Quarterly Report (10-q)

 

 

 

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 February 28, 2021

 

[  ]	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)

 

[phone]

 

(Registrant's telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act: 

 

Title of each class		Trading Symbol		Name of each exchange on which registered
NONE		GLGI		NONE

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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: April 9, 2021 - 28,361,201

 

 

 

 

GREYSTONE LOGISTICS, INC.

FORM 10-Q

For the Period Ended February 28, 2021

 

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
	Consolidated Balance Sheets (Unaudited) As of February 28, 2021 and May 31, 2020	1
	Consolidated Statements of Income (Unaudited) For the Nine Months Ended February 28(29), 2021 and 2020	2
	Consolidated Statements of Income (Unaudited) For the Three Months Ended February 28(29), 2021 and 2020	3
	Consolidated Statements of Changes in Equity (Unaudited) For the Nine Months Ended February 28(29), 2021 and 2020	4
	Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended February 28(29), 2021 and 2020	5
	Notes to Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	22
PART II. OTHER INFORMATION		22
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	23
SIGNATURES		24

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Greystone Logistics, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

 

		February 28, 2021				May 31, 2020
Assets
Current Assets:
Cash		$	583,110			$	1,131,850
Accounts receivable -
Trade			4,380,658				6,670,771
Related parties			118,240				94,351
Inventory			3,450,619				4,229,895
Prepaid expenses			61,052				7,488
Total Current Assets			8,593,679				12,134,355
Property, Plant and Equipment, net			31,776,809				34,142,407
Right-of-Use Operating Lease Assets			127,141				181,525
Total Assets		$	40,497,629			$	46,458,287
Liabilities and Equity
Current Liabilities:
Current portion of long-term debt		$	5,019,221			$	4,416,377
Current portion of financing leases			1,775,721				1,838,251
Current portion of operating leases			68,152				74,024
Accounts payable and accrued liabilities			4,722,107				4,929,234
Deferred revenue			881,367				3,793,167
Preferred dividends payable			80,137				84,110
Total Current Liabilities			12,546,705				15,135,163
Long-Term Debt, net of current portion and debt issue costs			12,679,341				18,329,633
Financing Leases, net of current portion			2,272,854				3,617,405
Operating Leases, net of current portion			58,989				107,501
Deferred Tax Liability			2,366,052				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			(44,440,255	)			(46,807,092	)
Total Greystone Stockholders’ Equity			9,353,350				6,986,513
Non-controlling interest			1,220,338				1,173,020
Total Equity			10,573,688				8,159,533
Total Liabilities and Equity		$	40,497,629			$	46,458,287

 

The accompanying notes are an integral part of these consolidated financial statements.

 

1

 

Greystone Logistics, Inc.

Consolidated Statements of Income

For the Nine Months Ended February 28(29),

(Unaudited)

  

		2021				2020
Sales		$	47,602,690			$	57,906,777
Cost of Sales			38,986,912				49,279,904
Gross Profit			8,615,778				8,626,873
Selling, General and Administrative Expenses			3,639,883				3,438,424
Operating Income			4,975,895				5,188,449
Other Income (Expense):
Other income			19,122				9,304
Interest expense			(923,289	)			(1,333,827	)
Income before Income Taxes			4,071,728				3,863,926
Provision for Income Taxes			1,257,000				807,000
Net Income			2,814,728				3,056,926
Income Attributable to Non-controlling Interest			(203,918	)			(195,717	)
Preferred Dividends			(243,973	)			(314,726	)
Net Income Attributable to Common Stockholders		$	2,366,837			$	2,546,483
Income Per Share of Common Stock -
Basic and Diluted		$	0.08			$	0.09
Weighted Average Shares of Common Stock Outstanding -
Basic			28,361,201				28,361,201
Diluted			32,363,012				29,003,201

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2

 

Greystone Logistics, Inc.

Consolidated Statements of Income

For the Three Months Ended February 28(29),

(Unaudited)

 

		2021				2020
Sales		$	14,511,196			$	19,738,806
Cost of Sales			11,954,222				15,622,931
Gross Profit			2,556,974				4,115,875
Selling, General and Administrative Expenses			1,168,426				1,248,196
Operating Income			1,388,548				2,867,679
Other Income (Expense):
Other income			10,178				4,391
Interest expense			(270,229	)			(420,128	)
Income before Income Taxes			1,128,497				2,451,942
Provision for Income Taxes			346,000				487,000
Net Income			782,497				1,964,942
Income Attributable to Non-controlling Interest			(68,904	)			(65,411	)
Preferred Dividends			(80,137	)			(99,726	)
Net Income Attributable to Common Stockholders		$	633,456			$	1,799,805
Income Per Share of Common Stock -
Basic and Diluted		$	0.02			$	0.06
Weighted Average Shares of Common Stock Outstanding -
Basic			28,361,201				28,361,201
Diluted			29,029,157				32,332,832

  

The accompanying notes are an integral part of these consolidated financial statements.

 

3

 

Greystone Logistics, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

For the Nine Months Ended February 28(29), 2021 and 2020

(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
Cash distributions			-				-				-				-				-				-				-				(69,600	)			(69,600	)
Preferred dividends, $2.05 per share			-				-				-				-				-				(102,637	)			(102,637	)			-				(215,000	)
Net income			-				-				-				-				-				407,065				407,065				65,620				472,685
Balances, November 30, 2019			50,000				5				28,361,201				2,836				53,790,764				(50,361,999	)			3,431,606				1,134,777				4,566,383
Cash distributions			-				-				-				-				-				-				-				(41,400	)			(41,400	)
Preferred dividends, $2.00 per share			-				-				-				-				-				(99,726	)			(99,726	)			-				(99,726	)
Net income			-				-				-				-				-				1,899,531				1,899,531				65,411				1,964,942
Balances, February 29, 2020			50,000			$	5				28,361,201			$	2,836			$	53,790,764			$	(48,562,194	)		$	5,231,411			$	1,158,788			$	6,390,199
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
Cash distributions			-				-				-				-				-				-				-				(52,200	)			(52,200	)
Preferred dividends, $1.64 per share			-				-				-				-				-				(81,918	)			(81,918	)			-				(81,918	)
Net income			-				-				-				-				-				955,098				955,098				67,975				1,023,073
Balances, November 30, 2020			50,000				5				28,361,201				2,836				53,790,764				(45,073,711	)			8,719,894				1,203,634				9,923,528
Cash distributions			-				-				-				-				-				-				-				(52,200	)			(52,200	)
Preferred dividends, $1.60 per share			-				-				-				-				-				(80,137	)			(80,137	)			-				(80,137	)
Net income			-				-				-				-				-				713,593				713,593				68,904				782,497
Balances, February 28, 2021			50,000			$	5				28,361,201			$	2,836			$	53,790,764			$	(44,440,255	)		$	9,353,350			$	1,220,338			$	10,573,688

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4

 

Greystone Logistics, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Nine Months Ended February 28(29),

(Unaudited)

 

		2021				2020
Cash Flows from Operating Activities:
Net income		$	2,814,728			$	3,056,926
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation and amortization			4,400,422				3,915,774
Deferred tax expense			1,257,000				807,000
Decrease in trade accounts receivable			2,290,113				447,228
Increase in related party receivables			(23,889	)			(79,014	)
Decrease (increase) in inventory			752,526				(1,255,108	)
Decrease (increase) in prepaid expenses			(53,564	)			209,453
Increase (decrease) in accounts payable and accrued liabilities			39,602				(1,278,393	)
Increase (decrease) in deferred revenue			(2,911,800	)			3,739,526
Net cash provided by operating activities			8,565,138				9,563,392
Cash Flows from Investing Activities:
Purchase of property and equipment			(2,252,271	)			(3,686,791	)
Cash Flows from Financing Activities:
Proceeds from long-term debt			-				672,000
Principal payments on long-term debt and financing leases			(3,631,852	)			(3,679,145	)
Proceeds from revolving loan			1,250,000				2,180,000
Principal payments on revolving loan			(3,190,003	)			(4,295,000	)
Principal payments on related party note payable and financing lease			(885,206	)			(359,212	)
Payments for debt issuance costs			-				(3,360	)
Dividends paid on preferred stock			(247,946	)			(327,192	)
Distributions paid to non-controlling interest			(156,600	)			(163,200	)
Net cash used in financing activities			(6,861,607	)			(5,975,109	)
Net Decrease in Cash			(548,740	)			(98,508	)
Cash, beginning of period			1,131,850				1,255,408
Cash, end of period		$	583,110			$	1,156,900
Non-cash Activities:
Capital expenditures in accounts payable		$	48,379			$	92,945
Equipment acquired through financing leases		$	-			$	612,124
Addition of right-to-use equipment by operating leases		$	-			$	67,750
Equipment transferred from inventory		$	26,750			$	-
Preferred dividend accrual		$	80,137			$	99,726
Supplemental information:
Interest paid		$	897,045			$	1,327,149

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5

 

GREYSTONE LOGISTICS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 1. Basis of Financial Statements

 

In the opinion of Greystone Logistics, Inc. (“Greystone”), the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications, which are of a normal recurring nature, necessary to present fairly its financial position as of February 28, 2021, the results of its operations for the nine months and three months ended February 28(29), 2021 and 2020 and its cash flows for the nine months ended February 28(29), 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, 2020 and the notes thereto included in the Form 10-K for such period. The results of operations for the nine months and three months ended February 28(29), 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, LLC (“GSM”) and Plastic Pallet Production, Inc. (“PPP”), and the variable interest entity, Greystone Real Estate, LLC (“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 February 28(29) are as follows:

 

		2021				2020
For the nine months ended February 28(29):
Preferred stock convertible into common stock			-				3,333,333
For the three months ended February 28(29):
Preferred stock convertible into common stock			3,333,333				-

 

6

 

The following tables set forth the computation of basic and diluted earnings per share.

 

Nine months ended February 28(29), 2021 and 2020:
		2021				2020
Basic earnings per share of common stock:
Numerator -
Net income attributable to common stockholders		$	2,366,837			$	2,546,483
Denominator -
Weighted-average shares outstanding - basic			28,361,201				28,361,201
Income per share of common stock - basic		$	0.08			$	0.09
Diluted earnings per share of common stock:
Numerator -
Net income attributable to common stockholders		$	2,366,837			$	2,546,483
Add: Preferred stock dividends for assumed conversion			243,973				-
Net income allocated to common stockholders		$	2,610,810			$	2,546,483
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				642,000
Weighted average common stock outstanding - diluted			32,363,012				29,003,201
Income per share of common stock – diluted		$	0.08			$	0.09

 

Three months ended February 28(29), 2021 and 2020:
		2021				2020
Basic earnings per share of common stock:
Numerator -
Net income attributable to common stockholders		$	633,456			$	1,799,805
Denominator -
Weighted-average shares outstanding - basic			28,361,201				28,361,201
Income per share of common stock - basic		$	0.02			$	0.06
Diluted earnings per share of common stock:
Numerator -
Net income attributable to common stockholders		$	633,456			$	1,799,805
Add: Preferred stock dividends for assumed conversion			-				99,726
Net income allocated to common stockholders		$	633,456			$	1,899,531
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			667,956				3,971,631
Weighted average common stock outstanding - diluted			29,029,157				32,332,832
Income per share of common stock – diluted		$	0.02			$	0.06

 

7

 

Note 3. Inventory

 

Inventory consists of the following:

 

		February 28,				May 31,
		2021				2020
Raw materials		$	1,249,581			$	1,953,957
Finished goods			2,201,038				2,275,938
Total inventory		$	3,450,619			$	4,229,895

 

Note 4. Property, Plant and Equipment:

 

A summary of property, plant and equipment is as follows:

 

		February 28, 2021				May 31, 2020
Production machinery and equipment		$	51,617,534			$	51,637,883
Plant buildings and land			6,955,699				6,881,326
Leasehold improvements			1,487,398				1,323,535
Furniture and fixtures			601,586				601,586
			60,662,217				60,444,330
Less: Accumulated depreciation and amortization			(28,885,408	)			(26,301,923	)
Net Property, Plant and Equipment		$	31,776,809			$	34,142,407

 

Production machinery includes deposits on equipment in the amount of $425,601 as of February 28, 2021, 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 $2,693,773 as of February 28, 2021.

 

Depreciation expense, including amortization expense related to financing leases, for the nine months ended February 28(29), 2021 and 2020 was $4,397,890 and $3,911,904, 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 President and CEO, owns and rents to Greystone (1) grinding equipment used to grind raw materials for Greystone’s pallet production and (2) extruders for pelletizing recycled plastic into pellets for resale and for use as raw material in the manufacture of pallets. GSM pays weekly rental fees to Yorktown of $27,500 for use of Yorktown’s grinding equipment and pelletizing equipment. Rental fees were $1,072,500 for the each of the nine months ended February 28(29), 2021 and 2020.

 

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 $36,000 for each of the nine months ended February 28(29), 2021 and 2020. As of February 28, 2021, future minimum payments under the non-cancelable operating lease for the remaining ten months are $40,000.

 

8

 

TriEnda Holdings, LLC

 

TriEnda Holdings, LLC (“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’s transactions with TriEnda include periodic material and pallet sales and/or purchases. Purchases for the nine months ended February 28(29), 2021 and 2020 totaled $52,356 and $5,400, respectively. Sales for the nine months ended February 28(29), 2021 and 2020 totaled $54,871 and $111, respectively, with an account receivable due from TriEnda as of February 28, 2021 of $11,140.

 

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 $343,350 and $393,720 for the nine months ended February 28(29), 2021 and 2020, respectively. The account receivable due from Green as of February 28, 2021 was $107,100.

 

Note 6. Long-term Debt

 

Long-term debt is as follows:

 

		February 28,				May 31,
		2021				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		$	1,835,674			$	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			971,835				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			652,801				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, 2023			510,988				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			2,218,297				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			801,931				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, 2023			599,997				2,540,000
Paycheck Protection Program note, interest rate of 1.0%, maturing April 10, 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			2,103,687				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			1,252,930				1,461,726
Note payable to Robert Rosene, 7.5% interest, due January 15, 2023			3,592,783				4,253,228
Other			156,993				183,156
Total long-term debt			17,731,916				22,781,896
Debt issuance costs, net of amortization			(33,354	)			(35,886	)
Total debt, net of debt issuance costs			17,698,562				22,746,010
Less: Current portion of long-term debt			(5,019,221	)			(4,416,377	)
Long-term debt, net of current portion		$	12,679,341			$	18,329,633

  

The prime rate of interest as of February 28, 2021 was 3.25%.

 

9

 

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 $76,728 per month), (ii) Term Loan C over a seven-year period beginning November 30, 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 $68,966 per month) and (vi) Term Loan G over a fifteen-year period beginning April 30, 2019 (currently $7,091 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, as defined in the IBC Loan Agreement, 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, 2023. 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 approximately $3.4 million as of February 28, 2021.

 

10

 

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 Loan

 

On April 10, 2020, Greystone received a SBA Payroll Protection Program (“PPP Loan”) loan through IBC (“lender”) in the amount of $3,034,000 pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The PPP Loan bears interest at 1.0% per annum. 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 Paycheck Protection Flexibility Act of 2020 extended the deferral for PPP Loan payments to the date SBA remits the borrower’s loan forgiveness amount to the lender providing the loan forgiveness application is submitted to lender within 10 months after the end of the loan forgiveness covered period. Greystone has qualified for the deferral. Because the response date from SBA cannot be determined at this time, Greystone has assumed that the monthly contractual rate of $170,803 will begin May 10, 2021 with a balloon payment on the maturity date.

 

Greystone believes that the proceeds from the PPP Loan were used for qualifying expenses in accordance with the terms in the CARES Act. 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.

 

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.

 

11

 

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, 2023. 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 February 28, 2021 was $3,592,783.

 

Maturities

 

Maturities of Greystone’s long-term debt for the five years subsequent to February 28, 2021 are $5,019,221, $8,376,862, $3,158,970, $1,144,690 and $32,173.

 

Note 7. Leases

 

Financing Leases

 

Financing leases are as follows:

 

		February 28, 2021				May 31, 2020
Non-cancellable financing leases		$	4,048,575			$	5,455,656
Less: Current portion			(1,775,721	)			(1,838,251	)
Non-cancellable financing leases, net of current portion		$	2,272,854			$	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 an effective 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.

 

The production equipment under the non-cancelable financing leases has a gross carrying amount of $8,473,357 as of February 28, 2021. Amortization of the carrying amount of $758,902 and $653,942 was included in depreciation expense for the nine months ended February 28(29), 2021 and 2020, 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.

 

12

 

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 nine months ended February 28(29):

 

		2021				2020
Lease Expense
Financing lease expense -
Amortization of right-of-use assets		$	758,902			$	653,942
Interest on lease liabilities			218,088				355,692
Operating lease expense			61,411				63,185
Short-term lease expense			1,117,628				1,207,008
Total		$	2,156,029			$	2,279,827
Other Information
Cash paid for amounts included in the measurement of lease liabilities for finance leases -
Operating cash flows		$	218,088			$	355,692
Financing cash flows		$	1,407,081			$	1,487,489
Cash paid for amounts included in the measurement of lease liabilities for operating leases -
Operating cash flows		$	61,411			$	63,185
Right-of-use assets obtained in exchange for lease liabilities -
Financing leases		$	-			$	612,124
Operating leases		$	-			$	67,750
Weighted-average remaining lease term (in years) -
Financing leases			2.8				3.6
Operating leases			2.2				3.0
Weighted-average discount rate -
Financing leases			7.4	%			7.1	%
Operating leases			5.2	%			5.2	%

 

Future minimum lease payments under non-cancelable leases as of February 28, 2021, are approximately:

 

		Financing Leases				Operating Leases
Twelve months ended February 28, 2022		$	2,017,791			$	73,881
Twelve months ended February 28, 2023			1,816,377				33,881
Twelve months ended February 29, 2024			561,855				23,154
Twelve months ended February 28, 2025			16,422				5,164
Twelve months ended February 28, 2026			1,798				-
Total future minimum lease payments			4,414,243				136,080
Present value discount			365,668				8,939
Present value of minimum lease payments		$	4,048,575			$	127,141

 

13

 

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. Greystone recognized $4,291,800 and $2,242,184 into revenue from customer advances during the nine months ended February 28(29), 2021 and 2020, respectively. Customer advances received during the nine months ended February 28(29), 2021 and 2020 were $1,380,000 and $5,981,710, respectively. The unrecognized balance of deferred revenue as of February 28, 2021 and May 31, 2020, was $881,367 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.

 

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 0.8% and 3.8% of sales during the nine months ended February 28(29), 2021 and 2020, 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 nine months ended February 28(29), 2021 and 2020, respectively, were as follows:

 

Category		2021				2020
End User Customers			85	%			88	%
Distributors			15	%			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.

 

14

 

Note 11. Concentrations, Risks and Uncertainties

 

Greystone derived approximately 85% and 87% of its total sales from four customers during the nine months ended February 28(29), 2021 and 2020, 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 $642,968 and $1,409,045 in fiscal years 2021 and 2020, respectively, were from one of its major customers.

 

As of February 28, 2021, Greystone is indebted to Robert Rosene, a Greystone director, in the amount of $3,592,783 for a note payable due January 15, 2023. 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 limitations on employment as a result of the virus appear to be waning as a result of the introduction of vaccines to protect against COVID-19, but it is too early to confirm especially with the introduction of the recent variants of the virus. Management is optimistic, but the longer the virus or its variants stays active, the greater the uncertainty.

 

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 $500,000, including pre-judgment and post-judgment interest, (c) indemnification pursuant to MSA, (d) a preliminary and permanent injunction preventing GSM from taking any actions that are contrary to the exclusivity and non-competition provisions of the MSA, and (e) fees, costs, and expenses of bringing the arbitration.

 

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 even to today, nearly 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, Greystone currently does not expect that the ultimate resolution of any open matters will have a material adverse effect on its consolidated financial position or results of operations.

 

Note 12. Commitments

 

As of February 28, 2021, Greystone had commitments totaling $504,609 toward the purchase of production equipment.

 

15

  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Cautionary Statement Regarding Forward-Looking Information

 

This Quarterly Report on Form 10-Q includes “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 statements concern Greystone’s plans, expectations and objectives for future operations. All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments that Greystone expects, believes or anticipates will or may occur in the future are forward-looking statements. The words “believe,” “plan,” “intend,” “anticipate,” “estimate,” “project” and similar expressions are intended to identify forward-looking statements. These forward-looking statements include, among others, such things as:

 

	●	expansion and growth of Greystone’s business and operations;
	●	future financial performance;
	●	future acquisitions and developments;
	●	potential sales of products;
	●	future financing activities; and
	●	business strategy.

 

These forward-looking statements are based on assumptions that Greystone believes are reasonable based on current expectations and projections about future events and industry conditions and trends affecting Greystone’s business. However, whether actual results and developments will conform to Greystone’s expectations and predictions is subject to a number of risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements, including those factors more fully described under the section “Risk Factors” in Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” of Greystone’s Form 10-K for the fiscal year ended May 31, 2020, which was filed on August 24, 2020. In addition, Greystone’s historical financial performance is not necessarily indicative of the results that may be expected in the future and Greystone believes that such comparisons cannot be relied upon as indicators of future performance.

 

16

 

Results of Operations

 

General to All Periods

 

The unaudited consolidated statements include Greystone Logistics, Inc., and its two wholly-owned subsidiaries, Greystone Manufacturing, LLC (“GSM”) and Plastic Pallet Production, Inc. (“PPP”). Greystone also consolidates the variable interest entity, Greystone Real Estate, LLC (“GRE”). All material intercompany accounts and transactions have been eliminated.

 

References to fiscal year 2021 refer to the nine months and three months ended February 28, 2021. References to fiscal year 2020 refer to the nine months and three months ended February 29, 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 approximately 260 and 266 full-time employees as of February 28(29), 2021 and 2020, respectively. In addition, employee recruitment is outsourced to certain personnel agencies. Greystone employed 61 and 116 personnel through these agencies as of February 28(29), 2021 and 2020.

 

Nine Months Ended February 28, 2021 Compared to Nine Months Ended February 29, 2020

 

Sales

Sales for fiscal year 2021 were $47,602,690 compared to $57,906,777 in fiscal year 2020 for a decrease of $10,304,087, or 18%. The decrease in sales from fiscal year 2020 to fiscal year 2021 is the result of changes in pallet pricing resulting from modifications to the manufacturing process for certain pallets, approximately 10%, and a decline in the number of pallets sold, approximately 8%. Greystone considers the decline in the number of pallets sold predominantly as a timing issue due to purchase orders for pallets received subsequent to the end of the current quarter from one major customer totaling approximately $7.8 million and informal communications from one of our long-time major customers, from which we had previously reported an expected decline, that we believe indicates an increased allocation of purchases from Greystone. Further, despite the legal proceedings disclosed in Part II, Item 1, Legal Proceedings, Greystone continues to manufacture and ship pallets to iGPS Logistics, LLC.

 

Effective January 1, 2021, Greystone’s major customer in the beer industry notified Greystone that the customer will be diversifying its purchases of pallets for case goods with another vendor, but Greystone will continue to be the sole provider of the keg pallet to the customer. However, as noted above, Greystone unexpectedly received a call from the customer regarding the need for additional case pallets. A new case pallet purchase order was received from the customer in March 2021 with an expectation that additional purchases orders may follow.

 

17

 

Greystone had four customers which accounted for approximately 85% and 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 $38,986,912, or 82% of sales, compared to $49,279,904, or 85% of sales, in fiscal year 2020. The decrease in the ratio of cost of sales to sales in fiscal year 2021 from fiscal year 2020 was primarily the result of improved profit margins from changes in the manufacturing process for certain pallets, increases in pallet production per machine attributable to the utilization of new tools in managing the injection molding machines and improvements in production efficiencies.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses were $3,639,883 in fiscal year 2021 compared to $3,438,424 in fiscal year 2020 for an increase of $201,459 or 5.9%. The primary reason for the increase in fiscal year 2021 over fiscal year 2020 was due to a mix of items of which the significant items were costs for legal fees and research and development toward the development of an acceptable fire retardant for Greystone pallets.

 

Other Income (Expenses)

 

Other income from sales of scrap material was $19,122 in fiscal year 2021 compared to $9,304 in fiscal year 2020.

 

Interest expense was $923,289 in fiscal year 2021 compared to $1,333,827 in fiscal year 2020 for a decrease of $410,538. The decrease in interest expense from fiscal year 2020 compared to fiscal year 2021 is the result of decreases in debt and financing leases and a decrease in interest rates. The net reduction in debt and financing leases was approximately $6,457,000 from May 31, 2020 to February 28, 2021. The amount of debt and financing leases totaled approximately $24,583,000 as of February 29, 2020 compared to $21,780,000 as of February 28, 2021 for a decrease of $2,803,000. In addition, the debt as of February 28, 2021 included a Paycheck Protection Program note in the amount of $3,034,000 which bears an interest rate of 1.0%. The prime rate of interest was 3.25% as of February 28, 2021 compared to 4.75% as of February 29, 2020.

 

Provision for Income Taxes

 

The provision for income taxes was $1,257,000 and $807,000 in fiscal years 2021 and 2020, respectively. The effective tax rate differs from federal statutory rates principally due to state income taxes, charges which have no tax benefit, changes in the valuation allowance, and the basis that net income from GRE is not taxable at the corporate level because GRE is a limited liability company of which Greystone has no equity ownership.

 

Based upon a review of its income tax filing positions, Greystone believes that its positions would be sustained upon an audit by the Internal Revenue Service and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded.

 

18

 

Net Income

 

Greystone recorded net income of $2,814,728 in fiscal year 2021 compared to $3,056,926 in fiscal year 2020 primarily for the reasons discussed above.

 

Net Income Attributable to Common Stockholders

 

The net income attributable to common stockholders (net income less preferred dividends and GRE’s net income) for fiscal year 2021 was $2,366,837, or $0.08 per share, compared $2,546,483, or $0.09 per share, in fiscal year 2020 primarily for the reasons discussed above.

 

Three Months Ended February 28, 2021 Compared to Three Months Ended February 29, 2020

 

Sales

 

Sales for fiscal year 2021 were $14,511,196 compared to $19,738,806 in fiscal year 2020 for a decrease of $5,227,610. The decrease in sales from fiscal year 2020 to fiscal year 2021 is primarily due to a decline in the number of pallets sold resulting from a reduction in demand from major customers including reduced purchase orders from a beer manufacturer.

 

Effective January 1, 2021, Greystone’s major customer in the beer industry notified Greystone that the customer will be diversifying its purchases of pallets for case goods with another vendor, but Greystone will continue to be the sole provider of the keg pallet to the customer. However, Greystone unexpectedly received a call from the customer regarding the need for additional case pallets. A new case pallet purchase order was received from the customer in March 2021 with an expectation that additional purchases orders may follow.

 

Greystone had four customers which accounted for approximately 82% and 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 $11,954,222, or 82% of sales, compared to $15,622,931, or 79% of sales, in fiscal year 2020. Pallet production declined approximately 10% in fiscal year 2021 from fiscal year 2020. This decline accompanied with Greystone’s inflexible production cost structure is the primary reason for the increased ratio of cost of sales to sales in fiscal year 2021 compared to fiscal year 2020.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses were $1,168,426 in fiscal year 2021 compared to $1,248,196 in fiscal year 2020 for a decrease of $79,770 or 6.4%. There were no significant factors contributing to this decrease.

 

Other Income (Expenses)

 

Other income from sales of scrap material was $10,178 in fiscal year 2021 compared to $4,391 in fiscal year 2020.

 

Interest expense was $270,229 in fiscal year 2021 compared to $420,128 in fiscal year 2020 for a decrease of $149,899. The decrease in interest expense from fiscal year 2020 compared to fiscal year 2021 is the result of decreases in debt and financing leases and a decrease in interest rates. The net reduction in debt and financing leases for the quarter ended February 28, 2021 was approximately $1,835,000. The amount of debt and financing leases totaled approximately $24,583,000 at February 29, 2020 compared to $21,780,000 at February 28, 2021 for a decrease of $2,803,000. In addition, the debt as of February 28, 2021 including a Paycheck Protection Program note in the amount of $3,034,000 which bears an interest rate of 1.0%. The prime rate of interest was 3.25% as of February 28, 2021 compared to 4.75% at February 29, 2020.

 

19

 

Provision for Income Taxes

 

The provision for income taxes was $346,000 and $487,000 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 $782,497 in fiscal year 2021 compared to $1,964,942 in fiscal year 2020 primarily for the reasons discussed above.

 

Net Income Attributable to Common Stockholders

 

The net income attributable to common stockholders (net income less preferred dividends and GRE’s net income) for fiscal year 2021 was $633,456, or $0.02 per share, compared $1,799,805, or $0.06 per share, in fiscal year 2020 primarily for the reasons discussed above.

 

Liquidity and Capital Resources

 

A summary of cash flows for the nine months ended February 28, 2021 is as follows:

 

Cash provided by operating activities		$	8,565,138
Cash used in investing activities		$	(2,252,271	)
Cash used in financing activities		$	(6,861,607	)

 

The contractual obligations of Greystone are as follows:

 

		Total				Less than 1 year				1-3 years				4-5 years
Long-term debt		$	17,731,916			$	5,019,221			$	11,535,832			$	1,176,863
Financing lease rents		$	4,414,243			$	2,017,791			$	2,378,232			$	18,220
Operating lease rents		$	136,080			$	73,881			$	57,035			$	5,164
Commitments		$	504,609			$	504,609			$	-			$	-

 

Greystone had a working capital deficit of $(3,953,026) at February 28, 2021. The working capital deficit includes the current portion of the PPP Loan in the amount of $1,658,710. Greystone has submitted an application for forgiveness on the PPP Loan; however, there is no assurance that the PPP Loan will be forgiven.

 

20

 

To provide for the funding to meet Greystone’s operating activities and contractual obligations as of February 28, 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 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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

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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 February 28, 2021.

 

During the three months ended February 28, 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.

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

See discussion of legal proceeding in Part I. Financial Information, Item 1. Financial Statements – Note 11. Concentrations, Risks and Uncertainties of this Form 10-Q, which is incorporated by reference into this Part II. Item 1.

 

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 February 28, 2021 and May 31, 2020, (ii) the Consolidated Statements of Income for the nine months and three months ended February 28(29), 2021 and 2020, (iii) the Consolidated Statements of Changes in Equity for the nine months ended February 28(29), 2021 and 2020, (iv) the Consolidated Statements of Cash Flows for the nine months ended February 28(29), 2021 and 2020, and (v) the Notes to the Consolidated Financial Statements (submitted herewith).

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	GREYSTONE LOGISTICS, INC.
	(Registrant)
Date: April 14, 2021	/s/ Warren F. Kruger
	Warren F. Kruger, President and Chief
	Executive Officer (Principal Executive Officer)
Date: April 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 February 28, 2021 and May 31, 2020, (ii) the Consolidated Statements of Income for nine months and three months ended February 28(29), 2021 and 2020, (iii) the Consolidated Statements of Changes in Equity for the nine months ended February 28(29), 2021 and 2020, (iv) the Consolidated Statements of Cash Flows for the nine months ended February 28(29), 2021 and 2020, and (v) the Notes to the Consolidated Financial Statements (submitted herewith).

 

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