UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

For the quarterly period endedAugust 31,November 30, 2019

For the transition period from ___________ to ____________

Commission file number000-26331

GREYSTONE LOGISTICS, INC.

(Exact name of registrant as specified in its charter)

(Former name, former address and former fiscal year, if changed since last report)

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:OctoberJanuary 10, 20192020 - 28,361,201

GREYSTONE LOGISTICS, INC.

FORM 10-Q

For the Period Ended August 31,November 30, 2019

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

(Unaudited)

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

Greystone Logistics, Inc.

Consolidated Statements of Income

(Unaudited)

The accompanying notes are an integral part of these consolidated financial

Greystone Logistics, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

For the ThreeSix Months Ended August 31,November 30, 2019 and 2018

(Unaudited)

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

Greystone Logistics, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(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 August 31,November 30, 2019 and the results of its operations and cash flows for the six months and three months ended August 31,November 30, 2019 and 2018. 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, 2019 and the notes thereto included in Greystone’s Form 10-K for such period. The results of operations for the six months and three months ended August 31,November 30, 2019 and 2018 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 August 31for the six months and three months ended November 30 are as follows:

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

For the six months ended November 30, 2019 and 2018:

For the three months ended August 31,November 30, 2019 and 2018:

Note 3. Inventory

Inventory consists of the following:

Note 4. Property, Plant and Equipment

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

Production machinery and equipment includes right-to-use equipment capitalized pursuant to financing leases in the amount of $7,861,233 at August 31,November 30, 2019 and May 31, 2019. The financing leases all include an option to purchase which management anticipates exercising and, accordingly, the related equipment is being amortized over the estimated useful life using the straight-line method over 3.5 years for pallet molds and 12 years for injection molding machines.

Production machinery includes deposits on equipment in the amount of $1,054,726$923,063 at August 31,November 30, 2019 which hashave not been placed into service. Two plant buildings and land are owned by GRE, a variable interest entity (“VIE”), having a net book value of $2,867,581$2,838,613 at August 31,November 30, 2019.

Depreciation expense, including amortization expense related to right-to-use assets under financing leases, for the threesix months ended August 31,November 30, 2019 and 2018 was $1,303,968$2,557,936 and $1,053,003,$2,131,971, 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 CEO and President, owns and rents to Greystone (1) grinding equipment used to grind raw materials for Greystone’s pallet production and (2) extruders for pelletizing recycled plastic into pellets for resale and for use as raw material in the manufacture of pallets. GSM pays weekly rental fees to Yorktown of $27,500 for use of Yorktown’s grinding equipment and pelletizing equipment. Rental fees were $357,500$715,000 for the each of the threesix months ended August 31,November 30, 2019 and 2018.

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 $12,000$24,000 for each of the threesix months ended August 31,November 30, 2019 and 2018. At August 31,November 30, 2019, future minimum payments under the non-cancelable operating lease for the remaining three years are $48,000, $48,000, and $16,000.$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 threesix months ended August 31,November 30, 2019 and 2018 totaled $-0-$5,400 and $41,975,$42,349, respectively.

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 $77,520$271,320 and $55,080$167,400 for the threesix months ended August 31,November 30, 2019 and 2018, respectively. The account receivable due from Green at August 31,November 30, 2019 was $58,140.$96,900.

Note 6. Long-term Debt

Debt as of August 31,November 30, 2019 and May 31, 2019 is as follows:

The prime rate of interest as of August 31,November 30, 2019 was 5.25%4.75%. Effective September 18, 2019, the prime rate of interest decreased to 5.00%.

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.

Effective July 1, 2019, the Borrowers and IBC entered into the Tenth Amendment to the IBC Loan Agreement providing for Term Loan H in the amount of $672,000 with a maturity date of January 1, 2022, for the procurement of production equipment.

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 $77,550 per month), (ii) Term Loan C over a seven-year period beginning August 31,November 30, 2017 (currently $25,205 per month) and (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 $68,849 per month), (vi) Term Loan G over a fifteen-year period beginning April 30, 2019 (currently $7,466 per month) and (vii) Term Loan H over 30 months beginning August 1, 2019 (currently $24,203 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 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, 2021. 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.

The IBC Loan Agreement, among other things, requires a quarterly affirmation that the Borrowers have maintained a debt service coverage ratio of 1:25 to 1:00. As of August 31,November 30, 2019, Greystone was not in compliance with this debt service coverage ratio. IBC has issued a waiver, dated August 26, 2019,January 14, 2020, with respect to this event of noncompliance.

The IBC Loan Agreement includes customary events of default, including events of default relating to non-payment of principal and other amounts owing under the IBC Loan Agreement from time to time, inaccuracy of representations, violation of covenants, defaults under other agreements, bankruptcy and similar events, the death of a guarantor, certain material adverse changes relating to a Borrower or guarantor, certain judgments or awards against a Borrower, or government action affecting a Borrower’s or guarantor’s ability to perform under the IBC Loan Agreement or the related loan documents. Among other things, a default under the IBC Loan Agreement would permit IBC to cease lending funds under the IBC Loan Agreement, and require immediate repayment of any outstanding 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 in the following paragraph.

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, 2021. 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 August 31,November 30, 2019 was $4,383,429.$4,340,285.

Maturities

Maturities of Greystone’s long-term debt for the five years subsequent to August 31,November 30, 2019 are $3,385,019, $10,932,978, $3,570,812, $3,317,357$3,442,269, $12,683,643, $1,919,583, $2,416,434 and $1,048,902.$924,542.

Note 7. 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.

Financing Leases

Financing leases as of August 31,November 30, 2019 and May 31, 2019:

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 a capitalized 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 $168,000.$178,000. The rent payments can vary each month depending on the quantity of pallets produced from each machine. Due to improvements in the production process, pallet production has increased since May 31, 2019 thereby resulting in an increase in the estimated aggregate future rental payments. 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 $7,861,233 at August 31,November 30, 2019. Amortization of the carrying amount of $208,157approximately $416,000 and $208,245$449,000 was included in depreciation expense for the threesix months ended August 31,November 30, 2019 and 2018, respectively.

Operating Leases

Greystone recognize 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, reported in property, plant and equipment on the consolidated balance sheets, 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 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 August 31,six months ended November 30, 2019 and 2018:

Future minimum lease payments under non-cancelable leases as of August 31,November 30, 2019, 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.customer(s). Customer advances totaled $-0- and $3,280,500 during the threesix months ended August 31,November 30, 2019 and 2018, respectively. Revenue recognition from customer advances during the six months ended November 30, 2019 was $686,572. The unrecognized balance of deferred revenue at August 31,November 30, 2019 and May 31, 2019, was $1,514,495 and $2,201,067, 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. The following steps are applied in determining the amount and timing of revenue recognition:

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 $105,000$1,803,000 and $170,000$291,000 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 threesix months ended August 31,November 30, 2019 and 2018, 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 87%88% and 84% of its total sales from threefour customers (three in fiscal year 2019) in fiscal years 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 $561,657$1,019,279 and $392,272$814,764 in fiscal years 2020 and 2019, respectively, is 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 August 31,November 30, 2019, Greystone is indebted to Mr. Rosene in the amount of $4,383,429$4,340,285 for a note payable due January 15, 2021. There is no assurance that Mr. Rosene will renew the note as of the maturity date.

Note 12. Commitments

At August 31,November 30, 2019, Greystone had commitments totaling $2,484,278$2,468,000 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 its variable interest entity, Greystone Real Estate, L.L.C. (“GRE”). All material intercompany accounts and transactions have been eliminated.

References to fiscal year 2020 refer to the six months and three months ended August 31,November 30, 2019. References to fiscal year 2019 refer to the six months and three months ended August 31,November 30, 2018.

Sales

Greystone’s primary focus is to provide quality plastic pallets to its existing customers while continuing its marketing efforts to broaden its customer base. Greystone’s existing customers are primarily located 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 personnel includes both full-time employees and temporary contract personnel. Temporary personnel train for ninety days and, if appropriate, hired as full-time. Greystone had approximately 237268 and 211185 full-time employees as of August 31,November 30, 2019 and 2018, respectively. In addition, temporary personnel totaled 145 and 107 as of November 30, 2019 and 2018, respectively.

ThreeSix Months Ended August 31,November 30, 2019 Compared to ThreeSix Months Ended August 31,November 30, 2018

Sales

Sales for fiscal year 2020 were $18,664,509$38,167,971 compared to $18,206,110$32,939,240 in fiscal year 2019 for an increase of $458,399.$5,228,731, or 16%. The increase in pallet sales in fiscal year 2020 over 2019 was primarily dueattributable to the sales growth with the pallet leasing company and sales towithin Greystone’s largest customers which included a new customer.customer in fiscal year 2020.

Sales to Greystone’s threefour (three in fiscal year 2019) largest customers accounted for approximately 87%88% and 84% of sales in fiscal years 2020 and 2019, respectively. Greystone is not able to predict the future needs of these major customers and will continue its efforts to grow sales through the addition of new customers developed through Greystone’s marketing efforts.

Cost of Sales

Cost of sales in fiscal year 2020 was $16,303,734,$33,656,973, or 87%88% of sales, compared to $15,760,152,$28,801,518, or 87% of sales, in fiscal year 2019. During the last two months of the six months ended November 30, 2019, Greystone has realized substantialachieved (i) significant improvements in pallet production as a result of installation on two machines of hardware and software to improve the flow of resin into molds. Basedmolds on two injection molding machines and (ii) completion of the positive results, this product has been ordered to install on the remaining machines.installation of an additional pelletizing line which increased Greystone’s capacity for pelletizing thereby resulting in a cost savings over purchasing plastic in pelletized form.

Other scheduled initiativesInitiatives to facilitate and continue improvements to the ratio of cost of sales to sales were unableinclude resolution on production issues on certain machines and molds, hardware and software to be completed duringimprove resin mold flow on remaining injection molding machines, installation of an additional grinding machine allowing the quarter ended August 31, 2019, which included resolutionpurchase of certain machinelower-priced unprocessed recycled plastic, and mold issues, completion of additional capacityinstallation for grinding and pelletizing, and implementation of robotics on two production line.lines. Greystone plans to complete thesethe remaining initiatives throughout fiscalthe year ending May 31, 2020.

Selling, General Selling and Administrative Expenses

General, sellingSelling, general and administrative expenses were $1,077,598,$2,190,228, or 6% of sales, in fiscal year 2020 compared to $939,091,$1,792,741, or 5% of sales, for an increase of $138,507$397,487 or 15%22%. The increase in fiscal year 2020 over fiscal year 2019 results principally from increased costs for administrative personnel. The selling, general and administrative are estimated to increase proportionately with increases in sales.

Other Income (Expenses)

Other income was $2,033$4,913 in fiscal year 2020 compared to $2,269$5,290 in fiscal year 2019.

Interest expense was $480,911$913,699 in fiscal year 2020 compared to $412,628$848,318 in fiscal year 2019 for an increase of $68,283.$65,381. The prime rate of interest declined from 5.50% at May 31, 2019 to 4.75% at November 30, 2019. The weighted average prime rate of interest was 5.50% during most of fiscal year 2020, until the rate decreased to 5.25% on August 1, 2019,5.19% compared to 5.00% at August 31, 2018.5.07% for the six months ended November 30, 2019 and 2018, respectively.

Provision for Income Taxes

The provision for income taxes was $185,000$320,000 and $331,600$440,100 in fiscal years 2020 and 2019, respectively. The effective tax rate differs from federal statutory rates due to net income from GRE which, as a limited liability company of which Greystone has no equity ownership, is not taxed at the corporate level, charges which have no tax benefit and changes in the valuation allowance.

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

Net Income

Greystone recorded net income of $619,299$1,091,984 in fiscal year 2020 compared to $764,908$1,061,853 in fiscal year 2019 primarily for the reasons discussed above.

Net Income Attributable to Common Stockholders

The net income attributable to common stockholders for fiscal year 2020 was $442,250,$746,678, or $0.02$0.03 per share, compared $601,388,$730,281, or $0.02$0.03 per share, in fiscal year 2019 primarily for the reasons discussed above.

Three Months Ended November 30, 2019 Compared to Three Months Ended November 30, 2018

Sales

Sales for fiscal year 2020 were $19,503,462 compared to $14,733,130 in fiscal year 2019 for an increase of $4,770,332, or 32%. The increase in pallet sales in fiscal year 2020 over 2019 was primarily due to the sales growth within Greystone’s largest customers which included a new customer in fiscal year 2020.

Sales to Greystone’s four (three in fiscal year 2019) largest customers accounted for approximately 88% and 85% of sales in fiscal years 2020 and 2019, respectively. Greystone is not able to predict the future needs of these major customers and will continue its efforts to grow sales through the addition of new customers developed through Greystone’s marketing efforts.

Cost of Sales

Cost of sales in fiscal year 2020 was $17,353,239, or 89% of sales, compared to $13,041,366, or 89% of sales, in fiscal year 2019. During the last two months of the six months ended November 30, 2019, Greystone achieved (i) significant improvement in pallet production per machine as a result of installation of hardware and software to improve the flow of resin into molds on two injection molding machines and (ii) completion of the installation of an additional pelletizing line which increased Greystone’s capacity for pelletizing thereby resulting in a cost savings over purchasing plastic in pelletized form.

Initiatives to facilitate and continue improvements to the ratio of cost of sales to sales include resolution on production issues on certain machines and molds, hardware and software to improve resin mold flow on remaining injection molding machines, installation of an additional grinding machine allowing the purchase of lower-priced unprocessed recycled plastic, and completion of installation for robotics on two production lines. Greystone plans to complete the remaining initiatives throughout the year ending May 31, 2020.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $1,112,630, or 6% of sales, in fiscal year 2020 compared to $853,650, or 7% of sales, for an increase of $258,980 or 30%. The increase in fiscal year 2020 over fiscal year 2019 results principally from increased costs for administrative personnel. The selling, general and administrative are estimated to increase proportionately with increases in sales.

Other Income (Expenses)

Other income was $2,880 in fiscal year 2020 compared to $3,021 in fiscal year 2019.

Interest expense was $432,788 in fiscal year 2020 compared to $435,690 in fiscal year 2019 for a decrease of $2,902. The prime rate of interest declined from 5.25% at August 31, 2019 to 4.75% at November 30, 2019. The weighted average prime rate of interest was 4.96% compared to 5.18% for the three months ended November 30, 2018.

Provision for Income Taxes

The provision for income taxes was $135,000 and $108,500 in fiscal years 2020 and 2019, respectively. The effective tax rate differs from federal statutory rates due to net income from GRE which, as a limited liability company of which Greystone has no equity ownership, is not taxed at the corporate level, charges which have no tax benefit and changes in the valuation allowance.

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

Net Income

Greystone recorded net income of $472,685 in fiscal year 2020 compared to $296,945 in fiscal year 2019 primarily for the reasons discussed above.

Net Income Attributable to Common Stockholders

The net income attributable to common stockholders for fiscal year 2020 was $304,428, or $0.01 per share, compared $128,893, or $0.00 per share, in fiscal year 2019 primarily for the reasons discussed above.

Liquidity and Capital Resources

A summary of cash flows for the threesix months ended August 31,November 30, 2019 is as follows:

The contractual obligations of Greystone are as follows: