Looks like they learned from their VAT debacle...I like it.
Proposed Acquisition
We have entered into a letter of intent pursuant to which we seek to acquire N2J Limited, a United Kingdom limited company (“N2J”), from its four owners. The four owners of N2J previously sold us Ace, and serve as our officers and directors. The letter of intent was executed by N2J and Tricell on April 13, 2006, and provides for a definitive stock purchase agreement to be executed (we expect prior to the end of April 2006) and submitted to the approval by our shareholders. Although N2J serves in the same general industry as Ace and Tricell Distribution, N2J only exports products from the UK, which leaves it in a favorable position for VAT reclaims. Operating with outstanding VAT reclaims requires significant cash flows because an entity operating in such a manner will have its outstanding aggregate VAT claim increase every month it continues to operate since VAT refunds commonly take between two to four months to process. N2J believes it has nominal risk of having its reclaim denied since it started trading operations subsequent to the modified joint and several liability law which became effective in August 2003. Neither Ace nor Tricell Distribution pursue this strategy since they engaged in trading operations prior to the revised law. Therefore, despite the clarified VAT regime and the recent ECJ ruling, Customs still retains some power to reject VAT refunds for trading entities.
N2J began trading operations in September 2004, having previously been a home building company, which had a VAT refund license. The recent entry into the trading market allowed N2J to structure its policies in a manner that would ensure reasonably prompt VAT refunds, whereas Ace and Tricell Distribution did not have the opportunity to eliminate their trading histories. When N2J began trading, it implemented a due diligence policy that requires confirmation that each of its suppliers (1) actually directly imported the target goods into the UK, (2) paid the appropriate VAT due, and (3) is still in business. Unless a potential supplier is able to satisfy each of these items, N2J will not purchase their goods. Consequently, N2J has full confidence that VAT refunds will be received. Because the previous operations of Ace and Tricell Distribution were conducted without the benefit of learning Customs’ pitfalls, they conduct operations in a manner that does not result in VAT reclaim position.
AI
