SEC Company Response from GLOBAL DIVERSIFIED INDUSTRIES INC (CIK 0001090461) — Apr 21, 2005
GLOBAL DIVERSIFIED INDUSTRIES INC (CIK 0001090461)
Date: April 21, 2005 · CIK: 0001090461 · Accession: 0001266068-05-000064
AI Filing Summary & Sentiment
File numbers found in text: 333-8321
Referenced dates: April 7, 2005
Letter
Division of Corporate Finance Re: Global Diversified Industries, Inc. File No. 333-8321 Form 10-KSB for Year Ended April 30, 2004 Forms 10-QSB for quarters ended October 31, 2004
Dear Mr. Forgione:
This will acknowledge receipt of your letter of comment dated April 7, 2005 with regard to the above referenced filings. Our responses reference your comment numbers as follows:
Comment 1- Response
In response, we have considered SFAS No 2 in accounting for the costs incurred in connection with the acquisition of architectural and engineering plans. The types of costs incurred consist of primarily fees to outside professionals (architects and engineers) and other direct costs such as state of California certification and filing fees. The Registrant has five approved PC’s (Plans Checked and Approved by the Division of the State Architect-“DSA”). They are for the following building types:
·
12’ X 40’
·
24’ X 40’
·
36’ X 48’
·
36’ X 40’
·
30’ X 32’
Our primary market is the California modular school market. The Registrant’s management team has in excess of 120 years of experience in what types of modular buildings are purchased by the California School Districts.
Due to the limited amount of capital at its disposal, the Registrant has focused its efforts on marketing and building the above referenced modular buildings, since they are the most requested models requested by the School Districts. The Registrant sells the same model many times over, subject to of course receiving an approved purchase order.
For example, the Registrant has sold 101 of their 24’ x 40’ models to 13 different School Boards over the past 24 months.
There are many other building types that we do not have approved PC’s due to the high design cost charged by architects and engineers. In addition to the cost, it takes approximately nine months to get a plan approved by DSA.
The plans acquired are for buildings that are commercially feasible, ready for manufacture, are accepted in the marketplace. The Registrant confirms and represents the plans acquired and capitalized by the Registrant are for existing products sold in the marketplace and not for new products or processes that are untested (e.g., proto-type buildings).
Based upon of our experience in the marketplace, and our knowledge of our customers (i.e., School Districts budget and procurement cycles, we can anticipate the needs of the school districts and procure plans to meet those anticipated needs. As a result, the engineering and architectural costs are incurred prior to and in anticipation of submitting bids to local state school districts upon receipt of requests for proposals from the school districts.
To confirm, we do not design and manufacture any pro-type buildings, and we do not start manufacturing any structure without a signed purchase order and contract. Accordingly, we do not believe the costs incurred are research and development costs as defined in paragraph 8 of SFAS No.2
Comment 2- Response
We note your position that quoted market prices, if available, is the best evidence of fair value and should be used as their basis for measuring the fair value of our company’s common stock, which includes quoted market prices in a dealer market.
We also note your objection to our position that a dealer market (i.e., the OTC BB) is not an active market.
Generally accepted accounting principles permit using bid (long positions) and ask prices (short positions) in active markets to estimate fair value of the securities1 . The bid price represents the best quoted market price to purchase our Company’s common stock in the dealer market place. For items actively traded in dealer markets, where bid and asked prices are quoted regularly by the dealers, exit prices are based on what would have been realized or paid on the reporting date. For most entities, that means the exit prices of assets are based on bid prices2 In addition, SEC regulations governing the computation of net capital for registered broker-dealers require the use of bid prices when calculating periodic net capital3 .
Accordingly, in order to obtain an accurate fair value of the Company’s common stock at the grant date of the option held by the note holders, we obtained the dealer’s closing bid price of our Company’s common stock as of July 14, 2003, as quoted by the OTC BB4 . The last reported dealer bid at the close of business was $0.016 per share. As a result, and based upon quoted market prices in a dealer market being the best evidence for measuring the fair value of our company’s common stock, we have concluded the fair value of the underlying shares is $.016 per share. It should be noted that there were three (3) other market makers at the same time bidding $0.015 per share5 .
Based upon a fair value of $.016 per share, the Company computed the beneficial conversion feature as follows:
26,666,667 shares of common stock x $.016 /share = $426,666
Loan amount: (400,000)
Beneficial conversion feature $ 26,666
Annual charge to operations $ 4,444
As a result of making the adjustment to the financial statements, the Registrant’s net loss for the year ended April 30, 2003 would be increased by $4,444 from $ 428,067 to $ 423,623 or 1.03%. Net loss per share would remain unchanged. Non-current liabilities at April 30, 2004 would decrease by $4,444, from $ 588,815 to $ 584,371, or .7%.
Given the immaterial effect on the Registrant’s financial statements we respectfully request the adjustment arising from this comment be waived. .
We thank you in advance for your assistance in this matter, and should you have any questions, do not hesitate in calling me.
Sincerely,
GLOBAL
DIVERSIFIED INDUSTRIES, INC.
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Global Response to SEC Comments 4-21-05 body
GLOBAL
DIVERSIFIED INDUSTRIES, INC.
1200
AIRPORT DRIVE
CHOWCHILLA,
CA 93610
559-665-5800
April 15,
2005
Mr. Josh
Forgione
Division
of Corporate Finance
U.S.
Securities & Exchange Commission
Washington,
D.C. 20549
Re:
Global Diversified Industries, Inc.
File No.
333-8321
Form
10-KSB for Year Ended April 30, 2004
Forms
10-QSB for quarters ended October 31, 2004
Dear Mr.
Forgione:
This will
acknowledge receipt of your letter of comment dated April 7, 2005 with regard to
the above referenced filings. Our responses reference your comment numbers as
follows:
Comment
1- Response
In
response, we have considered SFAS No 2 in accounting for the costs incurred in
connection with the acquisition of architectural and engineering plans. The
types of costs incurred consist of primarily fees to outside professionals
(architects and engineers) and other direct costs such as state of California
certification and filing fees. The Registrant has five approved PC’s (Plans
Checked and Approved by the Division of the State Architect-“DSA”). They are for
the following building types:
·
12’
X 40’
·
24’
X 40’
·
36’
X 48’
·
36’
X 40’
·
30’
X 32’
Our
primary market is the California modular school market. The Registrant’s
management team has in excess of 120 years of experience in what types of
modular buildings are purchased by the California School Districts.
Due to
the limited amount of capital at its disposal, the Registrant has focused its
efforts on marketing and building the above referenced modular buildings, since
they are the most requested models requested by the School Districts. The
Registrant sells the same model many times over, subject to of course receiving
an approved purchase order.
For
example, the Registrant has sold 101 of their 24’ x 40’ models to 13 different
School Boards over the past 24 months.
There are
many other building types that we do not have approved PC’s due to the high
design cost charged by architects and engineers. In addition to the cost, it
takes approximately nine months to get a plan approved by DSA.
The plans
acquired are for buildings that are commercially feasible, ready for
manufacture, are accepted in the marketplace. The Registrant confirms and
represents the plans acquired and capitalized by the Registrant are for existing
products sold in the marketplace and not for new products or processes that are
untested (e.g., proto-type buildings).
Based
upon of our experience in the marketplace, and our knowledge of our customers
(i.e., School Districts budget and procurement cycles, we can anticipate the
needs of the school districts and procure plans to meet those anticipated needs.
As a result, the engineering and architectural costs are incurred prior to and
in anticipation of submitting bids to local state school districts upon receipt
of requests for proposals from the school districts.
To
confirm, we do not design and manufacture any pro-type buildings, and we do not
start manufacturing any structure without a signed purchase order and contract.
Accordingly, we do not believe the costs incurred are research and development
costs as defined in paragraph 8 of SFAS No.2
Comment
2- Response
We note
your position that quoted market prices, if available, is the best evidence of
fair value and should be used as their basis for measuring the fair value of our
company’s common stock, which includes quoted market prices in a dealer
market.
We also
note your objection to our position that a dealer market (i.e., the OTC BB) is
not an active market.
Generally
accepted accounting principles permit using
bid (long positions) and ask prices (short positions) in active markets to
estimate fair value of the securities1 .
The bid
price represents the best quoted market price to purchase our Company’s common
stock in the dealer market place. For items actively traded in dealer markets,
where bid and asked prices are quoted regularly by the dealers, exit prices are
based on what would have been realized or paid on the reporting date. For most
entities, that means the exit prices of assets are based on bid
prices2 In
addition, SEC regulations governing the computation of net capital for
registered broker-dealers require the use of bid prices when calculating
periodic net capital3 .
Accordingly,
in order to obtain an accurate fair value of the Company’s common stock at the
grant date of the option held by the note holders, we obtained the dealer’s
closing bid price of our Company’s common stock as of July 14, 2003, as quoted
by the OTC BB4 . The
last reported dealer bid at the close of business was $0.016 per share. As a
result, and based upon quoted market prices in a dealer market being the best
evidence for measuring the fair value of our company’s common stock, we have
concluded the fair value of the underlying shares is $.016 per share. It should
be noted that there were three (3) other market makers at the same time bidding
$0.015 per share5 .
Based
upon a fair value of $.016 per share, the Company computed the beneficial
conversion feature as follows:
26,666,667
shares of common stock x $.016 /share = $426,666
Loan
amount:
(400,000)
Beneficial
conversion feature $
26,666
Annual
charge to operations $ 4,444
As a
result of making the adjustment to the financial statements, the Registrant’s
net loss for the year ended April 30, 2003 would be increased by $4,444 from $
428,067 to $ 423,623 or 1.03%. Net loss per share would remain unchanged.
Non-current liabilities at April 30, 2004 would decrease by $4,444, from $
588,815 to $ 584,371, or .7%.
Given the
immaterial effect on the Registrant’s financial statements we respectfully
request the adjustment arising from this comment be waived. .
We thank
you in advance for your assistance in this matter, and should you have any
questions, do not hesitate in calling me.
Sincerely,
GLOBAL
DIVERSIFIED INDUSTRIES, INC.
__/s/
Phillip O. Hamilton______________
Phillip O
Hamilton
Chairman
& CEO
1 FASB
Action Alert No. 04-48 dated December 9, 2004, paragraph 4
2 FASB
Proposal Stage Literature\02. Preliminary Views Reporting Financial
Instruments and Certain Related Assets and Liabilities at Fair Value, paragraphs
51 to 53
3 SEC Rule
15c3-1
4 OTC BB
Inside Quote Report dated July 14, 2003 , appended
5 OTC BB
Marker Maker Price Movement Report,
appended