UNITED STATES
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GREYSTONE LOGISTICS, INC.
FORM 10-Q
For the Period Ended August 31, 2022
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Greystone Logistics, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| August 31, 2022 | May 31, 2022 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable - | ||||||||
| Trade | ||||||||
| Related parties | ||||||||
| Other | ||||||||
| 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, 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)
| 2022 | 2021 | |||||||
| Sales | $ | $ | ||||||
| Cost of Sales | ||||||||
| Gross Profit | ||||||||
| Selling, General and Administrative Expenses | ||||||||
| Operating Income | ||||||||
| Other Income (Expense): | ||||||||
| Gain from forgiveness of debt | ||||||||
| Gain on deconsolidation of variable interest entity | ||||||||
| Other income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Income before Income Taxes | ||||||||
| Benefit from (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, 2022 and 2021
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Greystone Stockholders’ | Non-controlling | Total | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Interest | Equity | ||||||||||||||||||||||||||||
| Balances, May 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Stock options exercised | - | |||||||||||||||||||||||||||||||||||
| Cash distributions | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Preferred dividends ($ per share) | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Balances, August 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Balances, May 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Capital contribution | - | - | ||||||||||||||||||||||||||||||||||
| Deconsolidation of variable interest entity | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Preferred dividends ($ per share) | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Balances, August 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
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)
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities - | ||||||||
| Gain from forgiveness of debt | ( | ) | ||||||
| Gain on deconsolidation of variable interest entity | ( | ) | ||||||
| Gain on disposition of net assets | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Change in deferred tax expenses | ( | ) | ||||||
| Decrease (increase) in trade accounts receivable | ( | ) | ||||||
| Decrease in related party receivables | ||||||||
| Decrease (increase) in inventory | ( | ) | ||||||
| Decrease (increase) in prepaid expenses | ( | ) | ||||||
| Increase in accounts payable and accrued liabilities | ||||||||
| Decrease in deferred revenue | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Deconsolidation of variable interest entity | ( | ) | ||||||
| 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 | ( | ) | ( | ) | ||||
| Proceeds from revolving loan | ||||||||
| Payments for debt issuance costs | ( | ) | ( | ) | ||||
| Proceeds from stock options exercised | ||||||||
| Dividends paid on preferred stock | ( | ) | ||||||
| Capital contribution to non-controlling interest | ||||||||
| Distributions paid by non-controlling interest | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net Decrease in Cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Non-cash Activities: | ||||||||
| Deconsolidation of net assets of variable interest entity | $ | $ | ||||||
| Refinancing of certain term loans | $ | $ | ||||||
| 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, 2022 and the results of its operations and cash flows for the three months ended August 31, 2022 and 2021. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the fiscal year ended May 31, 2022 and the notes thereto included in the Form 10-K/A for such period. The results of operations for the three months ended August 31, 2022 and 2021 are not necessarily indicative of the results to be expected for the full fiscal year.
The consolidated financial statements of Greystone include its wholly owned subsidiaries, Greystone Manufacturing, L.L.C. (“GSM”) and Plastic Pallet Production, Inc. (“PPP”), and the variable interest entity, Greystone Real Estate, L.L.C. (“GRE”) for the period from June 1, 2022, through July 29, 2022. All material intercompany accounts and transactions have been eliminated in the consolidated financial statements.
GRE
owns the manufacturing facilities which are occupied by Greystone and is wholly owned by a member of Greystone’s Board of Directors.
Effective July 29, 2022, GRE paid off its mortgage note payable, and in conjunction with the Company’s refinancing described in
Note 6, GRE was removed from the cross-collateralization agreement. Following these transactions Greystone was no longer determined to
be the primary beneficiary of GRE. Accordingly, GRE was deconsolidated from the Greystone consolidated financial statements as of July
29, 2022, resulting in the recognition of a gain in the amount of $
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.
| 5 |
| 2022 | 2021 | |||||||
| Basic earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | $ | ||||||
| Denominator - | ||||||||
| Weighted-average shares outstanding - basic | ||||||||
| Income per share of common stock - basic | $ | $ | ||||||
| Diluted earnings per share of common stock: | ||||||||
| Numerator - | ||||||||
| Net income attributable to common stockholders | $ | $ | ||||||
| Add: Preferred stock dividends for assumed conversion | ||||||||
| Net income allocated to common stockholders | $ | $ | ||||||
| Denominator - | ||||||||
| Weighted-average shares outstanding - basic | ||||||||
| Incremental shares from assumed conversion of options, warrants and preferred stock, as appropriate | ||||||||
| Weighted average common stock outstanding - diluted | ||||||||
| Income per share of common stock - diluted | $ | $ | ||||||
Note 3. Inventory
Inventory consists of the following:
| August 31, | May 31, | |||||||
| 2022 | 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
Note 4. Property, Plant and Equipment
A summary of property, plant and equipment for Greystone is as follows:
| August 31, 2022 | May 31, 2022 | |||||||
| Production machinery and equipment | $ | $ | ||||||
| Plant buildings and land | ||||||||
| Leasehold improvements | ||||||||
| Furniture and fixtures | ||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Net Property, Plant and Equipment | $ | $ | ||||||
| 6 |
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, 2022 and 2021 was $
Note 5. Related Party Transactions/Activity
Yorktown Management & Financial Services, LLC
Yorktown
Management & Financial Services, LLC (“Yorktown”), an entity wholly-owned by Greystone’s 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, 2022 and 2021, 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 $
| 7 |
Note 6. Long-term Debt
Debt as of August 31, 2022 and May 31, 2022 is as follows:
| August 31, | May 31, | |||||||
| 2022 | 2022 | |||||||
| Term
loan A dated July 29, 2022, payable to International Bank of Commerce, prime rate of interest plus | $ | $ | ||||||
| Term
loan B dated July 29, 2022, payable to International Bank of Commerce, prime rate of interest plus | ||||||||
| Term
loans payable to International Bank of Commerce, prime rate of interest plus | ||||||||
| Revolving
loan payable to International Bank of Commerce, prime rate of interest plus | ||||||||
| Term
loan payable by GRE to International Bank of Commerce, interest rate of | ||||||||
| Term
loan payable to First Interstate Bank, interest rate of | ||||||||
| Term
loan payable to First Interstate 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 | $ | $ | ||||||
| 8 |
The
prime rate of interest as of August 31, 2022 was
Debt
Issuance Costs consists of the amounts paid to third parties in connection with the issuance and modification of debt instruments. These
costs are shown on the consolidated balance sheet as a direct reduction to the related debt instrument. Amortization of these costs is
included in interest expense. Greystone recorded amortization of debt issuance costs of $
Restated and Amended Loan Agreement between Greystone and IBC
On July 29, 2022, Greystone and GSM (collectively “Borrowers”) and IBC entered into an Amended and Restated Loan Agreement (“IBC Restated Loan Agreement”) that provides for consolidation of certain term loans and a renewed revolver loan.
The
IBC term loans make equal monthly payments of principal and interest in such amounts sufficient to amortize the principal balance of
the loans over the remaining lives. The monthly payments of principal and interest on the IBC term loans may vary due to changes in the
prime rate of interest. Currently, the aggregate payments for the IBC term loans are approximately $
The
IBC Restated Loan Agreement provides for IBC to make to Greystone (i) a term loan in the amount of $
| 9 |
The IBC Restated Loan Agreement includes customary events of default, including events of default relating to non-payment of principal and other amounts owing under the IBC Restated Loan Agreement from time to time, inaccuracy of representations, violation of covenants, defaults under other agreements, bankruptcy and similar events, the death of a guarantor, certain material adverse changes relating to a Borrower or guarantor, certain judgments or awards against a Borrower, or government action affecting a Borrower’s or guarantor’s ability to perform under the IBC Restated Loan Agreement or the related loan documents. Among other things, a default under the IBC Restated Loan Agreement would permit IBC to cease lending funds under the IBC Restated Loan Agreement and require immediate repayment of any outstanding notes with interest and any unpaid accrued fees.
The
IBC Restated Loan Agreement is secured by a lien on substantially all assets of the Borrowers. Warren F. Kruger, President and CEO, and
Robert B. Rosene, Jr. have provided limited guaranties of the Borrowers’ obligations under the IBC Restated Loan Agreement. Mr.
Kruger’s guarantee is limited to
Loan Agreement with First Interstate Bank, formerly Great Western Bank
On August 23, 2021, Greystone entered into a loan agreement with First Interstate Bank (“FIB Loan Agreement”) to include prior commercial loans and subsequent loans. GSM is a named guarantor under the FIB Loan Agreement.
The FIB Loan Agreement includes customary events of default, including events of default relating to non-payment of principal and other amounts owing under the FIB 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 FIB Loan Agreement. Among other things, a default under the FIB Loan Agreement would permit FIB to cease lending funds under the FIB Loan Agreement and require immediate repayment of any outstanding notes with interest and any unpaid accrued fees.
The FIB Loan Agreement is secured by a mortgage on one of Greystone’s warehouses.
Maturities
Maturities
of Greystone’s long-term debt for the five years subsequent to August 31, 2022 are $
| 10 |
Note 7. Leases
Financing Leases
Financing leases as of August 31, 2022 and May 31, 2022:
| August 31, 2022 | May 31, 2022 | |||||||
| Non-cancellable financing leases | $ | $ | ||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Non-cancellable financing leases, net of current portion | $ | $ | ||||||
Greystone
and an unrelated private company entered into three lease agreements for certain production equipment with a total cost of approximately
$
Effective
December 28, 2018, Yorktown purchased certain production equipment from Greystone at net book value of $
The production equipment under the non-cancelable financing leases as of August 31, 2022 and May 31, 2022 was as follows:
| August 31, 2022 | May 31, 2022 | |||||||
| Production equipment under financing leases | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Production equipment under financing leases, net | $ | $ | ||||||
Amortization
of the carrying amount of $
Operating Leases
Greystone recognized a lease liability for each lease based on the present value of remaining minimum fixed rental payments, using a discount rate that approximates the rate of interest for a collateralized loan over a similar term. A right-of-use asset is recognized for each lease, valued at the lease liability. Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses on the consolidated statements of income. Variable and short-term rental payments are recognized as costs and expenses as they are incurred.
| 11 |
Greystone
has three non-cancellable operating leases for (i) equipment with a term and a term and a discount rate of
Lease Summary Information
For the periods ending August 31:
| 2022 | 2021 | |||||||
| Lease Expense | ||||||||
| Financing lease expense - | ||||||||
| Amortization of right-of-use assets | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Operating lease expense | ||||||||
| Short-term lease expense | ||||||||
| Total | $ | $ | ||||||
| Other Information | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities for finance leases - | ||||||||
| Operating cash flows | $ | $ | ||||||
| Financing cash flows | $ | $ | ||||||
| Cash paid for amounts included in the measurement of lease liabilities for operating leases - | ||||||||
| Operating cash flows | $ | $ | ||||||
| Weighted-average remaining lease term (in years) - | ||||||||
| Financing leases | ||||||||
| Operating leases | ||||||||
| Weighted-average discount rate - | ||||||||
| Financing leases | % | % | ||||||
| Operating leases | % | % | ||||||
| 12 |
Future minimum lease payments under non-cancelable leases as of August 31, 2022, are approximately:
| Financing Leases | Operating Leases | |||||||
| Twelve months ended August 31, 2023 | $ | $ | ||||||
| Twelve months ended August 31, 2024 | ||||||||
| Twelve months ended August 31, 2025 | ||||||||
| Twelve months ended August 31, 2026 | ||||||||
| Twelve months ended August 31, 2027 | ||||||||
| Thereafter | ||||||||
| 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, 2022 and 2021, respectively, were as follows:
| Category | 2022 | 2021 | ||||||
| End user customers | % | % | ||||||
| Distributors | % | % | ||||||
Note 10. Fair Value of Financial Instruments
The following methods and assumptions are used in estimating the fair-value disclosures for financial instruments:
Debt: The carrying amount of notes with floating rates of interest approximate fair value. Fixed rate notes are valued based on cash flows using estimated rates of comparable notes. The carrying amounts reported on the balance sheets approximate fair value.
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 $
Note 12. Commitments
As of August
31, 2022, Greystone had commitments totaling $
| 13 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
General to All Periods
The unaudited consolidated statements include Greystone Logistics, Inc., and its two wholly owned subsidiaries, Greystone Manufacturing, L.L.C. (“GSM”) and Plastic Pallet Production, Inc. (“PPP”). Greystone also consolidates the variable interest entity, Greystone Real Estate, L.L.C. (“GRE”) for the period from June 1, 2022 through July 29, 2022. Effective July 29, 2022, the relationship of Greystone as a beneficiary of GRE ceased to exist. All material intercompany accounts and transactions have been eliminated.
References to fiscal year 2023 refer to the three months ended August 31, 2022. References to fiscal year 2022 refer to the three months ended August 31, 2021.
Sales
Greystone’s primary focus is to provide quality plastic pallets to its existing customers while continuing its marketing efforts to broaden its customer base. Greystone’s existing customers are primarily located in the United States and engaged in the beverage, pharmaceutical and other industries. Greystone has generated, and plans to continue to generate, interest in its pallets by attending trade shows sponsored by industry segments that would benefit from Greystone’s products. Greystone hopes to gain wider product acceptance by marketing the concept that the widespread use of plastic pallets could greatly reduce the destruction of trees on a worldwide basis. Greystone’s marketing is conducted through contract distributors, its President and other employees.
| 14 |
Personnel
Greystone had full-time equivalents of approximately 202 and 264 regular employees and 64 and 19 temporary employees as of August 31, 2022 and 2021, respectively. Full-time equivalent is a measure based on time worked.
Three Months Ended August 31, 2022 Compared to Three Months Ended August 31, 2021
Sales
Sales for fiscal year 2023 were $18,953,599 compared to $14,774,399 in fiscal year 2021 for an increase of $4,179,200, or 28%. Increases in pallet pricing accounted for approximately 13% and an increase in the types of pallets sold toward higher-end units accounted for approximately 15%.
Greystone had three customers that accounted for approximately 77% and 71% of sales in fiscal years 2023 and 2022, respectively. Greystone is not able to predict the future needs of these major customers and will continue its efforts to grow sales through the addition of new customers developed through Greystone’s marketing efforts.
Cost of Sales
Cost of sales in fiscal year 2023 was $16,490,453, or 87% of sales, compared to $13,312,305, or 90% of sales, in fiscal year 2022. The decrease in cost of sales to sales in fiscal year 2023 was primarily the result of improvements in productivity. Management anticipates further improvements in the ratio of cost of sales to sales as the cost of raw materials are expected to show declines in the remainder of fiscal year 2023.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $1,105,591, or 5.8% of sales, in fiscal year 2023 compared to $1,218,604, or 8.2% of sales, in fiscal year 2022 for a decrease of $113,013. The decrease in fiscal year 2023 from fiscal year 2022 was principally attributable to a reduction of legal fees in the current year.
Other Income (Expenses)
During fiscal year 2023, Greystone recognized a gain on the deconsolidation of the variable interest entity GRE in the amount of $569,997. During fiscal year 2022, a gain was recognized on the forgiveness of debt plus accrued interest in the amount of $3,068,497 for the Paycheck Protection Program loan under the Coronavirus Aid, Relief, and Economic Security Act.
Other income from the sale of scrap material was $5,635 in fiscal year 2023 compared to $26,825 in fiscal year 2022.
Interest expense was $219,446 in fiscal year 2023 compared to $223,354 in fiscal year 2022 for a decrease of $3,908.
| 15 |
Provision for (Benefit from) Income Taxes
The provision for (benefit from) income taxes was $340,000 and $(7,000) in fiscal years 2023 and 2022, respectively. The effective tax rate differs from federal statutory rates due principally to state income taxes, charges (income) which have no tax benefit (expense), changes in the valuation allowance, and the basis that the net income from GRE is not taxable at the corporate level because GRE is a limited liability company of which Greystone has no equity ownership.
Based upon a review of its income tax filing positions, Greystone believes that its positions would be sustained upon an audit by the Internal Revenue Service and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded.
Net Income
Greystone recorded net income of $1,373,741 in fiscal year 2023 compared to $3,122,458 in fiscal year 2022 primarily for the reasons discussed above.
Net Income Attributable to Common Stockholders
The net income attributable to common stockholders for fiscal year 2023 was $1,214,724, or $0.04 per share, compared $2,970,921, or $0.10 per share, in fiscal year 2022 primarily for the reasons discussed above.
Liquidity and Capital Resources
A summary of cash flows for the three months ended August 31, 2022 is as follows:
| Cash used in operating activities | $ | (3,304,209 | ) | |
| Cash used in investing activities | $ | (1,154,590 | ) | |
| Cash provided by financing activities | $ | 4,250,440 | ||
Cash used in operating activities resulted primarily from providing goods totaling approximately $5,000 000 to the customer against the customer’s deposit. Cash provided by financing activities resulted primarily from cash proceeds from loans payable to IBC used in part to payoff Greystone’s note payable of approximately $3,200,000 to a director and a capital contribution to the variable interest entity GRE by its sole member to pay off its mortgage note of approximately $1,800,000 to IBC.
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The contractual obligations of Greystone are as follows:
Total | Less than 1 year |
1-3 years |
4-5 years |
Thereafter | ||||||||||||||||
| Long-term debt | $ | 16,653,282 | $ | 2,604,380 | $ | 9,143,052 | $ | 4,352,197 | $ | 553,653 | ||||||||||
| Financing leases | $ | 1,842,383 | $ | 1,586,050 | $ | 253,326 | $ | 3,007 | $ | - | ||||||||||
| Operating leases | $ | 8,423,975 | $ | 568,915 | $ | 1,084,160 | $ | 1,070,230 | $ | 5,700,670 | ||||||||||
| Commitments | $ | 5,053,390 | $ | 5,053,390 | $ | - | $ | - | $ | - | ||||||||||
Greystone had a working capital of $1,279,803 as of August 31, 2022. To provide for the funding to meet Greystone’s operating activities and contractual obligations as of August 31, 2022, Greystone will have to continue to produce positive operating results or explore various options including additional long-term debt and equity financing. However, there is no guarantee that Greystone will continue to create positive operating results or be able to raise sufficient capital to meet these obligations. As of August 31, 2022, Greystone had commitments for capital expenditures of approximately $5.0 million of which $4.6 million was available under the advancing term loan with IBC, see Note 6 to the consolidated financial statements.
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. From time to time, loans have been provided by certain officers and directors of Greystone of which there are none outstanding as of August 31, 2022. Greystone continues to be dependent upon its officers and directors to secure, or possibly provide, additional financing and there is no assurance that its officers and directors will continue to do so. As such, there is no assurance that funding will be available for Greystone to continue operations.
Greystone has 50,000 outstanding shares of cumulative 2003 Preferred Stock with a liquidation preference of $5,000,000 and a preferred dividend rate of the prime rate of interest plus 3.25%. Greystone does not anticipate that it will make cash dividend payments to any holders of its common stock unless and until the financial position of Greystone improves through increased revenues, another financing transaction or otherwise. Pursuant to the IBC Restated Loan Agreement, as discussed in Note 6 to the consolidated financial statements, Greystone may pay dividends on its preferred stock in an amount not to exceed $500,000 per year.
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Forward Looking Statements and Material Risks
This Quarterly Report on Form 10-Q includes certain statements that may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are made in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, that address activities, events or developments that Greystone expects, believes or anticipates will or may occur in the future, including decreased costs, 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/A for the fiscal year ended May 31, 2022, which was filed on August 23, 2022. Actual results may vary materially from the forward-looking statements. Greystone undertakes no duty to update any of the forward-looking statements contained in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
As of the end of the period covered by this Quarterly Report on Form 10-Q, Greystone carried out an evaluation under the supervision of Greystone’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of Greystone’s disclosure controls and procedures pursuant to the Securities Exchange Act Rules 13a-15(e) and 15d-15(e). Based on an evaluation as of May 31, 2022, Warren F. Kruger, Greystone’s Chief Executive Officer, and William W. Rahhal, Greystone’s Chief Financial Officer, identified no material weakness in Greystone’s internal control over financial reporting. As a result, Greystone’s CEO and Chief Financial Officer concluded that the design and operation of Greystone’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) were effective as of August 31, 2022.
During the three months ended August 31, 2022, there were no changes in Greystone’s internal controls over financial reporting that have materially affected, or that are reasonably likely to materially affect, Greystone’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
Not applicable.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
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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 13, 2022 | /s/ Warren F. Kruger |
| Warren F. Kruger, President and Chief | |
| Executive Officer (Principal Executive Officer) | |
| Date: October 13, 2022 | /s/ William W. Rahhal |
| William W. Rahhal, Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting Officer) |
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Index to Exhibits
The following exhibits are filed or furnished as part of this Quarterly Report on Form 10-Q.
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