Replies to post #47557 on Savvy Trades and Investments

[Knowledge is King]

re GLGI: thanks Matt

[RNsidersbuying]

GLGI - took a harder look and not impressed with the apparent management incest:

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 $22,500 for use of Yorktown’s grinding equipment and $5,000 for the use of Yorktown’s pelletizing equipment for which GSM paid Yorktown rental fees of $1,072,500 and $1,100,000 for the nine months ended February 28, 2018 and 2017, respectively.

And apparent total lack of foresight in scaling-up (the goal of any business enterprise):

Cost of sales in fiscal year 2018 was $27,325,588, or 85% of sales, compared to $21,103,691, or 82% of sales, in fiscal year 2017. Greystone achieved a 25% increase in sales volume from fiscal year 2017 to 2018. The impact of this significant increase in sales volume had a direct effect on production costs resulting in the increase in the ratio of cost of sales to sales from fiscal year 2017 to 2018. Substantial increases in the number of employees, training and operating costs, recycling costs and the addition of five new injection molding machines plus associated supporting equipment have resulted in the increase in the ratio of cost of sales to sales during fiscal year 2018. Greystone continues to monitor pricing, operating procedures and cost of operations toward reducing the production costs of pallets thereby improving gross margins from sales.

My short analysis is there's some double-dippin going on here. Do they buy their equipment to own or lease their equipment from the CEO??? Doing both ain't right!

Plastic pelletizers and extruders aren't that expensive:

https://www.alibaba.com/showroom/plastic-pellet-machine-extruder.html

jmo

[Fisher]

GLGI - Heard back from the CFO

He said that it takes about 20 employees to run an injection molding machine 24/7. I'm guessing they have 4 shifts w/ 5 people on a machine. To me this seems awfully high, what could five people possibly be doing while the machine is doing the injection molding? Something I don't understand about their process obviously.

Beyond that he said they have a mix of 60% FT and 40% contract production labor and experience high turnover which is particularly acute when adding a bunch of new heads as is currently the case.

So with five new machines & 20 per that means they nearly doubled their production workforce. Add on top that the cost of recruitment, training, and higher turnover and voila that's the lions share of the increase in COGS.

The other thing he mentioned was that they made a business decision to ramp volume at lower margins with the pallet leasing customer(s) with the expectation that the volume will provide nice leverage to the bottom line once the labor issues stabilize.