Professional Resources Systems International

INITIAL REPORT OF THE RECEIVER
JANUARY 5 TO APRIL 30, 2000

Introduction

      On January 4, 2000, Circuit Court Judge Jorge Labarga entered a temporary injunction without notice against Professional Resources System International Inc. (PRSI) and its officers and appointed Lewis B. Freeman as Receiver for PRSI. On January 5, 2000, the City of Boca Raton Police Department executed a search warrant on the offices of PRSI. In connection with that search warrant, the police seized the company's original computers and most of its business records.  
      The Receiver has cooperated and will continue to cooperate with the Boca Raton Police Department's criminal investigation of the PRSI matter, while at the same time moving forward with his investigation, including identifying and locating assets belonging to the estate. The Receiver's investigation has been hampered by the lack of availability of the company's original computers and records and the very limited testimony of the defendants. Alternative means of obtaining information, such as depositions and subpoenas, although time consuming, have been reasonably successful. The Receiver is continuing to cooperate with the Attorney General's office and the defendants in connection with the pending litigation relating to this matter. 

Duties and Actions of the Receiver

      The duties of the Receiver were set forth in a subsequent Order of the Court dated January 13, 2000. The Receiver's duties are, among other things, to marshall, preserve, protect, maintain and safeguard the assets, records and documents of PRSI.  
      In carrying out his duties as permitted by the Court's Order, the Receiver: 1) retained counsel to handle the various legal aspects of the receivership; and 2) retained forensic accountants to aid in the search for corporate assets, in tracing monies received and disbursed by PRSI, and to otherwise assist the Receiver in the administration of his duties. 
      To date, the Receiver has taken the following actions: 

The PRSI Defendants

William (Bill) Caudell
Caudell is the CEO, Chairman and Founder of PRSI. Caudell is believed to also be an owner of Native Echo World Corp., Liv-Ash Holdings Trust, Summit Quest International, Inc. and Global World Management, entities that appear to be at or near the top of the pyramid-type or "spin" structure created by PRSI for purposes of paying commissions.

Lester "Gil" Gillespie
Gillespie is the president of PRSI. Gillespie joined PRSI as president in around early September 1999, and was responsible for the company's internal day-to-day operations. Gillespie is believed to be the owner of M.S.V.G., Inc., a company that appears near the top of the pyramid-like structure referred to above.

Salvatore Argento
Argento appears to have begun his association with PRSI in around July 1999. Argento is a vice-president of PRSI and was the only authorized signer on the company's bank account.

Ben Tobin a/k/a Ben Tabini
Tobin began receiving checks from PRSI in September 1999. Tobin handled the purchase of computers from Dell and certain other equipment for PRSI.

Joseph Rotunno
Rotunno appears to have begun his association with PRSI in July 1999. To date the Receiver does not know what functions Rotunno performed for PRSI.

The Business of PRSI

      PRSI was incorporated in the state of Nevada in March 1999. PRSI began operations in around April 1999 in Cocoa Beach, Florida and in mid-summer 1999, relocated to Boca Raton, Florida. PRSI's business was the sale of SOHOs (i.e., small office-home office) e-commerce, business opportunities to members of the public. PRSI attracted its customers through advertising in various publications, company-sponsored seminars and through multilevel marketing ("MLM") organizations. PRSI sold SOHOs to somewhere between 40-50,000 people located in all 50 states and in at least 82 foreign countries.  
      According to PRSI, it planned, along with CitX Corporation, a defendant in this case, to create a virtual private network known as "Intranet i3x." In its corporate literature, PRSI held itself out as "the exclusive marketing arm of CitX." PRSI's "Pre-Launch" brochure (Exhibit - A), states that the "company's mission" was to: 

CitX Corporation

      CitX is located in Quakertown, Pennsylvania. CitX holds itself out as a firm with expertise and experience in constructing and maintaining all the components of an Internet shopping mall. In August and September 1999, CitX entered into a series of agreements with PRSI, including a Strategic Marketing Alliance Agreement, a Software License Agreement and a Contractual Agreement. On September 9 & 15, 1999 and on November 17, 1999, CitX issued news releases describing its "Strategic Marketing Alliance" with PRSI. (Exhibits - B, C & D). In total, PRSI paid approximately $710,000 to CitX pursuant to the terms of the various agreements between the two companies.

What is a SOHO System?

      According to the Pre-Launch brochure a SOHO included the following services, which were to be provided by PRSI and CitX:

How PRSI's Sales Organization was Structured

      PRSI's Pre-Launch brochure shows how at 6 levels deep, a member could achieve "31 streams of income" totaling $14,580.00 per month. (see Exhibit A). It appears that during the approximately eight months PRSI was in operation, between 40-50,000 people became members in PRSI by depositing approximately $12.8 million with the company before the operations were shut down by Order of the Court.

Receiver's Actions in First Four Months

Actions Relating to the Business Operations

      An inspection of the company's premises and business records disclosed that approximately 10-15,000 applications with accompanying membership fees were received by PRSI, the money deposited into PRSI's bank account, but the applications not entered into the company's computer database. The Receiver is entering those applications into the database and conducting a review of that database in an effort to eliminate as many of the data processing errors as possible.

Administrative Actions

      Since there is only a temporary injunction in place, the Receiver has been limited in what actions he can take to minimize ongoing expenses and in considering the liquidation of unneeded assets. However, the Receiver has been able to reduce or eliminate previous operating expenses relating to rent, company automobiles, commissions paid to sales directors, consulting fees, corporate payroll, conference calls, office decorations, cellular phones and unnecessary telephone lines. Furthermore, depending on the outcome of the case, the Receiver will turn over all assets to whomever the Court adjudicates to be the party in interest or liquidate the assets if so instructed by the Court.

Merchant Communications

      The Receiver has responded to most of the hundreds of E-Mails and letters received from PRSI members who have been asking about the status of the case and how they can get refunds. As of the date 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 and/or claims will not be addressed until the litigation is concluded.

Legal

      The law firm of Markowitz, Davis, Ringel & Trusty, P.A., Miami, Florida ("MDRT") has been retained at a reduced rate as general counsel to the Receiver to oversee all legal matters. From the period of January 5, 2000 through April 30, 2000, MDRT has provided the Receiver with the following services: 

Hearings, Motions and Filings:  MDRT has represented the Receiver in court proceedings, has filed motions on behalf of the Receiver and has counseled Receiver in his dealings with the defendants, the State of Florida Attorney General's Office and the Boca Raton Police Department. In addition, MDRT has met with counsel for the plaintiffs and counsel for defendants on behalf of the Receiver to set multiple agreed orders.

Discovery matters:  MDRT has conducted extensive discovery efforts that have been instrumental in assisting the Receiver to understand the business operations of PRSI and to identify and locate additional assets.

(1)

Deposition and Discovery Requests Undertaken. MDRT has requested production from and/or taken depositions of 26 individuals and corporate entities.

(2)

MDRT's Engagement of Counsel. MDRT has engaged outside counsel in 11 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 recovery and other issues.

(3)

Attorney-Client Privilege Issues. MDRT has also requested production from PRSI's various corporate attorneys who have contested the Receiver's assertion of the corporate attorney-client privilege. MDRT is in the process of finalizing a motion to compel production and memorandum of law in support thereof.

Vendor Contracts:  MDRT has reviewed various vendor contracts, has terminated office equipment and service leases as well as contractual arrangements with Nextel, Sprint, CitX and Lynx Management.

Liquidation and Sale of Assets:  MDRT has assisted the Receiver in negotiating with several Internet service providers to produce Small Office/Home Office (SOHO) Systems web pages with e-commerce capabilities for PRSI's 40-50,000 customers. MDRT has conducted due diligence and negotiated a proposed asset sale agreement.  A motion has been filed with the court for approval of the sale of PRSI's customer list.

Consulting & Accounting

      The forensic accounting/consulting firm of Lewis B. Freeman & Partners, Inc., a company wholly-owned by the Receiver, has been engaged to assist the Receiver in searching and accounting for cash and other assets. Lewis B. Freeman & Partners, Inc. will also assist in the administration of the estate for the Receiver. Furthermore, the firm of Freeman, Dawson & Rosenbaum, an accounting firm in which the Receiver owns a minority interest, has been retained to prepare PRSI's corporate tax returns. 

Claims Procedure

      The Court's Order of January 13, 2000, set the terms of the receivership. Pursuant to that Order, the Receiver was directed to establish a procedure for creditors of PRSI to file claims. However, since the litigation of this matter has not concluded and therefore it is not certain that a claims procedure will be established, the Receiver has not yet implemented that provision of the order. If and when appropriate, a claims procedure will be drafted and submitted to the court for approval. After the Court approves a claims procedure, claim forms will be distributed to all known creditors.

Insurance

      All property under the control of the Receiver is properly insured.

New E-Commerce Provider

      Each customer will have the option of accepting or rejecting the offer. If the customer accepts the offer, then that customer will be ineligible to file a claim with the receivership estate, should a claims procedure be established. If a customer rejects the offer, then that customer will continue in their current status, subject to verification, i.e., as a creditor-merchant of PRSI. If a customer fails to exercise their option, then that customer will be deemed to have rejected the offer. A procedure will be established and published as to how a customer can advise the Receiver and the provider of their decision to accept or reject the offer.

Litigation & Possible Causes of Action

      The Receiver may commence litigation against the defendants, financial institutions or other third parties if, after a complete investigation, the Receiver with the assistance of counsel, determines that there are viable causes of action that would be in the best interest of PRSI.

Taxes

      The Receiver has not determined the amount of unpaid taxes and liens PRSI is obligated for, if any. All tax obligations will be kept current to avoid interest and penalties. The Receiver has filed a request for extension with the Internal Revenue Service to file the corporate income tax return.

Cooperation with Interested Parties

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

Exhibits

Appendices

This report is certified to be true and correct.

STATE OF FLORIDA                )
                                                    ) ss. 
COUNTY OF MIAMI-DADE    )

            SWORN TO AND SUBSCRIBED before me this day of May, 2000, by Lewis B. Freeman, who:
       is personally known to me;
           Y         produced a current driver's license as identification; or
           Y         produced ______________________________________ as identification.