Dear Andrew,

I have concluded my examination of the materials provided, and here follows my report of my findings.

But first a few caveats and explanations:

I have been a member of the Institute of Money Advisers (and its predecessor, the Money Advisers Association) for many years, and have worked in the front line of money advice (as distinct from Financial Advice) for the last seven years. I mostly represent debtors, rather than creditors, but naturally, the laws and principles are the same on both sides of that fence.

The materials I have had available to me have been: the mass of email communications between the parties (which, judging from the dates, flow, and connectedness of them appears to be reasonably comprehensive, and although provided to me by only one party, are far from one-sided); further email communications between one or other of the parties and several other third parties (which will remain nameless here for reasons to be determined later); copies of documents available from Companies House and Credit Reference Agencies in the UK relating to Phonometrography.

I was tasked with reviewing the materials available to determine the potential for some form of legal claim on the part of Andrew McKenzie (hereafter named h3o) against Wayne Carlsen and/or Phonometrography Ltd in pursuit of the recovery of any monies owed to h3o as a result of agreement(s) made between the parties during the period starting in November 2002, and circa February or March 2005.

My examination of the materials appear to show the following:

There was agreement between the parties for Phonometrography Ltd (which company was set up by Mr Wayne Carlsen and incorporated on 19th December 2003) to release 7 different sound recordings and attendant materials composed, created, designed and realised by h3o. There were discussions about further potential releases, but the relationship between the parties ended before any further releases were concluded or agreed upon.

Accounting for payment due to the artist (h3o, and on one occasion, a third party) is extremely difficult from the materials examined. I have attempted to obtain further accounts from Companies House, but as Phonometrography Limited was listed as a Small Company, accounting to Companies House was not complex or complete, and quite frankly, the accounts obtained from Companies House offer very little in the way of illumination. No detailed accounts were provided to h3o by Phonometrography or its Directors — in spite of promises to the contrary.

In attempting to make some determination as to the amount due to be paid to h3o for the 7 releases, I have located only some sparse but itemised accounts within the email communications provided to h3o by Mr Carlsen in November 2003 which detailed some of the expenses met by him/his company (including printers bills, licensing fees, mastering of materials and production of CD's etc) for two of the released pieces, and some projections by Mr Carlsen as to the likely amounts due to be paid to h3o for two other pieces. Additionally, there is agreement from Mr Carlsen to pay h3o specified amounts in addition to monies from sales for design of covers/texts etc and some publicity and advertising pieces.

It is worth noting that the only "detailed" accounts I have located were sent to h3o before the date that Mr Carlsen's company was incorporated and became a limited company.

When it comes to the amounts h3o was in fact paid, the materials again give few precise and clear details. There are details of amounts paid to h3o by Mr Carlsen at various times, although it is often unclear whether the sums given over to h3o were payments for design work; to repay "receipted expenses" (this was definitely the case for part of one payment, and there was other talk of the company being able to stand guarantor for various other, mostly unspecified, expenses); advances against future/expected sales; payment for equipment bought on behalf of the Company; or indeed a gift (which at least one payment was so described). Yet other items are mentioned as offers of payment which do not appear to have been followed up — in particular, Mr Carlsen offered to pay h3o an undetermined sum to buy from h3o the font designed by h3o and used in the Phonometrography website and other corporate materials.

As well as difficulties determining the purposes of the majority of payments sent to h3o, there are clear problems with some of the methods of the payments. Mr Carlsen, and Phonometrography, was operating out of Preston, UK, and h3o during this time was residing wholly in Iceland, with no access to UK banking facilities. h3o's access to Icelandic banking facilities appears also to have been problematic, both in terms of limited functionality, and in terms of receiving monies from outside of Iceland. Mr Carlsen did indicate at some point that Phonometrography could pay the additional costs of transferring monies as a business expense, so that h3o received the amount(s) he was due, rather than have various fees deducted from the monies received, but this appears not to have happened on any of the occasions when money was sent by any of various methods to h3o.

Given all of the caveats and difficulties described above, I have rather tended to the conservative in my estimations, taking as a starting point only those figures quoted by Mr Carlsen and have treated the vast majority of monies received as payments, although a more detailed forensic examination would I believe be required to determine true figures. As already mentioned, one payment was most definitely sent as a gift, whilst others can be identified wholly or in part to have been expenses rather than payments.

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I have estimated that in total, payment which should have been due to be paid to h3o, added to fees for design work on packages and other materials for the seven items released through Phonometrography, but not including any extraneous expenses, to have been a total of £ 22111.92 sterling. h3o appears to have been 'paid' a total of only £9175.33 sterling. In my estimation, and through my examination of the materials available, therefore, h3o would appear to be owed £12936.59p sterling. It was a matter of public record that when the relationship between the parties broke down, Phonometrography claimed that h3o was owed only £940.00 sterling, almost £12,000 sterling less than what appears to be the case. It was also stated by Mr Carlsen that this amount was being held in an interest bearing account on behalf of h3o, until a suitable payment method and arrangement could be made. I understand that this money has never been paid, and doubt it is any longer available.

Another matter which Mr Carlsen put into the public domain was the issue of various pieces of "equipment", some of which belonged to h3o and was in the possession at the time of Mr Carlsen, and other pieces of equipment which were in the possession of h3o and which Mr Carlsen described as being his own, rather than belonging to the company. In spite of assurances from Mr Carlsen, h3o has not received his two UHER reel to reel tape machines. These not only had a fiscal value, but have made h3o's subsequent work in his chosen field considerably more difficult to complete, and are now virtually impossible to replace as similar models of machine are no longer manufactured. Additionally, Mr Carlsen on more than one occasion reported to h3o that several pieces of equipment had either become company property or were subsequently purchased by the company, and further, he also stated that he did not expect to have some pieces of said equipment to be returned.

Given what follows, I have not made further attempts to quantify the loss in financial terms of h3o's equipment.

I believe that the materials available would form a good basis for a legal claim against the other party. However, there are regrettably reasons for advising against this action.

Phonometrography no longer exists as a Limited Company. The Directors (Wayne Carlsen and Joanne Carlsen) made an application to Strike Off the company in June 2007, and the company was then dissolved in November 2007. When the company was first incorporated it will have taken on all liabilities of the former unlimited company. Therefore it would at first sight appear that there is no entity against whom to make a claim.

It may be possible to approach Companies House in the UK, and ask that the Company be re-entered onto the company register as a Limited Company. This could be easily done. When a Company Director makes their own application to wind up a limited company, they do so by sending a form 652a to Companies House, and they should send a copy to any and all known creditors, who may then object to the winding up. The Company Directors failed in that no copy of the application to wind up the company was at any time sent to h3o, and consequently the Directors have committed an offence under UK company legislation, and as such this could ultimately render one or more of the directors personally liable for debts owed by the company.

There are however difficulties for h3o in this, not only in the fact that he would be conducting his affairs either through an appointed person, or from Estonia. He would need to make application to have the company wound up on his application, at a cost of £850.00 sterling. Such a sum on its own is not an unsubstantial one in its own right, but it is further likely only to be money thrown down into an endless pit. If no such application was forthcoming from h3o, his agent, or indeed another interested party, the original Directors' application would again be acted upon, and the matter would return to where it currently stands.

Mr Carlsen himself is the subject of an Individual Voluntary Arrangement (IVA) — a form of insolvency proceedings (details of which can be checked at www.insolvency.gov.uk). (Entered as an IVA on 16th October 2007 — no end date indicated, but an IVA would typically have a life of between 3 and 5 years).

This means that Mr Carlsen already has other creditors, and even if h3o was successful in pursuing a claim against Mr Carlsen, he would not have any priority over the other creditors (indeed, he may have a lower priority). The economics of IVAs is such that they are rarely entered into unless the debtor has declared debts of at least £15000.00 sterling, and creditors often only receive around 2/3^rd of their monies, and sometimes much less, with the remainder being written off under the terms of the IVA.

Clearly, in a financial sense, there have been no winners here. What is apparent to me is that h3o has lost out considerably in the arrangements, with no chance of retrieving even a part of what is owed to him. h3o's health and financial difficulties can be ascertained from his website. Mr Carlsen on the other hand, whilst a loser too, is yet able to afford to make some not-inconsiderable payments to his declared creditors (that is another feature of the economics of IVAs — most corporate creditors will not agree to the arrangement unless the debtor is able to offer either a considerable lump sum out of assets such as property, or reasonable monthly payments for a period of time, in the region of £150.00 sterling per calendar month or greater at current values), and will be declared debt free at the end of the arrangement.

It has not been a pleasant experience examining these materials on several levels. They are often confusing, obtuse and vague; the relationship between the parties was clearly unequal; and whilst I can identify a clear creditor status for h3o, I must regrettably advise against pursuing that claim on pragmatic and economic grounds. As a "fan" of h3o, some of the materials have been upsetting, and it has occasionally been difficult to set my feelings to one side and remain objective in this exercise. I believe however that I have managed to do so, and believe this report and my examination of the materials represents as objective a view as possible, and I stand by my assertions.

Dated Wednesday 2^nd April 2008.