My Financial Position

Dear All,

This is a statement that is born out of necessity because of precipitating circumstances

regarding my financial position. I have tried to keep it as brief as possible but have had to
explain various points for what will be hopefully obvious reasons.

For the last year I have been faced with trying to create an income to match the outgoings I
had during the period of time before the credit crunch. I have not been able to create an
income large enough to cover those costs and as a result one of my creditors has decided that
they think they will have more chance of getting their money back by making me bankrupt.

I am at the moment looking into if there is any just cause to stop these proceedings but I do
not think that there is and as such I am likely to be made bankrupt within the next few
months.

I have many reasons for writing this but my first reason is to confirm to you that this does not
mean that the system which I described in the book is flawed. In fact the system still works
well even today and I wanted to try and reassure as many people as possible that this has all
been caused by almost 100% unrelated business problems - and even those problems have
been caused by several elements of really bad timing.

I will cover in detail below

- The problem I had with timing on a large remortgage and therefore not being able to
roll over my loans
- How none of this downfall is anything to do with the investment model itself
- My personally guaranteed borrowings and how one of those will cause the end of my
efforts to respect my debts
- The attempted sale of Passive and how this was supposed to have solved our current
problem way before it occurred
- Why Passive Investments has gone into liquidation and what Passive are trying to do
to honour the services
- Why my personal cash flow did not handle the problem regarding my equity release
- How my other business interests suffered thanks to the credit crunch and how they
were caught out by spectacularly bad timing
- My conclusions as to why this is happening, and how others can learn from my
mistakes

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Remortgage & Equity Release Problems

So I’ll just jump in. Firstly, I had to delay the remortgage of around 50% of my portfolio
because of an unrelated business concern. Equity release had always been my principle
source of income and funds to roll over my loans. Basically, I had to complete another
business transaction before I commenced the remortgage of my portfolio.

I identified a significant amount of equity I could release in January 2007. However, the
business transaction didn’t finish until Sep/Oct 2007 and I commenced the refinance of the
portfolio in October 2007, with the anticipation of withdrawing between £2.4 & £2.8 million
in the period from Nov 2007 to July 2008. The success of this would have meant that my
financial position was secure and I would have been in the fortunate position of being able to
start investing again.

However, in February 2008 I had around ten mortgage offers retracted almost overnight, two
of which were on the day of drawdown. In total this was approximately £280k that was
withdrawn from my immediate cash flow without notice. Now I could recover from a £280k
loss but this was just 10% of the full remortgage. Up until this point I had withdrawn
approximately £350k of equity and was on schedule (12.5% of the total expected). We all
thought these mortgage product withdrawals were just another phase of the market. I think I
joked a few times early on that the only way for this strategy to be flawed was if all the banks
stopped lending. Well, a lesson learned there!

Anyway, our opinion changed when that started to happen and in fact I had received my last
equity withdrawal. Obviously if the unrelated business problem hadn’t been there then these
remortgages would have all been done and dusted by October 2007.

I persisted for several months trying to release equity form other lenders but all of which
came to nothing and it was clear that equity release was no longer available, but I did have to
try all options before closing off this avenue. This was at a time when I still had equity in my
portfolio. However, during the winter property prices continued to fall and even though I was
only on average 67% borrowed at the start of the credit crunch it now looked from an actual
‘sell all’ perspective that the whole portfolio was in negative equity and that was without the
personal loans given by people who were looking for a fixed return.

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Personally Guaranteed Borrowings

No remortgages and no equity now presented a real problem, so we shut off all loan
payments and told our creditors that we would look to find ways of starting to make interest
payments to them, but that capital payments were not possible as we could not roll over our
loans. We asked for their help and understanding whilst apologising for our part in the
situation we were in.

Most understood, no one was happy about it of course, some were angry and some were very
angry, but I said that my ability to make money was not gone, just my ability to roll over my
loans. All but two creditors understood and didn’t take any action. I explained that if they did
take action then they would be unlikely to get any money at all and would almost certainly
lose all of their money but that more importantly there were people I had borrowed from that
were in a far worse situation than them and that if they proceeded with this then they would
certainly cause the loss of all of their money as well. Whereas, one day the property market
would recover in a way that would allow me to repay their capital and in the meantime, I
would trade and pay over all profits made above reasonable living costs. Nearly all my
creditors thought was very fair and reasonable.

For those that don't fully understand the ramifications of bankruptcy, if I am made bankrupt
then the person who is making me bankrupt is effectively taking away all of the assets that
would let me respect my debts, i.e. my property portfolio which would allow me to refinance
or sell when the market timing is better.
In effect they are making me sell at a time like the early nineties which was clearly the worst
time to sell, as it is now. Anyone who sold property at that time lost money, whereas all that
were able to hang on were able to sell or refinance when the market recovered.

The other main point about bankruptcy is that if one person does it then everyone is bound by
it. There are no individual deals, everything gets handed over to a receiver and they decide
who gets what and whether there has been any wrong doing or not.

There is a reason why the law allows someone a fresh start after bankruptcy, as to take on too
much it becomes unreasonable to expect an individual to respect their debts if you have taken
away all of their assets.

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Selling Passive

Equity release was only one of my sources of money and I had been spending my time during
2005, ’06 & ’07 creating multiple large streams of income with which to reduce my reliance
on equity release. One of these was to sell off part of the business, Passive Investments. In
December 2007 we had Passive valued at £13.5 to £17.5 million after an in-depth study and
evaluation of this new business model. This price was exceptionally good for a company that
was only formed three years before.

So to lower outgoings on our private borrowings and release the ‘need’ to refinance as well as
to secure the company for the long term we decided to sell off 50%+. Passive was owned at
the time by three people, myself and Greg owning 95% between us and our ex-business
partner owning the remaining 5%. Our intention was to raise at least £5 million from the sale
and after tax have enough to settle all outstanding personal borrowings and to increase our
cash buffer. However, of course, Passive was valued at a time just as the credit crunch started
to bite and the risk appetite for anything property had fallen off the edge of the planet.

We still had a strong income stream for Passive and were still busy servicing the VAST
majority of clients successfully as well as pouring the profits into developing a constantly
improving system. I won’t say there was never a problem but when I still worked there in
December ’07 there were just a few disgruntled people. Two from memory had legitimate
complaints and received acceptable compensation and the others did not as we did not feel
their complaints were justified. Since then the company grew and there have obviously been
a few more clients with legitimate complaints but from what I have heard the legitimate
problems are still a very, very small percentage of Passive's 250 plus clients. The truth of the
matter is that Passive had a lot of very happy clients and the system works.

Passive’s sales dropped severely in 2008 and initially fell by 50% at the start of the year. By
the end of the year they had fallen by 75% and I do not know the exact level they are at now
as I have not had a bean from Passive since 2008, let alone received any financial
information. The valuation of Passive was based on its income stream and as that had been
dissipated then so was the valuation. This first dropped to £10m, then to £5m, then to £3m
and eventually to someone picking it up for the debts it had.
So the beautiful sale we had planned for which would have secured the company for good
and again would have more than put us into a favourable position didn’t happen either. So
that was the second ‘fix all’ solution that failed to deliver a bean.

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Passive's Liquidation

It is my understanding that Passive had to be liquidated because of a deal falling through with
the HMRC. Passive owed VAT and a deal was done with the HMRC in July to repay this
over either 24 or 36 months. Then about ten days ago the HMRC sent a letter confirming that
they had just withdrawn that deal and wanted full payment immediately or they would put the
company into administration. Greg of course sought legal advice and put the company into
administration immediately. I received an email on the day before saying, Passive is probably
going to have to liquidate and I am going to take legal advice. The legal advice was to
liquidate Passive immediately.

This was an almost identical occurrence to one that happened to us in 2004, we had a
company that we were ceasing trading and there was a debt outstanding to the HMRC for
approximately £50k. We agreed 24 months with them to settle the debt and then 3 months
into the payments they wrote to us calling in the full debt. Of course, when we spoke with
them we told them if they did that then we would be forced to liquidate the company as they
knew we were personally stumping up the payments each month. They said they wanted their
money now. Well, of course when we told our advisers this they were shocked but advised us
to liquidate the company. This was a debt which we were honouring and they still pulled the
plug with zero chance of obtaining any money. Sometimes I think that this sort of company is
wound up just so that a civil servant can get the case off their desk and with no thought to the
people who will be affected by their decision.

Again for Passive, the timing really did suck here, as it was flying in 2007 and we spent the
majority of the year resolving a business issue and so could not proceed to get the company
valued and look for a buyer. Our failure to resolve the Passive sale before the market turned
really did lose us a huge amount of money.

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How The Credit Crunch Hurt The Cyprus Business

Then there is the fact that the mortgage market all but died for us in Cyprus as well. We
conceived an excellent model of generating tourists through our marketing and filling ours
and our clients villas with tourists. We would be paid handsomely for this and at the same
time build a business that would create great returns for our clients. We tested our market and
had devised exactly how to process and construct the business. In our tests we had sold a lot
of property and were preparing to turn up the volume in the following year to generate
significant income as well as company profits, with which to build the business.

The timing again was spectacularly bad and in the end we were getting people turned down
for mortgages who had £500k in the bank! The market had changed and this business became
unviable. So the efforts put into that venture did not bear any of the expected fruit for all
concerned, again my share of that would have been substantial and could have been enough
to fix the current problem if the credit crunch had not happened. So this was a third ‘fix all’
solution that failed to deliver.

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The Membership Site, DVD Sales & Other Information Services

My other income stream comes from commissions from DVD’s, membership sales and of
course, book sales. We had spent around 15 months testing the market and ensuring our
conversions were superb. We were gathering this marketing data and creating our ‘control’
funnel before we proceeded to go to the mass market. Up until that time we had been
spending around £30k a month generating over 100,000 visitors a month to our website. We
had positioned ourselves so that we knew exactly how much it cost us to generate new
customers and we were in fact able to run our marketing with it being covered from our front
end book sales alone. During this test phase of our marketing, we had achieved the position
of being the best selling UK property investment book.

We were in the process of going to the mass market networks and were intending to start in
the late Autumn of last year. To give you an idea, this would have given us massive exposure
instantly across a wide spectrum of online marketing sources. This is a very dangerous place
to be playing in if you do not do your homework. However, we had done all of that so were
ready to really turn the traffic on.

However, during August our conversions dropped. We thought it was seasonal, but it wasn’t
and they fell off a cliff in October at the height of the credit crunch when everyone’s appetite
for property investing disappeared overnight. So we pulled our marketing. I do not know
what revenue we would have generated had we not been beaten by the clock but it would
have been substantial and could have been the fourth ‘fix all’ solution. Either way, the
income would have been enough to certainly convince creditors that it was worth waiting and
giving me a chance.

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My Conclusions & How To Avoid This Happening To You If You Get Rich

So in all we had the worst timing I have ever encountered. Any one of those events occurring
would have made the situation comfortably bearable but to suffer a near 100% loss on all put
too much strain on my own personal cash flow and meant that I could no longer honour my
liabilities.

From my personal perspective the relief from the pressure of spending 90% of my time
focusing on placating creditors instead of focusing my energy on solving the problem came to
a head a month or so ago when I drew the line in the sand and said no more, either let me go
to work and try and repay you or bankrupt me. Most of my creditors saw the logic in it
straight away and could see that I have been able to create money before and still have a skill
set ready to do so again. Or they at least saw it from the ‘give him a chance’ point of view.

However, two didn’t and one went ahead and served papers. I again re-explained the situation
and said they would be hurting all concerned, but Monday morning received notification of a
bankruptcy hearing.
I have various reasons for stating this openly, but the main one is that I can show people that
none of the above bore any relationship to the property investing techniques that I used to
make myself very wealthy in the first place. It was my/our personal investment of money into
creating a new business model in Passive Investments that originally drained our resources
and this was the money we were looking to replace by a sale of Passive. What we did was
effectively create a new industry that a professional valuer loved as he looked in depth into
all of Passive’s transactions, including property purchases, valuations, customer complaints
and all the bits that a purchaser would want to know about and he still valued it at up to £17.5
million.

So I want to reassure you all that the methods work today as they did when I first applied
them, my choices in business have brought about my demise. And I do not want to see my
business mistakes and timing errors bring into question for people the amount of money that
can be made from using these investment techniques. Hundreds if not thousands of people
have applied them and most importantly maintained the cash flow rule I laid out in the book.
This was a rule I broke myself in order that I could build a business that was worth a small
fortune. If you like I gambled on our ability to create a business of value. We did that but we
got caught out by bad timing.

In closing, please do not feel sorry or pity for me in anyway. I am a businessman who accepts
his responsibilities and recognises his limitations and abilities. This was my fault and I
pushed the line too far, yes the timing was bad but I had the choice of what to do, so it is fully
my fault.

I am a firm believer in the Henry Ford saying, that failure is merely an opportunity to begin
again more intelligently. I have lost my monetary wealth here, but my understanding of
wealth now is much more in depth than it was a few years ago. I now believe that wealth is
really something you are, something you have whether it be £1 or £1 billion and cannot be
taken away. I used to say to people that the most important thing you get when you become a
millionaire is not the money, it is the knowledge of how to become a millionaire. My earning
ability is very much intact and very keen to get going again.

If you do want to feel sorry for someone then please feel sorry for all of the people who are
about to have their loans crystallised down to zero and the Passive clients who may in fact
lose all of their fees. These are the people I have been working to try and protect since our
problems came to light and they are the ones who I care about, they trusted me and Passive
with their money and I/we got it wrong and for my part in this I apologise.

My understanding is that the managers are attempting to do a management buyout of the

company and they are looking for the clients support in doing so. This is in fact the only way
I can think that Passive’s clients will not lose all of their fees. So I hope the right thing
happens here. Now though, in my opinion, thanks to someone who is very selfishly looking
out ‘only’ for themselves this may mean crystallising a 100% loss for some of these people.

Whilst speaking with my largest creditor yesterday (one I might add that I have a relationship
with still yet I have a debt with him that is six times greater than the one that is being used to
make me bankrupt) I asked him, ‘Why is this other creditor doing this, what do they hope to
gain? Do they not know that they will crystallise their loss and everyone else's loss including
yours in one go?’ His answer was revealing as he said that this creditor is continuing with the
action solely because they believe I have stashed the money away somewhere and 'there must
be some left!'

So in effect this person who has ‘no proof whatsoever’ that this is true (as they can't have
any proof because there isn’t any!) is gambling his and everyone else's debt on a hunch
without any proof other than his gut instinct!

Well I was amazed at this and thought it even more surprising that someone would give away
a long term safe bet for a short term gamble. I was then on the phone to another creditor and
he said to me, ‘Well, Andy, why haven’t you ever tried to defend that position? Because you
haven’t they think it could be real!’

I answered with, ‘Why would I think to try and defend something that is not there? Would
you try to defend yourself on a subject that had not been brought up and you had never done
anyway?’ Of course he said, ‘No, why would I?’

So anyway, in about a year after they have trawled through my financial records and found
out, guess what, that there wasn't any money stashed, I will of course be saying I told you so
and reminding them that they crystallised the loss of not just their own, but everyone's
money.

I should also make it clear at this point that if I had been allowed to keep going then I would
have probably spent the next 5 to 7 years trying to repay these debts and not getting money
myself. As the property market recovered my creditors would have moved to make me sell
off all of my assets to repay the debt. So even if I had of survived this bankruptcy then it is
very unlikely that I would have ever seen any money from it myself.

Whereas now thanks to this futile action I will get to start again at some point in the future, or
take a few years off to learn more and spend time with my family. The sensible option from a
business perspective was for me to make myself bankrupt about six months ago, but I decided
that was not the right thing to do and so carried on. I feel I did so by offering products and
services that I feel were and still are of value and most importantly still work.

It is my full intent to honour the debts unless the bankruptcy takes my assets and therefore
my ability to respect my debts.

If I was in the position that this creditor was in then I do not think I could have pulled the
plug knowing that so many other people would lose so much more than I because of it. In a
lot of ways this creditors action is helping the one person it is supposed to hurt (me) and
hurting all the people it is supposed to protect (my creditors). But there is a chance that this
person thinks I am playing some sort of a game of brinksmanship and does not actually
realise that they will get nothing. If they do figure that out then maybe the situation can be
reversed, but at this stage I doubt it.

As for me personally, I do not know what will happen. We are for the time being moving
back from Cyprus, for several reasons. The first being that I think I can create more money
from the UK and I will obviously need to be there to deal with the flak from this problem.
The second main reason is a personal problem to do with my Dad’s Alzheimer’s and I want
the children to be with him for time being.
To finish, everyone knows that one day the property market will recover, if it is just through
inflation only, then the debts will be paid off over time, so this action now really is a futile
attempt to recover money at the worst possible time. I said in the book the only way you can
really be caught out with this strategy is cash flow, so don’t break the 67% rule. I did and it
caught me, I broke my own rule and will get what I deserve for doing so, please don’t let it
happen to you :-)

Best wishes

Andy

PS I am speaking with Phil now to try and figure out what we are going to do about the
membership site.

PPS There have been links going round that has been quite harsh to Passive. We have never
told our side of the story as we are believers in not sending out negative energy, but it is clear
that I really must explain our side of the allegations and in particular the Maria Davies story,
so I will be doing that in another letter shortly.