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 SECURITIESEXCHANGE
      ACT OF 1934
                    FOR
      THE QUARTERLY PERIOD ENDED  November 30,
      2009
 o
                TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
                  FOR
      THE TRANSITION PERIOD FROM ______ TO
  ________
  Commission
file number  000-26331
  
 GREYSTONE
LOGISTICS, INC.
 (Exact
name of registrant as specified in its charter)
 
 Oklahoma
                  75-2954680(State
      or other jurisdiction of incorporation or organization)
                  (I.R.S.
      Employer Identification No.)
 
 1613 East
15thStreet, Tulsa,
Oklahoma  74120
 (Address
of principal executive offices)     (Zip
Code)
 
 (918) 583-7441
 (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
                Accelerated
      filer  o
                Non-accelerated
      filer  o
                  (Do not check if a
      smaller reporting company)
                Smaller reporting
      company  x
  Indicate
by checkmark whether the registrant is a shell company (as defined in rule 12b-2
of the Exchange Act).  Yes  o   No 
x
 
 Applicable
only to corporate issuers
 
 Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable
date:      January 11, 2010 -
26,111,201
  
 GREYSTONE
LOGISTICS, INC.
 FORM
10-Q
 For
the Period Ended November 30, 2009
 PART
I.  FINANCIAL INFORMATION
  Item
      1.
                    Financial
      Statements
                    PageConsolidated
      Balance Sheetsas
      of November 30, 2009 (Unaudited) and May 31, 2009
                    1Consolidated
      Statements of Operations (Unaudited)For
      the Six Month Periods Ended November 30, 2009 and 2008
                    2Consolidated
      Statements of Operations (Unaudited)For
      the Three Month Periods Ended November 30, 2009 and 2008
                    3Consolidated
      Statements of Cash Flows (Unaudited)For
      the Six Month Periods Ended November 30, 2009 and 2008
                    4Notes
      to Consolidated Financial Statements (Unaudited)
                    5Item
      2.
                    Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    8Item
      4.
                    Controls
      and Procedures
                    13PART
      II.
                    OTHER
      INFORMATIONItem
      5.
                    Other
      Information
                    14Item
      6.
                    Exhibits
                    15SIGNATURES
                    16
 ITEM
1.  FINANCIAL STATEMENTS.
  Greystone
Logistics, Inc. and Subsidiaries
 Consolidated
Balance Sheets
  November
      30,
                  
                  
                  May
      31,2009
                  
                  
                  2009Assets
                  
                  (Unaudited)Current
      Assets:Cash
                  
                  $
                  319,559
                  
                  
                  $
                  274,765Accounts
      receivable, net of allowance for doubtful accounts of$-0- and $60,578 at November 30, 2009 and May 31, 2009,respectively
                  
                  
                  896,632
                  
                  
                  
                  952,352Inventory
                  
                  
                  714,389
                  
                  
                  
                  1,061,569Prepaid
      expenses and other
                  
                  
                  101,473
                  
                  
                  
                  67,382Total
      Current Assets
                  
                  
                  2,032,053
                  
                  
                  
                  2,356,068Property, Plant and Equipment,net of accumulated depreciationof
      $5,156,171 and $4,657,485 at November 30, 2009 andMay 31,
      2009, respectively
                  
                  
                  7,907,094
                  
                  
                  
                  8,208,888Other Assets,net
                  
                  
                  100,210
                  
                  
                  
                  103,655Total
      Assets
                  
                  $
                  10,039,357
                  
                  
                  $
                  10,668,611Liabilities and Stockholders'
      DeficitCurrent
      Liabilities:Current
      portion of long-term debt
                  
                  $
                  8,944,868
                  
                  
                  $
                  9,339,343Advances
      payable - related party
                  
                  
                  907,643
                  
                  
                  
                  1,010,081Accounts
      payable and accrued expenses
                  
                  
                  1,233,665
                  
                  
                  
                  1,158,513Accounts
      payable and accrued expenses - related parties
                  
                  
                  1,831,277
                  
                  
                  
                  1,834,352Preferred
      dividends payable
                  
                  
                  2,120,957
                  
                  
                  
                  1,958,012Total
      Current Liabilities
                  
                  
                  15,038,410
                  
                  
                  
                  15,300,301Long-Term Debt, net of
      current portion
                  
                  
                  2,993,188
                  
                  
                  
                  3,249,953Deferred
      Income
                  
                  
                  5,333
                  
                  
                  
                  32,000Stockholders'
      Deficit:Preferred
      stock, $0.0001 par value, 20,750,000 shares authorized,50,000 shares  issued and outstanding, liquidation
      preferenceof $5,000,000
                  
                  
                  5
                  
                  
                  
                  5Common
      stock, $0.0001 par value, 5,000,000,000 sharesauthorized, 26,111,201 shares issued and outstanding
                  
                  
                  2,611
                  
                  
                  
                  2,611Additional
      paid-in capital
                  
                  
                  52,969,333
                  
                  
                  
                  52,921,349Accumulated
      deficit
                  
                  
                  (61,755,219
                  )
                  
                  
                  (61,625,637
                  )Total
      Stockholders' Deficit
                  
                  
                  (8,783,270
                  )
                  
                  
                  (8,701,672
                  )Non-controlling
      interest
                  
                  
                  785,696
                  
                  
                  
                  788,029Total
      Deficit
                  
                  
                  (7,997,574
                  )
                  
                  
                  (7,913,643
                  )Total
      Liabilities and Stockholders' Deficit
                  
                  $
                  10,039,357
                  
                  
                  $
                  10,668,611
   The
accompanying notes are an integral part of these consolidated financial
statements.
  1
 Greystone
Logistics, Inc. and Subsidiaries
 Consolidated
Statements of Operations
 (Unaudited)
 Six
      Months Ended November 30,2009
                  
                  
                  2008Sales
                  
                  $
                  7,626,246
                  
                  
                  $
                  8,193,974Cost
      of Sales
                  
                  
                  6,178,091
                  
                  
                  
                  6,650,517Gross
      Profit
                  
                  
                  1,448,155
                  
                  
                  
                  1,543,457General,
      Selling and Administration Expenses
                  
                  
                  985,738
                  
                  
                  
                  877,134Operating
      Income
                  
                  
                  462,417
                  
                  
                  
                  666,323Other
      Income (Expense):Other
      Income
                  
                  
                  26,667
                  
                  
                  
                  165,015Interest
      Expense
                  
                  
                  (414,983
                  )
                  
                  
                  (541,512
                  )Total
      Other Expense, net
                  
                  
                  (388,316
                  )
                  
                  
                  (376,497
                  )Net
      Income
                  
                  
                  74,101
                  
                  
                  
                  289,826Less:
      Income Attributable to Non-controlling Interest
                  
                  
                  (40,738
                  )
                  
                  
                  (19,910
                  )Net
      Income Attributable to Common StockholdersBefore
      Preferred Dividends
                  
                  
                  33,363
                  
                  
                  
                  269,916Preferred
      Dividends
                  
                  
                  162,945
                  
                  
                  
                  198,459Net
      Income (Loss) Available to Common Stockholders
                  
                  $
                  (129,582
                  )
                  
                  $
                  71,457Income
      (Loss) Available to Common StockholdersPer
      Share of Common Stock - Basic and Diluted
                  
                  $
                  (0.01
                  )
                  
                  $
                  0.00Weighted
      Average Shares of Common Stock Outstanding -Basic
      and Diluted
                  
                  
                  26,111,000
                  
                  
                  
                  26,111,000
  The
accompanying notes are an integral part of these consolidated financial
statements
  2
 Greystone
Logistics, Inc. and Subsidiaries
 Consolidated
Statements of Operations
 (Unaudited)
   Three
      Months Ended November 30,2009
                  
                  
                  2008Sales
                  
                  $
                  3,249,583
                  
                  
                  $
                  4,020,917Cost
      of Sales
                  
                  
                  2,472,409
                  
                  
                  
                  3,218,590Gross
      Profit
                  
                  
                  777,174
                  
                  
                  
                  802,327General,
      Selling and Administration Expenses
                  
                  
                  446,186
                  
                  
                  
                  466,950Operating
      Income
                  
                  
                  330,988
                  
                  
                  
                  335,377Other
      Income (Expense):Other
      Income
                  
                  
                  14,667
                  
                  
                  
                  149,015Interest
      Expense
                  
                  
                  (200,164
                  )
                  
                  
                  (244,532
                  )Total
      Other Expense, net
                  
                  
                  (185,497
                  )
                  
                  
                  (95,517
                  )Net
      Income
                  
                  
                  145,491
                  
                  
                  
                  239,860Less:
      Income Attributable to Non-controlling Interest
                  
                  
                  (20,468
                  )
                  
                  
                  (19,665
                  )Net
      Income Attributable to Common StockholdersBefore
      Preferred Dividends
                  
                  
                  125,023
                  
                  
                  
                  220,195Preferred
      Dividends
                  
                  
                  81,027
                  
                  
                  
                  94,487Net
      Income Available to Common Stockholders
                  
                  $
                  43,996
                  
                  
                  $
                  125,708Income
      Available to Common StockholdersPer
      Share of Common Stock - Basic and Diluted
                  
                  $
                  0.00
                  
                  
                  $
                  0.00Weighted
      Average Shares of Common Stock Outstanding -Basic
                  
                  
                  26,111,000
                  
                  
                  
                  26,111,000Diluted
                  
                  
                  26,183,000
                  
                  
                  
                  26,111,000
 The
accompanying notes are an integral part of these consolidated financial
statements
 
 3
 Greystone
Logistics, Inc. and Subsidiaries
 Consolidated
Statements of Cash Flows
 (Unaudited)
   Six
      Months Ended November 30,2009
                  
                  
                  2008Cash
      Flows from Operating Activities:Net
      income before preferred dividends
                  
                  $
                  33,363
                  
                  
                  $
                  269,916Adjustments to
      reconcile net income before preferred dividendsto net cash provided by operating activitiesDepreciation
      and amortization
                  
                  
                  504,431
                  
                  
                  
                  484,217Stock-based
      compensation
                  
                  
                  47,984
                  
                  
                  
                  47,984Recognition of
      deferred income
                  
                  
                  (26,667
                  )
                  
                  
                  (32,000
                  )Change
      in noncontrolling interest
                  
                  
                  (2,333
                  )
                  
                  
                  39,192Changes
      in accounts receivable
                  
                  
                  55,720
                  
                  
                  
                  439,632Changes
      in inventory
                  
                  
                  347,180
                  
                  
                  
                  (608,928
                  )Changes
      in prepaid expenses and other
                  
                  
                  (34,091
                  )
                  
                  
                  (60,739
                  )Change
      in other assets
                  
                  
                  (2,300
                  )
                  
                  
                  —Changes
      in accounts payable and accrued expenses
                  
                  
                  72,077
                  
                  
                  
                  178,816Net
      cash provided by operating activities
                  
                  
                  995,364
                  
                  
                  
                  758,090Cash
      Flows from Investing Activities:Purchases of
      property and equipment
                  
                  
                  (196,892
                  )
                  
                  
                  (222,153
                  )Cash
      Flows from Financing Activities:Proceeds from
      notes payable
                  
                  
                  —
                  
                  
                  
                  280,580Payments on
      long-term debt
                  
                  
                  (651,240
                  )
                  
                  
                  (436,636
                  )Payments on
      advances from related parties
                  
                  
                  (102,438
                  )
                  
                  
                  (199,605
                  )Net
      cash used in financing activities
                  
                  
                  (753,678
                  )
                  
                  
                  (355,661
                  )Net
      Increase in Cash
                  
                  
                  44,794
                  
                  
                  
                  180,276Cash,
      beginning of period
                  
                  
                  274,765
                  
                  
                  
                  201,301Cash,
      end of period
                  
                  $
                  319,559
                  
                  
                  $
                  381,577Non-cash
      Activities:Preferred
      Dividend Accrual
                  
                  $
                  162,945
                  
                  
                  $
                  198,459Supplemental
      Information:Interest
      Paid
                  
                  $
                  220,678
                  
                  
                  $
                  468,004
 
 The
accompanying notes are an integral part of these consolidated financial
statements
 4
 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 November 30, 2009, and the results of its
operations and its cash flows for the six and three month periods ended November
30, 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 $13,006,357, a stockholders'
deficiency of $7,997,574 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 long-term financing 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 six and three month periods ended November 30,
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”) on a dual presentation of
basic and diluted EPS on the face of the statements of operations. 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.  As a result, if there is a loss from continuing
operations, diluted EPS would be computed in the same manner as basic EPS is
computed.
    
 5
 For the six month periods
ending November 30, 2009 and 2008 and for the three month period ending November
30, 2008, basic and diluted EPS are the same.The following is a
reconciliation of the number of shares used in the calculation of basic and
diluted EPS for the three month period ended November 30, 2009:
  Weighted-average
      number of common shares outstanding
              
              
              26,111,000Incremental
      shares from the assumed exercise ofdilutive
      stock options
              
              
              72,000Dilutive
      potential common shares
              
              
              26,183,000
 
  The
following securities (rounded to thousands) were not included in the computation
of diluted earnings per share as their effect would have been
antidilutive:
  Options
      to purchase common stock
              
              
              2,445,000Warrants
      to purchase common stock
              
              
              5,013,000Convertible
      preferred stock
              
              
              3,333,00010,791,000
   4.         
 Inventory consists of the following:
  November
      30,
                
                
                May
      31,2009
                
                
                2009(Unaudited)Raw
      materials
                
                $
                353,274
                
                
                $
                376,328Finished
      goods
                
                
                361,115
                
                
                
                685,241Total
      inventory
                
                $
                714,389
                
                
                $
                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.
 
 6
 Greystone’s
agreements with its major customer provide that (1) risk of loss or damages for
product in transit remain with Greystone and (2) product is subject to approval
at the customer’s premises.  Accordingly, Greystone recognizes revenue
when the 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.
 
 7.          
Subsequent Events
 
 Management
has evaluated events subsequent to the balance sheet date, November 30, 2009,
through ­­January 19, 2010, the date the financial statements were
issued.
 
 Effective
January 15, 2010, Warren F. Kruger, President and CEO, and Robert Rosene, a
member of Greystone’s board of directors, extended the maturity date for
principal and interest of certain notes in the principal amounts of $527,716 and
$2,066,000, respectively,  and dated December 15, 2005 from January
15, 2010 to January 15, 2011.
 
 8.          
Recent Accounting Pronouncements
  In June 2009, the FASB issued ASU
2009-17, Consolidations (Topic
810) – Improvements to Financial Reporting by Enterprises Involved with Variable
Interests, to incorporate SFAS 167, Amendments to FASB Interpretation No.
46R into the Accounting Standards Codification.SFAS 167 amends certain
requirements of FASB Interpretation No. 46 (Revised 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. This standard is effective for Greystone in the fiscal year
beginning June 1, 2010. ASU 2009-17 is not expected to have a material
impact on the Greystone’s consolidated financial position and results of
operations.
  7


In
June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
CodificationTM 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 CodificationTM (“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. Effective September 1,
2009, Greystone adopted SFAS No. 168 to use the new Codification numbering
system in its consolidated financial statements for references made to GAAP. The
Codification does not change or alter existing GAAP and, therefore, has no
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 six and three month periods ended November 30, 2009, as
applicable.  References to fiscal year 2009 refer to the six and three
month periods ended November 30, 2008, as applicable.





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


8


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 69% 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 November 30, 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 November 30,
2009, Greystone had no unrecognized tax benefits.




Six
Month Period Ended November 30, 2009 Compared to Six Month Period Ended November
30, 2008





Sales




Sales for fiscal year 2010 were
$7,626,246 compared to $8,193,974 in fiscal year 2009, for a decrease of
$567,728.  The decrease is principally due to a decline in sales to
Greystone’s major customer in fiscal year 2010. Sales to Greystone’s major
customer were approximately 69% of total sales in fiscal year 2010 compared to
78% in fiscal year 2009.  Sales to new customers during fiscal 2010
were approximately 27% of total sales.


9





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.




Effective November 20, 2009, Greystone
entered into an agency agreement with an individual to market polyethylene and
polypropylene resins. The individual will be paid a commission of 2.5% of the
selling price. The agency agreement is for a three-year period with automatic
one-year renewals.





Cost of
Sales




Cost of sales in fiscal year 2010 was
$6,178,091, or 81% of sales, compared to $6,650,517, or 81% of sales in fiscal
year 2009.





General, Selling and
Administration Expenses




General, selling and administration
expenses for fiscal year 2010 were $985,738 compared to $877,134 in fiscal year
2009 for an increase of $108,604.  This increase is primarily related
to commissions and travel costs in marketing Greystone’s product
lines.





Other
Income




Other
income decreased $138,348 from $165,015 in fiscal year 2009 to $26,667 in fiscal
year 2010.  Other income for fiscal year 2009 includes an insurance
settlement stemming from a claim on a business interruption policy in the amount
of $132,815.  In addition, other income for fiscal
year  2010 and 2009 includes $26,667 and $32,000, respectively, from
the amortization of deferred income.





Interest
Expense




Interest expense decreased $126,529
from $541,512 in fiscal year 2009 to $414,983 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 4.75% during the six month period ended November 30, 2008
compared to 3.25% during the six month period ended November 30,
2009.





Net Income Available to
Common Stockholders Before Preferred Dividends




Greystone recorded net income available
to common stockholders before preferred dividends of $33,363 in fiscal year 2010
compared to $269,916 in fiscal year 2009 for the reasons discussed
above.


10


Net Income ( Loss) Available
to Common Stockholders




After deducting preferred dividends,
the net loss available to common stockholders was $(129,582), or $(0.01) per
share, in fiscal year 2010 compared to net income available to common
stockholders of $71,457, or $0.00 per share, in fiscal year 2009 for the reasons
discussed above.





Three
Month Period Ended November 30, 2009 Compared to Three Month Period Ended
November 30, 2008





Sales




Sales for fiscal year 2010 were
$3,249,583 compared to $4,020,917 in fiscal year 2009, for a decrease of
$771,334.  Sales to Greystone’s major customer were approximately 72%
of total sales in fiscal year 2010 compared to 76% in fiscal year
2009.  Sales to new customers in fiscal year 2010 were approximately
18% of total sales.





Cost of
Sales




Cost of sales in fiscal year 2010 was
$2,472,409, or 76% of sales, compared to $3,218,590, or 80% of sales in fiscal
year 2009.  This decrease in cost of sales as a percentage of total
sales is due to an increase during fiscal year 2010 compared to fiscal year 2009
in sales of product with higher profit margins.





General, Selling and
Administration Expenses




General, selling and administration
expenses for fiscal year 2010 were $446,186 compared to $466,950 in fiscal year
2009 for a decrease of $20,764.





Other
Income




Other
income decreased $134,348 from $149,015 in fiscal year 2009 to $14,667 in fiscal
year 2010.  Other income for fiscal year 2009 includes an insurance
settlement stemming from a claim on a business interruption policy in the amount
of $132,815.  In addition, other income for fiscal
year  2010 and 2009 includes $14,667 and $16,000, respectively, from
the amortization of deferred income.





Interest
Expense




Interest expense decreased $44,368 from
$244,532 in fiscal year 2009 to $200,164 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 4.5% during the three month period ended November 30, 2008
compared to 3.25% during the three month period ended November 30,
2009.





Net Income Available to
Common Stockholders Before Preferred Dividends




Greystone recorded net income available
to common stockholders before preferred dividends of $125,023 in fiscal year
2010 compared to $220,195 in fiscal year 2009 for the reasons discussed
above.


11




Net Income Available to
Common Stockholders




After deducting preferred dividends,
the net income available to common stockholders was $43,996, or $0.00 per share,
in fiscal year 2010 compared to $125,708, 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 six
months ended November 30, 2009 is as follows:






Cash provided by operating
activities                                                                 $    995,364





Cash used in investing
activities                                                                               (196,892)





Cash used in financing
activities                                                                               (753,678)








The contractual obligations of
Greystone are as follows:





Total
            Less
      than
              1 year
            1-3 years
            4-5 years
            Over
              5 yearsLong-term
      debt
            $11,938,056
            $8,944,868
            $
      844,640
            $533,254
            $1,615,294





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 $13,006,357 at November 30, 2009, which includes the current portion of
long-term debt of $8,944,868 and accounts payable and accrued liabilities of
$3,064,942. 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 November 30, 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.


12





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 Quarterly Report on Form 10-Q, Greystone carried out an evaluation under
the supervision of Greystone's Chief Executive Officer, who at such time was
also Greystone’s principal 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 an
evaluation as of May 31, 2009, Greystone's Chief Executive Officer and Robert H.
Nelson, Greystone’s former Chief Financial Officer who resigned effective
October 24, 2009, 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 principal financial officer concluded that Greystone did not maintain
effective internal control over financial reporting as of November 30, 2009. The
material weaknesses as of November 30, 2009 were as follows:


13




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 November 30,
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
5.  Other Information





On January 13, 2010, subsequent to
the quarter ended November 30, 2009, William W. Rahhal, age 69, was appointed as
Greystone’s Interim Chief Financial Officer.  Mr. Rahhal previously
served as Greystone’s Chief Financial Officer from October 1, 2002 to October 1,
2004 and has served Greystone as an accounting and financial consultant since
that time.  Mr. Rahhal earned his B.B.A. from the University of
Oklahoma and is a Certified Public Accountant licensed in Oklahoma and
Texas.  Mr. Rahhal has been a shareholder and managing officer of
Hulme Rahhal Henderson, Inc., Certified Public Accountants, in Ardmore,
Oklahoma, since 1988.  Hulme Rahhal Henderson, Inc. was Greystone’s
auditor until May 31, 2002 and continues to provide tax services to
Greystone.   Mr. Rahhal has also served as a Senior Manager with
Price Waterhouse & Co. (now PriceWaterhouseCoopers, LLP) where he gained
significant experience in auditing public companies.  In addition, he
has served as financial manager of a privately-held oil and gas production
company and contract drilling company.  Pursuant to an oral agreement
with no set duration, Greystone will pay Mr. Rahhal $3,000 per month for his
services.


14


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 and principal 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 and principal financial officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.
































15





SIGNATURE





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







GREYSTONE LOGISTICS, INC.(Registrant)Date:
      January 19, 2010
            /s/ Warren
      F. KrugerWarren
      F. KrugerPresident,
      Chief Executive Officer
              and
      principal financial officer























16