Greystone Logistics, Inc 10-Q for FY2022 Q3
Greystone Logistics, Inc. (GLGI)
About this 10-Q
Greystone Logistics, Inc filed this 10-Q on April 14, 2022, covering the quarter ended February 28, 2022 (FY2022 Q3).
Headline figures
Quarter ended February 28, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $22.45M
- up 54.7% from $14.51M a year earlier
- Net income
- $603.24K
- down 22.9% from net income of $782.5K a year earlier
- Diluted EPS
- $0.02
- unchanged from $0.02 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| 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) |
| (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.
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).
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 | |
| 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 ☐
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 -
GREYSTONE LOGISTICS, INC.
FORM 10-Q
For the Period Ended February 28, 2022
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Greystone Logistics, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| February 28, 2022 | May 31, 2021 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable - | ||||||||
| Trade | ||||||||
| Related parties | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Property, Plant and Equipment, net | ||||||||
| Right-of-Use Operating Lease Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Equity | ||||||||
| Current Liabilities: | ||||||||
| Current portion of long-term debt | $ | $ | ||||||
| Current portion of financing leases | ||||||||
| Current portion of operating leases | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Deferred revenue | ||||||||
| Preferred dividends payable | - | |||||||
| Total Current Liabilities | ||||||||
| Long-Term Debt, net of current portion and debt issue costs | ||||||||
| Financing Leases, net of current portion | ||||||||
| Operating Leases, net of current portion | ||||||||
| Deferred Tax Liability | ||||||||
| Equity: | ||||||||
| Preferred
stock, $ par value, cumulative, shares authorized, shares issued and outstanding, liquidation preference
of $ | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Greystone Stockholders’ Equity | ||||||||
| Non-controlling interest | ||||||||
| Total Equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
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 | $ | $ | ||||||
| Cost of Sales | ||||||||
| Gross Profit | ||||||||
| Selling, General and Administrative Expenses | ||||||||
| Operating Income | ||||||||
| Other Income (Expense): | ||||||||
| Other income | ||||||||
| Gain from forgiveness of debt | - | |||||||
| Interest expense | ( | ) | ( | ) | ||||
| Income before Income Taxes | ||||||||
| Provision for Income Taxes | ( | ) | ( | ) | ||||
| Net Income | ||||||||
| Income Attributable to Non-controlling Interest | ( | ) | ( | ) | ||||
| Preferred Dividends | ( | ) | ( | ) | ||||
| Net Income Attributable to Common Stockholders | $ | $ | ||||||
| Income Per Share of Common Stock - | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Weighted Average Shares of Common Stock Outstanding - | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
Greystone Logistics, Inc.
Consolidated Statements of Income
For the Three Months Ended February 28,
(Unaudited)
| 2022 | 2021 | |||||||
| Sales | $ | $ | ||||||
| Cost of Sales | ||||||||
| Gross Profit | ||||||||
| Selling, General and Administrative Expenses | ||||||||
| Operating Income | ||||||||
| Other Income (Expense): | ||||||||
| Other income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Income before Income Taxes | ||||||||
| Provision for Income Taxes | ( | ) | ( | ) | ||||
| Net Income | ||||||||
| Income Attributable to Non-controlling Interest | ( | ) | ( | ) | ||||
| Preferred Dividends | ( | ) | ( | ) | ||||
| Net Income Attributable to Common Stockholders | $ | $ | ||||||
| Income Per Share of Common Stock - | ||||||||
| Basic and Diluted | $ | $ | ||||||
| Weighted Average Shares of Common Stock Outstanding - | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
Greystone Logistics, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
For the Nine Months Ended February 28, 2022 and 2021
(Unaudited)
| 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 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Cash distributions | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Preferred dividends, $/share | - | - | - | - | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Balances, August 31, 2020 | ( | ) | ||||||||||||||||||||||||||||||||||
| Cash distributions | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Preferred dividends, $/share | - | - | - | - | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Balances, November 30, 2020 | ( | ) | ||||||||||||||||||||||||||||||||||
| Cash distributions | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Preferred dividends, $/share | - | - | - | - | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Balances, February 28, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Balances, May 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Stock options exercised | - | - | - | - | ||||||||||||||||||||||||||||||||
| Cash distributions | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Preferred dividends, $/share | - | - | - | - | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Balances, August 31, 2021 | ( | ) | ||||||||||||||||||||||||||||||||||
| Preferred dividends, $/share | - | - | - | - | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balances, November 30, 2021 | ( | ) | ||||||||||||||||||||||||||||||||||
| Common stock purchase | ( | ) | ( | ) | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Cash distributions | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Preferred dividends, $/share | - | - | - | - | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Balances, February 28, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
Greystone Logistics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended February 28,
(Unaudited)
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities - | ||||||||
| Depreciation and amortization | ||||||||
| Forgiveness of debt | ( | ) | - | |||||
| Gain on sale of assets | ( | ) | - | |||||
| Deferred tax expense | ||||||||
| Decrease (increase) in trade accounts receivable | ( | ) | ||||||
| Decrease (increase) in related party receivables | ( | ) | ||||||
| Decrease (increase) in inventory | ( | ) | ||||||
| Increase in prepaid expenses | ( | ) | ( | ) | ||||
| Increase in accounts payable and accrued liabilities | ||||||||
| Increase (decrease) in deferred revenue | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of assets | - | |||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from long-term debt | - | |||||||
| Payments on long-term debt and financing leases | ( | ) | ( | ) | ||||
| Payments on related party note payable and financing lease | ( | ) | ( | ) | ||||
| Proceeds from revolving loan | ||||||||
| Payments on revolving loan | - | ( | ) | |||||
| Proceeds from stock options exercised | - | |||||||
| Purchase of treasury stock | ( | ) | - | |||||
| Payments for debt issuance costs | ( | ) | - | |||||
| Dividends paid on preferred stock | ( | ) | ( | ) | ||||
| Distributions paid by non-controlling interest | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net Increase (Decrease) in Cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Non-cash Activities: | ||||||||
| Acquisition of equipment through financing lease | $ | $ | ||||||
| Capital expenditures in accounts payable | $ | $ | ||||||
| Equipment transferred from inventory | $ | $ | ||||||
| Preferred dividend accrual | $ | $ | ||||||
| Supplemental information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 7 |
GREYSTONE LOGISTICS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Financial Statements
In the opinion of Greystone Logistics, Inc. (“Greystone”), the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications, which are of a normal recurring nature, necessary to present fairly its financial position as of February 28, 2022, the results of its operations for the nine months and three months ended February 28, 2022 and 2021 and its cash flows for the nine months ended February 28, 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, 2021 and the notes thereto included in the Form 10-K for such period. The results of operations for the nine months and three months ended February 28, 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. All material intercompany accounts and transactions have been eliminated in the consolidated financial statements.
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.
Schedule of Anti-dilutive Shares
| 2022 | 2021 | |||||||
| Preferred stock convertible into common stock | ||||||||
| 8 |
For the nine months ended February 28, 2022 and 2021:
Schedule of Basic and Diluted Earnings Per Share
| 2022 | 2021 | |||||||
| Basic earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | $ | ||||||
| Denominator - | ||||||||
| Weighted-average shares outstanding - basic | ||||||||
| Income per share of common stock - basic | $ | $ | ||||||
| Diluted earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | $ | ||||||
| Add: Preferred stock dividends for assumed conversion | ||||||||
| Net income allocated to common stockholders | $ | $ | ||||||
| Denominator - | ||||||||
| Weighted-average shares outstanding – basic | ||||||||
| Incremental shares from assumed conversion of options, warrants and preferred stock, as appropriate | ||||||||
| Weighted average common stock outstanding – diluted | ||||||||
| Income per share of common stock – diluted | $ | $ | ||||||
For the three months ended February 28, 2022 and 2021:
| 2022 | 2021 | |||||||
| Basic earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | $ | ||||||
| Denominator - | ||||||||
| Weighted-average shares outstanding – basic | ||||||||
| Income per share of common stock – basic | $ | $ | ||||||
| Diluted earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | $ | ||||||
| Denominator - | ||||||||
| Weighted-average shares outstanding - basic | ||||||||
| Incremental shares from assumed conversion of warrants or options, as appropriate | ||||||||
| Weighted average common stock outstanding - diluted | ||||||||
| Income (loss) per share of common stock – diluted | $ | $ | ||||||
| 9 |
Note 3. Inventory
Inventory consists of the following:
Schedule of Inventory
| February 28, | May 31, | |||||||
| 2022 | 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
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 | |||||||
| Production machinery and equipment | $ | $ | ||||||
| Plant buildings and land | ||||||||
| Leasehold improvements | ||||||||
| Furniture and fixtures | ||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| 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 nine months ended February 28, 2022 and 2021 was $
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 $
Greystone
paid Yorktown office rents totaling $
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 nine months ended February 28, 2022 and 2021, Greystone purchases from TriEnda totaled $
| 10 |
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 $
Note 6. Long-term Debt
Debt as of February 28, 2022 and May 31, 2021 is as follows:
Schedule of Long-Term Debt
| February 28, | May 31, | |||||||
| 2022 | 2021 | |||||||
| Term loan A payable to International Bank of Commerce, prime rate of interest plus | $ | $ | ||||||
| Term loan C payable to International Bank of Commerce, prime rate of interest plus | ||||||||
| Term loan D payable to International Bank of Commerce, prime rate of interest plus | ||||||||
| Term loan E payable to International Bank of Commerce, prime rate of interest plus | ||||||||
| Term loan F payable to International Bank of Commerce, prime rate of interest plus | ||||||||
| Term loan G payable to International Bank of Commerce, prime rate of interest plus | ||||||||
| Revolving loan payable to International Bank of Commerce, prime rate of interest plus | ||||||||
| Paycheck Protection Program note, interest rate of | ||||||||
| Term loan payable by GRE to International Bank of Commerce, interest rate of | ||||||||
| Term note payable to Great Western Bank, interest rate of | ||||||||
| Term loan payable to Great Western Bank, interest rate of | ||||||||
| Note payable to Robert Rosene, | ||||||||
| Other | ||||||||
| Total long-term debt | ||||||||
| Debt issuance costs, net of amortization | ( | ) | ( | ) | ||||
| Total debt, net of debt issuance costs | ||||||||
| Less: Current portion of long-term debt | ( | ) | ( | ) | ||||
| Long-term debt, net of current portion | $ | $ | ||||||
| 11 |
The
prime rate of interest as of February 28, 2022, 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 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 $
Loan Agreement between Greystone and IBC
The Loan Agreement (“IBC 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”) provides for certain term loans and a 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 $
The
IBC Loan Agreement, as amended, provides a revolving loan in an aggregate principal amount of up to $
The IBC Loan Agreement includes customary events of default, including events of default relating to non-payment of principal and other amounts owing under the IBC 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 Loan Agreement or the related loan documents. Among other things, a default under the IBC Loan Agreement would permit IBC to cease lending funds under the IBC Loan Agreement and require immediate repayment of any outstanding notes with interest and any unpaid accrued fees.
| 12 |
The
IBC 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 guaranty of the Borrowers’ obligations under the IBC Loan Agreement, with such guaranty being limited to a combined
amount of $
Loan Agreement between GRE and IBC
On
August 10, 2018, GRE and IBC entered into an amended agreement to extend the maturity of the note to
Loan Agreement with Great Western Bank
On August 23, 2021, Greystone entered into a loan agreement with Great Western Bank (“Western Loan Agreement”) to include prior commercial loans and subsequent loans. GSM is a named guarantor under the Western Loan Agreement.
The Western Loan Agreement includes customary events of default, including events of default relating to non-payment of principal and other amounts owing under the Western 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 Western Loan Agreement. Among other things, a default under the Western Loan Agreement would permit Western to cease lending funds under the Western Loan Agreement and require immediate repayment of any outstanding notes with interest and any unpaid accrued fees.
The Western Loan Agreement is secured by a mortgage on two of Greystone’s warehouses.
Note Payable between Greystone and Robert B. Rosene, Jr.
Effective
December 15, 2005, Greystone entered into an agreement with Robert B. Rosene, Jr., a member of Greystone’s board of directors,
to convert $
Effective
June 1, 2016, the note was restated (the “Restated Note”) to combine the outstanding principal, $
| 13 |
Maturities
Maturities
of Greystone’s long-term debt for the five years subsequent to February 28, 2022, are $
Note 7. Leases
Financing Leases
Financing leases as of February 28, 2022 and May 31, 2021:
Schedule of Financing Lease
| February 28, 2022 | May 31, 2021 | |||||||
| Non-cancellable financing leases | $ | $ | ||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Non-cancellable financing leases, net of current portion | $ | $ | ||||||
Greystone
and an unrelated private company entered into three lease agreements for certain production equipment with a total cost of approximately
$
Effective
December 28, 2018, Yorktown purchased certain production equipment from Greystone at net book value of $
The
production equipment under the non-cancelable financing leases has a gross carrying amount of $
| 14 |
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 two non-cancellable operating leases for equipment with a term and a term and a discount rate of
Lease Summary Information
For the periods ending February 28, 2022 and 2021:
Summary of Lease Activity
| 2022 | 2021 | |||||||
| Lease Expense | ||||||||
| Financing lease expense - | ||||||||
| Amortization of right-of-use assets | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Operating lease expense | ||||||||
| Short-term lease expense | ||||||||
| Total | $ | $ | ||||||
| Other Information | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities for finance leases - | ||||||||
| Operating cash flows | $ | $ | ||||||
| Financing cash flows | $ | $ | ||||||
| Cash paid for amounts included in the measurement of lease liabilities for operating leases - | ||||||||
| Operating cash flows | $ | $ | ||||||
| Weighted-average remaining lease term (in years) - | ||||||||
| Financing leases | ||||||||
| Operating leases | ||||||||
| Weighted-average discount rate - | ||||||||
| Financing leases | % | % | ||||||
| Operating leases | % | % | ||||||
Future minimum lease payments under non-cancelable leases as of February 28, 2022, are approximately:
Schedule of Future Minimum Lease Payments
| Financing Leases | Operating Leases | |||||||
| Twelve months ended February 28, 2023 | $ | $ | ||||||
| Twelve months ended February 29, 2024 | ||||||||
| Twelve months ended February 28, 2025 | ||||||||
| Twelve months ended February 28, 2026 | ||||||||
| Twelve months ended February 28, 2027 | ||||||||
| Total future minimum lease payments | ||||||||
| Present value discount | ||||||||
| Present value of minimum lease payments | $ | $ | ||||||
| 15 |
Note 8. Deferred Revenue
Advances
from a customer pursuant to a contract for the sale of plastic pallets is recognized as deferred revenue. Revenue related to these
advances is
recognized by Greystone as pallets are shipped to the customer which totaled $
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
Greystone’s customers include stocking and non-stocking distributors and direct sales to end-user customers. Sales to the following categories of customers for the nine months ended February 28, 2022 and 2021, respectively, were as follows:
Schedule of Sale of Revenues for Customer Categories
| Category | 2022 | 2021 | ||||||
| End User Customers | % | % | ||||||
| Distributors | % | % | ||||||
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 $
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 $
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, 2022, Greystone had commitments totaling $
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”). All material intercompany accounts and transactions have been eliminated.
References to fiscal year 2022 refer to the nine months and three months ended February 28, 2022. References to fiscal year 2021 refer to the nine months and three months ended February 28, 2021.
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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 239 and 260 full-time employees and 80 and 61 temporary employees as of February 28, 2022 and 2021, respectively. Full-time equivalent is a measure based on time worked.
Nine Months Ended February 28, 2022 Compared to Nine Months Ended February 28, 2021
Sales
Sales for fiscal year 2022 were $53,069,648 compared to $47,602,690 in fiscal year 2021 for an increase of $5,466,958, or 11.5%. Average pallet pricing from fiscal year 2021 to fiscal year 2022 is the principal contributing factor to the increase sales in fiscal year 2022. As noted herein, the number 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 offset by a substantial increase in pallet sales to distributors in fiscal year 2022.
Greystone had three customers (four in fiscal year 2021) which accounted for approximately 75% and 86% of sales in fiscal years 2022 and 2021, 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 2022 was $47,914,061, or 90% of sales, compared to $38,986,912, or 82% of sales, in fiscal year 2021. The increase in cost of sales to sales in fiscal year 2022 was the result of several factors, including cost of raw materials resulting from inflationary increases in prices that were occurring faster that Greystone’s ability to compensate, a shortage of personnel and machine downtime during the first two quarters of fiscal year 2022 resulting 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.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $4,033,483 in fiscal year 2022 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.
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Other Income (Expenses)
A gain was recognized in fiscal year 2022 from the forgiveness of the PPP loan 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 from the sale of equipment and $13,395 from sales of scrap material while fiscal year 2021was from sales of scrap material in the amount of $19,122.
Interest expense was $631,115 in fiscal year 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.
Provision for Income Taxes
The provision for income taxes was $99,000 and $1,257,000 in fiscal years 2022 and 2021, 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 in fiscal year 2022 compared to $2,814,728 in fiscal year 2021 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 2022 was $3,044,535, or $0.11 per share, compared $2,366,837, or $0.08 per share, in fiscal year 2021 primarily for the reasons discussed above.
Three Months Ended February 28, 2022 Compared to Three Months Ended February 28, 2021
Sales
Sales for fiscal year 2022 were $22,450,682 compared to $14,511,196 in fiscal year 2021 for an increase of $7,939,486, or 54.7%. The number of pallets sold in fiscal year 2022 reflected a 34% increase over fiscal year 2021. Factors affecting the increase in sales during fiscal year 2022 include a substantial contract from a major retailer, the return business from a customer in the beer industry, and an approximately 91% increase 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.
Greystone had three customers (four in fiscal year 2021) which accounted for approximately 78% and 82% of sales in fiscal years 2022 and 2021, 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.
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Cost of Sales
Cost of sales in fiscal year 2022 was $19,734,155, or 88% of sales, compared to $11,954,222, or 82% of sales, in fiscal year 2021. The increase in cost of sales to sales in fiscal year 2022 over fiscal year 2021 was the result of various factors, including cost of raw materials from inflationary increases 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.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $1,680,979 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 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 contributed to the increase.
Other Income (Expenses)
Other income from sales of scrap material was $3,688 in fiscal year 2022 compared to $10,178 in fiscal year 2021.
Interest expense was $201,922 in fiscal year 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.
Provision for Income Taxes
The provision for income taxes was $234,000 and $346,000 in fiscal years 2022 and 2021, 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.
Net Income
Greystone recorded net income of $603,244 in fiscal year 2022 compared to $782,497 in fiscal year 2021 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 2022 was $452,458, or $0.02 per share, compared $633,456, or $0.02 per share, in fiscal year 2021 primarily for the reasons discussed above.
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Liquidity and Capital Resources
A summary of cash flows for the nine months ended February 28, 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 | ) |
The contractual obligations of Greystone are as follows:
| 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) as of February 28, 2022. To provide for the funding to meet Greystone’s operating activities and contractual obligations as of February 28, 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.
Greystone issued purchase orders in January 2022 for equipment including two injection molding machines and one pelletizing system for about $5.5 million to increase its pallet production capacities. Because of the significant decrease in debt and financial lease balances through February 28, 2022, management believes funding will be achieved through financial institutions.
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.
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Forward Looking Statements and Material Risks
This Quarterly Report on Form 10-Q includes certain statements that may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are made in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, that address activities, events or developments that Greystone expects, believes or anticipates will or may occur in the future, including decreased costs, timing of manufacturing enhancements, securing financing, the profitability of Greystone, potential sales of pallets or other possible business developments, are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties. The forward-looking statements contained in this Quarterly Report on Form 10-Q could be affected by any of the following factors: Greystone’s prospects could be affected by changes in availability of raw materials, competition, rapid technological change and new legislation regarding environmental matters; Greystone may not be able to secure additional financing necessary to sustain and grow its operations; and a material portion of Greystone’s business is and will be dependent upon a few large customers and there is no assurance that Greystone will be able to retain such customers. These risks and other risks that could affect Greystone’s business are more fully described in Greystone’s Form 10-K for the fiscal year ended May 31, 2021, which was filed on August 20, 2021. 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, 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, 2022.
During the three months ended February 28, 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.
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.
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Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GREYSTONE LOGISTICS, INC. | |
| (Registrant) | |
| Date: April 14, 2022 | /s/ Warren F. Kruger |
| Warren F. Kruger, President and Chief | |
| Executive Officer (Principal Executive Officer) | |
| Date: April 14, 2022 | /s/ William W. Rahhal |
| William W. Rahhal, Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting Officer) |
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Index to Exhibits
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