WWW.EXFILE.COM, INC. -- 888-775-4789 -- GREYSTONE LOGISTICS, INC. -- FORM 10-Q


UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q
(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED August 31, 2009
 
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ________ 
 
Commission file number         000-26331        

GREYSTONE LOGISTICS, INC.

(Exact name of registrant as specified in its charter)

Oklahoma
75-2954680
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

1613 East 15thStreet, Tulsa, Oklahoma 74120

(Address of principal executive offices)     (Zip Code)

(918) 583-7441

(Registrants telephone number)


(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 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  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted 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  o   No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer  o
(Do not check if a smaller reporting company) 
Smaller reporting company  x
 
Indicate by checkmark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).  Yes  o   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:      October 10, 2009 - 26,111,201
 


GREYSTONE LOGISTICS, INC.
FORM 10-Q
For the Period Ended August 31, 2009

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements
Page
   
Consolidated Balance Sheets
 
as of August 31, 2009 (Unaudited) and May 31, 2009
1
   
Consolidated Statements of Operations (Unaudited)
 
For the Three Month Periods Ended August 31, 2009 and 2008
2
   
Consolidated Statements of Cash Flows (Unaudited)
 
For the Three Month Periods Ended August 31, 2009 and 2008
3
   
Notes to Consolidated Financial Statements (Unaudited)
4
   
Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
7
   
Item 4.  Controls and Procedures
11
   
PART II.  OTHER INFORMATION
 
   
Item 6.  Exhibits
12
   
SIGNATURES
13

 
 

 

ITEM 1.  FINANCIAL STATEMENTS.

Greystone Logistics, Inc. and Subsidiaries
Consolidated Balance Sheets
 
   
August 31,
   
May 31,
 
   
2009
   
2009
 
Assets
 
(Unaudited)
       
Current Assets:
           
Cash
  $ 194,756     $ 274,765  
Accounts receivable, net of Allowance for Doubtful Accounts of $60,578 at both August 31, 2009 and May 31, 2009, respectively
    1,850,077       952,352  
Inventory
    890,206       1,061,569  
Prepaid expenses and other
    61,242       67,382  
Total Current Assets
    2,996,281       2,356,068  
                 
Property, Plant and Equipment, net of accumulated depreciation of $4,903,276 and $4,657,485 at August 31, 2009 and May 31, 2009, respectively
    8,089,342       8,208,888  
                 
Other Assets
    103,603       103,655  
                 
Total Assets
  $ 11,189,226     $ 10,668,611  
                 
Liabilities and Stockholders’ Deficit
               
Current Liabilities:
               
Current portion of long-term debt
  $ 9,126,600     $ 9,339,343  
Advances payable - related party
    975,581       1,010,081  
Accounts payable and accrued expenses
    1,765,855       1,158,513  
Accounts payable and accrued expenses - related parties
    2,204,657       1,834,352  
Preferred dividends payable
    2,039,930       1,958,012  
Total Current Liabilities
    16,112,623       15,300,301  
                 
Long-Term Debt, net of current portion
    3,142,633       3,249,953  
Deferred Income
    20,000       32,000  
                 
Stockholders’ Deficit:
               
Preferred stock, $0.0001 par value, 20,750,000 shares authorized, 50,000 shares  issued and outstanding, liquidation preference of $5,000,000
    5       5  
Common stock, $0.0001 par value, 5,000,000,000 shares authorized, 26,111,201 issued and outstanding
    2,611       2,611  
Additional paid-in capital
    52,945,341       52,921,349  
Accumulated deficit
    (61,799,215 )     (61,625,637 )
Total Stockholders’ Deficit
    (8,851,258 )     (8,701,672 )
Noncontrolling interest
    765,228       788,029  
Total Deficit
    (8,086,030 )     (7,913,643 )
                 
Total Liabilities and Stockholders’ Deficit
  $ 11,189,226     $ 10,668,611  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
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Greystone Logistics, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
 
   
Three Months Ended August 31,
 
   
2009
   
2008
 
             
Sales
  $ 4,376,663     $ 4,173,057  
                 
Cost of Sales
    3,705,682       3,431,927  
                 
Gross Profit
    670,981       741,130  
                 
General, Selling and Administration Expenses
    539,552       410,184  
                 
Operating Income
    131,429       330,946  
                 
Other Income (Expense):
               
Other Income
    12,000       16,000  
Interest Expense
    (214,819 )     (296,980 )
Total Other Expense, net
    (202,819 )     (280,980 )
                 
Net Income (Loss)
    (71,390 )     49,966  
                 
Less: Income Attributable to Noncontrolling Interest
    (20,270 )     (245 )
                 
Net Income (Loss) Attributable to Common Stockholders
               
Before Preferred Dividends
    (91,660 )     49,721  
                 
Preferred Dividends
    81,918       103,972  
                 
Net Loss Available to Common Stockholders
  $ (173,578 )   $ (54,251 )
                 
Loss Available to Common Stockholders
               
Per Share of Common Stock - Basic and Diluted
  $ (0.01 )   $ 0.00  
                 
Weighted Average Shares of Common Stock Outstanding -
               
Basic and Diluted
    26,111,000       26,111,000  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
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Greystone Logistics, Inc. and Subsidiaries
 Consolidated Statements of Cash Flows
 (Unaudited)

 
   
Three Months Ended August 31,
 
   
2009
   
2008
 
             
Cash Flows from Operating Activities:
           
Net income (loss)
  $ (91,660 )   $ 49,721  
Adjustments to reconcile net income (loss) to net cash provided by operating activities
               
Depreciation and amortization
    248,663       241,233  
Stock-based compensation
    23,992       23,992  
Recognition of deferred income
    (12,000 )     (16,000 )
Change in noncontrolling interest
    (22,801 )     19,507  
Changes in receivables
    (897,725 )     171,629  
Changes in inventory
    171,363       228,199  
Changes in prepaid expenses and other
    6,140       19,999  
Change in other assets
    (2,820 )      
Changes in accounts payable and accrued expenses
    977,647       104,083  
Net cash provided by operating activities
    400,799       842,363  
                 
Cash Flows from Investing Activities:
               
Purchase of property and equipment
    (126,245 )     (210,695 )
                 
Cash Flows from Financing Activities:
               
Payments on long-term debt and advances to related parties
    (354,563 )     (259,809 )
                 
Net Increase (Decrease) in Cash
    (80,009 )     371,859  
Cash, beginning of period
    274,765       201,301  
                 
Cash, end of period
  $ 194,756     $ 573,160  
                 
Non-cash Activities:
               
Preferred Dividend Accrual
  $ 81,918     $ 103,972  
Supplemental Information:
               
Interest Paid
  $ 128,511     $ 203,724  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
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GREYSTONE LOGISTICS, INC.
Notes to  Consolidated Financial Statements
(Unaudited)

1.    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, 2009, and the results of its operations and its cash flows for the three month periods ended August 31, 2009 and 2008.  These consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the fiscal year ended May 31, 2009 and the notes thereto included in Greystone’s Form 10-K.

The financial statements have been prepared assuming that Greystone will continue as a going concern.  The working capital deficit of $13,116,342, a stockholders’ deficiency of $8,086,030 and its ability to obtain additional long term financing, if necessary, raise questions about Greystone’s ability to continue as a going concern. It is management’s opinion that (1) based upon interest from potential customers, adequate sales will be attained to reach a profitable status, (2) the funding for working capital required to reach necessary production levels will be obtained and (3) Greystone will continue as a going concern.

The accompanying financial statements have been prepared assuming that Greystone will continue as a going concern and do not reflect the possible effects of any adjustments that might result from Greystone’s inability to continue as a going concern.

2.    The results of operations for the three month periods ended August 31, 2009 and 2008 are not necessarily indicative of the results to be expected for the full fiscal year.

3.    Greystone calculates and discloses earnings per share (EPS) in accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). SFAS 128 requires dual presentation of Basic and Diluted EPS on the face of the statements of operations and requires a reconciliation of the numerator and denominator of the Basic EPS computation to the numerator and denominator of the Diluted EPS computation. Basic EPS excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of Greystone.
 
In computing Diluted EPS, only potential common shares that are dilutive—those that reduce earnings per share or increase loss per share—are included. Exercise of options and warrants or conversion of convertible securities is not assumed if the result would be antidilutive, such as when a loss from continuing operations is reported. The “control number” for determining whether including potential common shares in the Diluted EPS computation would be antidilutive
 
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is income from continuing operations. As a result, if there was a loss from continuing operations, Diluted EPS would be computed in the same manner as Basic EPS is computed, even if an entity has net income after adjusting for discontinued operations, an extraordinary item or the cumulative effect of an accounting change.  Due to the loss for the three month periods ended August 31, 2009 and 2008, Diluted EPS is computed in the same manner as Basic EPS.
 
4.    Inventory consists of the following:
 
   
August 31,
   
May 31,
 
   
2009
   
2009
 
   
(Unaudited)
       
             
Raw materials
  $ 501,569     $ 376,328  
Finished goods
    388,637       685,241  
Total inventory
  $ 890,206     $ 1,061,569  
 
 
5.    Greystone’s sales agreements with customers other than its primary customer generally provide for risk of loss to pass to the customers upon shipment from Greystone’s plant in Bettendorf, Iowa.  Revenue is recognized for these customers at date of shipment.

Greystone’s agreements with its major customer provide that (1) risk of loss or damages for product in transit remain with Greystone or (2) product is subject to approval at the customer’s premises.  Accordingly, Greystone recognizes revenue when product has been delivered to the customer’s sites and risk of loss has passed to the customer.

For sales to all customers, cost of goods sold is recognized when the related revenue is recognized.

6.    Financial Instruments

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

 Cash: The carrying amounts reported in the balance sheet approximate fair value due to the short-term maturity of these instruments.

Accounts Receivable and Accounts Payable:  The carrying amounts reported in the balance sheet for 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 of comparable loans.  The carrying amounts reported in the balance sheet approximate fair value.

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7.    Subsequent Events

Greystone has evaluated events subsequent to the balance sheet date, August 31, 2009, through ­­October 20, 2009, the date the financial statements were issued.

8.    Recent Accounting Pronouncements

On June 1, 2009,  Greystone adopted Statememt of Financial Accounting Standards (SFAS) 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51. SFAS No. 160 changed the accounting and financial reporting for noncontrolling (minority) interests by requiring that on June 1, 2009, noncontrolling (minority) interests be reported in our consolidated balance sheets within equity and separate from the parent company’s equity. SFAS No. 160 also requires that subsequent to May 31, 2009, any increases or decreases in ownership interests in a subsidiary that do not result in a loss of control be accounted for as equity transactions. As a result, any difference between the amount by which the noncontrolling (minority) interest is adjusted and the fair value of the consideration paid or received, if any, is recognized directly in equity attributable to the controlling interest. Further, SFAS No. 160 provides that the consolidated statements of income reflect net income attributable to the noncontrolling interests, which was previously recorded as minority interest expense. The accounting requirements of SFAS No. 160 are applied prospectively. However, the presentation and disclosure requirements are applied retrospectively. Under SFAS No. 160, the financial statements have reclassified noncontrolling interests into the equity section of the consolidated balance sheet and adjusted the consolidated income statement to include net income attributed to the noncontrolling (minority) interests.
 
On June 1, 2009, Greystone adopted FASB Staff Position No. 107-1, Interim Disclosures about Fair Value of Financial Instruments (FSP 107-1) which increases the frequency of fair value disclosures to a quarterly basis instead of an annual basis. The guidance relates to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet at fair value.  The fair value of financial instruments is disclosed in note 6.

On June 1, 2009, Greystone adopted SFAS No. 165, Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the date the financial statements are issued or available to be issued. SFAS No. 165 requires an entity to reflect in its financial statements the effects of subsequent events that provide additional evidence about conditions at the balance sheet date including the estimates inherent in the process of preparing financial statements. Subsequent events that provide evidence about conditions that arose after the balance sheet date should be disclosed. Disclosures should include the nature of the event and either an estimate of its financial effect or a statement that an estimate cannot be made. SFAS No. 165 also requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date.  The disclosure of subsequent events is presented in note 7.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46R. SFAS No. 167 amends certain requirements of FASB Interpretation No. 46 (Revised
 
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December 2003), “Consolidation of Variable Interest Entities — an interpretation of ARB No. 51,” to improve the financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. SFAS No. 167 is effective for Greystone in the fiscal year beginning June 1, 2010. FAS No. 167 is not expected to have a material impact on the Greystone’s consolidated financial position and results of operations.
 
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162. SFAS No. 168 replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” and establishes the FASB Accounting Standards Codification™ (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with GAAP. All existing accounting standard documents are superseded by the Codification and any accounting literature not included in the Codification will not be authoritative. However, rules and interpretive releases of the SEC issued under the authority of federal securities laws will continue to be sources of authoritative GAAP for SEC registrants. SFAS No. 168 is effective for interim and annual reporting periods ending after September 15, 2009. Therefore, beginning with Greystone’s second quarter of fiscal year 2010, all references made by it to GAAP in its consolidated financial statements will use the new Codification numbering system. The Codification does not change or alter existing GAAP and, therefore, it is not expected to have a material impact on Greystone’s consolidated financial position and results of operations.

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, LLC, or GSM, and Plastic Pallet Production, Inc., or PPP, and a variable interest entity, Greystone Properties, LLC.  All material intercompany accounts and transactions have been eliminated.

Greystone has incurred significant losses from operations, and there is no assurance that future operations will be profitable or that it can obtain funds necessary to finance its operations.

References to fiscal year 2010 refer to the three month period ended August 31, 2009.  References to fiscal year 2009 refer to the three month period ended August 31, 2008.

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Sales

Greystone’s primary business is the manufacturing and selling of plastic pallets through its wholly owned subsidiaries, GSM and PPP.  In addition, Greystone sells its excess recycled resin in pelletized and ground forms. Greystone sells its pallets through direct sales and a network of independent contractor distributors.  Greystone also sells its pallets and pallet leasing services to certain large customers direct through its President, Senior Vice President of Sales and Marketing and other employees.

Greystone sales to one national brewer for fiscal years 2010 and 2009 were approximately 66% and 78% of total sales, respectively.

In addition, in July 2006, Greystone launched a beta test program involving its lease of a small pool of recycled plastic pallets to a customer to be utilized by the customer to ship a portion of its manufactured products in a closed loop system. Pursuant to the agreement with the customer, Greystone delivers and tracks throughout the logistics cycle sufficient quantities of plastic pallets for use in shipping a segment of the customer’s product.  The pallets stay in a closed loop environment and are continually sent back for reuse.  If a pallet is damaged, Greystone grinds the pallet and reutilizes the resin.

 Personnel

Greystone had approximately 71 and 85 full-time employees as of August 31, 2009 and 2008, respectively.

Taxes

For all years presented, Greystone’s effective tax rate is 0%.  Greystone has generated substantial net operating losses which would normally reflect a tax benefit in the statements of operations and a deferred asset on the balance sheet.  However, because of the current uncertainty as to Greystone’s ability to achieve profitability, a valuation reserve has been established that offsets the amount of any tax benefit available for each period presented in the consolidated statements of operations.

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. At August 31, 2009, Greystone had no unrecognized tax benefits.

- 8 -

Three Month Period Ended August 31, 2009 Compared to Three Month Period Ended August 31, 2008

Sales
 
Sales for fiscal year 2010 were $4,376,663 compared to $4,173,057 in fiscal year 2009, for an increase of $203,606.  Sales to Greystone’s major customer were approximately 66% of total sales in fiscal year 2010 compared to 78% in fiscal year 2009.  Sales to a new customer were approximately 23% of total sales in fiscal year 2010.

On June 15, 2009, Greystone and Sonoco Products Company (Sonoco) entered into a Raw Materials/Goods Purchase Contract (the “Contract”) relating to the purchase by Sonoco of Greystone pallets made from 100% recycled plastic.  Sonoco markets consumer packaging products among other things and Greystone will produce a private label pallet line for Sonoco.   The Contract does not obligate Sonoco to purchase any particular quantity, volume or value of pallets.  The term of the Contract ends on March 31, 2010, subject to the extension of the Contract by agreement of Greystone and Sonoco.  
 
 
Cost of Sales
 
Cost of sales in fiscal year 2010 was $3,705,682, or 85% of sales, compared to $3,431,927, or 82% of sales in fiscal year 2009.  The increase in cost of sales as a percentage of total sales for fiscal year 2010 compared to fiscal year 2009 is the result of increased overhead costs, including repair and maintenance costs, approximately 2.5% of total sales, and equipment rental costs for one injection molding machine, approximately 1.7% of total sales.
 
 
General, Selling and Administration Expenses
 
General, selling and administration expenses for fiscal year 2010 were $539,552 compared to $410,184 in fiscal year 2009 for an increase of $129,368.  This increase is primarily due to an increase in administrative personnel.

Interest Expense
 
Interest expense decreased $82,161 from $296,980 in fiscal year 2009 to $214,819 in fiscal year 2010.  Greystone’s cost of debt is primarily based upon variable rates of interest tied to the prime rate of interest.  The average prime rate of interest was 5% during the three month period ended August 31, 2008 compared to 3.25% during the three month period ended August 31, 2009.

Net Loss, Net of Noncontrolling Interest
 
Greystone recorded a net loss, net of noncontrolling interest, of $(91,660) in fiscal year 2010 compared to net income, net of noncontrolling interest, of $49,721 in fiscal year 2009 for the reasons discussed above.

- 9 -

Net Loss Available to Common Stockholders
 
After deducting preferred dividends, the net loss available to common stockholders was $(173,578), or $(0.01) per share, in fiscal year 2010 compared to $(54,251), or $(0.00) per share, in fiscal year 2009 for the reasons discussed above.

Liquidity and Capital Resources

Greystone’s cash requirements for operating activities consist principally of accounts receivable, inventory, accounts payable and scheduled payments of interest on outstanding indebtedness.  Greystone is currently generating positive cash flows from its operations but continues to be dependent on outside sources of cash to fund its contractual obligations and capital needs.

A summary of cash flows for the three months ended August 31, 2009 is as follows:
 
Cash provided by operating activities
  $ 400,799  
         
Cash used in investing activities
    (126,245 )
         
Cash used in financing activities
    (354,563 )


The contractual obligations of Greystone are as follows:

   
Total
   
Less than
1 year
   
1-3 years
   
4-5 years
   
Over
5 years
 
Long-term debt
  $ 12,269,233     $ 9,126,600     $ 918,722     $ 542,278     $ 1,681,633  

           To provide for the additional cash that might be necessary to meet Greystone’s contractual obligations, Greystone is exploring various options including refinancing long-term debt and equity financing.  However, there is no guarantee that Greystone will be able to raise sufficient capital to meet these obligations.

Greystone had a working capital deficit of $13,116,342 at August 31, 2009, which includes the current portion of long-term debt of $9,126,600 and accounts payable and accrued liabilities of $3,970,512. The working capital deficit reflects the uncertain financial condition of Greystone resulting from its inability to obtain long term financing until such time as it is able to maintain profitability.  There is no assurance that Greystone will secure such financing.

Substantially all of the financing that Greystone has received through August 31, 2009, has been provided by loans or through loan guarantees from the officers and directors of Greystone,  the offerings of preferred stock to current and former officers and directors of Greystone in fiscal years 2001 and 2003 and through a private placement of common stock completed in March 2005.

- 10 -

Greystone continues to be dependent upon its officers and directors to provide and/or secure additional financing and there is no assurance that its officers and directors will continue to do so.  As such, there is no assurance that funding will be available for Greystone to continue operations.

Greystone has 50,000 outstanding shares of cumulative 2003 Preferred Stock for a total of $5,000,000 with a preferred dividend rate of the prime rate of interest plus 3.25%.  Greystone does not anticipate that it will make cash dividend payments to any holders of its preferred stock or its common stock unless and until the financial position of Greystone improves through increased revenues, another financing or otherwise.

Forward Looking Statements and Material Risks

This Quarterly Report on Form 10-Q includes certain statements that may be deemed “forward-looking statements” within the meaning of federal securities laws.  All statements, other than statements of historical fact, that address activities, events or developments that Greystone expects, believes or anticipates will or may occur in the future, including decreased costs, securing financing, the profitability of Greystone, potential sales of pallets or other possible business developments, are forward-looking statements.  Such statements are subject to a number of assumptions, risks and uncertainties. The forward-looking statements contained in this Quarterly Report on Form 10-Q could be affected by any of the following factors: Greystone’s prospects could be affected by changes in availability of raw materials, competition, rapid technological change and new legislation regarding environmental matters; Greystone may not be able to secure additional financing necessary to sustain and grow its operations; and a material portion of Greystone’s business is and will be dependent upon a few large customers and there is no assurance that Greystone will be able to retain such customers.  These risks and other risks that could affect Greystone’s business are more fully described in Greystone’s Form 10-K for the fiscal year ended May 31, 2009, which was filed on September 15, 2009.  Actual results may vary materially from the forward-looking statements.  Greystone undertakes no duty to update any of the forward-looking statements contained in this Quarterly Report on Form 10-Q.

Item 4.  Controls and Procedures

As of the end of the period covered by this Current Report on Form 10-Q, Greystone carried out an evaluation under the supervision of Greystone’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of Greystone’s disclosure controls and procedures pursuant to the Securities Exchange Act Rules 13a-15(e) and 15d-15(e).  Based on this evaluation as of May 31, 2009, Greystone’s Chief Executive Officer and Chief Financial Officer identified three material weaknesses.  During fiscal year 2010, Greystone implemented procedures to correct one of the material weaknesses. As a result of the remaining two material weaknesses, Greystone’s CEO and CFO concluded that Greystone did not maintain effective internal control over financial reporting as of August 31, 2009. The material weaknesses as of August 31, 2009 were as follows:

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1. Greystone lacks the necessary corporate accounting resources to maintain adequate segregation of duties. Reliance on these limited resources impairs Greystone’s ability to provide for proper segregation of duties and the ability to ensure consistently complete and accurate financial reporting, as well as disclosure controls and procedures.

2. Greystone has limited resources to ensure that necessary internal controls are implemented and followed throughout the company. Because of this limitation with respect to the ability to allocate sufficient resources to internal controls, material misstatements could occur and remain undetected, implementation of new accounting standards could be hindered and risk assessment and monitoring may not be addressed in a timely manner.

As of May 31, 2009, Greystone’s costing procedure with respect to valuation of finished goods inventory was reported as a material weakness. Greystone implemented procedures during fiscal year 2010 to calculate labor and overhead rates on an actual basis to ensure that finished goods are properly valued.

During the quarter ended August 31, 2009, except as noted in the previous paragraph, there were no changes in Greystone’s internal controls over financial reporting that have materially affected, or that are reasonably likely to materially affect, Greystone’s internal control over financial reporting.


PART II.  OTHER INFORMATION

Item 6.  Exhibits

 
11.1
Computation of Loss per Share is in Note 3 in the Notes to the financial statements.

 
31.1
Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 
31.2
Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
32.1
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
 
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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized.

 
GREYSTONE LOGISTICS, INC.
  (Registrant)
 
       
Date: October 20, 2009
By:
/s/ Warren F. Kruger  
   
Warren F. Kruger,
 
   
 President and Chief Executive Officer
 
       

 
 
 
 
 
 
 
 
 
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