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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 AUGUST 31, 2007
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT FOR
THE TRANSITION PERIOD FROM ____________ TO ____________
Commission file number 000-26331
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GREYSTONE LOGISTICS, INC.
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(Exact name of small business issuer as specified in its charter)
OKLAHOMA 75-2954680
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1613 EAST 15TH STREET, TULSA, OKLAHOMA 74120
(Address of principal executive offices)
(918) 583-7441
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(Issuer's telephone number)
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(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: October 10, 2007 - 26,061,201
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes [ ] No [X]
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GREYSTONE LOGISTICS, INC.
FORM 10-QSB
FOR THE PERIOD ENDED AUGUST 31, 2007
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
Condensed Consolidated Balance Sheets
as of August 31, 2007 (Unaudited) and May 31, 2007 1
Condensed Consolidated Statements of Operations (Unaudited)
For the Three Month Periods Ended August 31, 2007 and 2006 2
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Three Month Periods Ended August 31, 2007 and 2006 3
Notes to Condensed Consolidated Financial Statements (Unaudited) 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 7
ITEM 3. CONTROLS AND PROCEDURES 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS 11
SIGNATURES 12
ITEM 1. FINANCIAL INFORMATION
GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
August 31, May 31,
2007 2007
------------ ------------
(Unaudited)
Assets
------
Current Assets:
Cash $ 274,069 $ 340,334
Accounts receivable 1,449,780 1,019,415
Inventory 205,908 237,769
Prepaid expenses 26,002 57,653
------------ ------------
Total Current Assets 1,955,759 1,655,171
Property, Plant and Equipment,
net of accumulated depreciation of $2,900,405 and $2,248,805
at August 31, 2007 and May 31, 2007, respectively 6,932,470 7,037,764
Other Assets 129,947 127,140
------------ ------------
Total Assets $ 9,018,176 $ 8,820,075
============ ============
Liabilities and Stockholders' Deficiency
----------------------------------------
Current Liabilities:
Current portion of long-term debt $ 8,640,747 $ 8,655,518
Advances payable - related party 618,959 618,959
Accounts payable and accrued expenses 1,737,211 1,330,563
Accounts payable and accrued expenses - related parties 2,312,434 2,532,056
Preferred dividends payable 1,233,740 1,088,808
------------ ------------
Total Current Liabilities 14,543,091 14,225,904
Long-Term Debt, net of current portion 4,162,669 4,297,427
Deferred Income 112,000 128,000
Stockholders' Deficiency:
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, 26,061,201 issued and outstanding 2,606 2,606
Additional paid-in capital 52,693,226 52,693,226
Accumulated deficit (62,495,421) (62,527,093)
------------ ------------
Total Stockholders' Deficiency (9,799,584) (9,831,256)
------------ ------------
Total Liabilities and Stockholders' Deficiency $ 9,018,176 $ 8,820,075
============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
1
GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended August 31,
----------------------------
2007 2006
------------ ------------
Sales $ 5,597,211 $ 3,881,134
Cost of Sales 4,726,483 3,500,932
------------ ------------
Gross Profit 870,728 380,202
General, selling and administration expenses 412,207 453,980
------------ ------------
Operating Income (Loss) 458,521 (73,778)
Other Income (Expense):
Other income 52,151 2,189
Interest expense (334,068) (329,789)
------------ ------------
Total Other Income (Expense) (281,917) (327,600)
------------ ------------
Net Income (Loss) 176,604 (401,378)
Preferred Dividends 144,932 143,904
------------ ------------
Net Income (Loss) Available to Common Stockholders $ 31,672 $ (545,282)
============ ============
Income (Loss) Available to Common Stockholders
Per Share of Common Stock - Basic $ 0.00 $ (0.02)
============ ============
Per Share of Common Stock - Diluted $ 0.00 $ (0.02)
============ ============
Weighted Average Shares of Common Stock Outstanding -
Basic 26,061,000 24,061,000
Dilutive effect of warrants outstanding 121,000 --
------------ ------------
Diluted 26,182,000 24,061,000
============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements
2
GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended August 31,
----------------------------
2007 2006
------------ ------------
Cash Flows from Operating Activities:
Net Income (Loss) $ 176,604 $ (401,378)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization 195,789 191,586
Stock-based compensation -- 62,520
Recognition of deferred income (16,000) --
Changes in receivables (430,365) 5,809
Changes in inventory 31,861 236,143
Changes in prepaid expenses 31,651 8,913
Change in other assets (5,680) 11,735
Changes in accounts payable and accrued expenses 187,026 162,393
------------ ------------
Net cash provided by operating activities 170,886 277,721
Cash Flows from Investing Activities:
Purchase of property and equipment (87,622) (92,997)
------------ ------------
Net cash used in investing activities (87,622) (92,997)
Cash Flows from Financing Activities:
Proceeds from notes and advances payable -- 87,857
Payments on notes payable and bank overdraft (149,529) (254,557)
------------ ------------
Net cash used in financing activities (149,529) (166,700)
------------ ------------
Net Increase (Decrease) in Cash (66,265) 18,024
Cash, beginning of period 340,334 925
------------ ------------
Cash, end of period $ 274,069 $ 18,949
============ ============
Supplemental Data
Non-cash transactions:
Preferred dividend accrual $ 144,932 $ 143,904
The accompanying notes are an integral part of these
condensed consolidated financial statements
3
GREYSTONE LOGISTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of Greystone, the accompanying unaudited condensed
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, 2007, and the results of its operations and
its cash flows for the three month periods ended August 31, 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, 2007
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 $12,587,332, a stockholders' deficiency
of $9,799,584 and its ability to obtain additional long term financing, if
necessary, 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 three month periods ended August 31,
2007 and 2006 are not necessarily indicative of the results to be expected for
the full 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 is income from continuing operations. As a
result, if there were 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. As shown in the following table, the
number of shares for calculating basic and diluted EPS are the same manner due
to the loss for the three month period ending August 31, 2006, and there is a
dilutive effect for calculating EPS as a result of income for the three months
ended August 31, 2007.
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Three Months ended August 31,
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2007 2006
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(Unaudited) (Unaudited)
BASIC:
Weighted average common shares outstanding 26,061,000 24,061,000
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DILUTIVE EFFECT:
Assumed exercise of warrants 250,000 --
Application of assumed proceeds toward
repurchase of treasury stock (129,000) --
---------- ----------
Net additional shares issuable 121,000 --
---------- ----------
ADJUSTED COMMON SHARES OUTSTANDING FOR
COMPUTING DILUTIVE EPS 26,182,000 24,061,000
========== ==========
4. Inventory consists of the following:
August 31, May 31,
2007 2007
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(Unaudited)
Raw materials $ 116,084 $ 66,832
Finished goods 89,824 170,937
---------- ---------
Total inventory $ 205,908 $ 237,769
========== =========
5. Recent Accounting Pronouncements.
In June 2006, the Financial Accounting Standards Board issued FASB
Interpretation No. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES -- AN
INTERPRETATION OF FASB STATEMENT NO. 109 (FIN 48). This interpretation clarifies
the accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with FASB Statement No. 109, ACCOUNTING FOR
INCOME TAXES. FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. It also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. Greystone adopted the provisions of
this interpretation effective June 1, 2007. The adoption of FIN 48 did not have
a material effect on Greystone's financial statements and related disclosures.
In September 2006, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 157, FAIR VALUE MEASUREMENTS
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. The issuance of this standard is
meant to increase consistency and comparability in fair value
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measurements. SFAS 157 is effective for fiscal years beginning after November
15, 2007. Greystone does not expect the adoption of SFAS 157 to have a material
effect on its financial statements and related disclosures.
In February 2007, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 159, THE FAIR VALUE OPTION FOR FINANCIAL
ASSETS AND FINANCIAL LIABILITIES (SFAS 159). SFAS 159 permits entities to choose
to measure many financial instruments and certain other items at fair value, and
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. Greystone does not expect the adoption of
SFAS 159 to have a material effect on its financial statements and related
disclosures.
6. Accounts payable at May 31, 2007 have been reclassified between related
parties and others for comparative purposes with the presentation as of August
31, 2007.
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
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GENERAL TO ALL PERIODS
The unaudited 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. All
material intercompany accounts and transactions have been eliminated.
Greystone has incurred significant losses from operations, and there is no
assurance that it will continue to achieve profitability or obtain funds
necessary to finance its operations.
References to fiscal year 2008 refer to the three month period ended August
31, 2007. References to fiscal year 2007 refer to the three month period ended
August 31, 2006.
SALES
Greystone's primary business is the manufacturing and selling of plastic
pallets through its wholly owned subsidiaries, GSM and PPP. Greystone sells its
pallets through an exclusive arrangement with Decade Products whereby Decade
sells Greystone's pallets nationwide 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 derives a substantial portion of its revenue from two national
brewers.
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
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 75 full-time employees as of August 31, 2007
and 2006.
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 statement of
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operations and a deferred asset on the balance sheet. However, because of the
current uncertainty as to Greystone's ability to continue 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
statement of operations.
Greystone adopted the provisions of FIN 48 (see Note 5 to the financial
statements - Recent Accounting Pronouncements) on June 1, 2007. 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 pursuant to FIN 48. At June 1, 2007, we had no unrecognized
tax.
THREE MONTH PERIOD ENDED AUGUST 31, 2007 COMPARED TO THREE MONTH PERIOD ENDED
AUGUST 31, 2006
Sales for fiscal year 2008 were $5,597,211 compared to $3,881,134 in fiscal
year 2007, for an increase of $1,716,077. The increase is due to the addition of
new customers during the latter part of fiscal year 2007.
Cost of sales in fiscal year 2008 was $4,726,483, or 85% of sales, compared
to $3,500,932, or 90% of sales, in fiscal year 2007. The improvement in the
ratio of cost of sales to sales is due primarily to increases in sales prices.
General and administrative expense decreased $41,773 from $453,980 in
fiscal year 2007 to $412,207 in fiscal year 2008. Greystone recorded stock
option compensation costs of $62,520 during fiscal year 2007 and none in fiscal
year 2008.
Interest expense increased $4,279 from $329,789 in fiscal year 2007 to
$334,068 in fiscal year 2008.
Greystone reported net income of $176,604 in fiscal year 2008 compared to
net loss of $(401,378) in fiscal year 2007 for the reasons discussed above.
After deducting preferred dividends, the net income available to common
shareholders was $31,672, or $0.00 per share, in fiscal year 2008 compared to a
net loss available to common shareholders of $(545,282), or $(0.02) per share,
in fiscal year 2007 for the reasons discussed above.
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
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its operations. As of August 31, 2007, revenues from sales remain insufficient
to meet current liabilities.
A summary of cash flows for the three months ended August 31, 2007 is as
follows:
Cash provided by operating activities $ 170,886
Cash used in investing activities (87,622)
Cash used in financing activities (149,529)
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 $12,803,416 $8,640,747 $2,801,567 $ 333,336 $1,027,766
Operating leases 1,895,400 280,800 561,600 561,600 491,400
----------- ---------- ---------- ---------- ----------
Total $14,698,816 $8,921,547 $3,363,167 $ 894,936 $1,519,166
=========== ========== ========== ========== ==========
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 has accumulated a working capital deficit of approximately
$12,587,332 at August 31, 2007, which includes current portion of long-term debt
of $8,640,747 and $4,049,645 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 maintain profitability. There is no assurance that Greystone will
secure such financing or continue to achieve profitability.
Substantially all of the financing that Greystone has received through
August 31, 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 and through a
private placement of common stock completed in March 2005.
Greystone continues to be dependent upon its officers and directors to
provide and/or secure additional financing and there is no assurance that they
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 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
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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, 2007, which was filed on August
30, 2007. 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 August 31, 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.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
11.1 Computation of Income (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.
32.1 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.
11
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: October 15, 2007 /s/ Warren F. Kruger
----------------------------
President and Chief Executive Officer
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