-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EsFtZEBJtYasscmIYJubdEtHf7g0LS7YRym5H2wNMlYSN2ukG7JOEOuLyiQrGV+G 0uqv+z+d1u3TEIcKeL4rtA== 0001072613-07-001201.txt : 20070517 0001072613-07-001201.hdr.sgml : 20070517 20070517152158 ACCESSION NUMBER: 0001072613-07-001201 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070228 FILED AS OF DATE: 20070517 DATE AS OF CHANGE: 20070517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREYSTONE LOGISTICS, INC. CENTRAL INDEX KEY: 0001088413 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 752954680 FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26331 FILM NUMBER: 07861137 BUSINESS ADDRESS: STREET 1: 1613 EAST 15TH STREET CITY: TULSA STATE: OK ZIP: 74120 BUSINESS PHONE: 918-583-7441 MAIL ADDRESS: STREET 1: 1613 EAST 15TH STREET CITY: TULSA STATE: OK ZIP: 74120 FORMER COMPANY: FORMER CONFORMED NAME: PALWEB CORP DATE OF NAME CHANGE: 19990610 10QSB 1 form10-qsb_15080.txt GREYSTONE LOGISTICS, INC. FORM 10-QSB ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2007 [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT FOR THE TRANSITION PERIOD FROM ______ TO ________ Commission file number 000-26331 ----------- GREYSTONE LOGISTICS, INC. - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) OKLAHOMA 75-2954680 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1613 EAST 15TH STREET, TULSA, OKLAHOMA 74120 - -------------------------------------------------------------------------------- (Address of principal executive offices) (918) 583-7441 - -------------------------------------------------------------------------------- (Issuer's telephone number) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 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 State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: March 10, 2007 - 26,061,201 TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes [_] No [X] ================================================================================ GREYSTONE LOGISTICS, INC. FORM 10-QSB FOR THE PERIOD ENDED FEBRUARY 28, 2007 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PAGE Condensed Consolidated Balance Sheets as of February 28, 2007 and May 31, 2006 1 Condensed Consolidated Statements of Operations For the Nine Month Periods Ended February 28, 2007 and 2006 2 Condensed Consolidated Statements of Operations For the Three Month Periods Ended February 28, 2007 and 2006 3 Condensed Consolidated Statements of Cash Flows For the Nine Month Periods Ended February 28, 2007 and 2006 4 Notes to Condensed Consolidated Financial Statements 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 8 ITEM 3. CONTROLS AND PROCEDURES 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 14 ITEM 6. EXHIBITS 14 SIGNATURES 15 ITEM 1. FINANCIAL INFORMATION GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets
February 28, May 31, 2007 2006 ------------ ------------ ASSETS ------ CURRENT ASSETS: Accounts receivable, net of allowance for doubtful 151,860 842,375 accounts of $39,992 at February 28, 2007 Inventory 63,081 631,236 Prepaid expenses 31,117 8,913 ------------ ------------ TOTAL CURRENT ASSETS 328,895 1,483,449 PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $2,517,125 and $2,060,091 at February 28, 2007 and May 31, 2006, respectively 7,164,894 8,028,275 OTHER ASSETS 114,990 151,661 ------------ ------------ TOTAL ASSETS $ 7,608,779 $ 9,663,385 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY ---------------------------------------- CURRENT LIABILITIES: Current portion of long-term debt $ 3,192,348 $ 2,055,463 Bank overdraft -- 143,928 Advances payable - related party 860,799 394,567 Accounts payable and accrued expenses: Third parties 1,787,800 2,740,555 Related party 508,247 -- Preferred dividends payable 942,301 513,260 ------------ ------------ TOTAL CURRENT LIABILITIES 7,291,495 5,847,773 LONG-TERM DEBT 9,946,663 10,886,176 DEFERRED INCOME 143,805 -- STOCKHOLDERS' DEFICIENCY: Preferred stock, $0.0001 par value, 20,750,000 shares authorized, 50,000 shares outstanding, liquidation preference of $5,000,000 5 5 Common stock, $0.0001 par value, 5,000,000,000 shares authorized, 26,061,201 and 24,061,201 outstanding, respectively 2,606 2,406 Additional paid-in capital 52,574,454 52,278,594 Deficit (62,350,249) (59,351,569) ------------ ------------ TOTAL STOCKHOLDERS' DEFICIENCY (9,773,184) (7,070,564) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 7,608,779 $ 9,663,385 ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
1 GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations
Nine Months Ended February 28, ------------------------------ 2007 2006 ------------ ------------ Sales $ 9,065,259 $ 11,237,737 Cost of Sales, including depreciation expense of $598,472 and $544,805 8,840,652 10,777,837 ------------ ------------ Gross Profit 224,607 459,900 Expenses: General, selling and administration expenses 1,368,902 1,733,876 ------------ ------------ Operating Loss (1,144,295) (1,273,976) Other Income (Expense): Other income (expense) (472,323) 81,107 Interest expense (953,021) (772,745) ------------ ------------ Total Other Income (Expense) (1,425,344) (691,638) ------------ ------------ Net Loss (2,569,639) (1,965,614) Preferred Dividends 429,041 409,629 ------------ ------------ Net Loss Available to Common Stockholders $ (2,998,680) $ (2,375,243) ============ ============ Loss Available to Common Stockholders Per Share of Common Stock - Basic and Diluted $ (0.12) $ (0.10) ============ ============ Weighted Average Shares of Common Stock Outstanding 24,283,000 24,061,000 ============ ============ The accompanying notes are an integral part of these consolidated financial statements
2 GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations
Three Months Ended February 28, ------------------------------ 2007 2006 ------------ ------------ Sales $ 2,574,428 $ 4,122,947 Cost of Sales, including depreciation expense of $197,301 and $191,989 2,463,916 3,815,678 ------------ ------------ Gross Profit (Loss) 110,512 307,269 Expenses: General, selling and administration expenses 466,157 566,029 ------------ ------------ Operating Loss (355,645) (258,760) Other Income (Expense): Other income (expense) (474,536) 6,808 Interest expense (348,140) (266,775) ------------ ------------ Total Other Income (Expense) (822,676) (259,967) ------------ ------------ Net Loss (1,178,321) (518,727) Preferred Dividends 141,781 130,029 ------------ ------------ Net Loss Available to Common Stockholders $ (1,320,102) $ (648,756) ============ ============ Loss Available to Common Stockholders Per Share of Common Stock - Basic and Diluted $ (0.05) $ (0.03) ============ ============ Weighted Average Shares of Common Stock Outstanding 24,728,000 24,061,000 ============ ============ The accompanying notes are an integral part of these consolidated financial statements
3 GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows
Nine Months Ended February 28, ------------------------------ 2007 2006 ------------ ------------ Cash Flows from Operating Activities: Net Loss $ (2,569,639) $ (1,965,614) Adjustments to reconcile net loss to cash used in operating activities Depreciation and amortization 628,511 556,265 Gain on sale of equipment and other assets (71,472) (6,571) Stock option compensation 196,060 -- Loss on termination of long-term lease 619,061 -- Changes in accounts receivable 690,515 300,398 Changes in inventory 568,155 (89,185) Changes in prepaid expenses and other (11,604) 3,855 Changes in accounts payable and accrued expenses (444,508) 211,741 ------------ ------------ Net cash used in operating activities (394,921) (989,111) Cash Flows from Investing Activities: Purchase of property and equipment (517,016) (1,447,757) Proceeds from sale of equipment 993,234 -- ------------ ------------ Net cash provided by (used in) investing activities 476,218 (1,447,757) Cash Flows from Financing Activities: Proceeds from notes and advances payable 355,603 2,924,225 Payments on notes and advances payable (211,060) (453,279) Payment of bank overdraft (143,928) -- Dividends paid on preferred stock -- (34,463) ------------ ------------ Net cash provided by financing activities 615 2,436,483 ------------ ------------ Net Increase (Decrease) in Cash 81,912 (385) Cash, beginning of period 925 1,410 ------------ ------------ Cash, end of period $ 82,837 $ 1,025 ============ ============ Noncash activities: Sale of equipment in exchange for debt $ -- $ 20,000 Accrual of preferred dividends 429,041 375,166 Issuance of common stock for termination of long-term lease 100,000 -- Long-term payable for termination of long-term lease 519,061 -- Supplemental Information: Interest paid $ 820,599 $ 772,745 The accompanying notes are an integral part of these consolidated financial statements
4 GREYSTONE LOGISTICS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. In the opinion of 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 February 28, 2007, and the results of its operations and its cash flows for the nine month and three month periods ended February 28, 2007 and 2006. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended May 31, 2006 and the notes thereto included in Greystone's Form 10-KSB. The financial statements have been prepared assuming that Greystone will continue as a going concern. The working capital deficit of $(6,962,600), a stockholders' deficiency of $(9,773,184) and continuing losses from operations at February 28, 2007 and its inability to obtain long term financing raises substantial doubt about Greystone's ability to 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 nine month and three month periods ended February 28, 2007 and 2006 are not necessarily indicative of the results to be expected for the full year. 3. The computation of loss per share is computed by dividing the loss available to common shareholders by the weighted average shares outstanding for the periods. Loss available to common shareholders is determined by adding preferred dividends for the periods to the net loss. For the nine month periods ended February 28, 2007 and 2006, the weighted average common shares outstanding for all periods is 24,283,000 and 24,061,000, respectively. For the three month periods ended February 28, 2007 and 2006, the weighted average common shares outstanding for all periods is 24,728,000 and 24,061,000, respectively. Convertible preferred stock, common stock options and warrants are not considered as their effect is antidilutive. 4. Inventory consists of the following: February 28, May 31, 2007 2006 ---------- ---------- Raw materials $ -- $ 554,316 Finished goods 63,081 76,920 ---------- ---------- Total inventory $ 63,081 $ 631,236 ========== ========== 5. Effective February 1, 2007, Greystone agreed to issue 2,000,000 shares of its common stock and agreed to pay $24,000 per month for twenty-four months to 1607 Commerce LLC to terminate a long-term lease agreement on equipment. The present value of the series of $24,000 monthly payments at 8.5% interest or $519,060 and the value of the common stock on the effective date of issuance of $100,000 were recorded as a loss on the termination agreement of the long-term lease. 5 Also, effective February 1, 2007, Greystone issued a warrant to purchase up to 250,000 shares of common stock at $0.15 per share to an individual in consideration for providing certain financing and consulting services, which facilitated the sale of certain of Greystone's equipment to Yorktown Management, LLC, a company owned by Warren Kruger, Chairman and CEO. The warrants are valued at $8,500. 6. In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123(R), "Share-Based Payment." This statement is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. SFAS No. 123(R) requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees and is effective for interim or annual periods beginning after December 15, 2005. The Company adopted SFAS No. 123(R) as of March 1, 2006, using the modified prospective transition method. Under the modified prospective transition method, awards that are granted, modified or settled after the date of adoption will be measured in accordance with SFAS No. 123(R). Unvested equity-classified awards that were granted prior to March 1, 2006 will be accounted for using the straight-line basis for recognizing compensation costs in accordance with SFAS No. 123, except that the amounts will be recognized in the Company's consolidated statements of operations. The effect of adopting SFAS No. 123(R) is a charge in the amount of $196,060 and $71,020, including $8,500 for the issuance of warrants as discussed in Note 5, to compensation expense for the nine month and three month periods ending February 28, 2007, respectively. For the nine month and three month periods ended February 28, 2006, Greystone applied the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations, in accounting for its stock options. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. There was no stock option cost during the nine month and three month periods ended February 28, 2006. 7. Effective as of February 1, 2007, GSM entered into a purchase agreement with Yorktown Management & Financial Services, LLC, an entity owned by Greystone's CEO and Chairman, pursuant to which Yorktown purchased from GSM existing finished goods inventory and certain raw materials for $1,018,582 and grinding and peripheral equipment, resin contracts and molds for $981,418. Greystone completed this transaction with Yorktown, in part, to alleviate the working capital requirements in maintaining raw material inventory, and will purchase the raw material used in its production process at Yorktown's cost plus $0.03 per pound. 8. On February 8, 2007, Greystone entered into a settlement agreement with 1607 Commerce Limited Partnership ("1607"), pursuant to which in exchange for final settlement of all of 1607's claims under the PIPER 600 equipment lease and certain related guaranties, Greystone agreed to (i) make a one time payment to 1607 of $1,048,000, (ii) make monthly payments to 1607 of $24,000 for a term of 24 months commencing March 1, 2007, which payments can be used towards the purchase price of pallets purchased from 1607, (iii) transfer to 1607 2,000,000 shares of Greystone's common stock, and (iv) enter into an agreement with 1607 whereby, among other things, 1607 will be given floor space, utilities and regrind resin in Greystone's Iowa facility and Greystone 6 and its subsidiaries will be required to purchase up to 200,000 Granada pallets at $8.00 per pallet and 200,000 nestable pallets at $3.00 per pallet from 1607 over a two year term. Also pursuant to the settlement agreement, the monthly payments to be made by Greystone will be credited against the purchase price of any Granada pallets purchased from 1607; provided, however, 1607 is not obligated to produce any pallets, but has agreed to use it best efforts to do so. For more information regarding these transactions, see Greystone's Current Report on Form 8-K, which was filed on February 27, 2007. 7 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION RESULTS OF OPERATIONS - --------------------- GENERAL TO ALL PERIODS The condensed consolidated statements include Greystone Logistics, Inc., or Greystone, and its wholly owned subsidiaries, Greystone Manufacturing, LLC, or GSM, and Plastic Pallet Production, Inc., or PPP. Greystone has incurred significant losses from operations, and there is no assurance that it will achieve profitability or obtain funds necessary to finance its operations. References to fiscal year 2007 refer to the nine month and three month periods ended February 28, 2007. References to fiscal year 2006 refer to the nine month and three month periods ended February 28, 2006. SALES Greystone's primary business is the manufacturing and selling of plastic pallets through its wholly owned subsidiaries, GSM and PPP. Greystone distributes its pallets through an exclusive marketing arrangement with Decade Products and certain direct sales by Greystone's officers and employees. In addition, in July 2006, Greystone launched a beta test program involving the lease of a small pool of recycled plastic pallets by Greystone 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 will deliver and track throughout the logistics cycle sufficient quantities of plastic pallets for use in shipping a segment of the customer's product. The pallets will stay in a closed loop environment and be continually sent back for reuse. If a pallet is damaged, Greystone will grind the pallet and reutilize the resin. PERSONNEL Greystone had approximately 75 full-time employees as of February 28, 2007 compared to 84 full-time employees as of February 28, 2006. TAXES For all years presented, Greystone's effective tax rate is 0%. Greystone has generated net operating losses since inception, which would normally reflect a tax benefit in the statement 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 8 consolidated statement of operations. As the result of changes in control of Greystone during prior years, the net operating loss available to future periods may be significantly limited. NINE MONTH PERIOD ENDED FEBRUARY 28, 2007 COMPARED TO NINE MONTH PERIOD ENDED FEBRUARY 28, 2006 Sales for fiscal year 2007 were $9,065,259 compared to $11,237,737 in fiscal year 2006, for a decrease of $2,172,478. The decrease is the result of a reduction in pallet sales to one major customer during the second and third quarters of fiscal year 2007. Cost of sales in fiscal year 2007 was $8,840,652, or 98% of sales, compared to $10,777,837, or 96% of sales, in fiscal year 2006. The overall high rate of cost of sales to sales is due in part to the lease cost associated with the PIPER 600 injection molding machine, which operated at 10% of its designed capacity. Effective February 1, 2007, this lease arrangement was terminated as further discussed below. General and administrative expense decreased $364,974 from $1,733,876 in fiscal year 2006 to $1,368,902 in fiscal year 2007. The primary factor affecting the decrease in general and administrative expense from fiscal year 2006 to fiscal year 2007 is reductions in administrative salaries, travel expense and professional fees incurred in 2006 in connection with seeking capital to provide for future growth. The reduction in administrative salaries was partially offset by a charge of $196,060 for the cost of stock options and warrants as discussed further in note 6 to the condensed consolidated financial statements under Item 1 - Financial Statements. Effective as of February 1, 2007, GSM entered into a purchase agreement with Yorktown Management & Financial Services, LLC, an entity owned by Greystone's CEO and Chairman, pursuant to which Yorktown purchased from GSM existing finished goods inventory and certain raw materials for $1,018,582 and grinding and peripheral equipment, resin contracts and molds for $981,418. Greystone completed this transaction with Yorktown, in part, to alleviate the working capital requirements in maintaining raw material inventory, and will purchase the raw material used in its production process at Yorktown's cost plus $0.03 per pound. On February 8, 2007, Greystone entered into a settlement agreement with 1607 Commerce Limited Partnership, pursuant to which in exchange for final settlement of all of 1607's claims under the PIPER 600 equipment lease and certain related guaranties, Greystone agreed to (i) make a one time payment to 1607 of $1,048,000, (ii) make monthly payments to 1607 of $24,000 for a term of 24 months commencing March 1, 2007, which payments can be used towards the purchase price of pallets purchased from 1607, (iii) transfer to 1607 2,000,000 shares of Greystone's common stock, and (iv) enter into an agreement with 1607 whereby, among other things, 1607 will be given floor space, utilities and regrind resin in Greystone's Iowa facility and Greystone and its subsidiaries will be required to purchase up to 200,000 Granada pallets at $8.00 per pallet and 200,000 nestable pallets at $3.00 per pallet from 1607 over a two year term. Also pursuant to the settlement agreement, the monthly payments to be made by Greystone will be credited against the purchase price of any Granada pallets purchased from 1607; provided, 9 however, 1607 is not obligated to produce any pallets, but has agreed to use it best efforts to do so. For more information regarding these transactions, see Greystone's Current Report on Form 8-K, which was filed on February 27, 2007. Other income (expense) for fiscal year 2007 includes a loss of $(619,061) from the termination of the long-term lease on the PIPER 600 injection molding machine offset by a gain of $79,410 on the sale of resin contract to Yorktown as discussed above. Interest expense increased $180,276 from $772,745 in fiscal year 2006 to $953,021 in fiscal year 2007 principally due to additional debt incurred to finance the acquisition of two production lines and increases in the prime rate of interest. The net loss increased $604,025 from $(1,965,614) in fiscal year 2006 to $(2,569,639) in fiscal year 2007 for the reasons discussed above. After deducting preferred dividends, the net loss available to common shareholders was $(2,998,680), or $(0.12) per share, in fiscal year 2007 compared to $(2,375,243), or $(0.10) per share, in fiscal year 2006 for an increase in the net loss of $623,437 for the reasons discussed above. THREE MONTH PERIOD ENDED FEBRUARY 28, 2007 COMPARED TO THREE MONTH PERIOD ENDED FEBRUARY 28, 2006 Sales for fiscal year 2007 were $2,574,428 compared to $4,122,947 in fiscal year 2006, for a decrease of $1,548,519. The decrease is the result of a reduction in pallet sales to one major customer. Cost of sales in fiscal year 2007 was $2,463,916, or 96% of sales, compared to $3,815,678, or 92% of sales, in fiscal year 2006. The overall high rate of cost of sales to sales is due in part to the lease cost associated with the PIPER 600 injection molding machine, which operated at 10% of its designed capacity. Effective February 1, 2007, this lease arrangement was terminated as further discussed below. General and administrative expense decreased $99,872 from $566,029 in fiscal year 2006 to $466,157 in fiscal year 2007. The primary factor affecting the decrease in general and administrative expense from fiscal year 2006 to fiscal year 2007 is reductions in administrative salaries, travel expense and professional fees incurred in 2006 in connection with seeking capital to provide for future growth. The reduction in administrative salaries was partially offset by a charge of $71,020 for the cost of stock options and warrants as discussed further in note 5 to the condensed consolidated financial statements under Item 1 - Financial Statements. Effective as of February 1, 2007, GSM entered into a purchase agreement with Yorktown Management & Financial Services, LLC, an entity owned by Greystone's CEO and Chairman, pursuant to which Yorktown purchased from GSM existing finished goods inventory and certain 10 raw materials for $1,018,582 and grinding and peripheral equipment, resin contracts and molds for $981,418. Greystone completed this transaction with Yorktown, in part, to alleviate the working capital requirements in maintaining raw material inventory, and will purchase the raw material used in its production process at Yorktown's cost plus $0.03 per pound. On February 8, 2007, Greystone entered into a settlement agreement with 1607 Commerce Limited Partnership, pursuant to which in exchange for final settlement of all of 1607's claims under the PIPER 600 equipment lease and certain related guaranties, Greystone agreed to (i) make a one time payment to 1607 of $1,048,000, (ii) make monthly payments to 1607 of $24,000 for a term of 24 months commencing March 1, 2007, which payments can be used towards the purchase price of pallets purchased from 1607, (iii) transfer to 1607 2,000,000 shares of Greystone's common stock, and (iv) enter into an agreement with 1607 whereby, among other things, 1607 will be given floor space, utilities and regrind resin in Greystone's Iowa facility and Greystone and its subsidiaries will be required to purchase up to 200,000 Granada pallets at $8.00 per pallet and 200,000 nestable pallets at $3.00 per pallet from 1607 over a two year term. Also pursuant to the settlement agreement, the monthly payments to be made by Greystone will be credited against the purchase price of any Granada pallets purchased from 1607; provided, however, 1607 is not obligated to produce any pallets, but has agreed to use it best efforts to do so. For more information regarding these transactions, see Greystone's Current Report on Form 8-K, which was filed on February 27, 2007. Other income (expense) for fiscal year 2007 includes a loss of $(619,061) from termination of the long-term lease on the PIPER 600 injection molding machine offset by a gain of $79,409 on the sale of resin contracts to Yorktown as discussed above. Interest expense increased $81,365 from $266,775 in fiscal year 2006 to $348,140 in fiscal year 2007. The net loss increased $659,594 from $(518,727) in fiscal year 2006 to $(1,178,321) in fiscal year 2007 for the reasons discussed above. After deducting preferred dividends, the net loss available to common shareholders was $(1,320,102), or $(0.05) per share, in fiscal year 2007 compared to $(648,756), or $(0.03) per share in fiscal year 2006 for an increase in the net loss of $671,346 for the reasons discussed above. OUTLOOK - ------- Greystone has successfully renewed a long-standing purchase order and added several new purchase orders through its outside sales group. If plastic prices remain at current levels, Greystone anticipates significant improvements to its operating results for the remainder of 2007. 11 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Greystone's cash requirements for operating activities consist principally of accounts receivable, inventory, accounts payable, operating leases and scheduled payments of interest on outstanding indebtedness. Greystone is currently dependent on outside sources of cash to fund its operations. As of February 28, 2007, revenues from sales remain insufficient to meet current liabilities. A summary of cash flows for the nine months ended February 28, 2007 is as follows: Net cash used in operating activities $ (394,921) Net cash provided by investing activities 476,218 Net cash provided by financing activities 615 The contractual obligations of Greystone are as follows:
LESS THAN OVER TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS ------------ ------------ ------------ ------------ ------------ Long-term debt $ 13,139,011 $ 3,192,348 $ 8,502,227 $ 333,336 $ 1,111,100 Operating leases 1,958,000 264,000 528,000 528,000 638,000 ------------ ------------ ------------ ------------ ------------ Total $ 15,097,011 $ 3,456,348 $ 9,030,227 $ 861,336 $ 1,749,100 ============ ============ ============ ============ ============
Greystone continues to require outside sources of cash to fund its operating activities. To provide for the additional cash to meet Greystone's operating activities and contractual obligations for fiscal 2007, Greystone is exploring various options including 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 has accumulated a working capital deficit of approximately $6,962,600 at February 28, 2007, which includes current portion of long-term debt of $3,192,348 and $2,296,047 in accounts payable and accrued liabilities. 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 achieve profitability. There is no assurance that Greystone will secure such financing or achieve profitability. Substantially all of the financing that Greystone has received through February 28, 2007, 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 2001 and 2003, through a private placement of common stock completed in March 2005 and through the sales arrangement with Yorktown Management and Financial Services, LLC, in February 2007. 12 Greystone continues to be dependent upon its officers and directors to provide and/or secure additional financing and there is no assurance that any of them will 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 an aggregate stated value of $5,000,000 and 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-QSB 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-QSB 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-KSB for the fiscal year ended May 31, 2006, which was filed on September 13, 2006. 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-QSB. ITEM 3. CONTROLS AND PROCEDURES As of the end of the period covered by this Current Report on Form 10-QSB, 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, Greystone's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures as of the end of the period covered by this Current Report on Form 10-QSB were effective. During the quarter ended February 28, 2007, there was no change in Greystone's internal controls over financial reporting that has materially affected, or that is reasonably likely to materially affect, Greystone's internal control over financial reporting. 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. 1607 COMMERCE LIMITED PARTNERSHIP, A TEXAS LIMITED PARTNERSHIP, VS. PLASTIC PALLET PRODUCTION, INC., A TEXAS CORPORATION, GREYSTONE LOGISTICS, INC., AN OKLAHOMA CORPORATION, F/K/A PALWEB CORPORATION, AND GREYSTONE MANUFACTURING, L.L.C., AN OKLAHOMA LIMITED LIABILITY COMPANY, Case No. CJ-06-489W, District Court of Cleveland County, State of Oklahoma. The above referenced litigation was settled and dismissed. For more information regarding the settlement, see Greystone's Current Report on Form 8-K, which was filed on February 27, 2007. 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-B, 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-B, 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. 32.2 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. 14 SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GREYSTONE LOGISTICS, INC. ----------------------------------------- (Registrant) Date: May 17, 2007 /s/ Warren F. Kruger ----------------------------------------- President and Chief Executive Officer 15 EX-31.1 2 exh31-1_15080.txt SECTION 302 CERTIFICATION OF C.E.O. EXHIBIT 31.1 ------------ CERTIFICATION I, Warren F. Kruger, Chief Executive Officer of Greystone Logistics, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Greystone Logistics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. May 17, 2007 /s/ Warren F. Kruger ----------------------------------------- Warren F. Kruger, Chief Executive Officer EX-31.2 3 exh31-2_15080.txt SECTION 302 CERTIFICATION OF C.F.O. EXHIBIT 31.2 ------------ CERTIFICATION I, Robert H. Nelson, Chief Financial Officer of Greystone Logistics, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Greystone Logistics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. May 17, 2007 /s/ Robert H. Nelson ----------------------------------------- Robert H. Nelson, Chief Financial Officer EX-32.1 4 exh32-1_15080.txt SECTION 906 CERTIFICATION OF C.E.O. EXHIBIT 32.1 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Greystone Logistics, Inc. (the "Company"), on Form 10-QSB for the period ending February 28, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Warren F. Kruger, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. May 17, 2007 /s/ Warren F. Kruger ----------------------------------------- Warren F. Kruger, Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Report and shall not be considered filed as part of the Report. EX-32.2 5 exh32-2_15080.txt SECTION 906 CERTIFICATION OF C.F.O. EXHIBIT 32.2 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Greystone Logistics, Inc. (the "Company"), on Form 10-QSB for the period ending February 28, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert H. Nelson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. May 17, 2007 /s/ Robert H. Nelson ----------------------------------------- Robert H. Nelson, Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Report and shall not be considered filed as part of the Report. -----END PRIVACY-ENHANCED MESSAGE-----