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


FORM 10-QSB

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2005

[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT FOR
THE TRANSITION PERIOD FROM ______________ TO ______________

Commission file number 000-26331

GREYSTONE LOGISTICS, INC.

(Exact name of small business issuer as specified in its charter)

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

1613 EAST 15TH STREET, TULSA, OKLAHOMA 74120

(Address of principal executive offices)

(918) 583-7441

(Issuer's telephone number)


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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: January 10, 2006 - 24,061,201

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes [_] No [X]



GREYSTONE LOGISTICS, INC.
FORM 10-QSB
FOR THE PERIOD ENDED NOVEMBER 30, 2005

PART I.   FINANCIAL INFORMATION


ITEM 1.   FINANCIAL STATEMENTS                                              PAGE

          Condensed Consolidated Balance Sheets
          as of November 30, 2005 and May 31, 2005 .........................   1

          Condensed Consolidated Statement of Operations
          For the Six Month Periods Ended November 30, 2005 and 2004 .......   2

          Condensed Consolidated Statement of Operations
          For the Three Month Periods Ended November 30, 2005 and 2004 .....   3

          Condensed Consolidated Statements of Cash Flows
          For the Six Month Periods Ended November 30, 2005 and 2004 .......   4

          Notes to Financial Statements ....................................   5


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ........   6


ITEM 3.   CONTROLS AND PROCEDURES ..........................................  10





PART II.  OTHER INFORMATION


ITEM 5.   OTHER INFORMATION ................................................  11


ITEM 6.   EXHIBITS .........................................................  11





SIGNATURES .................................................................  13

ITEM 1.  FINANCIAL INFORMATION

GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET

                                                                             NOVEMBER 30,         MAY 31,
                                                                                 2005              2005
                                                                             ------------      ------------
                                     ASSETS
                                     ------
CURRENT ASSETS:
    Cash                                                                     $      3,554      $      1,410
    Accounts receivable, net of allowance for doubtful accounts of
       $30,000 and $190,364 at November 30, 2005 and May 31, 2005               2,279,935         1,573,635
    Inventory                                                                     681,440           535,523
    Prepaid expenses                                                                7,642            10,932
                                                                             ------------      ------------
          TOTAL CURRENT ASSETS                                                  2,972,571         2,121,500

PROPERTY, PLANT AND EQUIPMENT,
    net of accumulated depreciation of $1,657,729 and $1,312,056 at
       November 30, 2005 and May 31, 2005, respectively                         8,148,684         7,189,652

OTHER ASSETS:
    Patents, net of accumulated amortization                                      154,206           164,951
                                                                             ------------      ------------

TOTAL ASSETS                                                                 $ 11,275,461      $  9,476,103
                                                                             ============      ============


                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY
                    ----------------------------------------
CURRENT LIABILITIES:
    Current portion of long-term debt                                        $  2,542,355      $  2,117,222
    Advances payable - related party                                            2,527,716           952,216
    Accounts payable and accrued expenses                                       3,310,815         2,631,676
    Preferred dividends payable                                                   278,922            33,785
                                                                             ------------      ------------
          TOTAL CURRENT LIABILITIES                                             8,659,808         5,734,899

LONG-TERM DEBT                                                                  8,627,675         8,026,739

STOCKHOLDERS' DEFICIENCY:
    Preferred stock, $0.0001 par value, 20,750,000 shares authorized,
       50,000 shares outstanding, liquidation preference of $5,000,000                  5                 5
    Common stock, $0.0001 par value, 5,000,000,000 shares authorized,
       24,061,201 outstanding                                                       2,406             2,406
    Additional paid-in capital                                                 52,214,532        52,214,532
    Deficit                                                                   (58,228,965)      (56,502,478)
                                                                             ------------      ------------
          TOTAL STOCKHOLDERS' DEFICIENCY                                       (6,012,022)       (4,285,535)
                                                                             ------------      ------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                               $ 11,275,461      $  9,476,103
                                                                             ============      ============

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

1

GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                              SIX MONTHS ENDED NOVEMBER 30,
                                                                             ------------------------------
                                                                                 2005              2004
                                                                             ------------      ------------
                                                                                                 (NOTE 4)
Sales                                                                        $  7,114,790      $  4,108,817

Cost of Sales, including depreciation expense of $352,816 and $226,293          6,962,159         4,224,633
                                                                             ------------      ------------

Gross Profit (Loss)                                                               152,631          (115,816)

Expenses:
    General, selling and administration expenses                                1,167,847         1,119,040
                                                                             ------------      ------------

Operating Loss                                                                 (1,015,216)       (1,234,856)

Other Income (Expense):
    Other income                                                                   74,299            17,421
    Interest expense                                                             (505,970)         (368,492)
                                                                             ------------      ------------
          Total Other Income (Expense)                                           (431,671)         (351,071)
                                                                             ------------      ------------

Net Loss                                                                       (1,446,887)       (1,585,927)

Preferred Dividends                                                               279,600           188,288
                                                                             ------------      ------------

Net Loss Available to Common Stockholders                                    $ (1,726,487)     $ (1,774,215)
                                                                             ============      ============

Loss Available to Common Stockholders
    Per Share of Common Stock - Basic and Diluted                            $      (0.07)     $      (0.14)
                                                                             ============      ============

Weighted Average Shares of Common Stock Outstanding                            24,061,000        12,790,000
                                                                             ============      ============

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

2

GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                             THREE MONTHS ENDED NOVEMBER 30,
                                                                             ------------------------------
                                                                                 2005              2004
                                                                             ------------      ------------
                                                                                                 (NOTE 4)
Sales                                                                        $  4,205,686      $  1,938,587

Cost of Sales, including depreciation expense of $175,785 and $116,382          3,951,513         2,314,115
                                                                             ------------      ------------

Gross Profit (Loss)                                                               254,173          (375,528)

Expenses:
    General, selling and administration expenses                                  606,285           611,970
                                                                             ------------      ------------

Operating Loss                                                                   (352,112)         (987,498)

Other Income (Expense):
    Other income                                                                    3,283             9,415
    Interest expense                                                             (267,219)         (181,092)
                                                                             ------------      ------------
          Total Other Income (Expense)                                           (263,936)         (171,677)
                                                                             ------------      ------------

Net Loss                                                                         (616,048)       (1,159,175)

Preferred Dividends                                                               125,685            96,199
                                                                             ------------      ------------

Net Loss Available to Common Stockholders                                    $   (741,733)     $ (1,255,374)
                                                                             ============      ============

Loss Available to Common Stockholders
    Per Share of Common Stock - Basic and Diluted                            $      (0.03)     $      (0.10)
                                                                             ============      ============

Weighted Average Shares of Common Stock Outstanding                            24,061,000        12,790,000
                                                                             ============      ============

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

3

GREYSTONE LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                              SIX MONTHS ENDED NOVEMBER 30,
                                                                             ------------------------------
                                                                                 2005              2004
                                                                             ------------      ------------
                                                                                                 (NOTE 4)
Cash Flows from Operating Activities:
    Net Loss                                                                 $ (1,446,887)     $ (1,585,927)
    Adjustments to reconcile net loss to cash used in operating activities
          Depreciation and amortization                                           363,561           537,527
          Loss on sale of equipment                                                12,857                --
          Changes in accounts receivable                                         (706,300)         (157,962)
          Changes in inventory                                                   (145,917)         (269,632)
          Changes in prepaid expenses                                               3,290           (29,384)
          Changes in accounts payable and accrued expenses                        699,139           499,263
          Changes in preferred dividends payable                                  245,137             4,521
                                                                             ------------      ------------
                Net cash used in operating activities                            (975,120)       (1,001,594)

Cash Flows from Investing Activities:
    Purchase of property and equipment                                         (1,344,705)         (191,929)
                                                                             ------------      ------------
                                                                               (1,344,705)         (191,929)

Cash Flows from Financing Activities:
    Proceeds from notes and advances payable                                    2,924,225           318,763
    Payments on notes and advances payable                                       (322,656)         (525,826)
    Proceeds from issuance of common stock                                             --         1,450,000
    Dividends paid on preferred stock                                            (279,600)         (188,288)
                                                                             ------------      ------------
          Cash provided by financing activities                                 2,321,969         1,054,649
                                                                             ------------      ------------

Net Increase (Decrease) in Cash                                                     2,144          (138,874)
Cash, beginning of period                                                           1,410           274,085
                                                                             ------------      ------------

Cash, end of period                                                          $      3,554      $    135,211
                                                                             ============      ============

Noncash activities:
    Issuance of common stock for accounts payable and debt                   $         --      $  1,672,206
    Sale of equipment in exchange for debt                                         20,000           259,000

Supplemental Information:
    Interest paid                                                            $    449,760      $    314,237
                                                                             ============      ============

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

4

GREYSTONE LOGISTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. In the opinion of 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, 2005, and the results of its operations for the six and three month periods ended November 30, 2005 and 2004 and its cash flows for the six month periods ended November 30, 2005 and 2004. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended May 31, 2005 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 approximately $5,687,237, a stockholders' deficiency of $6,012,022 and continuing losses from operations at November 30, 2005 reflect the uncertain financial condition of Greystone and its inability to obtain long term financing until it is able to attain profitable operations.

2. The results of operations for the six and three month periods ended November 30, 2005 and 2004 are not necessarily indicative of the results to be expected for the full year.

3. The computation of loss per share is computed by dividing the loss available to common shareholders by the weighted average shares outstanding for the periods. Loss available to common shareholders is determined by adding preferred dividends for the periods to the net loss. For the six and three month periods ended November 30, 2005 and 2004, the weighted average common shares outstanding are 24,061,000 and 12,790,000, respectively. Convertible preferred stock, common stock options and warrants are not considered as their effect is antidilutive.

4. In September 2003, Greystone acquired the assets and operations of Greystone Plastics, Inc. for an aggregate purchase price of $12,500,000. As previously discussed in Greystone's filings with the Securities and Exchange Commission, Greystone's Board of Directors concluded that the accounting treatment for the acquisition of the assets of Greystone Plastics, Inc., as of September 8, 2003, should have provided for an allocation of a portion of the purchase price to place a value on a customer contract acquired from Greystone Plastics, Inc. In addition, the accounting treatment should have provided for the value of the customer contract to be amortized over the estimated life of the customer contract based on unit sales. The related amortization expense of $306,265 and $137,115 for the six and three month periods ended November 30, 2004, respectively, is included under the caption "General, selling and administrative expenses" in such statements of operations. Accordingly, the statements of operations for the six and three month periods ended November 30, 2004 and cash flows for the six month period ended November 20, 2004 have been restated. Due to rising costs for raw materials, competition and Greystone's limited capitalization, the customer base acquired from

5

Greystone Plastics, Inc. had not shown any significant expansion as of May 31, 2005 and, at such time, Greystone's management did not anticipate any material expansion in the immediate future. As such, the remaining unamortized portion of the value of the customer contract was deemed to be fully impaired at May 31, 2005 and, accordingly, was charged to expense at that time.

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

RESULTS OF OPERATIONS

GENERAL TO ALL PERIODS

The consolidated statements include Greystone Logistics, Inc., or Greystone, and its wholly owned subsidiaries, Greystone Manufacturing, LLC, or GSM, and Plastic Pallet Production, Inc., or PPP.

Greystone has incurred significant losses from operations, and there is no assurance that it will achieve profitability or obtain funds necessary to finance its operations.

References to fiscal year 2006 refer to the six month and three month periods ended November 30, 2005. References to fiscal year 2005 refer to the six and three month periods ended November 30, 2004.

SALES

Greystone's primary business is the manufacturing and selling of plastic pallets through its wholly owned subsidiaries, GSM and PPP. Greystone distributes its pallets through a combination of a network of independent contractor distributors and sales by Greystone's officers and employees.

Greystone also markets its own design of an injection molding machine, the PIPER 600, through a licensing agreement with ForcePro, LLC, which gives ForcePro the exclusive right to market and sell the PIPER 600. Pursuant to the terms of the licensing agreement, Greystone will receive a royalty of 5% of the gross proceeds from sales of the PIPER 600.

PERSONNEL

Greystone had approximately 85 full-time employees as of November 30, 2005 compared to 62 full-time employees as of November 30, 2004.

TAXES

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

6

of operations and a deferred asset on the balance sheet. However, because of the current uncertainty as to Greystone's ability to achieve profitability, a valuation reserve has been established that offsets the amount of any tax benefit available for each period presented in the consolidated statement of operations.

SIX MONTH PERIOD ENDED NOVEMBER 30, 2005 COMPARED TO SIX MONTH PERIOD ENDED
NOVEMBER 30, 2004

Sales for fiscal year 2006 were $7,114,790 compared to $4,108,817 in fiscal year 2005, for an increase of $3,005,973. The increase was primarily attributable to the addition of two GSM production lines, which increased GSM's production capacity by approximately 70%.

Cost of sales in fiscal year 2006 was $6,962,159, or 98% of sales, compared to $4,224,633, or 103% of sales, in fiscal year 2005. Increased raw material costs were the primary cause of the high relationship of cost of sales to sales. The decrease in the ratio of cost of sales to sales in fiscal year 2006 from fiscal year 2005 was the result of sales price increases initiated during the latter half of fiscal year 2005.

General and administrative expense increased $48,807 from $1,119,040 in fiscal year 2005 to $1,167,847 in fiscal year 2006. The increase was primarily attributable to an increase of $338,052 in payroll costs during fiscal year 2006, principally due to the addition of Bobby Moore as President and CEO effective September 1, 2005, Robert Nelson as Chief Financial Officer effective October 1, 2004 (general and administrative expense for fiscal year 2005 includes two months salary for Mr. Nelson) and management personnel at the Iowa plant, offset by amortization expense in fiscal year 2005 only of $306,265 for customer contract intangibles. Mr. Moore resigned as President and CEO of Greystone effective December 30, 2005.

Interest expense increased $137,478 from $368,492 in fiscal year 2005 to $505,970 in fiscal year 2006 principally due to additional debt incurred to finance the acquisition of two production lines and increases in the prime rate of interest.

The net loss decreased $139,040 from $(1,585,927) in fiscal year 2005 to $(1,446,887) in fiscal year 2006 for the reasons discussed above.

Preferred dividends increased $91,312 from $188,288 in fiscal year 2005 to $279,600 in fiscal year 2006. The dividend rate of the preferred shares is based on the prime rate of interest plus 3.25% and the increase was attributable to the increase in the prime rate of interest.

After deducting preferred dividends, the net loss available to common shareholders was $(1,726,487), or $(0.09) per share, in fiscal year 2006 compared to $(1,774,215), or $(0.14) per share, in fiscal year 2005 for a decrease of $47,728.

7

THREE MONTH PERIOD ENDED NOVEMBER 30, 2005 COMPARED TO THREE MONTH PERIOD ENDED
NOVEMBER 30, 2004

Sales for fiscal year 2006 were $4,205,686 compared to $1,938,587 in fiscal year 2005, for an increase of $2,267,099.

Cost of sales in fiscal year 2006 was $3,651,513, or 94% of sales, compared to $2,314,115, or 119% of sales, in fiscal year 2005. Increased raw material costs were the primary cause of the high relationship of cost of sales to sales. The decrease in the ratio of cost of sales to sales in fiscal year 2006 from fiscal year 2005 was the result of sales price increases initiated during the latter half of fiscal year 2005.

General and administrative expense decreased $5,685 from $611,975 in fiscal year 2005 to $606,285 in fiscal year 2006. The primary factors affecting the change in general and administrative expense from fiscal year 2005 to fiscal year 2006 is an amortization expense in fiscal year 2005 only of $137,115 for customer contract intangibles with no such expense in fiscal year 2006 and an increase of $185,436 in payroll costs in fiscal year 2006 compared to fiscal year 2005, principally due to the addition of Bobby Moore as President and CEO effective September 1, 2005, Robert Nelson as Chief Financial Officer effective October 1, 2004 (the fiscal year 2005 includes two months salary for Mr. Nelson) and management personnel at the Iowa plant. Mr. Moore resigned as President and CEO of Greystone effective December 30, 2005.

Interest expense increased $86,127 from $181,092 in fiscal year 2005 to $267,219 in fiscal year 2006 principally due to additional debt incurred to finance the acquisition of two production lines and increases in the prime rate of interest.

The net loss decreased $406,012 from $(1,022,060) in fiscal year 2005 to $(616,048) in fiscal year 2006 for the reasons discussed above.

Preferred dividends increased $29,486 from $96,199 in fiscal year 2005 to $125,685 in fiscal year 2006. The dividend rate of the preferred shares is based on the prime rate of interest plus 3.25% and the increase was attributable to the increase in the prime rate of interest.

After deducting preferred dividends, the net loss available to common shareholders was $(741,733), or $(0.03) per share, in fiscal year 2006 compared to $(1,118,259), or $(0.09)
per share, in fiscal year 2005 for a decrease of $768,518.

LIQUIDITY AND CAPITAL RESOURCES

Greystone's cash requirements for operating activities consist principally of accounts receivable, inventory, accounts payable, operating leases and scheduled payments of interest on outstanding indebtedness. Greystone is currently dependent on outside sources of cash to fund

8

its operations. As of November 30, 2005, revenues from sales remain insufficient to meet current liabilities.

A summary of cash flows for the six months ended November 30, 2005 is as follows:

Cash used in operating activities                    $   (975,120)

Cash used in investing activities                      (1,344,705)

Cash provided by financing activities                   2,321,969

The cash used in investing activities was primarily related to the acquisition in June 2005 of an additional plastic injection molding machine. Financing for this machine principally came from a $424,000 note payable at prime plus 1% rate of interest due June 2012 to First Bartlesville Bank and a $500,100 note payable at 7.5% due June 2010 to Robert Rosene, a director of Greystone. Other primary sources of new financing include a $400,000 advance on a working capital loan with F&M Bank, advances of $1,500,000 from Robert Rosene and advances of $75,000 from Warren Kruger, a director of Greystone.

The contractual obligations of Greystone are as follows:

                                  LESS THAN                                   OVER
                      TOTAL         1 YEAR      1-3 YEARS     4-5 YEARS      5 YEARS
                   -----------   -----------   -----------   -----------   -----------
Long-term debt     $11,170,030   $ 2,542,355   $ 6,281,395   $   816,775   $ 1,529,505
Operating leases     8,043,000       876,000     1,752,000     1,752,000     3,663,000
                   -----------   -----------   -----------   -----------   -----------
Total              $19,213,030   $ 3,418,355   $ 8,033,395   $ 2,568,775   $ 5,192,505
                   ===========   ===========   ===========   ===========   ===========

Greystone continues to require outside sources cash to fund its operating activities. To provide for the additional cash to meet Greystone's operating activities and contractual obligations for fiscal 2006, Greystone is exploring various options including 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 $5,687,237 at November 30, 2005, which includes approximately $5,070,071 of advances from related parties and current portion of long-term debt and $3,310,815 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 achieve profitability. There is no assurance that Greystone will secure such financing or achieve profitability.

Greystone has had difficulty in obtaining financing from traditional financing sources. Substantially all of the financing that Greystone has received through November 30, 2005, has been provided by loans, loan guarantees and equity financing from its officers and directors and common stock sales to its officers, directors and unrelated third parties. There is no assurance that

9

Greystone's officers and directors will continue to provide loans or loan guarantees or purchase equity securities of Greystone in the future.

FORWARD LOOKING STATEMENTS AND MATERIAL RISKS

This Quarterly Report on Form 10-QSB includes certain statements that may be deemed "forward-looking statements" within the meaning of federal securities laws. All statements, other than statements of historical fact, that address activities, events or developments that Greystone expects, believes or anticipates will or may occur in the future, including decreased costs, securing financing, the profitability of Greystone, potential sales of pallets or other possible business developments, are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties. The forward-looking statements contained in this Quarterly Report on Form 10-QSB could be affected by any of the following factors: Greystone's prospects could be affected by changes in availability of raw materials, competition, rapid technological change and new legislation regarding environmental matters; Greystone may not be able to secure additional financing necessary to sustain and grow its operations; and a material portion of Greystone's business is and will be dependent upon a few large customers and there is no assurance that Greystone will be able to retain such customers. These risks and other risks that could affect Greystone's business are more fully described in Greystone's Form 10-KSB for the fiscal year ended May 31, 2005, which was filed on September 15, 2005. Actual results may vary materially from the forward-looking statements. Greystone undertakes no duty to update any of the forward-looking statements contained in this Quarterly Report on Form 10-QSB.

ITEM 3. CONTROLS AND PROCEDURES

As of the end of the period covered by this Current Report on Form 10-QSB, Greystone carried out an evaluation under the supervision of Greystone's Chief Financial Officer (and interim principal executive officer) of the effectiveness of the design and operation of Greystone's disclosure controls and procedures pursuant to the Securities Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, Greystone's Chief Financial Officer (and interim principal executive officer) concluded that the disclosure controls and procedures as of the end of the period covered by this Current Report on Form 10-QSB were effective.

During the quarter ended November 30, 2005, 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.

10

PART II. OTHER INFORMATION

ITEM 5. OTHER INFORMATION

On December 15, 2005, Greystone's Board of Directors approved the issuance of two notes to two members of Greystone's Board of Directors to evidence advances previously made to Greystone by such Directors. The notes authorized by the Board and subsequently issued included a $2,066,000 note payable to Robert Rosene and a $527,716 note payable to Warren Kruger, both of which had effective dates as of December 15, 2005. Greystone's Board of Directors had previously approved the issuance of a $500,100 note with an effective date of June 17, 2005 payable to Robert Rosene. All of the notes bear interest at a rate of 7.5% per annum and are payable in three equal installments in each of January of 2008, 2009 and 2010. Also on December 15, 2005, Greystone's Board of Directors approved entering into security agreements relating to the notes described above. The obligations evidenced by the $500,100 note are secured by an injection molding machine acquired by a subsidiary of Greystone, subordinate to a prior security interest in favor of First Bartlesville Bank. The obligations evidenced by $2,066,000 and $527,716 notes are secured by substantially all of the assets of Greystone and its subsidiaries, subordinate to a prior security interest in favor of F&M Bank and Trust Company.

Each of Messrs. Rosene and Kruger abstained during the Board vote with respect to the notes to be issued to and the security agreements to be entered into with such Director. Copies of the notes and security agreements are attached hereto as exhibits to this Quarterly Report on Form 10-QSB and are incorporated herein by reference. The foregoing description of the notes and the security agreements is qualified in its entirety by reference to the full text of such notes and security agreements.

ITEM 6. EXHIBITS

11.1 Computation of Loss per Share is in Note 3 in the Notes to the financial statements.

10.1 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.

10.2 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.

10.3 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.

11

10.4 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.

10.5 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.

10.6 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.

31.1 Certification of Chief Financial Officer (and interim principal executive officer) pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-B, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

12

SIGNATURE

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GREYSTONE LOGISTICS, INC.
(Registrant)

Date:    January 17, 2006                            /s/ Robert H. Nelson
                                                     ---------------------------
                                                     Chief Financial Officer

13

EXHIBIT 10.1

PROMISSORY NOTE
(SINGLE PAY)

$500,100 June 17, 2005

FOR VALUE RECEIVED, the undersigned (hereinafter "Maker"), hereby promises to pay to the order of Robert B. Rosene, Jr., his successors, heirs, and assigns, the principal sum of FIVE HUNDRED THOUSAND ONE HUNDRED DOLLARS AND NO/100 ($500,100) with interest on the unpaid balance thereof from the date hereof at the rate of Seven and One-Half percent (7.5%) per annum, with accrued interest payable quarterly on a non-cash basis (Greystone equity or accrued at Rosene's option) on the 1st day of each successive calendar month and the first payment of interest due on or before March 31, 2006, and with principal plus all accrued but unpaid interest due and payable as follows: one-third (1/3) January 2008; one-third (1/3) January 2009; and one-third (1/3) January 2010.

If principal or any installment of interest, or any portion thereof, shall not be paid when due, either according to the maturity dates above stated or by acceleration under the terms hereof, then the same shall bear interest at the rate of eighteen percent (18%) per annum until paid.

The Maker hereof may prepay all or any portion of the principal hereof at any time without prepayment penalty or premium. Any and all principal prepayments permitted hereby must be accompanied by full payment of all interest accrued on the amount of principal so prepaid.

The Maker and any endorsers, sureties, guarantors and assignors of this Note hereby severally waive demand, presentment for payment, notice of dishonor or nonpayment, protest and notice of protest and any other notice, and agree and consent that either before or after the maturity of this Note or any interest installment hereof, the time for its payment or for the payment of any installment may be extended from time to time by the holder hereof, without notice and that after such extension or extensions each of them shall remain bound for the payment hereof, notwithstanding such extension or extensions.

Time is of the essence on this Note. If any installment of interest hereof should not be paid when due, or if the Maker or any endorsers, sureties, or guarantors should die, be dissolved, make an assignment for the benefit of creditors, be adjudicated a bankrupt, or institute or have instituted against them any insolvency or bankruptcy proceedings and any such involuntary bankruptcy or involuntary insolvency proceedings are not dismissed within thirty
(30) days after commencement thereof, this Note shall become immediately due and payable at the option of the holder, and notice of the election of this option is expressly waived.

If this Note or any portion of the principal or interest is not paid when due, and is given to an attorney for collection, or suit is filed hereon, and as often as any of such events occur, the Maker, and any endorsers, sureties and guarantors, jointly and severally, agree to pay a reasonable attorney's fee and court costs.

"MAKER"

GREYSTONE LOGISTICS, INC.

By: /s/  Robert H. Nelson
   --------------------------------------
Printed Name: Robert H. Nelson
             ----------------------------
Title: Chief Operating Officer and Chief
      -----------------------------------
       Financial Officer
      -----------------------------------
"MAKER"

GREYSTONE MANUFACTURING, L.L.C.

By: /s/  Warren F. Kruger
   --------------------------------------
Printed Name: Warren F. Kruger
             ----------------------------
Title: President and Chief Executive
      -----------------------------------
       Officer
      -----------------------------------


EXHIBIT 10.2

PROMISSORY NOTE
(SINGLE PAY)

$2,066,000 December 15, 2005

FOR VALUE RECEIVED, the undersigned (hereinafter "Maker"), hereby promises to pay to the order of Robert B. Rosene, Jr., his successors, heirs and assigns, the principal sum of TWO MILLION SIXTY SIX THOUSAND DOLLARS AND NO/100 ($2,066,000) with interest on the unpaid balance thereof from the date hereof at the rate of Seven and One-Half percent (7.5%) per annum, with accrued interest payable quarterly on a non-cash basis (Greystone equity or accrued at Rosene's option) on the 1st day of each successive calendar month and the first payment of interest due on or before March 31, 2006, and with principal plus all accrued but unpaid interest due and payable as follows: one-third (1/3) January 2008; one-third (1/3) January 2009; and one-third (1/3) January 2010.

If principal or any installment of interest, or any portion thereof, shall not be paid when due, either according to the maturity dates above stated or by acceleration under the terms hereof, then the same shall bear interest at the rate of eighteen percent (18%) per annum until paid.

The Maker hereof may prepay all or any portion of the principal hereof at any time without prepayment penalty or premium. Any and all principal prepayments permitted hereby must be accompanied by full payment of all interest accrued on the amount of principal so prepaid.

The Maker and any endorsers, sureties, guarantors and assignors of this Note hereby severally waive demand, presentment for payment, notice of dishonor or nonpayment, protest and notice of protest and any other notice, and agree and consent that either before or after the maturity of this Note or any interest installment hereof, the time for its payment or for the payment of any installment may be extended from time to time by the holder hereof, without notice and that after such extension or extensions each of them shall remain bound for the payment hereof, notwithstanding such extension or extensions.

Time is of the essence on this Note. If any installment of interest hereof should not be paid when due, or if the Maker or any endorsers, sureties, or guarantors should die, be dissolved, make an assignment for the benefit of creditors, be adjudicated a bankrupt, or institute or have instituted against them any insolvency or bankruptcy proceedings and any such involuntary bankruptcy or involuntary insolvency proceedings are not dismissed within thirty
(30) days after commencement thereof, this Note shall become immediately due and payable at the option of the holder, and notice of the election of this option is expressly waived.

If this Note or any portion of the principal or interest is not paid when due, and is given to an attorney for collection, or suit is filed hereon, and as often as any of such events occur, the Maker, and any endorsers, sureties and guarantors, jointly and severally, agree to pay a reasonable attorney's fee and court costs.

"MAKER"

GREYSTONE LOGISTICS, INC.

By: /s/  Robert H. Nelson
   --------------------------------------
Printed Name: Robert H. Nelson
             ----------------------------
Title: Chief Operating Officer and Chief
      -----------------------------------
       Financial Officer
      -----------------------------------
"MAKER"

GREYSTONE MANUFACTURING, L.L.C.

By: /s/  Warren F. Kruger
   --------------------------------------
Printed Name: Warren F. Kruger
             ----------------------------
Title: President and Chief Executive
      -----------------------------------
       Officer
      -----------------------------------


EXHIBIT 10.3

PROMISSORY NOTE
(SINGLE PAY)

$527,716 December 15, 2005

FOR VALUE RECEIVED, the undersigned (hereinafter "Maker"), hereby promises to pay to the order of Warren F. Kruger, Jr., his successors, heirs and assigns, the principal sum of FIVE HUNDRED TWENTY SEVEN THOUSAND SEVEN HUNDRED SIXTEEN DOLLARS AND NO/100 ($527,716) with interest on the unpaid balance thereof from the date hereof at the rate of Seven and One-Half percent (7.5%) per annum, with accrued interest payable quarterly on a non-cash basis (Greystone equity or accrued at Kruger's option) on the 1st day of each successive calendar month and the first payment of interest due on or before March 31, 2006, and with principal plus all accrued but unpaid interest due and payable as follows:
one-third (1/3) January 2008; one-third (1/3) January 2009; and one-third (1/3) January 2010.

If principal or any installment of interest, or any portion thereof, shall not be paid when due, either according to the maturity dates above stated or by acceleration under the terms hereof, then the same shall bear interest at the rate of eighteen percent (18%) per annum until paid.

The Maker hereof may prepay all or any portion of the principal hereof at any time without prepayment penalty or premium. Any and all principal prepayments permitted hereby must be accompanied by full payment of all interest accrued on the amount of principal so prepaid.

The Maker and any endorsers, sureties, guarantors and assignors of this Note hereby severally waive demand, presentment for payment, notice of dishonor or nonpayment, protest and notice of protest and any other notice, and agree and consent that either before or after the maturity of this Note or any interest installment hereof, the time for its payment or for the payment of any installment may be extended from time to time by the holder hereof, without notice and that after such extension or extensions each of them shall remain bound for the payment hereof, notwithstanding such extension or extensions.

Time is of the essence on this Note. If any installment of interest hereof should not be paid when due, or if the Maker or any endorsers, sureties, or guarantors should die, be dissolved, make an assignment for the benefit of creditors, be adjudicated a bankrupt, or institute or have instituted against them any insolvency or bankruptcy proceedings and any such involuntary bankruptcy or involuntary insolvency proceedings are not dismissed within thirty
(30) days after commencement thereof, this Note shall become immediately due and payable at the option of the holder, and notice of the election of this option is expressly waived.

If this Note or any portion of the principal or interest is not paid when due, and is given to an attorney for collection, or suit is filed hereon, and as often as any of such events occur, the Maker, and any endorsers, sureties and guarantors, jointly and severally, agree to pay a reasonable attorney's fee and court costs.
"MAKER"

GREYSTONE LOGISTICS, INC.

By: /s/  Robert H. Nelson
   ----------------------------------------
Printed Name: Robert H. Nelson
             ------------------------------
Title: Chief Operating Officer and Chief
      -------------------------------------
       Financial Officer
      -------------------------------------
"MAKER"

GREYSTONE MANUFACTURING, L.L.C.

By: /s/  Robert H. Nelson
   ----------------------------------------
Printed Name: Robert H. Nelson on behalf of
             ------------------------------
             Warren F. Kruger, Sole Member
             ------------------------------
Title: President and Chief Executive
      -------------------------------------
       Officer
      -------------------------------------


EXHIBIT 10.4

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (the "Agreement") dated as of the 15th day of December 2005, between Greystone Logistics, Inc., ("Greystone") an Oklahoma corporation and Greystone Manufacturing, L.L.C., an Oklahoma limited liability company (collectively the ("Borrower," which term shall be construed to include its successors-in-interest and assigns), and Robert B. Rosene, Jr., an individual ("Creditor," which term shall be construed to include his successors-in-interest and assigns).

RECITALS

A. Borrower jointly and severally shall be in the future indebted to Creditor under an open account and/or a promissory note in the amount of FIVE HUNDRED THOUSAND ONE HUNDRED DOLLARS AND NO/100 ($500,100) dated the 17th day of
June 2005 (the "Note").

B. All present and future obligations of Borrower to Creditor are to be secured by a security interest in favor of Creditor in the "Collateral" as such term is defined in Section 3 of this Agreement.

C. The security interest granted in this Agreement is intended to be subordinate to the security interest in the Collateral granted by Borrower in favor of First Bartlesville Bank of Bartlesville, Oklahoma ("Bank") [per attached Exhibit (C)".

D. The purpose of this Agreement is to evidence the security interest granted Creditor in the Collateral.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1. Defined Terms.

(a) The following terms shall have the following meanings, (such terms to be equally applicable to both singular and plural forms of the terms defined):

(i) "Code" shall mean the Uniform Commercial Code as the same may from time to time be in effect in the State of Oklahoma.

(ii) "Collateral" shall have the meaning set forth in Section 3 of this Agreement.

(iii) "Event of Default" shall mean any default in the timely payment or performance by Buyer of any of Borrower's Obligations (as defined in Section 2 hereof) to Creditor.


(b) The following terms shall have the meanings set forth in the Code (such terms to be equally applicable to both singular and plural forms of the terms defined): (i) "Accounts," (ii) "Chattel Payer," (iii) "Document," (iv) "Equipment," (v) "Fixtures," (vi) "General Intangible," (vii) "Inventory," (viii) "Investment Property," (ix) "Instrument" (x) "Goods" and (xi) "Proceeds."

2. Obligations Secured by the Agreement. The security interest herein granted is given to secure all indebtedness of Borrower to Creditor, whether the same is incurred under an open account, is evidenced by a promissory note (including the Note) or otherwise and whether such indebtedness is now existing or is hereafter incurred, and all obligations of Borrower to Creditor under this Agreement (hereinafter collectively referred to as the "Obligations"), and all expenditures by Creditor involving the performance of or enforcement of any agreement, covenant or warranty provided for by this Agreement or under the Obligations, including all costs, attorneys' fees (whether incurred in connection with bankruptcy, appellate, probate or nonjudicial proceedings or otherwise) and other expenditures of Creditor in the collection and enforcement of any obligation or liability of Borrower to Creditor under this Agreement or under the Obligations and in the collection and enforcement of or realization upon any of the Collateral.

3. Assignment and Grant of Security Interest. Borrower hereby assigns transfers and conveys to Creditor and grants to Creditor a security interest in the Cincinnati Milacron Injection Molding Press Model 2200, Product Code: ML 2200-1390; Serial No. H36A0300008.

4. Continuing Liability. Borrower hereby expressly agrees that, anything herein to the contrary notwithstanding, it shall remain liable under each contract, agreement and instrument, assigned by it to Creditor hereunder to observe and perform all the conditions and obligations to be observed and performed by it thereunder, and covenants and agrees to observe and perform all such conditions and obligations, all in accordance with and pursuant to the terms and provisions thereof. Creditor shall have no obligation or liability under any such contract, agreement or instrument, or the Accounts, by reason of or arising out of this Agreement or the assignment thereof to Creditor or the receipt by Creditor of any payment relating to any such contract, agreement or instrument, or the Accounts pursuant hereto, nor shall Creditor be required or obligated in any manner to perform or to fulfill any of the obligations of Borrower thereunder or pursuant thereto, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any such contract, agreement or instrument, or the Accounts, or to present or file any claim, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

5. Representations, Warranties and Covenants of Borrower.

(a) Borrower hereby represents and warrants to Creditor that:

(i) this Security Agreement constitutes and shall at all times constitute the only lien on the Collateral except for the lien of Bank which

2

shall have priority over the lien granted pursuant to this Agreement;

(ii) Borrower is the absolute owner of the Collateral, free and clear of any and all claims or liens in favor of others (except as noted in (i) above), with full right to pledge, sell, assign, transfer and create a security interest therein;

(iii) The Borrower are validly existing and in good standing under the laws of the State of Oklahoma.

(iv) The Borrower has always done business under the name "Greystone" except as follows: prior to "Greystone" Borrower did business as PalWeb Corporation.

(v) The Borrower has places of business at the following locations:


Tulsa, Oklahoma, and Bettendorf, Iowa;

(vi) If the Borrower has more than one place of business, the Borrower has its chief executive office at: Tulsa, Oklahoma.

(b) Borrower shall at its expense forever warrant and, at Creditor's request, defend the Collateral from any and all claims and demands of any other person and it shall not grant, create or permit to exist any lien upon or security interest in the Collateral in favor of any other person (except for the Bank).

(c) Borrower shall not sell, transfer, lease or otherwise dispose of any of the Collateral (except for sales of Inventory in the ordinary course of business) without obtaining the prior written consent of Creditor to such sale, transfer, lease or other disposition.

(d) Borrower shall not move any item of Equipment from the State in which it is now located, locate at a new place of business, remove from a place of business as set forth above, establish a new chief executive office, change its corporate name or state of incorporation or use a trade name not listed above without giving the Creditor not less than thirty (30) days prior written notice of such intended relocation, removal, establishment, change or use.

(e) Borrower shall not merge, consolidate, dissolve, liquidate, convert or otherwise engage in any restructuring or reorganization without obtaining the prior written consent of Creditor to such transaction.

(f) Borrower shall not agree to do anything which it is prohibited from doing under subsections (b), (c) or (e) above.

6. Creditor Appointed as Attorney-in-Fact.

3

(a) Borrower hereby irrevocably constitutes and appoints Creditor and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Borrower and in the name of Borrower or in its own name, from time to time in Creditor's discretion, for the purpose of carrying out the terms of this Agreement, such power and authority to be exercisable upon the occurrence of an Event of Default, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, including, without limiting the generality of the foregoing, the power and right, without notice to or assent by Borrower to do the following:

(i) upon the occurrence and continuance of any Event of Default, to ask, demand, collect, receive and give acquittances and receipts for any and all moneys due and to become due, or any performance to be rendered, under any Account or any contract, agreement or instrument included in the Collateral and, in the name of Borrower or its own name or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Account, or any other contract, agreement or instrument included in the Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Creditor for the purpose of collecting any and all such moneys due or securing any performance to be rendered under any such contract, agreement or instrument pledged and assigned hereby;

(ii) upon the occurrence and continuance of any Event of Default, to pay or discharge taxes, liens, security interests or other encumbrances levied or placed on or threatened against the Collateral; and

(iii) upon the occurrence and continuance of any Event of Default (A) to direct any party liable for any payment or performance under any of the Accounts included in the Collateral to make payment of any and all moneys due and to become due thereunder or to render any performance provided for therein directly to Creditor or as Creditor shall direct; (B) to receive payment of and receipt for any and all moneys, claims and other amounts due and to become due at any time in respect of or arising out of any Collateral;
(C) to sign and endorse any invoices, freight or express bills, bills of lading, drafts against debtors, assignments, verifications and notices in connection with Accounts and other documents relating to the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent

4

jurisdiction to collect the Collateral or any Proceeds thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against Borrower with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as Creditor may deem appropriate; and (G) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Creditor was the absolute owner thereof for all purposes, and to do, at Creditor's option and Borrower's expense, at any time, or from time to time, all acts and things which Creditor deems necessary to protect, preserve or realize upon the Collateral and Creditor's security interest therein in order to effect the intent of this Agreement, all as fully and effectively as Borrower might do.

Borrower hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power-of-attorney is a power coupled with an interest and shall be irrevocable.

(b) The powers conferred on Creditor and the other attorneys appointed hereunder are solely to protect the interests of Creditor in the Collateral and shall not impose any duty upon them to exercise any such powers. Creditor and the other attorneys appointed hereunder shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to Borrower for any act or failure to act, except for their gross negligence or willful misconduct.

(c) Borrower also authorizes Creditor, at any time and from time to time,
(i) to communicate in its own name with any party to any contract, agreement or Account included in the Collateral with regard to the assignment thereof hereunder and other matters relating thereto; and
(ii) to execute, in connection with the sale provided for in Section 9 of this Agreement, any endorsements, assignments, bills of sale or other instruments of conveyance or transfer with respect to the Collateral.

7. Performance by Creditor of Borrower's Obligations. If Borrower fails to perform or comply with any of its agreements contained herein, under the obligations or in any contract, agreement or instrument included in the Collateral, and Creditor, as provided for by the terms of this Agreement, shall itself perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of Creditor incurred in connection with such performance or compliance, together with interest thereon at the maximum lawful interest rate permitted under the laws of the State of Oklahoma shall be payable by Borrower to Creditor on demand and until such payment shall constitute Obligations secured hereby. Creditor shall have the right to pay off any lien, security interest or other encumbrance on the Collateral, regardless of whether the

5

obligations secured by such lien, security interest or other encumbrance are due and owing, and such amount shall constitute obligations secured hereby.

8. Inspection Rights. Creditor is hereby given the right and privilege, during regular business hours, of making such inspections of the Collateral and records thereof as it deems necessary and of auditing or causing an audit or verification of the books and records of Borrower relating to the Collateral at any time and from time to time, including the contacting of customers or suppliers of Borrower in connection with such audit or verification. Borrower agrees to assist Creditor in every way necessary to facilitate such audits, verifications and inspections.

9. Remedies. If an Event of Default hereunder or under the obligations has occurred and is continuing, Creditor may exercise, in addition to all other rights and remedies granted to it in this Agreement, all rights and remedies of a secured party under the Code or any other applicable law. Creditor, at its option, may proceed as to all or any part of the Collateral in accordance with its rights or remedies hereunder. Without limiting the generality of the foregoing, Borrower expressly agrees that in any such event Creditor, without demand of performance or other demand, advertisement or notice of any kind to or upon Borrower or any other person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, license, assign, give option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker's board or at any of Creditor's offices or the Borrower's offices or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk, and Creditor shall apply the net proceeds (after expenses) of any such sale, lease, license, assignment or other disposition against the indebtedness secured hereby in such order as Creditor in its sole discretion shall determine, Borrower remaining liable for any deficiency therein. Creditor shall have the right upon any such public sale or sales to purchase the whole or any part of the Collateral so sold. To the extent permitted by applicable law, Borrower waives all claims, damages and demands against Creditor arising out of the repossession, retention, sale or license of the Collateral. In the event Creditor is required by law to give written notice to Borrower of any disposition of the Collateral, Borrower agrees that five (5) days' prior written notice by Creditor to Borrower shall be deemed to be reasonable notice.

10. Grant of License to Use Intangibles. For the purpose of enabling Creditor to exercise rights and remedies under this Agreement at such time as Creditor shall be lawfully entitled to exercise such rights and remedies and for no other purpose, Borrower hereby grants to Creditor an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to Borrower) to use, assign or sublicense any of the Collateral, now owned or hereafter acquired by Borrower and wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof. Until such time as Creditor is entitled to exercise such rights and remedies Borrower is entitled to use the Collateral without payment of royalty or other compensation to Creditor.

6

11. Limitation on Creditor's Duty in Respect of Collateral. Beyond the use of reasonable care in the custody and preservation thereof, Creditor shall not have any duty as to any Collateral in its possession or control or in the possession or control of its agent or nominee or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto.

12. Further Assurances, Etc. Borrower authorizes Creditor to sign and file financing statements, continuation statements and any other forms, filings or other statements required or permitted under the Code at any time and from time to time with respect to the Collateral without Borrower's signature and on Borrower's behalf. Borrower will, however, at any time upon Creditor's request, sign financing statements, continuation statements, trust receipts, security agreements or other agreements, forms, filings or other statements with respect to the Collateral. Upon the failure of Borrower to do so, Creditor is authorized as Borrower's agent to sign any such instrument or agreement. Borrower agrees that at any time and from time to time upon the written request of Creditor, Borrower will promptly execute and deliver any and all such further instruments and documents and do such further acts as Creditor may reasonably request in order to carry out more effectively the purposes of this Agreement and obtain for Creditor the full benefits of the security interests granted to Creditor hereby.

13. Notices. All notices and other communications required or permitted to be made by one party to the other under this Agreement shall be given in writing to the addresses of the parties set forth next to their signatures subject to each party's right to change such notice address upon giving the other party written notice in compliance with this Section.

14. Partial Invalidity. If any term, covenant or condition of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be held valid and be enforced to the fullest extent permitted by law.

15. No Waiver; Cumulative Remedies. Creditor shall not by any act, delay, and omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Creditor, and then only to the extent therein set forth. A waiver by Creditor of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Creditor would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Creditor any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative with any rights and remedies under the Note or any other loan document and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law or equity.

16. Limitations by Law. All rights, remedies and powers provided by this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Agreement are intended to be subject to all

7

applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement invalid, unenforceable in whole or in part or not entitled to be recorded, registered or filed under the provisions of any applicable law.

17. Binding Effect. This Agreement and all the covenants and agreements herein will be binding upon and inure to the benefit of the parties hereto and their respective successors in interest and assigns. The Creditor shall at all times have the right to assign its rights and interest under this Agreement.

18. Applicable Law. This Agreement shall be governed by, and be construed and interpreted in accordance with, the laws of the State of Oklahoma and the United States.

19. Venue. The parties agree that jurisdiction and venue for any matter arising out of or pertaining to this Agreement shall be proper only in the state courts located in Tulsa County, Oklahoma and the federal courts having jurisdiction over the Northern District of Oklahoma, and the parties hereby consent to such venue and jurisdiction.

IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first set forth above.

"Creditor"

By: /s/ Robert B. Rosene, Jr.
    ---------------------------------
Printed Name: Robert B. Rosene, Jr.

"Borrower"

GREYSTONE LOGISTICS, INC.

By: /s/ Robert H. Nelson
    ---------------------------------
Printed Name: Robert H. Nelson
Title: Chief Operating Officer and Chief
       Financial Officer

GREYSTONE MANUFACTURING, L.L.C.

By: /s/ Warren F. Kruger
    ---------------------------------
Printed Name: Warren F. Kruger
Title: President and Chief Executive Officer

8

EXIHIBIT 10.5

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (the "Agreement") dated as of the 15th day of December 2005, between Greystone Logistics, Inc., ("Greystone") an Oklahoma corporation and Greystone Manufacturing, L.L.C., an Oklahoma limited liability company (collectively the ("Borrower," which term shall be construed to include its successors-in-interest and assigns), and Robert B. Rosene, Jr., an individual ("Creditor," which term shall be construed to include his successors-in-interest and assigns).

RECITALS

A. Borrower jointly and severally shall be in the future indebted to Creditor under an open account and/or a promissory note in the amount of TWO MILLION SIXTY SIX THOUSAND DOLLARS AND NO/100 ($2,066,000) dated the 15th day of
December 2005 (the "Note").

B. All present and future obligations of Borrower to Creditor are to be secured by a security interest in favor of Creditor in the "Collateral" as such term is defined in Section 3 of this Agreement.

C. The security interest granted in this Agreement is intended to be subordinate to the security interest in the Collateral granted by Borrower in favor of F&M Bank and Trust Company of Tulsa, Oklahoma ("Bank").

D. The purpose of this Agreement is to evidence the security interest granted Creditor in the Collateral.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1. Defined Terms.

(a) The following terms shall have the following meanings, (such terms to be equally applicable to both singular and plural forms of the terms defined):

(i) "Code" shall mean the Uniform Commercial Code as the same may from time to time be in effect in the State of Oklahoma.

(ii) "Collateral" shall have the meaning set forth in Section 3 of this Agreement.

(iii) "Event of Default" shall mean any default in the timely payment or performance by Buyer of any of Borrower's Obligations (as defined in Section 2 hereof) to Creditor.


(b) The following terms shall have the meanings set forth in the Code (such terms to be equally applicable to both singular and plural forms of the terms defined): (i) "Accounts," (ii) "Chattel Payer," (iii) "Document," (iv) "Equipment," (v) "Fixtures," (vi) "General Intangible," (vii) "Inventory," (viii) "Investment Property," (ix) "Instrument" (x) "Goods" and (xi) "Proceeds."

2. Obligations Secured by the Agreement. The security interest herein granted is given to secure all indebtedness of Borrower to Creditor, whether the same is incurred under an open account, is evidenced by a promissory note (including the Note) or otherwise and whether such indebtedness is now existing or is hereafter incurred, and all obligations of Borrower to Creditor under this Agreement (hereinafter collectively referred to as the "Obligations"), and all expenditures by Creditor involving the performance of or enforcement of any agreement, covenant or warranty provided for by this Agreement or under the Obligations, including all costs, attorneys' fees (whether incurred in connection with bankruptcy, appellate, probate or nonjudicial proceedings or otherwise) and other expenditures of Creditor in the collection and enforcement of any obligation or liability of Borrower to Creditor under this Agreement or under the Obligations and in the collection and enforcement of or realization upon any of the Collateral.

3. Assignment and Grant of Security Interest. Borrower hereby assigns, transfers and conveys to Creditor and grants to Creditor a security interest in, to and under all assets of Borrower, whether now existing or hereafter created or acquired (all of which are hereinafter collectively called the "Collateral"), including without limitation all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Membership Interest, Subsidiaries, Inventory, Investment Property, Intellectual Property, Instruments, Goods and all Proceeds and products of any and all of the foregoing.

4. Continuing Liability. Borrower hereby expressly agrees that, anything herein to the contrary notwithstanding, it shall remain liable under each contract, agreement and instrument, assigned by it to Creditor hereunder to observe and perform all the conditions and obligations to be observed and performed by it thereunder, and covenants and agrees to observe and perform all such conditions and obligations, all in accordance with and pursuant to the terms and provisions thereof. Creditor shall have no obligation or liability under any such contract, agreement or instrument, or the Accounts, by reason of or arising out of this Agreement or the assignment thereof to Creditor or the receipt by Creditor of any payment relating to any such contract, agreement or instrument, or the Accounts pursuant hereto, nor shall Creditor be required or obligated in any manner to perform or to fulfill any of the obligations of Borrower thereunder or pursuant thereto, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any such contract, agreement or instrument, or the Accounts, or to present or file any claim, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

5. Representations, Warranties and Covenants of Borrower.

(a) Borrower hereby represents and warrants to Creditor that:

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(i) this Security Agreement constitutes and shall at all times constitute the only lien on the Collateral except for the lien of Bank which shall have priority over the lien granted pursuant to this Agreement;

(ii) Borrower is the absolute owner of the Collateral, free and clear of any and all claims or liens in favor of others (except as noted in (i) above), with full right to pledge, sell, assign, transfer and create a security interest therein;

(iii) The Borrower are validly existing and in good standing under the laws of the State of Oklahoma.

(iv) The Borrower has always done business under the name "Greystone" except as follows: prior to "Greystone" Borrower did business as PalWeb Corporation.

(v) The Borrower has places of business at the following locations:


Tulsa, Oklahoma, and Bettendorf, Iowa;

(vi) If the Borrower has more than one place of business, the Borrower has its chief executive office at: Tulsa, Oklahoma.

(b) Borrower shall at its expense forever warrant and, at Creditor's request, defend the Collateral from any and all claims and demands of any other person and it shall not grant, create or permit to exist any lien upon or security interest in the Collateral in favor of any other person (except for the Bank).

(c) Borrower shall not sell, transfer, lease or otherwise dispose of any of the Collateral (except for sales of Inventory in the ordinary course of business) without obtaining the prior written consent of Creditor to such sale, transfer, lease or other disposition.

(d) Borrower shall not move any item of Equipment from the State in which it is now located, locate at a new place of business, remove from a place of business as set forth above, establish a new chief executive office, change its corporate name or state of incorporation or use a trade name not listed above without giving the Creditor not less than thirty (30) days prior written notice of such intended relocation, removal, establishment, change or use.

(e) Borrower shall not merge, consolidate, dissolve, liquidate, convert or otherwise engage in any restructuring or reorganization without obtaining the prior written consent of Creditor to such transaction.

(f) Borrower shall not agree to do anything which it is prohibited from doing under subsections (b), (c) or (e) above.

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6. Creditor Appointed as Attorney-in-Fact.

(a) Borrower hereby irrevocably constitutes and appoints Creditor and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Borrower and in the name of Borrower or in its own name, from time to time in Creditor's discretion, for the purpose of carrying out the terms of this Agreement, such power and authority to be exercisable upon the occurrence of an Event of Default, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, including, without limiting the generality of the foregoing, the power and right, without notice to or assent by Borrower to do the following:

(i) upon the occurrence and continuance of any Event of Default, to ask, demand, collect, receive and give acquittances and receipts for any and all moneys due and to become due, or any performance to be rendered, under any Account or any contract, agreement or instrument included in the Collateral and, in the name of Borrower or its own name or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Account, or any other contract, agreement or instrument included in the Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Creditor for the purpose of collecting any and all such moneys due or securing any performance to be rendered under any such contract, agreement or instrument pledged and assigned hereby;

(ii) upon the occurrence and continuance of any Event of Default, to pay or discharge taxes, liens, security interests or other encumbrances levied or placed on or threatened against the Collateral; and

(iii) upon the occurrence and continuance of any Event of Default (A) to direct any party liable for any payment or performance under any of the Accounts included in the Collateral to make payment of any and all moneys due and to become due thereunder or to render any performance provided for therein directly to Creditor or as Creditor shall direct; (B) to receive payment of and receipt for any and all moneys, claims and other amounts due and to become due at any time in respect of or arising out of any Collateral;
(C) to sign and endorse any invoices, freight or express bills, bills of lading, drafts against debtors, assignments, verifications and notices in connection with Accounts and other documents relating to the

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Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any Proceeds thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against Borrower with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as Creditor may deem appropriate; and (G) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Creditor was the absolute owner thereof for all purposes, and to do, at Creditor's option and Borrower's expense, at any time, or from time to time, all acts and things which Creditor deems necessary to protect, preserve or realize upon the Collateral and Creditor's security interest therein in order to effect the intent of this Agreement, all as fully and effectively as Borrower might do.

Borrower hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power-of-attorney is a power coupled with an interest and shall be irrevocable.

(b) The powers conferred on Creditor and the other attorneys appointed hereunder are solely to protect the interests of Creditor in the Collateral and shall not impose any duty upon them to exercise any such powers. Creditor and the other attorneys appointed hereunder shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to Borrower for any act or failure to act, except for their gross negligence or willful misconduct.

(c) Borrower also authorizes Creditor, at any time and from time to time,
(i) to communicate in its own name with any party to any contract, agreement or Account included in the Collateral with regard to the assignment thereof hereunder and other matters relating thereto; and
(ii) to execute, in connection with the sale provided for in Section 9 of this Agreement, any endorsements, assignments, bills of sale or other instruments of conveyance or transfer with respect to the Collateral.

7. Performance by Creditor of Borrower's Obligations. If Borrower fails to perform or comply with any of its agreements contained herein, under the obligations or in any contract, agreement or instrument included in the Collateral, and Creditor, as provided for by the terms of this Agreement, shall itself perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of Creditor incurred in connection with such performance or

5

compliance, together with interest thereon at the maximum lawful interest rate permitted under the laws of the State of Oklahoma shall be payable by Borrower to Creditor on demand and until such payment shall constitute Obligations secured hereby. Creditor shall have the right to pay off any lien, security interest or other encumbrance on the Collateral, regardless of whether the obligations secured by such lien, security interest or other encumbrance are due and owing, and such amount shall constitute obligations secured hereby.

8. Inspection Rights. Creditor is hereby given the right and privilege, during regular business hours, of making such inspections of the Collateral and records thereof as it deems necessary and of auditing or causing an audit or verification of the books and records of Borrower relating to the Collateral at any time and from time to time, including the contacting of customers or suppliers of Borrower in connection with such audit or verification. Borrower agrees to assist Creditor in every way necessary to facilitate such audits, verifications and inspections.

9. Remedies. If an Event of Default hereunder or under the obligations has occurred and is continuing, Creditor may exercise, in addition to all other rights and remedies granted to it in this Agreement, all rights and remedies of a secured party under the Code or any other applicable law. Creditor, at its option, may proceed as to all or any part of the Collateral in accordance with its rights or remedies hereunder. Without limiting the generality of the foregoing, Borrower expressly agrees that in any such event Creditor, without demand of performance or other demand, advertisement or notice of any kind to or upon Borrower or any other person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, license, assign, give option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker's board or at any of Creditor's offices or the Borrower's offices or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk, and Creditor shall apply the net proceeds (after expenses) of any such sale, lease, license, assignment or other disposition against the indebtedness secured hereby in such order as Creditor in its sole discretion shall determine, Borrower remaining liable for any deficiency therein. Creditor shall have the right upon any such public sale or sales to purchase the whole or any part of the Collateral so sold. To the extent permitted by applicable law, Borrower waives all claims, damages and demands against Creditor arising out of the repossession, retention, sale or license of the Collateral. In the event Creditor is required by law to give written notice to Borrower of any disposition of the Collateral, Borrower agrees that five (5) days' prior written notice by Creditor to Borrower shall be deemed to be reasonable notice.

10. Grant of License to Use Intangibles. For the purpose of enabling Creditor to exercise rights and remedies under this Agreement at such time as Creditor shall be lawfully entitled to exercise such rights and remedies and for no other purpose, Borrower hereby grants to Creditor an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to Borrower) to use, assign or sublicense any of the Collateral, now owned or hereafter acquired by Borrower and wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof. Until such time as

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Creditor is entitled to exercise such rights and remedies Borrower is entitled to use the Collateral without payment of royalty or other compensation to Creditor.

11. Limitation on Creditor's Duty in Respect of Collateral. Beyond the use of reasonable care in the custody and preservation thereof, Creditor shall not have any duty as to any Collateral in its possession or control or in the possession or control of its agent or nominee or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto.

12. Further Assurances, Etc. Borrower authorizes Creditor to sign and file financing statements, continuation statements and any other forms, filings or other statements required or permitted under the Code at any time and from time to time with respect to the Collateral without Borrower's signature and on Borrower's behalf. Borrower will, however, at any time upon Creditor's request, sign financing statements, continuation statements, trust receipts, security agreements or other agreements, forms, filings or other statements with respect to the Collateral. Upon the failure of Borrower to do so, Creditor is authorized as Borrower's agent to sign any such instrument or agreement. Borrower agrees that at any time and from time to time upon the written request of Creditor, Borrower will promptly execute and deliver any and all such further instruments and documents and do such further acts as Creditor may reasonably request in order to carry out more effectively the purposes of this Agreement and obtain for Creditor the full benefits of the security interests granted to Creditor hereby.

13. Notices. All notices and other communications required or permitted to be made by one party to the other under this Agreement shall be given in writing to the addresses of the parties set forth next to their signatures subject to each party's right to change such notice address upon giving the other party written notice in compliance with this Section.

14. Partial Invalidity. If any term, covenant or condition of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be held valid and be enforced to the fullest extent permitted by law.

15. No Waiver; Cumulative Remedies. Creditor shall not by any act, delay, and omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Creditor, and then only to the extent therein set forth. A waiver by Creditor of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Creditor would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Creditor any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative with any rights and remedies under the Note or any other loan document and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law or equity.

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16. Limitations by Law. All rights, remedies and powers provided by this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement invalid, unenforceable in whole or in part or not entitled to be recorded, registered or filed under the provisions of any applicable law.

17. Binding Effect. This Agreement and all the covenants and agreements herein will be binding upon and inure to the benefit of the parties hereto and their respective successors in interest and assigns. The Creditor shall at all times have the right to assign its rights and interest under this Agreement.

18. Applicable Law. This Agreement shall be governed by, and be construed and interpreted in accordance with, the laws of the State of Oklahoma and the United States.

19. Venue. The parties agree that jurisdiction and venue for any matter arising out of or pertaining to this Agreement shall be proper only in the state courts located in Tulsa County, Oklahoma and the federal courts having jurisdiction over the Northern District of Oklahoma, and the parties hereby consent to such venue and jurisdiction.

IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first set forth above.

"Creditor"

By: /s/  Robert B. Rosene, Jr.
    ----------------------------------
Printed Name: Robert B. Rosene, Jr.

"Borrower"

GREYSTONE LOGISTICS, INC.

By: /s/ Robert H. Nelson
    ----------------------------------
Printed Name: Robert H. Nelson
Title: Chief Operating Officer and
       Chief Financial Officer

GREYSTONE MANUFACTURING, L.L.C.

By: /s/ Warren F. Kruger
    ----------------------------------
Printed Name: Warren F. Kruger
Title: President and Chief Executive Officer


EXHIBIT 10.6

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (the "Agreement") dated as of the 15th day of December 2005, between Greystone Logistics, Inc., ("Greystone") an Oklahoma corporation and Greystone Manufacturing, L.L.C., an Oklahoma limited liability company (collectively the ("Borrower," which term shall be construed to include its successors-in-interest and assigns), and Warren F. Kruger, an individual ("Creditor," which term shall be construed to include his successors-in-interest and assigns).

RECITALS

A. Borrower jointly and severally shall be in the future indebted to Creditor under an open account and/or a promissory note in the amount of FIVE HUNDRED TWENTY SEVEN THOUSAND SEVEN HUNDRED SIXTEEN DOLLARS AND NO/100
($527,716) dated the 15th day of December 2005 (the "Note").

B. All present and future obligations of Borrower to Creditor are to be secured by a security interest in favor of Creditor in the "Collateral" as such term is defined in Section 3 of this Agreement.

C. The security interest granted in this Agreement is intended to be subordinate to the security interest in the Collateral granted by Borrower in favor of F&M Bank and Trust Company of Tulsa, Oklahoma ("Bank").

D. The purpose of this Agreement is to evidence the security interest granted Creditor in the Collateral.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1. Defined Terms.

(a) The following terms shall have the following meanings, (such terms to be equally applicable to both singular and plural forms of the terms defined):

(i) "Code" shall mean the Uniform Commercial Code as the same may from time to time be in effect in the State of Oklahoma.

(ii) "Collateral" shall have the meaning set forth in Section 3 of this Agreement.

(iii) "Event of Default" shall mean any default in the timely payment or performance by Buyer of any of Borrower's Obligations (as defined in Section 2 hereof) to Creditor.


(b) The following terms shall have the meanings set forth in the Code (such terms to be equally applicable to both singular and plural forms of the terms defined): (i) "Accounts," (ii) "Chattel Payer," (iii) "Document," (iv) "Equipment," (v) "Fixtures," (vi) "General Intangible," (vii) "Inventory," (viii) "Investment Property," (ix) "Instrument" (x) "Goods" and (xi) "Proceeds."

2. Obligations Secured by the Agreement. The security interest herein granted is given to secure all indebtedness of Borrower to Creditor, whether the same is incurred under an open account, is evidenced by a promissory note (including the Note) or otherwise and whether such indebtedness is now existing or is hereafter incurred, and all obligations of Borrower to Creditor under this Agreement (hereinafter collectively referred to as the "Obligations"), and all expenditures by Creditor involving the performance of or enforcement of any agreement, covenant or warranty provided for by this Agreement or under the Obligations, including all costs, attorneys' fees (whether incurred in connection with bankruptcy, appellate, probate or nonjudicial proceedings or otherwise) and other expenditures of Creditor in the collection and enforcement of any obligation or liability of Borrower to Creditor under this Agreement or under the Obligations and in the collection and enforcement of or realization upon any of the Collateral.

3. Assignment and Grant of Security Interest. Borrower hereby assigns, transfers and conveys to Creditor and grants to Creditor a security interest in, to and under all assets of Borrower, whether now existing or hereafter created or acquired (all of which are hereinafter collectively called the "Collateral"), including without limitation all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Membership Interest, Subsidiaries, Inventory, Investment Property, Intellectual Property, Instruments, Goods and all Proceeds and products of any and all of the foregoing.

4. Continuing Liability. Borrower hereby expressly agrees that, anything herein to the contrary notwithstanding, it shall remain liable under each contract, agreement and instrument, assigned by it to Creditor hereunder to observe and perform all the conditions and obligations to be observed and performed by it thereunder, and covenants and agrees to observe and perform all such conditions and obligations, all in accordance with and pursuant to the terms and provisions thereof. Creditor shall have no obligation or liability under any such contract, agreement or instrument, or the Accounts, by reason of or arising out of this Agreement or the assignment thereof to Creditor or the receipt by Creditor of any payment relating to any such contract, agreement or instrument, or the Accounts pursuant hereto, nor shall Creditor be required or obligated in any manner to perform or to fulfill any of the obligations of Borrower thereunder or pursuant thereto, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any such contract, agreement or instrument, or the Accounts, or to present or file any claim, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

5. Representations, Warranties and Covenants of Borrower.

(a) Borrower hereby represents and warrants to Creditor that:

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(i) this Security Agreement constitutes and shall at all times constitute the only lien on the Collateral except for the lien of Bank which shall have priority over the lien granted pursuant to this Agreement;

(ii) Borrower is the absolute owner of the Collateral, free and clear of any and all claims or liens in favor of others (except as noted in (i) above), with full right to pledge, sell, assign, transfer and create a security interest therein;

(iii) The Borrower are validly existing and in good standing under the laws of the State of Oklahoma.

(iv) The Borrower has always done business under the name "Greystone" except as follows: prior to "Greystone" Borrower did business as PalWeb Corporation.

(v) The Borrower has places of business at the following locations: Tulsa, Oklahoma, and Bettendorf, Iowa;

(vi) If the Borrower has more than one place of business, the Borrower has its chief executive office at: Tulsa, Oklahoma.

(b) Borrower shall at its expense forever warrant and, at Creditor's request, defend the Collateral from any and all claims and demands of any other person and it shall not grant, create or permit to exist any lien upon or security interest in the Collateral in favor of any other person (except for the Bank).

(c) Borrower shall not sell, transfer, lease or otherwise dispose of any of the Collateral (except for sales of Inventory in the ordinary course of business) without obtaining the prior written consent of Creditor to such sale, transfer, lease or other disposition.

(d) Borrower shall not move any item of Equipment from the State in which it is now located, locate at a new place of business, remove from a place of business as set forth above, establish a new chief executive office, change its corporate name or state of incorporation or use a trade name not listed above without giving the Creditor not less than thirty (30) days prior written notice of such intended relocation, removal, establishment, change or use.

(e) Borrower shall not merge, consolidate, dissolve, liquidate, convert or otherwise engage in any restructuring or reorganization without obtaining the prior written consent of Creditor to such transaction.

(f) Borrower shall not agree to do anything which it is prohibited from doing under subsections (b), (c) or (e) above.

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6. Creditor Appointed as Attorney-in-Fact.

(a) Borrower hereby irrevocably constitutes and appoints Creditor and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Borrower and in the name of Borrower or in its own name, from time to time in Creditor's discretion, for the purpose of carrying out the terms of this Agreement, such power and authority to be exercisable upon the occurrence of an Event of Default, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, including, without limiting the generality of the foregoing, the power and right, without notice to or assent by Borrower to do the following:

(i) upon the occurrence and continuance of any Event of Default, to ask, demand, collect, receive and give acquittances and receipts for any and all moneys due and to become due, or any performance to be rendered, under any Account or any contract, agreement or instrument included in the Collateral and, in the name of Borrower or its own name or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Account, or any other contract, agreement or instrument included in the Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Creditor for the purpose of collecting any and all such moneys due or securing any performance to be rendered under any such contract, agreement or instrument pledged and assigned hereby;

(ii) upon the occurrence and continuance of any Event of Default, to pay or discharge taxes, liens, security interests or other encumbrances levied or placed on or threatened against the Collateral; and

(iii) upon the occurrence and continuance of any Event of Default (A) to direct any party liable for any payment or performance under any of the Accounts included in the Collateral to make payment of any and all moneys due and to become due thereunder or to render any performance provided for therein directly to Creditor or as Creditor shall direct; (B) to receive payment of and receipt for any and all moneys, claims and other amounts due and to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, freight or express bills, bills of lading, drafts against debtors, assignments, verifications and notices in connection with Accounts and other documents relating to the

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Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any Proceeds thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against Borrower with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as Creditor may deem appropriate; and (G) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Creditor was the absolute owner thereof for all purposes, and to do, at Creditor's option and Borrower's expense, at any time, or from time to time, all acts and things which Creditor deems necessary to protect, preserve or realize upon the Collateral and Creditor's security interest therein in order to effect the intent of this Agreement, all as fully and effectively as Borrower might do.

Borrower hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power-of-attorney is a power coupled with an interest and shall be irrevocable.

(b) The powers conferred on Creditor and the other attorneys appointed hereunder are solely to protect the interests of Creditor in the Collateral and shall not impose any duty upon them to exercise any such powers. Creditor and the other attorneys appointed hereunder shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to Borrower for any act or failure to act, except for their gross negligence or willful misconduct.

(c) Borrower also authorizes Creditor, at any time and from time to time, (i) to communicate in its own name with any party to any contract, agreement or Account included in the Collateral with regard to the assignment thereof hereunder and other matters relating thereto; and (ii) to execute, in connection with the sale provided for in Section 9 of this Agreement, any endorsements, assignments, bills of sale or other instruments of conveyance or transfer with respect to the Collateral.

7. Performance by Creditor of Borrower's Obligations. If Borrower fails to perform or comply with any of its agreements contained herein, under the obligations or in any contract, agreement or instrument included in the Collateral, and Creditor, as provided for by the terms of this Agreement, shall itself perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of Creditor incurred in connection with such performance or

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compliance, together with interest thereon at the maximum lawful interest rate permitted under the laws of the State of Oklahoma shall be payable by Borrower to Creditor on demand and until such payment shall constitute Obligations secured hereby. Creditor shall have the right to pay off any lien, security interest or other encumbrance on the Collateral, regardless of whether the obligations secured by such lien, security interest or other encumbrance are due and owing, and such amount shall constitute obligations secured hereby.

8. Inspection Rights. Creditor is hereby given the right and privilege, during regular business hours, of making such inspections of the Collateral and records thereof as it deems necessary and of auditing or causing an audit or verification of the books and records of Borrower relating to the Collateral at any time and from time to time, including the contacting of customers or suppliers of Borrower in connection with such audit or verification. Borrower agrees to assist Creditor in every way necessary to facilitate such audits, verifications and inspections.

9. Remedies. If an Event of Default hereunder or under the obligations has occurred and is continuing, Creditor may exercise, in addition to all other rights and remedies granted to it in this Agreement, all rights and remedies of a secured party under the Code or any other applicable law. Creditor, at its option, may proceed as to all or any part of the Collateral in accordance with its rights or remedies hereunder. Without limiting the generality of the foregoing, Borrower expressly agrees that in any such event Creditor, without demand of performance or other demand, advertisement or notice of any kind to or upon Borrower or any other person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, license, assign, give option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker's board or at any of Creditor's offices or the Borrower's offices or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk, and Creditor shall apply the net proceeds (after expenses) of any such sale, lease, license, assignment or other disposition against the indebtedness secured hereby in such order as Creditor in its sole discretion shall determine, Borrower remaining liable for any deficiency therein. Creditor shall have the right upon any such public sale or sales to purchase the whole or any part of the Collateral so sold. To the extent permitted by applicable law, Borrower waives all claims, damages and demands against Creditor arising out of the repossession, retention, sale or license of the Collateral. In the event Creditor is required by law to give written notice to Borrower of any disposition of the Collateral, Borrower agrees that five (5) days' prior written notice by Creditor to Borrower shall be deemed to be reasonable notice.

10. Grant of License to Use Intangibles. For the purpose of enabling Creditor to exercise rights and remedies under this Agreement at such time as Creditor shall be lawfully entitled to exercise such rights and remedies and for no other purpose, Borrower hereby grants to Creditor an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to Borrower) to use, assign or sublicense any of the Collateral, now owned or hereafter acquired by Borrower and wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof. Until such time as

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Creditor is entitled to exercise such rights and remedies Borrower is entitled to use the Collateral without payment of royalty or other compensation to Creditor.

11. Limitation on Creditor's Duty in Respect of Collateral. Beyond the use of reasonable care in the custody and preservation thereof, Creditor shall not have any duty as to any Collateral in its possession or control or in the possession or control of its agent or nominee or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto.

12. Further Assurances, Etc. Borrower authorizes Creditor to sign and file financing statements, continuation statements and any other forms, filings or other statements required or permitted under the Code at any time and from time to time with respect to the Collateral without Borrower's signature and on Borrower's behalf. Borrower will, however, at any time upon Creditor's request, sign financing statements, continuation statements, trust receipts, security agreements or other agreements, forms, filings or other statements with respect to the Collateral. Upon the failure of Borrower to do so, Creditor is authorized as Borrower's agent to sign any such instrument or agreement. Borrower agrees that at any time and from time to time upon the written request of Creditor, Borrower will promptly execute and deliver any and all such further instruments and documents and do such further acts as Creditor may reasonably request in order to carry out more effectively the purposes of this Agreement and obtain for Creditor the full benefits of the security interests granted to Creditor hereby.

13. Notices. All notices and other communications required or permitted to be made by one party to the other under this Agreement shall be given in writing to the addresses of the parties set forth next to their signatures subject to each party's right to change such notice address upon giving the other party written notice in compliance with this Section.

14. Partial Invalidity. If any term, covenant or condition of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be held valid and be enforced to the fullest extent permitted by law.

15. No Waiver; Cumulative Remedies. Creditor shall not by any act, delay, and omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Creditor, and then only to the extent therein set forth. A waiver by Creditor of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Creditor would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Creditor any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative with any rights and remedies under the Note or any other loan document and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law or equity.

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16. Limitations by Law. All rights, remedies and powers provided by this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement invalid, unenforceable in whole or in part or not entitled to be recorded, registered or filed under the provisions of any applicable law.

17. Binding Effect. This Agreement and all the covenants and agreements herein will be binding upon and inure to the benefit of the parties hereto and their respective successors in interest and assigns. The Creditor shall at all times have the right to assign its rights and interest under this Agreement.

18. Applicable Law. This Agreement shall be governed by, and be construed and interpreted in accordance with, the laws of the State of Oklahoma and the United States.

19. Venue. The parties agree that jurisdiction and venue for any matter arising out of or pertaining to this Agreement shall be proper only in the state courts located in Tulsa County, Oklahoma and the federal courts having jurisdiction over the Northern District of Oklahoma, and the parties hereby consent to such venue and jurisdiction.

IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first set forth above.

"Creditor"

By: /s/ Warren F. Kruger
   --------------------------------------
Printed Name: Warren F. Kruger
             ----------------------------
"Borrower"

GREYSTONE LOGISTICS, INC.

By: /s/  Robert H. Nelson
   --------------------------------------
Printed Name: Robert H. Nelson
             ----------------------------
Title: Chief Operating Officer and Chief
      -----------------------------------
       Financial Officer
      -----------------------------------
GREYSTONE MANUFACTURING, L.L.C.

By: /s/ Robert H. Nelson
   --------------------------------------
Printed Name: Robert H. Nelson,
             ----------------------------
Chief Operating Officer and Chief
-----------------------------------------
Financial Officer on behalf of Warren F.
-----------------------------------------
Kruger, Sole Member
-----------------------------------------

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EXHIBIT 31.1

CERTIFICATION

I, Robert H. Nelson, Chief Financial Officer (and interim principal executive officer) of Greystone Logistics, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Greystone Logistics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and

5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

January 17, 2006                       /s/ Robert H. Nelson
                                       -----------------------------------------
                                       Robert H. Nelson, Chief Financial Officer
                                       (and interim principal executive officer)


EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Greystone Logistics, Inc. (the "Company"), on Form 10-QSB for the period ending November 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert H. Nelson, Chief Financial Officer (and interim principal executive officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

January 17, 2006                       /s/ Robert H. Nelson
                                       -----------------------------------------
                                       Robert H. Nelson, Chief Financial Officer
                                       (and interim principal executive officer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Report and shall not be considered filed as part of the Report.