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
<Table>
<Caption>
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
============== =============
</Table>
The accompanying notes are an integral part of these consolidated
financial statements.
4
ITECHEXPRESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
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
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
============= ============== ============== =============
</Table>
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
<Table>
<Caption>
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)
============= ============= ============== =============
</Table>
The accompanying notes are an integral part of
these consolidated financial statements.
6
ITECHEXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
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.
</Table>
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:
<Table>
<Caption>
September 30,
2005 December 31,
(Unaudited) 2004
------------ ------------
Office equipment $ 26,203 $ 26,203
Less: accumulated depreciation (24,729) (23,492)
------------ ------------
$ 1,474 $ 2,711
============ ============
</Table>
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:
<Table>
<Caption>
2004 2003
------------- --------------
Current provision $ 1,520 $ 7,378
Deferred provision 9,993 28,378
------------- --------------
$ 11,513 $ 35,756
============= ==============
</Table>
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.
15
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.
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
<Table>
<Caption>
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
============= =============
</Table>
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
============== ============== ============== ==============
</Table>
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)
Distri-
butions 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
============ ============ ============ ============ ============ ============
</Table>
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.
</Table>
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.