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Document and Entity Information

v2.4.0.8
Document and Entity Information
3 Months Ended
Aug. 31, 2014
Oct. 13, 2014
Document And Entity Information    
Entity Registrant Name GREYSTONE LOGISTICS, INC.  
Entity Central Index Key 0001088413  
Document Type 10-Q  
Document Period End Date Aug. 31, 2014  
Amendment Flag false  
Current Fiscal Year End Date --05-31  
Is Entity a Well-known Seasoned Issuer? No  
Is Entity a Voluntary Filer? No  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   26,461,201
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2015  

Consolidated Balance Sheets (Unaudited)

v2.4.0.8
Consolidated Balance Sheets (Unaudited) (USD $)
Aug. 31, 2014
May 31, 2014
Current Assets:    
Cash $ 853,633 $ 661,263
Accounts receivable, Trade, net of allowance of $71,462 1,056,859 2,023,563
Accounts receivable, Related party 260,109 219,505
Inventory 2,022,118 1,616,165
Deferred tax asset - current 1,188,000 1,077,000
Prepaid expenses and other 29,640 97,170
Total Current Assets 5,410,359 5,694,666
Property, Plant and Equipment 18,421,098 17,903,098
Less: Accumulated Depreciation (9,460,936) (9,126,961)
Property, Plant and Equipment, net 8,960,162 8,776,137
Deferred Tax Asset 869,300 1,133,000
Other Assets 153,830 163,188
Total Assets 15,393,651 15,766,991
Current Liabilities:    
Current portion of long-term debt 4,140,408 3,979,376
Accounts payable and accrued expenses 776,433 782,591
Accounts payable and accrued expenses - related parties 1,911,266 1,835,999
Preferred dividends payable 55,206 27,603
Total Current Liabilities 6,883,313 6,625,569
Long-Term Debt, net of current portion 9,660,550 10,524,745
Deficit:    
Preferred stock, $0.0001 par value, $5,000,000 liquidation preference; Shares authorized: 20,750,000; Shares issued and outstanding: 50,000 5 5
Common stock, $0.0001 par value; Shares authorized: 5,000,000,000; Shares issued and outstanding: 26,461,201 2,646 2,646
Additional paid-in capital 53,349,462 53,336,106
Accumulated deficit (55,500,705) (55,715,203)
Total Greystone Stockholders' Deficit (2,148,592) (2,376,446)
Non-controlling interests 998,380 993,123
Total Deficit (1,150,212) (1,383,323)
Total Liabilities and Deficit $ 15,393,651 $ 15,766,991

Consolidated Balance Sheets (Parenthetical) (Unaudited)

v2.4.0.8
Consolidated Balance Sheets (Parenthetical) (Unaudited) (USD $)
Aug. 31, 2014
May 31, 2014
Statement of Financial Position [Abstract]    
Allowance for doubtful accounts $ 71,462 $ 71,462
Preferred stock par value $ 0.0001 $ 0.0001
Liquidation preference $ 5,000,000 $ 5,000,000
Preferred stock shares authorized 20,750,000 20,750,000
Preferred stock shares issued 50,000 50,000
Preferred stock shares outstanding 50,000 50,000
Common stock par value $ 0.0001 $ 0.0001
Common stock shares authorized 5,000,000,000 5,000,000,000
Common stock shares issued 26,461,201 26,461,201
Common stock shares outstanding 26,461,201 26,461,201

Consolidated Statements of Income (Unaudited)

v2.4.0.8
Consolidated Statements of Income (Unaudited) (USD $)
3 Months Ended
Aug. 31, 2014
Aug. 31, 2013
Income Statement [Abstract]    
Sales $ 6,066,371 $ 6,510,917
Cost of Sales 4,737,213 4,365,545
Gross Profit 1,329,158 2,145,372
General, Selling and Administrative Expenses 614,942 596,313
Operating Income 714,216 1,549,059
Other Income (Expense):    
Interest expense (208,843) (201,181)
Total Other Expense, net (208,843) (201,181)
Income before Income Taxes 505,373 1,347,878
(Provision for) Benefit from Income Taxes (152,700) 237,000
Net Income 352,673 1,584,878
Income Attributable to Variable Interest Entities, net (56,257) (54,308)
Preferred Dividends (81,918) (81,918)
Net Income Available to Common Stockholders $ 214,498 $ 1,448,652
Income Available to Common Stockholders:    
Per Share of Common Stock - Basic $ 0.01 $ 0.06
Per Share of Common Stock - Diluted $ 0.01 $ 0.05
Weighted Average Shares of Common Stock Outstanding -    
Basic 26,461,201 26,111,201
Diluted 28,085,729 27,565,047

Consolidated Statements of Cash Flows (Unaudited)

v2.4.0.8
Consolidated Statements of Cash Flows (Unaudited) (USD $)
3 Months Ended
Aug. 31, 2014
Aug. 31, 2013
Cash Flows from Operating Activities:    
Net income $ 352,673 $ 1,584,878
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 343,333 337,236
Deferred income taxes 152,700 (253,000)
Stock-based compensation 13,356 13,356
Changes in receivables 966,704 (178,178)
Changes in related party receivables (115,604) 0
Changes in inventory (405,953) (212,629)
Changes in prepaid expenses and other 67,530 (101,744)
Change in other assets 0 1,834
Changes in accounts payable and accrued expenses 69,109 29,742
Net cash provided by operating activities 1,443,848 1,221,495
Cash Flows from Investing Activities:    
Purchase of property and equipment (443,000) (510,928)
Cash Flows from Financing Activities:    
Payments on long-term debt and capitalized leases (318,163) (325,084)
Payments on revolving loan (385,000) 0
Payments on advances from related party 0 (34,500)
Payments on preferred dividends (54,315) 0
Distributions by variable interest entity (51,000) 0
Net cash used in financing activities (808,478) (359,584)
Net Increase in Cash 192,370 350,983
Cash, beginning of period 661,263 366,896
Cash, end of period 853,633 717,879
Non-Cash Activities:    
Acquisition of equipment in exchange for net related party receivable 75,000 0
Preferred dividend accrual 55,206 81,918
Supplemental Information:    
Interest paid $ 101,299 $ 85,689

1. Basis of Financial Statements

v2.4.0.8
1. Basis of Financial Statements
3 Months Ended
Aug. 31, 2014
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, 2014, and the results of its operations and its cash flows for the three-month periods ended August 31, 2014 and 2013.  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, 2014 and the notes thereto included in Greystone's Form 10-K for such period. The results of operations for the three-month periods ended August 31, 2014 and 2013 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 its variable interest entity, Greystone Real Estate, L.L.C. (“GRE”).  GRE owns two buildings located in Bettendorf, Iowa which are leased to GSM.

2. Earnings Per Share

v2.4.0.8
2. Earnings Per Share
3 Months Ended
Aug. 31, 2014
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 available to common stockholders by the weighted-average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income available 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.  For the three months ended August 31, 2014, and 2013, equity instruments which have been excluded are Greystone’s convertible preferred stock which is convertible into 3,333,334 shares of common stock.

 

The following table sets forth the computation of basic and diluted earnings per share for the three months ended August 31, 2014 and 2013:

    2014     2013  
Numerator:            
Net income available to common shareholders   $ 214,498     $ 1,448,652  
                 
Denominator:                
Weighted-average shares outstanding:                
    Basic     26,461,201       26,111,201  
Incremental shares from assumed   conversion of options     1,624,528       1,453,846  
Diluted shares     28,085,729       27,565,047  
Earnings per share:                
Basic   $ 0.01     $ 0.06  
Diluted   $ 0.01     $ 0.05  

3. Inventory

v2.4.0.8
3. Inventory
3 Months Ended
Aug. 31, 2014
Inventory

Inventory consists of the following:

 

    August 31,     May 31,  
    2014     2014  
Raw materials   $ 1,273,150     $ 1,043,411  
Finished goods     748,968       572,754  
Total inventory   $ 2,022,118     $ 1,616,165  

4. Related Party Receivable

v2.4.0.8
4. Related Party Receivable
3 Months Ended
Aug. 31, 2014
Related Party Receivable

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.  Yorktown also owns a plastic grinding and wash line facility used to recycle plastic into usable raw material which Greystone may purchase at market prices.  Greystone compensates Yorktown for the use of this equipment as discussed below.  In addition, Yorktown provides office space for Greystone in Tulsa, Oklahoma at a monthly rental of $2,000.

 

GSM pays a weekly rental fees to Yorktown of $22,500 for use of Yorktown’s grinding equipment and $5,000 for the use of Yorktown’s pelletizing equipment. GSM paid Yorktown total equipment rental fees of $357,500 and $385,260 for the three months ended August 31, 2014 and 2013, respectively.

 

Greystone pays the labor on behalf of Yorktown’s Tulsa, Oklahoma grinding operation. These costs are invoiced to Yorktown on a monthly basis. As of August 31, 2014, Yorktown owes Greystone $260,109 primarily from the aforementioned labor costs incurred by Greystone on behalf of Yorktown.

5. Debt

v2.4.0.8
5. Debt
3 Months Ended
Aug. 31, 2014
Debt

Debt as of August 31, 2014 and May 31, 2014 is as follows:

 

    August 31,     May 31,  
    2014     2014  
Term note payable to International Bank of Commerce,   $ 8,369,639     $ 8,647,777  
interest rate of 4.5%, due January 31, 2019, monthly                
principal and interest payments of $171,760                
                 
Revolving note payable to International Bank of Commerce,                
prime rate of interest plus 0.5% but not less than 4.0%, due                
January 31, 2016     -       385,000  
                 
Term note payable by GRE to International Bank of                
Commerce, interest rate of 4.5%, due January 31, 2019,     3,331,635       3,371,660  
monthly principal and interest payments of $26,215                
                 
Note payable to Robert Rosene, 7.5% interest,                
due January 15, 2015     2,066,000       2,066,000  
                 
Other note payable     33,684       33,684  
      13,800,958       14,504,121  
Less: Current portion     (4,140,408 )     (3,979,376 )
Long-term debt   $ 9,660,550     $ 10,524,745  

 

    The prime rate of interest as of August 31, 2014 was 3.25%.

 

Loan Agreement between Greystone and IBC

 

On January 31, 2014, Greystone and GSM (the “Borrowers”) and International Bank of Commerce (“IBC”) entered into a Loan Agreement (the “IBC Loan Agreement”).  The IBC Loan Agreement provides for a revolving loan in an aggregate principal amount of up to $2,500,000 (the “Revolving Loan”) and a term loan in the aggregate principal amount of $9,200,000 (the “Term Loan”).  The exact amount which can be borrowed under the Revolving Loan from time to time is dependent upon the amount of the borrowing base, but can in no event exceed $2,500,000.

  

The Revolving Loan bears interest at the New York Prime Rate plus 0.5% but not less than 4.0% and matures January 31, 2016.  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 may be reborrowed by the Borrowers. The proceeds from the Revolving Loan will be used for general working capital purposes.

 

The Term Loan bears interest at 4.5% per annum and matures January 31, 2019.  The Borrowers are required to make equal monthly payments $171,760 towards principal and interest to amortize the principal balance over the term of the loan.

 

The IBC Loan Agreement includes customary representations and warranties and affirmative and negative covenants which include (i) requiring the Borrowers to maintain a debt service coverage ratio of 1:25 to 1:00 and a funded debt to EBIDA ratio not exceeding 3:00 to 1:00, (ii) subject to certain exceptions, limiting the Borrowers’ combined capital expenditures on fixed assets to $1,000,000 per year, (iii) prohibiting Greystone, without IBC’s prior written consent, from declaring or paying any dividends, redemptions of stock or membership interests, distributions and withdrawals (as applicable) in respect of its capital stock or any other equity interest, other than (A) a one-time payment of accrued preferred dividends to holders of its preferred stock in an amount not to exceed $3,470,000 within 10 days of the date of the IBC Loan Agreement, and (B) additional payments to holders of its preferred stock in an amount not to exceed $500,000 in any fiscal year, (iv) subject to certain exceptions, prohibiting the incurrence of additional indebtedness by the Borrowers, and (v) requiring the Borrowers to prevent (A) any change in capital ownership such that there is a material change in the direct or indirect ownership of (1) Greystone’s outstanding preferred stock, and (2) any equity interest in GSM, or (B) Warren Kruger from ceasing to be actively involved in the management of Greystone as President and/or Chief Executive Officer.  The foregoing list of covenants is not exhaustive and there are several other covenants contained in the IBC Loan Agreement.

 

Greystone’s debt service coverage ratio as of August 31, 2014 was 1:16 to 1:00 which was less than the required minimum as discussed above.  IBC has been notified of the noncompliant ratio and has granted Greystone a waiver with respect to this occurrence of noncompliance.

 

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 loans 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 in the following paragraph.

 

Loan Agreement between GRE and IBC

 

On January 31, 2014, GRE and IBC entered into a Loan Agreement which provided for a mortgage loan to GRE of $3,412,500.  The loan provides for a 4.5% interest rate and a maturity of January 31, 2019 and is secured by a mortgage on the two buildings in Bettendorf, Iowa which are leased to Greystone.

6. Stock Compensation Costs

v2.4.0.8
6. Stock Compensation Costs
3 Months Ended
Aug. 31, 2014
Equity [Abstract]  
6. Stock Compensation Costs

Stock compensation costs, resulting from stock options issued June 1, 2012, were $13,356 for the three months ended August 31, 2014 and 2013, respectively.  The unexpensed cost at August 31, 2014 totaled $93,492.

7. Fair Value of Financial Instruments

v2.4.0.8
7. Fair Value of Financial Instruments
3 Months Ended
Aug. 31, 2014
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 loans with floating rates of interest approximate fair value.  Fixed rate loans are valued based on cash flows using estimated rates of comparable loans.  The carrying amounts reported in the balance sheet approximate fair value.

 

8. Risks and Uncertainties

v2.4.0.8
8. Risks and Uncertainties
3 Months Ended
Aug. 31, 2014
Risks and Uncertainties

Greystone derives a substantial portion of its revenue from a national brewer.  This customer accounted for approximately 59% and 69% of Greystone’s pallet sales and 51% and 69% of Greystone’s total sales for the three months ended August 31, 2014 and 2013, respectively.  Greystone’s recycled plastic pallets are approved for use by the customer and, at the current time, are the only plastic pallets used by the customer for shipping products. There is no assurance that Greystone will retain this customer’s business at the same level, or at all.  The loss of a material amount of business from this customer could have a material adverse effect on Greystone.

 

Robert B. Rosene, Jr., a Greystone director, has provided financing and guarantees on Greystone’s bank debt.  As of August 31, 2014, Greystone is indebted to Mr. Rosene in the amount of $3,977,266 for a note payable and related accrued interest due January 15, 2015.  There is no assurance that Mr. Rosene will continue to provide extensions in the future.

 

2. Earnings Per Share (Tables)

v2.4.0.8
2. Earnings Per Share (Tables)
3 Months Ended
Aug. 31, 2014
Computation of Basic and Diluted Shares
    2014     2013  
Numerator:            
Net income available to common shareholders   $ 214,498     $ 1,448,652  
                 
Denominator:                
Weighted-average shares outstanding:                
    Basic     26,461,201       26,111,201  
Incremental shares from assumed   conversion of options     1,624,528       1,453,846  
Diluted shares     28,085,729       27,565,047  
Earnings per share:                
Basic   $ 0.01     $ 0.06  
Diluted   $ 0.01     $ 0.05  

3. Inventory (Tables)

v2.4.0.8
3. Inventory (Tables)
3 Months Ended
Aug. 31, 2014
Inventory
    August 31,     May 31,  
    2014     2014  
Raw materials   $ 1,273,150     $ 1,043,411  
Finished goods     748,968       572,754  
Total inventory   $ 2,022,118     $ 1,616,165  

5. Debt (Tables)

v2.4.0.8
5. Debt (Tables)
3 Months Ended
Aug. 31, 2014
Debt
    August 31,     May 31,  
    2014     2014  
Term note payable to International Bank of Commerce,   $ 8,369,639     $ 8,647,777  
interest rate of 4.5%, due January 31, 2019, monthly                
principal and interest payments of $171,760                
                 
Revolving note payable to International Bank of Commerce,                
prime rate of interest plus 0.5% but not less than 4.0%, due                
January 31, 2016     -       385,000  
                 
Term note payable by GRE to International Bank of                
Commerce, interest rate of 4.5%, due January 31, 2019,     3,331,635       3,371,660  
monthly principal and interest payments of $26,215                
                 
Note payable to Robert Rosene, 7.5% interest,                
due January 15, 2015     2,066,000       2,066,000  
                 
Other note payable     33,684       33,684  
      13,800,958       14,504,121  
Less: Current portion     (4,140,408 )     (3,979,376 )
Long-term debt   $ 9,660,550     $ 10,524,745  

2. Earnings Per Share (Details)

v2.4.0.8
2. Earnings Per Share (Details) (USD $)
3 Months Ended
Aug. 31, 2014
Aug. 31, 2013
Numerator:    
Net income available to common shareholders $ 214,498 $ 1,448,652
Denominator:    
Weighted-average shares outstanding: Basic 26,461,201 26,111,201
Incremental shares from assumed conversion of options 1,624,528 1,453,846
Diluted shares 28,085,729 27,565,047
Earnings per share:    
Basic $ 0.01 $ 0.06
Diluted $ 0.01 $ 0.05

3. Inventory (Details)

v2.4.0.8
3. Inventory (Details) (USD $)
Aug. 31, 2014
May 31, 2014
Inventory Details    
Raw materials $ 1,273,150 $ 1,043,411
Finished goods 748,968 572,754
Total inventory $ 2,022,118 $ 1,616,165

4. Related Party Receivable (Details Narrative)

v2.4.0.8
4. Related Party Receivable (Details Narrative) (USD $)
3 Months Ended
Aug. 31, 2014
Aug. 31, 2013
Related Party Receivable Details Narrative    
Equipment rental fees $ 357,500 $ 385,260

5. Debt (Details)

v2.4.0.8
5. Debt (Details) (USD $)
Aug. 31, 2014
May 31, 2014
Debt Details    
Term note payable to International Bank of Commerce, interest rate of 4.5%, monthly principal and interest payments of $171,760, maturing January 31, 2019 $ 8,369,639 $ 8,647,777
Revolving note payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4%, due January 31, 2016 0 385,000
Term note payable by GRE to International Bank of Commerce, interest rate of 4.5%, due January 31, 2019, monthly principal and interest payments of $26,215 3,331,635 3,371,660
Note payable to Robert Rosene, 7.5% interest, due January 15, 2015 2,066,000 2,066,000
Other notes payable 33,684 33,684
Total Notes Payable 13,800,958 14,504,121
Less: Current portion (4,140,408) (3,979,376)
Long-term Debt $ 9,660,550 $ 10,524,745