Greystone Logistics, Inc 10-Q for FY2022 Q1
Greystone Logistics, Inc. (GLGI)
About this 10-Q
Greystone Logistics, Inc filed this 10-Q on October 14, 2021, covering the quarter ended August 31, 2021 (FY2022 Q1).
Headline figures
Quarter ended August 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $14.77M
- down 15.9% from $17.57M a year earlier
- Net income
- $3.12M
- up 209.4% from net income of $1.01M a year earlier
- Diluted EPS
- $0.09
- up 200.0% from $0.03 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 |
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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
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| Large accelerated filer ☐ | Accelerated filer ☐ |
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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. ☐
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GREYSTONE LOGISTICS, INC.
FORM 10-Q
For the Period Ended August 31, 2021
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Greystone Logistics, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| August 31, 2021 | 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 issuance 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.
| 1 |
Greystone Logistics, Inc. and Subsidiaries
Consolidated Statements of Income
For the Three Months Ended August 31,
(Unaudited)
| 2021 | 2020 | |||||||
| 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 | ||||||||
| Benefit (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.
| 2 |
Greystone Logistics, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
For the Three Months Ended August 31, 2021 and 2020
(Unaudited)
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | ||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Stock options exercised | ||||||||||||||||||||||||||||||||||||
| Stock options exercised, share | ||||||||||||||||||||||||||||||||||||
| Cash distributions | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Preferred dividends ($ per share) | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Balances, August 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Balances, May 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Balance | 50,000 | $ | 28,361,201 | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||
| Stock options exercised | - | |||||||||||||||||||||||||||||||||||
| Cash distributions | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Preferred dividends ($ per share) | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Balances, August 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Balance | 50,000 | $ | 28,561,201 | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
Greystone Logistics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended August 31,
(Unaudited)
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities - | ||||||||
| Gain from forgiveness of debt | ( | ) | - | |||||
| Gain on sale of assets | ( | ) | - | |||||
| Depreciation and amortization | ||||||||
| Deferred tax expense (benefit) | ( | ) | ||||||
| Decrease (increase) in trade accounts receivable | ( | ) | ||||||
| Decrease in related party receivables | ||||||||
| Decrease in inventory | ||||||||
| Increase in prepaid expenses | ( | ) | ( | ) | ||||
| Increase (decrease) in accounts payable and accrued liabilities | ( | ) | ||||||
| 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 | - | |||||||
| Principal payments on long-term debt and financing leases | ( | ) | ( | ) | ||||
| Principal payments on related party note payable and financing lease | ( | ) | ( | ) | ||||
| Principal payments on revolving loan | - | ( | ) | |||||
| Payments for debt issuance costs | ( | ) | - | |||||
| Proceeds from stock options exercised | - | |||||||
| Dividends paid on preferred stock | - | ( | ) | |||||
| Distributions paid by non-controlling interest | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net Decrease in Cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Non-cash Activities: | ||||||||
| Capital expenditures in accounts payable | $ | $ | ||||||
| Preferred dividend accrual | $ | $ | ||||||
| Supplemental information: | ||||||||
| Interest paid | $ | $ | ||||||
| Taxes paid | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
Greystone Logistics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Financial Statements
In the opinion of Greystone Logistics, Inc. (“Greystone”), the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications, which are of a normal recurring nature, necessary to present fairly its financial position as of August 31, 2021 and the results of its operations and cash flows for the three months ended August 31, 2021 and 2020. 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 three months ended August 31, 2021 and 2020 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 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 Basic and Diluted Earnings Per Share
| 2021 | 2020 | |||||||
| 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 | $ | $ | ||||||
| 5 |
Note 3. Inventory
Inventory consists of the following:
Schedule of Inventory
| August 31, | May 31, | |||||||
| 2021 | 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
Note 4. Property, Plant and Equipment
A summary of property, plant and equipment for Greystone is as follows:
Schedule of Property, Plant and Equipment
August 31, 2021 | 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 three months ended August 31, 2021 and 2020 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 CEO and President, 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 $
Effective
January 1, 2017, Greystone and Yorktown entered into a lease for office space at a monthly rental 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 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 three months ended August 31, 2021 and 2020, Greystone purchases from 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 and CEO. Greystone had sales to Green of $
| 6 |
Note 6. Long-term Debt
Debt as of August 31, 2021 and May 31, 2021 is as follows:
Schedule of Long-Term Debt
| August 31, | May 31, | |||||||
| 2021 | 2021 | |||||||
| Total long-term debt | ||||||||
| 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 | ||||||||
| Paycheck Protection Program note, interest
rate of | ||||||||
| Term loan payable by GRE to International Bank
of Commerce, interest rate of | ||||||||
| Term loan 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 | $ | $ | ||||||
| 7 |
The
prime rate of interest as of August 31, 2021 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 as amended, 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 $
| 8 |
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.
The
IBC Loan Agreement is secured by a lien on substantially all 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
January 31, 2014, GRE and IBC entered into a Loan Agreement, as amended, providing for a mortgage loan to GRE of $
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.
| 9 |
The Western Loan Agreement is secured by a mortgage on one 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 payable with Mr. Rosene was restated (the “Restated Note”) to aggregate the accrued interest with
the outstanding principal resulting in a combined note payable in the principal amount of $
Maturities
Maturities
of Greystone’s long-term debt for the five years subsequent to August 31, 2021 are $
Note 7. Leases
Financing Leases
Financing leases as of August 31, 2021 and May 31, 2021:
Schedule of Financing Lease
| August
31, 2021 | 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
$
| 10 |
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 $
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
For the periods ending August 31, 2021 and 2020:
Summary of Lease Activity
| 2021 | 2020 | |||||||
| 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 | % | % | ||||||
| 11 |
Future minimum lease payments under non-cancelable leases as of August 31, 2021, are approximately:
Schedule of Future Minimum Lease Payments
Financing Leases | Operating Leases | |||||||
| Twelve months ended August 31, 2022 | $ | $ | ||||||
| Twelve months ended August 31, 2023 | ||||||||
| Twelve months ended August 31, 2024 | ||||||||
| Twelve months ended August 31, 2025 | ||||||||
| Total future minimum lease payments | ||||||||
| Present value discount | ||||||||
| Present value of minimum lease payments | $ | $ | ||||||
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, 2021 and 2020, respectively, were as follows:
Schedule of Sale of Revenues for Customer Categories
| Category | 2021 | 2020 | ||||||
| End user customers | % | % | ||||||
| Distributors | % | % | ||||||
| 12 |
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.
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 August 31, 2021, Greystone
is indebted to Mr. Rosene in the amount of $
COVID-19 Risks. The impact of COVID-19 and the related Delta variant 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 continues to stay active.
| 13 |
Legal Proceeding
On
February 1, 2021, iGPS Logistics, LLC (“iGPS”), filed a Demand for Arbitration (the “Demand”) with the International
Centre for Dispute Resolution of the American Arbitration Association (the “AAA”) against Greystone Manufacturing, LLC (“GSM”).
iGPS alleges breaches by GSM under that certain manufacturing supply agreement dated as of December 16, 2015, by and between iGPS and
GSM (the “MSA”) and the implied covenant of good faith and fair dealing, including, among other things, with respect to (1)
improperly terminating the MSA, (2) improperly seeking to revoke its warranty of workmanship and materials, (3) failing to utilize a
lower-priced and higher-quality PiRod, (4) making knowing false representations about compliance with UL certification requirements,
and (5) refusing to permit an audit. iGPS seeks, among other things, (a) a declaratory judgment that iGPS is entitled to an audit of
GSM’s material costs, (b) damages in excess of $
GSM denies the allegations set forth in the Demand and intends to vigorously defend itself. On March 1, 2021, GSM filed an Answer to the Demand with the AAA (the “Answer”). In its Answer, GSM states, among other things, (i) within the first year of the MSA, and repeatedly thereafter, iGPS made substantial and material reconfigurations of the original mold design, routinely demanding that GSM alone bear virtually all the increasing costs and provide warranties for the experimental redesigns iGPS demanded, (ii) the iGPS-GSM relationship changed dramatically in 2019 after a leadership change, (iii) the new iGPS leadership began disclaiming the understandings reached between iGPS and GSM in the earlier years, (iv) although GSM terminated the MSA on March 17, 2020, it has not missed a run on any of the pallets sold to iGPS over a year after termination, and (v) GSM has not breached the exclusivity and non-competition provisions of the MSA. GSM seeks, among other things, (A) certain declaratory awards, (B) damages, including pre-judgment and post-judgment interest, and (C) attorney’s fees, costs, and expenses associated with the arbitration.
Greystone continues to manufacture and sell plastic pallets to iGPS.
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 August 31, 2021, Greystone had commitments totaling $
| 14 |
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 three months ended August 31, 2021. References to fiscal year 2021 refer to the three months ended August 31, 2020.
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 264 and 284 regular employees and 19 and 60 temporary employees as of August 31, 2021 and 2020, respectively. Full-time equivalent is a measure based on time worked.
Three Months Ended August 31, 2021 Compared to Three Months Ended August 31, 2020
Sales
Sales for fiscal year 2022 were $14,774,399 compared to $17,568,176 in fiscal year 2021 for a decrease of $2,793,777. This decline in sales was principally due to a decline of approximately 30% in pallet production during the quarter ended August 31, 2021 compared to the prior year. Greystone has been unable to operate on a full-time basis because of shortage of production personnel and downtime on certain pallet production machines. The shortage of personnel appears to be a problem for companies as recovery from the COVID-19 and Delta variant pandemic and availability of job seekers has not achieved expectations.
Greystone is working with its customers to effect price increases, where possible, to mitigate the impact of material and labor price increases as discussed below under Cost of Sales. Based on new orders and relationships, Greystone believes that the demand for its pallets is increasing which is primarily expected to have a positive impact on operations during the last half of the current fiscal year as well as future years.
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Greystone had three (four in fiscal year 2021) larger customers which accounted for approximately 71% and 87% 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 $13,312,305, or 90% of sales, compared to $14,609,617, or 83% of sales, in fiscal year 2021. The increase in cost of sales to sales in fiscal year 2021 was the result of several factors. Because of the disruption in the supply chain from the COVID-19 and Delta variant pandemic, prices of raw materials have increased significantly. Also as discussed above, a shortage of personnel and machine downtime resulted in an increase in cost per pallet due to Greystone’s inflexible cost structure.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $1,218,604, or 8.2% of sales, in fiscal year 2022 compared to $1,140,238, or 6.5% of sales, in fiscal year 2021 for an increase of $78,366, or 6.8%, over fiscal year 2021. The increase in fiscal year 2022 over fiscal year 2021 was principally attributable to legal fees.
Other Income (Expenses)
Other income was $3,095,322 in fiscal year 2022 compared to $6,510 in fiscal year 2021. During fiscal year 2022, other income includes the forgiveness of the PPP loan and accrued interest in the amount of $3,068,497 and a gain of $22,336 from the sale of equipment. Income from the sale of scrap material totaled $4,489 and $6,510 in fiscal years 2022 and 2021, respectively.
Interest expense was $223,354 in fiscal year 2022 compared to $361,673 in fiscal year 2021 for a decrease of $138,319. Greystone’s liability for long-term debt, financing leases and operating leases decreased approximately $10,000,000 as of August 31, 2021 compared to August 31, 2020.
Provision for Income Taxes
The benefit from (provision for) income taxes was $7,000 and $(454,000) in fiscal years 2022 and 2021, 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.
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Net Income
Greystone recorded net income of $3,122,458 in fiscal year 2022 compared to $1,009,158 in fiscal year 2021 primarily for the reasons discussed above.
Net Income Attributable to Common Stockholders
The net income attributable to common stockholders for fiscal year 2022 was $2,970,921, or $0.10 per share, compared $860,201, or $0.03 per share, in fiscal year 2021 primarily for the reasons discussed above.
Liquidity and Capital Resources
A summary of cash flows for the three months ended August 31, 2021 is as follows:
| Cash provided by operating activities | $ | 375,643 | ||
| Cash used in investing activities | $ | (609,279 | ) | |
| Cash used in financing activities | $ | (1,265,532 | ) |
The contractual obligations of Greystone are as follows:
Total | Less than 1 year |
1-3 years |
4-5 years |
Thereafter | ||||||||||||||||
| Long-term debt | $ | 12,360,936 | $ | 3,096,943 | $ | 8,346,517 | $ | 312,497 | $ | 604,979 | ||||||||||
| Financing leases | $ | 3,445,826 | $ | 1,861,477 | $ | 1,576,402 | $ | 7,947 | $ | - | ||||||||||
| Operating leases | $ | 97,043 | $ | 49,881 | $ | 47,162 | $ | - | $ | - | ||||||||||
| Commitments | $ | 499,349 | $ | 499,349 | $ | - | $ | - | $ | - | ||||||||||
Greystone had a working capital deficit of $(3,307,871) as of August 31, 2021. To provide for the funding to meet Greystone’s operating activities and contractual obligations as of August 31, 2021, 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 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.
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Greystone has 50,000 outstanding shares of cumulative 2003 Preferred Stock with a liquidation preference of $5,000,000 and a preferred dividend rate of the prime rate of interest plus 3.25%. Greystone does not anticipate that it will make cash dividend payments to any holders of its common stock unless and until the financial position of Greystone improves through increased revenues, another financing transaction or otherwise. Pursuant to the IBC Loan Agreement, as discussed in Note 6 to the consolidated financial statements, Greystone may pay dividends on its preferred stock in an amount not to exceed $500,000 per year.
Forward Looking Statements and Material Risks
This Quarterly Report on Form 10-Q includes certain statements that may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are made in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, that address activities, events or developments that Greystone expects, believes or anticipates will or may occur in the future, including decreased costs, 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 August 31, 2021.
During the three months ended August 31, 2021, there were no changes in Greystone’s internal controls over financial reporting that have materially affected, or that are reasonably likely to materially affect, Greystone’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
The following exhibits are filed or furnished as part of this Quarterly Report on Form 10-Q.
| 31.1 | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (submitted herewith). |
| 31.2 | Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (submitted herewith). |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (submitted herewith). |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (submitted herewith). |
| 101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets at August 31, 2021 and May 31, 2021, (ii) the Consolidated Statements of Income for the three months ended August 31, 2021 and 2020, (iii) the Consolidated Statements of Changes in Equity for the three months ended August 31, 2021 and 2020, (iv) the Consolidated Statements of Cash Flows for the three months ended August 31, 2021 and 2020, and (v) the Notes to the Consolidated Financial Statements (submitted herewith). |
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document |
| 101.SCH | Inline XBRL Schema |
| 101.CAL | Inline XBRL Calculation |
| 101.DEF | Inline XBRL Definition |
| 101.LAB | Inline XBRL Label |
| 101.PRE | Inline XBRL Presentation |
| 104 | Cover page formatted as Inline XBRL and contained in Exhibit 101 |
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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: October 14, 2021 | /s/ Warren F. Kruger |
| Warren F. Kruger, President and Chief | |
| Executive Officer (Principal Executive Officer) | |
| Date: October 14, 2021 | /s/ William W. Rahhal |
| William W. Rahhal, Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting Officer) |
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Index to Exhibits
The following exhibits are filed or furnished as part of this Quarterly Report on Form 10-Q.
| 31.1 | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (submitted herewith). |
| 31.2 | Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (submitted herewith). |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (submitted herewith). |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (submitted herewith). |
| 101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets at August 31, 2021 and May 31, 2021, (ii) the Consolidated Statements of Income for the three months ended August 31, 2021 and 2020, (iii) the Consolidated Statements of Changes in Equity for the three months ended August 31, 2021 and 2020, (iv) the Consolidated Statements of Cash Flows for the three months ended August 31, 2021 and 2020, and (v) the Notes to the Consolidated Financial Statements (submitted herewith). |
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document |
| 101.SCH | Inline XBRL Schema |
| 101.CAL | Inline XBRL Calculation |
| 101.DEF | Inline XBRL Definition |
| 101.LAB | Inline XBRL Label |
| 101.PRE | Inline XBRL Presentation |
| 104 | Cover page formatted as Inline XBRL and contained in Exhibit 101 |
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