CONNER & WINTERS C & W
- --------------------------------------------------------------------------------
ATTORNEYS & COUNSELORS AT LAW J. RYAN SACRA
Conner & Winters, LLP Direct 918-586-8528
3700 First Place Tower O 15 East Fifth Street Fax 918-586-8628
Tulsa, Oklahoma 74103-4344 rsacra@cwlaw.com
918-586-5711
August 3, 2005
Michele Gohlke
Branch Chief
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: PALWEB CORPORATION
FORM 10-KSB FOR THE YEAR ENDED MAY 31, 2004
Dear Ms. Gohlke:
In connection with your review of the captioned filing, we offer the
following responses to the comments and requests contained in your May 11, 2005
letter to Robert H. Nelson of Greystone Logistics, Inc. (formerly Palweb
Corporation, in its filings through April 14, 2005) (the "Company"). To
facilitate your review of our responses, we have restated each of your comments
followed by our response. In addition, the response to each of the comments is
numbered to correspond to those numbers used in your letter.
FORM 10-KSB FOR THE YEAR ENDED MAY 31, 2004
- -------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS - PAGE F-5
- ------------------------------------------------
COMMENT NO. 1:
- --------------
WE NOTE YOUR RESPONSE TO COMMENT 4. IN ACCORDANCE WITH PARAGRAPH 17(C) OF
SFAS 95, THE PROPERTY PLANT AND EQUIPMENT AND OTHER ASSETS THAT ARE ACQUIRED IN
A BUSINESS COMBINATION SHOULD BE REFLECTED SEPARATELY, AND IN TOTAL, IN ONE LINE
ITEM UNDER CASH FLOWS FROM INVESTING
August 3, 2005
Page 2
ACTIVITIES. IN FUTURE FILINGS, REVISE YOUR CASH FLOW STATEMENT TO REFLECT THE
CASH PAID FOR THE ACQUISITION TO INCLUDE ONLY THE $3.75 MILLION RELATED TO THE
PROPERTY AND EQUIPMENT AND THE $.45 MILLION RELATED TO THE INVENTORY PURCHASED
TO PRESENT THE TOTAL CASH OUTFLOWS OF $4.2 MILLION FOR THE ACQUISITION OF
GREYSTONE PLASTICS AS AN INVESTING ACTIVITY.
The Company will revise its future filings in accordance with your comment.
NOTE 14. ACQUISITION - PAGE F-17
- --------------------------------
COMMENT NO. 2:
- --------------
WE NOTE YOUR RESPONSE TO COMMENT 6. IT APPEARS FROM YOUR RESPONSE THAT ONE
OF THE PURPOSES OF THE ACQUISITION WAS TO ACQUIRE THE "POSITIVE CASH FLOW THAT
WAS ALREADY BEING GENERATED FROM THE SALE OF PALLETS AT THE TIME OF YOUR
PURCHASE OF GREYSTONE PLASTICS." BASED ON YOUR DISCLOSURES, IT APPEARS THAT THE
PURCHASE PRICE OF GREYSTONE PLASTICS WAS DETERMINED AT LEAST IN PART BASED ON
PROJECTIONS OF FUTURE CASH FLOWS AND/OR REVENUES, WHICH WOULD HAVE BEEN
GENERATED FROM THE SOLE CUSTOMER, MILLER BREWING. HOWEVER, YOU ALSO STATE THAT
YOU DO NOT BELIEVE THIS SOLE CUSTOMER RELATIONSHIP CARRIES "ANY MEANINGFUL VALUE
SEPARATE AND APART FROM THE ASSETS AND MANAGEMENT OF PLASTICS." PLEASE CLARIFY
FOR US WHY YOU BELIEVE THAT THIS RELATIONSHIP DOES NOT CARRY ANY MEANINGFUL
VALUE APART FROM THE ASSETS AND MANAGEMENT OF PLASTICS.
In retrospect, the Company's previous comments were principally related to
the value of the customer list. The Company does not consider the customer list
to possess separate value because the customer list consists of the name of one
customer and cannot be sold, leased or exchanged. With respect to the projected
cash flows from sales to Miller Brewing, see the Company's response to your
Comment No. 3 below.
COMMENT NO. 3:
- --------------
FURTHER, WE NOTED YOUR DISCUSSION THAT THE ARRANGEMENT WITH MILLER BREWING
WAS LIMITED TO A PURCHASE ORDER WHICH WAS CANCELABLE UPON PROPER NOTICE.
PARAGRAPHS 8 AND 10 OF EITF 02-17, AS WELL AS EXAMPLE 3 OF EITF 02-17 INDICATE
THAT "CONTRACTUAL" RIGHTS DESCRIBED IN SFAS 141 INCLUDES PURCHASE ORDERS AND/OR
SALES ORDERS AND SHOULD THEREFORE BE CONSIDERED USING THE CRITERION OUTLINED IN
PARAGRAPHS A19 AND A20 OF SFAS 141. PLEASE NOTE THAT SFAS 141 REQUIRES AN
INTANGIBLE ASSET BE RECORDED APART FROM GOODWILL IF EITHER THE CONTRACTUAL-LEGAL
CRITERIA OR THE SEPARABILITY CRITERIA ARE MET. BASED ON THIS GUIDANCE, TELL US
WHY YOU CONCLUDED THAT THE CUSTOMER RELATIONSHIP ASSETS SHOULD NOT HAVE BEEN
RECOGNIZED APART FROM GOODWILL.
Upon further examination of the standards and guidance outlined in your
Comment No. 3, the Company agrees that it should have recorded the Miller
Brewing purchase order as an intangible asset apart from goodwill. Because the
purchase order's market value is not readily ascertainable, the Company
determined that the only suitable approach of valuing the purchase order was the
income method. However, the Company remains concerned with the concept of
August 3, 2005
Page 3
the amortization of the present value of estimated cash flows from the Miller
Brewing purchase order because of the impact of such amortization on future
earnings resulting from the acquisition of the assets of Greystone Plastics.
Nevertheless, using the income method, the Company valued the Miller
Brewing purchase order based upon the projected cash flows from estimated sales
to Miller Brewing over a ten-year period discounted at the Company's cost of
capital, which resulted in a value attributable to the purchase order of
$2,855,000. The Company then amortized this intangible asset value using a
unit-of-production basis, which resulted in an amortized cost of approximately
$416,000 and $554,000 for the Company's fiscal years ended May 31, 2004 and
2005, respectively.
We would appreciate your earliest possible review of this letter in
response to your comments. To expedite the conveyance of additional comments,
please feel free to call me at (918) 586-8528 at any time.
Yours very truly,
/s/ J. Ryan Sacra
J. Ryan Sacra
cc: Greystone Logistics, Inc.
Robert H. Nelson