CONNER & WINTERS
TULSA ATTORNEYS & COUNSELORS AT LAW William G. von Glahn Vicki Bronson
Bob F. McCoy Todd P. Lewis*
Henry G. Will Nancy E. Vaughn Conner & Winters, LLP John E. Barry P. Joshua Wisley
Joseph J. McCain, Jr. Gregory D. Renberg 3700 First Place Tower James R. Ryan
Lynnwood R. Moore, Jr. Mark D. Berman 15 East Fifth Street Russell H. Harbaugh, Jr. Charles E. Scharlau*
Robert A. Curry Katherine G. Coyle Tulsa, Oklahoma 74103-4344 David O. Cordell
Steven W. McGrath Beverly K. Smith 918-586-5711 WASHINGTON, D.C.
D. Richard Funk Melodie Freeman-Burney Fax 918-586-8982 OKLAHOMA CITY
Randolph L. Jones, Jr. R. Richard Love, III www.cwlaw.com G. Daniel Miller*
J. Ronald Petrikin Robert D. James _______________ Irwin H. Steinhorn Donn C. Meindertsma*
Larry B. Lipe Stephen R. Ward John W. Funk
James E. Green, Jr. Jeffrey R. Schoborg Writer's Direct Number Jared D. Giddens Henry Rose*
Martin R. Wing Anne B. Sublett 918-586-8528 Kiran A. Phansalkar Erica L. Summers*
John W. Ingraham J. Ryan Sacra Writer's Fax Number Victor F. Albert
Andrew R. Turner Jason S. Taylor 918-586-8628 Mitchell D. Blackburn HOUSTON, TEXAS
Gentra Abbey Sorem Katy Day Inhofe Writer's E-mail Address Mark H. Bennett
R. Kevin Redwine Julia Forrester-Sellers rsacra@cwlaw.com Bryan J. Wells Pamela H. Stabler*
Tony W. Haynie Melinda L. Kirk Laura McCasland Holbrook
Bruce W. Freeman P. Bradley Bendure John E. Gatliff II JACKSON, WYOMING
David R. Cordell Kathryn J. Kindell J. Dillon Curran
John N. Hove Amy M. Santee William M. Lewis Randolph L. Jones, Jr.
C. Raymond Patton, Jr. Cara M. Hair L. Belynn Whatley
Paul E. Braden Alissa A. Hurley SANTA FE, NEW MEXICO
Robert J. Melgaard Heather Holt Bilderback Peter B. Bradford
P. Scott Hathaway Debra R. Stockton Shelia L. Darling Douglas M. Rather
Lawrence A. Hall Shelley L. Carter ----------------
Timothy T. Trump Jed W. Isbell NORTHWEST ARKANSAS
Mark E. Dreyer Travis L. Wright Benjamin C. Conner
John R. Elrod* 1879-1963
Greg S. Scharlau John M. Winters, Jr.
Terri Dill Chadick 1901-1989
*Not Admitted in
Oklahoma
October 27, 2005
Michele Gohlke
Branch Chief
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: GREYSTONE LOGISTICS, INC.
FORM 10-KSB FOR THE YEAR ENDED MAY 31, 2005
FILED SEPTEMBER 15, 2005
FILE NO. 000-26331
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 October 6,
2005 letter to Robert H. Nelson of Greystone Logistics, Inc. (the "Company"). To
facilitate your review of our responses, we have restated each of your comments
followed by our response.
FORM 10-KSB FOR THE YEAR ENDING MAY 31, 2005
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FINANCIAL STATEMENTS
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COMMENT NO. 1:
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TO THE EXTENT YOU RESTATE YOUR FISCAL YEAR 2004 FINANCIAL STATEMENTS
FROM THOSE STATEMENTS PREVIOUSLY REPORTED, YOU SHOULD LABEL THEM AS "RESTATED"
AND REFER TO THE NOTE WHICH DESCRIBES THE RESTATEMENT. PLEASE REVISE YOUR FORM
10-KSB FOR THE FISCAL YEAR ENDING MAY 31, 2005 ACCORDINGLY.
October 27, 2005
Page 2
The Company filed an amended Form 10-KSB for the year ended May 31,
2004 prior to filing the Form 10-KSB for the year ended May 31, 2005. APB No. 9,
paragraph 26, provides "disclosures of restatements in annual reports issued
subsequent to the first such post-revision disclosure would ordinarily not be
required." Accordingly, the Company did not consider it necessary to identify
the columns pertaining to the year ended May 31, 2004 as being restated.
NOTE 7. RELATED PARTY TRANSACTIONS, PAGE F-12
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TRANSACTIONS WITH PAUL KRUGER, A SIGNIFICANT STOCKHOLDER, PAGE F-13
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COMMENT NO. 2:
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WE NOTE THAT THERE IS CURRENTLY A DISPUTE WITH YOUR LANDLORD, 1607
COMMERCE LIMITED PARTNERSHIP (1607 COMMERCE), REGARDING WHETHER YOU SUCCESSFULLY
TERMINATED YOUR LEASE AGREEMENT. PLEASE TELL US AND REVISE THIS NOTE TO DISCLOSE
HOW YOU HAVE EVALUATED THIS LIABILITY BASED ON PARAGRAPH 8 OF SFAS 5 AND PROVIDE
ALL DISCLOSURES REQUIRED BY PARAGRAPHS 9-10 OF SFAS 5.
The lease with 1607 Commerce Limited Partnership is for a plant in
Dallas, Texas, which was abandoned in fiscal year 2004. The term of the lease
extends through September 2006. The Company was informed that the Dallas plant
was for sale prior to May 31, 2004. As of May 31, 2004, Greystone established a
liability for the costs to close the plant (including one year of rent under the
lease) under the premise that the sale of the plant would result in termination
of the lease. However, during the latter half of 2005, management concluded that
the probability of the sale of the plant being consummated had diminished
substantially. As such, the Company accrued a liability for remaining lease
payments and other costs through the term of the lease. Since the Company had
provided an estimated reserve for closing costs for the Dallas plant during the
fiscal year ended May 31, 2004, the Company considered the adjustment to be a
change in accounting estimate. In accordance with paragraph 33 of APB No. 20,
the Company disclosed the adjustment to the estimate in Note 16 to the
consolidated financial statements.
In the last calendar quarter of 2004, the Dallas plant was vandalized
causing substantial damage to the electrical system of the building. Since such
time, the building has remained uninhabitable. Although Greystone has not
occupied the building since March 2004, Greystone's management notified 1607
Commerce that effective March 1, 2005 the lease was considered terminated due to
the uninhabitable condition of the facility. At such time, the Company
considered whether the notice of breach necessitated a reversal of the accrual
described above. However, the Company determined that such reversal was not
appropriate at such time due to the provisions of paragraph 17 of SFAS No. 5 and
because the Company is unable to determine the probability of success on its
claim of breach.
October 27, 2005
Page 3
NOTE 16. IMPAIRMENTS AND RELOCATION COSTS, PAGE F-21
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COMMENT NO. 3:
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WE NOTE THAT YOU HAVE RECORDED IMPAIRMENT CHARGES OF $5.7 MILLION IN
FISCAL 2005. PLEASE RESPOND TO THE FOLLOWING:
o PLEASE REVISE THIS FOOTNOTE TO PROVIDE ALL OF THE DISCLOSURES REQUIRED
BY PARAGRAPHS 46 AND 47 OF SFAS 142 WITH RESPECT TO THE GOODWILL
IMPAIRMENT CHARGE AND PARAGRAPHS 25-26 OF SFAS 144 WITH RESPECT TO THE
INTANGIBLE ASSET IMPAIRMENT CHARGE.
o PLEASE RECONCILE FOR US THE $5.7 MILLION IMPAIRMENT CHARGE RECORDED TO
THE $9.9 MILLION IMPAIRMENT CHARGE DISCUSSED IN ITEM 2.06 OF THE FORM
8-K FILED ON SEPTEMBER 1, 2005.
The Company will revise its Form 10-KSB for the fiscal year ending May
31, 2005 in accordance with your comment in the first bullet point of Comment
No. 3.
At the time the Company filed the Form 8-K referenced above, management
believed that the Company should accrue an impairment charge of $4,200,000 for
future rental payments under the operating lease for its PIPER 600 plastic
injection molding machine, which had term of approximately nine years remaining
under the lease. At this time, the impairment charge was considered necessary
because the equipment was not capable, at least in the foreseeable future, of
producing more than approximately 20% of its capacity. Because of the limited
capacity of the equipment, any future sales generated from pallets produced on
this equipment would have a built-in loss. The effect of the impairment charge
would be to reduce the costs of producing pallets on this equipment to net
realizable value.
Subsequent to the time the Form 8-K was filed, management determined
that the charge was inappropriate due to, among other accounting guidance, EITF
99-14, "Recognition of Impairment Losses on Firmly Committed Executory
Contracts," and SFAS No. 144, "Accounting for Impairment on Disposal of
Long-Lived Assets." Generally, this guidance provides that there is no basis for
recording impairments for projected operating losses on operating leases.
However, the guidance provides that a company can group all of its related
machinery (including machinery that is owned or leased under operating or
capitalized leases) and allocate the impairment to the capitalized equipment in
the group. However, under this approach, the capitalized equipment cannot be
adjusted lower than the existing fair value of the equipment. Since management
is of the opinion that the fair value of the Company's capitalized equipment
approximates its net book value, no impairment was deemed appropriate.
COMMENT NO. 4:
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YOU STATE ON PAGE F-7 THAT YOU REVIEW YOUR PROPERTY, PLANT AND
EQUIPMENT FOR IMPAIRMENT WHENEVER EVENTS OR CHANGES IN CIRCUMSTANCES INDICATE
THAT THE ASSETS MAY BE IMPAIRED. FURTHER, YOU STATE THAT YOUR EVALUATION
COMPARES THE ESTIMATED FUTURE UNDISCOUNTED
October 27, 2005
Page 4
CASH FLOWS TO THE ASSET'S CARRYING AMOUNT. WE NOTE FROM YOUR DISCLOSURE ON PAGE
21 THAT THE INTANGIBLE ASSETS ARISING FROM THE 2003 ACQUISITION OF GREYSTONE
PLASTICS, INC. HAVE BEEN IMPAIRED. YOU STATE THIS IMPAIRMENT CHARGE WAS DUE TO
"LIQUIDITY ISSUES AND OPERATING RESULTS" THAT YOU ARE CURRENTLY EXPERIENCING.
PLEASE TELL US WHETHER YOUR IMPAIRMENT ANALYSIS RELATING TO THE INTANGIBLE
ASSETS ALSO INCLUDE THE PROPERTY AND EQUIPMENT OF $5.7 MILLION THAT WAS RECORDED
IN CONNECTION WITH THE ACQUISITION OF GREYSTONE PLASTICS. IF SO, TELL US WHY THE
ENTIRE IMPAIRMENT WAS RECORDED TO THE INTANGIBLE ASSETS. IF NOT, TELL US WHY YOU
CONCLUDED THAT THE PROPERTY AND EQUIPMENT SHOULD NOT BE INCLUDED IN THE
EVALUATION. REFER TO PARAGRAPHS 7-14 OF SFAS 144.
The Company's impairment analysis involved considering whether it was
appropriate to impair the property and equipment acquired from Greystone
Plastics, Inc. However, the Company concluded that no such impairment was
appropriate due to the analysis set forth in the third paragraph of the
Company's response to Comment No. 3 above.
NOTE 18. RESTATEMENT OF FINANCIAL STATEMENTS, PAGE F-21
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COMMENT NO. 5:
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REVISE THIS FOOTNOTE TO CLEARLY EXPLAIN THE REVISIONS YOU HAVE MADE TO
THE PREVIOUSLY ISSUED FINANCIAL STATEMENTS. PLEASE QUANTIFY THE RESTATEMENT BY
DISCLOSING THE LINE ITEMS IN THE FINANCIAL STATEMENTS IMPACTED AS BEFORE AND
AFTER THE RESTATEMENT. REFER TO APB 20 AND PARAGRAPH 26 OF APB 9 FOR FURTHER
GUIDANCE OF CORRECTION OF AN ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS.
The Company will revise its Form 10-KSB for the fiscal year ending May
31, 2005 in accordance with your comment.
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