Exhibit 99.1
ITECHEXPRESS, INC.
Consolidated Financial Statements
and
DRUG CONSULTANTS, INC.
Financial Statements
1
ITECHEXPRESS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
2
/Letterhead/
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
iTechexpress, Inc.
We have audited the accompanying consolidated balance sheet of iTechexpress,
Inc. ("the Company") as of December 31, 2004 and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
two years in the period then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
iTechexpress, Inc. as of December 31, 2004, and the results of their
operations and their cash flows for each of the two years in the period then
ended in conformity with accounting principles generally accepted in the
United States of America.
The Company's consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and settlement of liabilities in the normal course of
business. The Company has an accumulated deficit of $51,022 and a working
capital deficit of $52,733 as of December 31, 2004. As discussed in Note 10 to
the consolidated financial statements, these factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding these matters are also discussed in Note 10. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Corbin & Company, LLP
CORBIN & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS
Irvine, California
December 14, 2005
3
ITECHEXPRESS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
2004 2005
-------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash $ 37,164 $ 120
Accounts receivable 38,875 48,017
-------------- -------------
Total current assets 76,039 48,137
Property and equipment, net 2,711 1,474
-------------- -------------
Total assets $ 78,750 $ 49,611
============== =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 63,043 $ 65,399
Accrued officers' salary 60,000 284,000
Income taxes payable 3,229 -
Loans payable to stockholder 2,500 23,300
-------------- -------------
Total current liabilities 128,772 372,699
-------------- -------------
Commitments and contingencies
Stockholders' deficit
Common stock, $0.001 par value, 25,000,000
shares authorized, 1,000,000 shares issued
and outstanding 1,000 1,000
Accumulated deficit (51,022) (324,088)
-------------- -------------
Total stockholders' deficit (50,022) (323,088)
-------------- -------------
Total liabilities and stockholders' deficit $ 78,750 $ 49,611
============== =============
The accompanying notes are an integral part of these consolidated
financial statements.
4
ITECHEXPRESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended For the nine months ended
December 31, September 30,
2004 2003 2005 2004
------------- -------------- -------------- -------------
(Unaudited) (Unaudited)
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Revenues
Fees for services $ 391,412 $ 211,321 $ 302,114 $ 211,926
Management fees - affiliates 113,825 54,000 47,422 77,200
------------- -------------- -------------- -------------
Total revenues 505,237 265,321 349,536 289,126
------------- -------------- -------------- -------------
Operating Expenses
Cost of revenues 220,383 118,624 200,026 108,761
General and administrative 92,283 54,489 100,849 61,915
Compensation and fringe benefits 103,552 - 302,456 61,725
Bad debt expense 44,183 9,250 19,271 5,815
------------- -------------- -------------- -------------
Total operating expenses 460,401 182,363 622,602 238,216
------------- -------------- -------------- -------------
Net income (loss) from operations 44,836 82,958 (273,066) 50,910
------------- -------------- -------------- -------------
Other income (expense) (3,943) 504 - (3,943)
------------- -------------- -------------- -------------
Net income (loss) before provision
for income taxes 40,893 83,462 (273,066) 46,967
Provision for income taxes 11,513 35,756 - 13,151
------------- -------------- -------------- -------------
Net income (loss) $ 29,380 $ 47,706 $ (273,066) $ 33,816
============= ============== ============== =============
Basic and diluted net income
(loss) per common share $ 0.03 $ 0.05 $ (0.27) $ 0.03
============= ============== ============== =============
Basic and diluted weighted average
number of common shares 1,000,000 1,000,000 1,000,000 1,000,000
============= ============== ============== =============
The accompanying are an integral part of these
consolidated financial statements.
5
ITECHEXPRESS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004
Common Stock Accumulated
Shares Amount Deficit Total
------------- ------------- -------------- -------------
<s> <c> <c> <c> <c>
Balances, January 1, 2003 1,000,000 $ 1,000 $ (128,108) $ (127,108)
Net income - - 47,706 47,706
------------- ------------- -------------- -------------
Balances, December 31, 2003 1,000,000 1,000 (80,402) (79,402)
Net income - - 29,380 29,380
------------- ------------- -------------- -------------
Balances, December 31, 2004 1,000,000 $ 1,000 $ (51,022) $ (50,022)
============= ============= ============== =============
The accompanying notes are an integral part of these consolidated financial statements.
6
ITECHEXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended For the nine months ended
December 31, September 30,
2004 2003 2005 2004
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<s> <c> <c> <c> <c>
Cash flows from operating activities:
Net income (loss) $ 29,380 $ 47,706 $ (273,066) $ 33,816
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Deferred income taxes 9,993 28,378 - 12,269
Depreciation and amortization 4,538 2,871 1,237 3,404
Changes in operating assets and liabilities:
Accounts receivable (10,969) 45,634 (9,142) (39,190)
Accounts payable 48,221 (10,318) 2,356 34,827
Accrued liabilities - - 224,000 -
Income taxes payable (3,349) 6,578 (3,229) (3,987)
------------- ------------- ------------- -------------
Net cash provided by (used in) operating activities 77,814 120,849 (57,844) 41,139
------------- ------------- ------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (1,949) - - -
------------- ------------- ------------- -------------
Cash flows from financing activities:
Net advances from (repayments to) stockholder (39,445) (125,000) 20,800 (39,445)
------------- ------------- ------------- -------------
Net increase (decrease) in cash 36,420 (4,151) (37,044) 1,694
Cash, beginning of year or period 744 4,895 37,164 744
------------- ------------- ------------- -------------
Cash, end of year or period $ 37,164 $ 744 $ 120 $ 2,438
============= ============= ============= =============
The Company paid $4,869 and $ 0 for income taxes during the years ended December 31, 2004 and
2003, respectively.
The Company paid $ 0 and $ 0 in interest during the years ended December 31, 2004 and 2003,
respectively.
The accompanying notes are an integral part of these consolidated financial statements.
7
ITECHEXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
iTechexpress, Inc. (formerly, RMM, Inc.) (the "Company") was incorporated on
April 27, 1999 in the state of Nevada. The Company changed its name from RMM,
Inc. to iTechexpress, Inc. on April 5, 2000. The Company performs technology
services on an individual job and contract basis in both commercial and
government sectors on a national basis. The Company has performed various
technology services for clients such as Best Buy, Equant NV and Office Depot.
On April 1, 2000, the Company acquired 100% of the outstanding shares of JALM,
Inc., an entity affiliated with the Company through common ownership, and
doing business as Success Development Group, Inc., a Nevada corporation,
established in April 2000 ("SDG"). SDG provides management services for the
Company and other affiliated entities.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information
In the opinion of management, the accompanying consolidated financial
statements as of September 30, 2005, and the results of operations and its
cash flows for the nine months ended September 30, 2005 and 2004 contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the Company consolidated financial position, and results of
its operations and cash flows. Results for the nine months ended September
30, 2005 are not necessarily indicative of the results to be expected for the
year ending December 31, 2005.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
iTechexpress, Inc. and its wholly owned subsidiary, SDG. All significant
inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates include the
collectibility of accounts receivable, and the realizability of deferred tax
assets. Actual results could differ from those estimates.
Concentrations and Concentrations of Credit Risk
At December 31, 2004 and September 30, 2005 (unaudited), two and four
customers, respectively, accounted for 60% and 74%, respectively, of the
Company accounts receivables. During the years ended December 31, 2004 and
December 31, 2003, three customers accounted for 52% and 66%, respectively, of
the Company fees for service revenue. During the nine months ended September
30, 2005 (unaudited) and September 30, 2004(unaudited), three and four
customers accounted for 79% and 54%, respectively, of the Company fees for
service revenue.
8
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. The
useful lives for the related assets range from five to seven years.
Maintenance and repairs are charged to expense as incurred. Renewals and
improvements of a major nature are capitalized. At the time of retirement or
other disposition of property and equipment, the cost and accumulated
depreciation are removed from the accounts and any resulting gains or losses
are reflected in the consolidated statement of operations.
Income Taxes
Deferred taxes are provided for on an asset and liability method for temporary
differences between the financial reporting and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will be realized.
Revenue Recognition
The Company typically charges its clients based upon the time incurred in
performing the services at agreed upon rates. The Company recognizes revenue
as the services are performed.
Earnings Per Share
Basic earnings (loss) per share ("EPS") is computed as net income (loss)
divided by the weighted average number of common shares outstanding during the
period. Diluted EPS reflects the potential dilution that could occur from
common shares issuable through exercise of stock options and warrants, or
convertible debt. During the periods ended December 31, 2004 and 2003 and
September 30, 2005 and 2004, the Company did not have any stock options and
warrants, or convertible debt, and therefore basic and diluted earnings (loss)
per share are the same for those periods.
Recent Accounting Pronouncements
In December 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation 46(R) ("FIN 46(R)"), "Consolidation of Variable Interest
Entities, and Interpretation of ARB No. 51." FIN 46(R) requires that variable
interest entities be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity activities or
is entitled to receive a majority of the entity residual returns or both.
FIN 46(R) also requires disclosures about variable interest entities that
companies are not required to consolidate but in which a company has a
significant variable interest. The consolidation requirements of FIN 46(R)
became effective for the Company in 2005. However, management believes that
none of its affiliated entities qualify as variable interest entities under
FIN 46(R) that require consolidation, and therefore, management believes that
FIN 46(R) is not applicable to the Company.
9
The FASB has issued Statement of Financial Accounting Standards ("SFAS") No.
123(R), "Share-Based Payment." The new rule requires that the compensation
cost relating to share-based payment transactions be recognized in the
financial statements. That cost will be measured based on the fair value of
the equity or liability instruments issued. This statement precludes the
recognition of compensation expense under APB Opinion No. 25's intrinsic value
method. Small business issuers will be required to apply SFAS No. 123(R) in
the first annual or interim reporting period that begins after December 15,
2005. The Company does not believe the effect of the adoption of SFAS No.
123(R) will be material to its consolidated financial statements as it has no
options or warrants outstanding.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-Monetary
Assets," an amendment of APB Opinion No. 29, "Accounting for Non-Monetary
Assets." The amendments made by SFAS No. 153 are based on the principle that
exchanges of non-monetary assets should be measured based on the fair value of
the assets exchanged. Further, the amendments eliminate the narrow exception
for non-monetary exchanges of similar productive assets and replace it with a
broader exception for exchanges of non-monetary assets that do not have
"commercial substance." The provisions in SFAS No. 153 are effective for
non-monetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. Early application is permitted and companies must apply the
standard prospectively. The Company does not believe the adoption of this
statement will result in a significant impact to the Company's consolidated
financial statements.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment at September
30, 2005 and December 31, 2004 consists of the following:
September 30,
2005 December 31,
(Unaudited) 2004
------------ ------------
Office equipment $ 26,203 $ 26,203
Less: accumulated depreciation (24,729) (23,492)
------------ ------------
$ 1,474 $ 2,711
============ ============
NOTE 4. ACCRUED OFFICERS SALARY
The accrued officers salary was paid in full subsequent to September 30, 2005.
NOTE 5. LOANS PAYABLE TO SHAREHOLDER
There is one loan payable to a shareholder of the Company which is due
December 31, 2005 which is more fully discussed in Note 8.
10
NOTE 6. COMMITMENTS AND CONTINGENCIES
Leases
The Company headquarters consist of approximately 500 square feet of office
space and is leased by the Company on a month to month basis. Total rental
under this lease was $7,543 and $12,027 for the years 2004 and 2003,
respectively.
Indemnities and Guarantees
The Company has made certain indemnities and guarantees, under which it may be
required to make payments to a guaranteed or indemnified party, in relation to
certain transactions. The Company indemnifies its directors, officers,
employees and agents to the maximum extent permitted under the laws of the
State of Nevada. The duration of the guarantees and indemnities do not
provide for any limitation of the maximum potential future payments the
Company could be obligated to make. Historically, the Company has not been
obligated to make any payments for these obligations and no liabilities have
been recorded for these indemnities and guarantees in the accompanying
consolidated balance sheets.
NOTE 7. INCOME TAXES
For the years ended December 31, 2004 and 2003, the provision for income taxes
consists of the following:
2004 2003
------------- --------------
Current provision $ 1,520 $ 7,378
Deferred provision 9,993 28,378
------------- --------------
$ 11,513 $ 35,756
============= ==============
The Company had net deferred tax assets of $30,952 at December 31, 2004.
However, due to uncertainty about their future realization, management has
fully reserved these deferred tax assets. Net deferred tax assets consist of
the following components as of December 31, 2004:
Deferred tax assets:
State net operating loss carryforwards $ 10,613
Accrued officers salaries 25,704
Other 71
-------------
36,388
Deferred tax liabilities:
Deferred state taxes (5,436)
-------------
30,952
Valuation allowance (30,952)
-------------
$ -
=============
11
At December 31, 2004, the Company had state net operating loss carryforwards
of approximately $120,000, which begin to expire in 2010. Net operating loss
carryforwards may be limited in the future if a change in control of the
Company occurs.
For the years ended December 31, 2004 and 2003, the following represents a
reconciliation of the statutory tax rate to the actual tax rate of the
Company:
2004 2003
------------- --------------
Provision for income taxes
at U.S. statutory rate 34.0% 34.0%
State income taxes, net of
federal benefit 5.9% 5.8%
Other (14.2%) 3.0%
------------- --------------
25.7% 42.8%
============= ==============
NOTE 8. RELATED PARTY TRANSACTIONS
The Company Director, Keith Moore, has Working Capital Line of Credit
agreements with the Company and SDG totaling $500,000 as of December 31, 2004.
On February 1, 2005, the Company Chief Executive Officer and Director, David
Walters, entered into a $250,000 Working Capital Line of Credit agreement with
the Company (each a "Line of Credit" and collectively the "Lines of Credit").
Mr. Moore's Lines of Credit state that the Company shall pay him the amount
owing under the Line of Credit on December 31, 2005 plus any interest on the
amounts outstanding at the rate of 10% per annum. Interest on the Lines of
Credit is payable quarterly and becomes part of the principal amount of the
Line of Credit if unpaid at the end of each quarter. The total amount
outstanding under Mr. Moore's lines of credit as of September 30, 2005 and
December 31, 2004 was $23,300 (unaudited) and $2,500, respectively. In the
event of default under the Lines of Credit, which includes the failure of the
Company to pay the Lines of Credit when due, the Company's filing for
bankruptcy, or the deterioration of the financial condition of the Company
causing Mr. Moore to deem the Company insecure, the amount of unpaid principal
and interest shall bear interest at the rate of 13% per annum until such time
as it is paid. The Lines of Credit may be extended or renewed by the mutual
agreement of iTech and Mr. Moore for any reason at any time.
Mr. Walters' Line of Credit with the Company states that the Company shall pay
him the amount owing under the Line of Credit on December 31, 2006, plus any
interest on the amounts outstanding at the rate of 10% per annum. Interest on
the Line of Credit is payable quarterly and becomes part of the principal
amount of the Line of Credit if unpaid at the end of each quarter. No amounts
were outstanding under Mr. Walter's lines of credit as of September 30, 2005
and December 31, 2004. In the event of default under the Line of Credit,
which includes the failure of the Company to pay the Line of Credit when due,
the Company's filing for bankruptcy, or the deterioration of the financial
condition of the Company causing Mr. Walters to deem the Company insecure, the
amount of unpaid principal and interest shall bear interest at the rate of 13%
per annum until such time as it is paid. The Line of Credit may be extended
or renewed by the mutual agreement of iTech and Mr. Walters for any reason at
any time.
12
Both Mr. Walters and Mr. Moore entered into Independent Contractor Agreements
with the Company on February 1, 2005 (each a "Contractor Agreement" and
collectively the "Contractor Agreements"). Mr. Moore's Contractor Agreement
provides for him to serve the Company in the capacity of Secretary and
Director and Mr. Walters' Contractor Agreement provides for him to serve the
Company in the capacity of Chief Executive Officer. The Contractor Agreements
shall terminate on February 1, 2007, unless renewed in writing by the parties.
Either of the Contractor Agreements may be terminated upon the breach of a
term of either Contractor Agreement, which breach remains uncured for thirty
(30) days or by either party, for any reason with thirty (30) days written
notice. The Contractor Agreements contain confidentiality clauses and work
for hire clauses. The Contractor Agreements provide that neither Mr. Walters
nor Mr. Moore are employees of the Company. Mr. Walters and Mr. Moore are
entitled to be paid $10,000 per month under the Contractor Agreements. As of
September 30, 2005, both Mr. Walters and Mr. Moore have accrued $90,000 each
of payments under such Contractor Agreements.
The Company anticipates entering into an agreement in 2006 for executive
management services with a management company owned by the Company's Chief
Executive Officer and Director, David Walters and its Director, Keith Moore.
The Company shares facilities and certain overhead costs with entities that
are affiliated with the Company through common ownership. The Company
performs management services for Huron Holdings, Inc., Adair Trucking, Inc.
and Service Advantage International, Inc., and these entities are affiliated
with the Company through common management and ownership. The fees charged to
these entities for these services totaled $113,825 and $54,000 for the years
ended December 31, 2004 and 2003, respectively, and $47,422 (unaudited) and
$77,200 (unaudited) for the nine-month periods ended September 30, 2005 and
2004, respectively. The basis of fees charged for management services to
these entities, the results of operations of the Company and the amount of
management services revenue recognized by the Company may be different if the
Company and the affiliated entities were autonomous.
NOTE 9. SUBSEQUENT EVENTS
On November 4, 2005, the Company and MT Ultimate Healthcare Corp., a Nevada
corporation ("MTHC") and the former shareholders of the Company entered into a
Share Exchange and Reorganization Agreement (the "Exchange" or "Acquisition")
whereby the Company became a wholly-owned subsidiary of the MTHC. As part of
the Exchange, MTHC acquired 100% of the issued and outstanding shares of the
Company in exchange for 305,000,000 newly issued shares of MTHC's common stock
and the promise to issue an additional 523,333,333 shares of MTHC's common
stock at such time as MTHC is able to increase its total authorized shares.
13
On November 4, 2005 Macdonald Tudeme and Marguerite Tudeme (collectively, the
"Tudemes"), the former controlling shareholders of MTHC and MTHC entered into
a Spinoff Agreement ("Spinoff") which provided for (1) the transfer of the
corporate names, business, operations, assets, properties, intellectual
properties, trademarks, service marks, trade names, uniform resource locators,
telephone numbers, and goodwill of MTHC and its subsidiaries (other than the
Company), together with the operating business of MTHC subsidiaries (other
than the Company), to be placed into to a newly formed Delaware corporation
wholly owned by MTHC ("Newco"), (2) the acquisition by MTHC from the Tudemes
of their outstanding shares of capital stock of MTHC, (3) the assumption and
release by MTHC and its subsidiaries and the Tudemes of certain liabilities,
and (4) the sale to the Tudemes of all of the outstanding capital stock of
Newco, and the payment by MTHC to the Tudemes of $80,442 for amounts owed to
the Tudemes and other creditors by the Company, of which $50,000 has
previously been paid.
MTHC also entered into a Security Agreement ("Security Agreement") with Newco,
whereby MTHC pledged to Newco 20,000,000 shares of its common stock as
collateral ("Collateral") to secure its performance and payment of the
promissory note payable to Lisa Stern ("Stern Note") originally entered into
as part of the MTHC's purchase of its subsidiary, Abundant Nursing. Principal
and interest payments are due on the first of each month and MTHC will be in
default under the Security Agreement upon the failure to pay any principal or
interest within thirty days of its due date. Upon default, Newco is able to
retain the Collateral and apply the consideration received from the Collateral
against any principal and interest due. The closing of the Spinoff took
place on December 15, 2005.
On November 4, 2005 (the "Closing"), MTHC entered into a Securities Purchase
Agreement (the "Agreement") with AJW Partners, LLC ("Partners"), AJW Offshore,
Ltd. ("Offshore"), AJW Qualified Partners, LLC ("Qualified"), and New
Millennium Capital Partners II, LLC ("New Millennium") (Partners, Offshore,
Qualified and New Millennium are collectively referred to herein as the
"Buyers") to purchase callable secured convertible notes having an aggregate
principal amount of $3,000,000, a 8% annual interest rate payable quarterly,
provided that no interest shall be due and payable for any month in which the
trading price of the MTHC common stock on the OTC Bulletin Board is greater
than $0.02 for each intraday trading day of the month, a term of three (3)
years, and a conversion price, as of Closing, of $0.01 per share (the
"Notes"). As of Closing, the $3,000,000 of Notes were convertible into
300,000,000 shares of common stock of MTHC. MTHC may call the notes at a
premium upon certain conditions. The Agreement also provided for the issuance
of warrants to purchase an aggregate of up to 15,000,000 shares of the MTHC
common stock, with an exercise price of $0.10 per share (the "Warrants"). As
of December 30, 2005, MTHC had received $2,150,000 in connection with the
Agreement and had issued Warrants to purchase 10,750,000 shares of MTHC
common stock to the Buyers.
Pursuant to the Agreement, the Buyers agreed to purchase additional Notes in
an aggregate principal amount of $850,000 and additional warrants to purchase
an aggregate of 4,250,000 shares of common stock, for an aggregate purchase
price of $850,000, within five days of a Registration Statement covering the
shares convertible in connection with the Notes being declared effective by
the SEC.
14
On November 7, 2005, the Company entered into a Stock Purchase Agreement
("Purchase") with Drug Consultants, Inc. ("DCI"), a California corporation
whereby DCI became a wholly owned subsidiary of the Company. As part of the
Purchase, the Company purchased all of the outstanding shares of DCI from the
former shareholder of DCI for a purchase price of $1,800,000, of which
$1,600,000 was paid at the closing of the Purchase and $200,000 shall be paid
pursuant to a Secured Promissory Note ("Promissory Note"). The Promissory
Note is due in one payment of principal together with accrued but unpaid
interest (accruing at the rate of seven percent (7%) per annum) on or before
the sixtieth (60th) day following the closing of the Purchase, or January 6,
2006. The Promissory Note is secured by a Stock Pledge Agreement ("Pledge
Agreement"), whereby the Company pledged to the former DCI shareholder 51% of
the stock of DCI ("DCI Stock") held by the Company to secure the full and
prompt payment and performance by the Company of the Promissory Note.
Additionally, any unpaid amount of the Promissory Note if not paid when due,
will bear interest at 12% per annum.
On November 8, 2005, the Company and DCI entered into a Factoring and Security
Agreement to sell accounts receivables to Systran Financial Services
Corporation ("Systran"). The purchase price for each account sold is the face
amount of the account less a discount of 1.5%. All accounts sold are with
recourse by Systran. Systran may defer making payment to the Company of a
portion of the purchase price payable for all accounts purchased which have
not been paid up to 10.0% of such accounts (reserve). All of the Company's
and DCI's accounts receivable are pledged as collateral under this agreement.
The initial term is for thirty-six months and will automatically renew for an
additional twelve months at the end of the term, unless the Company gives
thirty days written notice of its intention to terminate the Factoring
Agreement.
MTHC entered into a Side Letter Agreement on November 10, 2005, with the
Buyers (the "Side Letter"). The Side Letter provided that in consideration
for the sale of the new Notes, the Buyers agreed that the face amount of the
$500,000 of notes and 700,000 in warrants to purchase shares of MTHC's common
stock at an exercise price of $0.45 per share, issued to the Buyers in August
2004, pursuant to a Securities Purchase Agreement entered into on August 31,
2004 (the "August 2004 Securities Purchase Agreement") and the $200,000 in
notes and 200,000 in warrants which remained to be issued upon the
effectiveness of a registration statement covering such notes (collectively
the "August 2004 Convertible Notes" and "August 2004 Warrants") shall be
included in the amount advanced to MTHC under the new Notes. The Side Letter
also provided that the terms of the November 2005 Securities Purchase
Agreement (the "Agreement") shall supercede the prior August 2004 Securities
Purchase Agreement and that all interest, penalties, fees, charges or other
obligations accrued or owed by MTHC to the Buyers pursuant to the August 2004
Securities Purchase Agreement ("Prior Obligations") are waived, provided that
in the event of any material breach of the November 2005 Agreement by MTHC,
which breach is not cured within five days of receipt by MTHC of written
notice of such breach, the novation of the August 2004 Securities Purchase
Agreement and the waiver of the Prior Obligations shall be revocable by the
Buyers and all Prior Obligations shall be owed as if the August 2004
Securities Purchase Agreement was never superceded.
In November 2005, MTHC issued 25,000,000 shares of its common stock in
consideration for services rendered by RES Holdings Corp.
In November 2005, MTHC agreed to issue 82,833,333 shares of its common stock
to Nite Capital ("Nite") in connection with a standby financing commitment
received on July 25, 2005. 30,500,000 shares of MTHC restricted common
stock has been issued to Nite to date, with the remaining shares to be issued
after such time as MTHC is able to increase its authorized common stock.
As a result of these transactions the operations of the MTHC will be comprised
of the operations of the Company and DCI, and the management of MTHC will be
comprised solely of David Walters. Additionally, MTHC and DCI have both had a
change in control as a result of these transactions.
15
NOTE 10. LIQUIDITY
The Company's consolidated financial statements are prepared using the
generally accepted accounting principles in the United States of America
applicable to a going concern, which contemplates the realization of assets
and liquidation of liabilities in the normal course of business. There was an
accumulated deficit of $51,022 as of December 31, 2004 and current liabilities
exceeded current assets by $52,733 as of December 31, 2004. These factors,
among others, raise substantial doubt about the Company ability to continue
as a going concern. In view of the matters described above, recoverability of
a major portion of the recorded asset amounts shown in the accompanying
balance sheets is dependent upon continued operations of the Company, which in
turn is dependent upon the Company's ability to raise additional debt or
equity capital, and to succeed in its future operations. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and classification of
liabilities that might be necessary should the Company be unable to continue
as a going concern.
16
DRUG CONSULTANTS, INC.
FINANCIAL STATEMENTS
17
/Letterhead/
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Drug Consultants, Inc.
We have audited the accompanying balance sheet of Drug Consultants, Inc. ("the
Company") as of December 31, 2004 and the related statements of income,
stockholders' equity and cash flows for each of the two years in the period
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Drug Consultants, Inc. as of
December 31, 2004, and the results of its operations and its cash flows for
each of the two years in the period then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ Corbin & Company, LLP
CORBIN & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS
Irvine, California
December 2, 2005
18
DRUG CONSULTANTS, INC.
BALANCE SHEETS
December 31, September 30,
2004 2005
------------- -------------
(Unaudited)
ASSETS
Current assets:
Accounts receivable $ 939,641 $ 1,145,912
Prepaid expenses and other current assets 7,504 -
Deferred income taxes 6,032 6,032
------------- -------------
Total current assets 953,177 1,151,944
Property and equipment, net - -
------------- -------------
Total assets $ 953,177 $ 1,151,944
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 467,728 $ 399,746
Accrued liabilities 55,898 55,898
Line of credit 188,916 210,002
Note payable 100,000 -
------------- -------------
Total current liabilities 812,542 665,646
------------- -------------
Commitments and contingencies
Stockholder's equity
Common stock, no par value, 100,000 shares
authorized, 70,000 shares issued and outstanding 100,000 100,000
Contributed capital 97,760 282,944
Retained earnings (accumulated deficit) (57,125) 103,354
------------- -------------
Total stockholder's equity 140,635 486,298
------------- -------------
Total liabilities and stockholder's equity $ 953,177 $ 1,151,944
============= =============
The accompanying notes are an integral part of these
financial statements.
19
DRUG CONSULTANTS, INC.
STATEMENTS OF INCOME
For the years ended For the nine months ended
December 31, September 30,
2004 2003 2005 2004
-------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
<s> <c> <c> <c> <c>
Revenues $ 4,069,580 $ 3,736,951 $ 5,303,853 $ 2,645,923
-------------- -------------- -------------- --------------
Cost of revenues
Subcontractor costs 2,840,096 1,553,165 3,865,238 1,877,864
Compensation and fringe benefits 705,495 1,717,002 805,140 490,724
-------------- -------------- -------------- --------------
Total cost of revenues 3,545,591 3,270,167 4,670,378 2,368,588
-------------- -------------- -------------- --------------
Gross profit 523,989 466,784 633,475 277,335
-------------- -------------- -------------- --------------
Operating Expenses
General and administrative expenses 144,328 147,857 158,574 97,585
Management fee - related party 99,000 181,705 94,500 74,250
-------------- -------------- -------------- --------------
Total operating expenses 243,328 329,562 253,074 171,835
-------------- -------------- -------------- --------------
Income from operations 280,661 137,222 380,401 105,500
-------------- -------------- -------------- --------------
Other income (expense)
Interest expense (92,991) (31,952) (103,713) (64,060)
Other income 2,321 1,180 - 2,325
-------------- -------------- -------------- --------------
Total other income
(expense), net (90,670) (30,772) (103,713) (61,735)
-------------- -------------- -------------- --------------
Income before provision
for income taxes 189,991 106,450 276,688 43,765
Provision for income taxes 79,944 41,784 116,209 18,380
-------------- -------------- -------------- --------------
Net income $ 110,047 $ 64,666 $ 160,479 $ 25,385
============== ============== ============== ==============
Basic and diluted net income
per common share $ 1.57 $ 0.92 $ 2.29 $ 0.36
============== ============== ============== ==============
Basic and diluted weighted average
number of common shares 70,000 70,000 70,000 70,000
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
20
DRUG CONSULTANTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS DECEMBER 31, 2003 AND 2004
Loans Retained
Receivable Earnings
Common Stock Contributed from (Accumulated
Shares Amount Capital Affiliate Deficit) Total
------------ ------------ ------------ ------------ ------------ ------------
<s> <c> <c> <c> <c> <c> <c>
Balances,
January 1, 2003 70,000 $ 100,000 $ - $ - $ 289,442 $ 389,442
Advances from
affiliate, net - - - (470,267) - (470,267)
Contributed capital
related to income
taxes - - 44,664 - - 44,664
Net income - - - - 64,666 64,666
------------ ------------ ------------ ------------ ------------ ------------
Balances,
December 31, 2003 70,000 100,000 44,664 (470,267) 354,108 28,505
Advances from
affiliate, net - - - (51,013) - (51,013)
Distributions to
shareholder - - - 521,280 (521,280) -
Contributed capital
related to income
taxes - - 53,096 - - 53,096
Net income - - - - 110,047 110,047
------------ ------------ ------------ ------------ ------------ ------------
Balances,
December 31, 2004 70,000 $ 100,000 $ 97,760 $ - $ (57,125) $ 140,635
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
21
DRUG CONSULTANTS, INC.
STATEMENT OF CASH FLOWS
For the years ended For the nine months ended
December 31, September 30,
2004 2003 2005 2004
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<s> <c> <c> <c> <c>
Cash flows from operating activities:
Net income $ 110,047 $ 64,666 $ 160,479 $ 25,385
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Deferred income taxes (3,152) (2,880) - -
Income taxes - portion absorbed by
affiliated entities 53,096 44,664 85,184 -
Changes in operating assets and liabilities:
Accounts receivable (423,784) 97,720 (206,271) (430,161)
Prepaid expenses and other current assets (7,504) - 7,504 (8,854)
Accounts payable 290,832 70,088 (67,982) 140,723
Accrued liabilities 16,790 (86,024) - 17,186
------------- ------------- ------------- -------------
Net cash provided by (used in) operating activities 36,325 188,234 (21,086) (255,721)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Advances on notes receivable from affiliates (51,013) (470,267) - (51,013)
Payments received on amounts due from stockholder - 20,000 - -
------------- ------------- ------------- -------------
Net cash used in investing activities (51,013) (450,267) - (51,013)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Net advances (repayments) on lines of credit (209,009) 218,223 21,086 83,037
Repayments on amounts due to related parties - (15,583) - -
Proceeds from (repayments of) notes payable 100,000 - (100,000) 100,000
Proceeds from contributed capital - - 100,000 -
------------- ------------- ------------- -------------
Net cash provided by (used in) financing activities (109,009) 202,640 21,086 183,037
------------- ------------- ------------- -------------
Net increase (decrease) in cash (123,697) (59,393) - (123,697)
Cash, beginning of year or period 123,697 183,090 - 123,697
------------- ------------- ------------- -------------
Cash, end of year or period $ - $ 123,697 $ - $ -
============= ============= ============= =============
The Company paid $30,000 and $32,660 for income taxes during the years ended December 31,
2004 and 2003, respectively.
The Company paid $92,991 and $31,952 in interest during the years ended December 31, 2004 and
2003, respectively.
The accompanying notes are an integral part of these financial statements.
22
DRUG CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
Drug Consultants, Inc. (the "Company") was incorporated on October 3, 1977 in
the state of California. The Company is engaged in furnishing personnel to
perform a range of pharmacy technician, nursing and other health care services
in support of the operations of government facilities. The Company largest
client is the State of California and the Company provides many of its
services in rural areas of California where health care professionals are not
readily available.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information
In the opinion of management, the accompanying financial statements as of
September 30, 2005, and the results of operations and its cash flows for the
nine months ended September 30, 2005 and 2004 contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the Company consolidated financial position, and results of its operations
and cash flows. Results for the nine months ended September 30, 2005 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2005.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The collectibility of accounts
receivable is the most significant estimate affecting the accompanying
financial statements. Actual results could differ from those estimates.
Concentrations and Concentrations of Credit Risk
At December 31, 2004 and September 30, 2005 (unaudited), one customer,
respectively, accounted for 99% and 99%, respectively, of the Company
accounts receivables. During the years ended December 31, 2004 and December
31, 2003, and the nine months ended September 30, 2005 (unaudited) and
September 30, 2004 (unaudited), respectively, one customer accounted for 99%
of the Company fees for service revenue in each of those periods.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. The
useful lives for the related assets range from five to seven years.
Maintenance and repairs are charged to expense as incurred. Renewals and
improvements of a major nature are capitalized. At the time of retirement or
other disposition of property and equipment, the cost and accumulated
depreciation are removed from the accounts and any resulting gains or losses
are reflected in the consolidated statement of operations.
23
Income taxes
Deferred taxes are provided for on an asset and liability method for temporary
differences between the financial reporting and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will be realized.
Revenue Recognition
The Company typically charges its clients based upon the time incurred in
performing the services at agreed upon rates. The Company recognizes revenue
as the services are performed.
Earnings Per Share
Basic earnings per share ("EPS") is computed as net income divided by the
weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur from common
shares issuable through exercise of stock options and warrants, or convertible
debt. During the periods ended December 31, 2004 and 2003 and September 30,
2005 and 2004, the Company did not have any stock options and warrants, or
convertible debt, and therefore basic and diluted earnings per share are the
same for those periods.
Recent Accounting Pronouncements
In December 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation 46(R) ("FIN 46(R)"), "Consolidation of Variable Interest
Entities, and Interpretation of ARB No. 51." FIN 46(R) requires that variable
interest entities be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity activities or
is entitled to receive a majority of the entity residual returns or both.
FIN 46(R) also requires disclosures about variable interest entities that
companies are not required to consolidate but in which a company has a
significant variable interest. The consolidation requirements of FIN 46(R)
became effective for the Company in 2005. However, management believes that
none of its affiliated entities qualify as variable interest entities under
FIN 46(R) that require consolidation, and therefore, management believes that
FIN 46(R) is not applicable to the Company.
The FASB has issued Statement of Financial Accounting Standards ("SFAS") No.
123(R), "Share-Based Payment." The new rule requires that the compensation
cost relating to share-based payment transactions be recognized in the
financial statements. That cost will be measured based on the fair value of
the equity or liability instruments issued. This statement precludes the
recognition of compensation expense under APB Opinion No. 25's intrinsic value
method. Small business issuers will be required to apply SFAS No. 123(R) in
the first annual or interim reporting period that begins after December 15,
2005. The Company does not believe the effect of the adoption of SFAS No.
123(R) will be material to its financial statements as it has no options or
warrants outstanding.
24
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-Monetary
Assets," an amendment of APB Opinion No. 29, "Accounting for Non-Monetary
Assets." The amendments made by SFAS No. 153 are based on the principle that
exchanges of non-monetary assets should be measured based on the fair value of
the assets exchanged. Further, the amendments eliminate the narrow exception
for non-monetary exchanges of similar productive assets and replace it with a
broader exception for exchanges of non-monetary assets that do not have
"commercial substance." The provisions in SFAS No. 153 are effective for
non-monetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. Earlier application is permitted and companies must apply the
standard prospectively. The Company does not believe the adoption of this
statement will result in a significant impact to the Company's financial
statements.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment at September
30, 2005 and December 31, 2004 consists of the following:
September 30, December 31,
2005 2004
(Unaudited)
------------- ------------
Office equipment $ 237,210 $ 237,210
Less: accumulated depreciation (237,210) (237,210)
------------- ------------
$ - $ -
============= ============
NOTE 4. LINE OF CREDIT
On August 1, 2002, the Company entered into a loan and security (the "Line of
Credit") with State Financial Corporation. The Line of Credit allowed the
Company to borrow up to 80.0% of eligible accounts receivable, as defined, up
to $300,000 and was personally guaranteed by a Director of the Company.
Outstanding borrowings on the Line of Credit bore interest at the Wells Fargo
Bank , prime rate, plus 22.25%, up to a maximum of 27.0%, and were secured by
the all of the Company assets, including its receivables. The initial term
of the Line of Credit was for one year; however, as provided by the agreement,
the Line of Credit has been renewed each year. As of December 31, 2004 and
September 30, 2005, $111,084 and $89,998 (unaudited), respectively, was
available under the line of credit. The line of credit was terminated in
November 2005.
NOTE 5. NOTE PAYABLE
At December 31, 2004, the Company had a $100,000 note payable to an
individual. The note was unsecured and bore interest at 10% per annum, and
was due upon demand with a sixty day notice. The note was repaid in full in
November 2005.
25
NOTE 6. COMMITMENTS AND CONTINGENCIES
Indemnities and Guarantees
The Company has made certain indemnities and guarantees, under which it may be
required to make payments to a guaranteed or indemnified party, in relation to
certain transactions. The Company indemnifies its directors, officers,
employees and agents to the maximum extent permitted under the laws of the
State of California. The duration of the guarantees and indemnities do not
provide for any limitation of the maximum potential future payments the
Company could be obligated to make. Historically, the Company has not been
obligated to make any payments for these obligations and no liabilities have
been recorded for these indemnities and guarantees in the accompanying balance
sheets.
NOTE 7. INCOME TAXES
Prior to the sale of the Company in November 2005 (see Note 9), the Company
was affiliated with other entities through common ownership. Together these
entities filed a consolidated tax return. The tax expense allocated to each
entity in the group is based upon what the current and deferred tax expense
would have been if each entity filed a separate tax return. During the years
ended December 31, 2003 and 2004, the Company allocated tax expense was
$44,664 and $53,096, respectively, less than the actual amount it had paid
towards the consolidated return liability. As such, these differences have
been treated as contributed capital in the accompanying financial statements
as the related parties have agreed not to have such amounts be paid to them.
For the years ended December 31, 2004 and 2003, the provision for income taxes
consists of the following:
2004 2003
------------- -------------
Current provision $ 83,096 $ 44,664
Deferred provision (3,152) (2,880)
------------- -------------
$ 79,944 $ 41,784
============= =============
Net deferred tax assets at December 31, 2004 of $6,032 consist solely of state
deferred income taxes.
Reconciliations between the effective tax rate on income before income taxes
and the federal statutory rate are as follows:
2004 2003
-------------- -------------
Provision for income taxes
at U.S. statutory rate 34.0% 34.0%
State income taxes, net of
federal benefit 6.1% 5.3%
Other 2.0% 0.0%
-------------- ---------------
42.1% 39.3%
============== ===============
26
NOTE 8. RELATED PARTY TRANSACTIONS
The Company had a management agreement with Integrated Care Communities, Inc.
("ICC"), a company that was affiliated with the Company through common
ownership. As provided by the agreement, ICC provided management and
administrative services to the Company. The management and administrative
personnel of ICC also performed similar management services for other
affiliated entities as well, including several nonprofit entities, and a
percentage of the total actual management and administrative costs incurred,
including certain other overhead costs were allocated among the entities.
During the years ended December 31, 2003 and 2004, the Company incurred
$181,705 and $99,000, respectively, in management fees with ICC and during the
nine months ended September 30, 2005 and 2004, the Company incurred $94,500
(unaudited) and $74,250 (unaudited), respectively, in management fees with
ICC. The basis of the fees charged for management services, the results of
operations of the Company, and the amount of the management service expense
incurred by the Company may be different if the Company and the affiliated
entities were autonomous.
Upon the acquisition of the Company by iTechexpress, Inc. ("iTech")(see Note
9), the management agreement with ICC was terminated.
In 2003 and 2004 the Company advanced $470,267 and $51,013, respectively to
ICC for ICC cash flow purposes. During 2004, the Company forgave ICC on
these advances. For financial statement reporting purposes, as the Company
and ICC are under common ownership, the forgiveness of this debt has been
treated as a distribution to stockholder in the accompanying financial
statements.
In November 2005, the Company stockholder contributed an additional $100,000
in cash to the Company as equity. There were no additional shares of common
stock that were issued in connection with this contribution. This
contribution has been treated as contributed capital in the accompanying
financial statements.
NOTE 9. SUBSEQUENT EVENTS
On November 7, 2005, the Company entered into a Stock Purchase Agreement
("Purchase") with iTechexpress, Inc. ("iTech"), a Nevada corporation whereby
the Company became a wholly owned subsidiary of the iTech. As part of the
Purchase, iTech purchased all of the outstanding shares of the Company from
the former stockholder of the Company for a purchase price of $1,800,000, of
which $1,600,000 in cash was paid at the closing of the Purchase and $200,000
shall be paid pursuant to a Secured Promissory Note ("Promissory Note"). The
Promissory Note is due in one payment of principal together with accrued but
unpaid interest (accruing at the rate of seven percent (7%) per annum) on or
before the sixtieth (60th) day following the closing of the Purchase, or
January 6, 2006. The Promissory Note is secured by a Stock Pledge Agreement
("Pledge Agreement"), whereby iTech pledged to the former stockholder of the
Company 51% of the stock of the Company ("DCI Stock") held by iTech to secure
the full and prompt payment and performance by iTech of the Promissory Note.
Additionally, any unpaid amount of the Promissory Note if not paid when due,
will bear interest at 12% per annum.
27
In connection with the Purchase, in November 2005 the Company entered into a
consulting agreement with its former shareholder and former President which
provides for compensation of $8,000 per month through October 2006 for
services to be rendered on a part-time basis.
On November 8, 2005, the Company and iTech entered into a Factoring and
Security Agreement to sell accounts receivables to Systran Financial Services
Corporation ("Systran"). The purchase price for each account sold is the face
amount of the account less a discount of 1.5%. All accounts sold are with
recourse by Systran. Systran may defer making payment to the Company of a
portion of the purchase price payable for all accounts purchased which have
not been paid up to 10.0% of such accounts (reserve). All of the Company's
and iTech's accounts receivable are pledged as collateral under this
agreement. The initial term is for thirty-six months and will automatically
renew for an additional twelve months at the end of the term, unless the
Company gives thirty days written notice of its intention to terminate the
Factoring Agreement.
28