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
|
|
Aug.
31, 2018
|
|
0.61
|
|
0.38
|
|
Nov.
30, 2018
|
|
0.76
|
|
0.46
|
|
Feb.
28, 2019
|
|
0.65
|
|
0.45
|
|
May
31, 2019
|
|
0.60
|
|
0.52
|
|
Aug.
31, 2019
|
|
0.59
|
|
0.52
|
|
Nov.
30, 2019
|
|
0.55
|
|
0.32
|
|
Feb.
29, 2020
|
|
0.49
|
|
0.42
|
|
May
31, 2020
|
|
0.92
|
|
0.30
|
Quotations
reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions.
Holders
As
of approximately May 31, 2020, Greystone had approximately 221 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 $426,918 and $316,263 in fiscal years 2020 and 2019, respectively.
Item
6. Selected Financial Data.
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 (three in fiscal year 2019) customers currently account for approximately 87% of its total sales in fiscal year
2020 (86% in fiscal year 2019). 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, 2020 and 2019, Greystone had 255 and 245 full-time employees, respectively. Temporary personnel from a personnel service
entity are utilized as needed. There were 84 and 114 temporary personnel as of May 31, 2020 and 2019, 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.
On
March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law providing certain economic aid
packages for small business. The Paycheck Protection Program (PPP) is an economic aid package under CARES. Greystone received
a loan in the amount of $3,034,000 under PPP which included a six-month deferment of principal and interest payments, an interest
rate of 1.0% and a two-year term.
Year
Ended May 31, 2020 Compared to Year Ended May 31, 2019
Sales
Sales
were $76,204,608 for fiscal year 2020 compared to $71,077,116 for fiscal year 2019 for an increase of $5,127,492 or 7%. The increase
in pallet sales from fiscal year 2019 to 2020 is principally due to sales to a new customer.
Greystone
had four major customers (three in fiscal year 2019) who accounted for approximately 87% and 86% of total sales in fiscal year
2020 and 2019, respectively.
Cost
of Sales
Cost
of sales was $64,721,749 (85% of sales) and $62,837,214 (88% of sales) in fiscal years 2020 and 2019, respectively. The ratio
of cost of sales to sales in fiscal year 2020 reflects a significant improvement over the ratio for fiscal year 2019. Improvements
during fiscal year 2020 included price increases on certain pallets, increases in pallet production per machine resulting from
installation of hardware and software to improve the flow of resin into molds on injection molding machines and the addition of
a new pelletizing line which increased Greystone’s capacity for pelletizing plastic in lieu of purchasing plastic in pelletized
form.
Selling,
General and Administrative Expenses
Selling,
general and administrative (SGA) expense was $4,623,618 (6.1% of sales) for fiscal year 2020 compared to $3,922,284 (5.5% of sales)
for fiscal year 2019 for an increase of $701,334 or approximately 18%. The increase in SGA is primarily salary expense and is
attributable to Greystone’s growth in sales and related pallet production. Greystone anticipates maintaining SGA expenses
within the framework of about 6% of sales.
Interest
Expense
Interest
expense was $1,705,351 in fiscal year 2020 compared to $1,836,294 in fiscal year 2019 for a decrease of $130,943. This decrease
is primarily attributable to a net decrease in debt and financing leases during fiscal year 2020, other than the addition of the
$3,034,000 PPP loan, by approximately $6.5 million plus a net decrease in the IBC revolver loan by $665,000. Additionally, the
prime rate of interest declined from 5.50% at May 31, 2019 to 3.25% at May 31, 2020.
Provision
for Income Taxes
The
provision for income taxes was $209,000 in fiscal year 2020 compared to $435,677 in fiscal year 2019. Management’s evaluation
of its ability to utilize NOLs from prior tax years resulted in a decrease in the valuation allowance which resulted in an approximate
increase of $1,377,000 in Greystone’s deferred tax assets. 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 $4,962,570 in fiscal year 2020 compared to $2,057,207 in fiscal year 2019 for an increase of $2,905,363 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 $4,301,585, or $0.15 per share, in fiscal year 2020 compared to $1,376,636, or $0.05 per share, in fiscal year 2019 for the
reasons discussed above.
Liquidity
and Capital Resources
General
A
summary of Greystone’s cash flows for the year ended May 31, 2020 is as follows:
|
Cash provided by operating activities
|
|
$
|
8,633,909
|
|
|
Cash used in investing activities
|
|
$
|
(6,284,934
|
)
|
|
Cash used in financing activities
|
|
$
|
(2,472,533
|
)
|
Contractual
obligations of Greystone as of May 31, 2020 were as follows:
|
|
|
Total
|
|
|
1 year
|
|
|
2-3 years
|
|
|
4-5 years
|
|
|
Over 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
22,781,896
|
|
|
$
|
4,416,377
|
|
|
$
|
16,072,739
|
|
|
$
|
2,292,780
|
|
|
$
|
-
|
|
|
Financing lease rents
|
|
$
|
6,086,708
|
|
|
$
|
2,203,790
|
|
|
$
|
3,772,983
|
|
|
$
|
109,935
|
|
|
$
|
-
|
|
|
Operating lease rents
|
|
$
|
197,491
|
|
|
$
|
81,881
|
|
|
$
|
95,762
|
|
|
$
|
19,848
|
|
|
$
|
-
|
|
|
Purchases
|
|
$
|
708,830
|
|
|
$
|
708,830
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Greystone
had a working capital deficit of $(3,000,808) at May 31, 2020.
During
fiscal year 2020, Greystone incurred new debt of approximately $2.4 million principally for the acquisition of an injection molding
machine and material processing equipment. In addition, 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.
Greystone’s
principal long-term debt obligations include a $4,000,000 revolving line of credit and several term notes with International Bank
of Commerce 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, 2020, 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, 2020, 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 2020
and 2019 of $426,918 and $316,263, 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 2020 and 2019.
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 27, 2023.
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, 2022.
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, 2020. 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.
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
|
|
2021
|
|
Larry
J. LeBarre
|
|
Director
|
|
2021
|
|
Robert
B. Rosene, Jr.
|
|
Director
|
|
2021
|
|
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 63 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 64, 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 66, is President of Patriot Auto Group, L.L.C., which owns four 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 79, 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, 2020, 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 2020, to Greystone’s knowledge, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners during fiscal year 2020 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, 2020, 2019
and 2018:
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,
|
|
|
2020
|
|
|
$
|
360,000
|
|
|
$
|
25,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,565
|
|
|
$
|
396,565
|
|
|
President and Chief
|
|
|
2019
|
|
|
$
|
267,692
|
|
|
$
|
102,708
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,615
|
|
|
$
|
375,015
|
|
|
Executive Officer
|
|
|
2018
|
|
|
$
|
240,000
|
|
|
|
8,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
248,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William W. Rahhal,
|
|
|
2020
|
|
|
$
|
200,000
|
|
|
$
|
25,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,705
|
|
|
$
|
179,705
|
|
|
Chief Financial Officer
|
|
|
2019
|
|
|
$
|
141,538
|
|
|
$
|
53,752
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,154
|
|
|
$
|
197,444
|
|
|
|
|
|
2018
|
|
|
$
|
130,000
|
|
|
$
|
8,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
138,000
|
|
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 2020 and
2019, $50,000 and $30,000, 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, 2020, 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, 2020:
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, 2020, 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, 2020, 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
StockBeneficially
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
|
|
|
10,517,521
|
(5)
|
|
|
34.74
|
%
|
|
|
25,000
|
|
|
|
50.00
|
%
|
|
|
10,267,521
|
|
|
|
32.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
397,093
|
(8)
|
|
|
1.40
|
%
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
397,093
|
|
|
|
1.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Topline Capital Partners, LLC
2913 3rd Street, Unit 201
Santa
Monica, CA 90405
|
|
|
2,833,926
|
|
|
|
9.99
|
%
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
2,833,396
|
|
|
|
8.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Pritchard
2113 East 59th Place
Tulsa, OK 74119
|
|
|
1,781,132
|
(9)
|
|
|
6.28
|
%
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
1,781,132
|
|
|
|
5.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Directors & Officers as a Group (4 persons)
|
|
|
16,358,214
|
(10)
|
|
|
50.81
|
%
|
|
|
50,000
|
|
|
|
100.00
|
%
|
|
|
15,858,214
|
|
|
|
50.03
|
%
|
|
|
(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) 8,581,855 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
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 shares that Mr. Rosene has the right to acquire upon
conversion of the Senior Preferred Stock.
|
|
|
(8)
|
The
total includes 397,093 shares of common stock beneficially owned directly by Mr. LeBarre.
|
|
|
(9)
|
The
total includes: (i) 1,717,029 shares of common stock beneficially owned directly by Mr.
Pritchard (ii) 9,000 shares of common stock that Mr. Pritchard holds as custodian for
a minor child and (iii) 55,103 shares held of record by Maritch Services, Inc.
|
|
|
(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) 12,524,882
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 shares of common stock
that Mr. Kruger has the right to acquire upon conversion of the Senior Preferred Stock;
and (vi) 1,666,666 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 purchases certain pallets
produced by TriEnda for resale. During fiscal year 2020 and 2019, Greystone purchases from TriEnda totaled $9,620 and $42,349,
respectively. As if May 31, 2020, Greystone’s account payable to TriEnda totaled $4,220.
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 $506,501 and $225,600 in fiscal years 2020 and 2019, respectively. At
May 31, 2020, the amount that Green owed to Greystone was $85,680.
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, 2020 and May 31, 2019:
|
Fee Category
|
|
Fiscal 2020 Fees
|
|
|
Fiscal 2019 Fees
|
|
|
|
|
|
|
|
|
|
|
Audit Fees(1)
|
|
$
|
166,000
|
|
|
$
|
160,000
|
|
|
Audit-Related Fees
|
|
|
0
|
|
|
|
0
|
|
|
Tax Fees
|
|
|
0
|
|
|
|
0
|
|
|
All Other Fees
|
|
|
0
|
|
|
|
0
|
|
|
Total Fees
|
|
$
|
160,000
|
|
|
$
|
160,000
|
|
(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, 2020 and May 31, 2019, 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, 2020 and 2019
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.
Accounts
Receivable and Allowance for Doubtful Accounts
Greystone
carries its accounts receivable at their face value less an allowance for doubtful accounts. On a periodic basis, Greystone evaluates
its accounts receivable and establishes an allowance for doubtful accounts based on a combination of specific customer circumstances,
credit conditions and history of collections.
Based
on periodic reviews of outstanding accounts receivable, Greystone writes off balances deemed to be uncollectible against the allowance
for doubtful accounts. There was no allowance for doubtful accounts at May 31, 2020 and 2019 as the accounts receivable are considered
fully collectible.
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
Effective
June 1, 2019, Greystone adopted ASU 2016-02, Leases (Topic 842), utilizing the modified-retrospective transition approach.
which is intended to improve financial reporting about leasing transactions. The standard requires the recognition of right-of-use
assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. We elected to
use the transition option that allows us to initially apply the new lease standard at the adoption date and recognize a cumulative-effect
adjustment, if any, to the opening balance of retained earnings in the year of adoption. Comparable periods reflect the new guidance
under ASC 842. The adoption of ASC 842 did not result in any adjustments to retained earnings.
In
accordance with ASC 842, Greystone has made accounting policy elections (1) to not apply the new standard to lessee 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. In addition, Greystone elected the practical
expedients upon adoption which permits the Company to not reassess under the new standard prior conclusions about lease identification,
lease classification and initial direct costs. Depending on the terms, leases are classified as either operating or finance leases.
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 as 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.
Greystone’s
Series 2003 preferred stock, which is convertible into 3,333,333 shares of common stock, was not included in the computation of
diluted earnings per share for the fiscal year 2019 as the effect would have been antidilutive.
Basic
and diluted earnings per share of common stock for the years ending May 31, are as follows:
|
|
|
2020
|
|
|
2019
|
|
|
Basic earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
Numerator -
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
4,301,585
|
|
|
$
|
1,376,636
|
|
|
Denominator -
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
28,361,201
|
|
|
|
28,361,201
|
|
|
Income per share of common stock - Basic
|
|
$
|
0.15
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
4,301,585
|
|
|
$
|
1,376,636
|
|
|
Add: Preferred stock dividends due to assumed conversion
|
|
|
398,836
|
|
|
|
-
|
|
|
Net Income allocated to common stockholders
|
|
$
|
4,700,421
|
|
|
$
|
1,376,636
|
|
|
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
|
|
|
3,982,456
|
|
|
|
648,214
|
|
|
Diluted weighted average common stock outstanding
|
|
|
32,343,657
|
|
|
|
29,009,415
|
|
|
Income per share of common stock - Diluted
|
|
$
|
0.15
|
|
|
$
|
0.05
|
|
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses, which replaces the current loss impairment
methodology for financial assets in current GAAP with a methodology that reflects expected credit losses and requires consideration
of a broader range of reasonable and supportable information to inform credit loss estimates. The effective date of this ASU is
for fiscal years beginning after December 15, 2019. For Greystone, this ASU applies to its accounts receivable. Because credit
losses for Greystone’s accounts receivable have been minimal in the prior years, management believes that the implementation
of ASU 2016-13 will not have a material impact on the consolidated financial statements.
Note
2. INVENTORY
Inventory
consists of the following as of May 31:
|
|
|
2020
|
|
|
2019
|
|
|
Raw materials
|
|
$
|
1,953,957
|
|
|
$
|
1,295,991
|
|
|
Finished pallets
|
|
|
2,275,938
|
|
|
|
1,325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Inventory
|
|
$
|
4,229,895
|
|
|
$
|
2,620,991
|
|
Note
3. PROPERTY, PLANT AND EQUIPMENT
A
summary of the property, plant and equipment for Greystone is as follows, as of May 31:
|
|
|
2020
|
|
|
2019
|
|
|
Production machinery and equipment
|
|
$
|
51,637,883
|
|
|
$
|
45,645,910
|
|
|
Plant buildings and land
|
|
|
6,881,326
|
|
|
|
6,336,855
|
|
|
Leasehold improvements
|
|
|
1,323,535
|
|
|
|
979,890
|
|
|
Furniture and fixtures
|
|
|
601,586
|
|
|
|
563,074
|
|
|
Total property, plant and equipment
|
|
|
60,444,330
|
|
|
|
53,525,729
|
|
|
Less: Accumulated depreciation
|
|
|
(26,301,923
|
)
|
|
|
(21,026,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Property, Plant and Equipment
|
|
$
|
34,142,407
|
|
|
$
|
32,499,678
|
|
Property,
plant and equipment includes production equipment with a carrying value of $471,539 which had not been placed into service as
of May 31, 2020.
Two
plant buildings and land located in Bettendorf, Iowa are owned by GRE, a variable interest entity, and had a net book value of
$2,780,677 at May 31, 2020.
Depreciation
expense for the years ended May 31, 2020 and 2019, was $5,275,872 and $4,438,591, respectively.
Note
4. LONG-TERM DEBT
Long-term
debt consists of the following as of May 31, 2020 and 2019:
|
|
|
2020
|
|
|
2019
|
|
|
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
|
|
$
|
2,459,854
|
|
|
$
|
3,234,947
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,165,774
|
|
|
|
1,399,490
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,136,455
|
|
|
|
1,744,235
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan E payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.75%, maturing January 10, 2022
|
|
|
696,174
|
|
|
|
927,199
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
2,752,293
|
|
|
|
3,398,247
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
837,811
|
|
|
|
876,934
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving loan payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 5.50%, due January 31, 2022
|
|
|
2,540,000
|
|
|
|
3,205,000
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
2,261,425
|
|
|
|
2,461,116
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,461,726
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Paycheck Protection Program note, interest rate of 1.0%, maturing April 13, 2022
|
|
|
3,034,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to Robert Rosene, 7.5% interest, due January 15, 2022
|
|
|
4,253,228
|
|
|
|
4,426,631
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to First Bank, prime rate of interest plus 1.45% but not less than 4.95%, monthly principal and interest payment of $30,628, due August 21, 2021
|
|
|
-
|
|
|
|
800,488
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
183,156
|
|
|
|
223,177
|
|
|
Face value of long-term debt
|
|
|
22,781,896
|
|
|
|
22,697,464
|
|
|
Less: Debt issuance costs, net of amortization
|
|
|
(35,886
|
)
|
|
|
(37,686
|
)
|
|
|
|
|
22,746,010
|
|
|
|
22,659,778
|
|
|
Less: Current portion of long-term debt
|
|
|
(4,416,377
|
)
|
|
|
(3,030,630
|
)
|
|
Long-term debt
|
|
$
|
18,329,633
|
|
|
$
|
19,629,148
|
|
The
prime rate of interest as of May 31, 2020 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 and $95,166 for
the years ended May 31, 2020 and 2019, respectively.
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.
During
the years ended May 31, 2020 and 2019, Greystone and IBC entered into certain amendments to the IBC Loan Agreement providing for
the following new loans:
|
Date
|
|
Term Loan
|
|
Amount
|
|
|
Maturity
|
|
|
Purpose
|
|
August 8, 2019
|
|
F
|
|
$
|
3,600,000
|
|
|
|
February 8, 2021
|
|
|
Acquisition of Equipment
|
|
April 30, 2019
|
|
G
|
|
$
|
880,000
|
|
|
|
April 30, 2024
|
|
|
Acquisition of Real Estate
|
|
July 1, 2019
|
|
H
|
|
$
|
672,000
|
|
|
|
January 1, 2022
|
|
|
Acquisition of Equipment
|
The
IBC term loans make equal monthly payments of principal and interest in such amounts sufficient to amortize the principal balance
of (i) Term Loan A over a seven-year period beginning February 29, 2016, (ii) Term Loan C over a seven-year period beginning August
31, 2017, (iii) Term Loan D over a four-year period beginning February 10, 2019, (iv) Term Loan E over a four-year period beginning
February 10, 2019, (v) Term Loan F over a five-year period beginning February 28, 2019 and (vi) Term Loan G over a fifteen-year
period beginning April 30, 2019. 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 $256,000 per month.
Term
loan H was funded in the amount of $672,000 on July 1, 2019 for the acquisition of equipment. It was retired on May 29, 2020.
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 5.5% and matures January 31, 2022. 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 $1,460,000 at May 31, 2020.
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 have provided a combined limited guaranty of the Borrowers’ obligations under the IBC Loan Agreement,
with such guaranty being limited to a combined amount of $6,500,000 (the “Guaranty”). The Mortgage and the Guaranty
also secure or guaranty, as applicable, the obligations of GRE under the Loan Agreement between GRE and IBC dated January 31,
2014 as discussed in the following paragraph.
Paycheck
Protection Program (“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. The PPP
loan bears interest at 1.0% per annum, with monthly payments of principal and interest in the amount of $177,803 commencing on
November 10, 2020 and matures on April 10, 2022. The Paycheck Protection Program provides that the PPP loan may be partially or
fully forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company intends to use
the proceeds from the PPP loan for qualifying expenses and to apply for forgiveness in accordance with the terms in the CARES
Act. While the Company plans to apply for forgiveness of the PPP loan in accordance with the requirements and limitations under
the CARES Act, the PPP Flexibility Act and SBA regulations and requirements, no assurance can be given that all or any portion
of the PPP loan will be 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, 2022. 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 for the five years after May 31, 2020 are $4,416,377, $12,055,422, $4,017,317, $1,927,467
and $365,313.
Note
5. LEASES
Effective
June 1, 2019, Greystone adopted ASU 2016-02, Leases (Topic 842), utilizing the modified-retrospective transition approach.
which is intended to improve financial reporting about leasing transactions. The standard requires the recognition of right-of-use
assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. We elected to
use the transition option that allows us to initially apply the new lease standard at the adoption date and recognize a cumulative-effect
adjustment, if any, to the opening balance of retained earnings in the year of adoption. Comparable periods reflect the new guidance
under ASC 842. The adoption of ASC 842 did not result in any adjustments to retained earnings. As a result of the adoption Greystone
recorded a right of use asset and right of use liability for operating leases in the amount of $180,794 as of May 31, 2019.
In
accordance with ASC 842, Greystone has made accounting policy elections (1) to not apply the new standard to lessee 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. In addition, Greystone elected the practical
expedients upon adoption which permits the Company to not reassess under the new standard prior conclusions about lease identification,
lease classification and initial direct costs. Depending on the terms, leases are classified as either operating or finance leases.
Financing
Leases
Financing
leases consist of the following as of May 31:
|
|
|
2020
|
|
|
2019
|
|
|
Non-cancelable financing leases
|
|
$
|
5,455,656
|
|
|
$
|
6,754,819
|
|
|
Less: Current portion of financing leases
|
|
|
(1,838,251
|
)
|
|
|
(1,516,629
|
)
|
|
Non-cancelable financing leases, net of current portion
|
|
$
|
3,617,405
|
|
|
$
|
5,238,190
|
|
Greystone
and an unrelated private company entered into three five-year lease agreements which have an effective interest rate of 7.4%.
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 $152,720. 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 27, 2023.
The
production equipment under the non-cancelable financing leases at May 31, 2020 and 2019 is as follows:
|
|
|
2020
|
|
|
2019
|
|
|
Production equipment under financing leases
|
|
$
|
8,473,357
|
|
|
$
|
7,861,233
|
|
|
Less: Accumulated amortization
|
|
|
(1,521,818
|
)
|
|
|
(614,909
|
)
|
|
Production equipment under financing leases, net
|
|
$
|
6,951,539
|
|
|
$
|
7,246,324
|
|
Amortization
of the carrying amount of the assets was $906,909 and $1,093,760 for the years ended May 31, 2020 and 2019, 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, 2020 and 2019 is as follows:
|
|
|
2020
|
|
|
2019
|
|
|
Liability under operating leases
|
|
$
|
181,525
|
|
|
$
|
180,794
|
|
|
Less: Current portion
|
|
|
(74,024
|
)
|
|
|
(71,763
|
)
|
|
Long-term portion of liability under operating leases
|
|
$
|
107,051
|
|
|
$
|
109,031
|
|
Lease
Summary Information
For
the years ended May 31, 2020 and 2019, a summary of lease activity follows:
|
|
|
2020
|
|
|
2019
|
|
|
Lease Expense
|
|
|
|
|
|
|
|
|
|
Financing lease expense -
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
906,909
|
|
|
$
|
1,093,761
|
|
|
Interest on lease liabilities
|
|
|
435,593
|
|
|
|
358,892
|
|
|
Operating lease expense
|
|
|
80,590
|
|
|
|
51,065
|
|
|
Short-term lease expense
|
|
|
1,595,311
|
|
|
|
1,600,360
|
|
|
Total
|
|
$
|
3,018,403
|
|
|
$
|
3,104,078
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Information
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities for finance leases -
|
|
|
|
|
|
|
|
|
|
Operating cash flows
|
|
$
|
435,593
|
|
|
$
|
358,892
|
|
|
Financing cash flows
|
|
$
|
1,911,287
|
|
|
$
|
2,774,543
|
|
|
Cash paid for amounts included in the measurement of lease liabilities for operating leases -
|
|
|
|
|
|
|
|
|
|
Operating cash flows
|
|
$
|
80,590
|
|
|
$
|
51,065
|
|
|
Right-of-use assets obtained in exchange for lease liabilities -
|
|
|
|
|
|
|
|
|
|
Financing leases
|
|
$
|
612,124
|
|
|
$
|
4,667,380
|
|
|
Operating leases
|
|
$
|
67,750
|
|
|
$
|
-
|
|
|
Weighted-average remaining lease term (in years) -
|
|
|
|
|
|
|
|
|
|
Financing leases
|
|
|
3.0
|
|
|
|
3.9
|
|
|
Operating leases
|
|
|
2.8
|
|
|
|
3.1
|
|
|
Weighted-average discount rate -
|
|
|
|
|
|
|
|
|
|
Financing leases
|
|
|
7.4
|
%
|
|
|
7.5
|
%
|
|
Operating leases
|
|
|
5.2
|
%
|
|
|
5.2
|
%
|
Future
minimum lease payments under non-cancelable operating and financing leases as of May 31, 2020, are approximately:
|
|
|
Operating
Leases
|
|
|
Financing
Leases
|
|
|
Year ended May 31, 2021
|
|
$
|
81,881
|
|
|
$
|
2,203,790
|
|
|
Year ended May 31, 2022
|
|
|
61,881
|
|
|
|
2,102,690
|
|
|
Year ended May 31, 2023
|
|
|
33,881
|
|
|
|
1,670,293
|
|
|
Year ended May 31, 2024
|
|
|
18,557
|
|
|
|
98,231
|
|
|
Year ended May 31, 2025
|
|
|
1,291
|
|
|
|
11,704
|
|
|
Total lease payments
|
|
|
197,491
|
|
|
|
6,086,708
|
|
|
Less: Imputed interest
|
|
|
(14,966
|
)
|
|
|
(631,052
|
)
|
|
Present value of minimum lease payments
|
|
$
|
182,525
|
|
|
$
|
5,455,656
|
|
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 $2,323,650 and $540,969
in fiscal years 2020 and 2019, 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 2020 and 2019, respectively, were as follows:
|
Category
|
|
2020
|
|
|
2019
|
|
|
Major customers (end users)
|
|
|
87
|
%
|
|
|
86
|
%
|
|
Distributors
|
|
|
13
|
%
|
|
|
14
|
%
|
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 $5,980,920 and $3,161,118 in fiscal years 2020
and 2019, respectively. The unrecognized balance of deferred revenue at May 31, 2020 and 2019, was $3,793,167 and $2,201,067,
respectively. The Company recognized $4,388,820 ($2,201,067 relating to the outstanding balance at May 31, 2019 plus $2,187,753
from advances received during fiscal year 2020) and $3,404,334 into revenue during the years ended May 31, 2020 and 2019, 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 2020 and 2019.
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 2020 and 2019. At May 31, 2020, future minimum payments under the non-cancelable
operating lease are $48,000 for fiscal year 2021 and $28,000 for 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 purchases certain pallet
designs produced by TriEnda for resale. During fiscal year 2020 and 2019, Greystone purchases from TriEnda totaled $9,620 and
$42,349, respectively. As if May 31, 2020, Greystone’s account payable to TriEnda totaled $4,220.
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 $506,501 and $225,600 in fiscal years 2020 and 2019, respectively. At
May 31, 2020, Green owed $85,680 to Greystone.
Note
8. FEDERAL INCOME TAXES
Deferred
taxes as of May 31, 2020 and 2019 are as follows:
|
|
|
2020
|
|
|
2019
|
|
|
Deferred tax asset:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
3,355,844
|
|
|
$
|
4,807,616
|
|
|
Accrued expenses
|
|
|
35,445
|
|
|
|
88,298
|
|
|
Inventory
|
|
|
91,440
|
|
|
|
33,528
|
|
|
Total deferred tax asset
|
|
|
3,482,729
|
|
|
|
4,929,442
|
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization, tax reporting in excess of financial
|
|
|
(2,990,647
|
)
|
|
|
(2,877,573
|
)
|
|
Valuation allowance
|
|
|
(1,601,134
|
)
|
|
|
(2,978,511
|
)
|
|
Net deferred tax liability
|
|
$
|
(1,109,052
|
)
|
|
$
|
(926,642
|
)
|
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, 2020.
The
net change in deferred taxes for the year ended May 31, 2020 and 2019 is as follows:
|
|
|
2020
|
|
|
2019
|
|
|
Valuation allowance
|
|
$
|
1,377,377
|
|
|
$
|
(2,978,511
|
)
|
|
Net operating loss carryforward
|
|
|
(1,451,772
|
)
|
|
|
2,792,000
|
|
|
Depreciation and amortization, tax reporting in excess of financial
|
|
|
(113,074
|
)
|
|
|
(242,240
|
)
|
|
Accrued expenses
|
|
|
(52,853
|
)
|
|
|
(13,022
|
)
|
|
Other
|
|
|
57,912
|
|
|
.
|
6,096
|
|
|
Net change
|
|
$
|
(182,410
|
)
|
|
$
|
(435,677
|
)
|
The
provision for income taxes at May 31, 2020 and 2019 consists of the following:
|
|
|
2020
|
|
|
2019
|
|
|
Current income tax – State
|
|
$
|
26,590
|
|
|
$
|
-
|
|
|
Deferred income tax provision
|
|
|
182,410
|
|
|
|
435,677
|
|
|
Provision for income taxes
|
|
$
|
209,000
|
|
|
$
|
435,677
|
|
Greystone’s
provision for income taxes for the years ended May 31, 2020 and 2019 differs from the federal statutory rate as follows:
|
|
|
2020
|
|
|
2019
|
|
|
Tax provision using statutory rates
|
|
|
21
|
%
|
|
|
21
|
%
|
|
State income taxes
|
|
|
10
|
|
|
|
9
|
|
|
Change in valuation allowance
|
|
|
(26
|
)
|
|
|
(11
|
)
|
|
VIE income passed to members
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
Tax provision per financial statements
|
|
|
4
|
%
|
|
|
17
|
%
|
At
May 31, 2020, Greystone had NOL deductions for Federal income tax purposes through May 31, 2005 of approximately $9,951,000, expiring
in fiscal years 2023 through fiscal year 2025 of which approximately $2,187,000 is management’s estimate of the usable amount
pursuant to Internal Revenue Code Section 382. The limitation is due to a change in control of Greystone during the fiscal year
ended May 31, 2005. The utilization of NOL’s accumulated through fiscal year 2005 is limited to approximately $437,000 per
year and is available to carryforward.
At
May 31, 2020, management conducted an evaluation of its valuation allowance which resulted in a reduction of approximately $1,377,377
from the valuation allowance at May 31, 2020.
A
summary of Federal net operating losses (NOL) for Federal income tax purposes at May 31, 2020 is as follows:
|
|
|
NOL
Carryforward
|
|
|
Year
Expiring
|
|
|
Year ended May 31, 2003
|
|
|
4,103,294
|
|
|
|
2023
|
|
|
Year ended May 31, 2004
|
|
|
1,632,774
|
|
|
|
2024
|
|
|
Year ended May 31, 2005
|
|
|
4,215,217
|
|
|
|
2025
|
|
|
Year ended May 31, 2006
|
|
|
1,189,117
|
|
|
|
2026
|
|
|
Year ended May 31, 2007
|
|
|
2,151,837
|
|
|
|
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, 2020) 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, 2020. Outstanding options are as follows:
|
|
|
Number
|
|
|
Weighted Average Exercise Price
|
|
|
Remaining
Contractual
Life (years)
|
|
|
Intrinsic Value
|
|
|
Total outstanding May 31, 2018
|
|
|
200,000
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
Total outstanding May 31, 2019
|
|
|
200,000
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
Total outstanding May 31, 2020
|
|
|
200,000
|
|
|
$
|
0.12
|
|
|
|
2.0
|
|
|
|
|
|
|
Exercisable as of May 31, 2020
|
|
|
200,000
|
|
|
$
|
0.12
|
|
|
|
2.0
|
|
|
$
|
82,000
|
|
|
Non-vested as of May 31, 2020
|
|
|
-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 $275,677 and $93,233 in the fiscal years ended May 31, 2020 and
2019, 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, 2020 and 2019, the carrying amounts reported in the 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, 2020 and 2019:
|
|
|
2020
|
|
|
2019
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Acquisition of equipment through financing leases
|
|
$
|
612,124
|
|
|
$
|
4,667,380
|
|
|
Acquisition of equipment in accounts payable
|
|
$
|
295,108
|
|
|
$
|
273,565
|
|
|
Preferred dividend accrual
|
|
$
|
84,110
|
|
|
$
|
112,192
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
1,696,444
|
|
|
$
|
1,786,882
|
|
Note
14. CONCENTRATIONS, RISKS AND UNCERTAINTIES
For
the fiscal years 2020 and 2019, Greystone had four customers (three in fiscal year 2019) that accounted for approximately 87%
and 86% 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 are from one of Greystone’s major customers which were approximately $1,768,000 and $1,587,000 in fiscal
years 2020 and 2019, 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 that
Greystone has incurred is maintaining adequate work force to meet demand for pallets. The virus impacted the overall workforce
in our operating area as well as Greystone’s workforce. Employees electing to stay at home for protection from COVID-19
and reductions of recruitment of new employees during the fourth quarter of fiscal year 2020, the period most affected by the
onset of COVID-19, impacted production by a decrease of approximately 11% from the prior quarter. Management is unable to predict
the stability of its workforce as the longer that the virus stays active, the greater the uncertainty.
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.
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 $2,780,677 and $2,896,549 at May 31, 2020 and 2019, 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 $2,261,425 and $2,461,116 at May 31, 2020 and 2019, respectively.
Note
16. COMMITMENTS
At
May 31, 2020, Greystone had outstanding commitments totaling $708,830 for the acquisition of equipment.