================================================================================

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


                                  FORM 10-KSB/A
                                (AMENDMENT NO. 1)



[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934
     For the Fiscal Year Ended           MAY 31, 2005
                              ------------------------------------------------

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934
     For the transition period from ___________________ to ___________________



     Commission file number               000-26331
                           ---------------------------------------------------





                            GREYSTONE LOGISTICS, INC.
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)


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


 1613 EAST 15TH STREET, TULSA, OKLAHOMA                        74120
----------------------------------------         -------------------------------
(Address of principal executive offices)                    (Zip Code)


                                 (918) 583-7441
--------------------------------------------------------------------------------
                           (Issuer's Telephone Number)




Securities registered under Section 12(b) of the Exchange Act:

     Title of each class                              Name of each exchange
                                                       on which registered

           NONE                                                NONE
------------------------------                    ------------------------------


Securities registered under Section 12(g) of the Exchange Act:

                         COMMON STOCK, $0.0001 PAR VALUE
--------------------------------------------------------------------------------
                                (Title of class)


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.      [X] Yes   [_] No
================================================================================
<PAGE>
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [_]

The issuer's revenue for the year ended May 31, 2005, was $9,305,534.

As of August 25, 2005, the aggregate market value of the voting common stock
held by non-affiliates of the registrant, computed by using the average of the
high and low price on such date, was $1,887,851.

As of August 18, 2005, the issuer had outstanding a total of 24,061,201 shares
of its $0.0001 par value common stock.



                       DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE.


Transitional Small Business Disclosure Format (Check one):  Yes  [_]     No  [X]





































                                        2
<PAGE>
                            GREYSTONE LOGISTICS, INC.
                                   FORM 10-KSB
                                TABLE OF CONTENTS






PART II

Item 7.         Financial Statements .............................    4




PART III

Item 13.        Exhibits .........................................    4
























                                        3
<PAGE>
                                EXPLANATORY NOTE

         This Form 10-KSB/A is being filed by Greystone Logistics, Inc. (the
"Company"), as Amendment No. 1 (the "Amendment") to the Company's Annual Report
on Form 10-KSB for the fiscal year ended May 31, 2005 (the "Prior Form 10-KSB"),
to amend Part II, Item 7 and Part III, Item 13 of the Prior Form 10-KSB. In
general, the Amendment is being filed to revise notes 16 and 18 to the financial
statements contained in the Prior Form 10-KSB. Although the Amendment amends and
restates Part II, Item 7 and Part III, Item 13 of the Prior Form 10-KSB in their
entirety, the information contained herein has not been updated to reflect
events or developments that may have occurred subsequent to May 31, 2005.


PART II.

ITEM 7.  FINANCIAL STATEMENTS

         The financial statements of Greystone are set forth on pages F-1
through F-22 inclusive, found at the end of this report.


ITEM 13. EXHIBITS

EXHIBIT
NO.      DESCRIPTION
-------  -----------
2.1      Certificate of Ownership and Merger Merging PalWeb Corporation, a
         Delaware corporation, into PalWeb Oklahoma Corporation, an Oklahoma
         corporation, filed with the Delaware Secretary of State on May 2, 2002
         (incorporated herein by reference to Exhibit 2.1 of the Company's Form
         8-K12G3 dated May 2, 2002, which was filed with the SEC on May 24,
         2002).

2.2      Certificate of Ownership and Merger Merging PalWeb Corporation, a
         Delaware corporation, into PalWeb Oklahoma Corporation, an Oklahoma
         corporation, filed with the Oklahoma Secretary of State on May 2, 2002
         (incorporated herein by reference to Exhibit 2.2 of the Company's Form
         8-K12G3 dated May 2, 2002, which was filed with the SEC on May 24,
         2002).

3.1      Certificate of Incorporation of PalWeb Oklahoma Corporation filed with
         the Oklahoma Secretary of State on May 2, 2002 (incorporated herein by
         reference to Exhibit 3.1 of the Company's Form 8-K12G3 dated May 2,
         2002, which was filed with the SEC on May 24, 2002).

3.2      Bylaws of PalWeb Oklahoma Corporation as adopted on May 2, 2002
         (incorporated herein by reference to Exhibit 3.2 of the Company's Form
         8-K12G3 dated May 2, 2002, which was filed with the SEC on May 24,
         2002).

4.1      Certificate of Incorporation of PalWeb Oklahoma Corporation filed with
         the Oklahoma Secretary of State on May 2, 2002 (included in Exhibit
         3.1).

                                        4
<PAGE>
EXHIBIT
NO.      DESCRIPTION
-------  -----------
4.2      Certificate of the Designation, Preferences, Rights and Limitations of
         PalWeb Corporation's Series 2003 Cumulative Convertible Senior
         Preferred Stock (incorporated herein by reference to Exhibit 4.1 of the
         Company's Form 8-K dated September 8, 2003, which was filed with the
         SEC on September 23, 2003).

4.3      Certificate of Ownership and Merger Merging Greystone Logistics, Inc.,
         into PalWeb Corporation filed with the Oklahoma Secretary of State on
         March 18, 2005 (incorporated herein by reference to Exhibit 4.1 of the
         Company's Form 8-K dated March 18, 2005, which was filed with the SEC
         on March 24, 2005).

10.1     License Agreement by and between Westgate Capital Company, L.L.C., and
         PalWeb Corporation dated April 20, 2001 (incorporated herein by
         reference to Exhibit 10.21 of the Company's Form 10-KSB for the Fiscal
         Year Ended May 31, 2002, which was filed with the SEC on September 13,
         2002).

10.2     Non Exclusive Distribution Agreement between PalWeb Corporation and
         Bosh Material Handling Incorporated dated August 5, 2002 (incorporated
         herein by reference to Exhibit 10.23 of the Company's Form 10-KSB for
         the Fiscal Year Ended May 31, 2002, which was filed with the SEC on
         September 13, 2002).

10.3**   Form of Indemnity Agreement between Members of the Board of Directors
         and PalWeb Corporation (incorporated herein by reference to Exhibit
         10.30 of the Company's Form 10-KSB for the Fiscal Year Ended May 31,
         2002, which was filed with the SEC on September 13, 2002).

10.4     Indemnity Agreement by and between The Union Group, Inc., and Cabec
         Energy Corp. dated August 31, 1998 (incorporated herein by reference to
         Exhibit 10.6 of Amendment No. 3 to the Company's Form 10-SB, which was
         filed on May 2, 2000).

10.5**   Stock Option Plan of PalWeb Corporation (effective May 11, 2001), as
         amended (incorporated herein by reference to Exhibit 10.32 of the
         Company's Form 10-KSB for the Fiscal Year Ended May 31, 2002, which was
         filed with the SEC on September 13, 2002).

10.6**   Form of Non-Qualified Stock Option Agreement (incorporated herein by
         reference to Exhibit 99.8 of the Company's Form 10-KSB for the Fiscal
         Year Ended May 31, 2001, which was filed with the SEC on September 13,
         2001).

10.7**   Form of Incentive Stock Option Agreement (incorporated herein by
         reference to Exhibit 99.9 of the Company's Form 10-KSB for the Fiscal
         Year Ended May 31, 2001, which was filed with the SEC on September 13,
         2001).

                                        5
<PAGE>
EXHIBIT
NO.      DESCRIPTION
-------  -----------
10.8**   Form of Nonemployee Director Stock Option Agreement (incorporated
         herein by reference to Exhibit 99.10 of the Company's Form 10-KSB for
         the Fiscal Year Ended May 31, 2001, which was filed with the SEC on
         September 13, 2001).

10.9**   Form of Employee Director Incentive Stock Option Agreement
         (incorporated herein by reference to Exhibit 10.36 of the Company's
         Form 10-KSB for the Fiscal Year Ended May 31, 2002, which was filed
         with the SEC on September 13, 2002).

10.10    Assignment and Indemnity Agreement between the Company and Paul A.
         Kruger (regarding transfer of stock of PP Financial, Inc.) dated May
         30, 2002 (incorporated herein by reference to Exhibit 10.39 of the
         Company's Form 10-KSB for the Fiscal Year Ended May 31, 2002, which was
         filed with the SEC on September 13, 2002).

10.11    Letter Agreement between PalWeb Corporation and Lyle W. Miller dated
         January 10, 2003 (amending terms of outstanding stock options)
         (incorporated herein by reference to Exhibit 10.8 of the Company's Form
         10-QSB for the Quarterly Period Ended November 30, 2002, which was
         filed with the SEC on January 14, 2003).

10.12    Letter Agreement dated January 22, 2003 between Gravity Management &
         Engineering Group, LLC and PalWeb Corporation (incorporated herein by
         reference to Exhibit 10.48 of the Company's Form 10-KSB for the Fiscal
         Year Ended May 31, 2003, which was filed with the SEC on September 15,
         2003).

10.13    Asset Purchase Agreement between Greystone Plastics, Inc. and Greystone
         Manufacturing, L.L.C. dated September 3, 2003 (incorporated herein by
         reference to Exhibit 10.1 of The Company's Form 8-K dated September 8,
         2003, which was filed with the SEC on September 23, 2003).

10.14    Senior Secured Promissory Note in the amount of $5,000,000 payable to
         Greystone Plastics, Inc. (incorporated herein by reference to Exhibit
         10.2 of The Company's Form 8-K dated September 8, 2003, which was filed
         with the SEC on September 23, 2003).

10.15    Real Estate Note in the amount of $2,500,000 payable to Greystone
         Plastics, Inc. (incorporated herein by reference to Exhibit 10.3 of The
         Company's Form 8-K dated September 8, 2003, which was filed with the
         SEC on September 23, 2003).

                                        6
<PAGE>
EXHIBIT
NO.      DESCRIPTION
-------  -----------
10.16    Wraparound Promissory Note in the amount of $799,454.06 payable to Bill
         Hamilton (incorporated herein by reference to Exhibit 10.4 of The
         Company's Form 8-K dated September 8, 2003, which was filed with the
         SEC on September 23, 2003).

10.17    Security Agreement between Greystone Plastics, Inc. and Greystone
         Manufacturing, L.L.C. dated September 3, 2003 (incorporated herein by
         reference to Exhibit 10.5 of The Company's Form 8-K dated September 8,
         2003, which was filed with the SEC on September 23, 2003).

10.18**  Employment Agreement between Greystone Manufacturing, L.L.C. and Bill
         Hamilton dated September 3, 2003 (incorporated herein by reference to
         Exhibit 10.6 of The Company's Form 8-K dated September 8, 2003, which
         was filed with the SEC on September 23, 2003).

10.19    Asset Purchase Agreement between Plastic Pallet Production, Inc. and
         1607 Commerce Limited Partnership dated September 8, 2003 (incorporated
         herein by reference to Exhibit 10.7 of The Company's Form 8-K dated
         September 8, 2003, which was filed with the SEC on September 23, 2003).

10.20    Letter Agreement between Plastic Pallet Production, Inc. and 1607
         Commerce Limited Partnership dated September 8, 2003 (incorporated
         herein by reference to Exhibit 10.8 of The Company's Form 8-K dated
         September 8, 2003, which was filed with the SEC on September 23, 2003).

10.21    Sale Agreement between Plastic Pallet Production, Inc. and 1607
         Commerce Limited Partnership dated September 8, 2003 (incorporated
         herein by reference to Exhibit 10.9 of The Company's Form 8-K dated
         September 8, 2003, which was filed with the SEC on September 23, 2003).

10.22    Equipment Lease between 1607 Commerce Limited Partnership and Plastic
         Pallet Production, Inc. dated September 8, 2003 (incorporated herein by
         reference to Exhibit 10.10 of the Company's Form 8-K dated September 8,
         2003, which was filed with the SEC on September 23, 2003).

10.23    Lease Agreement between 1607 Commerce Limited Partnership and Plastic
         Pallet Production, Inc. dated September 8, 2003 (incorporated herein by
         reference to Exhibit 10.11 of the Company's Form 8-K dated September 8,
         2003, which was filed with the SEC on September 23, 2003).

10.24    Security Agreement among PalWeb Corporation, Plastic Pallet Production,
         Inc., Greystone Manufacturing, L.L.C. and 1607 Commerce Limited
         Partnership dated September 8, 2003 (incorporated herein by reference
         to Exhibit 10.12 of the Company's Form 8-K dated September 8, 2003,
         which was filed with the SEC on September 23, 2003).

                                        7
<PAGE>
EXHIBIT
NO.      DESCRIPTION
-------  -----------
10.25    Guaranty of Obligations of Tenant Pursuant to Equipment Lease by PalWeb
         Corporation and Greystone Manufacturing, L.L.C. dated September 8, 2003
         (incorporated herein by reference to Exhibit 10.13 of the Company's
         Form 8-K dated September 8, 2003, which was filed with the SEC on
         September 23, 2003).

10.26    Guaranty of Obligations of Tenant Pursuant to Lease by PalWeb
         Corporation and Greystone Manufacturing, L.L.C. dated September 8, 2003
         (incorporated herein by reference to Exhibit 10.14 of the Company's
         Form 8-K dated September 8, 2003, which was filed with the SEC on
         September 23, 2003).

10.27    Stock Pledge Agreement between PalWeb Corporation and 1607 Commerce
         Limited Partnership dated September 8, 2003 (incorporated herein by
         reference to Exhibit 10.15 of the Company's Form 8-K dated September 8,
         2003, which was filed with the SEC on September 23, 2003). Employment
         Agreement between PalWeb Corporation and Warren Kruger dated August 13,
         2003

10.28**  (incorporated herein by reference to Exhibit 10.35 of the Company's
         Form 10-KSB for the Fiscal Year Ended May 31, 2004, which was filed
         with the SEC on August 30, 2004).

10.29**  Employment Agreement dated as of August 1, 2004, by and between PalWeb
         Corporation and Marshall S. Cogan (incorporated herein by reference to
         Exhibit 10.1 of the Company's Form 10-QSB for the Quarterly Period
         Ended November 30, 2004, which was filed with the SEC on January 19,
         2005).

10.30**  Employment Agreement dated as of November 1, 2004, by and between
         PalWeb Corporation and Robert H. Nelson (incorporated herein by
         reference to Exhibit 10.2 of the Company's Form 10-QSB for the
         Quarterly Period Ended November 30, 2004, which was filed with the SEC
         on January 19, 2005).

10.31    Form of Securities Purchase Agreement entered into between PalWeb
         Corporation and certain accredited investors in connection with
         November 2004 private placement (incorporated herein by reference to
         Exhibit 10.3 of the Company's Form 10-QSB for the Quarterly Period
         Ended November 30, 2004, which was filed with the SEC on January 19,
         2005).

10.32    Letter Agreement dated January 3, 2005, by and between Greystone
         Manufacturing, L.L.C., and Greystone Plastics, Inc. (incorporated
         herein by reference to Exhibit 10.4 of the Company's Form 10-QSB for
         the Quarterly Period Ended November 30, 2004, which was filed with the
         SEC on January 19, 2005).

                                        8
<PAGE>
EXHIBIT
NO.      DESCRIPTION
-------  -----------
10.33    Loan Agreement dated March 4, 2005, by and among Greystone
         Manufacturing, L.L.C., GLOG Investment, L.L.C., The F&M Bank & Trust
         Company and PalWeb Corporation (incorporated herein by reference to
         Exhibit 10.1 of the Company's Form 8-K dated March 4, 2005, which was
         filed with the SEC on March 10, 2005).

10.34    Promissory Note dated November 30, 2004, in the amount of $1,500,000
         issued by Greystone Manufacturing, L.L.C., to The F&M Bank & Trust
         Company (incorporated herein by reference to Exhibit 10.2 of the
         Company's Form 8-K dated March 4, 2005, which was filed with the SEC on
         March 10, 2005).

10.35    Term Note dated March 4, 2005, in the amount of $5,500,000 issued by
         Greystone Manufacturing, L.L.C., to The F&M Bank & Trust Company
         (incorporated herein by reference to Exhibit 10.3 of the Company's Form
         8-K dated March 4, 2005, which was filed with the SEC on March 10,
         2005).

10.36    Security Agreement dated March 4, 2005, by and between Greystone
         Manufacturing, L.L.C., and The F&M Bank & Trust Company (incorporated
         herein by reference to Exhibit 10.4 of the Company's Form 8-K dated
         March 4, 2005, which was filed with the SEC on March 10, 2005).

10.37    Mortgage Agreement dated March 4, 2005, by and between Greystone
         Manufacturing, L.L.C., and The F&M Bank & Trust Company (incorporated
         herein by reference to Exhibit 10.5 of the Company's Form 8-K dated
         March 4, 2005, which was filed with the SEC on March 10, 2005).

10.38    Guaranty of PalWeb Corporation dated March 4, 2005 (incorporated herein
         by reference to Exhibit 10.6 of the Company's Form 8-K dated March 4,
         2005, which was filed with the SEC on March 10, 2005).

10.39    Industrial Lease dated as of July 1, 2004, by and between Greystone
         Properties, LLC, and Greystone Manufacturing, L.L.C. (incorporated
         herein by reference to Exhibit 10.1 of the Company's Form 10-QSB for
         the Quarterly Period Ended February 28, 2005, which was filed with the
         SEC on April 20, 2005).

10.40    Equipment Rental Contract dated as of November 1, 2004, by and between
         NYOK Partners and Greystone Manufacturing, L.L.C. relating to certain
         grinding equipment (incorporated herein by reference to Exhibit 10.2 of
         the Company's Form 10-QSB for the Quarterly Period Ended February 28,
         2005, which was filed with the SEC on April 20, 2005).

                                        9
<PAGE>
EXHIBIT
NO.      DESCRIPTION
-------  -----------
10.41    Equipment Rental Contract dated as of November 1, 2004, by and between
         NYOK Partners and Greystone Manufacturing, L.L.C. relating to plastic
         injection molding machine (incorporated herein by reference to Exhibit
         10.3 of the Company's Form 10-QSB for the Quarterly Period Ended
         February 28, 2005, which was filed with the SEC on April 20, 2005).

10.42**  Employment Agreement dated as of August 15, 2005, between Greystone
         Logistics, Inc. and Bobby L. Moore (incorporated herein by reference to
         Exhibit 10.1 of the Company's Form 8-K dated August 11, 2005, which was
         filed with the SEC on August 12, 2005).

10.43    License Agreement by and between Westgate Capital Company, L.L.C., and
         PalWeb Corporation dated March 1, 2005 (incorporated herein by
         reference to Exhibit 10.43 of the Company's Form 10-KSB for the Fiscal
         Year Ended May 31, 2005, which was filed with the SEC on September 15,
         2005).

11.1     Computation of Loss Per Share is in Note 1 in the Notes to the
         Financial Statements.

21.1     Subsidiaries of Greystone Logistics, Inc. (incorporated herein by
         reference to Exhibit 10.43 of the Company's Form 10-KSB for the Fiscal
         Year Ended May 31, 2005, which was filed with the SEC on September 15,
         2005).

23.1     Consent of Murrell, Hall, McIntosh & Co., PLLP (submitted herewith).

31.1     Certification of Chief Financial Officer (and interim principal
         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 (submitted herewith).

32.1     Certification of Chief Financial Officer (and interim principal
         executive officer) pursuant to 18 U.S.C. Section 1350, as adopted
         pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (submitted
         herewith).

** Management contract or compensatory plan or arrangement required to be filed
   as an exhibit to this report.















                                       10
<PAGE>
                                   SIGNATURES

         In accordance with Section 13 or 15(d) 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:    01/10/06                    /s/ Robert H. Nelson
                                     -------------------------------------------
                                     Robert H. Nelson, Chief Financial Officer
                                     (Principal Financial Officer, Principal
                                     Accounting Officer and Interim Principal
                                     Executive Officer)



         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.



Date:    01/10/06                    /s/ Robert H. Nelson
                                     -------------------------------------------
                                     Robert H. Nelson, Chief Financial Officer
                                     (Principal Financial Officer, Principal
                                     Accounting Officer and Interim Principal
                                     Executive Officer)


Date:    01/10/06                    /s/ Marshall S. Cogan
                                     -------------------------------------------
                                     Marshall S. Cogan, Director


Date:    01/10/06                    /s/ Warren F. Kruger
                                     -------------------------------------------
                                     Warren F. Kruger, Director


Date:    01/10/06                    /s/ Robert B. Rosene
                                     -------------------------------------------
                                     Robert B. Rosene, Jr., Director








                                       11
<PAGE>
                          INDEX TO FINANCIAL STATEMENTS
                          -----------------------------



CONSOLIDATED FINANCIAL STATEMENTS OF GREYSTONE LOGISTICS, INC.

Report of Independent Registered Public Accounting Firm..................... F-1

Consolidated Balance Sheet.................................................. F-2

Consolidated Statements of Operations ...................................... F-3

Consolidated Statements of Changes in Stockholders' Equity (Deficiency)..... F-4

Consolidated Statements of Cash Flows ...................................... F-5

Notes to Consolidated Financial Statements.................................. F-6

























                                       12
<PAGE>
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders
of Greystone Logistics, Inc.

         We have audited the accompanying consolidated balance sheet of
Greystone Logistics, Inc. and its subsidiaries as of May 31, 2005, and the
related consolidated statements of operations, stockholders' equity (deficiency)
and cash flows for each of the years ended May 31, 2005 and 2004. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.

         We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). The Company is not required
to have, nor have we been engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Greystone Logistics, Inc. and its subsidiaries as of May 31, 2005, and the
consolidated results of their operations and cash flows for each of the years
ended May 31, 2005 and 2004, in conformity with accounting principles generally
accepted in the United States of America.

         The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has suffered
significant losses from operations. Substantial additional funding will be
required to implement its business plan and to attain profitable operations. The
lack of adequate funding to maintain working capital and stockholders' deficits
at May 31, 2005 raises substantial doubt about its ability to continue as a
going concern unless additional funds from outside sources, its president or
other board members are obtained. Management's plans in regard to these matters
are described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.

         As discussed in Note 18 to the consolidated financial statements, the
accompanying consolidated financial statements for the year ended May 31, 2004
have been restated.


MURRELL, HALL, MCINTOSH & CO., PLLP

Norman, Oklahoma
August 30, 2005


                                       F-1
<PAGE>
                   GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                  MAY 31, 2005


<TABLE><CAPTION>

                                     ASSETS
                                     ------
<S>                                                                      <C>
CURRENT ASSETS:
      Cash                                                               $      1,410
      Accounts receivable, net of allowance for doubtful
          accounts of $190,364                                              1,573,635
      Inventory                                                               535,523
      Prepaid expenses                                                         10,932
                                                                         ------------
          TOTAL CURRENT ASSETS                                              2,121,500

PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION              7,189,652

OTHER ASSETS:
      Patents, net of accumulated amortization                                164,951
                                                                         ------------

TOTAL ASSETS                                                             $  9,476,103
                                                                         ============



                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY
                    ----------------------------------------

CURRENT LIABILITIES:
      Current portion of long-term debt                                  $  2,117,222
      Advances payable - related party                                        952,216
      Accounts payable and accrued expenses                                 2,631,676
      Preferred dividends payable                                              33,785
                                                                         ------------
          TOTAL CURRENT LIABILITIES                                         5,734,899

LONG-TERM DEBT                                                              8,026,739

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY:
      Preferred stock, $0.0001 par value, 20,750,000 shares
        authorized, 50,000 shares outstanding, liquidation
        preference of $5,000,000                                                    5
      Common stock, $0.0001 par value, 5,000,000,000 shares
        authorized, 24,061,201 outstanding                                      2,406
      Additional paid-in capital                                           52,214,532
      Deficit                                                             (56,502,478)
                                                                         ------------
          TOTAL STOCKHOLDERS' DEFICIENCY                                   (4,285,535)
                                                                         ------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                           $  9,476,103
                                                                         ============
</TABLE>

              The accompanying notes are an integral part of these
                        consolidated financial statements

                                       F-2
<PAGE>
                   GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE><CAPTION>

                                                              Year Ended May 31,
                                                         ----------------------------
                                                             2005            2004
                                                         ------------    ------------
<S>                                                      <C>             <C>
Sales                                                    $  9,305,534    $  6,964,943

Cost of Sales, including depreciation expense of
      $591,905 and $357,952                                 9,573,029       6,768,426
                                                         ------------    ------------

Gross Profit (Loss)                                          (267,495)        196,517

Expenses:
      General, selling and administration expenses          3,449,422       2,261,723
      Impairment costs                                      5,719,658         219,753
      Relocation costs                                        355,000         222,196
                                                         ------------    ------------
          Total expenses                                    9,524,080       2,703,672
                                                         ------------    ------------

Operating Loss                                             (9,791,575)     (2,507,155)

Other Income (Expense):
      Other income                                             62,091          12,134
      Interest expense                                       (692,341)       (699,661)
                                                         ------------    ------------
          Total Other Income (Expense)                       (630,250)       (687,527)
                                                         ------------    ------------

Net Loss                                                  (10,421,825)     (3,194,682)

Preferred Dividends                                           404,555         660,171
                                                         ------------    ------------

Net Loss Available to Common Stockholders                $(10,826,380)   $ (3,854,853)
                                                         ============    ============

Loss Available to Common Stockholders
      Per Share of Common Stock - Basic and Diluted      $      (0.60)   $      (0.35)
                                                         ============    ============


Weighted Average Shares of Common Stock Outstanding        17,950,000      11,026,000
                                                         ============    ============
</TABLE>


              The accompanying notes are an integral part of these
                        consolidated financial statements

                                       F-3
<PAGE>
                   GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)


<TABLE><CAPTION>
                                                                                     Additional                         Total
                                                                                      Paid-In        Accumulated     Accumulated
                                 Preferred Stock              Common Stock            Capital          Deficit         Deficit
                            -------------------------   -------------------------   ------------    ------------    ------------
<S>                         <C>           <C>           <C>           <C>           <C>             <C>             <C>
Balances, May 31, 2003          750,000   $        75     5,938,722   $       594   $ 41,969,124    $(42,040,998)   $    (71,205)

Common stock in lieu of
     preferred dividends           --            --         971,918            97        396,890        (396,987)           --

Preferred dividends paid
     or accrued                    --            --            --            --             --          (263,184)       (263,184)

Stock issued in exchange
     for debt                      --            --         629,811            63        899,937            --           900,000

Conversion of Series 2001
     preferred stock           (750,000)          (75)    5,250,000           525           (450)           --              --

Issuance of Series 2003
     preferred stock             50,000             5          --            --        4,999,995            --         5,000,000

Net loss                           --            --            --            --             --        (2,974,929)     (2,974,929)
                            -----------   -----------   -----------   -----------   ------------    ------------    ------------

Balances, May 31, 2004           50,000             5    12,790,451         1,279     48,265,496     (45,676,098)      2,590,682

Preferred dividends paid
     or accrued                    --            --            --            --             --          (404,555)       (404,555)

Stock issued in exchange
     for debt                      --            --       5,985,037           598      2,099,565            --         2,100,163

Issuance of common stock           --            --       5,285,713           529      1,849,471            --         1,850,000

Net loss                           --            --            --            --             --       (10,421,825)    (10,421,825)
                            -----------   -----------   -----------   -----------   ------------    ------------    ------------

Balances, May 31, 2005           50,000   $         5    24,061,201   $     2,406   $ 52,214,532    $(56,502,478)   $ (4,285,535)
                            ===========   ===========   ===========   ===========   ============    ============    ============
</TABLE>


    The accompanying notes are an integral part of these financial statements

                                       F-4
<PAGE>
                   GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE><CAPTION>
                                                                  Year Ended May 31,
                                                             ----------------------------
                                                                 2005            2004
                                                             ------------    ------------
<S>                                                          <C>             <C>
Cash Flows from Operating Activities:                        $(10,421,825)   $ (2,974,929)
      Net Loss
      Adjustments to reconcile net loss to cash used
        in operating activities
          Depreciation and amortization                         1,296,601         927,010
          Impairments                                           5,719,658            --
          Loss on sale of equipment                                  --           121,321
          Expenses paid by issuance of common stock               415,900            --
          Changes in accounts receivable                         (622,039)       (603,752)
          Changes in inventory                                    (14,147)        389,051
          Changes in prepaid expenses                             (10,932)        (26,000)
          Changes in accounts payable and accrued expenses        699,577         668,482
          Changes in preferred dividends payable                  (26,797)         60,582
          Other                                                      --           (26,300)
                                                             ------------    ------------
               Net cash used in operating activities           (2,964,004)     (1,464,535)

Cash Flows from Investing Activities:
      Purchase of property and equipment                         (426,054)       (701,847)
      Acquisition of assets of Greystone Plastics, Inc.              --        (4,248,459)
                                                             ------------    ------------
                                                                 (426,054)     (4,950,306)

Cash Flows from Financing Activities:
      Proceeds from notes and advances payable                  8,402,650       2,631,245
      Payments on notes and advances payable                   (6,730,712)       (685,344)
      Proceeds from issuance of common/preferred stock          1,850,000       5,000,000
      Dividends paid on preferred stock                          (404,555)       (263,184)
                                                             ------------    ------------
          Cash provided by financing activities                 3,117,383       6,682,717
                                                             ------------    ------------

Net Increase (Decrease) in Cash                                  (272,675)        267,876
Cash, beginning of year                                           274,085           6,209
                                                             ------------    ------------
Cash, end of year                                            $      1,410    $    274,085
                                                             ============    ============

Supplemental Information (Note 12)
</TABLE>

              The accompanying notes are an integral part of these
                        consolidated financial statements

                                       F-5
<PAGE>
                   GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
            ------------------------------------------

       ORGANIZATION
       ------------

       Greystone Logistics, Inc. ("Greystone") through its wholly-owned
       subsidiaries Greystone Manufacturing, LLC ("GSM"), and Plastic Pallet
       Production, Inc. ("PPP"), is engaged in the manufacture and marketing of
       plastic pallets.

       PRINCIPLES OF CONSOLIDATION
       ---------------------------

       The accompanying consolidated financial statements include the accounts
       of Greystone and its subsidiaries. All material intercompany accounts and
       transactions have been eliminated.

       STATEMENT OF CASH FLOWS
       -----------------------

       Greystone considers all short-term investments with an original maturity
       of three months or less to be cash equivalents.

       USE OF ESTIMATES
       ----------------

       The preparation of Greystone's financial statements in conformity with
       generally accepted accounting principles in the United States of America
       requires Greystone's management to make estimates and assumptions that
       affect the amounts reported in these financial statements and
       accompanying notes. Actual results could differ materially from those
       estimates.

       ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
       -------------------------------------------------------

       Greystone carries its accounts receivable at their face value less an
       allowance for doubtful accounts. On a periodic basis, Greystone evaluates
       its accounts receivable and establishes an allowance for doubtful
       accounts based on a combination of specific customer circumstances and
       credit conditions and based on a history of collections. The allowance
       for doubtful accounts at May 31, 2005 was $190,364.

       INVENTORY
       ---------

       Inventory consists of finished pallets and raw materials and is stated at
       the lower of cost (first-in, first-out) or market value.

                                      F-6
<PAGE>


       PROPERTY, PLANT AND EQUIPMENT
       -----------------------------

       Greystone's property, plant and equipment is stated at cost. Depreciation
       expense is computed on the straight-line over the estimated useful lives
       or the units of production method, as follows:

         Plant building                            39 years
         Production machinery equipment            5-10 years or Unit of
                                                   Production
         Office equipment & furniture & fixtures   3- 5 years

       The production equipment being amortized on the unit of production method
       had a total cost of $322,687 at May 31, 2005.

       Upon sale, retirement or other disposal, the related costs and
       accumulated depreciation of items of property, plant or equipment are
       removed from the related accounts and any gain or loss is recognized.
       When events or changes in circumstances indicate that assets may be
       impaired, an evaluation is performed comparing the estimated future
       undiscounted cash flows associated with the asset to the assets carrying
       amount. If the asset carrying amount exceeds the cash flows, a write-down
       to market value or discounted cash flow value is required.

       INVESTMENT
       ----------

       Greystone has a 20% ownership in Vimonta AG which is carried on the cost
       basis of accounting since management has no board representation,
       financial information or other influence on the operation of Vimonta AG.
       The asset is valued at $5,000 and included in other assets.

       GOODWILL AND INTANGIBLES
       ------------------------

       Goodwill and intangibles are reviewed annually for impairment relying on
       a number of factors including operating results, business plans and
       future cash flows. An impairment charge is recognized for any amount by
       which the carrying value of goodwill exceed its fair value. Discounted
       cash flows are used to establish fair values. See Note 16 for recognition
       of impairment of goodwill and intangible cost during fiscal year 2005.

       Intangible cost consists of the valuation of a customer contract acquired
       in connection with the acquisition of the assets of Greystone Plastics,
       Inc. effective September 8, 2003. The intangible is being amortized by
       the unit of production method based on unit sales to the customer.

       PATENTS
       -------

       Amortization expense for the costs incurred by Greystone to obtain the
       patents on the

                                      F-7
<PAGE>

       modular pallet system and accessories is computed on the straight-line
       method over the estimated life of 15-17 years.

       STOCK OPTIONS
       -------------

       Greystone applies the intrinsic value-based method of accounting
       prescribed by Accounting Principles Board Opinion No. 25, ACCOUNTING FOR
       STOCK ISSUED TO EMPLOYEES, and related interpretations, in accounting for
       its stock options. As such, compensation expense would be recorded on the
       date of grant only if the current market price of the underlying stock
       exceeded the exercise price. SFAS No. 123, ACCOUNTING FOR STOCK-BASED
       COMPENSATION, established accounting and disclosure requirements for
       stock-based employee compensation plans. As allowed by SFAS No. 123,
       Greystone has elected to continue to apply the intrinsic value-based
       method of accounting under APB No. 25, and has adopted the disclosure
       requirements of SFAS No. 123 as reflected in Note 10.

       RECOGNITION OF REVENUES
       -----------------------

       Revenue is recognized when the product is shipped.

       RESEARCH AND DEVELOPMENT COSTS
       ------------------------------

       Research and Development costs are charged to operations in the period
       incurred.

       INCOME TAXES
       ------------

       Greystone accounts for income taxes under the liability method, which
       requires recognition of deferred tax assets and liabilities for the
       expected future tax consequences of events that have been included in the
       financial statements or tax returns. Under this method, deferred tax
       assets and liabilities are determined based in the difference between the
       financial statements and tax bases of assets and liabilities using
       enacted tax rates in effect for the year in which the differences are
       expected to reverse.

       LOSS PER SHARE
       --------------

       Basic loss per share is computed by dividing the loss available to common
       stockholders of $(10,826,380) and $(3,854,853) for 2005 and 2004,
       respectively, by the weighted average number of common shares outstanding
       during 2005 and 2004, 17,950,000 shares and 11,026,000 shares,
       respectively. In arriving at income (loss) available to common
       stockholders, preferred stock dividends are added to the net loss for the
       year. Convertible preferred stock and stock options are not considered as
       their effect is antidilutive.

       RECENT PRONOUNCEMENTS
       ---------------------

       In December 2004, the Financial Accounting Standards Board, ("FASB")
       issued

                                      F-8
<PAGE>

       Statement No. 123R, "Share-Based Payment," a revision to Statement No.
       123, "Accounting for stock-Based Compensation." This standard requires
       the Company to measure the cost of employee services received in exchange
       for equity awards based on the grant date fair value of the awards. The
       cost will be recognized as compensation expense over the vesting period
       of the awards. The Company is required to adopt SFAS 123R at the
       beginning of the third quarter of fiscal year 2006. The standard provides
       for prospective or retrospective application. Under prospective
       application, the Company will begin recognizing compensation cost for
       equity based compensation for all new or modified grants after the
       adoption date and will recognize the unvested portion of the grant date
       fair value of awards issued prior to adoption based on the fair values
       previously calculated for disclosure purposes. Under retrospective
       application, the fair value based method of accounting will be applied to
       grants prior to the adoption date and all prior periods for which SFAS
       No. 123 was effective. Greystone is currently evaluating the adoption of
       SFAS No. 123R and expects that it may recognize additional compensation
       expense for the third quarter of fiscal year 2006.

       In November 2004, the FASB issued SFAS No. 151 "Inventory Costs." SFAS
       No. 151 requires that abnormal amounts of idle facility expense, freight,
       handling costs, and spoilage, be charged to expense in the period they
       are incurred rather than capitalized as a component of inventory costs.
       SFAS No. 151 is effective for inventory costs incurred in fiscal periods
       beginning after June 15, 2005. The adoption of this standard may result
       in higher expenses in periods where production levels are lower than
       normal ranges of production. Because actual future production levels are
       subject to many factors, including demand for Greystone's products,
       Greystone cannot determine if the adoption of SFAS No. 151 will have a
       material impact on future results of operations.

       In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
       Assets." SFAS No. 153 amends Accounting Principles Board ("APB") Opinion
       No. 29m "Accounting for Nonmonetary Transactions," to require exchanges
       of nonmonetary assets be accounted for at fair value, rather than
       carryover basis. Nonmonetary exchanges that lack commercial substance are
       exempt from this requirement. SFAS No. 153 is effective for nonmonetary
       exchanges entered in fiscal years beginning after June 15, 2005.
       Greystone does not expect the adoption of SFAS No. 153 to have a material
       impact on its financial statements.

NOTE 2.     CONTINUATION AS A GOING CONCERN
            -------------------------------

       The accompanying financial statements have been prepared assuming that
       Greystone will continue as a going concern. Greystone has suffered
       significant losses from operations. Currently, management believes that
       Greystone has the capacity to produce sufficient plastic pallets to
       achieve profitability; however, sales have not reached such level. To
       date, Greystone has received substantial advances from investors but will
       require additional substantial funding in order to attain its business
       plan and have an opportunity to achieve profitable operations. Management
       has been successful in financing its

                                      F-9
<PAGE>

       operations primarily through short-term loans and personal guarantees on
       bank loans by its officers and directors. Management continues to seek
       long-term and/or permanent financing. Neither the receipt of additional
       funding in adequate amounts nor the successful implementation of its
       business plan can be assured. The combination of these factors raises
       substantial doubt about Greystone's ability to continue as a going
       concern. It is management's opinion that (1) based upon expressions of
       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.

NOTE 3.     INVENTORY
            ---------

       Inventory at May 31, 2005 consists of:

         Raw materials                                           $   446,809
         Finished goods                                               88,714
                                                                 -----------
         Total inventory                                         $   535,523
                                                                 ===========


NOTE 4.     PROPERTY, PLANT AND EQUIPMENT
            -----------------------------

       A summary of the property, plant and equipment at May 31, 2005, is as
       follows:

         Production machinery and equipment                      $ 5,780,346
         Building and land                                         2,583,116
         Furniture and fixtures                                      138,246
                                                                 -----------
                                                                   8,501,708
            Less: accumulated depreciation                        (1,312,056)
                                                                 -----------
                                                                 $ 7,189,652
                                                                 ===========

       Depreciation expense for the years ended May 31, 2005 and 2004 is
       $591,905 and $377,788, respectively.


NOTE 5.     OTHER ASSETS
            ------------

       At May 31, 2005 other assets consist of:

         Patents, net of accumulated amortization of $41,387     $   149,351
         Investments                                                   5,000
              Deposits and other                                      10,600
                                                                 -----------
                  Total Other Assets                             $   164,951
                                                                 ===========

       Amortization of intangibles was $704,696 and $515,576 in 2005 and 2004,
       respectively.

                                      F-10
<PAGE>

       Included in amortization expense is $693,206 and $514,002 for 2005 and
       2004, respectively, from amortization of the capitalized valuation of the
       customer contract acquired in the acquisition of the assets of Greystone
       Plastics, Inc.

NOTE 6.     LONG-TERM DEBT AND ADVANCES PAYABLE
            -----------------------------------

       Long-term debt at May 31, 2005 consists of the following:

         Note payable to F&M Bank & Trust Company, prime rate
          of interest plus 2% (8% at May 31, 2005),  monthly
          payments based on 15-year amortization, due March 18,
          2008                                                   $ 5,477,650

         Note payable to F&M Bank & Trust Company, prime rate
          of interest plus 1% (7% at May 31, 2005), due January
          5, 2006                                                  1,500,000


         Note payable to Greystone Plastics, Inc., 7%
          interest, due September 7, 2018, secured by land and
          building with net book value of $2,215,207               2,236,109

         Capitalized lease purchase agreement with related
          party, 7.5% interest, $23,136 payable monthly, due
          February 18, 2009                                          911,327

         Other notes payable                                          18,875
                                                                 -----------
          Total                                                   10,143,961

         Less: Current portion                                     2,117,222
                                                                 -----------
         Long-term debt                                          $ 8,026,739
                                                                 ===========

       The notes payable to F&M Bank and Trust Company are secured by
       Greystone's property and equipment, accounts receivable and cash
       balances. The loans are guaranteed by the officers and directors of
       Greystone in effect at May 31, 2005.

       Maturities of long-term debt for the five years after May 31, 2005 are
       $2,117,222, $627,048, $5,383,955, $446,298, $166,668, and $1,402,770
       thereafter.

       Advances payable to related parties include $452,216 provided by Warren
       Kruger and

                                      F-11
<PAGE>

       $500,000 provided by Robert Rosene, a member of the Board of Directors of
       Greystone.

NOTE 7.     RELATED PARTY TRANSACTIONS
            --------------------------

       TRANSACTIONS WITH BILL HAMILTON, FORMER VICE PRESIDENT OF PRODUCTION
       --------------------------------------------------------------------

       Bill Hamilton owns a trucking company, Greystone-Bill Hamilton Trucking,
       which provided freight services totaling $829,672 and $699,966,
       respectively, for fiscal 2005 through March 8, 2005, the date of Mr.
       Hamilton's resignation, and fiscal year 2004, respectively. Greystone
       believes that the freight rates are equivalent to an arms-length
       transaction. In addition, GSM paid or accrued fees totaling $117,716 and
       $246,870 in 2005 through the date of his resignation and 2004,
       respectively, for grinding services to Whaco Plastics, an entity also
       owned by Bill Hamilton.

       TRANSACTIONS WITH NYOK PARTNERS
       -------------------------------

       Effective as of October 31, 2004, NYOK Partners, a general partnership
       owned by Marshall Cogan, Greystone's Non-Executive Chairman, and Warren
       Kruger, Greystone's Vice Chairman, purchased certain grinding equipment
       from GSM, at its net book value of $259,000, which approximates the
       market value of such equipment, in exchange for the cancellation of a
       like amount of indebtedness. NYOK used the equipment as a trade-in to
       acquire a grinder with greater capacity. Effective as of November 1,
       2004, NYOK entered into an equipment rental contract with GSM, pursuant
       to which NYOK has agreed to lease the grinding equipment to GSM for a
       period of one year at the rate of $0.06 per pound of plastic material
       processed utilizing the equipment.

       Effective as of November 1, 2004, NYOK entered into an equipment rental
       contract with GSM to lease a Cincinnati Milacron Plastics Injection
       Molding Machine for a five-year term at the rate of $21,136 per month. At
       the end of such five-year term, GSM has the right to purchase the machine
       from NYOK for $100,000. The lease is reflected on Greystone's financial
       statements as a capitalized lease.

       TRANSACTIONS WITH GREYSTONE PROPERTIES, LLC
       -------------------------------------------

       Effective as of July 1, 2004, Greystone Properties, LLC, a limited
       liability company owned by Robert B. Rosene, Jr., a member of Greystone's
       Board of Directors, and Warren Kruger, Vice Chairman, entered into an
       industrial lease with GSM, pursuant to which Greystone Properties, LLC
       agreed to lease a building containing 60,000 square feet of space to GSM
       for ten years in exchange for lease payments of $25,000 per month.
       Greystone paid Greystone Properties, LLC, rent of $20,000 per month for
       the period from August 1, 2004 to October 31, 2004 and began paying
       $25,000 per month beginning November 30, 2004. The industrial building is
       located adjacent to Greystone's plant in Bettendorf, Iowa.

                                      F-12
<PAGE>

       TRANSACTIONS WITH PAUL KRUGER, A SIGNIFICANT STOCKHOLDER
       --------------------------------------------------------

       Until September 8, 2003, Greystone had a $7,000,000 note payable to Paul
       Kruger, a significant stockholder, at an interest rate of prime plus 3%,
       due June 4, 2004, secured by all of Greystone's assets. Interest paid on
       the indebtedness to Paul Kruger was $131, 250 and $133,824 in 2005 and
       2004, respectively. Effective September 8, 2003, Greystone completed a
       sale and leaseback transaction whereby it sold for agreed upon prices its
       plant for $1,350,000 and certain production equipment for $5,710,698,
       including expenses, to 1607 Commerce Limited Partnership, an entity owned
       by Paul Kruger, in exchange for the $7,000,000 note payable and accrued
       interest of $60,698, which resulted in no gain or loss on the
       transaction. The lease agreement for the plant is a three-year triple net
       lease with a monthly rental of $17,720. The equipment lease is for 130
       months with a monthly rental after the first six months of $48,000
       beginning March 8, 2004. Initially the rental payments on the equipment
       lease were capitalized as prepaid expense and amortized using the unit of
       production method so the cost is allocated pro rata based on the
       estimated number of pallets to be produced during the term of the lease.
       During 2005 and 2004, the total amounts paid to 1607 Commerce Limited
       Partnership under these leases totaled $657,200 and $255,480,
       respectively. Effective March 1, 2005, Greystone notified 1607 Commerce
       Limited Partnership that pursuant to the breach of certain provisions of
       the building lease, Greystone considered the lease on the building
       located at 1607 West Commerce, Dallas, Texas, terminated. As discussed in
       Note 16, Greystone has recorded an impairment expense in fiscal year 2005
       with respect to the equipment lease.

       TRANSACTIONS WITH WARREN KRUGER, VICE CHAIRMAN
       ----------------------------------------------

       Interest paid or accrued on notes and advances to entities owned or
       controlled by Warren Kruger total $40,629 and $56,715 in 2005 and 2004,
       respectively. Greystone also reimburses an entity owned by Warren Kruger
       for office rent at the rate of $1,500 per month. At May 31, 2005,
       advances payable to Warren Kruger total $452,216.

       TRANSACTIONS WITH ROBERT ROSENE, DIRECTOR
       -----------------------------------------

       Robert Rosene, Director, advanced Greystone $500,000 in May 2005.
       Interest is not being accrued on the advance.

       TRANSACTIONS WITH BRYAN KIRCHMER, FORMER DIRECTOR
       -------------------------------------------------

       Greystone had a contract with a consulting engineering firm for the
       design and supervision of the construction of the new production
       equipment. Bryan Kirchmer, a former director of Greystone, is the
       president of the consulting engineers. Fees paid to the engineering firm
       were $4,110 and consulting fees of $22,500 were paid to Mr. Kirchmer,
       individually, during fiscal year 2004 through the date of his
       resignation.

                                      F-13
<PAGE>

       TRANSACTIONS WITH WILLIAM PRITCHARD, FORMER DIRECTOR
       ----------------------------------------------------

       William Pritchard, a former director of Greystone, provided legal
       services through a law firm of which he is of counsel. The fees paid in
       2004, through the date of his resignation, total $36,009.

       TRANSACTIONS WITH WESTGATE CAPITAL, L.L.C.
       ------------------------------------------

       During fiscal year 2005, Greystone accrued a licensing fee of $400,000
       payable to Westgate Capital, L.L.C., an entity of which Warren Kruger,
       Vice Chairman and Director, is a member. The licensing agreement relates
       to the use of a fire retardant formula in the manufacture of plastic
       pallets. See Note 15, Commitments and Contingencies, for further
       discussion of the licensing fee.

       OTHER TRANSACTIONS
       ------------------

       See also Note 9, "Stockholders' Equity."

NOTE 8.     FEDERAL INCOME TAXES
            --------------------

       Deferred taxes as of May 31, 2005 and 2004 are as follows:

<TABLE><CAPTION>
                                                             2005                2004
                                                        --------------      --------------
<S>                                                     <C>                 <C>
         Deferred Tax Assets:
            Net operating loss                          $    8,407,180      $    6,847,091
            Amortization of intangibles                      1,862,650              82,694
            Loss on investment                               1,057,740           1,057,740
            Accrued expenses                                   131,226             151,148
            Allowance for doubtful accounts                     64,724              23,707
                                                        --------------      --------------
               Total deferred tax assets                    11,523,520           8,162,380

         Deferred Tax Liabilities:
            Depreciation of property and equipment,
               Tax in excess of financial reporting            (45,636)           (244,806)
                                                        --------------      --------------
                                                            11,477,884           7,917,574
         Less: Valuation allowance                         (11,447,884)         (7,917,574)
                                                        --------------      --------------
               Total                                    $         --        $         --
                                                        ==============      ==============
</TABLE>

       Management has provided a valuation allowance for the full amount of the
       deferred tax asset as Greystone continues to incur substantial losses
       from its operations. While

                                      F-14
<PAGE>

       management projects that the products being developed will be profitable
       and the deferred asset will ultimately be realized, Greystone has not yet
       reached sufficient reliability on product acceptance and marketability to
       reduce the valuation allowance.

       The net change in deferred taxes for the year ended May 31, is as
       follows:
<TABLE><CAPTION>
                                                             2005                2004
                                                        --------------      --------------
<S>                                                     <C>                 <C>
         Net operating loss                             $    1,560,089      $        7,211
         Depreciation of property and equipment                199,170             394,541
         Amortization of intangibles                         1,779,956              66,706
         Accrued expenses                                      (19,922)            151,148
         Loss on investments                                      --               (93,330)
                                                        --------------      --------------
         Allowance for doubtful accounts                        41,017              23,707
         Change in valuation allowance                      (3,560,310)           (549,983)
                                                        --------------      --------------
             Total                                      $         --        $         --
                                                        ==============      ==============
</TABLE>

       Greystone's effective tax rate for the year ended May 31, differs from
       the federal statutory rate as follows:

<TABLE><CAPTION>
                                                             2005                2004
                                                        --------------      --------------
<S>                                                     <C>                 <C>
         Tax benefit using statutory rates              $    3,543,420      $    1,013,602
         Effect of rate adjustment                                --              (272,601)
                                                        --------------      --------------
         Net change in valuation allowance                  (3,560,310)           (549,983)
         Other                                                  16,890            (191,018)
                                                        --------------      --------------
         Tax benefit, per financial statements          $         --        $         --
                                                        ==============      ==============
</TABLE>

       Greystone has a net operating loss (NOL) for Federal income tax purposes
       as of May 31, 2005 of $24,727,000 as follows:

                                                     Year of
                              Amount                Expiration
                              ------                ----------
                           $ 1,290,000                 2012
                             1,291,000                 2018
                             5,871,000                 2019
                             2,634,000                 2020
                               883,000                 2021
                             2,370,000                 2022
                             4,167,000                 2023
                             1,632,000                 2024
                             4,589,000                 2025


                                      F-15
<PAGE>

NOTE 9.     STOCKHOLDERS' EQUITY
            --------------------

       During fiscal year 2005, Greystone sold shares of common stock at a rate
       of $0.35 per share plus warrants to officers, directors and unrelated
       parties, as follows:

<TABLE><CAPTION>
                                                                                 Warrants Exercisable at
                                                                                 -----------------------
    Officer/Director                   Shares            Amount           $0.6625         $0.795        $0.9275
                                     ----------        ----------        ----------     ----------     ----------
<S>                                  <C>                <C>                 <C>            <C>            <C>
Marshall Cogan,                       1,428,571        $  500,000            75,472         62,893         53,908
Non-executive Chairman

Robert Rosene, Director               2,770,951        $  969,833(1)        146,390        121,992        104,565

Warren Kruger, Vice Chairman and      1,473,347        $  515,671(2)         77,837         64,864         55,598
Director

Robert Nelson,                          285,714(3)     $  100,000            15,094         12,579         10,782
Chief Financial Officer

Westgate Capital, LLC(4)              1,142,857        $  400,000            60,377         50,314         43,127

All Others                            4,139,310        $1,448,759           218,683        182,236        156,203
                                     ----------        ----------        ----------     ----------     ----------
        Total                        11,240,750         3,934,263           593,853        494,878        424,183
                                     ==========        ==========        ==========     ==========     ==========
</TABLE>

       ---------------------

       (1) Includes a cash payment of $750,000 and the exchange of debt and
           accrued interest of $219,833 owed by Greystone to Mr. Rosene.
       (2) The total amount represents debt and accrued interest owed by
           Greystone to Mr. Kruger.
       (3) This stock was acquired and is owned by Mr. Nelson's wife.
       (4) Warren Kruger is a member of Westgate Capital Company, L.L.C.

       In March 2005, Greystone issued for services, 30,000 shares of common
       stock valued at $15,900 ($0.53 per share).

       Each of Messrs. Cogan, W. Kruger, Rosene and Nelson entered into a
       limited guaranty agreement on $2,500,000 of the $5,500,000 term loan with
       F&M Bank and Trust Company. In addition, Mr. Rosene entered into a pledge
       and security agreement with F&M Bank pursuant to which Mr. Rosene pledged
       a certificate of deposit in the face amount of $1,000,000 as security for
       payment under the F&M term note. As consideration for agreeing to enter
       into the limited guaranty for the benefit of Greystone, Greystone's Board
       of Directors authorized Greystone to enter into warrant agreements with
       each of the guarantors, pursuant to which each guarantor shall have the
       right to purchase 500,000 shares of Greystone's common stock at an
       exercise price of $0.50 per share and, as consideration for agreeing to
       enter into the pledge agreement for the benefit

                                      F-16
<PAGE>

       of Greystone, Greystone's Board of Directors authorized Greystone to
       enter into a warrant agreement with Mr. Rosene, pursuant to which Mr.
       Rosene shall immediately have the right to purchase 500,000 shares of
       Greystone's common stock at an exercise price of $0.50 per share.
       Greystone's Board of Directors further authorized Greystone to enter into
       warrant agreements with each of Messrs. W. Kruger and Rosene as
       guarantors of the $1,500,000 line of credit with F&M Bank, pursuant to
       which each guarantor shall have the right to purchase 500,000 shares of
       Greystone's common stock at an exercise price of $0.50 per share and, as
       consideration for agreeing to enter into the pledge agreement for the
       benefit of Greystone.

       In September, 2003, Greystone issued 50,000 shares of Series 2003,
       cumulative, convertible preferred stock, par value $0.0001, to Paul
       Kruger, a major stockholder of Greystone, for a total purchase price of
       $5,000,000. Each share of the preferred stock has a stated value of
       $100.00 and a dividend rate equal to the prime rate of interest plus
       3.25% and may be converted into common stock at the conversion rate of
       $1.50 per share or an aggregate of 3,333,333 shares of common stock. The
       holder of the preferred stock has been granted certain voting rights so
       that such holder has the right to elect a majority of the Board of
       Directors of Greystone. On March 9, 2005, the Series 2003 Preferred Stock
       was purchased from Paul Kruger by GLOG Investment, L.L.C., a limited
       liability company of which the members are Warren Kruger, Vice Chairman
       and Director, Robert Nelson, Chief Financial Officer, Marshall Cogan,
       Non-Executive Chairman, and Robert Rosene, Director.

       In September, 2003, the holders of the outstanding Series 2001
       cumulative, convertible preferred stock, 750,000 shares, converted the
       preferred stock into 5,250,000 shares of common stock for an exchange
       rate of $1.429 per share.

       In September, 2003, Warren Kruger, Vice Chairman, exchanged $900,000 of
       debt for 629,811 shares of common stock at a rate of $1.429 per share

       The Board of Directors authorized issuance of common stock in lieu of
       cash to pay the dividends on the Series 2001 preferred stock. The rate of
       exchange is based on the market value of the stock on the date
       authorized. The issuances are as follows:

                                                                      Rate
                                     Preferred      Common Stock    per Share
Dividend Date                         Dividend         Issued       of Common
-------------                         --------         ------       ---------
June 30, 2003                        $  224,384        560,959     $     0.40

September 8, 2003                    $  172,603        410,959     $     0.42



                                      F-17
<PAGE>

NOTE 10.    STOCK OPTIONS
            -------------

       Greystone has a stock option plan that provides for the granting of
       options to key employees and non-employee directors. The options are to
       purchase common stock at not less than fair market value at the date of
       the grant. The maximum number of shares of common stock for which options
       may be granted is 20,000,000 of which 16,015,000 are available for grant
       as of May 31, 2005. Stock options generally expire in ten years from date
       of grant or upon termination of employment and are generally exercisable
       one year from date of grant in cumulative annual installments of 25%,
       except that the options granted in fiscal 2001 were 100% vested at the
       date of grant. Following is a summary of option activity for the three
       years ended May 31, 2005:
                                                                       Weighted
                                                                       Average
                                                          Shares       Exercise
                                                          (000's)       Price
                                                         --------      --------
         Options outstanding at May 31, 2002                  880      $   2.92
                 Options granted                              760          0.88
                 Options exercised                            (25)         2.00
                 Options cancelled                            (30)         2.00
                                                         --------      --------

         Options outstanding at May 31, 2003                1,585          1.96
                 Options granted                              350          0.54
                                                         --------      --------

                 Options outstanding at May 31, 2004        1,935          1.68
                 Options granted                            2,250          0.50
                 Options cancelled                           (225)         0.50
                                                         --------      --------

                 Options outstanding at May 31, 2005        3,960      $   1.01
                                                         ========      ========

                 Exercisable as of May 31, 2003               555      $   2.70
                                                         ========      ========

                 Exercisable as of May 31, 2004             1,131      $   2.16
                                                         ========      ========

                      Exercisable as of May 31, 2005        2,045      $   1.41
                                                         ========      ========


                                      F-18
<PAGE>

       With respect to options outstanding at May 31, 2005:

                                                      Weighted
                    Options          Weighted          Average
    Range          Outstanding     Average Life         Price        Exercisable
    -----          -----------     ------------         -----        -----------
 $0.42-$0.65        3,010,000        7.1 years       $     0.50       1,207,500

$1.429-$1.60
                      225,000        5.9 years       $     1.57         147,500

$       2.00          135,000        3.4 years       $     2.00         135,000

$3.125-$4.00
                      590,000        6.4 years       $     3.18         555,000
                   ----------       ----------       ----------      ----------

    Total           3,960,000        6.3 years       $     1.01       2,045,000


       Greystone applies APB Opinion No. 25 in accounting for its stock options
       and, accordingly, no compensation cost has been recognized for its stock
       options in the financial statements. Had Greystone determined
       compensation cost at the grant date based on fair value under SFAS No.
       123, Greystone's net loss would have been increased to the pro forma
       amount indicated below:
<TABLE><CAPTION>
                                                            2005                 2004
                                                      --------------      --------------
<S>                                                   <C>                 <C>
                 Net loss to common shareholders:
                          As reported                 $  (14,633,880)     $   (3,635,100)

            Pro forma                                 $  (14,648,880)     $   (3,654,691)

            Per share:
            As reported                               $        (0.82)     $        (0.33)

            Pro Forma                                 $        (0.82)     $        (0.33)
</TABLE>

       The fair value of the options used to compute the compensation cost is
       estimated using the Black-Scholes option pricing model using the
       following assumptions:

                    Dividend Yield                     None
                    Expected Volatility                1.36
                    Risk Free Interest Rate            4%
                    Expected Holding Period            5 years

NOTE 11.    FINANCIAL INSTRUMENTS
            ---------------------

       Greystone's financial instruments consist principally of accounts
       payable, accrued liabilities and notes and mortgages payable. Management
       estimates the market value of the notes and mortgage payable based on
       expected cash flows and believes these market values approximate carrying
       values at May 31, 2005 and 2004.


                                      F-19
<PAGE>
NOTE 12.    SUPPLEMENTAL INFORMATION OF CASH FLOWS
            --------------------------------------

       Supplemental information of cash flows for the years ended May 31:

                                                          2005           2004
                                                       ----------     ----------
         Non-cash activities
            Common stock issuances:
                Retirement of debt                     $2,100,163     $  900,000
                Dividends on preferred stock                 --          396,987
            Debt issued in acquisition of assets
               of Greystone Plastics, Inc.                   --        8,299,454
            Capital lease                               1,025,475           --
            Retirement of debt in exchange for
               property and equipment                     259,000      7,060,698
            Note receivable from sale of equipment           --          314,000

         Interest paid                                    844,646        599,795
         Taxes paid                                          --             --

NOTE 13.    OPERATING LEASES
            ----------------

       Rental expense on operating leases totaled $421,860 and $254,480 during
       2005 and 2004. Commitments for operating leases for the five years after
       May 31, 2005 are $876,000, $876,000, $876,000, $876,000, and $876,000 and
       $4,032,000 thereafter. Operating leases are described further in Note 7,
       under the headings "Transactions with Paul Kruger, a significant
       stockholder," for the equipment lease and "Transactions with Greystone
       Properties, LLC," for the industrial lease.

NOTE 14.    ACQUISITION
            -----------

       Effective September 8, 2003, Greystone acquired substantially all of the
       assets of Greystone Plastics, Inc., an Iowa corporation, through the
       purchase of such assets by a newly formed, wholly-owned subsidiary of
       Greystone, Greystone Manufacturing, L.L.C., an Oklahoma limited liability
       company. The purchase price for the assets was $12,500,000, of which
       $4,200,546 was paid in cash and $8,299,454 was paid by issuing the
       following notes: a $5,000,000 note payable by Greystone Manufacturing,
       L.L.C. to Greystone Plastics, Inc. at 7.5% interest, due October 1, 2008;
       a $2,500,000 note payable by Greystone Manufacturing, L.L.C. to Greystone
       Plastics, Inc. at 7.5% interest, due October 1, 2018; and a $799,454 note
       payable by Greystone Manufacturing, L.L.C. to Bill Hamilton, one of the
       owners of Greystone Plastics, Inc, at 6% interest, due February, 2008.
       The cash payment was financed through the issuance of Series 2003
       cumulative convertible preferred stock in the amount of $5,000,000 (see
       Note 9, "Stockholders'

                                      F-20
<PAGE>

       Equity"). The acquisition cost of $12,500,000 plus closing costs of
       $47,913 consisted of inventory of $499,870, building and equipment of
       $5,735,695, intangibles (patent and customer contracts) of $3,003,245 and
       goodwill of $3,309,103.

NOTE 15.    CONCENTRATIONS OF CREDIT RISK
            -----------------------------

       Financial instruments that potentially subject Greystone to
       concentrations of credit risk consist principally of cash deposits in
       excess of federally insured limits. As of May 31, 2005, Greystone's bank
       balances did not exceed federally insured limits.

NOTE 16.    IMPAIRMENTS AND RELOCATION COSTS
            --------------------------------

         IMPAIRMENTS
         -----------

       During fiscal year 2005, Greystone recorded impairment charges of
       $5,719,658 as follows: $3,309,103 relating to goodwill, $1,648,124
       related to a customer contract and $762,431 relating to damaged or
       obsolete equipment. During fiscal year 2004, Greystone recorded
       impairment charges of $219,753 for the abandonment of leasehold
       improvements in its Dallas, Texas plant and estimated costs to settle the
       outstanding lease agreement on the property.

       GOODWILL IMPAIRMENT - In September 2003, Greystone acquired the assets
       and operations of Greystone Plastics, Inc. for an aggregate purchase
       price of $12,500,000. Greystone allocated $3,309,103 of the purchase
       price to goodwill. One of the primary reasons for the acquisition was to
       provide a catalyst to develop Greystone's business of manufacturing
       plastic pallets. Due to rising costs for raw materials, competition and
       Greystone's limited capitalization, the customer base acquired from
       Greystone Plastics, Inc. has not shown any significant expansion to date
       and management does not anticipate any material expansion in the
       immediate future. In addition, Greystone has expanded its manufacturing
       capability resulting in an increased cost per unit of production, which
       has affected current cash flows and will affect future cash flows. In
       connection with its annual review for impairment of goodwill, Greystone
       analyzed the expected future cash flows from the assets acquired from
       Greystone Plastics, Inc. and, since the expected future cash flows (as
       well as the discounted cash flows) of such asset do not support the
       carrying value of the goodwill, a goodwill impairment charge of
       $3,309,103 was recorded during the fourth quarter of 2005.

       CUSTOMER CONTRACT - Based primarily on the considerations outlined in the
       preceding section on goodwill, Greystone concluded that sufficient
       indicators existed to require an impairment assessment of a customer
       contract acquired from of Greystone Plastics, Inc. Since the future cash
       flows over the estimated life of the customer contract are estimated to
       be less than the carrying value of the intangible asset, during the
       fourth quarter of fiscal year 2005, an impairment charge was recorded in
       the amount of $1,648,124 to write off the remaining unamortized balance
       of the intangible costs of the customer contract.

                                      F-21
<PAGE>

       RELOCATION COSTS
       ----------------

       During fiscal year 2005, Greystone accrued an additional $355,000 for
       estimated costs to terminate the lease on its Dallas, Texas, plant, which
       was abandoned in the prior fiscal year.

NOTE 17.    COMMITMENTS AND CONTINGENCIES
            -----------------------------

       Greystone derives, and expects that in the foreseeable future it will
       continue to derive, a substantial amount of its revenue from a few large
       customers of which 2005 sales totaling $7,561,204 came from one customer.
       There is no assurance that Greystone will retain this customer's business
       at the same level, or at all. The loss of a material amount of business
       from this customer could have a material adverse effect on Greystone.

       As discussed in Note 7, under the subheading "Transactions with Paul
       Kruger, a significant stockholder," Greystone leases its PIPER injection
       molding machine at the rate of $48,000 per month. The lease is classified
       as an operating lease, and there are approximately nine years remaining
       on the term. The equipment is currently capable of operating at
       approximately 20 to 25 percent of capacity. If Greystone is not
       successful in increasing the production from this equipment to acceptable
       levels, future operating results will be adversely affected.

NOTE 18.    RESTATEMENT OF FINANCIAL STATEMENTS
            -----------------------------------

       On August 26, 2005, Greystone's Board of Directors concluded that the
       accounting treatment for the acquisition of the assets of Greystone
       Plastics, Inc., as of September 8, 2003, should have provided for an
       allocation of a portion of the purchase price to place a value on a
       customer contract in effect at the time of the acquisition. Greystone
       calculated this value to be $2,855,332 based on the estimated present
       value of the future profits to be derived from sales to such customer.
       Further, the accounting treatment for the value of the customer contract
       should provide for the amortization of such cost over the estimated life
       based on unit sales. The financial statements for the year ended May 31,
       2004, were previously restated to reflect the related amortization
       expense as discussed more fully in Greystone's amended Annual Report on
       Form 10-KSB/A for the fiscal year ended May 31, 2004. The net loss
       available to common stockholders as reported on Greystone's Quarterly
       Reports on Form 10-QSB for the first three quarters of fiscal year 2005
       is restated to reflect the related amortization expense under the caption
       "General and administrative expense," as follows:

                                      F-22
<PAGE>
<TABLE><CAPTION>
                                                                 Three Month Period Ended
                                                       --------------------------------------------
                                                        August 31,     November 30,    February 28,
                                                           2004            2004            2005
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Net loss, as previously reported                       $   (257,652)   $ (1,022,010)   $   (614,880)
Adjustment to general and administrative costs
  as discussed above                                       (169,150)       (137,115)       (226,718)
                                                       ------------    ------------    ------------
Net loss, as adjusted                                      (426,802)     (1,159,125)       (841,598)
Preferred dividends                                         (92,089)        (96,199)       (102,568)
                                                       ------------    ------------    ------------
Net loss to common stockholders, as adjusted           $   (518,891)   $ (1,255,324)   $   (944,166)
                                                       ============    ============    ============

Per share amounts:
  Net loss to common stockholders, as
    previously reported                                $      (0.03)   $      (0.09)   $      (0.03)

  Adjustment to general and administrative
    costs as discussed above                                  (0.01)          (0.01)          (0.01)
                                                       ------------    ------------    ------------
  Net loss to common stockholders, as adjusted         $      (0.04)   $      (0.10)   $      (0.04)
                                                       ============    ============    ============



                                                           Six             Nine
                                                          Month           Month
                                                       Period Ended    Period Ended
                                                       November 30,    February 28,
                                                           2004            2005
                                                       ------------    ------------
Net loss, as previously reported                       $ (1,279,662)   $ (1,894,542)
Adjustment to general and administrative
  costs as discussed above                                 (306,265)       (532,983)
                                                       ------------    ------------
Net loss, as adjusted                                    (1,585,927)     (2,427,525)
Preferred dividends                                        (188,288)       (290,856)
                                                       ------------    ------------
Net loss to common stockholder, as adjusted            $ (1,774,215)   $ (2,718,381)
                                                       ============    ============

Per share amounts:
  Net loss to common stockholders, as
    previously reported                                $      (0.11)   $      (0.14)

  Adjustment to general and administrative
    costs as discussed above                                  (0.02)          (0.03)
                                                       ------------    ------------
  Net loss to common stockholders, as adjusted         $      (0.13)   $      (0.17)
                                                       ============    ============
</TABLE>





                                      F-23