IN THE CIRCUIT COURT OF THE 15TH

JUDICIAL CIRCUIT IN AND FOR

PALM BEACH COUNTY, FLORIDA

OFFICE OF THE ATTORNEY GENERAL, CASE NO. CL 00-00067 AB

DEPARTMENT OF LEGAL AFFAIRS,

STATE OF FLORIDA,

Plaintiff,

vs.

PROFESSIONAL RESOURCES SYSTEMS

INTERNATIONAL, INC., a/k/a PRSI, INC.;

WILLIAM CAUDELL a/k/a BILL CAUDELL

and BILLY CAUDELL; LESTER “GIL”

GILLESPIE; SALVATORE ARGENTO;

JOSEPH ROTUNNO, BEN TOBIN

a/k/a BEN TABINI, and CITX CORPORATION,

and BERNARD ROEMMELE,

Defendants.

/

REPORT OF THE RECEIVER FOR THE PERIOD

MAY 1, 2000 TO JULY 31, 2000

1. Introduction

This is the second report filed by the Receiver in this case. For the background of this case, a description of the defendants, and a preliminary financial summary of PRSI’s receipts and disbursements, please refer to the Receiver’s Initial Report covering the period January 5, 2000 through April 30, 2000. The Receiver’s Initial Report is on file with the clerk of the court and is also available on the Receiver’s web site, at www.prsiinc.com.

II Activity Since April 30, 2000

A. Recovery of Money During the Report Period

During the period covered by this report, the Receiver was successful in recovering estate funds as follows:

1. Dell Computer Company............................................ $169,350

2. National Penn Bank...................................................... $256,216

3. Cardservice International................................................ $20,931

4. Tax Refund....................................................................... $6,419

Total............................................................................ $452,916

1. Liv-Ash Holdings Trust ................................................ $63,028[1]

Grand Total.................................................................. $515,944

Note: The Receiver’s bank balance as of July 31, 2000 was $3,866,811.65, including all estates’ funds.

B. Actions Relating to PRSI’s Customer List

1. As described in the Receiver’s initial report, the Receiver performed an international search for new a new e-commerce provider to offer the SOHO package to the customers of PRSI. As a result of his search, the Receiver entered into an Asset Purchase Agreement with WAZZU Corporation, subject to court approval, to provide those services. On August 2, 2000, the Court granted the Receiver the authority to sell PRSI’s “Customer List to, Wazzu Corporation, or any other entity which he deems, in his sole discretion, best able to perform the obligations contained within the Asset Purchase Agreement.” The Court also order that “if the Receiver, in his sole discretion, determines that no competent and viable entity is available to purchase the Customer List, he is authorized not to sell the Customer List.”

2. During this reporting period, the Receiver discovered that CitX Corporation was soliciting PRSI’s customers to sign up with it to receive a product similar to the SOHO package they had already purchased from PRSI. Since the list of PRSI customers is the exclusive property of PRSI, the Receiver has initiated legal action in the Court of Common Pleas, Bucks County, Pennsylvania (Civil/Equity Division) to enjoin CitX from further misuse of the list. On August 1, 2000, the Bucks County, Pennsylvania court ruled that the customer list was “a proprietary asset of PRSI” (i.e., the Receiver), and permanently enjoined CitX from “soliciting, contacting, contracting and/or communicating with, or advertising to, any person who is identified [as a customer of PRSI].”

3. When PRSI’s business operations were closed pursuant to an order from this Court, there were approximately 9,000 applications to purchase SOHOs, which PRSI had not entered into its customer list database. The Receiver’s staff has entered data on all of those applications. To date the Receiver has accounted for approximately 46,000 members.

C. Receiver’s Investigation & Depositions

In the search for money and other assets that belong to the receivership estate, the Receiver has conducted an ongoing investigation of PRSI’s business relationships with various individuals and business entities located throughout the United States. As an integral part of that investigation, the Receiver has instructed his counsel to take several depositions. Depositions are typically an important source of information that may lead to asset recovery. This has proven to be true in this matter. Attached, as Exhibit “A” is a list of depositions the Receiver has taken or participated in within this reporting period. N.B. During these depositions, four out of the five original individual defendants took the Fifth Amendment, and defendants CitX Corporation and, to date, Bernard Roemmele have not been available for depositions in this case.

D. PRSI’s Offices Shutdown

During this reporting period, the Receiver closed the PRSI’s office and moved all of the company’s books and records to office space located in the same building where the Receiver’s offices are located. Accordingly, the rental expense to the estate have been reduced from $10,054 per month when the Receiver was appointed to $596 per month currently.

III. PRSI - An Insolvent Enterprise

PRSI received $295.00 from a majority of its customers who purchased a SOHO package. During the approximately eight (8) months PRSI was in business, as best the Receiver ascertain to date, it received approximately $13 million from the sale of SOHOs. Since the company never delivered a product to its customers, it could not properly recognize that money on its books as revenue. The $13 million was in fact a liability (unearned revenue) of the company and should have been recorded as such on its books. Therefore, since the company had no capital, it was an insolvent company from the time it began business until the Court shut it down on January 5, 2000 and the appointment of the Receiver. Money PRSI paid to its members as commissions came from the $295.00 membership fees paid to PRSI for the purchase of SOHOs, and not from any revenues earned by the company from its operations. Such businesses are commonly known as Ponzi and/or pyramid schemes.[2]

IV. Payments Made by PRSI to and/or on Behalf of Defendants.

As noted in the Receiver’s Initial Report, determining the amount of money paid to the defendants is an ongoing process and will be updated as new banking and other information becomes available. The most current numbers are as follows:

a) William Caudell...................................................... $360,271

b) Lester “Gil” Gillespie............................................... $259,208

c) Salvatore Argento................................................... $ 94,470

d) Joseph Rotunno...................................................... $197,197

d) Ben Tobin.............................................................. $198,470

f) CitX Corporation................................................... $710,463

Total .................................................................. $1,820,079

V. Commissions Paid to Sales Directors

As noted in the Receiver’s initial report, in addition to substantial monies being paid to the insiders at PRSI, many members, who were known as sales directors, received commissions for bringing in new members. In total, PRSI paid out approximately $2,723,000 in commissions to approximately 3,000 sales directors. Where required, the Receiver has sent those individuals an IRS form 1099 to reflect income to them that may be subject to federal and state income taxes. The Receiver is investigating possible action against the highly compensated sales directors.

VI. Receiver’s Communications With PRSI Members and Others

The Receiver continues to maintain a web site www.prsiinc.com on which is posted all court orders, notices, press releases and other information the Receiver believes to be most informative to PRSI’s customers and other interested persons. To date approximately 43,000 people have visited this web site. In addition, the Receiver is committed to responding to each member’s questions on a one-to-one basis. Therefore, the Receiver’s staff has reviewed each e-mail received at prsi@lbfmiami.com and responded to all questions. During this period, the Receiver has received over 500 e-mails inquiring about the PRSI case.

The most commonly asked question received from PRSI members is “How can I get a refund?” As of this report, the litigation between the Attorney General’s Office and the defendants is still pending and no trial date has been set. Therefore, the issue of refunds, i.e. claims, will not be addressed until the litigation is concluded.

VII. Legal Issues

The law firm of Markowitz, Davis, Ringel & Trusty, P.A., Miami, Florida (“MDRT”) continues to be retained as general counsel to the Receiver to oversee all legal matters. From the period of May 1, 2000 through July 31, 2000, MDRT has provided the Receiver with the following services:

a. Attendance at Hearings and Motions: MDRT continued to represent the Receiver in multiple court proceedings, filed motions on behalf of the Receiver and counseled Receiver in his dealings with the defendants, the State of Florida Attorney General’s Office, the Boca Raton Police Department and various other third parties.

b. Discovery matters: MDRT continued extensive discovery efforts on behalf of the Receiver which have been instrumental in understanding the business operations of PRSI and to identify and locate additional assets.

1. Deposition and Discovery Requests Undertaken. MDRT requested production from and/or attended and taken depositions of 23 individuals and corporate entities.

2. Receiver’s Engagement of Counsel. Receiver, with MDRT’s assistance, engaged outside counsel in 8 states on behalf of the Receiver to comply with the requirements of foreign state courts, including the execution of out-of-state depositions and assistance with asset disposition and claims issues.

3. Attorney-Client Privilege Issues. MDRT continued to request production from PRSI’s various corporate attorneys who contested the Receiver’s assertion of the corporate attorney-client privilege. MDRT finalized and filed with the Court a motion to compel production of documents from PRSI’s attorney and memorandum of law in support thereof.

c. Vendor Contracts. MDRT continued to review various vendor contracts and anticipates pursuing legal action and filing complaints against several vendors that failed to perform under their respective contracts.

d. Liquidation and Sale of Assets. MDRT successfully argued the motion to sell PRSI’s customer list to an internet service provider who will produce Small Office/Home Office (SOHO) Systems web pages with e-commerce capabilities for PRSI’s approximately 46,000 customers.

e. Foreign Matters. MDRT assisted counsel in various jurisdictions with regard to other pending matters concerning asset disposition and recovery as well as claims’ issues.

VIII. Litigation & Possible Causes of Action

The Receiver is reviewing the facts developed in this investigation of PRSI and its dealings with numerous individuals, companies, financial institutions, attorneys, creditors and other entities. The Receiver has also initiated legal action in the Court of Common Pleas, Bucks County, Pennsylvania (Civil/Equity Division) against CitX Corporation to recover more than $700,000 paid to CitX by PRSI. That lawsuit is still pending; however, as reported in section II.B.2 supra, the Receiver has been awarded a permanent in junction against CitX Corporation and certain of its senior directors, restricting their use of the PRSI customer list. Consideration is also being given to litigation against the defendants in this case and third parties who may have wrongfully profited in their dealings with PRSI. The Receiver is consulting with counsel to determine if there are viable causes of action that would be in the best interests of the PRSI estate and therefore should be pursued.

IX Cooperation with Interested Parties

The Receiver is fully cooperating with all parties who have a legitimate interest in this matter, including the PRSI members, the defendants, federal and state criminal and civil authorities, merchants, creditors and others.

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[1] Pursuant to the Order Granting Motion of Receiver to Set Terms of Receivership, dated January 13, 2000, the scope of the Receivership was expanded to include property, whether real, personal or mixed, having a fair market value exceeding $1,000.00, held by any trusts, such as Liv-Ash Holdings Trust, created by any of the Defendants.

[2]A Ponzi scheme is a fraudulent plan in which marketers promise extraordinary high rates of return in legitimate business to gain investors. In reality, the investors’ money is used by the marketers for their personal gain and to provide a return to previous investors. A “pyramid scheme” is where marketers gain rewards for recruiting others who will actually sell the product; the marketers gain a sizable commission as opposed to those who actually sell the product. Under Florida Statute 849.091, a pyramid scheme is “any sales or marketing plan or operation whereby a person pays a consideration of any kind, or makes an investment of any kind, in excess of $100 and acquires the opportunity to receive a benefit or thing of value which is not primarily contingent on the volume or quantity of goods, services, or other property sold in bona fide sales to consumers, and which is related to the inducement of additional persons, by himself or herself or others, regardless of number, to participate in the same sales or marketing plan or operation.”