GREYSTONE LOGISTICS, INC. Results of Operations General to All Periods The unaudited consolidated statements includeGreystone Logistics, Inc. , and its two wholly-owned subsidiaries,Greystone Manufacturing, L.L.C. ("GSM") andPlastic Pallet Production, Inc. ("PPP"). Greystone also consolidates its variable interest entity,Greystone Real Estate, L.L.C. ("GRE"). All material intercompany accounts and transactions have been eliminated. References to fiscal year 2020 refer to the six months and three months endedNovember 30, 2019 . References to fiscal year 2019 refer to the six months and three months endedNovember 30, 2018 . 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 inthe 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 personnel includes both full-time employees and temporary contract personnel. Temporary personnel train for ninety days and, if appropriate, hired as full-time. Greystone had approximately 268 and 185 full-time employees as ofNovember 30, 2019 and 2018, respectively. In addition, temporary personnel totaled 145 and 107 as ofNovember 30, 2019 and 2018, respectively.
Six Months Ended
Sales Sales for fiscal year 2020 were$38,167,971 compared to$32,939,240 in fiscal year 2019 for an increase of$5,228,731 , or 16%. The increase in pallet sales in fiscal year 2020 over 2019 was primarily attributable to the sales growth within Greystone's largest customers which included a new customer in fiscal year 2020. Sales to Greystone's four (three in fiscal year 2019) largest customers accounted for approximately 88% and 84% of sales in fiscal years 2020 and 2019, 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 2020 was$33,656,973 , or 88% of sales, compared to$28,801,518 , or 87% of sales, in fiscal year 2019. During the last two months of the six months endedNovember 30, 2019 , Greystone achieved (i) significant improvements in pallet production as a result of installation of hardware and software to improve the flow of resin into molds on two injection molding machines and (ii) completion of the installation of an additional pelletizing line which increased Greystone's capacity for pelletizing thereby resulting in a cost savings over purchasing plastic in pelletized form. 16
Initiatives to facilitate and continue improvements to the ratio of cost of sales to sales include resolution on production issues on certain machines and molds, hardware and software to improve resin mold flow on remaining injection molding machines, installation of an additional grinding machine allowing the purchase of lower-priced unprocessed recycled plastic, and completion of installation for robotics on two production lines. Greystone plans to complete the remaining initiatives throughout the year endingMay 31, 2020 .
Selling, General and Administrative Expenses
Selling, general and administrative expenses were$2,190,228 , or 6% of sales, in fiscal year 2020 compared to$1,792,741 , or 5% of sales, for an increase of$397,487 or 22%. The increase in fiscal year 2020 over fiscal year 2019 results principally from increased costs for administrative personnel. The selling, general and administrative are estimated to increase proportionately with increases in sales. Other Income (Expenses)
Other income was
Interest expense was$913,699 in fiscal year 2020 compared to$848,318 in fiscal year 2019 for an increase of$65,381 . The prime rate of interest declined from 5.50% atMay 31, 2019 to 4.75% atNovember 30, 2019 . The weighted average prime rate of interest was 5.19% compared to 5.07% for the six months endedNovember 30, 2019 and 2018, respectively. Provision for Income Taxes The provision for income taxes was$320,000 and$440,100 in fiscal years 2020 and 2019, respectively. The effective tax rate differs from federal statutory rates due to net income from GRE which, as a limited liability company of which Greystone has no equity ownership, is not taxed at the corporate level, charges which have no tax benefit and changes in the valuation allowance. 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
Net Income Attributable to Common Stockholders
The net income attributable to common stockholders for fiscal year 2020 was
17
Three Months Ended
Sales Sales for fiscal year 2020 were$19,503,462 compared to$14,733,130 in fiscal year 2019 for an increase of$4,770,332 , or 32%. The increase in pallet sales in fiscal year 2020 over 2019 was primarily due to the sales growth within Greystone's largest customers which included a new customer in fiscal year 2020. Sales to Greystone's four (three in fiscal year 2019) largest customers accounted for approximately 88% and 85% of sales in fiscal years 2020 and 2019, 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 2020 was$17,353,239 , or 89% of sales, compared to$13,041,366 , or 89% of sales, in fiscal year 2019. During the last two months of the six months endedNovember 30, 2019 , Greystone achieved (i) significant improvement in pallet production per machine as a result of installation of hardware and software to improve the flow of resin into molds on two injection molding machines and (ii) completion of the installation of an additional pelletizing line which increased Greystone's capacity for pelletizing thereby resulting in a cost savings over purchasing plastic in pelletized form. Initiatives to facilitate and continue improvements to the ratio of cost of sales to sales include resolution on production issues on certain machines and molds, hardware and software to improve resin mold flow on remaining injection molding machines, installation of an additional grinding machine allowing the purchase of lower-priced unprocessed recycled plastic, and completion of installation for robotics on two production lines. Greystone plans to complete the remaining initiatives throughout the year endingMay 31, 2020 .
Selling, General and Administrative Expenses
Selling, general and administrative expenses were$1,112,630 , or 6% of sales, in fiscal year 2020 compared to$853,650 , or 7% of sales, for an increase of$258,980 or 30%. The increase in fiscal year 2020 over fiscal year 2019 results principally from increased costs for administrative personnel. The selling, general and administrative are estimated to increase proportionately with increases in sales. Other Income (Expenses)
Other income was
Interest expense was$432,788 in fiscal year 2020 compared to$435,690 in fiscal year 2019 for a decrease of$2,902 . The prime rate of interest declined from 5.25% atAugust 31, 2019 to 4.75% atNovember 30, 2019 . The weighted average prime rate of interest was 4.96% compared to 5.18% for the three months endedNovember 30, 2018 . 18 Provision for Income Taxes The provision for income taxes was$135,000 and$108,500 in fiscal years 2020 and 2019, respectively. The effective tax rate differs from federal statutory rates due to net income from GRE which, as a limited liability company of which Greystone has no equity ownership, is not taxed at the corporate level, charges which have no tax benefit and changes in the valuation allowance. Based upon a review of its income tax filing positions, Greystone believes that its positions would be sustained upon an audit by the Internal Revenue Service and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded. Net Income
Greystone recorded net income of
Net Income Attributable to Common Stockholders
The net income attributable to common stockholders for fiscal year 2020 was
Liquidity and Capital Resources
A summary of cash flows for the six months endedNovember 30, 2019 is as follows: Cash provided by operating activities$ 4,916,489 Cash used in investing activities$ (2,018,815 ) Cash used in financing activities$ (2,572,237 )
The contractual obligations of Greystone are as follows:
Less than More than
Total 1 year 1-3 years 4-5 years 5 years
Long-term debt $ 21,386,471 $ 3,442,269 $ 14,603,226 $ 3,340,976 $ -
Financing lease rent $ 6,448,000 $ 2,471,000 $ 3,977,000 $ - $ -
Operating lease rent $ 238,431 $ 81,881 $ 119,762 $ 36,788 $ -
Commitments $ 2,468,000 $ 2,468,000 $ - $ - $ -
19
Greystone had a working capital deficit of $(4,815,964) at November 30, 2019 . To
provide for the funding to meet Greystone's operating activities and contractual
obligations as of November 30, 2019 , 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.
Substantially all of the financing that Greystone has received through the last
few fiscal years resulted primarily from bank notes which are guaranteed by
certain officers and directors of Greystone and, formerly, from loans provided
by certain officers and directors of Greystone. Greystone continues to be
dependent upon its officers and directors to provide and/or secure additional
financing and there is no assurance that its officers and directors will
continue to do so. As such, there is no assurance that funding will be available
for Greystone to continue operations.
Greystone has 50,000 outstanding shares of cumulative 2003 Preferred Stock with
a liquidation preference of $5,000,000 and a preferred dividend rate of the
prime rate of interest plus 3.25%. Greystone does not anticipate that it will
make cash dividend payments to any holders of its common stock unless and until
the financial position of Greystone improves through increased revenues, another
financing transaction or otherwise. Pursuant to the IBC Loan Agreement, as
discussed in Note 6 to the consolidated financial statements, Greystone may pay
dividends on its preferred stock in an amount not to exceed $500,000 per year.
Forward Looking Statements and Material Risks
This Quarterly Report on Form 10-Q includes certain statements that may be deemed "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are made in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, that address activities, events or developments that Greystone expects, believes or anticipates will or may occur in the future, including decreased costs, securing financing, the profitability of Greystone, potential sales of pallets or other possible business developments, are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties. The forward-looking statements contained in this Quarterly Report on Form 10-Q could be affected by any of the following factors: Greystone's prospects could be affected by changes in availability of raw materials, competition, rapid technological change and new legislation regarding environmental matters; Greystone may not be able to secure additional financing necessary to sustain and grow its operations; and a material portion of Greystone's business is and will be dependent upon a few large customers and there is no assurance that Greystone will be able to retain such customers. These risks and other risks that could affect Greystone's business are more fully described in Greystone's Form 10-K for the fiscal year endedMay 31, 2019 , which was filed onAugust 29, 2019 . 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.
20
© Edgar Online, source
