Attached files
| file | filename |
|---|---|
| EX-32.2 - GREYSTONE LOGISTICS, INC. | ex32-2.htm |
| EX-32.1 - GREYSTONE LOGISTICS, INC. | ex32-1.htm |
| EX-31.2 - GREYSTONE LOGISTICS, INC. | ex31-2.htm |
| EX-31.1 - GREYSTONE LOGISTICS, INC. | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended August 31, 2020
| [ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ____________
| Commission file number | 000-26331 |
| GREYSTONE LOGISTICS, INC. |
| (Exact name of registrant as specified in its charter) |
| Oklahoma | 75-2954680 | |
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
| 1613 East 15th Street, Tulsa, Oklahoma | 74120 | |
| (Address of principal executive offices) | (Zip Code) |
| (918) 583-7441 |
| (Registrant’s telephone number, including area code) |
| (Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to post and submit such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] | |
| Non-accelerated filer | [X] | Smaller reporting company | [X] | |
| Emerging growth company | [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by checkmark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: October 9, 2020 - 28,361,201
GREYSTONE LOGISTICS, INC.
FORM 10-Q
For the Period Ended August 31, 2020
Greystone Logistics, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| August 31, 2020 | May 31, 2020 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 821,078 | $ | 1,131,850 | ||||
| Accounts receivable - | ||||||||
| Trade | 4,193,026 | 6,670,771 | ||||||
| Related parties | 51,341 | 94,351 | ||||||
| Inventory | 3,346,080 | 4,229,895 | ||||||
| Prepaid expenses | 68,333 | 7,488 | ||||||
| Total Current Assets | 8,479,858 | 12,134,355 | ||||||
| Property, Plant and Equipment, net | 33,128,751 | 34,142,407 | ||||||
| Right-of-Use Operating Lease Assets | 163,397 | 181,525 | ||||||
| Total Assets | $ | 41,772,006 | $ | 46,458,287 | ||||
| Liabilities and Equity | ||||||||
| Current Liabilities: | ||||||||
| Current portion of long-term debt | $ | 4,971,516 | $ | 4,416,377 | ||||
| Current portion of financing leases | 1,883,904 | 1,838,251 | ||||||
| Current portion of operating leases | 74,106 | 74,024 | ||||||
| Accounts payable and accrued liabilities | 3,996,009 | 4,929,234 | ||||||
| Deferred revenue | 1,334,007 | 3,793,167 | ||||||
| Preferred dividends payable | 81,918 | 84,110 | ||||||
| Total Current Liabilities | 12,341,460 | 15,135,163 | ||||||
| Long-Term Debt, net of current portion and debt issue costs | 15,639,847 | 18,329,633 | ||||||
| Financing Leases, net of current portion | 3,103,783 | 3,617,405 | ||||||
| Operating Leases, net of current portion | 89,291 | 107,501 | ||||||
| Deferred Tax Liability | 1,563,052 | 1,109,052 | ||||||
| Equity: | ||||||||
| Preferred stock, $0.0001 par value, cumulative, 20,750,000 shares authorized, 50,000 shares issued and outstanding, liquidation preference of $5,000,000 | 5 | 5 | ||||||
| Common stock, $0.0001 par value, 5,000,000,000 shares authorized, 28,361,201 shares issued and outstanding | 2,836 | 2,836 | ||||||
| Additional paid-in capital | 53,790,764 | 53,790,764 | ||||||
| Accumulated deficit | (45,946,891 | ) | (46,807,092 | ) | ||||
| Total Greystone Stockholders’ Equity | 7,846,714 | 6,986,513 | ||||||
| Non-controlling interest | 1,187,859 | 1,173,020 | ||||||
| Total Equity | 9,034,573 | 8,159,533 | ||||||
| Total Liabilities and Equity | $ | 41,772,006 | $ | 46,458,287 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| 1 |
Consolidated Statements of Income
For the Three Months Ended August 31,
(Unaudited)
| 2020 | 2019 | |||||||
| Sales | $ | 17,568,176 | $ | 18,664,509 | ||||
| Cost of Sales | 14,609,617 | 16,303,734 | ||||||
| Gross Profit | 2,958,559 | 2,360,775 | ||||||
| General, Selling and Administrative Expenses | 1,140,238 | 1,077,598 | ||||||
| Operating Income | 1,818,321 | 1,283,177 | ||||||
| Other Income (Expense): | ||||||||
| Other income | 6,510 | 2,033 | ||||||
| Interest expense | (361,673 | ) | (480,911 | ) | ||||
| Income before Income Taxes | 1,463,158 | 804,299 | ||||||
| Provision for Income Taxes | 454,000 | 185,000 | ||||||
| Net Income | 1,009,158 | 619,299 | ||||||
| Income Attributable to Non-controlling Interest | (67,039 | ) | (64,686 | ) | ||||
| Preferred Dividends | (81,918 | ) | (112,363 | ) | ||||
| Net Income Attributable to Common Stockholders | $ | 860,201 | $ | 442,250 | ||||
| Income Per Share of Common Stock - | ||||||||
| Basic and Diluted | $ | 0.03 | $ | 0.02 | ||||
| Weighted Average Shares of Common Stock Outstanding - | ||||||||
| Basic | 28,361,201 | 28,361,201 | ||||||
| Diluted | 32,363,012 | 29,010,546 | ||||||
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, 2020 and 2019
(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, 2019 | 50,000 | $ | 5 | 28,361,201 | $ | 2,836 | $ | 53,790,764 | $ | (51,108,677 | ) | $ | 2,684,928 | $ | 1,126,271 | $ | 3,811,199 | |||||||||||||||||||
| Cash distributions | - | - | - | - | - | - | - | (52,200 | ) | (52,200 | ) | |||||||||||||||||||||||||
| Preferred dividends ($2.25 per share) | - | - | - | - | - | (112,363 | ) | (112,363 | ) | - | (112,363 | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | 554,613 | 554,613 | 64,686 | 619,299 | |||||||||||||||||||||||||||
| Balances, August 31, 2019 | 50,000 | $ | 5 | 28,361,201 | $ | 2,836 | $ | 53,790,764 | $ | (50,666,427 | ) | $ | 3,127,178 | $ | 1,138,757 | $ | 4,265,935 | |||||||||||||||||||
| Balances, May 31, 2020 | 50,000 | $ | 5 | 28,361,201 | $ | 2,836 | $ | 53,790,764 | $ | (46,807,092 | ) | $ | 6,986,513 | $ | 1,173,020 | $ | 8,159,533 | |||||||||||||||||||
| Cash distributions | - | - | - | - | - | - | - | (52,200 | ) | (52,200 | ) | |||||||||||||||||||||||||
| Preferred dividends ($1.64 per share) | - | - | - | - | - | (81,918 | ) | (81,918 | ) | - | (81,918 | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | 942,119 | 942,119 | 67,039 | 1,009,158 | |||||||||||||||||||||||||||
| Balances, August 31, 2020 | 50,000 | $ | 5 | 28,361,201 | $ | 2,836 | $ | 53,790,764 | $ | (45,946,891 | ) | $ | 7,846,714 | $ | 1,187,859 | $ | 9,034,573 | |||||||||||||||||||
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)
| 2020 | 2019 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 1,009,158 | $ | 619,299 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities - | ||||||||
| Depreciation and amortization | 1,491,244 | 1,305,258 | ||||||
| Deferred tax expense | 454,000 | 185,000 | ||||||
| Decrease in trade accounts receivable | 2,477,745 | 1,473,523 | ||||||
| Decrease (increase) in related party receivables | 43,010 | (14,754 | ) | |||||
| Decrease (increase) in inventory | 857,065 | (1,434,527 | ) | |||||
| Decrease (increase) in prepaid expenses | (60,845 | ) | 213,410 | |||||
| Decrease in accounts payable and accrued liabilities | (638,117 | ) | (271,366 | ) | ||||
| Decrease in deferred revenue | (2,459,160 | ) | - | |||||
| Net cash provided by operating activities | 3,174,100 | 2,075,843 | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | (744,656 | ) | (1,172,574 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from long-term debt | - | 672,000 | ||||||
| Principal payments on long-term debt and financing leases | (1,193,676 | ) | (1,161,478 | ) | ||||
| Proceeds from revolving loan | - | 690,000 | ||||||
| Principal payments on revolving loan | (790,000 | ) | (972,000 | ) | ||||
| Principal payments on related party note payable and financing lease | (620,230 | ) | (90,095 | ) | ||||
| Payments for debt issuance costs | - | (3,360 | ) | |||||
| Dividends paid on preferred stock | (84,110 | ) | (112,192 | ) | ||||
| Distributions paid by non-controlling interest | (52,200 | ) | (52,200 | ) | ||||
| Net cash used in financing activities | (2,740,216 | ) | (1,029,325 | ) | ||||
| Net Decrease in Cash | (310,772 | ) | (126,056 | ) | ||||
| Cash, beginning of period | 1,131,850 | 1,255,408 | ||||||
| Cash, end of period | $ | 821,078 | $ | 1,129,352 | ||||
| Non-cash Activities: | ||||||||
| Capital expenditures in accounts payable | $ | - | $ | 271,670 | ||||
| Preferred dividend accrual | $ | 81,918 | $ | 112,363 | ||||
| Supplemental information: | ||||||||
| Interest paid | $ | 350,497 | $ | 480,802 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
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, 2020 and the results of its operations and cash flows for the three months ended August 31, 2020 and 2019. 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, 2020 and the notes thereto included in the Form 10-K for such period. The results of operations for the three months ended August 31, 2020 and 2019 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.
Note 2. Earnings Per Share
Basic earnings per share is based on the weighted-average effect of all common shares issued and outstanding and is calculated by dividing net income attributable to common stockholders by the weighted-average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income attributable to common stockholders by the weighted-average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding.
Greystone excludes equity instruments from the calculation of diluted earnings per share if the effect of including such instruments is anti-dilutive. Instruments which have an anti-dilutive effect at August 31 are as follows:
| 2020 | 2019 | |||||||
| Preferred stock convertible into common stock | - | 3,333,333 | ||||||
| 5 |
The following tables set forth the computation of basic and diluted earnings per share for the three months ended August 31, 2020 and 2019:
| 2020 | 2019 | |||||||
| Basic earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | 860,201 | $ | 442,250 | ||||
| Denominator - | ||||||||
| Weighted-average shares outstanding - basic | 28,361,201 | 28,361,201 | ||||||
| Income per share of common stock - basic | $ | 0.03 | $ | 0.02 | ||||
| Diluted earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | 860,201 | $ | 442,250 | ||||
| Add: Preferred stock dividends for assumed conversion | 81,918 | - | ||||||
| Net income allocated to common stockholders | $ | 942,119 | $ | 442,250 | ||||
| Denominator - | ||||||||
| Weighted-average shares outstanding - basic | 28,361,201 | 28,361,201 | ||||||
| Incremental shares from assumed conversion of options, warrants and preferred stock, as appropriate | 4,001,811 | 649,345 | ||||||
| Weighted average common stock outstanding - diluted | 32,363,012 | 29,010,546 | ||||||
| Income per share of common stock - diluted | $ | 0.03 | $ | 0.02 | ||||
Note 3. Inventory
Inventory consists of the following:
| August 31, | May 31, | |||||||
| 2020 | 2020 | |||||||
| Raw materials | $ | 1,772,380 | $ | 1,953,957 | ||||
| Finished goods | 1,573,700 | 2,275,938 | ||||||
| Total inventory | $ | 3,346,080 | $ | 4,229,895 | ||||
Note 4. Property, Plant and Equipment
A summary of property, plant and equipment for Greystone is as follows:
August 31, 2020 | May 31, 2020 | |||||||
| Production machinery and equipment | $ | 50,799,509 | $ | 51,637,883 | ||||
| Plant buildings and land | 6,884,866 | 6,881,326 | ||||||
| Leasehold improvements | 1,374,643 | 1,323,535 | ||||||
| Furniture and fixtures | 601,586 | 601,586 | ||||||
| 59,660,604 | 60,444,330 | |||||||
| Less: Accumulated depreciation and amortization | (26,531,853 | ) | (26,301,923 | ) | ||||
| Net Property, Plant and Equipment | $ | 33,128,751 | $ | 34,142,407 | ||||
| 6 |
Production machinery includes deposits on equipment in the amount of $299,629 at August 31, 2020, which has not been placed into service. Plant buildings and land include two properties which are owned by GRE, a variable interest entity (“VIE”) and have an aggregate net book value of $2,751,709 at August 31, 2020.
Depreciation expense, including amortization expense related to financing leases, for the three months ended August 31, 2020 and 2019 was $1,489,953 and $1,303,968, respectively.
Note 5. Related Party Transactions/Activity
Yorktown Management & Financial Services, LLC
Yorktown Management & Financial Services, LLC (“Yorktown”), an entity wholly-owned by Greystone’s 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 $27,500 for use of Yorktown’s grinding equipment and pelletizing equipment. Rental fees were $330,000 and $357,500 for the three months ended August 31, 2020 and 2019, respectively.
Effective January 1, 2017, Greystone and Yorktown entered into a five-year lease for office space at a monthly rental of $4,000 per month. Total rent expense was $12,000 for each of the three months ended August 31, 2020 and 2019. As of August 31, 2020, future minimum payments under the non-cancelable operating lease for the remaining two years are $48,000 and $16,000.
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 periodically purchases material and pallets from TriEnda. Purchases for the three months ended August 31, 2020 and 2019 totaled $11,385 and $-0-, respectively. As of August 31, 2020, Greystone owed $5,175 to TriEnda for such purchases.
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 $64,260 and $77,520 for the three months ended August 31, 2020 and 2019, respectively. The account receivable due from Green at August 31, 2020 was $42,840.
| 7 |
Note 6. Long-term Debt
Debt as of August 31, 2020 and May 31, 2020 is as follows:
| August 31, | May 31, | |||||||
| 2020 | 2020 | |||||||
| Term loan A payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.0%, maturing April 30, 2023 | $ | 2,254,132 | $ | 2,459,854 | ||||
| Term loan C payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.0%, maturing August 4, 2024 | 1,101,859 | 1,165,774 | ||||||
| Term loan D payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.75%, maturing January 10, 2022 | 977,187 | 1,136,455 | ||||||
| Term loan E payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.75%, maturing January 10, 2022 | 635,192 | 696,174 | ||||||
| Term loan F payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 5.25%, maturing February 29, 2024 | 2,583,361 | 2,752,293 | ||||||
| Term loan G payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 5.25%, maturing April 30, 2024 | 826,130 | 837,811 | ||||||
| Revolving loan payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 5.5%, due January 31, 2022 | 1,750,000 | 2,540,000 | ||||||
| Paycheck Protection Program note, interest rate of 1.0%, maturing April 13, 2022 | 3,034,000 | 3,034,000 | ||||||
| Term loan payable by GRE to International Bank of Commerce, interest rate of 5.5%, monthly principal and interest payment of $27,688, due April 30, 2023 | 2,209,901 | 2,261,425 | ||||||
| Term note payable to Great Western Bank, interest rate of 3.7%, monthly principal and interest payments of $27,593, due March 19, 2025, secured by certain equipment | 1,392,988 | 1,461,726 | ||||||
| Note payable to Robert Rosene, 7.5% interest, due January 15, 2022 | 3,706,666 | 4,253,228 | ||||||
| Other | 174,543 | 183,156 | ||||||
| Total long-term debt | 20,645,959 | 22,781,896 | ||||||
| Debt issuance costs, net of amortization | (34,596 | ) | (35,886 | ) | ||||
| Total debt, net of debt issuance costs | 20,611,363 | 22,746,010 | ||||||
| Less: Current portion of long-term debt | (4,971,516 | ) | (4,416,377 | ) | ||||
| Long-term debt, net of current portion | $ | 15,639,847 | $ | 18,329,633 | ||||
The prime rate of interest as of August 31, 2020 was 3.25%.
| 8 |
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 as follows: (i) Term Loan A over a seven-year period beginning February 29, 2016 (currently $76,705 per month), (ii) Term Loan C over a seven-year period beginning August 31, 2017 (currently $25,205 per month), (iii) Term Loan D over a four-year period beginning February 10, 2019 (currently $57,469 per month), (iv) Term Loan E over a four-year period beginning February 10, 2019 (currently $23,060 per month), (v) Term Loan F over a five-year period beginning February 28, 2019 (currently $68,402 per month) and (vi) Term Loan G over a fifteen-year period beginning April 30, 2019 (currently $7,466 per month). The monthly payments of principal and interest on the IBC term loans may vary as a result of changes in the prime rate of interest.
The IBC Loan Agreement, as amended, provides a revolving loan in an aggregate principal amount of up to $4,000,000 (the “Revolving Loan”). The amount which can be borrowed from time to time is dependent upon the amount of the borrowing base not to exceed $4,000,000. The Revolving Loan bears interest at the greater of the prime rate of interest plus 0.5%, or 5.50% and matures January 31, 2022. The Borrowers are required to pay all interest accrued on the outstanding principal balance of the Revolving Loan on a monthly basis. Any principal on the Revolving Loan that is prepaid by the Borrowers does not reduce the original amount available to the Borrowers. Greystone’s available revolving loan borrowing capacity was $2,250,000 at August 31, 2020.
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 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 $6,500,000 (the “Guaranty”). The Mortgage and the Guaranty also secure or guaranty, as applicable, the obligations of GRE under the Loan Agreement between GRE and IBC dated January 31, 2014 as discussed herein.
Paycheck Protection Program (“PPP”) Loan
On April 10, 2020, the Company received a SBA Payroll Protection Program (“PPP”) loan pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), with IBC for $3,034,000. The PPP loan bears interest at 1.0% per annum, with monthly payments of principal and interest in the amount of $177,803 commencing on November 10, 2020 and matures on April 10, 2022. The Paycheck Protection Program provides that the PPP loan may be partially or fully forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company believes that the proceeds from the PPP loan were used for qualifying expenses in accordance with the terms in the CARES Act and plans to apply for forgiveness of the PPP loan in accordance with the requirements and limitations under the CARES Act, the PPP Flexibility Act and SBA regulations and requirements. However, there is no assurance that all or any portion of the PPP loan will be forgiven.
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 April 30, 2023 and increase the interest rate to 5.5%. The note is secured by a mortgage on the two buildings in Bettendorf, Iowa, which are leased to Greystone.
| 9 |
Note Payable between Greystone and Robert B. Rosene, Jr.
Effective December 15, 2005, Greystone entered into an agreement with Robert B. Rosene, Jr., a member of Greystone’s board of directors, to convert $2,066,000 of advances into an unsecured note payable at 7.5% interest.
Effective June 1, 2016, the note was restated (the “Restated Note”) to combine the outstanding principal, $2,066,000, and accrued interest, $2,475,690, into an unsecured note payable of $4,541,690 with an extended maturity date of January 15, 2022. The Restated Note provides that accrued interest is payable monthly and allows Greystone to use commercially reasonable efforts to pay such amounts as allowed by the IBC Loan Agreement against the interest accrued prior to the restatement. The balance of the note at August 31, 2020 was $3,706,666.
Maturities
Maturities of Greystone’s long-term debt for the five years subsequent to August 31, 2020 are $4,971,516, $10,021,054, $3,768,376, $1,669,485 and $215,528.
Note 7. Leases
Financing Leases
Financing leases as of August 31, 2020 and May 31, 2020:
| August 31, 2020 | May 31, 2020 | |||||||
| Non-cancellable financing leases | $ | 4,987,687 | $ | 5,455,656 | ||||
| Less: Current portion | (1,883,904 | ) | (1,838,251 | ) | ||||
| Non-cancellable financing leases, net of current portion | $ | 3,103,783 | $ | 3,617,405 | ||||
Greystone and an unrelated private company entered into three lease agreements for certain production equipment with a total cost of approximately $6.9 million which were effective February 24, 2018, August 2, 2018 and December 21, 2018, respectively, with five-year terms and a capitalized interest rate of 7.4%. Each of the lease agreements include a bargain purchase option to acquire the production equipment at the end of the lease term. The leased equipment is principally used to produce pallets for the private company. Lease payments are made as a credit on the sales invoice at the rate of $3.32 for each pallet produced and shipped from the respective leased equipment. The estimated aggregate monthly rental payments are approximately $153,000. The rent payments can vary each month depending on the quantity of pallets produced from each machine. The lease agreements provide for minimum monthly lease rental payments based upon the total pallets sold in excess of a specified amount not to exceed the monthly productive capacity of the leased machines.
Effective December 28, 2018, Yorktown purchased certain production equipment from Greystone at net book value of $968,168 and entered into a lease agreement with Greystone for the equipment with a monthly rent of $27,915 for the initial thirty-six months and $7,695 for the following twelve months and maturing December 27, 2022. The lease agreement has a $10,000 purchase option at the end of the lease.
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The production equipment under the non-cancelable financing leases has a gross carrying amount of $8,473,357 at August 31, 2020. Amortization of the carrying amount of $288,414 and $208,157 was included in depreciation expense for the three months ended August 31, 2020 and 2019, respectively.
Operating Leases
Greystone recognized a lease liability for each lease based on the present value of remaining minimum fixed rental payments, using a discount rate that approximates the rate of interest for a collateralized loan over a similar term. A right-of-use asset is recognized for each lease, valued at the lease liability. Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses on the consolidated statements of income. Variable and short-term rental payments are recognized as costs and expenses as they are incurred.
Greystone has three non-cancellable operating leases for (i) equipment with a fifty-two month term and a forty-eight month term and a discount rate of 5.40% and (ii) office space on a sixty month term and a discount rate of 5.0%. The leases are single-term with constant monthly rental rates.
Lease Summary Information
For the periods ending August 31, 2020 and 2019:
| 2020 | 2019 | |||||||
| Lease Expense | ||||||||
| Financing lease expense - | ||||||||
| Amortization of right-of-use assets | $ | 288,414 | $ | 208,157 | ||||
| Interest on lease liabilities | 86,558 | 121,151 | ||||||
| Operating lease expense | 20,470 | 19,179 | ||||||
| Short-term lease expense | 346,566 | 368,611 | ||||||
| Total | $ | 742,008 | $ | 717,098 | ||||
| Other Information | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities for finance leases - | ||||||||
| Operating cash flows | $ | 86,558 | $ | 121,151 | ||||
| Financing cash flows | $ | 467,970 | $ | 419,177 | ||||
| Cash paid for amounts included in the measurement of lease liabilities for operating leases - | ||||||||
| Operating cash flows | $ | 20,470 | $ | 19,179 | ||||
| Right-of-use assets obtained in exchange for lease liabilities - | ||||||||
| Operating leases | $ | - | $ | 67,750 | ||||
| Weighted-average remaining lease term (in years) - | ||||||||
| Financing leases | 3.2 | 3.2 | ||||||
| Operating leases | 2.9 | 3.4 | ||||||
| Weighted-average discount rate - | ||||||||
| Financing leases | 7.4 | % | 7.5 | % | ||||
| Operating leases | 5.2 | % | 5.2 | % | ||||
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Future minimum lease payments under non-cancelable leases as of August 31, 2020, are approximately:
| Financing Leases | Operating Leases | |||||||
| Twelve months ended August 31, 2021 | $ | 2,186,434 | $ | 81,881 | ||||
| Twelve months ended August 31, 2022 | 2,052,590 | 49,881 | ||||||
| Twelve months ended August 31, 2023 | 1,211,671 | 32,348 | ||||||
| Twelve months ended August 31, 2024 | 28,359 | 12,910 | ||||||
| Twelve months ended August 31, 2025 | 7,349 | - | ||||||
| Total future minimum lease payments | 5,486,403 | 177,020 | ||||||
| Present value discount | 498,716 | 13,623 | ||||||
| Present value of minimum lease payments | $ | 4,987,687 | $ | 163,397 | ||||
Note 8. Deferred Revenue
Advances from a customer 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 $2,459,160 and $-0- during the three months ended August 31, 2020 and 2019, respectively. There were no customer advances received during the three months ended August 31, 2020 and 2019. The unrecognized balance of deferred revenue as of August 31, 2020 and May 31, 2020, was $1,334,007 and $3,793,167, respectively.
Note 9. Revenue and Revenue Recognition
Revenue is recognized at the time a good or service is transferred to a customer and the customer obtains control of that good or receives the service performed. Sales arrangements with customers are short-term in nature involving single performance obligations related to the delivery of goods and generally provide for transfer of control at the time of shipment. In limited circumstances, where acceptance of the goods is subject to approval by the customer, revenue is recognized upon approval by the customer unless, historically, there have been insignificant rejections of goods by the customer. Contract liabilities associated with sales arrangements primarily relate to deferred revenue on prepaid sales of goods. Greystone generally permits returns of product due to defects; however, product returns are historically insignificant. The amount of revenue recognized reflects the consideration to which Greystone expects to be entitled to receive in exchange for its products.
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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 $131,000 and $105,000 during the three months ended August 31, 2020 and 2019, respectively.
Greystone’s customers include stocking and non-stocking distributors and direct sales to end-user customers. Sales to the following categories of customers for the three months ended August 31, 2020 and 2019, respectively, were as follows:
| Category | 2020 | 2019 | ||||||
| Major customers (end users) | 87 | % | 87 | % | ||||
| Distributors | 13 | % | 13 | % | ||||
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 87% of its total sales from four customers and three customers during the three months ended August 31, 2020 and 2019, respectively. The loss of a material amount of business from one or more of these customers could have a material adverse effect on Greystone.
Greystone purchases damaged pallets from its customers at a price based on the value of the raw material content in the pallet. A majority of these purchases, totaling $301,421 and $561,657 in fiscal years 2021 and 2020, respectively, is from one of its major customers.
Robert B. Rosene, Jr., a Greystone director, has provided financing and guarantees on Greystone’s bank debt. As of August 31, 2020, Greystone is indebted to Mr. Rosene in the amount of $3,706,666 for a note payable due January 15, 2022. There is no assurance that Mr. Rosene will renew the note as of the maturity date.
COVID-19 Risks. The impact of COVID-19 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 as the longer that the virus stays active, the greater the uncertainty.
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, 2020, Greystone had commitments totaling $467,230 toward the purchase of production equipment.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
General to All Periods
The unaudited consolidated statements include Greystone Logistics, Inc., and its two wholly-owned subsidiaries, Greystone Manufacturing, L.L.C. (“GSM”) and Plastic Pallet Production, Inc. (“PPP”). Greystone also consolidates the variable interest entity, Greystone Real Estate, L.L.C. (“GRE”). All material intercompany accounts and transactions have been eliminated.
References to fiscal year 2021 refer to the three months ended August 31, 2020. References to fiscal year 2020 refer to the three months ended August 31, 2019.
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.
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Personnel
Greystone had approximately 284 and 237 full-time employees as of August 31, 2020 and 2019, respectively. In addition, employee recruitment is outsourced to certain personnel agencies. Greystone employed 60 and 128 personnel through these agencies as of August 31, 2020 and 2019.
Three Months Ended August 31, 2020 Compared to Three Months Ended August 31, 2019
Sales
Sales for fiscal year 2021 were $17,568,176 compared to $18,664,509 in fiscal year 2020 for a decrease of $1,096,333. While the number of pallets sold during fiscal year 2021 increased by approximately 16%, there was decrease in the dollar volume for pallet sales in fiscal year 2021 from fiscal year 2020 primarily due to the pricing structure within the product mix.
Greystone had four and three larger customers which accounted for approximately 87% of sales in fiscal years 2021 and 2020, 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 2021 was $14,609,617, or 83% of sales, compared to $16,303,734, or 87% of sales, in fiscal year 2020. The ratio of cost of sales to sales in fiscal year 2021 reflects an improvement over the ratio for fiscal year 2020. The improvement in the ratio of cost of sales to sales in fiscal year 2021 from fiscal year 2020 was the result of price increases on certain pallets, increases in pallet production per machine resulting from installation of hardware and software to improve the flow of resin into molds on injection molding machines, and the increased capacity for grinding and pelletizing plastic material. The increase in the capacity for in-house grinding and pelletizing is beneficial toward reducing the overall cost for injection-grade plastic.
General, Selling and Administrative Expenses
General, selling and administrative expenses were $1,140,238, or 6.5% of sales, in fiscal year 2021 compared to $1,077,598, or 5.8% of sales, in fiscal year 2020 for an increase of $62,640 or 5.8%. The increase in fiscal year 2021 over fiscal year 2020 results principally from increased costs for administrative personnel.
Other Income (Expenses)
Other income from sales of scrap material was $6,510 in fiscal year 2021 compared to $2,033 in fiscal year 2020.
Interest expense was $361,673 in fiscal year 2021 compared to $480,911 in fiscal year 2020 for a decrease of $119,238. There was a reduction in total debt of approximately $1,600,000 from August 31, 2019 to August 31, 2020. In addition, the debt as of August 31, 2020 included a Paycheck Protection Program note in the amount of $3,034,000 which bears a 1.0% interest rate and the prime rate of interest was 3.25% as of August 31, 2020 compared to 5.25% as of August 31, 2019.
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Provision for Income Taxes
The provision for income taxes was $454,000 and $185,000 in fiscal years 2021 and 2020, respectively. The effective tax rate differs from federal statutory rates due principally to state income taxes, charges which have no tax benefit, changes in the valuation allowance, and the basis that the net income from GRE is not taxable at the corporate level because GRE is a limited liability company of which Greystone has no equity ownership.
Based upon a review of its income tax filing positions, Greystone believes that its positions would be sustained upon an audit by the Internal Revenue Service and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded.
Net Income
Greystone recorded net income of $1,009,158 in fiscal year 2021 compared to $619,299 in fiscal year 2020 primarily for the reasons discussed above.
Net Income Attributable to Common Stockholders
The net income attributable to common stockholders for fiscal year 2021 was $860,201, or $0.03 per share, compared $442,250, or $0.02 per share, in fiscal year 2020 primarily for the reasons discussed above.
Liquidity and Capital Resources
A summary of cash flows for the three months ended August 31, 2020 is as follows:
| Cash provided by operating activities | $ | 3,174,100 | ||
| Cash used in investing activities | $ | (744,656 | ) | |
| Cash used in financing activities | $ | (2,740,216 | ) |
The contractual obligations of Greystone are as follows:
| Total | Less than 1 year | 1-3 years | 4-5 years | |||||||||||||
| Long-term debt | $ | 20,645,959 | $ | 4,971,516 | $ | 13,789,430 | $ | 1,885,013 | ||||||||
| Financing leases | $ | 5,486,403 | $ | 2,186,434 | $ | 3,264,261 | $ | 35,708 | ||||||||
| Operating leases | $ | 177,020 | $ | 81,881 | $ | 82,229 | $ | 12,910 | ||||||||
| Commitments | $ | 467,230 | $ | 467,230 | $ | - | $ | - | ||||||||
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Greystone had a working capital deficit of $(3,861,602) at August 31, 2020. To provide for the funding to meet Greystone’s operating activities and contractual obligations as of August 31, 2020, 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.
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, 2020, which was filed on August 24, 2020. 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.
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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, 2020, 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, 2020.
During the three months ended August 31, 2020, 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.
None.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
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Item 4. Mine Safety Disclosures.
Not applicable.
None.
The following exhibits are filed or furnished as part of this Quarterly Report on Form 10-Q.
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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 13, 2020 | /s/ Warren F. Kruger |
| Warren F. Kruger, President and Chief | |
| Executive Officer (Principal Executive Officer) | |
| Date: October 13, 2020 | /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.
| 21 |