The 10K indicates that Greystone is giving away 40% of its gross margin (!!!!!) as some kind of fee to a company controlled by the CEO. How can shareholders tolerate giving away virtually all of the potential profits like this? The entire gross margin is only about 20%, and once this becomes a competitive and commodity business the company will be lucky to generate 4% operating margins. If we give away 40% of 20% - or 8% operating margin - that is a huge giveaway to management of the company, which guarantees that in a competitive pricing environment that Greystone will lose money.
How can anyone justify such an arrangement?
Text from 10K:
"Under an agreement with Yorktown Management & Financial Services, L.L.C., an entity owned by Warren Kruger, Greystone’s President and CEO, Greystone provides the cost of processing raw material into pelletized recycled plastic and purchases the raw material from Yorktown at cost. Greystone pays 40% of the gross profit, defined as revenue less cost of material and selling
commissions, to Yorktown."
I think Yorktown is doing the work of accumulating the raw materials that Greystone converts into the pellets. You have to pay for the raw materials somehow. Instead of having changing prices, Greystone passes along a percentage of the selling price to Yorktown for collecting the raw materials. This is their version of Cost of Goods sold. You can't create pellets without raw materials.
If you want Greystone to be a competitive company, you let them buy pellets at lowest market price. If competitors to Greystone can source pellets at lower prices, Greystone's financials will not compare well to the peer group.
This looks like a cushy related party deal designed to enrich Yorktown at the cost of Greystone shareholders.
To me this permanently impairs the investment and makes Greystone uninvestable.