<page>
Exhibit 99.2
PPOL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 2009
CONTENTS
--------
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS (page)
Consolidated Balance Sheets as of June 30, 2009(unaudited)
and March 31, 2009 1
Consolidated Statements of Operations and Comprehensive Income
(Loss) for the three months ended
June 30, 2009 and 2008 (unaudited) 2 Consolidated
Statements of Cash Flows for the three months ended
June 30, 2009 and 2008 (unaudited) 3
Notes to Consolidated Financial Statements 4
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ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
PPOL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS June 30, March 31,
2009 2009
------------ -------------
CURRENT ASSETS:
Cash and cash equivalents $ 2,162,144 $ 2,080,999
Trade accounts receivable 2,641 11,254
Inventories -- --
Deferred costs, current 7,138
Prepaid expenses and other current assets 25,115 212,550
------------ ------------
Total current assets 2,197,038 2,304,803
Restricted cash 17,086,158 18,435,213
Property and equipment, net 9,887 10,250
Software, net -- --
Guaranteed deposits -- --
Other assets 109,824 186,183
------------ ------------
$ 19,402,907 $ 20,936,449
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 506,425 $ 502,407
Advances received -- --
Deferred revenue, current 2,286,031 2,375,904
Income taxes payable -- --
Other current liabilities 57,384 100,518
------------ ------------
Total current liabilities 2,849,840 2,978,829
Advances received, Cube 17,086,158 18,435,213
------------ ------------
Total liabilities 19,935,998 21,414,042
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
SHAREHOLDERS' DEFICIT:
Common Stock; $0.001 par value;
100,000,000 shares authorized; 205,146
shares issued and outstanding at
June 30 and March 31, 2009 205 205
Additional paid-in capital 14,506,867 14,506,867
Accumulated other comprehensive income 2,969,811 2,971,530
Accumulated deficit (18,009,974) (17,956,195)
------------ ------------
Total shareholders' deficit 533,091 (477,593)
------------ ------------
$ 19,402,907 $ 20,936,449
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
1
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PPOL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Three months Three months
ended ended
June 30, 2009 June 30, 2008
------------- -------------
(Unaudited) (Unaudited)
REVENUE
Product sales $ 15,999 $ 4,324,677
Service fee income 1,666,109 873,853
----------- -----------
Total revenue 1,682,108 5,198,530
----------- -----------
COSTS AND EXPENSES
Cost of sales - Products -- --
Cost of sales - Services 1,013,850 2,593,407
Distributor incentives (4,174) 1,507,505
Selling, general and administrative expenses 648,844 1,224,445
----------- -----------
Total costs and expenses 1,658,520 5,325,357
----------- -----------
OPERATING INCOME (LOSS) 23,588 (126,827)
OTHER INCOME, net
Interest income, net -- --
Other income (expense), net (36,614) (61,560)
----------- -----------
Total other income (expense), net 36,614 (61,560)
INCOME (LOSS) BEFORE INCOME TAXES (13,026) (188,387)
----------- -----------
INCOME TAX EXPENSE
Current 711
Deferred 40,753 303,200
----------- -----------
Total income tax expense 40,753 303,911
----------- -----------
NET INCOME (LOSS) (53,779) (492,318)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation (1,719) 299,245
----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (55,498) $ (193,073)
=========== ===========
NET EARNINGS (LOSS) PER COMMON SHARE
Basic $ (0.26) $ (2.40)
=========== ===========
Diluted $ (0.26) $ (2.40)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 205,146 205,146
=========== ===========
Diluted 205,146 205,146
=========== ===========
NOTE: The effect of options is anti-dilutive and has been omitted from
calculation of diluted earnings per share.
The accompanying notes are an integral part of these
consolidated financial statements.
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PPOL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months Three months
ended ended
June 30, 2009 June 30, 2008
----------- -----------
(Unaudited) (Unaudited)
(Restated)
CASH FLOWS PROVIDED BY (USED FOR) PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $ (53,779) $ (492,318)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Depreciation and amortization 363 329,281
Loss (gain) on disposal of property and equipment -- 12,868
Loss (gain) on devaluation of membership -- 133,997
Deferred income taxes 50,257 --
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Restricted cash 1,349,055 1,742,433
Trade accounts receivable 8,613 189,547
Inventories -- 306,418
Deferred costs (7,138) 2,332,642
Prepaid expenses and other 187,435 36,279
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable 4,018 (525,060)
Advances received -- (1,780)
Advances received - Cube (1,349,055) (1,742,433)
Deferred revenue (89,873) (3,235,923)
Income taxes payable -- (6,010)
Other current liabilities (43,134) (109,700)
----------- -----------
Net cash provided by operating activities 56,762 (1,029,759)
----------- -----------
CASH FLOWS (USED FOR)PROVIDED BY INVESTING ACTIVITIES:
Purchase of property and equipment --
Receipt on Sale of property and equipment 30,911
Net change in lease deposits 4,409 96,586
Other 71,950 --
----------- -----------
Net cash (used for) provided by investing activities 76,359 127,497
----------- -----------
CASH USED FOR FINANCING ACTIVITIES:
Return of capital to fractional shareholders -- --
----------- -----------
Net cash used for financing activities -- --
----------- -----------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (51,976) 395,527
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS 81,145 (506,735)
CASH AND CASH EQUIVALENTS, beginning of period 2,080,999 2,559,039
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,162,144 $ 2,052,304
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION -
Income taxes paid $ 6,534 $ 711
=========== ===========
Interest paid $ -- $ --
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
3
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PPOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION:
PPOL, Inc. ("PPOL" or the "Company" or "we") (Formerly Diversified
Strategies, Inc.), incorporated on May 19, 1993 in California, is
primarily engaged in sales of multi-functional telecommunications
equipment called SF-70 and U-Phone. The Company operates in one
operating segment.
Using SF-70 and U-Phone, the Company provides original
telecommunication services called "UU Online," including SF-70 and
U-Phone bulletin board and mail services. The Company also provides
various other on-line services through UU Online such as sales of
products and services.
BASIS OF PRESENTATION:
The Company's present and past subsidiaries in Japan have all
maintained their records and prepared their financial statements in
accordance with accounting principles generally accepted in Japan.
Certain adjustments and reclassifications have been incorporated in
the accompanying financial statements to conform to accounting
principles generally accepted in the United States of America ("US
GAAP"). These adjustments were not recorded in the statutory books of
account. The principal adjustments relate to accounting for: (1)
revenue and related cost adjustments, (2) compensated absences, and
(3) deferred assets and liabilities. The accounts of PPOL, on a stand
alone basis, are maintained in accordance with US GAAP.
INCOME TAXES:
The FASB issued an interpretation of SFAS No. 109, Accounting for
Income Taxes ("FIN 48") and prescribed a consistent recognition
threshold and measurement attribute, as well as criteria for
subsequently recognizing, derecognizing and measuring such tax
positions for financial statement purposes. The interpretation also
requires expanded disclosure with respect to the uncertainty in income
taxes. We adopted FIN 48 commencing on April 1, 2007. There is no
impact of this interpretation on our Consolidated Financial
Statements.
RECLASSIFICATIONS:
Certain reclassifications have been made to the prior period
consolidated financial statements in order to conform to the current
period presentation.
STOCK BASED COMPENSATION
The Company grants stock options with an exercise price equal to at
least the fair value of the stock at the date of grant.
Effective, April 1, 2006, the Company adopted the provisions of SFAS
123 (revised 2004), "Share Based Payment" ("SFAS 123R"). This
Statement requires a public entity to measure the cost of employee
Services received in exchange for an award of equity instruments based
on the grant-date fair value of the award. That cost will be
recognized over the period during which an employee is required to
provide service in exchange for the award - the requisite service
period (usually the vesting period). No compensation cost is
recognized for equity instruments for which employees do not render
the requisite service.
The Company uses the Black-Scholes option valuation model. The
Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including
the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of employee stock options.
4
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As PPOL has not granted any options during the three months ended June
30, 2008 and 2007, the average risk free interest rate; average
volatility factor of the expected market price of the Company's common
stock; and an expected life of the options is not presented herein.
(2) GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has had recurring
losses during two of the last three years, negative cash flows from
operations of $2,138,263, $2,749,464, and $1,470,920 for the years ended
March 31, 2009, 2008 and 2007, respectively, and, as of June 30, 2009, had
an accumulated deficit of $18,009,974. The majority of income before income
taxes in recent years is attributed to the release of deferred revenue and
related costs that are being recognized as income and expense for financial
accounting purposes. Deferred revenues and related costs are attributable to
(1) shipments of our MOJICO machines in prior periods and (2) on-line
service fee subscriptions and renewals. Shipments of our MOJICO machines
have been negligible during the years ended March 31, 2008, 2007, 2006 and
three months ended June 30, 2008.
During the year ended March 31, 2006, the Company changed from a network
marketing plan (Network) method to a direct marketing plan (Direct) method.
Under the Network method and through the influence and guidance of Yoshihiro
Aota, a member of our Board of Directors ("Board"), the Company generated
significant sales of its MOJICO machines. These sales generated significant
cash and deferred revenues and costs for the Company. After changing to a
direct sales method, however, the Company's sales of its MOJICO have
decreased to a negligible level. Further, Mr. Aota has become the chief
executive officer of U-World Co., Ltd., a wholly owned subsidiary of K.K.
Seagull, a direct competitor of the Company which utilizes a network
marketing plan similar to the company's previous marketing plan. U-World is
a related party through Mr. Aota who is a member of the Board of both
entities.
Management has been able to adjust the Company's organizational structure to
substantially reduce selling, general and administrative costs. The
liquidation of deferred costs and deferred revenues will not consume or
provide any cash.
Further, as discussed in detail in Note 9, on February 16, 2007, the Board
unanimously approved the divestiture and Spin-Off of its wholly owned
operating subsidiary, AJOL, to the Company's shareholders. Following the
Spin-Off, the Company will acquire the status of a public shell corporation
with no operating business, and will seek merger, acquisition, or other
business opportunities. As of the filing date of these consolidated
financial statements, the Spin-Off was not completed. Accordingly, the
financial statements do not treat AJOL as a discontinued operation.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties should the Company be unable to continue as a going concern.
(3) EARNINGS PER SHARE
Three months ended
June 30,
2009 2008
--------- ---------
Components of Basic and Diluted Earnings
per Share
Numerator - Net income (loss) (in thousands $) $ (54) $ (88)
Denominator
Basic EPS - weighted average shares
outstanding 205,146 205,146
Diluted effect of assumed conversion of
stock-based awards 0 0
Diluted EPS adjusted weighted-average
shares outstanding 205,146 205,146
Earnings (loss) per share
Basic EPS $ 0.26 $ 0.20
Diluted EPS $ 0.26 $ 0.20
At June 30, 2008 and 2007, we did not include stock options to
purchase 13,000 shares of common stock in both periods' calculations
of diluted earnings per share because their inclusion would be
anti-dilutive.
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(4) NEW ACCOUNTING PRONOUNCEMENTS
GAAP HIERARCHY
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally
Accepted Accounting Principles ("SFAS 162"), which identifies the
sources of accounting principles and the framework for selecting the
principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with
generally accepted accounting principles in the United States. The
effective date of this statement is 60 days following the SEC's
approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.
(5) RELATED PARTY TRANSACTIONS
ADVANCED COMMUNICATIONS
During the quarters ended June 30, 2009 and 2008, PPOL entered into
the following transactions with Advanced Communications K.K., a
Japanese corporation that is 79.55% owned by Green Capital which is a
majority beneficial owner of the company:
2009 2008
----------- -----------
Information technology services $ 947,417 $ 1,373,492
Other, net (1,097) (22,886)
----------- -----------
$ 946,320 1,350,606
=========== ===========
At June 30, 2009 and 2008, PPOL's accrued liabilities to Advanced
Communications were $294,282 and $300,241, respectively.
SEAGULL
During the quarter ended June 30, 2009, and 2008 PPOL paid $2,949 and
$1,263, for royalty expenses, respectively, to K.K. Seagull, a
Japanese corporation and shareholder of 9,269 shares of the Company's
common stock.
(6) DEFERRED REVENUES AND DEFERRED COSTS:
Activity for deferred revenues and deferred costs are contained in the
table below:
Deferred Costs Deferred Revenues
------------------------------- -------------------------------
Current Non-current Current Non-current
----------- -------------- ----------- -------------
Beginning balance, March 31, 2009 $ (13,183) $ -- $ 2,375,904 $ --
Additional deferrals -- -- 1,018,001 --
Released amounts 7,123 -- (1,107,693) --
Exchange rate effect (96) -- 41,448 --
----------- -------------- ----------- -------------
Ending balance, June 30, 2009 $ (6,156) $ -- $ 2,327,660 $ --
=========== ============== =========== =============
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(7) STOCK OPTIONS:
The Company established a stock option plan in March 2004 (the "2004
Plan"). In accordance with the 2004 Plan, the Company is authorized to
issue incentive stock options and non-qualified stock options for up
to 20,000 shares of the Company's common stock to employees, directors
and consultants. A summary of the Company's stock option plan activity
is presented below:
Weighted Average Aggregate
Options Exercise Price Intrinsic Value
------- -------------- ---------------
Outstanding at March 31, 2008 13,000 $400 --
Granted -- -- --
Exercised -- -- --
Forfeited -- -- --
Expired -- -- --
----------- ---- ------
Outstanding at June 30, 2009 13,000 $400 --
=========== ==== ======
The following table summarizes information about the stock options outstanding
and exercisable at June 30, 2009:
Options Outstanding Options Exercisable
-------------------------------------- -----------------------
Weighted
Fiscal Average Weighted Weighted
Year Range of Remaining Average Average
Options Exercise Contractual Exercise Exercise
Granted Prices Options Life Price Options Price
- ------- ------ ------- ---- ----- ------- -----
<s>
2004 $400 12,200 6.75 $400 12,200 $400
2005 $400 800 7.00 $400 800 $400
2006 -- -- -- -- -- --
2007 -- -- -- -- -- --
2008 -- -- -- -- -- --
2009 -- -- -- -- -- --
------ ---- ---- ------ ----
Total 13,000 6.77 $400 13,000 $400
====== ==== ==== ====== ====
As of June 30, 2009, there was no unrecognized compensation cost
related to stock options outstanding. We recognize expense on stock
options using a graded vesting method, which recognizes the associated
expense based on the timing of option vesting dates.
(8) REVERSE STOCK SPLIT:
As announced on March 30, 2007, the Board, on February 16, 2007,
unanimously voted to authorize a one (1) for one hundred (100) reverse
stock split (the "Reverse Split") of the Company's issued and
outstanding shares of common stock, and the payment of cash in lieu of
fractionalized shares otherwise issuable in connection with the
Reverse Split. The Reverse Split provided shareholders owning less
than one hundred (100) shares of common stock of the Company (the
"Odd-Lot Holders") the benefit of liquidating their relatively small
odd-lot holdings for market value without brokers' commissions. This
is particularly beneficial to the Odd-Lot Holders given the limited
market for and trading in the Company's common stock. The Odd-Lot
Holders own less than one percent (1%) of the Company's outstanding
common stock. The Reverse Split will allow the Company to purchase and
acquire the common stock of approximately 1,088 holders of record of
the Company, all of whom reside in the United States and each of whom
owns less than one hundred (100) shares of common stock in the
Company. The Reverse Split will also save the Company administrative
and related costs of sending proxy statements, annual reports,
quarterly reports and other communications to the Company's affected
shareholders. The Company also believes that the Reverse Split will
facilitate and allow for the benefits of the spin-off discussed below.
The Reverse Split was effective on April 23, 2007.
The consolidated financial statements of the Company reflect the
effect of the reverse stock split retroactively.
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(9) SPIN-OFF OF AJOL
On February 16, 2007, the Board unanimously approved a transaction
involving the separation of the Company's wholly-owned subsidiary,
AJOL, by authorizing the issuance of shares of common stock of AJOL
owned by the Company to the stockholders of the Company in proportion
to each stockholder's percentage ownership in the Company (the
"Spin-Off"). In authorizing the foregoing, the Board considered that
the Company's business is operated exclusively in Japan through AJOL,
and that there is relatively little or no interest in the Company and
its common stock and AJOL in the United States. The Board also
considered that a majority of the Company's shareholders reside in
Japan. The Board also believes that shareholders of the Company could
maximize the value of their shares in the Company by directly holding
shares in AJOL, in addition to continuing holding shares in the
Company. The Board also considered that AJOL would be in a position to
seek and obtain private issuer status in the United States following
the Spin-Off, thereby allowing AJOL to seek suspension of any
Commission reporting obligations to which it would be subject
following the Spin-Off. The Board also concluded that the Spin-Off
will allow AJOL to more effectively and efficiently focus on its
business in Japan. Based on the foregoing, the Board authorized the
transaction whereby the Company will seek divestiture of and Spin-Off
AJOL to the stockholders of the Company, pro rata. Following the
Spin-Off, the stockholders of the Company will continue to own the
same number of shares in the Company that they held pre Spin-Off, and
will in addition own AJOL shares in proportion to their percentage
ownership in the Company. Following the Spin-Off, the Company will
acquire the status of a public shell corporation with no operating
business, and will seek merger, acquisition or other business
opportunities. The effective date of the Spin-Off and the record date
for stockholders to be eligible to receive AJOL shares in the Spin-Off
will be determined by the Board, as appropriate, and will be subject
to the filing and effectiveness of a registration statement with the
SEC, registering the AJOL shares. The Board can provide no assurance
that a public market or any market for the AJOL shares or the
Company's shares, either in Japan or the United States, will develop
or exist or at what price following the Spin-Off.
As of the filing date of these financial statements, the Spin-Off was
not completed. Accordingly, the financial information included herein
does not treat AJOL as a discontinued operation. Since the current
shareholders of PPOL will be shareholders of AJOL after the Spin-Off,
we believe the treatment of AJOL as a continuing operation to be the
most appropriate accounting recognition under the given circumstances.
Additionally, AJOL will be treated as the surviving entity for
accounting purposes even though PPOL will be the surviving entity for
legal purposes. It will also provide the reader with more comparable
year to year performance information.
Condensed stand alone balance sheet for PPOL as of June 30, 2009 and
2008 follows:
2009 2008
------------ ------------
Current assets $ 50,207 $ 180,947
Investment in AJOL 253,392 253,392
Other assets 6,870 4,409
------------ ------------
Total assets $ 310,469 $ 438,748
============ ============
Current liabilities $ 48,134 $ 164,021
Notes payable to AJOL 1,683,878 1,067,023
------------ ------------
Total liabilities 1,732,012 1,231,044
Capital stock and
additional-paid-in-capital 14,507,072 14,507,072
Accumulated other comprehensive income 2,344,055 2,344,055
Accumulated deficit (18,272,670) (17,643,423)
------------ ------------
Total shareholders'
(deficit) equity (1,421,543) (792,296)
------------ ------------
Total liabilities and shareholders'
(deficit) equity $ 310,469 $ 438,748
============ ============
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Condensed stand alone statement of operations for PPOL for the quarters
ended June 30, 2009, and 2008 follows:
2009 2008
--------- ---------
Service fee income from AJOL $ -- $ --
General and administrative expenses (106,498) (170,653)
Other income, net (10,848) 44,594
Income tax expense -- --
--------- ---------
Net loss $(117,346) $(126,060)
========= =========
(10) CERTIFICATELESS/ELECTRONIC BOOK ENTRY OWNERSHIP
On February 16, 2007, the Board unanimously voted to authorize an
amendment to the Company's By-laws to provide for
certificateless/electronic book entry ownership of stock in the
Company, such that the Company will not issue stock certificates to
evidence the ownership thereof, but that information sufficient to
identify ownership in the Company will be entered in electronic form
in the books of the Company maintained by its transfer agent. The
Company will adopt a system of issuance, recordation and transfer of
its shares by electronic or other means not involving any issuance of
certificates. The conversion to certificateless ownership will be
facilitated by the Company's stock transfer agent. The Company is
currently in the process of collecting the physical certificates from
shareholders to convert them to electronic book entry.
(11) COMMITMENTS & CONTINGENCIES:
As of June 30, 2009 the Company had professional consulting service
contracts and operating leases in effect which collectively will
require payments of $395,604, and 36,898 respectively.
On October 17, 2005, PPOL's ultimate majority shareholder, Green
Capital, filed an action against Capital Aid, Inc., a Japan
corporation, and Messrs. Hiroshi Shibakawa, Kenji Nakamura, Yoshiyuki
Okamura, Yoshiteru Sazanami, Hiroshi Matsuo, Tokuji Koga and Chizuko
Koga (the "Ide Group"), in Tokyo District Court (case no. (wa)
2005-20878) to recover PPOL common share stock certificates (the "PPOL
Certificates") registered in the name of Foster Strategic Investment
Partnership ("FSIP"), and beneficially owned by Green Capital. The Ide
Group maintains physical possession of the PPOL Certificates. Green
Capital has alleged in its lawsuit that 1) the Ide Group purchased the
PPOL Certificates from a person who was not the owner therefore (or
has any right or interest therein); and 2) did not constitute a bona
fide purchaser thereof, as such is provided under the Article 131-2 of
the Commercial Code of Japan, Green Capital is entitled to the remedy
of repossession of the PPOL Certificates at issue. The Ide Group, in
turn, has countersued Green Capital, Green Capital's then-CEO, PPOL,
PPOL's and AJOL's directors, PPOL's operating subsidiary, AJOL, and
Nobuo Takada, a former director and CEO of PPOL, for $9.2 million
(1.056 billion yen) plus interest. In its countersuit, the Ide Group
alleges Takada had tricked them into buying the PPOL Certificates and
borrowing money from them, using the PPOL Certificates as collateral.
The Ide Group has alleged in its countersuit that each named
counter-defendant conspired with Takada in a series of alleged
unlawful and improper transactions resulting in the Ide Group's
purchase of the PPOL Certificates and loan to Takada. At the time of
the alleged series of transactions, Takada was neither a director nor
officer of PPOL or AJOL. Green Capital has also contacted the Tokyo
Metropolitan Police Department and has filed a criminal complaint
against Nobuo Takada for alleged embezzlement of the PPOL Certificates
registered in the name of FSIP and beneficially owned by Green
Capital. Green Capital, Green Capital's then-CEO, PPOL, PPOL's and
AJOL'S directors, and PPOL's operating subsidiary, AJOL have all
denied knowledge of any of the alleged transactions and any improper
conduct associated with such alleged transactions. On February 18,
2009, the Tokyo District Court held in its decision in the Countersuit
that Takada pay to the Ide Group 956 million yen in damages plus
interest. The Court dismissed the Countersuit as to the remaining
parties and thereafter, with no appeal by the Ide Group, the decision
has been confirmed. On the same day, the Court dismissed the
Repossession Lawsuit, however, as the result of an appeal of the
dismissal, the Repossession Lawsuit it still pending. Based, in part,
on the advice of counsel, PPOL believes the ultimate resolution of
this litigation will not have a material impact on the financial
position, results of operations or cash flows of PPOL, and its
subsidiary.
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The company has received a letter from Japanese counsel, Shimon Takagi
of the law firm of White & Case, Tokyo, Japan, dated April 21, 2009.
Counsel's letter points out that if the KFB or other governmental
agency in Japan determines that the Company must comply with
registration and reporting obligations in Japan, the Company's failure
to do so could result in criminal sanctions. Pending further advice
from the Kanto Regional Financial Bureau ("KFB") in Japan, the Company
has elected at this time not to proceed with any reporting obligations
it may have in Japan.
In accordance with SFAS No. 5, "Accounting for Contingencies," PPOL
reserves for a legal liability when it is both probable that a
liability has been incurred and the amount of the loss can be
reasonably estimated. At least quarterly PPOL reviews and adjusts
these reserves to reflect the impacts of negotiations, settlements,
rulings, advice of legal counsel and other information and events
pertaining to a particular case. The ultimate outcome of such matters
cannot presently be determined or estimated. PPOL's management
believes that PPOL has sufficiently reserved for legal matters and
that the ultimate resolution of pending matters will not have a
material adverse impact on PPOL's consolidated financial position,
operating results or cash flows. However, the results of legal
proceedings cannot be predicted with certainty. Should PPOL fail to
prevail in current legal matters or should one or more of these legal
matters be resolved against PPOL, PPOL could be required to pay
substantial monetary damages and, its financial position, operating
results and cash flows could be materially adversely affected.
10