UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




Form
10-Q


(Mark
One)





x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE
      ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED November
      30, 2008








o
                TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

                    FOR
      THE TRANSITION PERIOD FROM ______ TO
  ________





Commission
file number 000-26331







GREYSTONE LOGISTICS,
INC.


(Exact
name of registrant as specified in its charter)







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






1613
East 15thStreet,
Tulsa, Oklahoma 74120


(Address
of principal executive offices)     (Zip
Code)







(918) 583-7441


(Registrant’s
telephone number)









(Former
name, former address and former fiscal year, if changed since last
report)









Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.  Yes  x   
No  o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.




Large accelerated
      filer  o
            Accelerated filer
      oNon-accelerated
      filer o
              (Do not
      check if a smaller reporting company)
            Smaller reporting
      company x




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







Applicable
only to corporate issuers





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:    January 12, 2009 -
26,111,201







GREYSTONE
LOGISTICS, INC.
 FORM
10-Q
 For
the Period Ended November 30, 2008
 
   PART
I.  FINANCIAL INFORMATION
 
 Item
      1.   Financial Statements
                PageConsolidated
      Balance Sheetsas
      of November 30, 2008 (Unaudited) and May 31, 2008
                3Consolidated Statements of
      Income (Unaudited)For
      the Six Month Periods Ended November 30, 2008 and
    2007
                4Consolidated Statements of
      Cash Flows (Unaudited)For
      the Six Month Periods Ended November 30, 2008 and
    2007
                5Notes to Consolidated
      Financial Statements (Unaudited)
                6Item
      2.   Management’s Discussion and Analysis of Financial ConditionAnd
      Results of Operations
                9Item
      4.   Controls and Procedures
                12PART
      II.  OTHER INFORMATIONItem
      1.   Legal Proceedings
                13Item
      6.   Exhibits
                13SIGNATURES
                14
    - 2
-
 ITEM
1.  FINANCIAL STATEMENTS
 Greystone
Logistics, Inc. and Subsidiaries
 Consolidated
Balance Sheets


November
      30,
                
                
                May
      31,Assets
                
                2008
                
                
                2008(Unaudited)Current
      Assets:Cash
                
                $
                381,577
                
                
                $
                201,301Accounts
      receivable
                
                
                847,316
                
                
                
                1,286,948Inventory
                
                
                1,508,413
                
                
                
                899,485Prepaid
      expenses and other
                
                
                121,853
                
                
                
                61,114Total
      Current Assets
                
                
                2,859,159
                
                
                
                2,448,848Property,
      Plant and Equipment,net
      of accumulated depreciation of $4,169,090 and $3,693,398at
      November 30, 2008 and May 31, 2008, respectively
                
                
                8,625,177
                
                
                
                8,878,716Other
      Assets
                
                
                109,915
                
                
                
                118,440Total
      Assets
                
                $
                11,594,251
                
                
                $
                11,446,004Liabilities and
      Stockholders’ DeficiencyCurrent
      Liabilities:Current
      portion of long-term debt
                
                $
                4,604,996
                
                
                $
                9,013,395Advances
      payable - related party
                
                
                1,031,894
                
                
                
                1,231,499Accounts
      payable and accrued expenses
                
                
                1,364,677
                
                
                
                1,138,735Accounts
      payable and accrued expenses - related parties
                
                
                2,569,261
                
                
                
                2,490,080Preferred
      dividends payable
                
                
                1,795,958
                
                
                
                1,597,499Total
      Current Liabilities
                
                
                11,366,786
                
                
                
                15,471,208Long-Term Debt, net of
      current portion
                
                
                8,591,327
                
                
                
                4,465,291Deferred
      Income
                
                
                48,000
                
                
                
                80,000Minority
      Interest
                
                
                748,064
                
                
                
                708,872Stockholders’
      Deficiency:Preferred
      stock, $0.0001 par value, 20,750,000 sharesauthorized,
      50,000 shares issued and outstanding,
                
                
                5
                
                
                
                5liquidation
      preference of $5,000,000Common
      stock, $0.0001 par value, 5,000,000,000 sharesauthorized,
      26,111,201 issued and outstanding
                
                
                2,611
                
                
                
                2,611Additional
      paid-in capital
                
                
                52,873,365
                
                
                
                52,825,381Accumulated
      deficit
                
                
                (62,035,907
                )
                
                
                (62,107,364
                )Total
      Stockholders’ Deficiency
                
                
                (9,159,926
                )
                
                
                (9,279,367
                )Total
      Liabilities and Stockholders’ Deficiency
                
                $
                11,594,251
                
                
                $
                11,446,004
   The
accompanying notes are an integral part of these consolidated financial
statements.
  - 3
-
 Greystone
Logistics, Inc. and Subsidiaries
 Consolidated
Statements of Income
 (Unaudited)
     Six
      Months Ended November 30,2008
                
                
                2007Sales
                
                $
                8,193,974
                
                
                $
                10,843,275Cost
      of Sales
                
                
                6,650,517
                
                
                
                8,953,073Gross
      Profit
                
                
                1,543,457
                
                
                
                1,890,202General,
      Selling and Administration Expenses
                
                
                877,134
                
                
                
                780,358Operating
      Income
                
                
                666,323
                
                
                
                1,109,844Other
      Income (Expense):Other
      income
                
                
                165,015
                
                
                
                68,151Interest
      expense
                
                
                (541,512
                )
                
                
                (668,985
                )Total
      Other Expense
                
                
                (376,497
                )
                
                
                (600,834
                )Income
      Attributable to Minority Interest
                
                
                (19,910
                )
                
                
                (36,840
                )Net
      Income
                
                
                269,916
                
                
                
                472,170Preferred
      Dividends
                
                
                198,459
                
                
                
                283,040Net
      Income Available to Common Stockholders
                
                $
                71,457
                
                
                $
                189,130Income
      Available to Common StockholdersPer
      Share of Common Stock - Basic and Diluted
                
                $
                0.00
                
                
                $
                0.01Weighted
      Average Shares of Common Stock OutstandingBasic
                
                
                26,111,000
                
                
                
                26,061,000Dilutive
      effect of warrants outstanding
                
                
                —
                
                
                
                94,000Diluted
                
                
                26,111,000
                
                
                
                26,155,000
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 - 4
-
 
 Greystone
Logistics, Inc. and Subsidiaries
 Consolidated Statements of Cash
Flows
 (Unaudited)
 Six
      Months Ended November 30,2008
                
                
                2007Cash
      Flows from Operating Activities:Net
      income
                
                $
                269,916
                
                
                $
                472,170Adjustments
      to reconcile net income to net cashprovided
      by operating activitiesDepreciation
      and amortization
                
                
                484,217
                
                
                
                351,697Stock
      based compensation
                
                
                47,984
                
                
                
                —Recognition
      of deferred income
                
                
                (32,000
                )
                
                
                (32,000
                )Change
      in minority interest
                
                
                39,192
                
                
                
                36,840Changes
      in accounts receivable
                
                
                439,632
                
                
                
                (647,895
                )Changes
      in inventory
                
                
                (608,928
                )
                
                
                (260,422
                )Changes
      in prepaid expenses and other
                
                
                (60,739
                )
                
                
                5,271Changes
      in accounts payable and accrued expenses
                
                
                178,816
                
                
                
                587,792Net
      cash provided by operating activities
                
                
                758,090
                
                
                
                513,453Cash
      Flows from Investing Activities:Purchase
      of property and equipment
                
                
                (222,153
                )
                
                
                (144,512
                )Cash
      Flows from Financing Activities:Proceeds
      from notes payable
                
                
                280,580
                
                
                
                —Payments
      on notes payable
                
                
                (436,636
                )
                
                
                (443,993
                )Payments
      on advances payable
                
                
                (199,605
                )
                
                
                —Net
      cash used in financing activities
                
                
                (355,661
                )
                
                
                (443,993
                )Net
      Increase (Decrease) in Cash
                
                
                180,276
                
                
                
                (75,052
                )Cash,
      beginning of period
                
                
                201,301
                
                
                
                340,334Cash,
      end of period
                
                $
                381,577
                
                
                $
                265,282Noncash
      activities:Preferred
      dividend accrual
                
                $
                198,459
                
                
                $
                283,040Supplemental
      Information:Interest
      paid
                
                $
                468,004
                
                
                $
                549,835
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 - 5
-
 GREYSTONE
LOGISTICS, INC.
 Notes
to Consolidated Financial Statements
 (Unaudited)
   
 1.           In
the opinion of Greystone Logistics, Inc. (“Greystone”), the accompanying
unaudited consolidated financial statements contain all adjustments and
reclassifications, which are of a normal recurring nature, necessary to present
fairly its financial position as of November 30, 2008, and the results of its
operations and its cash flows for the six month periods ended November 30, 2008
and 2007.  These consolidated financial statements should be read in
conjunction with the consolidated financial statements as of and for the fiscal
year ended May 31, 2008 and the notes thereto included in Greystone’s Form
10-KSB.  The financial statements have been prepared assuming that
Greystone will continue as a going concern.  The working capital
deficit of $8,435,627, a stockholders’ deficiency of $9,159,926 and its ability
to obtain additional long term financing, if necessary, raises questions about
Greystone’s ability to continue as a going concern. The accompanying financial
statements have been prepared assuming that Greystone will continue as a going
concern and do not reflect the possible effects of any adjustments that might
result from Greystone’s inability to continue as a going concern.
  
 2.           The
results of operations for the six month periods ended November 30, 2008 and 2007
are not necessarily indicative of the results to be expected for the full
year.
  
 3.           Greystone
calculates and discloses earnings per share (EPS) in accordance with
Statement of Financial Accounting Standards No. 128, Earnings Per Share(SFAS
128). SFAS 128 requires dual presentation of Basic and Diluted EPS on the face
of the statements of income and requires a reconciliation of the numerator and
denominator of the Basic EPS computation to the numerator and denominator of the
Diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income (loss) available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of Greystone.
 
 In
computing Diluted EPS, only potential common shares that are dilutive—those that
reduce earnings per share or increase loss per share—are included. Exercise of
options and warrants or conversion of convertible securities is not assumed if
the result would be antidilutive, such as when a loss from continuing operations
is reported. The “control number” for determining whether including potential
common shares in the diluted EPS computation would be antidilutive is income
from continuing operations. As a result, if there were a loss from continuing
operations, Diluted EPS would be computed in the same manner as Basic EPS is
computed, even if an entity has net income after adjusting for discontinued
operations, an extraordinary item or the cumulative effect of an accounting
change.  The following table presents the calculation of number of
shares for Basic and Diluted EPS:
       - 6
-
 Six
      Months ended November 30,2008
              
              
              2007(Unaudited)
              
              
              (Unaudited)Basic:Weighted
      average common shares outstanding
              
              
              26,111,000
              
              
              
              26,061,000Dilutive
      effect:Assumed
      exercise of warrants
              
              
              —
              
              
              
              250,000Application
      of assumed proceeds towardrepurchase
      of  treasury stock
              
              
              —
              
              
              
              (156,000
              )Net
      additional shares issuable
              
              
              —
              
              
              
              94,000Adjusted
      common shares outstanding for computing dilutive EPS
              
              
              26,111,000
              
              
              
              26,155,000
 
 
  4.        Inventory
consists of the following:
  November
      30,
                
                
                May
      31,2008
                
                
                2007(Unaudited)Raw
      materials
                
                $
                800,689
                
                
                $
                341,937Finished
      goods
                
                
                707,724
                
                
                
                557,548Total
      inventory
                
                $
                1,508,413
                
                
                $
                899,485
    5.      Recent
Accounting Pronouncements.
 
 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.  Effective June 1,
2008, Greystone adopted SFAS 157 which does not have a material effect on its
consolidated financial statements and related disclosures.
 
 - 7
-
 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 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.  Effective June 1,
2008, Greystone adopted SFAS 159 which does not 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.
   6.           Effective
May 31, 2008, Greystone corrected an error in the application of accounting
principles as a result of failing to consolidate Greystone Properties, LLC, a
variable interest entity.  As a result, the consolidated statement of
income for the six month period ended November 30, 2007 did not include the
operations of Greystone Properties, LLC.  Accordingly, the line items
of the statements of income that have been restated to correct the error are
noted in the following table:
  As
      Restated
              
              
              As
      Originally FiledSix
      Months Ended November 30, 2007:Cost
      of sales
              
              $
              8,953,073
              
              
              $
              9,031,763Gross
      profit
              
              
              1,890,202
              
              
              
              1,811,512Operating
      income
              
              
              1,109,844
              
              
              
              1,031,154Interest
      expense
              
              
              (668,985
              )
              
              
              (627,135
              )Total
      other expense
              
              
              (600,834
              )
              
              
              (558,984
              )Income
      attributable to minority interest
              
              
              (36,840
              )
              
              
              —
 
  7.  Greystone’s
sales agreements to customers other than its primary customer generally provide
for risk of loss to pass to the customers upon shipment from Greystone’s plant
in Bettendorf, Iowa.  Revenue is recognized for these customers at
date of shipment.
 
 Greystone’s
previously reported two major customers have been combined into one
company.  Greystone’s agreements with this major customer either
provide that (1) risk of loss or damages for product in transit remain with
Greystone or (2) are subject to approval at buyer’s
premises.  Accordingly, Greystone recognizes revenue when product has
been delivered to the customer’s sites and risk of loss has passed to the
customer.
 
 For sales to all customers, cost of
goods sold is recognized when the related revenue is recognized.
  - 8
-
 Item
2.    Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
 
 Results of
Operations
 
 General
to All Periods
 
 The unaudited  consolidated
statements include Greystone Logistics, Inc., or Greystone, and its two
wholly-owned subsidiaries, Greystone Manufacturing, LLC, or GSM, and Plastic
Pallet Production, Inc., or PPP, and a variable interest entity, Greystone
Properties, LLC.  All material intercompany accounts and transactions
have been eliminated.
 
 Greystone has incurred significant
losses from operations in previous years, and there is no assurance that it will
continue to achieve profitability or obtain funds necessary to finance its
operations in the future.
 
 References to fiscal year 2009 refer to
the six month period ended November 30, 2008.  References to fiscal
year 2008 refer to the six month period ended November 30, 2007.
 
 Sales
 
 Greystone’s primary business is the
manufacturing and selling of plastic pallets through its wholly owned
subsidiaries, GSM and PPP.  In addition, Greystone sells its excess
recycled resin in pelletized and ground form.  Greystone sells its
pallets through direct sales and a network of independent contractor
distributors.  Greystone also sells its pallets and pallet leasing
services to certain large customers direct through its President, Senior Vice
President of Sales and Marketing and other employees.
 
 In addition, in July 2006, Greystone
launched a beta test program involving the lease of a small pool of recycled
plastic pallets by Greystone to a customer to be utilized by the customer to
ship a portion of its manufactured products in a closed loop system. Pursuant to
the agreement with the customer, Greystone delivers and tracks throughout the
logistics cycle sufficient quantities of plastic pallets for use in shipping a
segment of the customer’s product.  The pallets stay in a closed loop
environment and are continually sent back for reuse.  If a pallet is
damaged, Greystone grinds the pallet and reutilizes the resin.
 
 Personnel
 
 Greystone had approximately 85 and 75,
respectively, full-time employees as of November 30, 2008 and 2007.
   
 - 9
-
 Taxes
 
 For all years presented, Greystone’s
effective tax rate is 0%.  Greystone has generated substantial net
operating losses which would normally reflect a tax benefit in the statements of
income and a deferred asset on the balance sheet.  However, because of
the current uncertainty as to Greystone’s ability to sustain profitability, a
valuation reserve has been established that offsets the amount of any tax
benefit available for each period presented in the consolidated statements of
income.
 
 Based upon a review of its income tax
filing positions, Greystone believes that its positions would be sustained upon
an audit by the Internal Revenue Service and does not anticipate any adjustments
that would result in a material change to its financial position. Therefore, no
reserves for uncertain income tax positions have been recorded. At November 30,
2008, Greystone had no unrecognized tax.
 
 Six
Month Period Ended November 30, 2008 Compared to Six Month Period Ended November
30, 2007
 
 Sales for fiscal year 2009 were
$8,193,974 compared to $10,843,275 in fiscal year 2008, for a decrease of
$2,649,301.  Sales to Greystone’s major customer(s) accounted
for  79% and 86% of total sales for fiscal years 2009 and 2008,
respectively. The decrease is primarily due to a temporary delay in deliveries
due to a merger of its two large brewery customers.  Sales to this
customer are expected to increase during the third quarter of fiscal
2009.  Sales of regrind plastic material were 7% of total sales in
fiscal year 2009.  There were no sales of regrind plastic material in
fiscal year 2008.
 
 Cost of sales in fiscal year 2009 was
$6,653,517, or 81% of sales, compared to $8,953,073, or 83% of sales, in fiscal
year 2008.  The improvement in the ratio of cost of sales to sales is
due to decreases in the cost of raw material.
 
 General, selling and administrative
expenses increased $96,776 from $780,358 in fiscal year 2008 to $877,134 in
fiscal year 2009.  The increase is primarily due to stock compensation
costs of $47,984 in fiscal year 2009.
 
 Interest expense decreased $127,473
from $668,985 in fiscal year 2008 to $541,512 in fiscal year
2009.  Greystone’s cost of debt is primarily based upon variable rates
of interest tied to the prime rate of interest.  The average prime
rate of interest was 4.8% during the six month period ended November 30, 2008
compared to 8.0% during the six month period ended November 30,
2007.
 
 Preferred dividends decreased $84,581
from $283,040 in fiscal year 2008 to $198,459 in fiscal year
2009.  The rate for preferred dividends on preferred stock is 3.25%
above the prime rate of interest. As discussed in the preceding paragraph, the
decrease is due to the decline in the prime rate of interest.
     - 10
-
 Greystone reported net income of
$269,916 in fiscal year 2009 compared to net income of $472,170 in fiscal year
2008 for the reasons discussed above.
 
 After deducting preferred dividends,
the net income available to common stockholders was $71,457, or $0.00 per share,
in fiscal year 2009 compared to $189,130, or $0.01 per share, in fiscal year
2008 for the reasons discussed above.
 
 Liquidity and Capital
Resources
 
 Greystone’s cash requirements for
operating activities consist principally of accounts receivable, inventory,
accounts payable and scheduled payments of interest on outstanding
indebtedness.  Greystone is currently generating positive cash flows
from its operations but continues to be dependent on outside sources of cash to
fund its contractual obligations and capital needs.
  A
      summary of cash flows for the six months ended November 30, 2008 is as
      follows:Cash
      provided by operating activities
                
                $
                758,090Cash
      used in investing activities
                
                
                (222,153
                )Cash
      used in financing activities
                
                
                (355,661
                )
 
  The contractual obligations of
Greystone are as follows:
 
 Total
              
              
              Less
      than
                1 year
              
              
              1-3 years
              
              
              4-5 years
              
              
              Over
                5 yearsLong-term
      debt
              
              $
              13,196,323
              
              
              $
              4,604,996
              
              
              $
              2,279,775
              
              
              $
              1,109,758
              
              
              $
              5,201,794
 
 To
provide for the additional cash that might be necessary to meet Greystone’s
contractual obligations, Greystone is exploring various options including
refinancing long-term debt and equity financing.  However, there is no
guarantee that Greystone will be able to raise sufficient capital to meet these
obligations.
 
 Greystone has accumulated a working
capital deficit of approximately $8,507,627 at November 30, 2008, which includes
current portion of long-term debt of $4,604,996 and $3,933,938 in accounts
payable and accrued liabilities. The working capital deficit reflects the
uncertain financial condition of Greystone resulting from its inability to
obtain long term financing until such time as it is able to maintain
profitability.  There is no assurance that Greystone will secure such
financing or continue to achieve profitability.
 
 In December 2008, F&M Bank and
Trust Company approved a renewal of Greystone’s note payable in the amount of
$4,783,963 and $4,575,050 at May 31, 2008 and November 30, 2008, respectively,
for a term of five years with an interest rate of the prime rate of interest
plus 1% and a monthly amortization of approximately $60,000 per
month.
 
 - 11
-
 Substantially all of the financing that
Greystone has received through November 30, 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 they will continue to do so.  As such,
there is no assurance that funding will be available for Greystone to continue
operations.
 
 Greystone has 50,000 outstanding shares
of cumulative 2003 Preferred Stock for a total of $5,000,000 with a preferred
dividend rate of the prime rate of interest plus 3.25%.  Greystone
does not anticipate that it will make cash dividend payments to any holders of
its preferred stock or its common stock unless and until the financial position
of Greystone improves through increased revenues, another financing or
otherwise.
 
 Forward Looking Statements
and Material Risks
 
 This
Quarterly Report on Form 10-Q includes certain statements that may be deemed
“forward-looking statements” within the meaning of federal securities
laws.  All statements, other than statements of historical fact, that
address activities, events or developments that Greystone expects, believes or
anticipates will or may occur in the future, including decreased costs, securing
financing, the profitability of Greystone, potential sales of pallets or other
possible business developments, are forward-looking statements.  Such
statements are subject to a number of assumptions, risks and uncertainties. The
forward-looking statements contained in this Quarterly Report on Form 10-Q could
be affected by any of the following factors: Greystone’s prospects could be
affected by changes in availability of raw materials, competition, rapid
technological change and new legislation regarding environmental matters;
Greystone may not be able to secure additional financing necessary to sustain
and grow its operations; and a material portion of Greystone’s business is and
will be dependent upon a few large customers and there is no assurance that
Greystone will be able to retain such customers.  These risks and
other risks that could affect Greystone’s business are more fully described in
Greystone’s Form 10-KSB for the fiscal year ended May 31, 2008, which was filed
on September 15, 2008.  Actual results may vary materially from the
forward-looking statements.  Greystone undertakes no duty to update
any of the forward-looking statements contained in this Quarterly Report on Form
10-Q.
 
   Item
4.   Controls and Procedures
 
 As of the end of the period covered by
this Current Report on Form 10-Q, Greystone carried out an evaluation under the
supervision of Greystone’s Chief Executive Officer and Chief Financial Officer
of the effectiveness of the design and operation of Greystone’s disclosure
controls and procedures pursuant to the Securities Exchange Act Rules 13a-15(e)
and 15d-15(e).  Based on this evaluation as of May 31, 2008,
Greystone’s Chief Executive Officer and Chief Financial Officer identified three
material weaknesses, which are discussed below.  As a result of these
three material weaknesses and the fact that Greystone is still in the process of
addressing such weaknesses, Greystone’s CEO and CFO concluded that Greystone did
not maintain effective internal control over financial reporting as of November
30, 2008.
 
 First,
Greystone has not employed individuals with the necessary accounting knowledge
to identify and implement recently issued accounting standards. Until this
material weakness is corrected, material misstatements in the financial
statements could remain undetected.
 
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 Second,
Greystone did not maintain proper records to ensure proper cut-off of inventory
and accounts payable 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 May
31, 2008 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.
 
 During the quarter ended November 30,
2008, 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.
 
  
 PART
II.     OTHER INFORMATION
 
 Item
1.    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.  Subsequent to the quarter ended November 30, 2008, Greystone
entered into a settlement agreement with William Hamilton, pursuant to which
Greystone agreed to pay $72,000 in exchange for a complete release of all claims
against Greystone and its subsidiary, Greystone Manufacturing, LLC, with $15,000
of the settlement payment being paid immediately and the remaining $57,000 being
paid in 11 equal monthly installments. This settlement was recorded in cost of
sales at November 30, 2008 as the case related primarily to freight
charges.
  Item
6.    Exhibits
 
 11.1
              Computation
      of Income per Share is in Note 3 in the Notes to the financial
      statements.
 
 31.1
              Certification
      of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a)
      promulgated under the Securities Exchange Act of 1934, as amended, and
      Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.
 
 31.2
              Certification
      of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a)
      promulgated under the Securities Exchange Act of 1934, as amended, and
      Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.
 
 32.1
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.1
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.
 
   
 
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 SIGNATURE
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned duly
authorized.
    GREYSTONE
      LOGISTICS, INC.(Registrant)Date:      
      January 20, 2009
                By:
                /s/ Warren
      F. KrugerWarren
      F. KrugerPresident
      and Chief Executive Officer




















































































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