Content area
Abstract
In December 2006, the Company received orders for its products from its Value Added Reseller ("VAR") in Brazil, Crown Telecom, who at the time was known to require financing. The Company provided a loan of up to US$12 million to its VAR (the "Loan"), and provided various other forms of assistance. The proceeds from the Loan were used by the VAR to pay the Company for the products delivered. The Company understood that the VAR had sold a substantial portion of the products to a third party, that it had been paid for those sales, and that it would be collecting monthly service revenues from its customers. As such, the Company believed that the VAR was capable of servicing its debt and paying for product shipped. In the course of Q3 it became apparent that the VAR would not be able to pay the entire amount owed to the Company, and ultimately in the financial results for the quarter ended April 30, 2007, the Company wrote down the Loan and determined that accounts receivable from the VAR would be uncollectible. The decision to write off the amounts owing as uncollectible was ultimately made after certain financing alternatives available to the VAR expired as previously announced on May 11, 2007.