GREYSTONE LOGISTICS, INC. - Quarter Report: 2009 August (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
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|
o
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
FOR
THE TRANSITION PERIOD FROM ______ TO
________
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Commission
file number
000-26331
GREYSTONE
LOGISTICS, INC.
(Exact
name of registrant as specified in its charter)
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Oklahoma
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75-2954680
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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1613 East
15thStreet, Tulsa,
Oklahoma 74120
(Address
of principal executive offices) (Zip
Code)
(918) 583-7441
(Registrant’s 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
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a
smaller reporting company)
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Smaller reporting
company x
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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
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Item
1. Financial Statements
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Page
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Consolidated
Balance Sheets
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|
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as
of August 31, 2009 (Unaudited) and May 31, 2009
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1
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Consolidated
Statements of Operations (Unaudited)
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For
the Three Month Periods Ended August 31, 2009 and 2008
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2
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Consolidated
Statements of Cash Flows (Unaudited)
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For
the Three Month Periods Ended August 31, 2009 and 2008
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3
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Notes
to Consolidated Financial Statements (Unaudited)
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4
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Item
2. Management’s Discussion
and Analysis of Financial Condition and Results of
Operations
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7
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Item
4. Controls and Procedures
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11
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PART
II. OTHER INFORMATION
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Item
6. Exhibits
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12
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SIGNATURES
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13
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ITEM
1. FINANCIAL STATEMENTS.
Greystone
Logistics, Inc. and Subsidiaries
Consolidated
Balance Sheets
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August
31,
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May
31,
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|||||||
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2009
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2009
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|||||||
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Assets
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(Unaudited)
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|||||||
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Current
Assets:
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||||||||
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Cash
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$ | 194,756 | $ | 274,765 | ||||
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Accounts
receivable, net of Allowance for Doubtful Accounts of
$60,578 at both August 31, 2009 and May 31, 2009,
respectively
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1,850,077 | 952,352 | ||||||
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Inventory
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890,206 | 1,061,569 | ||||||
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Prepaid
expenses and other
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61,242 | 67,382 | ||||||
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Total
Current Assets
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2,996,281 | 2,356,068 | ||||||
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Property, Plant and Equipment,
net of accumulated depreciation of $4,903,276 and $4,657,485
at August 31, 2009 and May 31, 2009, respectively
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8,089,342 | 8,208,888 | ||||||
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Other
Assets
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103,603 | 103,655 | ||||||
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Total
Assets
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$ | 11,189,226 | $ | 10,668,611 | ||||
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Liabilities and Stockholders’
Deficit
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||||||||
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Current
Liabilities:
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||||||||
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Current
portion of long-term debt
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$ | 9,126,600 | $ | 9,339,343 | ||||
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Advances
payable - related party
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975,581 | 1,010,081 | ||||||
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Accounts
payable and accrued expenses
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1,765,855 | 1,158,513 | ||||||
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Accounts
payable and accrued expenses - related parties
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2,204,657 | 1,834,352 | ||||||
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Preferred
dividends payable
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2,039,930 | 1,958,012 | ||||||
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Total
Current Liabilities
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16,112,623 | 15,300,301 | ||||||
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Long-Term Debt, net of
current portion
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3,142,633 | 3,249,953 | ||||||
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Deferred
Income
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20,000 | 32,000 | ||||||
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Stockholders’
Deficit:
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||||||||
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Preferred
stock, $0.0001 par value, 20,750,000 shares authorized, 50,000
shares issued and outstanding, liquidation preference of
$5,000,000
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5 | 5 | ||||||
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Common
stock, $0.0001 par value, 5,000,000,000 shares authorized,
26,111,201 issued and outstanding
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2,611 | 2,611 | ||||||
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Additional
paid-in capital
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52,945,341 | 52,921,349 | ||||||
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Accumulated
deficit
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(61,799,215 | ) | (61,625,637 | ) | ||||
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Total
Stockholders’ Deficit
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(8,851,258 | ) | (8,701,672 | ) | ||||
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Noncontrolling
interest
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765,228 | 788,029 | ||||||
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Total
Deficit
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(8,086,030 | ) | (7,913,643 | ) | ||||
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Total
Liabilities and Stockholders’ Deficit
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$ | 11,189,226 | $ | 10,668,611 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
- 1
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Greystone
Logistics, Inc. and Subsidiaries
Consolidated
Statements of Operations
(Unaudited)
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Three
Months Ended August 31,
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||||||||
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2009
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2008
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|||||||
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Sales
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$ | 4,376,663 | $ | 4,173,057 | ||||
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Cost
of Sales
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3,705,682 | 3,431,927 | ||||||
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Gross
Profit
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670,981 | 741,130 | ||||||
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General,
Selling and Administration Expenses
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539,552 | 410,184 | ||||||
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Operating
Income
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131,429 | 330,946 | ||||||
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Other
Income (Expense):
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||||||||
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Other
Income
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12,000 | 16,000 | ||||||
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Interest
Expense
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(214,819 | ) | (296,980 | ) | ||||
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Total
Other Expense, net
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(202,819 | ) | (280,980 | ) | ||||
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Net
Income (Loss)
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(71,390 | ) | 49,966 | |||||
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Less:
Income Attributable to Noncontrolling Interest
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(20,270 | ) | (245 | ) | ||||
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Net
Income (Loss) Attributable to Common Stockholders
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||||||||
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Before
Preferred Dividends
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(91,660 | ) | 49,721 | |||||
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Preferred
Dividends
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81,918 | 103,972 | ||||||
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Net
Loss Available to Common Stockholders
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$ | (173,578 | ) | $ | (54,251 | ) | ||
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Loss
Available to Common Stockholders
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||||||||
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Per
Share of Common Stock - Basic and Diluted
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$ | (0.01 | ) | $ | 0.00 | |||
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Weighted
Average Shares of Common Stock Outstanding -
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||||||||
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Basic
and Diluted
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26,111,000 | 26,111,000 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements
- 2
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Greystone
Logistics, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
(Unaudited)
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Three
Months Ended August 31,
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||||||||
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2009
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2008
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|||||||
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Cash
Flows from Operating Activities:
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||||||||
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Net
income (loss)
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$ | (91,660 | ) | $ | 49,721 | |||
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Adjustments
to reconcile net income (loss) to net cash provided by operating
activities
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||||||||
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Depreciation
and amortization
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248,663 | 241,233 | ||||||
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Stock-based
compensation
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23,992 | 23,992 | ||||||
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Recognition
of deferred income
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(12,000 | ) | (16,000 | ) | ||||
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Change
in noncontrolling interest
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(22,801 | ) | 19,507 | |||||
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Changes
in receivables
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(897,725 | ) | 171,629 | |||||
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Changes
in inventory
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171,363 | 228,199 | ||||||
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Changes
in prepaid expenses and other
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6,140 | 19,999 | ||||||
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Change
in other assets
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(2,820 | ) | — | |||||
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Changes
in accounts payable and accrued expenses
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977,647 | 104,083 | ||||||
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Net
cash provided by operating activities
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400,799 | 842,363 | ||||||
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Cash
Flows from Investing Activities:
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||||||||
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Purchase
of property and equipment
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(126,245 | ) | (210,695 | ) | ||||
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Cash
Flows from Financing Activities:
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||||||||
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Payments
on long-term debt and advances to related parties
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(354,563 | ) | (259,809 | ) | ||||
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Net
Increase (Decrease) in Cash
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(80,009 | ) | 371,859 | |||||
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Cash,
beginning of period
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274,765 | 201,301 | ||||||
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Cash,
end of period
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$ | 194,756 | $ | 573,160 | ||||
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Non-cash
Activities:
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||||||||
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Preferred
Dividend Accrual
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$ | 81,918 | $ | 103,972 | ||||
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Supplemental
Information:
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||||||||
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Interest
Paid
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$ | 128,511 | $ | 203,724 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements
- 3
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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
- 4
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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:
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August
31,
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May
31,
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|||||||
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2009
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2009
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|||||||
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(Unaudited)
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||||||||
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Raw
materials
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$ | 501,569 | $ | 376,328 | ||||
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Finished
goods
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388,637 | 685,241 | ||||||
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Total
inventory
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$ | 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.
- 5
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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
- 6
-
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.
- 7
-
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.
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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.
|
|
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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)
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|||
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Date:
October 20, 2009
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By:
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/s/ Warren F. Kruger | |
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Warren
F. Kruger,
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|||
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President
and Chief Executive Officer
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