GLGI 10-Q Quarter ended Nov. 30, 2020

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

For the quarterly period ended November 30, 2020

For the transition period from ___________ to ____________

1613 East 15 ^th Street, Tulsa, Oklahoma 74120

(Address of principal executive offices) (Zip Code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to post and submit such files).

Yes[X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by checkmark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: January 8, 2021 - 28,361,201

GREYSTONE LOGISTICS, INC.

FORM 10-Q

For the Period Ended November 30, 2020

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Greystone Logistics, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

Greystone Logistics, Inc.

Consolidated Statements of Income

For the Six Months Ended November 30,

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

Greystone Logistics, Inc.

Consolidated Statements of Income

For the Three Months Ended November 30,

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

Greystone Logistics, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

For the Six Months Ended November 30, 2020 and 2019

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

Greystone Logistics, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Six Months Ended November 30,

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

GREYSTONE LOGISTICS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Basis of Financial Statements

In the opinion of Greystone Logistics, Inc. (“Greystone”), the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications, which are of a normal recurring nature, necessary to present fairly its financial position as of November 30, 2020, the results of its operations for the six months and three months ended November 30, 2020 and 2019 and its cash flows for the six months ended November 30, 2020 and 2019. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the fiscal year ended May 31, 2020 and the notes thereto included in the Form 10-K for such period. The results of operations for the six months and three months ended November 30, 2020 and 2019 are not necessarily indicative of the results to be expected for the full fiscal year.

The consolidated financial statements of Greystone include its wholly-owned subsidiaries, Greystone Manufacturing, L.L.C. (“GSM”) and Plastic Pallet Production, Inc. (“PPP”), and the variable interest entity, Greystone Real Estate, L.L.C. (“GRE”). GRE owns two buildings located in Bettendorf, Iowa which are leased to GSM. All material intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Note 2. Earnings Per Share

Basic earnings per share is based on the weighted-average effect of all common shares issued and outstanding and is calculated by dividing net income attributable to common stockholders by the weighted-average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income attributable to common stockholders by the weighted-average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding.

Greystone excludes equity instruments from the calculation of diluted earnings per share if the effect of including such instruments is anti-dilutive. Instruments which have an anti-dilutive effect at November 30 are as follows:

The following tables set forth the computation of basic and diluted earnings per share.

For the six months ended November 30, 2020 and 2019:

For the three months ended November 30, 2020 and 2019:

Note 3. Inventory

Inventory consists of the following:

Note 4. Property, Plant and Equipment

A summary of property, plant and equipment is as follows:

Production machinery includes deposits on equipment in the amount of $207,160 at November 30, 2020, which has not been placed into service. Plant buildings and land include two properties which are owned by GRE, a variable interest entity (“VIE”) and have an aggregate net book value of $2,722,741 at November 30, 2020.

Depreciation expense, including amortization expense related to financing leases, for the six months ended November 30, 2020 and 2019 was $3,018,922 and $2,557,936, respectively.

Note 5. Related Party Transactions/Activity

Yorktown Management & Financial Services, LLC

Yorktown Management & Financial Services, LLC (“Yorktown”), an entity wholly-owned by Greystone’s President and CEO, owns and rents to Greystone (1) grinding equipment used to grind raw materials for Greystone’s pallet production and (2) extruders for pelletizing recycled plastic into pellets for resale and for use as raw material in the manufacture of pallets. GSM pays weekly rental fees to Yorktown of $27,500 for use of Yorktown’s grinding equipment and pelletizing equipment. Rental fees were $715,000 for the each of the six months ended November 30, 2020 and 2019.

Effective January 1, 2017, Greystone and Yorktown entered into a five-year lease for office space at a monthly rental of $4,000 per month. Total rent expense was $24,000 for each of the six months ended November 30, 2020 and 2019. As of November 30, 2020, future minimum payments under the non-cancelable operating lease for the remaining two years are $48,000 and $4,000.

TriEnda Holdings, L.L.C.

TriEnda Holdings, L.L.C. (“TriEnda”) is a manufacturer of plastic pallets, protective packing and dunnage utilizing thermoform processing for which Warren F. Kruger, Greystone’s President and CEO, serves TriEnda as the non-executive Chairman of the Board and is a partner in a partnership which has a majority ownership interest in TriEnda. Greystone periodically purchases material and pallets from TriEnda. Purchases for the six months ended November 30, 2020 and 2019 totaled $52,356 and $5,400, respectively. As of November 30, 2020, Greystone owed $40,800 to TriEnda for such purchases.

Green Plastic Pallets

Greystone sells plastic pallets to Green Plastic Pallets (“Green”), an entity that is owned by James Kruger, brother to Warren Kruger, Greystone’s President and CEO. Greystone had sales to Green of $236,250 and $271,320 for the six months ended November 30, 2020 and 2019, respectively. The account receivable due from Green at November 30, 2020 was $129,150.

Note 6. Long-term Debt

Debt as of November 30, 2020 and May 31, 2020 is as follows:

The prime rate of interest as of November 30, 2020 was 3.25%.

Loan Agreement between Greystone and IBC

The Loan Agreement (“IBC Loan Agreement”), dated January 31, 2014 and as amended from time to time, among Greystone and GSM (the “Borrowers”) and International Bank of Commerce (“IBC”) provides for certain term loans and a revolver loan.

The IBC term loans make equal monthly payments of principal and interest in such amounts sufficient to amortize the principal balance as follows: (i) Term Loan A over a seven-year period beginning February 29, 2016 (currently $76,705 per month), (ii) Term Loan C over a seven-year period beginning November 30, 2017 (currently $25,205 per month), (iii) Term Loan D over a four-year period beginning February 10, 2019 (currently $57,469 per month), (iv) Term Loan E over a four-year period beginning February 10, 2019 (currently $23,060 per month), (v), Term Loan F over a five-year period beginning February 28, 2019 (currently $68,402 per month) and (vi) Term Loan G over a fifteen-year period beginning April 30, 2019 (currently $7,466 per month). The monthly payments of principal and interest on the IBC term loans may vary as a result of changes in the prime rate of interest.

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 amount which can be borrowed from time to time is dependent upon the amount of the borrowing base, as defined in the IBC Loan Agreement, not to exceed $4,000,000. The Revolving Loan bears interest at the greater of the prime rate of interest plus 0.5%, or 5.50% 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 prepaid by the Borrowers does not reduce the original amount available to the Borrowers. Greystone’s available revolving loan borrowing capacity was $2,900,000 at November 30, 2020.

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 notes 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 herein.

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 $236,909 commencing on April 14, 2021 and maturing 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 believes that the proceeds from the PPP loan were used for qualifying expenses in accordance with the terms in the CARES Act and 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. However, there is no assurance that all or any portion of the PPP loan will be forgiven.

Loan Agreement between GRE and IBC

On August 10, 2018, GRE and IBC entered into an amended agreement to extend the maturity of the note to April 30, 2023 and increase the interest rate to 5.5%. The note 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 an unsecured note payable at 7.5% interest.

Effective June 1, 2016, the note was restated (the “Restated Note”) to combine the outstanding principal, $2,066,000, and accrued interest, $2,475,690, into an unsecured note payable of $4,541,690 with an extended maturity date of January 15, 2022. The Restated Note provides that accrued interest is payable monthly and allows Greystone to use commercially reasonable efforts to pay such amounts as allowed by the IBC Loan Agreement against the interest accrued prior to the restatement. The balance of the note at November 30, 2020 was $3,649,878.

Maturities

Maturities of Greystone’s long-term debt for the five years subsequent to November 30, 2020 are $5,195,878, $8,929,312, $3,493,294, $1,373,137 and $124,377.

Note 7. Leases

Financing Leases

Financing leases as of November 30, 2020 and May 31, 2020:

Greystone and an unrelated private company entered into three lease agreements for certain production equipment with a total cost of approximately $6.9 million which were effective February 24, 2018, August 2, 2018 and December 21, 2018, respectively, with five-year terms and an effective interest rate of 7.4%. Each of the lease agreements include a bargain purchase option to acquire the production equipment at the end of the lease term. The leased equipment is principally used to produce pallets for the private company. Lease payments are made as a credit on the sales invoice at the rate of $3.32 for each pallet produced and shipped from the respective leased equipment. The estimated aggregate monthly rental payments are approximately $153,000. The rent payments can vary each month depending on the quantity of pallets produced from each machine. The lease 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.

Effective December 28, 2018, Yorktown purchased certain production equipment from Greystone at net book value of $968,168 and entered into a lease agreement with Greystone for the equipment with a monthly rent of $27,915 for the initial thirty-six months and $7,695 for the following twelve months and maturing December 27, 2022. The lease agreement has a $10,000 purchase option at the end of the lease.

The production equipment under the non-cancelable financing leases has a gross carrying amount of $8,473,357 at November 30, 2020. Amortization of the carrying amount of $505,935 and $416,314 was included in depreciation expense for the six months ended November 30, 2020 and 2019, respectively.

Operating Leases

Greystone recognized 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 statements 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 sixty month term and a discount rate of 5.0%. The leases are single-term with constant monthly rental rates.

Lease Summary Information

For the periods ending November 30, 2020 and 2019:

Future minimum lease payments under non-cancelable leases as of November 30, 2020, are approximately:

Note 8. Deferred Revenue

Advances from a customer pursuant to a contract for the sale of plastic pallets is recognized as deferred revenue. Revenue is recognized by Greystone as pallets are shipped to the customer which totaled $3,770,160 and $686,572 during the six months ended November 30, 2020 and 2019, respectively. Customer advances received during the six months ended November 30, 2020 and 2019 were $1,380,000 and $-0-, respectively. The unrecognized balance of deferred revenue as of November 30, 2020 and May 31, 2020, was $1,403,007 and $3,793,167, respectively.

Note 9. Revenue and Revenue Recognition

Revenue is recognized at the time a good or service is transferred to a customer and the customer obtains control of that good or receives the service performed. Sales arrangements with customers are short-term in nature involving single performance obligations related to the delivery of goods and generally provide for transfer of control at the time of shipment. In limited circumstances, where acceptance of the goods is subject to approval by the customer, revenue is recognized upon approval by the customer unless, historically, there have been insignificant rejections of goods by the customer. Contract liabilities associated with sales arrangements primarily relate to deferred revenue on prepaid sales of goods. Greystone generally permits returns of product due to defects; however, product returns are historically insignificant. The amount of revenue recognized reflects the consideration to which Greystone expects to be entitled to receive in exchange for its products.

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 approximately 0.8% and 4.7% of sales during the six months ended November 30, 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 six months ended November 30, 2020 and 2019, respectively, were as follows:

Note 10. Fair Value of Financial Instruments

The following methods and assumptions are used in estimating the fair-value disclosures for financial instruments:

Debt: The carrying amount of notes with floating rates of interest approximate fair value. Fixed rate notes are valued based on cash flows using estimated rates of comparable notes. The carrying amounts reported on the balance sheets approximate fair value.

Note 11. Concentrations, Risks and Uncertainties

Greystone derived approximately 86% and 88% of its total sales from four customers during the six months ended November 30, 2020 and 2019, respectively. The loss of a material amount of business from one or more of these customers could have a material adverse effect on Greystone.

Greystone purchases damaged pallets from its customers at a price based on the value of the raw material content in the pallet. A majority of these purchases, totaling $524,321 and $1,019,279 in fiscal years 2021 and 2020, respectively, were from one of its major customers.

Robert B. Rosene, Jr., a Greystone director, has provided financing and guarantees on Greystone’s bank debt. As of November 30, 2020, Greystone is indebted to Mr. Rosene in the amount of $3,649,878 for a note payable due January 15, 2022. There is no assurance that Mr. Rosene will renew the note as of the maturity date.

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 has impacted the overall workforce in our operating area as well as Greystone’s workforce due to employees electing to stay at home for protection from COVID-19 and reductions of recruitment of new employees. 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.

Effective January 1, 2021, Greystone’s major customer in the beer industry notified Greystone that the customer will be diversifying its purchases of pallets for case goods with another vendor, but Greystone will continue to be the sole provider of the keg pallet to the customer. This change is expected to decrease Greystone’s annual revenues in the range of about 4% to 5%. Greystone will continue to purchase damaged pallets from the customer. Management has evaluated this impact in conjunction with other contractual adjustments that were made with the customer, and management does not expect that this impact will have a material adverse effect on Greystone’s consolidated financial statements.

Note 12. Commitments

As of November 30, 2020, Greystone had commitments totaling $445,040 toward the purchase of production equipment.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

General to All Periods

The unaudited consolidated statements include Greystone Logistics, Inc., and its two wholly-owned subsidiaries, Greystone Manufacturing, L.L.C. (“GSM”) and Plastic Pallet Production, Inc. (“PPP”). Greystone also consolidates the variable interest entity, Greystone Real Estate, L.L.C. (“GRE”). All material intercompany accounts and transactions have been eliminated.

References to fiscal year 2021 refer to the six months and three months ended November 30, 2020. References to fiscal year 2020 refer to the six months and three months ended November 30, 2019.

Sales

Greystone’s primary focus is to provide quality plastic pallets to its existing customers while continuing its marketing efforts to broaden its customer base. Greystone’s existing customers are primarily located in the United States and engaged in the beverage, pharmaceutical and other industries. Greystone has generated, and plans to continue to generate, interest in its pallets by attending trade shows sponsored by industry segments that would benefit from Greystone’s products. Greystone hopes to gain wider product acceptance by marketing the concept that the widespread use of plastic pallets could greatly reduce the destruction of trees on a worldwide basis. Greystone’s marketing is conducted through contract distributors, its President and other employees.

Personnel

Greystone had approximately 272 and 268 full-time employees as of November 30, 2020 and 2019, respectively. In addition, employee recruitment is outsourced to certain personnel agencies. Greystone employed 37 and 145 personnel through these agencies as of November 30, 2020 and 2019.

Six Months Ended November 30, 2020 Compared to Six Months Ended November 30, 2019

Sales

Sales for fiscal year 2021 were $33,091,494 compared to $38,167,971 in fiscal year 2020 for a decrease of $5,076,477. While the number of pallets sold during fiscal year 2021 increased by approximately 3% over fiscal year 2020, the overall decrease in the value of sales in fiscal year 2021 from fiscal year 2020 was primarily due to changes in the manufacturing process for certain pallets and the related pricing for such pallets.

Greystone had four customers which accounted for approximately 86% and 88% of sales in fiscal years 2021 and 2020, respectively. Greystone is not able to predict the future needs of these major customers and will continue its efforts to grow sales through the addition of new customers developed through Greystone’s marketing efforts.

Effective January 1, 2021, Greystone’s major customer in the beer industry notified Greystone that the customer will be diversifying its purchases of pallets for case goods with another vendor, but Greystone will continue to be the sole provider of the keg pallet to the customer. This change is expected to decrease Greystone’s annual revenues in the range of about 4% to 5%. Greystone will continue to purchase damaged pallets from the customer. Management has evaluated this impact in conjunction with other contractual adjustments that were made with the customer, and management does not expect that this impact will have a material adverse effect on Greystone’s consolidated financial statements.

Cost of Sales

Cost of sales in fiscal year 2021 was $27,032,690, or 82% of sales, compared to $33,656,973, or 88% of sales, in fiscal year 2020. The decrease in the ratio of cost of sales to sales in fiscal year 2021 from the ratio during fiscal year 2020 is primarily the result of improved profit margins from changes in the manufacturing process for certain pallets, increases in pallet production per machine attributable to the utilization of new tools in managing the injection molding machines and an increase of in-house capacity for grinding and pelletizing plastic material.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $2,471,457 in fiscal year 2021 compared to $2,190,228 in fiscal year 2020 for an increase of $281,229 or 12.8%. The primary reason for the increase in fiscal year 2021 over fiscal year 2020 was due to a mix of items including increased costs for administrative personnel, costs for resolution of a breach in the Company’s email system, legal fees and research and development costs to develop an acceptable fire retardant for Greystone pallets.

Other Income (Expenses)

Other income from sales of scrap material was $8,944 in fiscal year 2021 compared to $4,913 in fiscal year 2020.

Interest expense was $653,060 in fiscal year 2021 compared to $913,699 in fiscal year 2020 for a decrease of $260,639. There was a reduction in total debt of approximately $2,270,000 from the outstanding balances at November 30, 2019 to November 30, 2020. In addition, the debt as of November 30, 2020 included a Paycheck Protection Program note in the amount of $3,034,000 which bears an interest rate of 1.0% and the prime rate of interest was 3.25% as of November 30, 2020 compared to 4.75% at November 30, 2019.

Provision for Income Taxes

The provision for income taxes was $911,000 and $320,000 in fiscal years 2021 and 2020, respectively. The effective tax rate differs from federal statutory rates principally due to state income taxes, charges which have no tax benefit, changes in the valuation allowance, and the basis that net income from GRE is not taxable at the corporate level because GRE is a limited liability company of which Greystone has no equity ownership.

Based upon a review of its income tax filing positions, Greystone believes that its positions would be sustained upon an audit by the Internal Revenue Service and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded.

Net Income

Greystone recorded net income of $2,032,231 in fiscal year 2021 compared to $1,091,984 in fiscal year 2020 primarily for the reasons discussed above.

Net Income Attributable to Common Stockholders

The net income attributable to common stockholders (net income less preferred dividends and GRE’s net income) for fiscal year 2021 was $1,733,381, or $0.06 per share, compared $746,678, or $0.03 per share, in fiscal year 2020 primarily for the reasons discussed above.

Three Months Ended November 30, 2020 Compared to Three Months Ended November 30, 2019

Sales

Sales for fiscal year 2021 were $15,523,318 compared to $19,503,462 in fiscal year 2020 for a decrease of $3,980,144. While there was a slight decline of 3% of the number of pallets sold during fiscal year 2021 from fiscal year 2020, the overall decrease in the value of sales in fiscal year 2021 from fiscal year 2020 was primarily due to changes in the manufacturing process for certain pallets and the related pricing for such pallets.

Greystone had four customers which accounted for approximately 84% and 88% of sales in fiscal years 2021 and 2020, respectively. Greystone is not able to predict the future needs of these major customers and will continue its efforts to grow sales through the addition of new customers developed through Greystone’s marketing efforts.

Effective January 1, 2021, Greystone’s major customer in the beer industry notified Greystone that the customer will be diversifying its purchases of pallets for case goods with another vendor, but Greystone will continue to be the sole provider of the keg pallet to the customer. This change is expected to decrease Greystone’s annual revenues in the range of about 4% to 5%. Greystone will continue to purchase damaged pallets from the customer. Management has evaluated this impact in conjunction with other contractual adjustments that were made with the customer, and management does not expect that this impact will have a material adverse effect on Greystone’s consolidated financial statements.

Cost of Sales

Cost of sales in fiscal year 2021 was $12,423,073, or 80% of sales, compared to $17,353,239, or 89% of sales, in fiscal year 2020. The decrease in the ratio of cost of sales to sales in fiscal year 2021 from the ratio during fiscal year 2020 is primarily the result of improved profit margins from changes in the manufacturing process for certain pallets, increases in pallet production per machine attributable to the utilization of new tools in managing the injection molding machines and an increase of in-house capacity for grinding and pelletizing plastic material.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $1,331,219 in fiscal year 2021 compared to $1,112,630 in fiscal year 2020 for an increase of $218,589 or 19.6%. The increase in fiscal year 2021 over fiscal year 2020 was due to a mix of items including increased costs for administrative personnel, costs for resolution of a breach in the Company’s email system, legal fees and research and development costs to develop an acceptable fire retardant for Greystone pallets.

Other Income (Expenses)

Other income from sales of scrap material was $2,434 in fiscal year 2021 compared to $2,880 in fiscal year 2020.

Interest expense was $291,387 in fiscal year 2021 compared to $432,788 in fiscal year 2020 for a decrease of $141,401. There was a reduction in total debt of approximately $2,270,000 from the outstanding balances at November 30, 2019 to November 30, 2020. In addition, the debt as of November 30, 2020 included a Paycheck Protection Program note in the amount of $3,034,000 which bears an interest rate of 1.0% and the prime rate of interest was 3.25% as of November 30, 2020 compared to 4.75% at November 30, 2019.

Provision for Income Taxes

The provision for income taxes was $457,000 and $135,000 in fiscal years 2021 and 2020, respectively. The effective tax rate differs from federal statutory rates due principally to state income taxes, charges which have no tax benefit, changes in the valuation allowance, and the basis that the net income from GRE is not taxable at the corporate level because GRE is a limited liability company of which Greystone has no equity ownership.

Based upon a review of its income tax filing positions, Greystone believes that its positions would be sustained upon an audit by the Internal Revenue Service and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded.

Net Income

Greystone recorded net income of $1,023,073 in fiscal year 2021 compared to $472,685 in fiscal year 2020 primarily for the reasons discussed above.

Net Income Attributable to Common Stockholders

The net income attributable to common stockholders (net income less preferred dividends and GRE’s net income) for fiscal year 2021 was $873,180, or $0.03 per share, compared $304,428, or $0.01 per share, in fiscal year 2020 primarily for the reasons discussed above.

Liquidity and Capital Resources

A summary of cash flows for the six months ended November 30, 2020 is as follows: