UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-KSB





x
              ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the Fiscal Year Ended      May 31,
2008





o
              TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from _____________ to______________Commission
      file number000-26331







GREYSTONE
LOGISTICS, INC.





(Name
of small business issuer in its charter)






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





1613 East 15thStreet, Tulsa,
      Oklahoma
              
              74120(Address of
      principal executive offices)
              
              (Zip
      Code)




(918)
583-7441





(Issuer’s
Telephone Number)





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




Title
      of each class
                
                Name of each
      exchange on which registeredNone
                
                None


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





Common Stock, $0.0001 par
value





(Title
of class)




Check
whether the issuer is not required to file reports pursuant to Section 12 or
15(d) of the Exchange Act.   o




Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.  Yes  x      No
 o














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.   o





Indicate
by check whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).   Yes o    
No x





The
issuer’s revenue for the year ended May 31, 2008, was $21,081,114.





As of
August 15, 2008, 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 $1,258,620.





As of
August 15, 2008, the issuer had outstanding a total of 26,111,201 shares of its
$0.0001 par value common stock.













DOCUMENTS
INCORPORATED BY REFERENCE





None.








Transitional
Small Business Disclosure Format (Check one):    
Yes  o     No  x









































2


GREYSTONE
LOGISTICS, INC.


FORM
10-KSB


TABLE
OF CONTENTS






PART
      IItem
      1.
              
              Description
      of Business
              4Item
      2.
              
              Description
      of Property
              9Item
      3.
              
              Legal
      Proceedings
              9Item
      4.
              
              Submission
      of Matters to a Vote of Security Holders
              9PART
      IIItem
      5.
              
              Market
      for Common Equity and Related Stockholder Mattersand
      Small Business Issuer Purchases of Equity
Securities
              10Item
      6.
              
              Management’s
      Discussion and Analysis or Plan of Operation
              11Item
      7.
              
              Financial
      Statements
              20Item
      8.
              
              Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure
              21Item
      8A.
              
              Controls
      and Procedures
              21Item
      8B.
              
              Other
      Information
              23PART
      IIIItem
      9.
              
              Directors,
      Executive Officers, Promoters, Control Persons and Corporate Governance;
      Compliance with Section 16(a) of the Exchange Act
              23Item
      10.
              
              Executive
      Compensation
              25Item
      11.
              
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              27Item
      12.
              
              Certain
      Relationships and Related Transactions, and Director
      Independence
              29Item
      13.
              
              Exhibits
              31Item
      14.
              
              Principal
      Accountant Fees and Services
              37Signatures
              38










3


PART
I.





Item
      1.
            Description
      of Business





Organization





Greystone Logistics, Inc. (“Greystone”
or the “Company”) was incorporated in Delaware on February 24, 1969, under the
name Permaspray Manufacturing Corporation.  It changed its name to
Browning Enterprises Inc. in April 1982, to Cabec Energy Corp. in June 1993, to
PalWeb Corporation in April 1999 and became Greystone Logistics, Inc. in March
2005 as further described below.





In
December 1997, Greystone acquired all of the issued and outstanding stock of
Plastic Pallet Production, Inc., a Texas corporation (“PPP”), and since that
time, Greystone has primarily been engaged in the business of manufacturing and
selling plastic pallets.





EffectiveSeptember 8, 2003,
Greystone acquired substantially all of the assets of Greystone Plastics, Inc.,
an Iowa corporation, through the purchase of such assets by Greystone’s newly
formed, wholly-owned subsidiary, Greystone Manufacturing, L.L.C., an Oklahoma
limited liability company (“GSM”).  Greystone Plastics, Inc. was a
manufacturer of plastic pallets used in the beverage industry.





Effective
March 18, 2005, the Company caused its newly formed, wholly owned subsidiary,
Greystone Logistics, Inc., an Oklahoma corporation, to be merged with and into
the Company.  In connection with such merger and as of the effective
time of the merger, the Company amended its certificate of incorporation by
changing its name to Greystone Logistics, Inc., pursuant to the terms of the
certificate of ownership and merger filed by the Company with the Secretary of
State of Oklahoma.  Also in connection with such merger, the Company
amended its bylaws to change its name to Greystone Logistics, Inc.





Recent
Transactions





On February 7, 2007, GSM entered into a
Purchase Agreement and Bill of Sale with Yorktown Management & Financial
Services, LLC, an Oklahoma limited liability company that is wholly owned by the
Company’s CEO and President (“Yorktown”), pursuant to which Yorktown purchased
GSM’s existing finished goods inventory (including certain Coors Brewing
inventory) and certain of GSM’s raw materials, grinding and peripheral
equipment, resin contracts and molds for a total purchase price of $2.2
million.  In connection with the Purchase Agreement, GSM and Yorktown
entered into a Pallet Molds Lease Agreement, whereby for a period of seven
years, Yorktown will lease back to GSM the molds and resin equipment purchased
from GSM at the lease rate of $1.00 per pallet manufactured using the molds and
$0.03 per pound of resin provided using the resin equipment.  The
assets sold pursuant to the Purchase Agreement were sold to Yorktown at their
fair market value and the transactions described above were approved by the
disinterested member of the Company’s Board of Directors.  For more
information regarding these transactions, see the Company’s Current Report on
Form 8-K dated February 7, 2007, filed with the SEC on February 27,
2007.





4


On
February 8, 2007, Greystone entered into a Settlement Agreement and Release with
1607 Commerce Limited Partnership, a Texas limited partnership, which
subsequently changed its name to Commerce Plastics L.P.
(“Commerce”).  Pursuant to the Settlement Agreement and in exchange
for full, final and complete settlement of any and all claims that Commerce has
asserted, or could have asserted, in its lawsuit regarding an alleged default in
the payment of rent pursuant to terms of the Equipment Lease (defined below) and
the enforcement of certain related guaranties, the Company agreed to (i) to pay
outstanding rental accruals by Greystone to Commerce of $1,048,000.00, (ii) make
monthly payments to Commerce of $24,000.00 for a term of 24 months commencing
March 1, 2007, which payments can be used towards the purchase price of pallets
purchased from Commerce as further described below, (iii) transfer to Commerce
2,000,000 shares of the Company’s common stock, and (iv) enter into an agreement
with Commerce whereby, among other things, Commerce will be given floor space,
utilities and regrind resin in the Company’s Iowa facility and the Company will
be required to purchase up to 200,000 Granada pallets at $8.00 per pallet and
200,000 nestable pallets at $3.00 per pallet from Commerce over a two year
term.  Also pursuant to the Settlement Agreement, the monthly payments
to be made by the Company will be credited against the purchase price of any
Granada pallets purchased from Commerce; provided, however, Commerce is not
obligated to produce any pallets, but has agreed to use it best efforts to do
so. The Settlement Agreement also included an immediate termination of that
certain equipment lease dated as of September 8, 2003, by and between Commerce
and PPP (the “Equipment Lease”), whereby the registrant leased, for a term of
130 months commencing September 8, 2003, at a rate of $48,000 per month, certain
equipment that was previously used to produce its pallets.  For more
information regarding these transactions, see the Company’s Current Report on
Form 8-K dated February 7, 2007, filed with the SEC on February 27,
2007.





Current
Business





Products





Greystone’s primary business is
manufacturing and selling high quality, recycled plastic pallets through its
wholly owned subsidiary GSM.  In addition, through its other
subsidiary PPP, Greystone sells plastic pallets it purchased from Commerce as
further described above.  As of May 31, 2008, Greystone had an
aggregate production capacity of approximately 70,000 pallets per
month.





GSM’s product line as of May 31, 2008
consists of the following:





·
            40”
      X 32” rackable pallet,





·
            37”
      X 37” rackable pallet,·
            37”
      X 32” rackable pallet,









5


·
            48”
      X 40” rackable pallet,





·
            48”
      X 44” rackable pallet, and





·
            48”
      X 40” nestable pallet





As of May 31, 2008, GSM was marketing
the following pallets produced or capable of being produced by
Commerce:





·
            Mid-Duty(TM)
      Picture Frame – A
      picture frame, web-top pallet that utilizes a patented inter-locking
      design and is produced using a proprietary blend of recycled
      plastics.  It has a rackable capacity of 1,500 lbs., a dynamic
      load of 5,000 lbs., static load of 25,000 lbs., and weighs 50
      lbs.





·
            Mid-Duty(TM) Stackable – A web-top
      pallet that is produced using a proprietary blend of recycled plastics,
      has a dynamic load of 5,000 lbs., static load of 7,000 lbs., and weighs 30
      lbs.





·
            Mid-Duty(TM)
      3-Runner – A
      web-top pallet that utilizes a patented inter-locking design on a three
      runner bottom and is produced using a proprietary blend of recycled
      plastics.  It has a rackable load of 1,200 lbs., dynamic load of
      5,000 lbs., static load of 12,000 lbs and weighs 46
  lbs.





·
            Flat Deck – This pallet
      is the same as the Mid-Duty,(TM)
      except it has a solid top and weighs 59
lbs.





The principal raw materials used in
manufacturing Greystone’s plastic pallets are in abundant supply, and some of
these materials may be obtained from recycled plastic containers. At the present
time, these materials are being purchased from local, national and international
suppliers. Damaged pallets repurchased from customers are also a source of raw
material supply.





Other
Business





In July
2006, Greystone entered into an agreement with Advanced Fiber Products (AFP) of
La Crosse, Wisconsin, pursuant to which Greystone and AFP agreed to launch a
beta test program involving the lease of a small pool of recycled plastic
pallets by Greystone to AFP to be utilized by AFP to ship a portion of its
manufactured products in a closed loop system.  Pursuant to the
agreement, Greystone will deliver and track throughout the logistics cycle
sufficient quantities of plastic pallets for use in shipping a segment of the
AFP fiberglass product.  The pallets will stay in a closed loop
environment and be continually sent back for reuse. If a pallet is damaged,
Greystone will grind the pallet and reutilize the resin.





6


Pallet
Industry





According to the U. S. Forest Service,
as printed in the National Wooden Pallet and Container Association publication,
approximately 400 million new pallets are purchased in the United States each
year, and some research sources estimate that even more than 400 million new
pallets are purchased each year.  At an overall average selling price
of $9/wood pallet, the pallet manufacturing and sales business is approximately
a $4 billion industry.  It is estimated that the United States wood
pallet industry is served by approximately 3,600 companies, most of which are
small, privately held firms that operate in only one location.  The
industry is generally comprised of companies that manufacture new pallets or
repair and recycle pallets.  New pallet manufacturing generates about
60% to 65% of the industry’s revenues.  The U.S. Forest Service
estimates that approximately 1.9 billion wood pallets are in circulation in the
United States today and that roughly 400 million of the wood pallets currently
in circulation were newly manufactured.  On an annual basis,
approximately 175 million wood pallets are recycled through a process of
retrieval, repair, re-manufacturing and secondary marketing, approximately 225
million are sent to landfills, and approximately 100 million are burned, lost,
abandoned or leave the country.





Infestation is a concern in the wood
pallet industry.  According to Virginia Tech’s Center for Unit Loan
Design Center Tech Note No. 1, dated November 11, 1998, the Asian Longhorn
Beetle (“ALB”), a devastating wood boring pest native to China and other Asian
countries, has invaded hardwood trees in New York City and
Chicago.  The ALB outbreaks have been traced to solid wood packaging
materials (“SWPM”), including wood pallets imported from China.  As a
result, the USDA Animal and Plant Health Inspection Service has proposed certain
interim rules, which include upgrading treatment procedures for
SWPM.  These treatments are estimated to increase the cost of SWPM by
at least 10%, and some treatments will double the price of SWPM.





Pallets are used in virtually all
United States industries in which products are broadly distributed, including,
but not limited to, the automotive, chemical, consumer products, grocery,
produce and food production, paper and forest products, retailing and steel and
metals industries.  Forklifts, pallet trucks and pallet jacks are used
to move loaded pallets, reducing the need for costly hand loading and unloading
at distribution centers and warehouses.





Until very recently, plastic pallets
had not penetrated the market significantly, due in part to their
cost.  Heavy duty plastic pallets cost $46 to $100, heavy duty wood
pallets typically cost approximately $26, and less sturdy wood pallets typically
cost $8 to $11.  As stated in an article in the July 1996 issue of
Material Handling Engineering, wood pallets have an estimated useful life of 7
to 10 trips before repair or recycling is required.  A trip, or cycle,
is defined as the movement of a pallet under a load from a manufacturer to a
distributor (or from a distributor to a retailer) and the movement of the empty
pallet back to the manufacturer.  Heavy duty plastic pallets, as
currently manufactured, have a useful life of 60 or more trips, on
average.  Greystone management believes that the trend will continue
to switch from wood to plastic, with the only limiting factor being
price.





Greystone intends to conduct research
on pallet design strength and coefficient of friction and the materials used to
make the plastic pallets as required to meet market demands.





7


Employees





As of May 31, 2008, Greystone had 85
full-time employees and used a temporary personnel service to provide additional
production personnel as needed.





Marketing
and Customers





Greystone’s primary focus is to provide
quality plastic pallets to its existing customers while continuing its marketing
efforts to broaden its customer base.  Greystone’s existing customers
are primarily located in the United States and engaged in the beverage,
pharmaceutical and other industries.  Greystone has generated and
plans to continue to generate interest in its pallets by attending trade shows
sponsored by industry segments that would benefit from Greystone’s
products.  Greystone hopes to gain wider product acceptance by
marketing the concept that the widespread use of plastic pallets could greatly
reduce the destruction of trees on a worldwide basis.





As of May 31, 2008, Greystone sold its
pallets through an exclusive arrangement with Decade Products whereby Decade
sells Greystone’s pallets nationwide through direct sales and a network of
independent contractor distributors.  Greystone also sells its pallets
and pallet leasing services to certain large customers direct through its
President, Senior Vice President of Sales and Marketing and other
employees.





Greystone
derives a substantial portion  of its revenue from two national
brewers.  These two customers currently account for approximately 85%
of orders for its pallets.  The design of Greystone’s recycled plastic
pallets are approved for use by both breweries and are the only plastic pallets
in use for case goods at the current time within their respective
systems.  There is no assurance that Greystone will retain these
customers’ business at the same level, or at all.  The loss of a
material amount of business from any one of Greystone’s larger customers could
have a material adverse effect on Greystone.





Competition





Greystone’s
primary competitors are a large number of small, privately held firms that sell
wood pallets in very limited geographic locations.  Greystone believes
that it can compete with manufacturers of wood pallets by emphasizing the cost
savings realized over the longer life of its plastic pallets as well as the
environmental benefits of its plastic pallets as compared to wood
pallets.  Greystone also competes with approximately three large and
fifteen medium to small manufacturers of plastic pallets.  Some of
Greystone’s competitors may have substantially greater financial and other
resources than Greystone and, therefore, may be able to commit greater resources
than Greystone in such areas of product development, manufacturing and
marketing.  However, Greystone believes that its proprietary designs
coupled with the competitive pricing of its products gives Greystone a
competitive advantage over other plastic pallet manufacturers.





8


Government
Regulation





The
business operations of Greystone are subject to existing and potential federal,
state and local environmental laws and regulations pertaining to the handling
and disposition of wastes (including solid and hazardous wastes) or otherwise
relating to the protection of the environment.  In addition, both the
plastics industry and Greystone are subject to existing and potential federal,
state, local and foreign legislation designed to reduce solid wastes by
requiring, among other things, plastics to be degradable in landfills, minimum
levels of recycled content, various recycling requirements, disposal fees and
limits on the use of plastic products.





Patents
and Trademarks





Greystone seeks to protect its
technical advances by pursuing national and international patent protection for
its products and methods when appropriate.





Greystone has access to a
patent-pending CJ2(TM) fire
retardant formula licensed from Westgate Capital Company, L.L.C. (“WCC”), a
company of which Greystone’s President and CEO is a member, in connection with
the potential production of fire retardant plastic pallets.  Pallets
produced with CJ2(TM) fire
retardant have met UL 2335 classification requirements with respect to fire
retardancy.






Item 2.
              Description of
      Property





Greystone has approximately 3 acres of
land in Bettendorf, Iowa and two buildings with a total of 120,000 square feet
of manufacturing and warehouse space.   The manufacturing and
warehouse space is sufficiently equipped and designed to accommodate the
manufacturing of plastic pallets and is currently used for grinding, processing
and re-pelletizing recycled plastic.






Item
      3.
              Legal
      Proceedings





William Hamilton d/b/a
WHACO, also d/b/a Greystone Bill Hamilton Trucking Company v. Greystone
Manufacturing, LLC, Law No. 107023, Iowa District Court for Scott
County.  William Hamilton, one of the former owners of Greystone
Plastics, Inc., the entity from which Greystone purchased certain assets in
2003, claims $104,390 in damages for Greystone’s alleged breach of contract
involving the provision of materials and services.  Greystone has
denied all allegations and has asserted a counterclaim arising from the sale by
Mr. Hamilton of the Bettendorf manufacturing facility to
Greystone.  Discovery is continuing in this action and a trial date
has been set in February 2009.






Item
      4.
              Submission
      of Matters to a Vote of Security
Holders





None.




9


PART
II.





Item
      5.
              Market
      for Common Equity and Related Stockholder Matters and Small Business
      Issuer Purchases of Equity
Securities





Market
Information





Greystone’s
common stock is traded on the National Association of Securities Dealers
Automatic Quotation (NASDAQ) over-the-counter bulletin board system (“OTCBB”),
under the symbol “GLGI.”   The following table sets forth the
range of high and low prices at which Greystone’s common stock traded during the
time periods indicated, as reported by NASDAQ:





Quarter Ending
            High
            LowAug.
      31, 2006
            $0.17
            $0.07Nov.
      30, 2006
            0.37
            0.14Feb.
      29, 2007
            0.19
            0.08May
      31, 2007
            0.28
            0.12Aug.
      31, 2007
            0.35
            0.22Nov.
      30, 2007
            0.30
            0.13Feb.
      29, 2008
            0.40
            0.11May
      31, 2008
            0.42
            0.21





Quotations
reflect inter-dealer prices, without retail mark-up, markdown or commission and
may not represent actual transactions.





Holders





As of May 31, 2008, Greystone had
approximately 1,361 common shareholders of record.





As of May 31, 2008, there were
approximately 2,906 beneficial owners (including those holding in street names)
of Greystone’s common stock.





Dividends





Greystone paid no cash dividends to its
common shareholders during the last two fiscal years and does not plan to pay
any cash dividends in the near future.





10


Sales of Equity
Securities





Effective April 29, 2008, Greystone
issued 50,000 shares of its common stock in exchange for
services.  The offer and sale of the shares of Greystone’s common
stock in connection with such issuance were not registered under the Securities
Act of 1933, as amended, in reliance upon the exemption from the registration
requirements of that Act provided by Section 4(2) thereof.  The
recipient is a sophisticated investor with the experience and expertise to
evaluate the merits and risks of an investment in Greystone stock and the
financial means to bear the risks of such an investment. In addition, no
underwriting or commissions were paid to any party in connection with such
issuance.





Item
      6.
            Management’s
      Discussion and Analysis or Plan of
Operation





Cautionary Statement
Regarding Forward-Looking Information





This
Annual Report on Form 10-KSB includes “forward looking statements” as defined by
the Securities and Exchange Commission.  These statements concern
Greystone’s plans, expectations and objectives for future
operations.  All statements, other than statements of historical
facts, included in this Form 10-KSB that address activities, events or
developments that Greystone expects, believes or anticipates will or may occur
in the future are forward-looking statements.  The words “believe,”
“plan,” “intend,” “anticipate,” “estimate,” “project” and similar expressions
are intended to identify forward-looking statements.  These
forward-looking statements include, among others, such things as:





•           expansion
and growth of Greystone’s business and operations;


•           future
financial performance;


•           future
acquisitions and developments;


•           potential
sales of products;


•           future
financing activities; and


•           business
strategy.





These forward-looking statements are
based on assumptions that Greystone believes are reasonable based on current
expectations and projections about future events and industry conditions and
trends affecting Greystone’s business.  However, whether actual
results and developments will conform to Greystone’s expectations and
predictions is subject to a number of risks and uncertainties that could cause
actual results to differ materially from those contained in the forward-looking
statements, including those factors discussed under the section of this Form
10-KSB entitled “Risk Factors.”  In addition, Greystone’s historical
financial performance is not necessarily indicative of the results that may be
expected in the future and Greystone believes that such comparisons cannot be
relied upon as indicators of future performance.





11


Risk
Factors





Greystone
operates at a loss but has recently attained an operating profit and positive
cash flow from operations.





The Company was incorporated on
February 24, 1969.  From April 1993 to December 1997, the Company was
engaged in various businesses, including the business of exploration,
production, and development of oil and gas properties in the continental United
States and the operation of a related service business.  In December
1997, the Company acquired all of the issued and outstanding stock of Plastic
Pallet Production, Inc., and its principal business changed to selling plastic
pallets.  Since such time, the Company has continued to incur losses
from operations until the year ended May 31, 2008, when it showed an operating
profit and positive cash flows.  There is no assurance that Greystone
will continue to achieve a positive operating profit or otherwise obtain funds
to finance continued operations.





Greystone’s
financial statements have been qualified on a going concern basis and Greystone
may not be able to secure additional financing necessary to sustain and grow its
operations.





Greystone’s financial statements have
been qualified on a going concern basis principally due to inability to
historically generate operating income and lack of sufficient long term
financing to achieve Greystone’s goal of producing and marketing plastic pallets
to compete with wood pallets.  Greystone has funded its operations to
date primarily through equity and debt financings but has recently achieved
positive cash flow from operations.  Greystone may need to raise
additional funds to implement any expansion strategy beyond current allocation
of cash flow for capital projects.  There can be no assurance that
additional financing will be available or, if available, that such financing
will be on favorable terms or that Greystone will be able to maintain positive
cash flow from operations.  Failure to obtain such additional
financing could have a material adverse effect on Greystone.





Greystone
has granted security interests in substantially all of its assets in connection
with certain debt financings and other transaction.





In connection with certain debt
financings and other transactions, Greystone has granted third parties security
interests in substantially all of its assets pursuant to agreements entered into
with such third parties.  Upon the occurrence of an event of default
under such agreements, the secured parties may enforce their rights and
Greystone may lose all or a portion of its assets.  As a result,
Greystone could be forced to materially reduce its business activities or cease
operations.





Greystone’s
business could be affected by changes in availability of raw
materials.





Greystone uses a proprietary mix of raw
materials to produce its plastic pallets.  Such raw materials are
generally readily available and some may be obtained from a broad range
of  recycled plastic suppliers and unprocessed waste
plastic.  The availability of Greystone’s raw materials could change
at any time for various reasons.  For example, the market demand for
Greystone’s raw


12


materials
could suddenly increase, or the rate at which plastic materials are recycled
could decrease, affecting both availability and price.  Additionally,
the laws and regulations governing the production of plastics and the recycling
of plastic containers could change and, as a result, affect the supply of
Greystone’s raw materials.  Any interruption in the supply of raw
materials or components could have a material adverse effect on
Greystone.  Furthermore, certain potential alternative suppliers may
have pre-existing exclusive relationships with Greystone’s competitors and
others that may preclude Greystone from obtaining raw materials from such
suppliers.





Greystone’s
business could be affected by competition and rapid technological
change.





Greystone
currently faces competition from many companies that produce wooden pallets at
prices that are substantially lower than the prices Greystone charges for its
plastic pallets and other companies that manufacture plastic
pallets.  It is anticipated that the plastic pallet industry will be
subject to intense competition and rapid technological
change.  Greystone could potentially face additional competition from
recycling and plastics companies, many of which have substantially greater
financial and other resources than Greystone and, therefore, are able to spend
more than Greystone in areas such as product development, manufacturing and
marketing.  Competitors may develop products that render Greystone’s
products or proposed products uneconomical or result in products being
commercialized that may be superior to Greystone’s products.  In
addition, alternatives to plastic pallets could be developed, which would have a
material adverse effect on Greystone.





Greystone
is dependent on a few large customers.





Greystone
derives, and expect that in the foreseeable future it will continue to derive, a
large portion of its revenue from a few large customers.  In fact, two
of Greystone’s customers currently account for approximately 75% of
sales.  There is no assurance that Greystone will retain these
customers’ business at the same level, or at all.  The loss of a
material amount of business from any one of these customers could have a
material adverse effect on Greystone’s operating results.





Greystone
may not be able to effectively protect Greystone’s patents and proprietary
rights.





Greystone
relies upon a combination of patents and trade secrets to protect its
proprietary technology, rights and know-how.  There can be no
assurance that such patent rights will not be infringed upon, that Greystone’s
trade secrets will not otherwise become known to or independently developed by
competitors, that non-disclosure agreements will not be breached, or that
Greystone would have adequate remedies for any such infringement or
breach.  Litigation may be necessary to enforce Greystone’s
proprietary rights or to defend Greystone against third-party claims of
infringement.  Such litigation could result in substantial cost to,
and a diversion of effort by, Greystone and its management and may have a
material adverse effect on Greystone.  Greystone’s success and
potential competitive advantage is dependent upon its ability to exploit the
technology under these patents.  There can be no assurance that
Greystone will be able to exploit the technology covered by these patents or
that Greystone will be able to do so exclusively.


13


Greystone’s
business could be affected by changing or new legislation regarding
environmental matters.





Greystone’s business is subject to
changing federal, state and local environmental laws and regulations pertaining
to the discharge of materials into the environment, the handling and disposition
of wastes (including solid and hazardous wastes) or otherwise relating to the
protection of the environment.  As is the case with manufacturers in
general, if a release of hazardous substances occurs on or from Greystone’s
properties or any associated off-site disposal location, or if contamination
from prior activities is discovered at any of Greystone’s properties, Greystone
may be held liable.  No assurances can be given that additional
environmental issues will not require future expenditures.  In
addition, both the plastics industry and Greystone are subject to existing and
potential federal, state, local and foreign legislation designed to reduce solid
wastes by requiring, among other things, plastics to be degradable in landfills,
minimum levels of recycled content, various recycling requirements and disposal
fees and limits on the use of plastic products.  In addition, various
consumer and special interest groups have lobbied from time to time for the
implementation of these and other such similar measures.  Although
Greystone believes that the legislation promulgated to date and such initiatives
to date have not had a material adverse effect on it, there can be no assurance
that any such future legislative or regulatory efforts or future initiatives
would not have a material adverse effect.





Greystone’s
business could be subject to potential product liability claims.





The testing, manufacturing and
marketing of Greystone’s products and proposed products involve inherent risks
related to product liability claims or similar legal theories that may be
asserted against Greystone, some of which may cause Greystone to incur
significant defense costs.  Although Greystone currently maintains
product liability insurance coverage that it believes is adequate, there can be
no assurance that the coverage limits of its insurance will be adequate under
all circumstances or that all such claims will be covered by
insurance.  In addition, these policies generally must be renewed
every year.  While Greystone has been able to obtain product liability
insurance in the past, there can be no assurance it will be able to obtain such
insurance in the future on all of its existing or future products.  A
successful product liability claim or other judgment against Greystone in excess
of its insurance coverage, or the loss of Greystone’s product liability
insurance coverage, could have a material adverse effect upon
Greystone.





Greystone
currently depends on certain key personnel.





Greystone is dependent on the
experience, abilities and continued services of its current
management.  In particular, Warren Kruger, Greystone’s President and
CEO, has played a significant role in the development, management and financing
of Greystone.  The loss or reduction of services of Warren Kruger or
any other key employee could have a material adverse effect on
Greystone.  In addition, there is no assurance that additional
managerial assistance will not be required, or that Greystone will be able to
attract or retain such personnel.


14


Greystone’s
executive officers and directors control a large percentage of Greystone’s
outstanding common stock, which allows them to control matters submitted to
Greystone’s shareholders for approval, and all of Greystone’s 2003 preferred
stock, which entitles them to certain voting rights, including the right to
elect a majority of Greystone’s Board of Directors.





Greystone’s
executive officers and directors (and their affiliates), in the aggregate, own
over 50% of Greystone’s outstanding common stock.  Therefore,
Greystone’s executive officers and directors have the ability to decide the
outcome of matters submitted to Greystone’s shareholders for approval (including
the election and removal of directors and any merger, consolidation or sale of
all or substantially all of Greystone’s assets) and to control Greystone’s
management and affairs.  In addition, an entity that is wholly owned
by Greystone’s executive officers and directors owns all of Greystone’s
outstanding 2003 preferred stock.  The terms and conditions of
Greystone’s 2003 preferred stock provide that such holder has the right to elect
a majority of Greystone’s Board of Directors.  Such concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control, impeding a merger, consolidation, takeover or other business
combination or discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control, which in turn could have an adverse
effect on the market price of Greystone’s common stock.





Certain
restricted shares of Greystone will be eligible for sale in the future and are
likely to be sold in the future, which could affect the prevailing market price
of Greystone’s common stock.





Certain of the outstanding shares of
Greystone’s common stock are “restricted securities” under Rule 144 of the
Securities Act, and (except for shares purchased by “affiliates” of Greystone as
such term is defined in Rule 144) would be eligible for sale as the applicable
holding periods expire or in the event that the Company files a registration
statement relating to such shares.  In the future, these shares may be
sold only pursuant to a registration statement under the Securities Act or an
applicable exemption, including pursuant to Rule 144.  Under Rule 144,
a person who has owned common stock for at least one year may, under certain
circumstances, sell within any three-month period a number of shares of common
stock that does not exceed the greater of 1% of the then outstanding shares of
common stock or the average weekly trading volume during the four calendar weeks
prior to such sale.  A person who is not deemed to have been an
affiliate of Greystone at any time during the three months preceding a sale, and
who has beneficially owned the restricted securities for the last two years is
entitled to sell all such shares without regard to the volume limitations,
current public information requirements, manner of sale provisions and notice
requirements.  In addition, Greystone has agreed to file a
registration statement in connection with some of these outstanding shares of
restricted stock.  Sales or the expectation of sales of a substantial
number of shares of common stock in the public market by selling shareholders
could adversely affect the prevailing market price of the common stock, possibly
having a depressive effect on any trading market for the common stock, and may
impair Greystone’s ability to raise capital at that time through additional
sales of its equity securities.


15


Greystone’s
stock trades in a limited public market, is subject to price volatility and
there can be no assurance that an active trading market will develop or be
sustained.





There has been a limited public trading
market for Greystone’s common stock and there can be no assurance that an active
trading market will develop or be sustained.  There can be no
assurance that Greystone’s common stock will trade at or above any particular
price in the public market, if at all.  The trading price of
Greystone’s common stock could be subject to significant fluctuations in
response to variations in quarterly operating results or even mild expressions
of interest on a given day.  Accordingly, Greystone’s common stock
should be expected to experience substantial price changes in short periods of
time.  Even if Greystone is performing according to its plan and there
is no legitimate company-specific financial basis for this volatility, it must
still be expected that substantial percentage price swings will occur in
Greystone’s common stock for the foreseeable future.  In addition, the
limited market for Greystone’s common stock may restrict Greystone’s
shareholders ability to liquidate their shares.





Greystone
does not expect to declare or pay any dividends in the foreseeable
future.





Greystone has not declared or paid any
dividends on its common stock.  Greystone currently intends to retain
future earnings to fund the development and growth of its business, to repay
indebtedness and for general corporate purposes, and, therefore, does not
anticipate paying any cash dividends on its common stock in the foreseeable
future.   In addition, pursuant to the terms and conditions of
certain loan documentation between Greystone and F&M Bank and the terms and
conditions of Greystone’s 2003 preferred stock, Greystone is restricted in its
ability to pay dividends to holders of its common stock.





Greystone’s
common stock may be subject to secondary trading restrictions related to penny
stocks.





Certain transactions involving the
purchase or sale of Greystone’s common stock may be affected by a Commission
rule for “penny stocks” that imposes additional sales practice burdens and
requirements upon broker-dealers that purchase or sell such
securities.  For transactions covered by this penny stock rule, among
other things, broker-dealers must make certain disclosures to purchasers prior
to the purchase or sale.  Consequently, the penny stock rule may
impede the ability of broker-dealers to purchase or sell Greystone’s common
stock for their customers and the ability of persons now owning or subsequently
acquiring Greystone’s common stock to resell such securities.





Greystone
may issue additional equity securities, which would lead to further dilution of
Greystone’s issued and outstanding stock.





The
issuance of additional common stock or securities convertible into common stock
would result in further dilution of the ownership interest in Greystone held by
existing shareholders.  Greystone is authorized to issue, without
shareholder approval, 20,700,000 shares of preferred stock, $0.0001 par value
per share, in one or more series, which may give other shareholders dividend,


16


conversion
voting and liquidation rights, among other rights, which may be superior to the
rights of holders of Greystone’s common stock.  In addition, Greystone
is authorized to issue, without shareholder approval, over 4,960,000,000
additional shares of its common stock and securities convertible into common
stock.





Results of
Operations





General





The consolidated statements include
Greystone, Greystone Properties, L.L.C., and Greystone's wholly-owned
subsidiaries, Greystone Manufacturing, L.L.C., or GSM, Plastic Pallet
Production, Inc.





Greystone’s primary business is the
manufacturing and selling of plastic pallets through its wholly owned subsidiary
GSM.





As of May 31, 2008, Greystone had 85
full-time employees and used temporary personnel as
needed.  Greystone’s production capacity is about 70,000 plastic
pallets per month, or 840,000 per year.  Production levels have
generally been governed by sales and will increase as sales
dictate.





Greystone has incurred significant
losses from operations and only recently achieved positive cash flow from
operations, and there is no assurance that it will achieve operating
profitability or otherwise obtain funds necessary to finance continued
operations.  See “Liquidity and Capital Resources” under this Item
6.





For all years presented, Greystone’s
effective tax rate is 0%.  Greystone has generated net operating
losses since inception, which would normally reflect a tax benefit in the
statement of operations and a deferred asset on the balance
sheet.  However, a valuation reserve has been established to offset
the amount of any tax benefit available for each period presented in the
consolidated statement of operations until such time as Greystone demonstrates
the ability to show sustained profitability.





Year
Ended May 31, 2008, Compared to Year Ended May 31, 2007





Sales were $21,081,114 for fiscal year
2008 compared to $12,454,293 for fiscal year 2007 for an increase of $8,626,821.
The increase in sales is primarily attributable to new customers, production of
the beverage pallets for existing clients, upward price adjustments, and
increases in pharmaceutical pallet sales.





Cost of sales was $17,233,175 (82% of
sales) and $11,445,067 (92% of sales) in fiscal years 2008 and 2007,
respectively.  The improvement in the ratio of cost of sales to sales
is principally due to a decrease in equipment rental as a result of the
termination of the PIPER 600 lease in February 2007 and increases in sales
prices.


17


General
selling and administrative expenses were $1,815,469 for fiscal year 2008
compared to $1,828,395 for fiscal year 2007 for a decrease of
$12,926.  The decrease is primarily attributable to a $195,172
decrease in stock based compensation from fiscal year 2007 to fiscal year 2008
offset by increases in general costs.





Other expenses were $452,276 in fiscal
year 2007 compared to other income of $30,876 in fiscal year
2008.  The other expenses for fiscal year 2007 includes a charge of
$619,060 resulting from a settlement for termination of the operating lease for
the PIPER injection molding machines and a charge of $45,000 in settlement of an
employment claim by a former employee. Effective February 1, 2007, Greystone
issued 2,000,000 shares of its common stock and agreed to pay $24,000 per month
for twenty-four months to 1607 Commerce LLC to terminate a long-term lease
agreement on equipment.  The $619,060 charge included the present
value of the series of $24,000 monthly payments at 8.5% interest or $519,060
plus the value of the common stock on the effective date of issuance or
$100,000.





Interest expense was $1,061,248 in
fiscal year 2008 compared to $1,272,002 in fiscal year 2007 for a decrease of
$210,754.   Rates of interest on approximately 56% of Greystone’s
long term debt is based on the prime rate of interest.   The
prime rate of interest declined from 8.25% at May 31, 2007 to 5% at May 31,
2008.





The consolidated net income, before the
deduction for preferred dividends, in fiscal year 2008 was $928,420 compared to
a net loss of $(2,599,976) in fiscal year 2007 for an increase in profitability
of $3,528,396.  This increase results from the reasons discussed
above.





After deducting dividends to preferred
shareholders of $508,691 and $575,548 in fiscal years 2008 and 2007,
respectively, the consolidated net income available to common shareholders was
$419,729, or $0.02 per share of  common stock, in fiscal year 2008
compared to net loss of $(3,175,524), or $(0.13) per share of common stock, in
fiscal year 2007.





Liquidity and Capital
Resources





General





Greystone’s cash requirements for
operating activities consist principally of accounts receivable, inventory,
accounts payable and scheduled payments of interest on outstanding indebtedness.
Greystone is dependent on outside sources of cash to fund its operations. As of
May 31, 2008, cash flows from sales remain insufficient to meet current
liabilities.





A summary of cash flows for the year
ended May 31, 2008 is as follows:




Cash
      provided by operating activities
              
              $
              744,420Cash
      used in investing activities
              
              
              (362,882
              )Cash
      used in financing activities
              
              
              (520,391
              )





18


Long term debt obligations of Greystone
are as follows:





Total
            
            1 year
            
            2-3 years
            
            4-5 years
            
            Over
              5 years$13,478,686
            
            $9,013,395
            
            $1,871,179
            
            $653,345
            
            $1,940,767





To provide for the funding to meet
Greystone’s operating activities and contractual obligations for fiscal 2008,
Greystone will have to continue to produce positive operating results or explore
various options including long-term debt and equity
financing.  However, there is no guarantee that Greystone will
continue to create positive operating results or be able to raise sufficient
capital to meet these obligations.





Greystone has a working capital deficit
of $(13,022,360) at May 31, 2008, which includes advances payable to related
parties of $1,231,499, current portion of long-term debt of $9,013,395 and
accounts payable and accrued expenses of $1,138,735, and accounts payable to
related parties of $2,490,080.  This deficit reflects the uncertain
financial condition of Greystone resulting from its inability to obtain long
term financing from traditional financing sources.  There is no
assurance that Greystone will secure such financing.





As described below, substantially all
of the financing that Greystone has received through May 31, 2008, has been
provided by loans or through loan guarantees from the officers and directors of
Greystone, the offerings of preferred stock to current and former officers and
directors of Greystone in 2001 and 2003 and through a private placement of
common stock completed in March 2005.





Greystone continues to be dependent
upon its officers and directors to provide and/or secure additional financing
and there is no assurance that either will do so.  As such, there is
no assurance that funding will be available for Greystone to continue
operations.





Greystone has 50,000 outstanding shares
of cumulative 2003 Preferred Stock for a total of $5,000,000 with a preferred
dividend rate of the prime rate of interest plus 3.25%.  Greystone
does not anticipate that it will make cash dividend payments to any holders of
its preferred stock or its common stock unless and until the financial position
of Greystone improves through increased revenues, another financing or
otherwise.





Advances
and Loans from Warren Kruger





During 2007, Warren Kruger advanced
working capital funds to Greystone in the amount of $859,400 and Greystone
repaid Warren Kruger the amount of $509,041.  Effective December 15,
2005, Greystone entered into a loan agreement with Warren Kruger to convert
$527,716 of the advances into a note payable at 7.5% interest and payable in
three equal installments of principal and accrued interest beginning January 15,
2008 through January 15, 2010 of which Mr. Kruger has




19


agreed to
waive the first installment until January 15, 2009. At May 31, 2008, note
payable of $527,716, advances of $1,231,499 and accrued interest of $190,002
were due to entities owned or controlled by Warren Kruger.





Loans
from F&M Bank





On March 4, 2005, Greystone entered
into a loan agreement with GLOG Investment, L.L.C. (“GLOG”) and The F&M Bank
& Trust Company (“F&M), which, among other things, sets forth certain
terms applicable to a $1,900,000 revolving loan extended by F&M to GSM on or
about December 18, 2004 and a new $5,500,000 term loan extended by F&M to
GSM on March 4, 2005.  GLOG is wholly owned by the following officers
and/or directors of the Registrant: Warren F. Kruger (President and CEO) and
Robert B. Rosene, Jr. (Director).  GLOG was a party to the loan
agreement for the sole purpose of securing the funds necessary to purchase
50,000 shares of Greystone’s 2003 preferred stock previously owned by Paul A.
Kruger.  The  revolving loan, which bears interest at the
prime rate plus 1%, is renewable annually and is currently due on October 5,
2008.  Substantially all of the proceeds available under the revolving
note have been used to retire the loan from another bank.  Amounts
borrowed under the term loan are represented by a promissory note, which bears
interest at the prime rate plus 2% and GSM is required to make monthly payments
based upon a full fifteen year amortization of the outstanding principal balance
under the term note with any outstanding principal and all accrued and unpaid
interest payable in full on June 15, 2008.  Substantially all of the
proceeds from the term loan have been used to refinance certain short-term debt
of GSM, including the repayment of the notes issued by GSM to Greystone
Plastics, Inc. and Bill Hamilton that were the subject of dispute as further
described under the heading “Acquisition of Greystone Plastics, Inc.” in Item 1
of this Form 10-KSB.





Greystone’s
obligations under the loan agreement with F&M are secured by a lien in favor
of F&M on substantially all of GSM’s assets pursuant to the terms of a
security agreement and second mortgage.  Also, pursuant to the terms
of a guaranty agreement, Greystone guaranteed GSM’s performance and payment
under the notes.  In addition, in order to induce F&M to enter
into the loan agreement, certain officers and directors of the Company (Messrs.
Kruger and Rosene) entered into a limited guaranty agreement with F&M and
Mr. Rosene entered into a pledge agreement with F&M.





Advances
and Loans from Robert Rosene





Effective December 15, 2005, Greystone
entered into a loan agreement with Mr. Rosene to convert $2,066,000 of the
advances into a note payable at 7.5% interest and payable in three equal annual
installments of principal and accrued interest beginning January 15, 2008 and
ending January 15, 2010 of which Mr. Rosene has waived the first installment
until January 15, 2009.  Accrued interest due to Mr. Rosene as of May
31, 2008 is $351,293.





Item
      7.
            Financial
      Statements





The financial statements of Greystone
are set forth on pages F-1 through F-19 inclusive, found at the end of this
report.






20





Item
      8.
            Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure





None.




Item
      8A.
              Controls
      and Procedures


Evaluation
of Disclosure Controls and Procedures





Disclosure
controls and procedures are designed to ensure that information required to be
disclosed by Greystone in reports filed or submitted under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed under the Exchange Act is accumulated and communicated to
management, including the principal executive and financial officers, as
appropriate, to allow timely decisions regarding required disclosure. There are
inherent limitations to the effectiveness of any system of disclosure controls
and procedures, including the possibility of human error and the circumvention
or overriding of the controls and procedures.  Accordingly, even
effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives.





An
evaluation was performed under the supervision and with the participation of
Greystone’s principal executive officer (CEO) and principal financial officer
(CFO), of the effectiveness of the design and operation of Greystone’s
disclosure controls and procedures as of May 31, 2008.  Based on this
evaluation, Greystone’s CEO and CFO have concluded that Greystone’s disclosure
controls and procedures were not effective as of May 31, 2008 as a result of the
three material weaknesses identified below.





Management’s
Report on Internal Control Over Financial Reporting





Greystone’s
CEO and CFO are responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act.  Greystone’s internal controls were designed
to provide reasonable assurance as to the reliability of Greystone’s financial
reporting and the preparation of the consolidated financial statements for
external purposes in accordance with generally accepted accounting principles in
the United States, as well as to safeguard assets from unauthorized use or
disposition.





Due to
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of control
effectiveness to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions or that the degree of
compliance with the policies or procedures may deteriorate.





Greystone’s
CEO and CFO made an assessment of the effectiveness of Greystone’s internal






21


control
over financial reporting as of May 31, 2008.  In making this
assessment, Greystone’s CEO and CFO used the criteria established in Internal
Control— Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).  This evaluation
included review of the documentation of controls, evaluation of the design
effectiveness of controls, testing of the operating effectiveness of controls
and concluding on this evaluation.  During this evaluation,
Greystone’s CEO and CFO identified three material weakness.  As a
result of these three material weaknesses, Greystone’s CEO and CFO concluded
that Greystone did not maintain effective internal control over financial
reporting as of May 31, 2008.





First,
Greystone has not employed individuals with the necessary accounting knowledge
to identify and implement recently issued accounting standards. This deficiency
in monitoring and accounting expertise resulted in Greystone restating the May
31, 2007 consolidated financial statements to comply with the consolidation
requirements of Financial Accounting Standards Board Interpretation No. 46
(revised), Consolidation of Variable Interest Entities, and the identification
during the audit of numerous material adjustments to Greystone’s financial
statements.  Until this material weakness is corrected, material
misstatements in the financial statements could remain undetected.





Second,
Greystone did not maintain proper records to ensure proper cut-off of inventory
and accounts payable at May 31, 2008 specifically with its primary supplier
Yorktown.  In addition, labor and overhead rates are not calculated
and updated as necessary to ensure proper valuation of finished goods
inventory.  Not ensuring inventory and accounts payable are properly
cut-off at period end and not ensuring appropriate labor and overhead rates are
applied to finished goods inventory resulted in adjustments to Greystone’s
financial statements.





Third,
Greystone lacks the necessary corporate accounting resources to maintain
adequate segregation of duties. Reliance on these limited resources impairs
Greystone’s ability to provide for proper segregation of duties and the ability
to ensure consistently complete and accurate financial reporting, as well as
disclosure controls and procedures.





This
annual report does not include an attestation report of Greystone’s independent
registered public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by
Greystone’s independent registered public accounting firm pursuant to temporary
rules of the SEC to provide only management’s report in this annual
report.





Remediation
of Material Weaknesses





In an
effort to remediate the identified material weaknesses, Greystone shall cause
certain of its accounting personnel to obtain training and education with
respect to recently issued accounting standards and SEC reporting and shall
begin sending monthly bank statements and Yorktown information provided by
Warren Kruger directly to a third party CPA firm for review and
reconciliation.  Management believes these step should remediate the
identified material weaknesses.






22


Changes
in Internal Control over Financial Reporting





During
the period covered by this report, there was no change in Greystone’s internal
controls over financial reporting that has materially affected or that is
reasonably likely to materially affect Greystone’s internal control over
financial reporting.




Item
      8B.
              Other
      Information


None.







PART
III.





Item
      9.
            Directors,
      Executive Officers, Promoters, Control Persons and Corporate Governance;
      Compliance with Section 16(a) of the Exchange
  Act





Directors, Executive
Officers, Promoters and Control Persons





The following lists the directors and
executive officers of Greystone.  Directors of Greystone are elected
at annual meetings of shareholders unless appointed by the Board of Directors to
fill a vacancy upon the resignation or removal of a member or an increase in the
number of members of the Board of Directors.  Executive officers serve
at the pleasure of the Board of Directors.




Name
            Position
            Term
      as Director
              ExpiresWarren
      F. Kruger
            President,
      Chief Executive Officer and Director
            2009Robert
      B. Rosene, Jr.
            Director
            2009Robert
      H. Nelson
            Chief
      Financial Officer
            N/ARobert
      Noland
            Senior
      Vice President
            N/A





Warren
F. Kruger, President, Chief Executive Officer and Director





Mr. Warren F. Kruger, Manager/CEO of
privately held Yorktown Management & Financial Services, L.L.C., is 51 years
old.  Yorktown Management is involved in investment banking, real
estate, manufacturing and energy endeavors.  Mr. Kruger earned a
Bachelor of Business Administration degree from the University of Oklahoma, and
an Executive M.B.A. from Southern Methodist University.  Mr. Kruger
has over thirty years experience in the financial services
industry.  In 1980, Mr. Kruger co-founded MCM Group, Ltd., which owned
and controlled United Bank Club Association, Inc. until 1996 when the firm was
sold to a subsidiary of Cendant Corp. (CD-NYSE).  He also owned and
operated Century Ice, a manufacturer and distributor of ice products from 1996
to 1997, when Packaged Ice, Inc., acquired Century Ice in an industry
rollup.  Mr. Kruger is a partner






23


with
William W. Pritchard in privately held WCC, with investments in oil and gas,
real estate and investment banking.





Mr. Kruger became a director of
Greystone on January 4, 2002, served as President and Chief Executive Officer
from January 10, 2003 to August 15, 2005 and, most recently, has served as
President and Chief Executive Officer from November 18, 2006 to the
present.





Mr.
Robert B. Rosene, Jr., Director





Mr. Rosene, age 54, is President of
Seminole Energy Services, L.L.C., a natural gas marketing and gathering company
that he co-founded in 1998.  Also in 1998, Mr. Rosene co-founded
Summit Exploration, L.L.C., an oil and gas production company that holds oil and
gas production in several states.  Mr. Rosene has served as a director
of publicly traded Syntroleum Corporation since 1985. Mr. Rosene has a B.A. with
an emphasis in accounting from Oklahoma Baptist University.





Mr. Rosene became a director of
Greystone effective June 14, 2004.





Robert
H. Nelson, Chief Financial Officer





From 2001 until joining Greystone’s
company in 2004, Mr. Robert H. Nelson, age 62, was a financial consultant to the
Key Auto Group, a retail automobile dealership chain.  Mr. Nelson
served as Chief Financial Officer to Fusion Telecommunications International,
Inc., a provider of long distance international communication systems from 1999
to 2001.  Mr. Nelson has also served as Chief Financial Officer of:
United Auto Group, the second largest publicly traded retail auto group in the
United States from 1996 to 1999; Trace International Holding, Inc., a privately
owned company with controlling interests in a variety of public and privately
owned companies from 1987 to 1999; and Ogden Allied Service and Allied
Maintenance Corporation from 1982 to 1987.  Prior to that, Mr. Nelson
was with Coopers and Lybrand, the predecessor to PricewaterhouseCoopers from
1970 to 1981.  Mr. Nelson is a certified public accountant and a
graduate of Manhattan College.





Mr. Nelson was named Chief Financial
Officer effective as of November 1, 2004.





Robert Noland, Senior Vice
President of Sales and
Marketing





Robert Noland, age 54, Senior Vice
President of Sales and Marketing, brings an extensive background, with over 25
years in sales, sales management and high tech sales.  Mr. Noland has
a BS from Kansas State University and a MBA from the University of Arkansas. He
has served in his current capacity since August 2007 and he does not serve on
the board on any public company.






24


Identification of the Audit
Committee; Audit Committee Financial Expert





Due to
Greystone’s size and stage of development, it has had difficulty recruiting
individuals to serve on its Board of Directors who are qualified to serve as an
audit committee financial expert on an audit committee.  As of May 31,
2008, the Company had not established an audit committee and the entire Board of
Directors essentially serves as Greystone’s audit committee.





Code of
Ethics





Effective
April 8, 2008, Greystone adopted a Code of Ethics applicable to the Company’s
officers and directors.





Section 16(a) Beneficial
Ownership Reporting Compliance





Section 16(a) of the Securities
Exchange Act of 1934 requires Greystone’s directors, officers and persons who
beneficially own more than 10% of any class of the Company’s equity securities
registered under Section 12 to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of such
registered securities of the Company.  Officers, directors and greater
than 10% beneficial owners are required by regulation to furnish to Greystone
copies of all Section 16(a) reports they file.





Based solely on review of the copies of
such reports furnished to Greystone and any written representations that no
other reports were required during fiscal 2008, to Greystone’s knowledge, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners during fiscal 2008 were complied with on a
timely basis, except as follows:








Name
            
            Number
      of
              Late Reports
            
            Number
      of Transactions
              Not
      Reported on a
              Timely Basis
            
            Number
      of
              Reports Not FiledWarren
      F. Kruger
            
            3
            
            5
            
            0Paul
      A. Kruger
            
            8
            
            11
            
            0Robert
      Noland
            
            1
            
            1
            
            1





Item
      10.
            Executive
      Compensation





The
following table sets forth the compensation paid to named executive officers
during the fiscal years ended May 31, 2008 and 2007:






25




Summary
Compensation Table






Name
      and
              Principal
      Position
            
            Fiscal
      Year Ending May 31,
            
            Salary
            
            Bonus
            
            Option
      AwardsWarren
      F. Kruger, President and Chief Executive Officer
            
            2008
              2007
            
            $240,000(1)
              $240,000(1)
            
            -0-
              -0-
            
            250,000
              -0-Robert
      H. Nelson, Chief Financial Officer
            
            2008
              2007
            
            $
      30,000
              $
      61,615
            
            -0-
              -0-
            
            -0-
              -0-Robert
      NolandSenior
      Vice President
            
            2008
            
            $101,386
            
            -0-
            
            200,000


________________________





(1)
            Pursuant
      to Mr. Kruger’s employment contract with Greystone, he is entitled to be
      paid an annual salary of $240,000.  However, effective in
      November 2006, Mr. Kruger voluntarily elected to temporarily defer the
      payment of half of such salary until such time as Greystone’s operating
      results further improve.








The following table provides
information with respect to named executive officers concerning outstanding
equity awards as of May 31, 2008:





Outstanding Equity Awards at
Fiscal Year End




Name
            Number
      of Securities
              UnderlyingUnexercised
              Options
      –
              Exercisable
            Number
      of Securities
              Underlying
      Unexercised
              Options
      –
              Unexercisable
            Option
              Exercise
              Price
            Option
              Expiration
              DateWarren
      F. Kruger
            100,000
              25,000
              150,000
              62,500
            -0-
              -0-
              -0-
              187,500
            $3.125
              $1.60
              $0.55
              $0.40
            4/11/2012
              6/26/2012
              4/1/2013
              2/28/2014Robert
      H. Nelson
            1,000,000
            -0-
            $0.50
            11/1/2014Robert
      Noland
            50,000
            150,000
            $0.40
            2/28/2014




Directors’
Compensation





Greystone does not pay cash
compensation to the members of its Board of Directors for services on the
Board.  From time to time in the past, Greystone has granted options
to the members of its Board of Directors under its stock option plan as
compensation for serving on Greystone’s Board of
Directors.   During the fiscal year ended May 31, 2008, Greystone
issued stock options to Robert Rosene, a member of its Board of Directors, to
purchase 100,000 shares of common stock at






26


an
exercise price of $0.40 per share as consideration for serving on its
Board.




Item
      11.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters




Securities Authorized for
Issuance under Equity Compensation Plans





As of May
31, 2008, Greystone had one equity incentive plan under which equity securities
have been authorized for issuance to Greystone’s directors, officers, employees
and other persons who perform substantial services for or on behalf of
Greystone.  The following table provides certain information relating
to such stock option plan during the year ended May 31, 2008:






(a)
              
              (b)
              
              (c)Plan
      Category
              
              Number
      of securities to be
                  issued
      upon exercise
                  of
      outstanding options,
                  warrants
      and rights
              
              Weighted-average
                exercise
      price of
                outstanding
      options,
                warrants
      and rights
              
              Number
      of securities remaining
                available
      for future issuance
                under
      equity compensation
                plans
      (excluding securities
                reflected
      in column (a))Equity
      compensation plans approved by security holders
              
              2,970,000
              
              $0.84
              
              17,005,000Equity
      compensation plans not approved by security holders
              
              -0-
              
              N/A
              
              -0-Total
              
              2,970,000
              
              $0.84
              
              17,005,000






Security Ownership of
Certain Beneficial Owners and Management





As of
August 15, 2008, Greystone had 26,111,201 shares of its common stock and 50,000
shares of its 2003 preferred stock outstanding.  Each share of the
2003 preferred stock is convertible into approximately 66.67 shares of
Greystone’s common stock.





The following table sets forth certain
information regarding the shares of Greystone’s common stock beneficially owned
as of May 31, 2008, by (i) each person known by Greystone to own beneficially 5%
or more of Greystone’s outstanding common stock, (ii) each of Greystone’s
directors and officers, and (iii) all of Greystone’s directors and officers as a
group:






27





Name
      and Address of
              Beneficial Owner
            
            Amount
      and Nature of
              Beneficial Owner(1)
            
            Percent of Class(2)Paul
      A. Kruger
              2500
      South McGee, Ste. 147
              Norman,
      OK 73072
            
            1,983,809(3)
            
            7.6%GLOG
      Investment, L.L.C.
              1613
      E. 15th
      Street
              Tulsa,
      OK 74160
            
            3,333,333(4)
            
            11.3%Warren
      F. Kruger
              Chairman,
      President and CEO
              1613
      East 15th
      Street
              Tulsa,
      OK 74120
            
            12,088,233(5)
            
            38.8%Robert
      H. Nelson
              Chief
      Financial Officer
              1613
      East 15th
      Street
              Tulsa,
      OK 74120
            
            1,824,169(6)
            
            6.6%Robert
      Noland
              Senior
      Vice President
              1613
      East 15th
      Street
              Tulsa,
      OK 74120
            
            50,000(7)
            
            0.2%Robert
      B. Rosene, Jr.
              Director
              Tulsa,
      OK
            
            8,027,231(8)
            
            25.6%All
      Directors & Officers as a Group (4 persons)
            
            18,656,300(9)
            
            53.8%


________________________





(1)
            The
      number of shares beneficially owned by each holder is calculated in
      accordance with the rules of the Commission, which provide that each
      holder shall be deemed to be a beneficial owner of a security if that
      holder has the right to acquire beneficial ownership of the security
      within 60 days through options, warrants or the conversion of another
      security; provided, however, if such holder acquires any such rights in
      connection with or as a participant in any transaction with the effect of
      changing or influencing control of the issuer, then immediately upon such
      acquisition, the holder will be deemed to be the beneficial owner of the
      securities.  The number the shares of common stock beneficially
      owned by each holder includes common stock directly owned by such holder
      and the number of shares of common stock such holder has the right to
      acquire upon the conversion of 2003 preferred stock and/or upon the
      exercise of certain options or
warrants.





(2)
            The
      percentage ownership for each holder is calculated in accordance with the
      rules of the Commission, which provide that any shares a holder is deemed
      to beneficially own by virtue of having a right to acquire shares upon the
      conversion of warrants, options or other rights, or upon the conversion of
      preferred stock or other rights are considered outstanding solely for
      purposes of calculating such holder’s percentage
  ownership.





(3)
            The
      total includes: (i)  1,300,000 shares held of record by Sleep
      Centers of America, an entity Paul Kruger is President and CEO and has a
      39% ownership interest;  and (ii) 683,809 shares of common stock
      held by Indigo Plastics LC, an entity owned by Paul
  Kruger.




(4)
            The
      total includes 3,333,333 shares of common stock deemed to be owned
      directly by GLOG Investment, L.L.C. by virtue of its ownership of the 2003
      Preferred Stock, which is convertible into common stock.  GLOG
      is wholly owned by the following officers and/or directors of the
      Registrant: Warren F. Kruger (Chairman, President and CEO) and Robert B.
      Rosene, Jr. (Director).  By virtue of their ownership of and
      control over GLOG, these shares are also included in the number of shares
      beneficially owned by each of Warren F. Kruger and Robert B. Rosene,
      Jr.





28


(5)
            The
      total includes: (i) 6,897,733 shares of common stock beneficially owned
      directly by Warren Kruger; (ii) 1,198,299 shares of common stock that Mr.
      Kruger has the right to acquire in connections with warrants (iii) 19,000
      shares held of record by Yorktown; (iv) 337,500 shares of common stock
      that Warren Kruger directly has the right to acquire in connection with
      options; (v) 153,818 shares which Westgate has the right to acquire in
      connection with warrants, owned by Westgate Capital, L.L.C., an entity of
      which Warren Kruger owns 50%; (vi) 141,750 shares of common stock that
      Warren Kruger holds on behalf of his minor children, of which he only
      holds the power to vote; (vii) 6,800 shares of common stock that Warren
      Kruger holds as custodian for minor children; and (viii) 3,333,333 shares
      that GLOG Investment, L.L.C. has the right to acquire upon conversion of
      the 2003 preferred stock.  By virtue of his ability to control
      GLOG Investment, L.L.C., Warren Kruger is also deemed to beneficially own
      the shares directly owned by GLOG.





(6)
            The
      total includes: (i) 1,000,000 shares of common stock that Robert Nelson
      directly has the right to acquire in connection with options; (ii) 500,000
      shares of common stock that Robert Nelson directly has the right to
      acquire in connection with warrants; (iii) 285,714 shares of common stock
      beneficially owned by Mr. Nelson’s wife, of which he disclaims any
      interest; and (iv) 38,455 shares of common stock that Mr. Nelson’s wife
      has the right to acquire in connection with warrants, of which he
      disclaims any interest.





(7)
            The
      total includes 50,000 shares of common stock that Robert Noland directly
      has the right to acquire in connection with
  options.





(8)
            The
      total includes: (i) 2,770,951 shares of common stock beneficially owned
      directly by Robert Rosene; (ii) 1,872,947 shares of common stock that
      Robert Rosene directly has the right to acquire in connection with
      warrants; (iii) 50,000 shares of common stock that Robert Rosene has the
      right to acquire with options; and (iv) 3,333,333 shares that GLOG
      Investment, L.L.C. has the right to acquire upon conversion of the 2003
      preferred stock.  By virtue of his ability to control GLOG,
      Robert Rosene is also deemed to beneficially own the shares directly owned
      by GLOG.





(9)
            The
      total includes: (i) 10,121,948 outstanding shares, (ii) 1,437,500 shares
      issuable upon exercise of vested stock options, (iii) 3,763,519 shares
      issuable upon exercise of vested warrants and (iv) 3,333,333 shares that
      GLOG Investment, L.L.C. has the right to acquire upon conversion of the
      2003 preferred stock.  By virtue of their ownership of and
      control over GLOG, these shares are also included in the number of shares
      beneficially owned by the directors and officers as a
    group.





Change in
Control





Effective March 8, 2005, GLOG
Investment, L.L.C., which is currently owned by Warren F. Kruger, Chairman,
President and CEO, and Robert Rosene, Jr., Director, acquired the outstanding
50,000 shares of Series 2003 Preferred Stock from Paul Kruger, a major
shareholder of Greystone.  In connection with such transaction, the
members of GLOG, as the holder of the Series 2003 Preferred Stock, possess
certain voting rights to elect a majority of the Board of Directors of
Greystone.  These voting rights and other material terms and
conditions of the Series 2003 Preferred Stock are set forth in the Certificate
of Designation relating to such Series 2003 Preferred Stock included as an
exhibit to a Current Report on Form 8-K filed by Greystone on September 23,
2003.





Item
      12.
            Certain
      Relationships and Related Transactions, and Director
      Independence





Transactions with Related
Persons





Loans
and Advances





For information regarding loans from
Warren Kruger, see “Advance and Loans
from Warren Kruger” under the heading “Liquidity and Capital Resources” in Item
6 of this Form10-KSB.






29


For
information regarding an advance from Robert Rosene, see “Advances and Loans
from Robert Rosene” under the heading “Liquidity and Capital Resources” in Item
6 of this Form10-KSB.





Technology
License Agreement





In April 2001, Greystone entered into a
license agreement with WCC, an entity owned by Warren Kruger and William
Pritchard, providing for Greystone to have the exclusive right and license to
use fire retardancy technology then being developed under the direction and
expense of WCC.  The license agreement was negotiated and executed 9
months before Warren Kruger, William Pritchard, or entities with which they are
affiliated became directors or beneficial owners of 10% or more of Greystone’s
common stock in January 2002.  Under the agreement, Greystone must pay
the greater of 2.5% of Greystone’s gross monthly revenues derived from the sale
of UL listed pallets using the technology or a minimum monthly royalty of
$10,000.  However, WCC also agreed in the license agreement to convey
to Greystone ownership of the licensed Process (as defined in the agreement) in
the event that cumulative royalties paid by Greystone equaled $250,000 during
the first two years of the agreement, subject to an override or carried interest
in favor of WCC equal to 2.5% of the gross monthly revenues which are the same
payments as would have been received under the license
agreement.  Subsequent to the execution of the original agreement
which provided for a “coating” technology, Westgate Capital Company, L.L.C.,
developed an additive process which Greystone used to successfully complete UL
testing.  The technology is currently known as CJ2(TM).





Greystone has previously incurred
$400,000 of royalty fees under the license agreement and issued its common stock
to WCC in satisfaction of the debt.  It is Greystone’s understanding
that it has a paid-up licensing agreement with Westgate Capital Company,
L.L.C.   WCC has not asserted that Greystone is in default under
the license agreement, and WCC has indicated that it has no current intentions
of asserting any default by Greystone under such agreement.





Other
Transactions





For information relating to a Purchase
Agreement and Bill of Sale and related Pallet Molds Lease Agreement entered into
with Yorktown Management & Financial Services, LLC, an entity wholly owned
by the Company’s CEO and President, see “Recent Transactions” under Item 1 of
this Form 10-KSB.  Greystone completed this transaction with Yorktown,
in part, to alleviate the working capital requirements in maintaining raw
material inventory, by purchasing raw material as it is used in the production
process.  In addition, GSM pays rental to Yorktown for use of
Yorktown’s 48X40 mold at the rate of $1.00 per pallet.  During 2008
and 2007, GSM purchased raw materials from and paid rentals to Yorktown totaling
$7,526,779 and $3,079,672, respectively.


For information relating to a
Settlement Agreement entered into with Commerce Plastics L.P., an entity wholly
owned by Paul Kruger, a beneficial owner of more than five percent of
Greystone’s common stock, see “Recent Transactions” under Item 1 of this Form
10-KSB.


30


Director
Independence





Greystone has determined that Mr.
Rosene is “independent” within the meaning of Rule 4200(a)(15) of the NASDAQ
listing standards.  Because of the small size of Greystone’s Board of
Directors, it has not established any committees.  Rather, the entire
Board acts as, and performs the same functions as, the audit committee,
compensation committee and nominating committee.  Mr. Kruger is not
considered “independent” within the meaning of Rule 4200(a)(15) of the NASDAQ
listing standards.





Item
      13.
            Exhibits





Exhibit
      No.
            Description2.1
            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).4.2
            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).
















31


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**
            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).10.3
            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).10.4**
            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).10.5**
            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).10.6**
            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).10.7**
            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).10.8
      **
            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).
























32


10.9
            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).10.10
            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).10.11
            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).10.12
            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).10.13
            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).10.14
            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).10.15**
            Employment
      Agreement between PalWeb Corporation and Warren Kruger dated August 13,
      2003 (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).10.16**
            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).




33


10.17
            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).10.18
            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).10.19
            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).10.20
            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).10.21
            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).10.22
            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).10.23
            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).10.24
            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).






















34


10.25
            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).10.26
            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).10.27
            Promissory
      Note dated as of June 17, 2005 in the amount of $500,100 issued by
      Greystone Logistics, Inc. and Greystone Manufacturing, L.L.C. to Robert B.
      Rosene, Jr. (incorporated herein by reference to Exhibit 10.1 of the
      Company’s Form 10-QSB for the Quarterly Period Ended November 30, 2005,
      which was filed with the SEC on January 17, 2006).10.28
            Promissory
      Note dated as of December 15, 2005 in the amount of $2,066,000 issued by
      Greystone Logistics, Inc. and Greystone Manufacturing, L.L.C. to Robert B.
      Rosene, Jr. (incorporated herein by reference to Exhibit 10.2 of the
      Company’s Form 10-QSB for the Quarterly Period Ended November 30, 2005,
      which was filed with the SEC on January 17, 2006).10.29
            Promissory
      Note dated as of December 15, 2005 in the amount of $527,716 issued by
      Greystone Logistics, Inc. and Greystone Manufacturing, L.L.C. to Warren F.
      Kruger, Jr. (incorporated herein by reference to Exhibit 10.3 of the
      Company’s Form 10-QSB for the Quarterly Period Ended November 30, 2005,
      which was filed with the SEC on January 17, 2006).10.30
            Security
      Agreement dated as of December 15, 2005 by and between Greystone
      Logistics, Inc. and Greystone Manufacturing, L.L.C. and Robert B. Rosene,
      Jr. relating to Promissory Note in the amount of $500,100 (incorporated
      herein by reference to Exhibit 10.4 of the Company’s Form 10-QSB for the
      Quarterly Period Ended November 30, 2005, which was filed with the SEC on
      January 17, 2006).




























35


10.31
            Security
      Agreement dated as of December 15, 2005 by and between Greystone
      Logistics, Inc. and Greystone Manufacturing, L.L.C. and Robert B. Rosene,
      Jr. relating to Promissory Note in the amount of $2,066,000 (incorporated
      herein by reference to Exhibit 10.5 of the Company’s Form 10-QSB for the
      Quarterly Period Ended November 30, 2005, which was filed with the SEC on
      January 17, 2006).10.32
            Security
      Agreement dated as of December 15, 2005 by and between Greystone
      Logistics, Inc. and Greystone Manufacturing, L.L.C. and Warren F. Kruger,
      Jr. relating to Promissory Note in the amount of $527,716 (incorporated
      herein by reference to Exhibit 10.6 of the Company’s Form 10-QSB for the
      Quarterly Period Ended November 30, 2005, which was filed with the SEC on
      January 17, 2006).10.33
            Yorktown
      Management & Financial Services, LLC Molds, Grinder, Ancillary Resin
      Handling Equipment, Bumper Contract, Raw Materials and Finished Goods
      Inventory Purchase Agreement and Bill of Sale dated as of February 7,
      2007, by and between Greystone Logistics, Inc. and Yorktown Management
      & Financial Services, LLC (incorporated herein by reference to Exhibit
      10.1 of the Company’s Form 8-K dated February 7, 2007, which was filed
      with the SEC on February 27, 2007).10.34
            Pallet
      Molds Lease Agreement dated as of February 7, 2007, by and between
      Greystone Manufacturing, LLC and Yorktown Management & Financial
      Services, LLC (incorporated herein by reference to Exhibit 10.2 of the
      Company’s Form 8-K dated February 7, 2007, which was filed with the SEC on
      February 27, 2007).10.35
            Settlement
      Agreement and Release dated as of February 8, 2007, by and among Greystone
      Logistics, Inc., 1607 Commerce Limited Partnership, Plastic Pallet
      Production, Inc. and Greystone Manufacturing, LLC (incorporated herein by
      reference to Exhibit 10.3 of the Company’s Form 8-K dated February 7,
      2007, which was filed with the SEC on February 27,
  2007).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. (submitted herewith).23.1
            Consent
      of Tullius Taylor Sartain & Sartain LLP (submitted
      herewith).23.2
            Consent
      of Murrell, Hall & McIntosh, PLLP (submitted
  herewith).




























36


31.1
            Certification
      of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a)
      promulgated under the Securities Exchange Act of 1934, as amended, and
      Item 601(b)(31) of Regulation S-B, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002 (submitted herewith).31.2
            Certification
      of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a)
      promulgated under the Securities Exchange Act of 1934, as amended, and
      Item 601(b)(31) of Regulation S-B, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002 (submitted herewith).32.1
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (submitted
      herewith).32.2
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (submitted
      herewith).





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








Item
14.                      Principal
Accountant Fees and Services
 
 The following is a summary of the fees
billed to Greystone by Tullius Taylor Sartain & Sartain LLP and Murrell,
Hall & McIntosh, PLLP, Greystone’s independent
registered public accounting firms, for professional services rendered for the
fiscal years ended May 31, 2008 and May 31, 2007:
  Fee
      Category
                
                Fiscal 2008 Fees
                
                
                Fiscal 2007 FeesAudit
      Fees(1)
                
                $
                85,000
                
                
                $
                57,690Audit-Related
      Fees
                
                
                0
                
                
                
                0Tax
      Fees
                
                
                0
                
                
                
                0All
      Other Fees
                
                
                0
                
                
                
                0Total
      Fees
                
                $
                85,000
                
                
                $
                57,690
 ________________________
 (1)Audit
Fees consist of aggregate fees billed for professional services rendered for the
audit of Greystone’s annual financial statements and review of the interim
financial statements included in quarterly reports or services that are normally
provided by the independent registered public accounting firm in connection with
statutory and regulatory filings or engagements during the fiscal years ended
May 31, 2008 and May 31, 2007, respectively.
 
 The entire Board of Directors of
Greystone is responsible for the appointment, compensation and oversight of the
work of the independent registered public accounting firm and approves in
advance any services to be performed by the independent registered public
accounting firm, whether audit-related or not.  The entire Board of
Directors reviews each proposed engagement to determine whether the provision of
services is compatible with maintaining the independence of the independent
registered public accounting firm.  All of the fees shown above were
pre-approved by the entire Board of Directors.
   37
 
 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:  09/15/08
                By:
                /s/ Warren
      F. KrugerWarren
      F. Kruger, Chairman, President and ChiefExecutive
      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:  09/15/08
              By:
              /s/ Warren
      F. KrugerWarren
      F. Kruger, Chairman, President and ChiefExecutive
      Officer
 Date:  09/15/08
                By:
                /s/
      Robert B. Rosene, Jr.Robert
      B. Rosene, Jr., Director
 Date:  09/15/08
                By:
                /s/ Robert
      H. NelsonRobert
      H. Nelson, Chief Financial Officer
    
 38
 Index to Financial
Statements
 
 CONSOLIDATED
FINANCIAL STATEMENTS OF GREYSTONE LOGISTICS, INC.
 
 Reports
      of Independent Registered Public Accounting Firms
              F-1Consolidated
      Balance Sheets
              F-3Consolidated
      Statements of Operations
              F-4Consolidated
      Statements of Changes in Stockholders’ Deficit
              F-5Consolidated
      Statements of Cash Flows
              F-6Notes
      to Consolidated Financial Statements
              F-7
 
   
 39
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Stockholders of
 Greystone
Logistics, Inc.
 
 We have
audited the consolidated balance sheet of Greystone Logistics, Inc. and
subsidiaries as of May 31, 2008, and the related consolidated statements of
operations, changes in stockholders’ deficit and cash flows for the year then
ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The consolidated financial statements of
Greystone Logistics, Inc. for the year ended May 31, 2007, were audited by other
auditors whose report, dated August 29, 2007, except for the restatement for the
matter discussed in Note 17 to the financial statements, dated September 15,
2008, on those financial statements included an explanatory paragraph that
expressed substantial doubt about the Company’s ability to continue as a going
concern.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to examine
management’s assertion about the effectiveness of the Company’s internal control
over financial reporting as of May 31, 2008, included in Item 8A. and,
accordingly, we do not express an opinion thereon.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the 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
audit provides a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Greystone Logistics, Inc. and
subsidiaries as of May 31, 2008, and the results of their operations and their
cash flows for the year then ended, 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. In previous years, the Company suffered
significant losses from operations which resulted in a cumulative stockholders’
deficit of $9,279,367 and a working capital deficit of
$13,223,360.  These deficits at May 31, 2008 raise substantial doubt
about the Company’s ability to continue as a going concern. 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.
 
 
 /s/
TULLIUS TAYLOR SARTAIN & SARTAIN LLP
 
 Tulsa,
Oklahoma
 September
15, 2008
  F-1
 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. (an Oklahoma corporation) and its subsidiaries as of May 31, 2007, and the
related consolidated statements of operations, changes in stockholders' deficit
and cash flows for each of the years ended May 31, 2007 and
2006.  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 standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required, 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.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the 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, revised as
described in Note 16 and 17, present fairly, in all material respects, the
consolidated financial position of Greystone Logistics, Inc. and its
subsidiaries as of May 31, 2007, and the consolidated results of their
operations and cash flows for the years ended May 31, 2007 and 2006, in
conformity with accounting principles generally accepted in the United States of
America.
 
 As
discussed in Note 16 and 17 to the financial statements, certain accounts were
adjusted to reflect the consolidation of Greystone Properties, LLC as of May 31,
2007 and for the year then ended.  The affected accounts and related
adjustments are also included in Note 17.  In our opinion, such
adjustments are appropriate and have been properly applied.
 
 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, 2007 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.
  
 MURRELL,
HALL, MCINTOSH & CO., PLLP
  
 Oklahoma
City, Oklahoma
 August
29, 2007, except for the change in presentation discussed in Note 16 and 17,
which is as of September 15, 2008
    
 F-2
 Greystone
Logistics, Inc. and Subsidiaries
 Consolidated
Balance Sheet
 May
31, 2008
 AssetsCurrent
      Assets:Cash
                
                $
                201,301Accounts
      receivable
                
                
                1,286,948Inventory
                
                
                899,485Prepaid
      expenses
                
                
                61,114Total
      Current Assets
                
                
                2,448,848Property,
      Plant and Equipment, net of accumulated depreciation
                
                
                8,878,716Other
      Assets:Patents,
      net of accumulated amortization
                
                
                118,440Total
      Assets
                
                $
                11,446,004Liabilities and
      Stockholders’ DeficitCurrent
      Liabilities:Current
      portion of long-term debt
                
                $
                9,013,395Advances
      payable - related party
                
                
                1,231,499Accounts
      payable and accrued expenses
                
                
                1,138,735Accounts
      payable to related parties
                
                
                2,490,080Preferred
      dividends payable
                
                
                1,597,499Total
      Current Liabilities
                
                
                15,471,208Long-Term
      Debt
                
                
                4,465,291Deferred
      Income
                
                
                80,000Minority
      Interest
                
                
                708,872Commitments
      and ContingenciesStockholders’
      Deficit:Convertible
      preferred stock, $0.0001 par value, cumulative, 20,750,000shares
      authorized, 50,000 shares outstanding, liquidation
                
                
                5preference
      of $5,000,000Common
      stock, $0.0001 par value, 5,000,000,000 sharesauthorized,
      26,111,201 outstanding
                
                
                2,611Additional
      paid-in capital
                
                
                52,825,381Accumulated
      deficit
                
                
                (62,107,364
                )Total
      Stockholders’ Deficit
                
                
                (9,279,367
                )Total
      Liabilities and Stockholders’ Deficit
                
                $
                11,446,004
  The
accompanying notes are an integral part of these consolidated financial
statements.
  F-3
 Greystone
Logistics, Inc. and Subsidiaries
 Consolidated
Statements of Operations
 Year
      Ended May 31,2008
                
                
                2007(Restated)Sales
                
                $
                21,081,114
                
                
                $
                12,454,293Cost
      of Sales
                
                
                17,233,175
                
                
                
                11,445,067Gross
      Profit
                
                
                3,847,939
                
                
                
                1,009,226General,
      selling and administration expenses
                
                
                1,815,469
                
                
                
                1,828,395Operating
      Income (Loss)
                
                
                2,032,470
                
                
                
                (819,169
                )Other
      Income (Expense):Other
      income (expense)
                
                
                30,876
                
                
                
                (452,276
                )Interest
      expense
                
                
                (1,061,248
                )
                
                
                (1,272,002
                )Total
      Other Expense
                
                
                (1,030,372
                )
                
                
                (1,724,278
                )Income
      Attributable to Minority Interest
                
                
                (73,678
                )
                
                
                (56,529
                )Net
      Income (Loss)
                
                
                928,420
                
                
                
                (2,599,976
                )Preferred
      Dividends
                
                
                508,691
                
                
                
                575,548Net
      Income (Loss) Available to Common Stockholders
                
                $
                419,729
                
                
                $
                (3,175,524
                )Income
      (Loss) Available to Common StockholdersPer
      Share of Common Stock - Basic and Diluted
                
                $
                0.02
                
                
                $
                (0.13
                )Weighted
      Average Shares of Common Stock OutstandingBasic
                
                
                26,065,000
                
                
                
                24,728,000Diluted
                
                
                26,171,000
                
                
                
                24,728,000
  The
accompanying notes are an integral part of these consolidated financial
statements
 F-4
 Greystone
Logistics, Inc. and Subsidiaries
 Consolidated
Statements of Changes in Stockholders’ Equity (Deficiency)
  Preferred
      Stock
                
                Common
      Stock
                
                
                AdditionalPaid-In
                
                
                Accumulated
                
                
                TotalAccumulatedShares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Capital
                
                
                Deficit
                
                
                DeficitBalances,
      May 31, 2006
                
                50,000
                
                $
                5
                
                
                24,061,201
                
                $
                2,406
                
                $
                52,278,594
                
                $
                (59,351,569)
                
                $
                (7,070,564)Stock
      in settlement of lease
                
                —
                
                
                —
                
                
                2,000,000
                
                
                200
                
                
                99,800
                
                
                —
                
                
                100,000Stock
      based compensation
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                314,832
                
                
                —
                
                
                314,832Preferred
      dividends accrued
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (575,548)
                
                
                (575,548)Net
      loss
                
                —
                
                
                
                
                
                —
                
                
                —
                
                
                —
                
                
                (2,599,976)
                
                
                (2,599,976)Balances,
      May 31, 2007
                
                50,000
                
                
                5
                
                
                26,061,201
                
                
                2,606
                
                
                52,693,226
                
                
                (62,527,093)
                
                
                (9,831,256)Stock
      based compensation
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                119,660
                
                
                —
                
                
                119,660Stock
      issued for services
                
                —
                
                
                —
                
                
                50,000
                
                
                5
                
                
                12,495
                
                
                —
                
                
                12,500Preferred
      dividends accrued
                
                —
                
                
                —
                
                
                —
                
                
                
                
                
                —
                
                
                (508,691)
                
                
                (508,691)Net
      income
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                928,420
                
                
                928,420Balances,
      May 31, 2008
                
                50,000
                
                $
                5
                
                
                26,111,201
                
                $
                2,611
                
                $
                52,825,381
                
                $
                (62,107,364)
                
                $
                (9,279,367)
  The
accompanying notes are an integral part of these consolidated financial
statements
  
 F-5
 Greystone
Logistics, Inc. and Subsidiaries
 Consolidated
Statements of Cash Flows
 
 Year
      Ended May 31,2008
                
                
                2007(Restated)Cash
      Flows from Operating Activities:Net
      Income (Loss)
                
                $
                928,420
                
                
                $
                (2,599,976
                )Adjustments
      to reconcile net income (loss) to cashprovided
      by operating activitiesDepreciation
      and amortization
                
                
                846,828
                
                
                
                856,803Settlement
      costs on termination of operating lease
                
                
                —
                
                
                
                619,061Stock
      based compensation
                
                
                119,660
                
                
                
                314,832(Gain)
      Loss on sale of equipment
                
                
                —
                
                
                
                (71,472
                )Increase
      in minority interest
                
                
                76,222
                
                
                
                69,190Changes
      in accounts receivable
                
                
                (267,533
                )
                
                
                (177,040
                )Changes
      in inventory
                
                
                (661,716
                )
                
                
                393,467Changes
      in prepaid expenses
                
                
                (3,461
                )
                
                
                (48,740
                )Changes
      in accounts payable and accrued expenses
                
                
                (258,680
                )
                
                
                889,533Other
                
                
                (35,500
                )
                
                
                (5,205
                )Net
      cash provided by operating activities
                
                
                744,240
                
                
                
                240,453Cash
      Flows from Investing Activities:Purchase
      of property and equipment
                
                
                (362,882
                )
                
                
                (580,250
                )Proceeds
      from sale of equipment
                
                
                —
                
                
                
                993,234Net
      cash provided (used) by investing activities
                
                
                (362,882
                )
                
                
                412,984Cash
      Flows from Financing Activities:Proceeds
      from notes and advances payable
                
                
                383,069
                
                
                
                745,682Payments
      on notes and advances payable
                
                
                (903,460
                )
                
                
                (915,782
                )Repayment
      of bank overdraft
                
                
                —
                
                
                
                (143,928
                )Cash
      provided (used) by financing activities
                
                
                (520,391
                )
                
                
                (314,028
                )Net
      Increase (Decrease) in Cash
                
                
                (139,033
                )
                
                
                339,409Cash,
      beginning of year
                
                
                340,334
                
                
                
                925Cash,
      end of year
                
                $
                201,301
                
                
                $
                340,334Supplemental
      Information (Note 12)
  The
accompanying notes are an integral part of these consolidated financial
statements
  F-6
 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 and variable interests.  All material
intercompany accounts and transactions have been eliminated.
 
 Greystone
consolidates all entities that it controls by ownership of a majority voting
interest as well as variable interest entities for which Greystone is the
primary beneficiary. In determining if Greystone is the primary beneficiary of
variable interest entities includes an assessment  of Greystone’s level of
involvement in setting up the entity, determining if the activities of the
entity are substantially conducted on behalf of Greystone, determining whether
Greystone provides more than half of the subordinated financial support to the
entity, and determining if Greystone absorbs the majority of the entity’s
expected losses or returns.
 
 Greystone’s
consolidated variable interest is Greystone Properties, LLC which is owned by
Warren Kruger, President and CEO, and Robert Rosene, a member of the Board of
Directors.  By virtue of the fact that Warren Kruger and Robert Rosene
have personally guaranteed the mortgage note payable of Greystone Properties,
the entity is considered by management to be a variable interest.
 
 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
 
 Trade
accounts receivable are stated at the amount management expects to collect from
outstanding balances. Delinquency fees are not assessed. Payments of accounts
receivable
   F-7
 are
allocated to the specific invoices identified on the customers’ remittance
advice. The carrying amount of accounts receivable is reduced, if needed, by a
valuation allowance that reflects management’s best estimate of the amounts that
will not be collected. Management periodically reviews all individual accounts
receivable balances, and based on an assessment of current creditworthiness,
estimates the portion, if any, of the balance that may not be collected.
Management provides for probable uncollectible amounts through a charge to
earnings and a credit to a valuation allowance based on its assessment of the
current status of the individual accounts. Balances that remain outstanding
after management has used reasonable collection efforts are written off through
a charge to the valuation allowance and a credit to trade accounts receivable.
Changes in the valuation allowance have not been material to the financial
statements. Recoveries of trade receivables previously written off are recorded
when received.  Management determined an allowance for doubtful
accounts was not necessary at May 31, 2008.
 
 Inventory
 
 Inventory
consists of finished pallets and raw materials and is stated at the lower of
average cost or market value.  The cost of finished goods includes
direct labor and materials plus allocated manufacturing overhead.
 
 Under the
terms of the contracts with its primary customers, Greystone repurchases damaged
pallets at set prices. These damaged pallets are recorded to raw material
inventory and reground for use in manufacturing new pallets.
 
 Property, Plant and
Equipment
 
 Greystone’s
property, plant and equipment is stated at cost.  Depreciation expense
is computed on the straight-line method over the estimated useful lives as
follows:
  Plant
      building
                39
      yearsProduction
      machinery and equipment
                5-10
      yearsOffice
      equipment & furniture & fixtures
                3-
      5 years
 
 Repairs
and maintenance costs are expensed when incurred unless it is determined that
the useful life of the respective asset has been extended. 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
asset’s carrying amount.  If the asset carrying amount exceeds the
cash flows, a write-down to fair value is required.  As discussed in
Note 2, Continuation as a Going Concern, the financial statements have been
prepared assuming that Greystone will continue operations as a going concern
and, accordingly, do not include any adjustments to the carrying value of its
property and equipment relating to
  F-8
 any
potential outcome of such uncertainties.
 
 Patents
 
 Amortization
expense for the costs incurred by Greystone to obtain the patents on the modular
pallet system and accessories is computed on the straight-line method over the
estimated life of 15-17 years.
 
 Stock
Options
 
  In
      accordance with Statement of Financial Accounting Standards
      No. 123(R), “Share-Based Payment,” Greystone recognizes in the income
      statement the grant-date fair value of stock options and other
      equity-based compensation issued to
employees.
  
 Recognition of
Revenues
  Greystone
      recognizes revenue in accordance with SEC Staff Accounting Bulletin
      No. 104, Revenue
      Recognition in Financial Statements(SAB 104). Under SAB 104,
      revenue is recognized when the title and risk of loss have passed to the
      customer, there is persuasive evidence of an arrangement, delivery has
      occurred or services have been rendered, the sales price is determinable
      and collectability is reasonably assured. Greystone typically recognizes
      revenue at the time of shipment. However, under the terms of certain
      contracts with its two primary customers Greystone recognizes revenue when
      its products are delivered to the
customers.
  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 on 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.
 
 F-9
 Earnings (Loss) Per
Share
 
 Basic
income or loss per share is computed by dividing the income or loss available to
common stockholders by the weighted average number of common shares outstanding
for the year. For fiscal year 2007, convertible preferred stock, warrants and
stock options are not  considered as their effect is
antidilutive.  For fiscal year 2008, diluted earnings per share is
computed by dividing net income by the weighted-average number of common shares
and dilutive potential common shares outstanding during the period.
 
 The
following is a reconciliation of the number of shares used in the calculation of
basic earnings per share and diluted earnings per share for the year ended May
31, 2008:
  Weighted-average
      number of common shares outstanding
              
              
              26,065,000Incremental
      shares from the assumed exercise of dilutive stock options
              
              
              106,000Dilutive
      potential common shares
              
              
              26,171,000
  The
following securities (rounded to thousands) were not included in the computation
of diluted net earnings per share as their effect would have been
anti-dilutive:
  Options
      to purchase common stock
              
              
              2,183,000Warrants
      to purchase common stock
              
              
              5,013,000Convertible
      preferred stock
              
              
              3,333,00010,529,000
 
 Shipping
and Handling
 
 In
accordance with Emerging Issues Task Force (EITF) Issue 00-10, Accounting for Shipping and Handling Fees and
Costs, the Company records shipping fees billed to customers in sales and
records the related expenses in cost of sales.
 
 Share-Based
Payment
 
 In
December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No 123R, Share-Based Payment(SFAS
123R).  SFAS 123R is a revision of SFAS 123, Accounting for
Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees, and its
  F-10
 related
implementation guidance.  Under paragraph 7 of SFAS 123R, if the fair
value of goods or services received in a share-based payment transaction with
nonemployees is more reliably measurable than the fair value of the equity
instruments issued, the fair value of the goods or services received shall be
used to measure the transaction.  In contrast, if the fair value of
the equity instruments issued in a share-based payment transaction with
nonemployees is more reliably measurable than the fair value of the
consideration received, the transaction shall be measured based on the fair
value of the equity instruments issued.  Greystone utilized the fair
value of the equity instruments issued to nonemployees to value the shares
issued.
 
 Recent
Accounting Pronouncements
 
 On July
13, 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income
Taxes—An Interpretation of FASB Statement No. 109(FIN 48). FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes,by prescribing a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. Greystone adopted the provisions of FIN 48 effective
June 1, 2007. The adoption of FIN 48 did not have a material effect on our
consolidated financial statements and related disclosures.
 
 In
September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements(SFAS
157). SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. The issuance of this standard is
meant to increase consistency and comparability in fair value measurements. SFAS
157 is effective for fiscal years beginning after November 15, 2007. In
February 2008, the FASB issued FASB Staff Position 157-1, Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13(FSP 157-1) and FASB Staff Position 157-2,
Effective Date of FASB
Statement No. 157(FSP 157-2). FSP 157-1 amends SFAS 157 to remove
certain leasing transactions from its scope. FSP 157-2 delays until
January 1, 2009 the effective date of SFAS 157 for all non-financial assets
and liabilities, except for items that are recognized or disclosed at fair value
in the financial statements on a recurring basis.  Greystone does not
expect the adoption of SFAS 157 to have a material effect on its consolidated
financial statements and related disclosures.
 
 In
February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial
Assets and Financial Liabilities(SFAS 159). SFAS 159 permits entities to
choose to measure many financial instruments and certain other items at fair
value, and establishes
  F-11
 presentation
and disclosure requirements designed to facilitate comparisons between entities
that choose different measurement attributes for similar types of assets and
liabilities. SFAS 159 is effective for fiscal years beginning after November 15,
2007.  Greystone does not expect the adoption of SFAS 159 to have a
material effect on its consolidated financial statements and related
disclosures.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements (SFAS 160). SFAS 160 was issued to
establish accounting and reporting standards for the noncontrolling interest in
a subsidiary (formerly called minority interests) and for the deconsolidation of
a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. FAS No. 160 is effective for us in our
fiscal year beginning after December 15, 2008.  Greystone does not
expect the adoption of SFAS 160 to have a material effect on its consolidated
financial statements and related disclosures, except for the presentation of
non-controlling interests in the financial statements.
  In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations(SFAS
141R). SFAS 141R was issued to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its
effects.  This Statement is effective prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008. Greystone does not expect the adoption of SFAS 141R to have a
material effect on its consolidated financial statements and related
disclosures.
 
 Note
      2.
                CONTINUATION AS A
      GOING CONCERN
 
 The
accompanying financial statements have been prepared assuming that Greystone
will continue as a going concern.  Greystone achieved its first year
of profitable operations in recent years, reporting net income available to
common stockholders of $419,729 and cash provided by operations of
$744,240.  However, total stockholder deficit still exceeds $9 million
and working capital deficit still exceeds $13 million.  The Company’s
ability to continue to exist as a going concern for the next fiscal year depends
primarily on the forbearance of the Company’s creditors.  The most
significant creditors include related parties and the lending institutions
identified in Note 6.   Some refinancing has already occurred, as
described in Note 6, and F&M Bank has communicated to the Company that it
anticipates it will renew the debt that is currently due on terms similar to
existing terms.   While management is optimistic about the
forbearance of its creditors and the conversion of its credit facilities to
long-term, there can be no assurance that management’s efforts will allow the
Company to meet its obligations when due.
 
 While
2008 results are viewed by management with optimism, the Company does not have
an adequate history of profitable operations to provide reasonable assurance of
  F-12
 continuation
as a going concern.  Management is working to enhance the value of the
Company’s contracts with its two most significant customers, and expand its
customer base and product offerings.  Some of these efforts will
require additional capital to implement.  There is no assurance that
management’s efforts will be sufficiently successful, or that needed capital
will be available, for the Company to continue as a going concern.
 
 Note
      3.
              INVENTORY
 
 Inventory
at May 31, 2008 consists of:
 Raw
      materials
                
                $
                341,937Finished
      goods
                
                
                557,548Total
      inventory
                
                $
                899,485
 Note
      4.
              PROPERTY, PLANT AND
      EQUIPMENT
 
 A summary
of the property, plant and equipment at May 31, 2008, is as
follows:
 Production
      machinery and equipment
                
                $
                7,587,315Building
      and land
                
                
                4,800,444Furniture
      and fixtures
                
                
                184,35512,572,114Less:
      accumulated depreciation
                
                
                (3,693,398
                )$
                8,878,716
 
 Depreciation
expense for the years ended May 31, 2008 and 2007 is $838,128 and $842,882,
respectively.
 
 Note
      5.
              OTHER
      ASSETS
 
 At May
31, 2008 other assets  totaling $118,440 consist of patents, net of
accumulated amortization of $75,857. Amortization of intangibles was $8,700 and
$13,290 for 2008 and 2007, respectively.
 
 Note
      6.
              LONG-TERM DEBT AND
      ADVANCES PAYABLE
 
 Long-term
debt at May 31, 2008 consists of the following:
 
 Note
      payable to F&M Bank & Trust Company,prime
      rate of interest plus 2%, due June 15, 2008, payablein
      monthly installments of $60,577
                
                $
                4,783,963
  F-13
 Note
      payable to F&M Bank & Trust Company, prime rate ofinterest
      plus 1%, due October 5, 2008
                
                
                1,617,460Mortgage
      payable to Greystone Plastics, Inc., 7% interest, dueSeptember
      7, 2018, payable in monthly installments of$13,889
      plus accrued interest, secured by building
                
                
                1,736,105Mortgage
      payable to Kansas City Life Insurance, 6.25%interest,
      due July 1, 2014, payable in monthly installmentsof
      $10,781, secured by building
                
                
                1,314,228Note
      payable to First Bartlesville Bank, prime rate of interestplus
      1%, due July 1, 2008, payable in monthly installments of$6,441,
      secured by equipment
                
                
                297,433Note
      payable to F&M Bank & Trust Company, prime rate ofinterest
      plus 1%, due March 15, 2011, payable in monthlyinstallments
      of $12,205
                
                
                378,843Note
      payable to Robert Rosene, 7.5% interest, due January 15,2010,
      payable in three equal annual installments of principaland
      interest beginning January 15, 2008
                
                
                2,066,000Note
      payable to Robert Rosene, prime rate of interestplus
      0.5%, due July 1, 2008, payable in monthly installmentsof
      $7,546, secured by equipment
                
                
                344,968Note
      payable to Warren Kruger, 7.5% interest, due January 15,2010,
      payable in three equal annual installments of principaland
      interest beginning January 15, 2008
                
                
                527,716Lease
      settlement obligation to 1607 Commerce LLC,8.5%
      interest, payable in monthly installments of principaland
      interest of $24,000 per month, due February 1, 2009
                
                
                246,361Other
                
                
                165,609Total
                
                
                13,478,686Less:
      Current portion
                
                
                9,013,395Long-term
      debt
                
                $
                4,465,291
 The prime rate of interest as of May
31, 2008 was 5%.
  F-14
 
 The notes
payable to F&M Bank & 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,
2008.
 
 Greystone
received communication from F&M Bank stating that it anticipates it will
renew the notes with balances at May 31, 2008 of $4,783,963 and $1,617,460 under
similar terms and conditions as the original notes.
 
 The First
Bartlesville Bank note in the amount of $297,433 and the Robert Rosene note in
the amount of $344,968 at May 31, 2008, were consolidated with BancFirst on July
1, 2008, with an interest rate of prime plus 1% and a maturity date of July 1,
2012.
 
 Maturities
of long-term debt for the five years after May 31, 2008 are $9,013,395,
$1,368,887, $502,292, $396,243, $257,102, and $1,940,767
thereafter.
 
 Effective
December 15, 2005, Greystone entered into a loan agreement with Warren Kruger to
convert $527,716 of the advances into a note payable at 7.5% interest and
payable in three equal installments of principal and accrued interest beginning
January 15, 2008 through January 15, 2010 of which Warren Kruger has waived the
first installment until January 15, 2009. At May 31, 2008, note payable of
$527,716, advances of $1,231,499 and accrued interest of $190,002 were due to
entities owned or controlled by Warren Kruger.
 
 Effective
December 15, 2005, Greystone entered into a loan agreement with Robert Rosene,
one of Greystone’s directors, to convert $2,066,000 of the advances into a note
payable at 7.5% interest and payable in three equal installments of principal
and accrued interest beginning January 15, 2008 through January 15, 2010 of
which Mr. Rosene has waived the first installment until January 15,
2009.  Accrued interest due to Mr. Rosene as May 31, 2008 is
$351,293.
 
 Note
      7.
              RELATED PARTY
      TRANSACTIONS
 
 Transactions with Paul
Kruger, a significant stockholder
 
 On
February 8, 2007, Greystone entered into a Settlement Agreement and Release with
1607 Commerce Limited Partnership, a Texas limited partnership, which
subsequently changed its name to Commerce Plastics L.P.
(“Commerce”).  Pursuant to the Settlement Agreement and in exchange
for full, final and complete settlement of any and all claims that Commerce has
asserted, or could have asserted, in its lawsuit regarding an alleged default in
the payment of rent pursuant to terms of the Equipment Lease (defined below) and
the enforcement of certain related guaranties, Greystone agreed to (i) to pay
outstanding rental accruals by Greystone to Commerce of $1,048,000, (ii) make
monthly payments to Commerce of $24,000 for a term of 24 months commencing March
1, 2007, which payments can be used towards the purchase price of pallets
purchased from Commerce as further described below, (iii) transfer to Commerce
2,000,000 shares of the Company’s common stock, and (iv) enter into an agreement
with Commerce whereby, among other things, Commerce will be given floor space,
utilities and regrind resin in the Company’s Iowa facility and the Company will
be required to purchase up to 200,000 Granada pallets at $8.00 per pallet and
200,000 nestable pallets at $3.00 per pallet from Commerce over a two year
term.  Also pursuant to the Settlement Agreement, the monthly payments
to be made by the Company will be credited against the purchase price of any
Granada pallets purchased from Commerce; provided, however, Commerce is not
obligated to produce any pallets, but has agreed to use it best efforts to do
so. The Settlement Agreement also included an immediate termination of that
certain equipment
  F-15
 lease
dated as of September 8, 2003, by and between Commerce and Plastic Pallet (the
“Equipment Lease”), whereby the registrant leased, for a term of 130 months
commencing September 8, 2003, at a rate of $48,000 per month, certain equipment
that PPP previously used to produce its pallets.
 
 Rental
payments pursuant to the equipment lease agreement totaled $384,000 for fiscal
year 2007.
 
 Transactions with Warren
Kruger, Vice Chairman
 
 Effective
June 1, 2006, Yorktown Management & Financial Services LLC, an entity owned
by Warren Kruger, Chairman and CEO, commenced selling plastic raw material to
GSM primarily as a sole provider. Effective February 1, 2007, GSM entered into a
purchase agreement with Yorktown pursuant to which Yorktown purchased from
GSM  existing finished goods inventory and certain raw materials for
$1,018,582 and grinding and peripheral equipment, resin contracts and molds for
$981,418.  Greystone completed this transaction with Yorktown, in
part, to alleviate the working capital requirements in maintaining raw material
inventory, by purchasing raw material as it is used in the production
process.  In addition, GSM pays rental to Yorktown for use of
Yorktown’s 48X40 mold at the rate of $1.00 per pallet.  During 2008
and 2007, GSM purchased raw material purchases from and paid rentals to Yorktown
totaling $7,526,779 and $3,079,672, respectively.
 
 During
2007, Warren Kruger advanced working capital funds to Greystone in the amount of
$859,400 and Greystone repaid Warren Kruger the amount of
$509,041.  Effective December 15, 2005, Greystone entered into a loan
agreement with Warren Kruger to convert $527,716 of the advances into a note
payable at 7.5% interest and payable in three equal installments of principal
and accrued interest beginning January 15, 2008 through January 15, 2010 of
which Warren Kruger has waived the first installment until January 15, 2009. At
May 31, 2008, note payable of $527,716, advances of $1,231,499 and accrued
interest of $190,002 were due to entities owned or controlled by Warren
Kruger.
 
 Greystone
also reimburses an entity owned by Warren Kruger for office rent at the rate of
$1,500 per month.
 
 Pursuant
to Mr. Kruger’s employment contract with Greystone, he is entitled to be paid an
annual salary of $240,000.  However, effective in November 2006, Mr.
Kruger voluntarily elected to temporarily defer the payment of half of such
salary until such time as Greystone’s operating results further
improve.
 
 Transactions with Robert
Rosene, Director
 
 Effective
December 15, 2005, Greystone entered into a loan agreement with Mr. Rosene to
convert $2,066,000 of the advances into a note payable at 7.5% interest and
payable in
  F-16
 three
equal installments of principal and accrued interest beginning January 15, 2008
through January 15, 2010 of which Mr. Rosene has waived the first installment
until January 15, 2009.  Accrued interest due to Mr. Rosene as May 31,
2008 is $351,293.
 
 Note
      8.
              FEDERAL INCOME
      TAXES
 
 Deferred
      taxes as of May 31, 2008 and 2007 are as
  follows:
 
 2008
              
              
              2007Deferred
      Tax Assets:Net
      operating loss
              
              $
              2,779,058
              
              
              $
              3,011,278Amortization
      of intangibles
              
              
              1,438,882
              
              
              
              1,579,890Depreciation,
      financial reporting
                in
      excess of tax
              
              
              59,376
              
              
              
              24,056Accrued
      expenses
              
              
              —
              
              
              
              14,123Total
      deferred tax assets
              
              
              4,277,316
              
              
              
              4,629,347Less:
      Valuation allowance
              
              
              4,277,316
              
              
              
              4,629,347Total
              
              $
              —
              
              
              $
              —
  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 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:
 
 2008
              
              
              2007Net
      operating loss
              
              $
              232,220
              
              
              $
              978,627Depreciation
      of property and equipment
              
              
              35,320
              
              
              
              29,511Amortization
      of intangibles
              
              
              (141,008
              )
              
              
              (145,115
              )Accrued
      expenses
              
              
              (14,123
              )
              
              
              (131,226
              )Change
      in valuation allowance
              
              
              352,031
              
              
              
              (731,797
              )Total
              
              $
              —
              
              
              $
              —
 
 Greystone’s
effective tax rate for the year ended May 31, differs from the federal statutory
rate as follows:
 
 F-17
 2008
              
              
              2007Tax
      (provision) benefit using statutory rates
              
              $
              (315,663
              )
              
              $
              868,692Net
      change in valuation allowance
              
              
              352,031
              
              
              
              (731,797
              )Compensation
      cost of stock options
              
              
              (40,684
              )
              
              
              (107,043
              )Other
              
              
              4,316
              
              
              
              (29,852
              )Tax
      benefit, per financial statements
              
              $
              —
              
              
              $
              —
  Greystone
has net operating losses (NOL) for Federal income tax purposes as of May 31,
2008 of $8,173,705 expiring in fiscal year 2012 through fiscal year 2028, as
follows:
 Cumulative
      as of May 31, 2005
                
                $
                2,775,700
                
                2012
      through 2025Year
      ending May 31, 2006
                
                
                2,520,000
                
                2026Year
      ending May 31, 2007
                
                
                2,878,000
                
                2027
 
 Pursuant
to Internal Revenue Code Section 382 and due to a change in control of Greystone
during the year ended May 31, 2005, the amount of operating losses accumulated
through fiscal 2005 is limited to approximately $225,000 per
year.
 
 Note
      9.
                STOCKHOLDERS’
      EQUITY
 
 Warrants
 
 A summary
of outstanding warrants for the years ending May 31 is as follows:
 
  2008
              
              
              2007Shares
              
              
              Weighted
                average
                exercise
                price
              
              
              Shares
              
              
              Weighted
                average
                exercise
                priceBeginning
      of year
              
              
              5,262,914
              
              
              $
              0.56
              
              
              
              5,012,914
              
              
              $
              0.59Additions
              
              
              —
              
              
              
              —
              
              
              
              250,000
              
              
              
              0.15End
      of year
              
              
              5,262,914
              
              
              $
              0.56
              
              
              
              5,262,914
              
              
              $
              0.56
 
 All
warrants issued and outstanding have a term of five years expiring in fiscal
years 2009 and 2012.
 
 Effective
February 1, 2007, Greystone issued a warrant to purchase up to 250,000 shares
of  common stock at $0.15 per share to an individual in consideration
for providing
  F-18
 certain
financing and consulting services, which facilitated the sale of certain of
Greystone’s equipment to Yorktown Management & Financial Services, LLC, a
company owned by Warren Kruger, Chairman and CEO.  The warrants are
valued at $8,500.
 
 Common
Stock
 
 Effective
February 1, 2007, Greystone agreed to issue 2,000,000 shares of its common stock
and agreed to pay $24,000 per month for twenty-four months to 1607 Commerce LLC
to terminate a long-term lease agreement on equipment.  The present
value of the series of $24,000 monthly payments at 8.5% interest or $519,060 and
the value of the common stock on the effective date of issuance of $100,000 were
recorded as a loss on the termination agreement of the long-term
lease.
 
 Effective
April 29, 2008, Greystone issued 50,000 shares of common stock in exchange for
services.  The issuance was valued at the market value of the stock on
the date of issue or $12,500.
 
 Convertible Preferred
Stock
 
 In
September, 2003, Greystone issued 50,000 shares of Series 2003, cumulative,
convertible preferred stock, par value $0.0001, for a total purchase price of
$5,000,000.  Each share of the preferred stock has a stated value of
$100 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.  The holder
of the preferred stock waived its right to compounded dividends on unpaid
interest during the period from March 4, 2005 through May 31, 2008, totaling
approximately $262,000.
  F-19
  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 17,005,000 are available for grant as of May 31, 2008. 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, 2008:
  Shares
                  (000’s)
                
                
                WeightedAverageExercise PriceOptions
      outstanding at May 31, 2005
                
                
                3,960
                
                
                $
                1.01Options
      cancelled
                
                
                (350
                )
                
                
                0.62Options
      outstanding at May 31, 2006
                
                
                3,610
                
                
                
                1.06Options
      cancelled
                
                
                (1,250
                )
                
                
                0.54Options
      outstanding at May 31, 2007
                
                
                2,360
                
                
                
                1.35Options
      granted
                
                
                1,050
                
                
                
                0.40Options
      cancelled
                
                
                (440
                )
                
                
                2.56Options
      outstanding at May 31, 2008
                
                
                2,970
                
                
                $
                0.84Exercisable
      as of May 31, 2006
                
                
                2,404
                
                
                $
                1.33Exercisable
      as of May 31, 2007
                
                
                2,360
                
                
                $
                1.35Exercisable
      as of May 31, 2008
                
                
                2,183
                
                
                $
                0.99
       F-20
 With
respect to options outstanding at May 31, 2008:
 
 Range
              
              Options
      Outstanding
              
              Weighted
      Average Life
              
              Weighted
      AveragePrice
              
              Exercisable$0.40
              
              1,050,000
              
              5.7
      years
              
              $0.40
              
              262,500$0.50-$0.55
              
              1,450,000
              
              2.5
      years
              
              $0.52
              
              1,450,000$1.60
              
              100,000
              
              4.1
      years
              
              $1.60
              
              100,000$2.00
              
              30,000
              
              2.9
      years
              
              $2.00
              
              30,000$3.125-$4.00
              
              340,000
              
              3.9
      years
              
              $3.00
              
              340,000Total
              
              2,970,000
              
              3.8
      years
              
              $0.84
              
              2,182,500
 
 
 Share-based
compensation cost for fiscal years 2008 and 2007 totals $119,660 and $314,832,
respectively.  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
                NoneExpected
      Volatility
                203%Risk
      Free Interest Rate
                4%Expected
      Holding Period
                6
      years
   Unamortized
costs under existing stock options agreements as of May 31, 2008 total $263,912
and will be amortized ratably 35 months subsequent to May 31,
2008.
 
  Note
      11.
              FINANCIAL
      INSTRUMENTS
 
 Greystone’s
financial instruments consist principally of accounts payable, accrued
liabilities and notes and mortgages payable.  Management estimates the
fair value of the notes and mortgage payable based on expected cash flows and
believes these fair values approximate carrying values at May 31, 2008 and
2007.
  Note
      12.
                SUPPLEMENTAL
      INFORMATION OF CASH
FLOWS
 Supplemental
information of cash flows for the years ended May 31:
  
 F-21
 2008
              
              
              2007Non-cash
      activities:Common
      stock issued in settlement of lease agreement
              
              $
              —
              
              
              $
              100,000Debt
      in settlement of lease
              
              
              —
              
              
              
              519,060Preferred
      dividend accrual
              
              
              508,691
              
              
              
              575,938Purchase
      of equipment with debt
              
              
              400,000
              
              
              
              —Supplemental
      information:Interest
      paid
              
              
              1,024,316
              
              
              
              930,095Taxes
      paid
              
              
              —
              
              
              
              —
  Note
      13.
                  OPERATING
      LEASE
 Rental
expense on operating lease totaled $-0- and $384,000 during 2008 and 2007,
respectively.  The equipment operating lease is described further in
Note 7, under the headings “Transactions with Paul Kruger, a significant
stockholder.”
  Note
      14.
                  CONCENTRATIONS
 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, 2008, Greystone’s bank balances exceeded
federally insured limits by $101,301.
 
 For the
fiscal year ended May 31, 2008 and 2007, two of Greystone’s customers accounted
for approximately 75% and 85% of sales, respectively.
 
 As of the
fiscal year ended May 31, 2008, Greystone purchased 100% of its raw materials
from Yorktown Management & Financial Services LLC, an entity owned by Warren
Kruger, Chairman and CEO.   However, the raw materials for
Greystone’s products are readily available and may be purchased from other
suppliers.
  Note
      15.
                  CONTINGENCIES
 A court
action was filed by William Hamilton dba WHACO and dba Greystone Bill Hamilton
Trucking against GSM alleging damages in the amount of $104,390 for breach of
contract involving provision of materials and services.  William
Hamilton is an owner in Greystone Plastics, Inc. from whom GSM purchased certain
manufacturing assets in 2003.  GSM has denied all allegations and has
asserted a counterclaim arising from the sale of manufacturing assets by
Greystone Plastics, Inc. to GSM.  Discovery is continuing in this
action and a trial date has been set in February 2009.  GSM management
cannot predict or guarantee the outcome of the action.
 
 Certain
conditions may exist as of the date the financial statements are issued, which
may
   F-22
 result in
a loss to Greystone but which will only be resolved when one or more future
events occur or fail to occur. Greystone’s management and its legal counsel
assess such contingent liabilities, and such assessment inherently involves an
exercise of judgment. In assessing loss contingencies related to legal
proceedings that are pending against Greystone or unasserted claims that may
result in such proceedings, Greystone’s legal counsel evaluates the perceived
merits of any legal proceedings or unasserted claims as well as the perceived
merits of the amount of relief sought or expected to be sought
therein.
 
 If the
assessment of a contingency indicates that it is probable that a material loss
has been incurred and the amount of the liability can be estimated, then the
estimated liability would be accrued in Greystone’s financial statements. If the
assessment indicates that a potentially material loss contingency is not
probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the
range of possible loss if determinable and material, would be
disclosed.
 
 Loss
contingencies considered remote are generally not disclosed unless they involve
guarantees, in which case the guarantees would be disclosed.
  
 Note
      16.
              VARIABLE INTEREST
      ENTITY
 
 Greystone
Properties, L.L.C, which is owned by Warren Kruger, President and CEO, and
Robert Rosene, a member of the Board of Directors, was created solely to own and
lease one of the two buildings GSM occupies in Bettendorf, Iowa. An implicit
variable interest exists given the related party nature of the lease. The lease
terms are based on factors other than the lease’s market value; and the
outstanding mortgage on the building is guaranteed by Greystone’s President and
CEO.
 
 The
building, having a carrying value of $1,953,046 at May 31, 2008, serves as
collateral for Greystone Properties’ debt.  The debt has a carrying
value of $1,314,228 at May 31, 2008 and has no recourse to the general credit of
Greystone.
 
 
 Note
      17.
              RESTATEMENT OF 2007
      FINANCIAL STATEMENTS
 
 Greystone
did not consolidate the accounts of Greystone Properties, as of May 31, 2007 and
for the year then ended.  The 2007 financial statements have been
restated to correct the error in the application of accounting
principles.  Following is a summary of the adjustments that were
made:
  Property,
      plant and equipment, net
                
                $
                1,916,198Long-term
      debt
                
                $
                1,359,902Minority
      interest
                
                $
                556,296Cost
      of sales
                
                $
                (142,990
                )Interest
      expense
                
                $
                86,461Minority
      interest in income of consolidated subsidiary
                
                $
                (56,529
                )
       F-23