FIRST REPORT OF THE LIQUIDATORS TO CREDITORS AND MEMBERS OF BRANCH 100 LIMITED (In Liquidation) (formerly Fresco Systems Limited)

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1 2 September 2004 INTRODUCTION FIRST REPORT OF THE LIQUIDATORS TO CREDITORS AND MEMBERS OF BRANCH 100 LIMITED (In Liquidation) (formerly Fresco Systems Limited) We advise that Branch 100 Limited (In Liquidation) (''the company'') was placed into liquidation on 27 August 2004 at 10am by a special resolution of shareholders pursuant to Section 241(2)(a) of the Companies Act 1993 ( the Act ). Kevin David Pitfield & Gareth Russel Hoole were appointed joint and several liquidators of the company at that time. RESTRICTIONS This report is not intended for general circulation, nor is it to be reproduced or used for any purpose without the liquidators written permission in each specific instance. The liquidators, Staples Rodway Limited, its employees and agents do not assume any responsibility or liability for any losses occasioned to any party for any reason including as a result of the circulation, publication, reproduction or use of this report contrary to the provisions of this paragraph. The liquidators reserve the right (but will be under no obligation) to review this report and, if considered necessary, to revise the report in light of any information existing at the date of this report which becomes known to us after that date. BACKGROUND AND STATEMENT OF POSITION Director and Shareholders On the date of the appointment of the liquidators the records of the company reflected the following: Shareholders: Director: Kenneth Armstrong Hetherington Bruce Robert Fraser Kenneth Armstrong Hetherington History The company was incorporated as Fresco Systems Limited on 13 May name was changed to Branch 100 Limited on 18 August The

2 The principal business of the company was that of custom precision engineering. The company traded from 61 Ben Lomond Crescent, Pakuranga, Auckland. The company also had a small presence in Australia. The company experienced difficulties after securing a large contract in China in October 2003 which was later found to contain a number of onerous performance bonds. This led to cash flow problems through the first few months of 2004 which ultimately resulted in the day to day trading activities of the company being monitored by the company s bank. The director has advised that the company s efficient trading operations were hindered by this monitoring and the associated control measures that were implemented by the bank. The company also had difficulties in sourcing steel for the aforementioned contract, resulting in a three month delay on final shipping thus delaying receipt of payment. In April 2004 the company investigated the feasibility of a compromise with its creditors, as many suppliers were by then trading with the company on a cash only basis. Following receipt of payment on the aforementioned contract, negotiations commenced with a number of the company s creditors. However, a compromise was not implemented as all funds were applied to reduction of the company s indebtedness to the bank. In June 2004 the company again attempted to reach a compromise with its creditors. However the necessary level of support was not obtained and, after being served with a number of statutory demands, the decision was made to sell elements of the business, with the sale settling on 18 August Actions Taken To Date The liquidators and their representatives have attended the premises of the company at 61 Ben Lomond Crescent, Pakuranga. We have established that the company s only apparent asset is in the form of cash held in the company bank accounts. These accounts have been frozen at the instruction of the liquidators and the balances transferred to the liquidators trust account. The liquidators have requested all documentation pertaining to the sale of the business including the sale and purchase agreement and all supporting valuations, with a view to having these reviewed by our legal adviser. At the time of preparation of this report, not all requested information had been forthcoming even though the director and his advisors have been fully co-operative. Consequently the liquidators have not had the opportunity to form any views as to the validity or otherwise of the sale transaction. The liquidators are aware of creditors concerns that the company may have traded whilst insolvent and to this end the liquidators are investigating the affairs of the company with particular attention to the actions of the directors up to date of

3 liquidation. Pursuant to section 258A we will report any offences to the Registrar of Companies. Statement of Position Attached by way of Appendix 1 is the Statement of Position of the company as at 27 August 2004, as advised by the management of the company. The information contained in the attached statement of position was provided by the management of the company and, as yet, has not been investigated by the liquidators. It is possible that subsequent investigation could result in a revision of the information thus presented. Securities and Charges A search of the Personal Property Securities Register has revealed a number of registered security interests. The liquidators understand that secured creditors were settled as necessary part of the sale and purchase process. All holders of registered security interests have been written to in order to verify this assertion. As a result of that assertion secured creditors have not been recorded in the statement of position as at the date of liquidation. Apart from creditors designated as preferential in terms of the Seventh Schedule of the Companies Act 1993 and any residual secured creditors as referred to above, all other creditors of the company will rank as unsecured. PROPOSALS FOR THE CONDUCT OF THE LIQUIDATION Investigations into the existence and whereabouts of any assets not identified at the date of this report will be undertaken. The liquidators will review the sale and purchase agreement, together with underlying asset valuations to ensure that correct procedure was followed and that adequate consideration was paid for the business of the company. Appropriate legal advice will be sought to the extent considered necessary. Based on the results of our investigations, the liquidators will either allow the sale transaction to stand or seek to overturn it, depending on what is likely to present the best possible outcome for the creditors of the company, having due regard to orders of priority of claims. The liquidators will review disbursements made by the company in the period beginning on 27 August 2002 through to their appointment for purposes of determining whether any such transactions can be considered voidable within the ambit of section 292 of the Companies Act Particular attention will be paid to the disbursement of the proceeds of the sale of the business. From the records made available to the liquidators, at the time of appointment the company was prima facie insolvent. At this time we have not been able to determine how long the company traded under insolvent circumstances, if at all. However, we will conduct the appropriate investigation in this regard and report our findings to the

4 Registrar of Companies as considered necessary. The liquidators will pursue appropriate action against the director to the extent considered economically beneficial if evidence exists to support such action. CREDITORS MEETING The liquidators have decided pursuant to section 245 of the Companies Act 1993 to dispense with a meeting of creditors. The decision has been made on the basis that pursuant to Section 255(5) of the Companies Act 1993 the Liquidators are satisfied that the value of assets of the company available for distribution to unsecured creditors, not being creditors entitled to be paid in the order of priority set out in the Seventh Schedule of the Companies Act 1993, is not likely to exceed 20 cents in every dollar owed. Pursuant to section 314(1) of the Companies Act 1993 any creditor or shareholder of the company may require the liquidators to call a meeting of creditors or shareholders by giving written notice to the liquidators, within 10 days of receipt of this circular. ESTIMATED DATE OF COMPLETION OF LIQUIDATION Subject to satisfactory investigation of the company's affairs and any follow up action arising there from we tentatively estimate that this liquidation will be completed within the next six months. Should you have any queries regarding the liquidation of the company please do not hesitate to contact Alastair Fairley at the office of the liquidators on telephone , extension 824. Kevin David Pitfield JOINT LIQUIDATOR Gareth Russel Hoole JOINT LIQUIDATOR

5 APPENDIX 1 BRANCH 100 LIMITED (In Liquidation) STATEMENT OF POSITION AS AT 27 AUGUST 2004 (Date of Appointment) Estimated Book Realisable Assets Value Value Cash in Bank at Appointment 8,600 8,600 Debtors 26,684 Nil Petty Cash on Hand TOTAL ASSETS 35,484 8,800 Liabilities Preferential Creditors Inland Revenue 132,492 Preferential Creditors Employee Claims 32,579 Unsecured Creditors New Zealand Creditors 1,053,171 Unsecured Creditors Australian Creditors (NZD) 172,270 2 TOTAL LIABILITIES 1,390,512 DEFICIT: LIABILITIES OVER ASSETS (1,355,028) 1 All debtors listed in the company records are also creditors of the company. Amounts owed by the company in each case, exceeds those amounts owing to the company. 2 - This figure represents trade creditors and non-priority claims from Inland Revenue Department and employees.