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.
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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.
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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:
Less than
Total 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.
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