Question
From:
(redacted)
Sent:
Friday, May 11, 2012 9:35 AM
To:
Verne, B. Michael
Cc:
(redacted)
Subject:
Size of Person Inquiry
Hi,Mike:
Inconnection with a proposed transaction, our client is currently assessing its"total assets" for purposes of determining whether the size ofpersons test is satisfied. Our client's ultimate parent entity is a foreigncompany ("Parent") that has as its only asset an investment in itssubsidiary (our client), which is also a foreign issuer ("Subsidiary").Subsidiary has as its only assets cash and cash equivalents and minimaltangible assets, namely office equipment. Parent and Subsidiary issue separate(unconsolidated) annual audited financial statements. In addition, Subsidiaryissues monthly. management accounting reports, which are not audited and areprepared for the purpose of tracking expenses and receivables of theSubsidiary. Our questions concern: (i) the appropriate principles ofconsolidation of the Parent and Subsidiary financials and (ii) the appropriatefinancial statements which will be determinative of the total assets of theperson of Parent. It is our understanding, pursuant to Section 801.11(b)(1) andnumerous informal interpretations, that our client must restate the financialsof the Parent to show the "nonduplicative" assets of all controlledentities (e.g., Subsidiary); employing generally accepted accounting principlesthis suggests that the investment by Parent in Subsidiary and the correspondingequity of the Subsidiary should be offset and eliminated for consolidationpurpose as well as any receivables and payables that exist between Parent andSubsidiary. Regarding which statements to use as a basis for the creation ofthe restated financials, it would appear that we use the latest annual auditedfinancials of the Parent and Subsidiary since it is not clear that the monthlymanagement reports of the Subsidiary constitute "regularly prepared"financials or, even if they do, there is no corresponding measure of Parent'sfinancial position as of such date that could be used for proper consolidation.