non-cancelable financing leases as of August 31, 2023 and May 31, 2023 was as follows:
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August 31, |
May 31, 2023 |
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Production equipment under financing leases |
$ | $ | ||||||
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Less: Accumulated amortization |
( |
) |
( |
) |
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Production equipment under financing leases, net |
$ | $ | ||||||
Amortization of the carrying amount of $
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
Lease Summary Information
Lease summary information as of and for the periods ending August 31, 2023 and 2022 was as follows:
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2023 |
2022 |
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Lease Expense |
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Financing lease expense - |
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Amortization of right-of-use assets |
$ | $ | ||||||
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Interest on lease liabilities |
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Operating lease expense |
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Short-term lease expense |
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Total |
$ | $ | ||||||
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Other Information |
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Cash paid for amounts included in the measurement of lease liabilities for finance leases - |
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Operating cash flows |
$ | $ | ||||||
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Financing cash flows |
$ | $ | ||||||
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Cash paid for amounts included in the measurement of lease liabilities for operating leases - |
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Operating cash flows |
$ | $ | ||||||
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Weighted-average remaining lease term (in years) - |
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Financing leases |
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Operating leases |
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Weighted-average discount rate - |
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Financing leases |
% | % | ||||||
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Operating leases |
% | % | ||||||
Future minimum lease payments under non-cancelable leases as of August 31, 2023, are approximately:
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Financing |
Operating |
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Twelve months ending August 31, 2024 |
$ | $ | ||||||
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Twelve months ending August 31, 2025 |
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Twelve months ending August 31, 2026 |
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Twelve months ending August 31, 2027 |
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Twelve months ending August 31, 2028 |
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Thereafter |
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Total future minimum lease payments |
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Present value discount |
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Present value of minimum lease payments |
$ | $ | ||||||
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Note 8. |
Deferred Revenue |
Advances from customers pursuant to a contract for the sale of plastic pallets is recognized as deferred revenue. Revenue is recognized by Greystone as pallets are shipped to the customer which totaled $-
|
Note 9. |
Revenue and Revenue Recognition |
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 $
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 three months ended August 31, 2023 and 2022, respectively, were as follows:
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Category |
2023 |
2022 |
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|
End-user customers |
% | % | ||||||
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Distributors |
% | % | ||||||
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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 balance sheets approximate fair value.
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Note 11. |
Concentrations, Risks and Uncertainties |
Greystone derived approximately
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 $
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Note 12. |
Commitments |
As of August 31, 2023, Greystone had commitments totaling $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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. 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, 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 Annual Report on Form 10-K for the fiscal year ended May 31, 2023, which was filed with the Securities and Exchange Commission on August 28, 2023, as the same may be updated from time to time. Actual results may vary materially from the forward-looking statements. The results of operations for the three months ended August 31, 2023, are not necessarily indicative of the results for the fiscal year ending May 31, 2024. Greystone undertakes no duty to update any of the forward-looking statements contained in this Quarterly Report on Form 10-Q.
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 consolidated 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.
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 177 and 202 regular employees and 116 and 64 temporary employees as of August 31, 2023 and 2022, respectively. Full-time equivalent is a measure based on time worked.
Three Months Ended August 31, 2023 Compared to Three Months Ended August 31, 2022
Sales
Sales for the three months ended August 31, 2023, were $17,413,671 compared to $18,953,599 for the three months ended August 31, 2022, representing a decrease of $1,539,928, or 8%. As previously reported during the fiscal year ended May 31, 2023, the Company experienced reductions in its cost of recycled plastic. As a result, the Company initiated pricing adjustments to pallets using Greystone’s recycled blends. Accordingly, the reduction in sales for the three months ended August 31, 2023, to the prior period is primarily attributable to an approximate 7% decrease in the average price for the Company’s higher-end pallets.
Greystone generally has a limited number of customers, generally 2 to 4, that accounted for approximately 85% and 77% of sales during the three months ended August 31, 2023 and 2022, respectively. Greystone is not able to predict the future needs of these major customers and will continue its efforts to increase sales through the addition of new customers developed through Greystone’s marketing efforts.
Cost of Sales
Cost of sales for the three months ended August 31, 2023, was $13,368,909, or 77% of sales, compared to $16,490,453, or 87% of sales, for the three months ended August 31, 2022. The improvement in cost of sales to sales for the three months ended August 31, 2023, over the prior period was primarily the result of an approximate 19% increase in pallet production allowing a larger base to allocate inflexible manufacturing costs, improvements in productivity and an approximate 15% reduction in the average cost of Greystone blend raw materials. The Company produces pallets manufactured using either customer materials or its Greystone blend of purchased recycled plastic.
Gross Profit
Gross profit for the three months ended August 31, 2023, was $4,044,762, or 23% of sales, compared to $2,463,146, or 13% of sales, for the three months ended August 31, 2022. The improved gross profits for the three months ended August 31, 2023, were the result of the Company’s repricing of pallets manufactured using the Greystone recycled blend, as discussed above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $1,212,951, or 7.0% of sales, for the three months ended August 31, 2023 compared to $1,105,591, or 5.8% of sales, for the three months ended August 31, 2022, representing an increase of $107,360. The increase is primarily due to enhanced efforts directed toward marketing Greystone’s pallets.
Other Income (Expenses)
During the three months ended August 31, 2022, Greystone recognized a gain on the deconsolidation of the variable interest entity Greystone Real Estate in the amount of $569,997.
Other income, generally from the sale of scrap material, was $1,599 and $5,635 for the three months ended August 31, 2023 and 2022.
Interest expense was $342,191 for the three months ended August 31, 2023, compared to $219,446 for the three months ended August 31, 2022, representing an increase of $122,745. The majority of Greystone’s debt is based on the prime rate of interest which had a weighted average of 8.35% for the three months ended August 31, 2023, compared to 4.91% for the prior period.
Provision for Income Taxes
The provision for income taxes was $747,000 and $340,000 for the three months ended August 31, 2023 and 2022, respectively. The effective tax rate differs from federal statutory rates due principally to state income taxes, charges (income) which have no tax benefit (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.
Net Income
Greystone recorded net income of $1,744,219 for the three months ended August 31, 2023, compared to $1,373,741 in three months ended August 31, 2022, primarily for the reasons discussed above.
Net Income Attributable to Common Stockholders
The net income attributable to common stockholders for the three months ended August 31, 2023, was $1,598,020, or $0.06 per share, compared to $1,214,724, or $0.04 per share, for the three months ended August 31, 2022, primarily for the reasons discussed above.
Liquidity and Capital Resources
A summary of cash flows for the three months ended August 31, 2023, was as follows:
| Cash provided by operating activities | $ | 5,229,554 | ||
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Cash used in investing activities |
$ | (673,081 | ) | |
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Cash used in financing activities |
$ | (2,195,665 | ) |
The contractual obligations of Greystone are as follows:
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Total |
Less than 1 year |
1-3 years |
4-5 years |
Thereafter |
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Long-term debt |
$ | 15,215,080 | $ | 2,260,829 | $ | 4,647,488 | $ | 8,306,763 | $ | - | ||||||||||
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Financing leases |
$ | 52,201 | $ | 34,374 | $ | 17,827 | $ | - | $ | - | ||||||||||
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Operating leases |
$ | 7,851,810 | $ | 546,910 | $ | 1,068,000 | $ | 1,096,990 | $ | 5,139,910 | ||||||||||
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Commitments |
$ | 306,800 | $ | 306,800 | $ | - | $ | - | $ | - | ||||||||||
Greystone had a working capital of $5,845,768 as of August 31, 2023. To provide for the funding to meet Greystone's operating activities and contractual obligations as of August 31, 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.
A substantial amount of Greystone’s debt financing has resulted primarily from bank notes which are guaranteed by certain officers and directors of Greystone. From time to time, loans have been provided by certain officers and directors of Greystone of which there are none outstanding as of August 31, 2023. Greystone continues to be dependent upon its officers and directors to secure, or possibly provide, additional financing and there is no assurance that its officers and directors will continue to do so, or that they will do so on terms that are acceptable to Greystone. 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 Restated Loan Agreement, as discussed in Note 6 to the unaudited consolidated financial statements, Greystone may pay dividends on its preferred stock in an amount not to exceed $500,000 per year.
Off-Balance Sheet Arrangements
Greystone does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and Estimates
Greystone believes that the following critical policies affect Greystone’s more significant judgments and estimates used in preparation of Greystone’s financial statements.
General
The preparation of unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recognition of Revenues
Revenue is recognized at the point in 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.
Accounts receivable
Trade receivables are carried at original invoice amount less an estimate made for doubtful accounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. Trade receivables are written off against the allowance when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. The Company generally does not charge interest on past due accounts.
Inventory
Inventory consists of finished pallets and raw materials which are stated at the lower of average cost or net realizable value. Management applies overhead costs to inventory based on an analysis of the Company's expense categories. The specific costs are then applied to inventory based on production during the period. Management relies on estimates and assumptions regarding the specific costs to include in the production costs, as well as the period to use in determining inventory production.
Income Taxes
Greystone accounts for income taxes under the liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the consolidated financial statements and tax bases of assets and liabilities and tax loss carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse.
A deferred tax asset is recognized for tax-deductible temporary differences and operating losses using the applicable enacted tax rate. In assessing the realizability of deferred tax assets, management considers the likelihood of whether it is more likely than not the net deferred tax asset will be realized. Based on this evaluation, management will provide a valuation allowance if it is determined more likely than not the associated asset will not be recognized. Based on this, management has determined that Greystone will not be able to realize the full effect of the deferred tax assets and a valuation allowance of $793,337 and $1,044,361 has been recorded as of August 31, 2023 and May 31, 2023, respectively.
New Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying unaudited consolidated financial statements. As new accounting pronouncements are issued, Greystone will adopt those that are applicable under the circumstances.
Recent accounting pronouncements issued by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants and the SEC did not or are not believed by management to have a material effect on Greystone’s unaudited consolidated financial statements.
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 (CEO) and Chief Financial Officer (CFO) of the effectiveness of Greystone's disclosure controls and procedures pursuant to the Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based on an evaluation as of August 31, 2023, Greystone’s CEO and CFO concluded that Greystone’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) were effective as of August 31, 2023.
During the three months ended August 31, 2023, there were no changes in Greystone's internal control over financial reporting that have materially affected, or that are reasonably likely to materially affect, Greystone's internal control over financial reporting.
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.
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31.1* |
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31.2* |
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32.1** |
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32.2** |
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101.INS* |
Inline XBRL Instance Document. |
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10. SCH* |
Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL* |
Inline XBRL Taxonomy Extension Calculation Linkbase. |
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101.DEF* |
Inline XBRL Taxonomy Extension Definition Linkbase. |
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101.LAB* |
Inline XBRL Taxonomy Extension Labels Linkbase. |
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101.PRE* |
Inline XBRL Taxonomy Extension Presentation Linkbase. |
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104* |
Cover Page Interactive Data File (embedded within the Inline XBRL document). |
* Filed herewith.
** Furnished herewith.
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.
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GREYSTONE LOGISTICS, INC. |
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(Registrant) |
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Date: October 16, 2023 |
/s/ Warren F. Kruger |
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Warren F. Kruger, President and Chief |
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Executive Officer (Principal Executive Officer) |
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| Date: October 16, 2023 | /s/ William W. Rahhal | |
| William W. Rahhal, Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 31.1
CERTIFICATION
I, Warren F. Kruger, certify that:
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1. |
I have reviewed this quarterly report on Form 10‑Q for the three months ended August 31, 2023, of Greystone Logistics, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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October 16, 2023 |
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/s/ Warren F. Kruger |
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Warren F. Kruger |
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President and Chief Executive Officer |
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| (principal executive officer) |
Exhibit 31.2
CERTIFICATION
I, William W. Rahhal, certify that:
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1. |
I have reviewed this quarterly report on Form 10‑Q for the three months ended August 31, 2023, of Greystone Logistics, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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October 16, 2023 |
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/s/ William W. Rahhal |
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William W. Rahhal |
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Chief Financial Officer |
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES‑OXLEY ACT OF 2002
In connection with the quarterly report of Greystone Logistics, Inc. (the “Company”) on Form 10‑Q for the period ended August 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Warren F. Kruger, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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October 16, 2023 |
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/s/ Warren F. Kruger |
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Warren F. Kruger |
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President and Chief Executive Officer |
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| (principal executive officer) |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Report and shall not be considered filed as part of the Report.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES‑OXLEY ACT OF 2002
In connection with the quarterly report of Greystone Logistics, Inc. (the “Company”) on Form 10‑Q for the period ended August 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William W. Rahhal, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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October 16, 2023 |
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/s/ William W. Rahhal |
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William W. Rahhal |
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Chief Financial Officer |
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| (principal financial officer) |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Report and shall not be considered filed as part of the Report.