WAV/RULE: CYT: NZX Market Supervision Decision - Waiver Rule 10.5.1 - CYT

11 Aug 2010 10:35 am

CYT 11/08/2010 WAV/RULE

REL: 1035 HRS Cynotech Holdings Limited

WAV/RULE: CYT: NZX Market Supervision Decision - Waiver Rule 10.5.1 - CYT

4 August 2010

NZX Market Supervision Decision Cynotech Holdings Limited Application for Waiver from NZAX Listing Rule 10.5.1

Background 1. Cynotech Holdings Limited ("CYT") is an NZAX Listed Issuer ("Issuer"), with securities quoted on the NZAX and NZDX markets.

2. NZAX Listing Rule ("Rule") 10.5.1 requires that an Issuer shall, within four months of the end of each its financial years, deliver to NZX electronically, in the format specified by NZX from time to time, and make available to each Quoted Security holder, an annual report.

3. As CYT's 2009 financial year ended on 31 March 2010, Rule 10.5.1 required CYT to provide its annual report to NZX, and holders of CYT's ordinary shares, prior to the close of business on Monday 2 August 2010.

Application 4. CYT has approached NZX Market Supervision ("NZXMS") seeking a waiver from Rule 10.5.1, so that it may defer the provision of its annual report until 13 August 2010. In support of its application CYT submits that:

a. in the context of Continuous Reporting, CYT shareholders have had a swath of material relating to the company, and its financial position, since January of this year. This has included:

i. Material from Cynotech Securities Group Ltd at the time of their Take-over offer concluding in March 2010 (CYT's year end) regarding their perception of the financial standing of the company, as well as analysis of prior year accounts.

ii. At that time a copy of the last published accounts was sent to shareholders, being the Half Year 2009 accounts.

iii. Cynotech Holdings changed its Year End reporting from 31 December (12 months) to 31 March, bringing a 15 month reporting period. To comply with reporting requirements we issued a set of financial statements (unaudited) to December 2009, and released this to the market.

iv. Within 75 days of year-end (mid June) we released our Preliminary announcements - Full year. Therefore, shareholders have received four sets of financial statements in a period when a company which was trading under standard reporting conditions would only have prepared (or sent to shareholders) their preliminary announcement.

b. We are now preparing our Annual accounts which will be the fifth set of financial reporting in six months, when a company operating under standard provisions would be submitting their second set of accounts.

c. In this regard we contend that the market has been kept fully informed.

d. Further within the 15 month time frame we needed to hold our AGM (not more than 15 months since the prior one), and this has also given shareholders an opportunity to question Directors, and senior management about the financial position of the company. This meeting was held on July 21st. Therefore, we contend that, in terms of the Securities Commission, shareholders have been well informed and continuous disclosure in meeting the requirements of an informed market have been well met.

e. Thirdly, in regard to preparing and having audited the financial accounts NZX are aware that our Chief Financial Officer resigned effective 7th May, pretty much in the middle of the audit. We are a small team and while we to have the necessary accounting skills this has placed a significant burden on remaining staff.

f. Finally, our company is the only Listed company that we are aware of that has purchased loan books from other parties. Because of our public reporting, with the need for an audit, we are the only company which needs to determine a value based on a Fair Value assessment in respect of approximately 5,000 individual loan accounts.

As the Fair Value loans are a Material item in our Balance sheet, and the uplift can affect group profitability, they need to be satisfied the fair value determination is correct. In the 5,000 loans in this Fair Value category, there are different categories of loan status. Each loan category needs to be tested one between the next, and within a category there needs to be testing.

This in particular has taken longer than planned, and the departure of our CFO has not helped in this process as he had a lot of the base calculations knowledge.

Rule 10.5.1 5. Rule 10.5.1 provides that: Subject to Rule 10.5.2, each Issuer shall within three months of the end of each of the Issuer's financial years:

(a) Deliver to NZX electronically, in the format specified by NZX from time to time; and (b) Make available to each Quoted Security holder in accordance with Rule 10.5.3,

an annual report. That annual report shall be delivered to NZX before or at the same time as it is made available to Quoted Security holders in accordance with Rule 10.5.3., and shall contain all information:

(c) required by law;

(d) required in a preliminary announcement by Rule 10.4.2; and

(e) required by Rules 10.5.5 and 10.5.6.

The financial statements in that annual report shall be audited and shall be accompanied by an audit report in accordance with the requirements of the Financial Reporting Act 1993.

Decision 6. On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR declines to grant the waiver sought from Rule 10.5.1.

Reasons 7. In coming to this decision NZXMS has considered the following matters:

a. Issuer's annual and semi-annual reporting obligations serve to ensure that Security holders are provided with necessary information to assess and value an Issuer's securities, as well as providing comfort to the wider market by aiding transparency and removing opportunities for insider trading.

In the case of annual reports, the requirement that the financial statements contained in those reports be audited, provides surety as to the method and basis of the preparation of the Issuer's financial statements. In this instance, holders of CYT's Securities have not had the benefit of audited financial statements since 1 April 2009, these having been prepared for the twelve months ending 31 December 2008. Accordingly, NZXMS has been provided with no evidence that security holders have been provided with information that provides a benefit which is comparable to that of an audited annual report.

b. CYT does not require a waiver to enable it to file its annual report, it requires a waiver to excuse its prima facie breach of the Rules by not filing the annual report within the timeframe required by the Rules. It is not appropriate that NZXMS waive a Rule where an Issuer has failed to take appropriate action to proactively meet their obligations under the Rules. That CYT has aspects of its business, such as the need to conduct fair value assessments in respect of approximately 5,000 loan accounts, that may mean the preparation of its audited accounts takes more time than may otherwise be the case, does not provide a reason to waive the application of the periodic reporting requirements. It is up to each Issuer to ascertain how long it will take to prepare audited accounts and take appropriate steps to ensure this is done within the timeframe stipulated by the relevant Listing Rule.

c. Where an Issuer fails to comply with its periodic reporting requirements, and has failed to remedy such failure within five business days, NZX will suspend that Issuer's Securities from Quotation pursuant with the second footnote of Rule 5.3.1. The purpose of this practice is to protect potential investors by removing opportunities for individuals to capitalize on an inequality of information and the potential for insider trading in the absence of the relevant report. The practical effect of granting the waiver sought would be to allow CYT's Securities to continue trading in the absence of the market receiving CYT's annual report. In this instance, NZXMS has been provided with no reason that would outweigh the protection afforded to the market by such a suspension.

d. There is precedent for this decision.

e. Pursuant to section 36ZM of the Securities Markets Act 1988, NZXMS consulted with the Securities Commission when making this determination. The Securities Commission agrees with this determination.

ENDS. End CA:00198216 For:CYT Type:WAV/RULE Time:2010-08-11:10:35:36

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