PART
II.
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market
Information
Greystone’s
common stock is traded on the OTCQB under the symbol “GLGI.” The following table sets forth the range of high and low per
share bid quotations for Greystone’s common stock during the time periods indicated. The source of the foregoing quotations was
the Financial Industry Regulatory Composite Feed or other qualified inter dealer quotation medium as provided by OTC Market Group, Inc.:
|
Quarter Ended
|
|
High
|
|
|
Low
|
|
|
August 31, 2019
|
|
|
0.59
|
|
|
|
0.52
|
|
|
November 30, 2019
|
|
|
0.55
|
|
|
|
0.32
|
|
|
February 29, 2020
|
|
|
0.49
|
|
|
|
0.42
|
|
|
May 31, 2020
|
|
|
0.92
|
|
|
|
0.30
|
|
|
August 31, 2020
|
|
|
1.08
|
|
|
|
0.71
|
|
|
November 30, 2020
|
|
|
1.05
|
|
|
|
0.83
|
|
|
February 28, 2021
|
|
|
0.99
|
|
|
|
0.80
|
|
|
May 31, 2021
|
|
|
1.35
|
|
|
|
0.84
|
|
Quotations
reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions.
Holders
As
of approximately May 31, 2021, Greystone had approximately 218 common stockholders of record.
Dividends
Greystone
paid no cash dividends to its common stockholders during the last two fiscal years and does not plan to pay any cash dividends in the
near future. The loan agreement dated January 31, 2014 (the “IBC Loan Agreement”), as amended, among Greystone, GSM and International
Bank of Commerce (“IBC”) prohibits Greystone from declaring or paying any dividends in respect to its common stock without
IBC’s prior written consent. See Note 4 to the consolidated financial statements for additional information. In addition, accrued
preferred stock dividends must be paid before a dividend on common stock may be declared or paid, as set forth in the Certificate of
Designation, Preferences, Rights and Limitations relating to the preferred stock. See Note 9 to the consolidated financial statements
and “Liquidity and Capital Resources” in Item 7 of this Form 10-K for additional information.
Greystone
paid dividends on its 2003 preferred stock in the amounts of $407,329 and $426,918 in fiscal years 2021 and 2020, respectively.
Item
6. [Reserved.]
Not
applicable.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary
Statement Regarding Forward-Looking Information
This
Annual Report on Form 10-K 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-K
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 discussed under the section
of this Form 10-K entitled “Risk Factors.” 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.
Risk
Factors
Greystone
has attained operating profits and positive cash flows from operating activities but there is no assurance that it will be able to sustain
profitability.
Greystone’s
current operations of manufacturing plastic pallets commenced in 1996. Greystone incurred losses from operations from such time through
fiscal year 2007. The results of Greystone’s operations for the fiscal years after fiscal year 2007 showed an operating profit
and positive cash flows from operations with the exception of fiscal year 2011 for which Greystone incurred a loss but had positive operating
income and positive cash flows from operations. There is no assurance that Greystone will maintain a positive operating profit or otherwise
obtain funds to finance capital and debt service requirements.
Greystone
has granted security interests in substantially all of its assets in connection with certain debt financings and other transactions.
In
connection with certain debt financings and other transactions, Greystone has granted third parties security interests in substantially
all of its assets pursuant to agreements entered into with such third parties. Upon the occurrence of an event of default under such
agreements, the secured parties may enforce their rights and Greystone may lose all or a portion of its assets. As a result, Greystone
could be forced to materially reduce its business activities or cease operations.
Greystone’s
business could be affected by changes in availability of raw materials.
Greystone
uses a proprietary mix of raw materials to produce its plastic pallets. Such raw materials are generally readily available and some may
be obtained from a broad range of recycled plastic suppliers and unprocessed waste plastic. At the present time, these materials are
being purchased from local and national suppliers and international suppliers if available. The availability of Greystone’s raw
materials could change at any time for various reasons. For example, the market demand for Greystone’s raw materials could suddenly
increase, or the rate at which plastic materials are recycled could decrease, affecting both availability and price. Additionally, the
laws and regulations governing the production of plastics and the recycling of plastic containers could change and, as a result, affect
the supply of Greystone’s raw materials. Any interruption in the supply of raw materials or components could have a material adverse
effect on Greystone. Furthermore, certain potential alternative suppliers may have pre-existing exclusive relationships with Greystone’s
competitors and others that may preclude Greystone from obtaining raw materials from such suppliers.
Greystone’s
business could be affected by competition and rapid technological change.
Greystone
currently faces competition from many companies that produce wooden pallets at prices that are substantially lower than the prices Greystone
and other companies that manufacture plastic pallets charge for their plastic pallets. It is anticipated that the plastic pallet industry
will be subject to intense competition and rapid technological change. Greystone could potentially face additional competition from recycling
and plastics companies, many of which have substantially greater financial and other resources than Greystone and, therefore, are able
to spend more than Greystone in areas such as product development, manufacturing and marketing. Competitors may develop products that
render Greystone’s products or proposed products uneconomical or result in products being commercialized that may be superior to
Greystone’s products. In addition, alternatives to plastic pallets could be developed, which would have a material adverse effect
on Greystone.
Greystone
is dependent on a few large customers.
Greystone
derives, and expects that in the foreseeable future it will continue to derive, a large portion of its revenue from a few large customers.
Four customers currently account for approximately 83% of its total sales in fiscal year 2021 (87% in fiscal year 2020). There is no
assurance that Greystone will retain these customers’ business at the same level, or at all. The loss of a material amount of business
from one of these customers would have a material adverse effect on Greystone.
Greystone’s
business could be affected by the Coronavirus, COVID-19.
The
impact of COVID-19 has created much uncertainty in the marketplace. If the pandemic created by COVID-19 continues for an extended time,
there is no assurance that Greystone will be able to maintain customers’ business at the same level or maintain adequate work force
to meet customer demands for pallets.
Greystone
may not be able to effectively protect Greystone’s patents and proprietary rights.
Greystone
relies upon a combination of patents and trade secrets to protect its proprietary technology, rights and know-how. There can be no assurance
that such patent rights will not be infringed upon, that Greystone’s trade secrets will not otherwise become known to or independently
developed by competitors, that non-disclosure agreements will not be breached, or that Greystone would have adequate remedies for any
such infringement or breach. Litigation may be necessary to enforce Greystone’s proprietary rights or to defend Greystone against
third-party claims of infringement. Such litigation could result in substantial cost to, and a diversion of effort by, Greystone and
its management and may have a material adverse effect on Greystone. Greystone’s success and potential competitive advantage is
dependent upon its ability to exploit the technology under these patents. There can be no assurance that Greystone will be able to exploit
the technology covered by these patents or that Greystone will be able to do so exclusively.
Greystone’s
business could be affected by changing or new legislation regarding environmental matters.
Greystone’s
business is subject to changing federal, state and local environmental laws and regulations pertaining to the discharge of materials
into the environment, the handling and disposition of waste (including solid and hazardous waste) or otherwise relating to the protection
of the environment. As is the case with manufacturers in general, if a release of hazardous substances occurs on or from Greystone’s
properties or any associated off-site disposal location, or if contamination from prior activities is discovered at any of Greystone’s
properties, Greystone may be held liable. No assurances can be given that additional environmental issues will not require future expenditures.
In addition, the plastics industry is subject to existing and potential federal, state, local and foreign legislation designed to reduce
solid wastes by requiring, among other things, plastics to be degradable in landfills, minimum levels of recycled content, various recycling
requirements and disposal fees and limits on the use of plastic products. Also, various consumer and special interest groups have lobbied
from time to time for the implementation of these and other such similar measures. Although Greystone believes that the legislation promulgated
to date and such initiatives to date have not had a material adverse effect on it, there can be no assurance that any such future legislative
or regulatory efforts or future initiatives would not have a material adverse effect.
Greystone’s
business could be subject to potential product liability claims.
The
testing, manufacturing and marketing of Greystone’s products and proposed products involve inherent risks related to product liability
claims or similar legal theories that may be asserted against Greystone, some of which may cause Greystone to incur significant defense
costs. Although Greystone currently maintains product liability insurance coverage that it believes is adequate, there can be no assurance
that the coverage limits of its insurance will be adequate under all circumstances or that all such claims will be covered by insurance.
In addition, these policies generally must be renewed every year. While Greystone has been able to obtain product liability insurance
in the past, there can be no assurance it will be able to obtain such insurance in the future on all of its existing or future products.
A successful product liability claim or other judgment against Greystone in excess of its insurance coverage, or the loss of Greystone’s
product liability insurance coverage could have a material adverse effect upon Greystone.
Greystone
currently depends on certain key personnel.
Greystone
is dependent on the experience, abilities and continued services of its current management. In particular, Warren Kruger, Greystone’s
President and CEO, has played a significant role in the development, management and financing of Greystone. The loss or reduction of
services of Warren Kruger or any other key employee could have a material adverse effect on Greystone. In addition, there is no assurance
that additional managerial assistance will not be required, or that Greystone will be able to attract or retain such personnel.
Greystone’s
executive officers and directors control a large percentage of Greystone’s outstanding common stock and all of Greystone’s
2003 preferred stock, which entitles them to certain voting rights, including the right to elect a majority of Greystone’s Board
of Directors.
Greystone’s
executive officers and directors (and their affiliates), in the aggregate, own approximately 44.2% of Greystone’s outstanding common
stock and have approximately 50.03% of the voting power. Therefore, Greystone’s executive officers and directors can have significant
influence with respect to the outcome of matters submitted to Greystone’s shareholders for approval (including the election and
removal of directors and any merger, consolidation or sale of all or substantially all of Greystone’s assets) and to control Greystone’s
management and affairs. In addition, two of Greystone’s directors (including one who also serves as Greystone’s chief executive
officer) own all of Greystone’s outstanding 2003 preferred stock, with each owning 50%. The terms and conditions of Greystone’s
2003 preferred stock provide that such holder has the right to elect a majority of Greystone’s Board of Directors. Such concentration
of ownership may have the effect of delaying, deferring or preventing a change in control, impeding a merger, consolidation, takeover
or other business combination or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control,
which in turn could have an adverse effect on the market price of Greystone’s common stock.
Greystone’s
stock trades in a limited public market and is subject to price volatility. There can be no assurance that an active trading market will
develop or be sustained.
There
has been a limited public trading market for Greystone’s common stock and there can be no assurance that an active trading market
will develop or be sustained. The trading price of Greystone’s common stock could be subject to significant fluctuations in response
to variations in quarterly operating results or even mild expressions of interest on a given day. Accordingly, Greystone’s common
stock should be expected to experience substantial price changes in short periods of time. Even if Greystone is performing according
to its plan and there is no legitimate company-specific financial basis for this volatility, it must still be expected that substantial
percentage price swings will occur in Greystone’s common stock for the foreseeable future. In addition, the limited market for
Greystone’s common stock may restrict Greystone’s shareholders ability to liquidate their shares.
Greystone
does not expect to declare or pay any dividends on its common stock in the foreseeable future.
Greystone
has not declared or paid any dividends on its common stock. Greystone currently intends to retain future earnings to fund the development
and growth of its business, to repay indebtedness and for general corporate purposes, and, therefore, does not anticipate paying any
cash dividends on its common stock in the foreseeable future. Pursuant to the terms and conditions of certain loan documentation with
International Bank of Commerce and the terms and conditions of Greystone’s 2003 preferred stock, Greystone is restricted in its
ability to pay dividends to holders of its common stock.
Greystone’s
common stock may be subject to secondary trading restrictions related to penny stocks.
Certain
transactions involving the purchase or sale of Greystone’s common stock may be affected by a Commission rule for “penny stocks”
that imposes additional sales practice burdens and requirements upon broker-dealers that purchase or sell such securities. For transactions
covered by this penny stock rule, among other things, broker-dealers must make certain disclosures to purchasers prior to the purchase
or sale. Consequently, the penny stock rule may impede the ability of broker-dealers to purchase or sell Greystone’s common stock
for their customers and the ability of persons now owning or subsequently acquiring Greystone’s common stock to resell such securities.
Greystone
may issue additional equity securities, which would lead to further dilution of Greystone’s issued and outstanding stock.
The
issuance of additional common stock or securities convertible into common stock would result in further dilution of the ownership interest
in Greystone held by existing shareholders. Greystone is authorized to issue, without shareholder approval, an additional 20,700,000
shares of preferred stock, $0.0001 par value per share, in one or more series, which may give other shareholders dividend, conversion,
voting and liquidation rights, among other rights, which may be superior to the rights of holders of Greystone’s common stock.
In addition, Greystone is authorized to issue, without shareholder approval, over 4.9 billion additional shares of its common stock and
securities convertible into common stock.
Results
of Operations
General
The
consolidated financial statements include Greystone and its two wholly-owned subsidiaries, Greystone Manufacturing, L.L.C. (“GSM”),
and Plastic Pallet Production, Inc. (“PPP”), and one variable interest entity, Greystone Real Estate, L.L.C. (“GRE”).
Greystone’s
primary business is the manufacturing of plastic pallets utilizing recycled plastic and selling the pallets through one of its wholly
owned subsidiaries, GSM.
As
of May 31, 2021 and 2020, Greystone had 261 and 255 employees on full-time status, respectively. Temporary personnel from a personnel
service entity are utilized as needed. There were 30 and 84 temporary personnel as of May 31, 2021 and 2020, respectively. Greystone’s
in-house production capacity for its injection molding machines capable of producing pallets is approximately 180,000 plastic pallets
per month, or 2,160,000 per year. Production levels generally vary proportionately with sales orders or restrictions to maintain quality
of pallets.
Year
Ended May 31, 2021 Compared to Year Ended May 31, 2020
Sales
Sales
were $64,925,059 for fiscal year 2021 compared to $76,204,608 for fiscal year 2020 for a decrease of $11,279,549, or about 15%. The decrease
in pallet sales from fiscal year 2020 to 2021 is principally due to (i) approximately 9.6% as a result of lowered pricing on certain
pallets resulting from a customer delivering a portion of their own raw materials used in the manufacturing process of certain pallets,
(ii) a net decrease of about 6.6% of total pallets sold and (iii) an offset of about 1.3% from increases in pricing for certain pallets.
During the latter part of fiscal year 2021, locating and hiring new employees became a challenge for Greystone resulting in an inability
to maintain full machine production time.
Greystone
had four major customers who accounted for approximately 83% and 87% of total sales in fiscal year 2021 and 2020, respectively.
Cost
of Sales
Cost
of sales was $53,468,239 (82% of sales) and $64,721,749 (85% of sales) in fiscal years 2021 and 2020, respectively. The ratio of cost
of sales to sales in fiscal year 2021 reflects a decrease over the ratio for fiscal year 2020 resulting from improved margins on certain
pallets from repricing, improved efficiencies for pallet production, and increased capacity for in-house grinding and pelletizing recycled
plastic. A decrease in supply of plastic resulted in prices increasing during the fourth quarter of fiscal year 2021, which is expected
to carry into fiscal year 2022.
Selling,
General and Administrative Expenses
Selling,
general and administrative (SGA) expense was $5,202,231, (8.0% of sales) for fiscal year 2021 compared to $4,623,618 (6.1% of sales)
for fiscal year 2020 for an increase of $578,613 or approximately 12.5%. The increase in SGA is principally due to arbitration as discussed
in Part II, Item 3, Legal Proceedings.
Interest
Expense
Interest
expense was $1,177,799 in fiscal year 2021 compared to $1,705,351 in fiscal year 2020 for a decrease of $527,552. This decrease is primarily
attributable to a net decrease in long-term debt and financing leases during fiscal year 2021 by approximately $5.9 million plus a net
decrease in the IBC revolver loan by $2,540,000. Additionally, Greystone received a $3,034,000 PPP Loan in April 2020 which bears
a 1% interest rate.
Provision
for Income Taxes
The
provision for income taxes was $1,480,590 in fiscal year 2021 compared to $209,000 in fiscal year 2020 for an increase of $1,271,590.
The provision for income taxes was affected in fiscal year 2020, by a decrease in the valuation allowance for deferred taxes. The effective
tax rate differs from federal statutory rates due to net income from GRE which, as a limited liability company, is not taxed at the corporate
level, state income taxes, 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
Net
income was $3,625,526 in fiscal year 2021 compared to $4,962,570 in fiscal year 2020 for a decrease of $1,337,044 for the reasons discussed
above.
Net
Income Attributable to Common Stockholders
After
deducting preferred dividends and income attributable to non-controlling interests, the net income attributable to common stockholders
was $3,030,165, or $0.11 per share, in fiscal year 2021 compared to $4,301,585, or $0.15 per share, in fiscal year 2020 for the reasons
discussed above.
Liquidity
and Capital Resources
General
A
summary of Greystone’s cash flows for the year ended May 31, 2021 is as follows:
|
Cash provided by operating activities
|
|
$
|
15,182,629
|
|
|
Cash used in investing activities
|
|
$
|
(2,905,640
|
)
|
|
Cash used in financing activities
|
|
$
|
(9,021,306
|
)
|
Contractual
obligations of Greystone as of May 31, 2021, excluding the PPP Loan of $3,034,000 which was forgiven by the SBA on June 11, 2021,
were as follows:
|
|
|
Total
|
|
|
1 year
|
|
|
2-3 years
|
|
|
4-5 years
|
|
|
Over 5 years
|
|
|
Long-term debt
|
|
$
|
13,204,368
|
|
|
$
|
3,236,113
|
|
|
$
|
9,603,198
|
|
|
$
|
365,057
|
|
|
$
|
-
|
|
Financing lease
rents
|
|
$
|
3,880,065
|
|
|
$
|
1,948,534
|
|
|
$
|
1,919,227
|
|
|
$
|
12,304
|
|
|
$
|
-
|
|
Operating lease
rents
|
|
$
|
116,770
|
|
|
$
|
61,881
|
|
|
$
|
52,899
|
|
|
$
|
1,990
|
|
|
$
|
-
|
|
|
Commitments
|
|
$
|
516,092
|
|
|
$
|
516,092
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Greystone
had a working capital deficit of $(2,601,748) as of May 31, 2021.
Greystone
was approved for and received a $3,034,000 PPP Loan through a note payable with IBC. The PPP Loan has a 1.0% rate of interest
and a six-month deferral of principal and interest payments; thereafter, monthly principal and interest payments of $177,803 are due
over seventeen months with a final payment on April 10, 2022. The PPP Loan has provisions for debt forgiveness of all or a portion
of the principal and interest if certain conditions are met. Effective June 11, 2021, IBC notified Greystone that the PPP Loan,
including accrued interest, had been forgiven.
Greystone’s
principal long-term debt obligations include a $4,000,000 revolving line of credit and several term notes with IBC with various maturities
and a note payable to Mr. Rosene maturing on January 15, 2022. To provide for the funding to meet Greystone’s operating activities
and contractual obligations as of May 31, 2021, Greystone will have to continue to produce positive operating results or explore various
options including 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 financing to meet these obligations.
A
substantial portion of debt financing that Greystone has received through May 31, 2021, has been provided by loans or through bank loan
guarantees from the 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 either will do so.
Greystone
has 50,000 outstanding shares of cumulative 2003 Preferred Stock for a total of $5,000,000 with a preferred dividend rate at the prime
rate of interest plus 3.25%. Greystone paid the accrued dividends to its preferred stockholders during fiscal years 2021 and 2020 of
$407,329 and $426,918, respectively, and plans to continue to make preferred stock dividend payments to the holders of its preferred
stock as allowed under the terms of the IBC Loan Agreement as discussed herein under the caption “Loans from International Bank
of Commerce” which allows for such payments not to exceed $500,000 per year. 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, additional financing or otherwise. Further, pursuant to the terms and conditions of certain loan documentation with International
Bank of Commerce, as discussed herein under the caption “Loans from International Bank of Commerce,” and the terms and conditions
of Greystone’s 2003 preferred stock, Greystone is restricted in its ability to pay dividends to holders of its common stock.
Transactions
with Warren Kruger and Related Entities
Yorktown
Management & Financial Services, LLC (“Yorktown”), an entity wholly owned by Mr. Kruger, 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 use as raw material in the manufacture of pallets. Greystone compensates Yorktown for
the use of equipment as discussed below.
Rental
fees. GSM pays weekly rental fees of $27,500 to Yorktown for grinding equipment and pelletizing equipment. Total rental fees of approximately
$1,430,000 were paid in both fiscal years 2021 and 2020.
Yorktown
provides administrative office space for Greystone in Tulsa, Oklahoma under a five-year lease agreement at a rental rate of $4,000 per
month.
Sale
and leaseback transaction. Effective December 28, 2018, Greystone and Yorktown entered into an agreement whereby Greystone sold certain
newly acquired equipment to Yorktown at net book value, $968,168 and leased the equipment from Yorktown under a four-year agreement at
a monthly rent of $27,915 for the initial thirty-six months and $7,695 for the remaining twelve months. The lease agreement provides
for a bargain purchase option of $10,000 at the end of the lease term on December 31, 2022.
Loans
from International Bank of Commerce (“IBC”)
On
January 31, 2014, Greystone and GSM (the “Borrowers”) and IBC entered into a Loan Agreement (the “IBC Loan Agreement”),
as amended. The IBC Loan Agreement includes a revolving loan in an aggregate principal amount of up to $4,000,000 and several term loans
primarily to fund acquisition of production equipment, as discussed in Note 4, Long-term Debt, to the consolidated financial statements.
These loans are supported by a $6,500,000 guarantee by Warren Kruger, Greystone’s President and CEO, and Robert Rosene, a Greystone
board member.
Financing
Leases
Effective
May 10, 2016, Greystone and a private pallet leasing company (“Lessor”) entered into a Master Lease Agreement, with a bargain
purchase option, for injection molding machines to increase production of pallets for the Lessor. Currently, there are three machines
leased under the Master Lease Agreement. Generally, lease payments are based on sales to the Lessor of pallets produced from each machine.
Transactions
with Robert B. Rosene, Jr.
Loan.
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 a note payable at 7.5% interest.
Effective
June 1, 2016, the note payable to Mr. Rosene was restated (the “Restated Note”) whereby the accrued interest as of June 1,
2016 of $2,475,690 was combined with the outstanding principal of $2,066,000 resulting in a note payable in the principal amount of $4,541,690
with an interest rate of 7.5% and a maturity of January 15, 2019, subsequently amended to January 15, 2023. The Restated Note requires
the payment of accrued interest to Mr. Rosene. In addition, the Restated Note allows Greystone to make additional payments, at Greystone’s
discretion, up to an amount allowed by the IBC Loan Agreement.
Off-Balance
Sheet Arrangements
Greystone
does not have any off-balance sheet arrangements.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
Not
applicable.
Item
8. Financial Statements and Supplementary Data.
The
consolidated financial statements of Greystone are set forth on pages F-1 through F-21 inclusive, found at the end of this report.
Item
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item
9A. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Greystone’s
CEO and CFO have 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) are effective as of May 31, 2021. This conclusion is based on an evaluation conducted under
the supervision and participation of Greystone’s CEO and CFO along with Greystone’s management. Disclosure controls and procedures
are those controls and procedures designed to ensure that information required to be disclosed in reports that Greystone files or submits
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that
such information is accumulated and communicated to Greystone’s management, including Greystone’s CEO and CFO, as appropriate,
to allow timely decisions regarding required disclosure.
Management’s
Report on Internal Control Over Financial Reporting
Greystone’s
management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined
in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of Greystone’s management, including Greystone’s
CEO and CFO, Greystone evaluated the effectiveness of Greystone’s internal control over financial reporting based on the framework
in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions or that the degree of compliance with the policies or procedures may deteriorate.
Changes
in Internal Control over Financial Reporting
None.
Item
9B. Other Information.
None.
Item
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
PART
III.
Item
10. Directors, Executive Officers and Corporate Governance.
Directors,
Executive Officers, Promoters and Control Persons
The
following lists the directors and executive officers of Greystone. Directors of Greystone are elected at annual meetings of shareholders
unless appointed by the Board of Directors to fill a vacancy upon the resignation or removal of a member or an increase in the number
of members of the Board of Directors. Executive officers serve at the pleasure of the Board of Directors.
|
Name
|
|
Position
|
|
Term
as Director
Expires
|
|
Warren
F. Kruger
|
|
President,
Chief Executive Officer and Director
|
|
2022
|
|
Larry
J. LeBarre
|
|
Director
|
|
2022
|
|
Robert
B. Rosene, Jr.
|
|
Director
|
|
2022
|
|
William
W. Rahhal
|
|
Chief
Financial Officer
|
|
N/A
|
Warren
F. Kruger, President, Chief Executive Officer and Director
Mr.
Warren F. Kruger, Manager/CEO of privately held Yorktown Management & Financial Services, L.L.C., is 64 years old. Yorktown is involved
in investment banking, real estate, manufacturing and energy endeavors. Mr. Kruger is the non-executive chairman of the board of directors
of Kruger Family Holdings, LLC, which owns TriEnda Holdings, LLC. and PendaForm, LLC. TriEnda Holdings manufactures plastic pallets utilizing
a thermoform process. Because of the different qualities between the pallets manufactured by Greystone and TriEnda, there is no direct
competition between the two companies. Mr. Kruger earned a Bachelor of Business Administration degree from the University of Oklahoma,
and an Executive M.B.A. from Southern Methodist University. Mr. Kruger has over forty years of experience in the financial services industry.
In 1980, Mr. Kruger co-founded MCM Group, Ltd., which owned and controlled United Bank Club Association, Inc. until 1996 when the firm
was sold to a subsidiary of Cendant Corp. (a former NYSE company). He also owned and operated Century Ice, a manufacturer and distributor
of ice products from 1996 to 1997, when Packaged Ice, Inc., acquired Century Ice in an industry rollup.
Mr.
Kruger became a director of Greystone on January 4, 2002, served as President and Chief Executive Officer from January 10, 2003 to August
15, 2005 and, most recently, has served as President and Chief Executive Officer from November 18, 2006 to the present.
Mr.
Kruger’s business experience and knowledge of the day to day operations of Greystone make him well suited to serve on Greystone’s
Board of Directors.
Mr.
Larry J. LeBarre, Director
Mr.
LeBarre, age 65, was President and CEO of privately-held Native American Marketing (“Native American”) until 2014 when the
company was sold to Seminole Energy. Native American was founded by Mr. LeBarre in 2004 as an oil transportation, storage, and marketing
business. Mr. LeBarre earned a Bachelor of Business Administration degree from the University of Oklahoma, became a Certified Public
Accountant while working for Price Waterhouse & Co. (now PriceWaterhouseCoopers, LLP) and continued his career in the hazardous waste
industry and later with Plains Resources. Mr. LeBarre is also actively involved in investment banking, real estate, and oil and gas investments.
Mr.
LeBarre became a director of Greystone effective May 5, 2012. Mr. LeBarre’s business experience makes him qualified to serve as
a member of Greystone’s Board of Directors.
Mr.
Robert B. Rosene, Jr., Director
Mr.
Rosene, age 67, is President of Patriot Auto Group, L.L.C., which owns five auto dealerships in Oklahoma. In addition, Mr. Rosene oversees
a variety of investments including oil and gas interests, commercial real estate and other investments. Mr. Rosene co-founded Summit
Exploration, L.L.C., an oil and gas production company that owns oil and gas production interests in several states. Mr. Rosene has a
B.A. with an emphasis in accounting from Oklahoma Baptist University.
Mr.
Rosene became a director of Greystone effective June 14, 2004. Mr. Rosene’s business experience and longstanding relationship with
Greystone make him a good fit as a member of Greystone’s Board of Directors.
William
W. Rahhal, Chief Financial Officer
Mr.
Rahhal, age 80, served as managing partner of Rahhal Henderson Johnson, PLLC, Certified Public Accountants, in Ardmore, Oklahoma, from
1988 to 2010 and retired from the firm effective December 31, 2013. Mr. Rahhal previously served as Greystone’s Chief Financial
Officer from October 1, 2002 to October 1, 2004 and subsequently served Greystone as an accounting and financial consultant until his
appointment as its Chief Financial Officer. Mr. Rahhal earned his B.B.A. from the University of Oklahoma and is a Certified Public Accountant
licensed in Oklahoma and Texas. Mr. Rahhal has also previously served as a Senior Manager with Price Waterhouse & Co. (now PriceWaterhouseCoopers,
LLP) and as financial manager of a privately-held oil and gas production company and contract drilling company.
Identification
of the Audit Committee; Audit Committee Financial Expert
As
of May 31, 2021, Greystone had not established an audit committee and the entire board of directors essentially serves as Greystone’s
audit committee.
Code
of Ethics
Effective
April 8, 2008, Greystone adopted a Code of Ethics applicable to Greystone’s officers and directors, including Greystone’s
principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions. Greystone
undertakes to provide any person without charge, upon request, a copy of such Code of Ethics. Requests may be directed to Greystone Logistics,
Inc., 1613 East 15th Street, Tulsa, Oklahoma 74120, or by calling (918) 583-7441.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires Greystone’s directors, officers and persons who beneficially own more than
10% of any class of Greystone’s equity securities registered under Section 12 to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of such registered securities of Greystone. Officers, directors and
greater than 10% beneficial owners are required by regulation to furnish to Greystone copies of all Section 16(a) reports they file.
Based
solely on review of the copies of such reports furnished to Greystone and any written representations that no other reports were required
during fiscal year 2021, to Greystone’s knowledge, all Section 16(a) filing requirements applicable to its officers, directors
and greater than 10% beneficial owners during fiscal year 2021 were complied with on a timely basis.
Item
11. Executive Compensation.
The
following table sets forth the compensation paid to named executive officers during the fiscal years ended May 31, 2021, 2020 and 2020:
Summary
Compensation Table
|
Name and
Principal Position
|
|
Fiscal Year
Ending May 31,
|
|
|
Salary
|
|
|
Bonus
|
|
|
Option
Awards
|
|
|
Nonqualified Deferred Compensation Earnings
|
|
|
All Other Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warren F. Kruger,
|
|
|
2021
|
|
|
$
|
360,000
|
|
|
$
|
155,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,852
|
|
|
$
|
527,852
|
|
|
President and Chief
|
|
|
2020
|
|
|
$
|
360,000
|
|
|
$
|
25,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,565
|
|
|
$
|
396,565
|
|
|
Executive Officer
|
|
|
2019
|
|
|
$
|
267,692
|
|
|
$
|
102,708
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,615
|
|
|
$
|
375,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William W. Rahhal,
|
|
|
2021
|
|
|
$
|
200,000
|
|
|
$
|
75,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,389
|
|
|
$
|
281,389
|
|
|
Chief Financial
|
|
|
2020
|
|
|
$
|
200,000
|
|
|
$
|
25,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,705
|
|
|
$
|
229,705
|
|
|
Officer
|
|
|
2019
|
|
|
$
|
141,538
|
|
|
$
|
53,752
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,154
|
|
|
$
|
197,444
|
|
Outstanding
Equity Awards at Fiscal Year End
None.
Directors’
Compensation
Greystone
pays compensation to members of the Board of Directors in the amount of $12,500 per meeting attended. In fiscal years 2021 and 2020,
$50,000 and $50,000, respectively, was paid to each of Messrs. Kruger, Rosene and LeBarre.
Because
the Board of Directors consists of three persons of which two are outside directors, the Board has not considered it necessary to create
a compensation committee. All of Greystone’s directors participate in determining compensation for officers with Mr. Kruger abstaining
from any discussions concerning his compensation.
Compensation
Program as it Relates to Risk
We
have reviewed our compensation policies and practices for both executives and non-executives as they relate to risk and have determined
that at this time they are not reasonably likely to have a material adverse effect on us.
Amended
and Restated Stock Option Plan
General.
Greystone’s Amended and Restated Stock Option Plan (the “Stock Plan”) is administered by the Board of Directors
of Greystone or, if the Board so authorizes, by a committee of the Board of Directors consisting of not less than two members of the
Board of Directors. The Stock Plan is presently administered by the entire Board of Directors since no separate committee of the Board
has been designated to administer the Stock Plan. Accordingly, many of the references below in this description of the Stock Plan to
the Board of Directors could also be construed to be a committee thereof. All managerial and other key employees of Greystone and/or
its subsidiaries who hold positions of significant responsibility or whose performance or potential contribution, in the judgment of
the Board of Directors, will benefit the future success of Greystone are eligible to receive grants under the Stock Plan. In addition,
each director of Greystone who is not an employee of Greystone is eligible to receive certain option grants pursuant to provisions of
the Stock Plan. Previously, the Stock Plan was set to expire on May 11, 2011 and the maximum number of shares of common stock in respect
of which options could be granted under the Stock Plan was 2,000,000. However, on May 5, 2012, the Board of Directors voted to cause
the Stock Plan to be extended for another 10 years and to increase the number of shares of common stock in respect of which options could
be granted to 2,500,000. This number is subject to appropriate equitable adjustment in the event of a reorganization, stock split or
stock dividend or other similar change affecting Greystone’s common stock.
Price
and Terms. Each option is evidenced by an agreement between Greystone and the optionee. Unless otherwise determined by
the Board of Directors at the time of grant, all options become exercisable at the rate of 25% of the total shares subject to the option
on each of the first four anniversary dates of the date of grant, provided that the Board of Directors may, at any time, accelerate the
date any outstanding option becomes exercisable. The exercise price for each share placed under option pursuant to the Stock Plan is
determined by the Board of Directors but cannot in any event be less than 100% of the fair market value of such share on the date the
option was granted.
Effect
of Termination or Death. If an optionee’s employment with Greystone is terminated for any reason other than death
or termination for cause, an option will be exercisable for a period of three months after the date of termination of employment as to
all then vested portions of the option. In addition, the Board of Directors may, in its sole discretion, approve acceleration of the
vesting of any unvested portions of the option. If an optionee’s employment with Greystone is terminated for cause (as defined
in the Stock Plan), the option shall terminate as of the date of such termination of employment, and the optionee shall have no further
rights to exercise any portion of the option. If an optionee dies while employed by Greystone, any unvested portion of the option as
of the date of death shall be vested as of the date of death, and the option shall be exercisable in full by the heirs or legal representatives
of the optionee for a period of 12 months following the date of death. In any event, options terminate and are no longer exercisable
after 10 years from the date of the grant.
Continued
Service as a Director. In the event any optionee who is an employee and also a director of Greystone ceases to be employed
by Greystone but continues to serve as a director of Greystone, the Board of Directors may determine that all or a portion of such optionee’s
options shall not expire three months following the date of employment as described above, but instead shall continue in effect until
the earlier of the date the optionee ceases to be a director of Greystone or the date the option otherwise expires according to its stated
date of expiration. Termination of any such option in connection with the optionee’s termination of service as a director will
be on terms similar to those described above in connection with termination of employment.
Grants
to Non-Employee Directors. In order to retain, motivate and reward non-employee directors of Greystone, the Stock Plan extends
participation to non-employee directors on the terms and conditions described below. The exercise price for options granted to non-employee
directors is equal to 100% of the fair market value per share of common stock on the date the option is granted. As with options granted
to employees, unless otherwise determined by the Board of Directors at the time of grant, all options granted to non-employee directors
become exercisable at the rate of 25% of the total shares subject to the option on each of the first four anniversary dates of the date
of grant. The Board of Directors is also entitled at any time to accelerate the date any outstanding option becomes exercisable. If a
non-employee director’s service on the Board of Directors is terminated for any reason other than death or removal from the Board
of Directors for cause, an option will be exercisable for a period of three months after the date of removal from the Board of Directors
as to all then vested portions of the option. If a non-employee director is removed from the Board of Directors for cause, the option
will terminate as of the date of such removal, and the optionee shall have no further rights to exercise any portion of the option. If
a non-employee director optionee dies while serving on the Board of Directors, any unvested portion of the option as of the date of death
shall be vested as of the date of death, and the option shall be exercisable in full by the heirs or legal representatives of the optionee
for a period of 12 months following the date of death. In any event, options terminate and are no longer exercisable after 10 years from
the date of the grant.
Other
than as described above, all options granted to non-employee directors are subject to the same terms and conditions generally applicable
to options granted to employees under the Stock Plan.
Exercise
of Options. The exercise price of options may be paid in cash, by certified check, by tender of stock of Greystone (valued at
fair market value on the date immediately preceding the date of exercise), by surrender of a portion of the option, or by a combination
of such means of payment. The prior consent of the Board of Directors is required in connection with the payment of the exercise price
of options by tender of shares or surrender of a portion of the option, except that the consent of the Board of Directors is not required
if the exercise price is paid by surrender of shares that have been owned by the optionee for more than six months prior to the date
of exercise of the option or by a combination of cash and shares that have been owned for more than six months.
Effect
of Certain Corporate Transactions. In the event of any change in capitalization affecting the common stock of Greystone, such
as a stock dividend, stock split, recapitalization, merger, consolidation, split-up, combination or exchange of shares or other form
of reorganization, liquidation, or any other change affecting the common stock, proportionate adjustments will be made with respect to
the aggregate number and type of securities for which options may be granted under the Stock Plan, the number and type of securities
covered by each outstanding option, and the exercise price of outstanding options so that optionees will be entitled upon exercise of
options to receive the same number and kind of stock, securities, cash, property or other consideration that the optionee would have
received in connection with the change in capitalization if such option had been exercised immediately preceding such change in capitalization.
The Board of Directors may also make such adjustments in the number of shares covered by, and the price or other value of any outstanding
options in the event of a spin-off or other distribution, other than normal cash dividends, of company assets to shareholders. In addition,
unless the Board of Directors expressly determines otherwise, in the event of a Change in Control (as defined in the Stock Plan) of Greystone,
all outstanding options will become immediately and fully exercisable and optionees will be entitled to surrender, within 60 days following
the Change in Control, unexercised options or portions of options in return for a cash payment equal to the difference between the aggregate
exercise price of the surrendered options and the fair market value of the shares of common stock underlying the surrendered options.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Securities
Authorized for Issuance under Equity Compensation Plans
As
of May 31, 2021, Greystone had one equity incentive plan under which equity securities have been authorized for issuance to Greystone’s
directors, officers, employees and other persons who perform substantial services for or on behalf of Greystone. The following table
provides certain information relating to such stock option plan during the year ended May 31, 2021:
Equity
Compensation Plan Information
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Plan Category
|
|
Number of securities to be
issued upon exercise
of outstanding options,
warrants and rights
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
|
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
|
|
|
Equity compensation plans approved by security holders
|
|
|
200,000
|
|
|
$
|
0.12
|
|
|
|
-0-
|
|
Security
Ownership of Certain Beneficial Owners and Management
As
of May 31, 2021, Greystone had 28,361,201 shares of its common stock and 50,000 shares of its 2003 preferred stock outstanding. Each
share of the 2003 preferred stock is convertible into approximately 66.67 shares of Greystone’s common stock.
The
following table sets forth certain information regarding the shares of Greystone’s common stock beneficially owned as of May 31,
2021, by (i) each person known by Greystone to own beneficially 5% or more of Greystone’s outstanding common stock, (ii) each of
Greystone’s directors and named officers, and (iii) all of Greystone’s directors and named officers as a group:
Name and Address of
Beneficial Owner
|
|
Shares of Common Stock
Beneficially Owned(1)
|
|
|
Percent of Class(2)
|
|
|
Shares of Senior Preferred Stock Beneficially Owned(3)
|
|
|
Percent of Class
|
|
|
Voting Shares Beneficially Owned(4)
|
|
|
Percent of Total Voting Power
|
|
Warren F. Kruger
Chairman, President and CEO
1613 East 15th Street
Tulsa, OK 74120
|
|
|
10,523,521
|
(5)
|
|
|
34.76
|
%
|
|
|
25,000
|
|
|
|
50.00
|
%
|
|
|
10,273,521
|
|
|
|
32.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William W. Rahhal
Chief Financial Officer
1613 East 15th Street
Tulsa, OK 74120
|
|
|
307,883
|
(6)
|
|
|
1.09
|
%
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
307,883
|
|
|
|
0.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert B. Rosene, Jr.
Director
1323 E. 71st Street, Suite 300
Tulsa, OK 74136
|
|
|
5,135,717
|
(7)
|
|
|
16.96
|
%
|
|
|
25,000
|
|
|
|
50.00
|
%
|
|
|
4,885,717
|
|
|
|
15.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry J. LeBarre
Director
7518 Middlewood Street
Houston, TX 77063
|
|
|
520,093
|
(8)
|
|
|
1.83
|
%
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
520,093
|
|
|
|
1.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Topline Capital Partners, LLC
2913 3rd Street, Unit 201
Santa Monica, CA 90405
|
|
|
2,833,926
|
(9)
|
|
|
9.99
|
%
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
2,833,396
|
|
|
|
8.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Directors & Officers as a Group (4 persons)
|
|
|
16,487,215
|
(10)
|
|
|
51.21
|
%
|
|
|
50,000
|
|
|
|
100.00
|
%
|
|
|
15,987,215
|
|
|
|
50.44
|
%
|
|
|
(1)
|
The
number of shares beneficially owned by each holder is calculated in accordance with the rules of the Commission, which provide that
each holder shall be deemed to be a beneficial owner of a security if that holder has the right to acquire beneficial ownership of
the security within 60 days through options, warrants or the conversion of another security; provided, however, if such holder acquires
any such rights in connection with or as a participant in any transaction with the effect of changing or influencing control of the
issuer, then immediately upon such acquisition, the holder will be deemed to be the beneficial owner of the securities. The number
the shares of common stock beneficially owned by each holder includes common stock directly owned by such holder and the number of
shares of common stock such holder has the right to acquire upon the conversion of the Senior Preferred Stock and/or upon the exercise
of certain options or warrants.
|
|
|
|
|
|
|
(2)
|
The
percentage ownership for each holder is calculated in accordance with the rules of the Commission, which provide that any shares
a holder is deemed to beneficially own by virtue of having a right to acquire shares upon the conversion of warrants, options or
other rights, or upon the conversion of preferred stock or other rights are considered outstanding solely for purposes of calculating
such holder’s percentage ownership.
|
|
|
|
|
|
|
(3)
|
Each
share of Senior Preferred Stock is convertible into approximately 66 2/3 shares of Greystone’s common stock. Therefore, Mr.
Kruger’s 25,000 shares of Senior Preferred Stock are convertible into 1,666,666.66 shares of our common stock and Mr. Rosene’s
25,000 shares of Senior Preferred Stock are convertible into 1,666,666.66 shares of our common stock.
|
|
|
|
|
|
|
(4)
|
Total
“Voting Shares” is defined as the number of shares of common stock outstanding, each share of which receives one vote,
plus the 3,333,333.32 votes afforded to the holders of our Senior Preferred Stock, or 31,694,534.32 Voting Shares total. The number
of Voting Shares reported by each reporting person above represents the number of shares of common stock beneficially owned by such
reporting person plus the number of votes afforded to such reporting person as a holder of shares of Senior Preferred Stock, as applicable.
|
|
|
(5)
|
The
total includes: (i) 8,587,855 shares of common stock beneficially owned directly by Mr. Kruger; (ii) 19,000 shares held of record
by Yorktown; (iii) 250,000 shares of common stock that Mr. Kruger may acquire through the exercise of a warrant; and (iv) 1,666,666.67
shares that Mr. Kruger has the right to acquire upon conversion of the Senior Preferred Stock.
|
|
|
|
|
|
|
(6)
|
The
total includes: (i) 255,000 shares of common stock beneficially owned directly by Mr. Rahhal; and (ii) 52,883 shares of common stock
which Mr. Rahhal owns as a joint tenant.
|
|
|
|
|
|
|
(7)
|
The
total includes: (i) 3,219,051 shares of common stock beneficially owned directly by Mr. Rosene; 250,000 shares of common stock that
Mr. Rosene may acquire through the exercise of a warrant; and (ii) 1,666,666.67 shares that Mr. Rosene has the right to acquire upon
conversion of the Senior Preferred Stock.
|
|
|
|
|
|
|
(8)
|
The
total includes 520,093 shares of common stock beneficially owned directly by Mr. LeBarre.
|
|
|
|
|
|
|
(9)
|
This
total includes 2,833,926 shares of common stock beneficially owned direct by Topline Capital Partners, LLC.
|
|
|
|
|
|
|
(10)
|
The
director and officer group includes each reporting person in the above table other than Mr. Pritchard and Topline Capital Partners,
LLC. The total includes: (i) 12,653,882 shares of common stock; (ii) 250,000 shares of common stock that Mr. Kruger has the right
to acquire by exercising a warrant; (iii) 250,000 shares of common stock that Mr. Rosene has the right to acquire by exercising a
warrant; (v) 1,666,666.67 shares of common stock that Mr. Kruger has the right to acquire upon conversion of the Senior Preferred
Stock; and (vi) 1,666,666.67 shares of common stock that Mr. Rosene has the right to acquire upon conversion of the Senior Preferred.
|
Item 13. Certain Relationships and Related Transactions, and Director Independence
Transactions
with Related Persons
General
For
information regarding loans from Warren Kruger, see “Transactions with Warren Kruger and Related Entities” under the heading
“Liquidity and Capital Resources” in Item 7 of this Form10-K.
For
information regarding an advance from Robert Rosene, see “Transactions with Robert B. Rosene, Jr.” under the heading “Liquidity
and Capital Resources” in Item 7 of this Form10-K.
For
information regarding the loan from IBC and Messrs. Kruger’s and Rosene’s relationship thereto, see “Loan from International
Bank of Commerce (“IBC”) in Item 7 of this Form 10-K.
Transactions
with TriEnda Holdings, L.L.C.
TriEnda
Holdings, L.L.C. (“TriEnda”) is a manufacturer of plastic pallets, protective packaging and dunnage utilizing thermoform
processing. Warren F. Kruger, Greystone’s President and CEO, is the non-executive chairman of the board of directors of Kruger
Family Holdings, LLC (“KBH”), which owns a majority interest in TriEnda. Greystone may purchase pallets from TriEnda for
resale or sell Greystone pallets to TriEnda. During fiscal year 2021 and 2020, Greystone purchases from TriEnda totaled $143,589 and
$9,620, respectively and sales to TriEnda totaled $123,166 and $6,758, respectively. As of May 31, 2021, TriEnda’s account payable
to Greystone totaled $38,035.
Transactions
with Green Plastic Pallets
Green
Plastic Pallets (“Green”) is an entity owned by James Kruger, a brother to Warren Kruger, Greystone’s President and
CEO. Green purchased pallets from Greystone totaling $544,636 and $506,501 in fiscal years 2021 and 2020, respectively. As of May 31,
2021, the amount that Green owed to Greystone was $115,515.
Other
Transactions
Greystone
leases two buildings located in Bettendorf, Iowa, from which it conducts its manufacturing operations, from Greystone Real Estate, L.L.C.,
a variable interest entity which is owned by Robert B. Rosene, Jr., a member of Greystone’s board of director, and Warren Kruger,
Greystone’s President and CEO and a member of Greystone’s Board of Directors. Rental payments are $42,381 per month for both
buildings.
Director
Independence
Greystone
has determined that Messrs. LeBarre and Rosene are “independent” within the meaning of Rule 5605(a)(2) of the NASDAQ listing
standards. Because of the small size of Greystone’s Board of Directors, it has not established any committees. Rather, the entire
Board acts as, and performs the same functions as, the audit committee, compensation committee and nominating committee. Mr. Kruger is
not considered “independent” within the meaning of Rule 5605(a)(2) of the NASDAQ listing standards.
Item 14. Principal Accounting Fees and Services.
The
following is a summary of the fees billed to Greystone by HoganTaylor LLP, Greystone’s independent registered public accounting
firm, for professional services rendered for the fiscal years ended May 31, 2021 and May 31, 2020:
|
Fee Category
|
|
Fiscal 2021 Fees
|
|
|
Fiscal 2020 Fees
|
|
|
|
|
|
|
|
|
|
|
Audit Fees(1)
|
|
$
|
171,000
|
|
|
$
|
166,000
|
|
|
Audit-Related Fees
|
|
|
0
|
|
|
|
0
|
|
|
Tax Fees
|
|
|
0
|
|
|
|
0
|
|
|
All Other Fees
|
|
|
0
|
|
|
|
0
|
|
|
Total Fees
|
|
$
|
171,000
|
|
|
$
|
166,000
|
|
|
(1)
|
Audit
Fees consist of aggregate fees billed for professional services rendered for the audit of Greystone’s annual consolidated financial
statements and review of the interim consolidated financial statements included in quarterly reports or services that are normally
provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements
during the fiscal years ended May 31, 2021 and May 31, 2020, respectively.
|
The
entire Board of Directors of Greystone is responsible for the appointment, compensation and oversight of the work of the independent
registered public accounting firm and approves in advance any services to be performed by the independent registered public accounting
firm, whether audit-related or not. The entire Board of Directors reviews each proposed engagement to determine whether the provision
of services is compatible with maintaining the independence of the independent registered public accounting firm. All of the fees shown
above were pre-approved by the entire Board of Directors.
Notes
to Consolidated Financial Statements
May
31, 2021 and 2020
Note
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Greystone
Logistics, Inc. (“Greystone”), through its two wholly-owned subsidiaries, Greystone Manufacturing, LLC (“GSM”)
and Plastic Pallet Production, Inc. (“PPP”), is engaged in the manufacturing and marketing of plastic pallets and pelletized
recycled plastic resin.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Greystone, its subsidiaries and entities required to be consolidated by the
accounting guidance for variable interest entities (“VIE”). All material intercompany accounts and transactions have been
eliminated.
Greystone
consolidates its VIE, Greystone Real Estate, L.L.C. (“GRE”), which owns the manufacturing facilities which are occupied by
Greystone. GRE is owned by Warren F. Kruger, President and CEO, and Robert B. Rosene, Jr., a member of Greystone’s Board of Directors.
Use
of Estimates
The
preparation of Greystone’s consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America requires Greystone’s management to make estimates and assumptions that affect the amounts reported in
these consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
Credit
Losses on Financial Instruments
Effective
June 1, 2020, Greystone adopted Accounting Standards Update 2016-13, Financial Instruments-Credit Losses, which requires
changes to the recognition of credit losses on financial instruments not accounted for at fair value including loans, debt securities,
trade receivables among other things. The adoption of this policy did not have a material effect on Greystone’s consolidated financial
statements.
Accounts
Receivable and Allowance for Uncollectible Accounts
Greystone
records its accounts receivable at their face value less an allowance for credit losses in an amount sufficient to absorb losses inherent
in its accounts receivable portfolio based on projected expected credit losses. Greystone evaluates its accounts receivable and establishes
an allowance for uncollectible accounts based on a combination of specific customer circumstances, credit conditions and history of collections.
Inventory
Inventory
consists of finished pallets and raw materials which are stated at the lower of average cost or net realizable value.
Property,
Plant and Equipment
Greystone’s
property, plant and equipment is stated at cost. Depreciation expense is computed using the straight-line method over the estimated useful
lives, as follows:
|
Plant
buildings
|
39
years
|
|
Production
machinery and equipment
|
5-12
years
|
|
Leasehold
improvements
|
5-7
years
|
|
Furniture
& fixtures
|
3-5
years
|
Upon
sale, retirement or other disposal, the related costs and accumulated depreciation of items of property, plant or equipment are removed
from the related accounts and any gain or loss is recognized. When events or changes in circumstances indicate that long-lived assets
may be impaired, an evaluation is performed comparing the estimated future undiscounted cash flows associated with the asset to the asset’s
carrying amount. If the asset’s carrying amount exceeds the cash flows, a write-down to fair value is required.
Leases
Greystone
recognizes right-of-use assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements.
Greystone
has operating and finance leases for facilities, office space and plant equipment. Operating leases are included in right-of-use (“ROU”)
operating lease assets and finance lease ROU assets are included in property, plant and equipment, net in the consolidated balance sheet.
The lease liabilities are included in operating leases and financing leases (current and non-current) in the consolidated balance sheet.
The
lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the
lease or, if that rate cannot be readily determined, the incremental borrowing rate. The incremental borrowing rate is defined as the
rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease
payments in a similar economic environment.
For
finance leases, lease expenses are the sum of interest on the lease obligations and amortization of the ROU assets. Finance lease ROU
assets are amortized based on the lesser of the lease term and the useful life of the leased asset according to the capital asset accounting
policy. If ownership of the ROU assets transfers to the Greystone at the end of the lease term or if Greystone is reasonably certain
to exercise a purchase option, amortization is calculated using the estimated useful life of the leased asset.
For
operating leases, the lease expenses are generally recognized on a straight-line basis over the lease term and recorded to general and
administrative expenses in the consolidated statements of income.
In
accordance with Accounting Standards Codification 842, Greystone has made accounting policy elections (1) to not recognize right-of-use
assets and lease liabilities for lease arrangements with a term of twelve months or less and (2) to combine lease and non-lease components.
The non-lease components are not material and do not result in significant timing differences in the recognition of lease expense. Short-term
leases include real estate and vehicles and are not significant in comparison to the Greystone’s overall lease portfolio. For these
leases, the Company recognizes the leases as an operating expense on a straight-line basis over the term of the lease.
Debt
Issuance Costs
The
Company capitalizes debt issuance costs as incurred and amortizes such costs on a straight-line basis across the term of the debt. Debt
issuance costs are fully amortized when the debt is repaid or refinanced.
Stock
Options
The
grant-date fair value of stock options and other equity-based compensation issued to employees is amortized on the straight-line basis
over the vesting period of the award as compensation cost. The fair value of new option grants is estimated using the Black-Scholes option
pricing model. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which have
no vesting restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions
including the expected stock price volatility, dividend yields and expected holding periods.
Recognition
of Revenues
Revenue
is recognized at the point in 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 purchases damaged pallets from its customers which are reground and
used in Greystone’s pallet production process; however, damaged pallet purchases are historically insignificant.
Income
Taxes
Greystone
accounts for income taxes under the liability method, which requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference between the consolidated financial statements and tax bases
of assets and liabilities and tax loss carryforwards using enacted tax rates in effect for the year in which the differences are expected
to reverse.
Earnings
Per Share
Basic
earnings per share is computed by dividing the earnings available to common stockholders by the weighted average number of common shares
outstanding for the year. In arriving at income available to common stockholders, income attributable to non-controlling interest and
preferred stock dividends are deducted from net income for the year.
Basic
and diluted earnings per share of common stock for the years ending May 31, are as follows:
|
|
|
2021
|
|
|
2020
|
|
|
Basic earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
Numerator -
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
3,030,165
|
|
|
$
|
4,301,585
|
|
|
Denominator -
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
28,361,201
|
|
|
|
28,361,201
|
|
|
Income per share of common stock - Basic
|
|
$
|
0.11
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
Numerator -
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
3,030,165
|
|
|
$
|
4,301,585
|
|
|
Add: Preferred stock dividends due to assumed conversion
|
|
|
323,219
|
|
|
|
398,836
|
|
|
Net income allocated to common stockholders
|
|
$
|
3,353,384
|
|
|
$
|
4,700,421
|
|
|
Denominator -
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding-basic
|
|
|
28,361,201
|
|
|
|
28,361,201
|
|
|
Incremental common shares from assumed conversion of warrants, options and preferred stock, as appropriate
|
|
|
4,003,741
|
|
|
|
3,982,456
|
|
|
Diluted weighted average common stock outstanding
|
|
|
32,364,942
|
|
|
|
32,343,657
|
|
|
Income per share of common stock - Diluted
|
|
$
|
0.10
|
|
|
$
|
0.15
|
|
Note
2. INVENTORY
Inventory
consists of the following as of May 31:
|
|
|
2021
|
|
|
2020
|
|
|
Raw materials
|
|
$
|
2,520,654
|
|
|
$
|
1,953,957
|
|
|
Finished pallets
|
|
|
921,320
|
|
|
|
2,275,938
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Inventory
|
|
$
|
3,441,974
|
|
|
$
|
4,229,895
|
|
Note
3. PROPERTY, PLANT AND EQUIPMENT
A
summary of the property, plant and equipment for Greystone is as follows, as of May 31:
|
|
|
2021
|
|
|
2020
|
|
|
Production machinery and equipment
|
|
$
|
52,292,733
|
|
|
$
|
51,637,883
|
|
|
Plant buildings and land
|
|
|
6,970,949
|
|
|
|
6,881,326
|
|
|
Leasehold improvements
|
|
|
1,487,398
|
|
|
|
1,323,535
|
|
|
Furniture and fixtures
|
|
|
550,337
|
|
|
|
601,586
|
|
|
Total property, plant and equipment
|
|
|
61,301,417
|
|
|
|
60,444,330
|
|
|
Less: Accumulated depreciation
|
|
|
(30,302,429
|
)
|
|
|
(26,301,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Property, Plant and Equipment
|
|
$
|
30,998,988
|
|
|
$
|
34,142,407
|
|
Property,
plant and equipment includes production equipment with a carrying value of $426,343 which had not been placed into service as of May
31, 2021.
Two
plant buildings and land located in Bettendorf, Iowa are owned by GRE, a variable interest entity, and had a net book value of $2,664,805
at May 31, 2021.
Depreciation
expense for the years ended May 31, 2021 and 2020, was $5,796,357 and $5,275,872, respectively.
Note
4. LONG-TERM DEBT
Long-term
debt consists of the following as of May 31, 2021 and 2020:
|
|
|
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
|
|
$
|
1,623,572
|
|
|
$
|
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
|
|
|
905,822
|
|
|
|
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
|
|
|
487,390
|
|
|
|
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 February 28, 2023
|
|
|
447,551
|
|
|
|
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
|
|
|
2,035,670
|
|
|
|
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
|
|
|
789,926
|
|
|
|
837,811
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving loan payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.50%, due January 31, 2023
|
|
|
-
|
|
|
|
2,540,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan payable by GRE to International Bank of Commerce, interest rate of 5.5%, monthly principal and interest payments of $27,688, due April 30, 2023
|
|
|
2,049,941
|
|
|
|
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
|
|
|
1,180,470
|
|
|
|
1,461,726
|
|
|
|
|
|
|
|
|
|
|
|
|
Paycheck Protection Program note, principal and interest forgiven as of June 11, 2021
|
|
|
3,034,000
|
|
|
|
3,034,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to Robert Rosene, 7.5% interest, due January 15, 2023
|
|
|
3,536,112
|
|
|
|
4,253,228
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
147,914
|
|
|
|
183,156
|
|
|
Face value of long-term debt
|
|
|
16,238,368
|
|
|
|
22,781,896
|
|
|
Less: Debt issuance costs, net of amortization
|
|
|
(30,726
|
)
|
|
|
(35,886
|
)
|
|
|
|
|
16,207,642
|
|
|
|
22,746,010
|
|
|
Less: Current portion of long-term debt
|
|
|
(3,236,113
|
)
|
|
|
(4,416,377
|
)
|
|
Long-term debt
|
|
$
|
12,971,529
|
|
|
$
|
18,329,633
|
|
The
prime rate of interest as of May 31, 2021 was 3.25%.
Debt
Issuance Costs consists of the amounts paid to third parties in connection with the issuance and modification of debt instruments. These
costs are shown on the consolidated balance sheet as a direct reduction to the related debt instrument. Amortization of these costs is
included in interest expense. Greystone recorded amortization of debt issuance costs of $5,160 for the years ended May 31, 2021 and 2020.
Loan
Agreement between Greystone and International Bank of Commerce (“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, as amended, 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 of
the loans over the remaining lives. The monthly payments of principal and interest on the IBC term loans vary as a result of changes
in the prime rate of interest. Currently, the aggregate payments for the IBC term loans is approximately $258,000 per month.
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 exact amount which can be borrowed under the Revolving Loan from time to time is dependent upon the amount of the borrowing
base but in no event can exceed $4,000,000. The Revolving Loan bears interest at greater of the prime rate of interest plus 0.5%, or
4.5% 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 repaid by the Borrowers does not reduce the original amount
available to the Borrowers. Under these limitations, Greystone’s available revolving loan borrowing capacity was $4,000,000 at
May 31, 2021.
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 $1,500,000 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 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.
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 provided
a combined limited guaranty as of January 31, 2014, 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 Guaranty was amended and restated as of January 7,
2016, to provide that the maximum aggregate guaranty will be limited to $3,500,000 if Greystone maintains a Debt Coverage Ratio of at
least 1.35:1.00 for a period of six consecutive quarters. Greystone has notified IBC that the conditions of the amended and restated
Debt Service Coverage Ratio have been maintained for the six consecutive quarters ending May 31, 2021. 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.
Paycheck
Protection Program Loan (“PPP Loan”)
On
April 10, 2020, the Company received a SBA Payroll Protection Program (“PPP Loan”) pursuant to the Paycheck Protection
Program under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), with IBC for $3,034,000. On June 11,
2021, Greystone received notification from IBC that the principal and interest on the PPP Loan had been forgiven.
Loan
Agreement between GRE and IBC
On
January 31, 2014, GRE and IBC entered into a Loan Agreement, as amended, providing for a mortgage loan to GRE of $3,412,500. The loan
provides for a 5.5% interest rate and a maturity of April 30, 2023 and 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 a note payable at 7.5% interest.
Effective
June 1, 2016, the note payable with Mr. Rosene was restated (the “Restated Note”) to aggregate the accrued interest with
the outstanding principal resulting in a combined note payable in the principal amount of $4,541,690 with an interest rate of 7.5% and
a maturity of January 15, 2019, subsequently amended to January 15, 2023. The Restated Note requires the payment of accrued interest
to Mr. Rosene. In addition, the Restated Note allows Greystone to make additional payments, at Greystone’s discretion, up to an
amount allowed by the IBC Loan Agreement.
Maturities
Maturities
of Greystone’s long-term debt, excluding the PPP Loan in the amount of $3,034,000 which was forgiven by letter dated June
11, 2021, for the five years after May 31, 2021 are $3,236,113, $7,761,154, $1,842,044 and $365,057.
Note
5. LEASES
Financing
Leases
Financing
leases consist of the following as of May 31:
|
|
|
2021
|
|
|
2020
|
|
|
Non-cancelable financing leases
|
|
$
|
3,594,007
|
|
|
$
|
5,455,656
|
|
|
Less: Current portion of financing leases
|
|
|
(1,745,535
|
)
|
|
|
(1,838,251
|
)
|
|
Non-cancelable financing leases, net of current portion
|
|
$
|
1,848,472
|
|
|
$
|
3,617,405
|
|
Greystone
and an unrelated private company entered into three separate lease agreements which have an effective interest rate of 7.4% and a term
of five years. The leased equipment was placed into production during February 2018, August 2018 and December 2018, at a total cost of
approximately $6.9 million. The lease agreements include bargain purchase options to acquire the production equipment at the end of the
leases’ term. The leased equipment is used to manufacture pallets to sell to the private company. Rental payments are made as a
credit on every sales invoice of pallets produced on the respective leased equipment at the rate of $3.32 per pallet. The aggregate monthly
rental is estimated to be approximately $142,000. The 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.
Yorktown
and Greystone entered into a sale and leaseback agreement effective December 28, 2018, whereby Yorktown purchased certain production
equipment from Greystone at its net book value of $968,168 and entered into a four-year lease agreement with Greystone at a monthly rent
of $27,915 for the initial thirty-six months and $7,695 for the remaining twelve months. The lease agreement provides for a purchase
option of $10,000 at the end of the lease on December 31, 2022.
The
production equipment under the non-cancelable financing leases at May 31, 2021 and 2020 is as follows:
|
|
|
2021
|
|
|
2020
|
|
|
Production equipment under financing leases
|
|
$
|
8,473,357
|
|
|
$
|
8,473,357
|
|
|
Less: Accumulated amortization
|
|
|
(2,534,688
|
)
|
|
|
(1,521,818
|
)
|
|
Production equipment under financing leases, net
|
|
$
|
5,938,669
|
|
|
$
|
6,951,539
|
|
Amortization
of the carrying amount of the assets was $1,012,870 and $906,909 for the years ended May 31, 2021 and 2020, respectively. The amortization
was included in depreciation expense.
Operating
Leases
Greystone
recognizes 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 statement of income. Variable and short-term rental payments are recognized as costs and expenses as
they are incurred.
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 ninety-month term and a discount rate of 5.0%. The leases are single-term with constant monthly
rental rates.
The
outstanding liability for right to use assets under operating leases as of May 31, 2021 and 2020 is as follows:
|
|
|
2021
|
|
|
2020
|
|
|
Liability under operating leases
|
|
$
|
109,013
|
|
|
$
|
181,525
|
|
|
Less: Current portion
|
|
|
(56,443
|
)
|
|
|
(74,024
|
)
|
|
Long-term portion of liability under operating leases
|
|
$
|
52,570
|
|
|
$
|
107,051
|
|
Lease
Summary Information
For
the years ended May 31, 2021 and 2020, a summary of lease activity follows:
|
|
|
2021
|
|
|
2020
|
|
|
Lease Expense
|
|
|
|
|
|
|
|
|
|
Financing lease expense -
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
1,012,870
|
|
|
$
|
906,909
|
|
|
Interest on lease liabilities
|
|
|
267,729
|
|
|
|
435,593
|
|
|
Operating lease expense
|
|
|
77,284
|
|
|
|
80,590
|
|
|
Short-term lease expense
|
|
|
1,481,270
|
|
|
|
1,595,311
|
|
|
Total
|
|
$
|
2,839,153
|
|
|
$
|
3,018,403
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Information
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities for finance leases -
|
|
|
|
|
|
|
|
|
|
Operating cash flows
|
|
$
|
267,729
|
|
|
$
|
435,593
|
|
|
Financing cash flows
|
|
$
|
1,861,650
|
|
|
$
|
1,911,287
|
|
|
Cash paid for amounts included in the measurement of lease liabilities for operating leases -
|
|
|
|
|
|
|
|
|
|
Operating cash flows
|
|
$
|
77,284
|
|
|
$
|
80,590
|
|
|
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
|
|
|
2.0
|
|
|
|
3.0
|
|
|
Operating leases
|
|
|
2.1
|
|
|
|
2.8
|
|
|
Weighted-average discount rate -
|
|
|
|
|
|
|
|
|
|
Financing leases
|
|
|
7.4
|
%
|
|
|
7.4
|
%
|
|
Operating leases
|
|
|
5.3
|
%
|
|
|
5.2
|
%
|
Future
minimum lease payments under non-cancelable operating and financing leases as of May 31, 2021, are approximately:
|
|
|
Operating
Leases
|
|
|
Financing
Leases
|
|
|
Year ended May 31, 2021
|
|
$
|
61,881
|
|
|
$
|
1,948,534
|
|
|
Year ended May 31, 2022
|
|
|
33,881
|
|
|
|
1,666,035
|
|
|
Year ended May 31, 2023
|
|
|
19,018
|
|
|
|
253,192
|
|
|
Year ended May 31, 2024
|
|
|
1,990
|
|
|
|
12,304
|
|
|
Total lease payments
|
|
|
116,770
|
|
|
|
3,880,065
|
|
|
Less: Imputed interest
|
|
|
(7,757
|
)
|
|
|
(286,058
|
)
|
|
Present value of minimum lease payments
|
|
$
|
109,013
|
|
|
$
|
3,594,007
|
|
Note
6. REVENUE
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 $594,745 and $2,323,650 in fiscal years
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 fiscal years 2021 and 2020, respectively, were as follows:
|
Category
|
|
2021
|
|
|
2020
|
|
|
Major customers (end users)
|
|
|
83
|
%
|
|
|
87
|
%
|
|
Distributors
|
|
|
17
|
%
|
|
|
13
|
%
|
Advances
from a customer pursuant to a contract for the sale of plastics pallets is recognized as deferred revenue. Revenue is recognized by Greystone
as pallets are shipped to the customer. Customer advances totaled $8,334,755 and $5,980,920 in fiscal years 2021 and 2020, respectively.
The unrecognized balance of deferred revenue as of May 31, 2021 and 2020, was $6,430,607 and $3,793,167, respectively. The Company recognized
$5,697,315 and $4,388,820 into revenue during the years ended May 31, 2021 and 2020, respectively.
Note
7. RELATED PARTY TRANSACTIONS
Transactions
with Warren F. Kruger, Chairman
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 for manufacturing pallets. Greystone compensates Yorktown
for the use of equipment as discussed below.
Rental
fees. GSM pays weekly rental fees of $27,500 to Yorktown for grinding equipment and pelletizing equipment. Total rental fees of $1,430,000
were paid in both fiscal years 2021 and 2020.
Yorktown
provides administrative office space for Greystone in Tulsa, Oklahoma under a five-year lease at a monthly rental of $4,000 per month.
Total rent expense was $48,000 each in fiscal years 2021 and 2020. At May 31, 2021, future minimum payments under the non-cancelable
operating lease are $28,000 in fiscal year 2022.
Transactions
with TriEnda Holdings, L.L.C.
TriEnda
Holdings, L.L.C. (“TriEnda”) is a manufacturer of plastic pallets, protective packaging and dunnage utilizing thermoform
processing of which Warren F. Kruger, Greystone’s President and CEO, is the non-executive chairman of the board of directors of
Kruger Family Holdings, LLC (“KFH”), which owns a majority interest in TriEnda. Greystone may purchase pallets from TriEnda
for resale or sell Greystone pallets to TriEnda. During fiscal year 2021 and 2020, Greystone purchases from TriEnda totaled $143,589
and $9,620, respectively and sales to TriEnda totaled $123,166 and $6,758, respectively. As of May 31, 2021, TriEnda owed $38,035 to
Greystone.
Transactions
with Green Plastic Pallets
Green
Plastic Pallets (“Green”) is an entity owned by James Kruger, a brother to Warren Kruger, Greystone’s President and
CEO. Green purchased pallets from Greystone totaling $544,636 and $506,501 in fiscal years 2021 and 2020, respectively. As of May 31,
2021, Green owed $115,515 to Greystone.
Note
8. INCOME TAXES
Deferred
taxes as of May 31, 2021 and 2020 are as follows:
|
|
|
2021
|
|
|
2020
|
|
|
Deferred tax asset:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
2,487,650
|
|
|
$
|
3,355,844
|
|
|
Accrued expenses
|
|
|
-
|
|
|
|
35,445
|
|
|
Inventory
|
|
|
7,620
|
|
|
|
91,440
|
|
|
Total deferred tax asset
|
|
|
2,495,270
|
|
|
|
3,482,729
|
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
Depreciation and amortization, tax reporting
in excess of financial
|
|
|
(3,274,778
|
)
|
|
|
(2,990,647
|
)
|
|
Valuation allowance
|
|
|
(1,601,134
|
)
|
|
|
(1,601,134
|
)
|
|
Net deferred tax liability
|
|
$
|
(2,380,642
|
)
|
|
$
|
(1,109,052
|
)
|
A
deferred tax asset is recognized for tax-deductible temporary differences and operating losses using the applicable enacted tax rate.
In assessing the realizability of deferred tax assets, management considers the likelihood of whether it is more likely than not the
net deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which net operating losses and the reversal of timing differences may offset taxable income. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making
this assessment. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate
character in carryforward periods under the tax law. Based on this evaluation, management has determined that Greystone will not be able
to realize the full effect of the deferred tax assets and a valuation allowance of $1,601,134 has been recorded as of May 31, 2021 and
2020. The NOLs that are anticipated to be utilized during the available years total $4,221,505.
The
net change in deferred taxes for the year ended May 31, 2021 and 2020 is as follows:
|
|
|
2021
|
|
|
2020
|
|
|
Valuation allowance
|
|
$
|
-
|
|
|
$
|
1,377,377
|
|
|
Net operating loss carryforward
|
|
|
(868,195
|
)
|
|
|
(1,451,772
|
)
|
|
Depreciation and amortization, tax reporting
|
|
|
|
|
|
|
|
|
|
in excess of financial
|
|
|
(284,131
|
)
|
|
|
(113,074
|
)
|
|
Accrued expenses
|
|
|
(35,445
|
)
|
|
|
(52,853
|
)
|
|
Inventory
|
|
|
(83,820
|
)
|
|
|
57,912
|
|
|
Net change
|
|
$
|
(1,271,591
|
)
|
|
$
|
(182,410
|
)
|
The
provision for income taxes as of May 31, 2021 and 2020 consists of the following:
|
|
|
2021
|
|
|
2020
|
|
|
Current income tax - state
|
|
$
|
208,999
|
|
|
$
|
26,590
|
|
|
Deferred income taxes
|
|
|
1,271,591
|
|
|
|
182,410
|
|
|
Provision for income taxes
|
|
$
|
1,480,590
|
|
|
$
|
209,000
|
|
Greystone’s
provision for income taxes for the years ended May 31, 2021 and 2020 differs from the federal statutory rate as follows:
|
|
|
2021
|
|
|
2020
|
|
|
Tax provision using statutory rates
|
|
|
21
|
%
|
|
|
21
|
%
|
|
State income taxes
|
|
|
9
|
|
|
|
10
|
|
|
Change in valuation allowance
|
|
|
-
|
|
|
|
(26
|
)
|
|
VIE income passed to members
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
Tax provision per financial statements
|
|
|
29
|
%
|
|
|
4
|
%
|
As
of May 31, 2021, Greystone had net operating losses (NOLs) for Federal income tax purposes totaling $11,845,952, as follows:
|
|
|
NOL Carryforward
|
|
|
Year Expiring
|
|
|
Year ended May 31, 2003
|
|
|
3,526,144
|
|
|
|
2023
|
|
|
Year ended May 31, 2004
|
|
|
1,632,774
|
|
|
|
2024
|
|
|
Year ended May 31, 2005
|
|
|
4,215,217
|
|
|
|
2025
|
|
|
Year ended May 31, 2006
|
|
|
275 294
|
|
|
|
2026
|
|
|
Year ended May 31, 2007
|
|
|
67,667
|
|
|
|
2027
|
|
|
Year ended May 31, 2011
|
|
|
746,484
|
|
|
|
2031
|
|
|
Year ended May 31, 2015
|
|
|
321,625
|
|
|
|
2035
|
|
|
Year ended May 31, 2016
|
|
|
1,060,747
|
|
|
|
2036
|
|
Note
9. STOCKHOLDERS’ EQUITY
Convertible
Preferred Stock
In
September 2003, Greystone issued 50,000 shares of Series 2003, cumulative, convertible preferred stock, par value $0.0001, for a total
purchase price of $5,000,000. Each share of the preferred stock has a stated value of $100 and a dividend rate equal to the prime rate
of interest plus 3.25% (6.5% at May 31, 2021) and may be converted into common stock at the conversion rate of $1.50 per share or an
aggregate of 3,333,333 shares of common stock. The holder of the preferred stock has been granted certain voting rights so that such
holder has the right to elect a majority of the Board of Directors of Greystone. Preferred stock dividends must be fully paid before
a dividend on the common stock may be paid.
Warrants
to Purchase Common Stock
Effective
September 1, 2016, Greystone’s Board of Directors authorized the issuance of warrants to purchase 250,000 shares of Greystone’s
common stock for $0.01 per share to each of Warren F. Kruger, President and CEO, and Robert B. Rosene, Jr., a member of Greystone’s
Board of Directors, as compensation for providing guarantees on Greystone’s debt with IBC. The warrants are vested and expire January
10, 2027.
Note
10. STOCK OPTIONS
Greystone
has a stock option plan that provides for the granting of options to key employees and non-employee directors. The options are to purchase
common stock at not less than fair market value at the date of the grant. Stock options generally expire in ten years from the date of
grant or upon termination of employment and are generally exercisable one year from date of grant in cumulative annual installments of
25%. There was no option activity during the two years ended May 31, 2021. Outstanding options are as follows:
|
|
|
Number
|
|
|
Weighted Average Exercise Price
|
|
|
Remaining
Contractual
Life (years)
|
|
|
Intrinsic Value
|
|
|
Total outstanding May 31, 2019
|
|
|
200,000
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
Total outstanding May 31, 2020
|
|
|
200,000
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
Total outstanding May 31, 2021
|
|
|
200,000
|
|
|
$
|
0.12
|
|
|
|
1.0
|
|
|
|
|
|
|
Exercisable as of May 31, 2021
|
|
|
200,000
|
|
|
$
|
0.12
|
|
|
|
1.0
|
|
|
$
|
228,000
|
|
|
Non-vested as of May 31, 2021
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
11. RETIREMENT PLAN
Greystone
implemented a defined contribution and profit-sharing plan effective January 1, 2019. The defined contribution plan is a IRC Section
401(K) plan. Greystone matches employee contributions up to 6% of employee contributions with a maximum employer contribution of 4% based
on 100% of the first 3% and 50% of the next 2%. The employee is 100% vested for employer contributions to the 401(K) plan. Greystone’s
contributions to the 401(K) plan totaled $330,682 and $275,677 in the fiscal years ended May 31, 2021 and 2020, respectively.
The
profit-sharing plan is an employer nonelective plan. Greystone’s contributions are discretionary. Vesting is earned ratably over
a five-year period. Greystone has not authorized or made any discretionary contributions since inception.
Note
12. FINANCIAL INSTRUMENTS
The
following methods and assumptions are used in estimating the fair-value disclosures for financial instruments:
Cash,
Accounts Receivable and Accounts Payable: The carrying amounts reported in the balance sheet for cash, accounts receivable and accounts
payable approximate fair value due to the short-term maturity of these instruments.
Long-Term
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 for comparable loans. As of May 31, 2021 and 2020, the carrying amounts reported in the consolidated balance
sheet approximate fair value for the variable and fixed rate loans.
Note
13. SUPPLEMENTAL INFORMATION OF CASH FLOWS
Supplemental
information of cash flows for the years ended May 31, 2021 and 2020:
|
|
|
2021
|
|
|
2020
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Acquisition of equipment through financing leases
|
|
$
|
-
|
|
|
$
|
612,124
|
|
|
Acquisition of equipment in accounts payable
|
|
$
|
15,656
|
|
|
$
|
295,108
|
|
|
Equipment reclassified from inventory
|
|
$
|
26,750
|
|
|
$
|
-
|
|
|
Preferred dividend accrual
|
|
$
|
-
|
|
|
$
|
84,110
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
1,176,412
|
|
|
$
|
1,696,444
|
|
|
Income taxes paid
|
|
$
|
178,280
|
|
|
$
|
-
|
|
Note
14. CONCENTRATIONS, RISKS AND UNCERTAINTIES
For
the fiscal years 2021 and 2020, Greystone had four customers that accounted for approximately 83% and 87% of total sales, respectively.
Greystone
purchases damaged pallets from its customers at a price based on the value of the raw material content of the pallet. A majority of these
purchases is from one of Greystone’s major customers which totaled approximately $753,000 and $1,768,000 in fiscal years 2021 and
2020, respectively.
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 major issue for Greystone
has been maintaining an adequate work force to meet demand for pallets. It is unclear the forces that are creating the labor shortage,
whether it is from the pandemic or other causes. As a result, Greystone has not been able to maintain full operation. Management is unable
to determine how long this labor shortage will last.
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, the company 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.
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, over 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.
Note
15. VARIABLE INTEREST ENTITIES (VIE)
Greystone
Real Estate, L.L.C.
GRE
is owned by Warren Kruger, President and CEO, and Robert Rosene, a member of the Board of Directors. GRE was created solely to own and
lease two buildings that GSM occupies in Bettendorf, Iowa.
The
buildings, having a carrying value of $2,664,805 and $2,780,677 at May 31, 2021 and 2020, respectively, serve as collateral for GRE’s
debt and Greystone’s debt under the Loan Agreement between Greystone and IBC. The debt had a carrying value of $2,049,941 and $2,261,425
as of May 31, 2021 and 2020, respectively.
Note
16. COMMITMENTS
As
of May 31, 2021, Greystone had outstanding commitments totaling $516,092 for the acquisition of equipment.