Saturday, June 4, 2011

Crazy Disclosure #1

There are some crazy disclosures out there. I read them and I think "how could anyone be long this company..." Here is the first crazy disclosure*
In July 2006, the Company sold all of its interest in DaRen Consulting (China) Ltd. (“DaRen”), to Daren’s management team for a cash consideration of approximately $3,090 (RMB25,000). The Company also released DaRen from the obligation of $6,080 in loans payable to the Company and injected transitional working capital of $1,015 into DaRen. The cash consideration to be received from DaRen was to be paid from DaRen’s net profits over four years through 2010, secured by a share pledge of 44% of DaRens equity. The Company has no involvement in DaRens’s operations after the disposal date. The Company believed that there was significant uncertainty regarding the collection of the proceeds from this sale given the negotiated terms of the agreement and DaRen’s cumulative operating losses. Accordingly, recognition of the sales proceeds of $3,090 was not recorded on the sale date. In July 2007, the Company and DaRen’s management entered into a supplementary agreement to reduce the cash consideration of RMB24,000 (an equivalent of $3,075) to RMB12,500 (an equivalent of $1,711), which was received by the Company in December 2007. An outstanding payable balance to DaRen of $139 was also waived according to the agreement. The total amount of $1,839 was recognized as gain in the consolidated statements of operations in year 2007

*Names have been changed and some numbers have been changed (non-materially) in order to keep this company a secret until a full research report is released in the public domain.

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