Assuretec Holdings Inc · 10SB12G/A · On 12/9/05

Filed On 12/9/05 10:43am ET   ·   SEC File 0-50506   ·   Accession Number 1000096-5-691

Amendment to Registration of Securities of a Small-Business Issuer   ·   Form 10-SB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10SB12G/A   Amendment No. 1                                      117    486K 
 2: EX-2.1      Certification of Designation of Rights                15     55K 
 3: EX-10.1     Lease                                                 17     79K 
 4: EX-10.2     Letter                                                 1      6K 
 5: EX-23.1     Consents of Experts and Counsel                        1      6K 

10SB12G/A   ·   Amendment No. 1
Document Table of Contents

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FORM 10-SB

 U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 -----------

 Amendment No. 1 to Form 10-SB

 -----------

GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS

Under Section 12(g) of
 The Securities Exchange Act of 1934

 Commission File Number: 000-50506
                        ----------

 AssureTec Holdings Inc.
 -----------------------
(Name of Small Business Issuer in its Charter)

Delaware
--------
(State or other jurisdiction of incorporation or organization)

20-0007441
----------
(I.R.S. Employer Identification No.)

200 Perimeter Road
Manchester, NH
--------------
(Address of principal executive offices)

 03103
 -----
(Zip Code)

Issuer's telephone number:
--------------------------
(603) 641-8443

 Securities registered pursuant to Section 12(b) of the Act:
None

 Securities registered pursuant to Section 12(g) of the Act:
Common Stock
------------
 (Title of Each Class)

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 TABLE OF CONTENTS

PART I........................................................................1 

    ITEM 1       DESCRIPTION OF OUR BUSINESS.................................1
ITEM 2       MANAGEMENT'S DISCUSSION AND ANALYSIS OF                  
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............20
    ITEM 3       DESCRIPTION OF PROPERTY....................................27
ITEM 4       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS          
                 AND MANAGEMENT.............................................27
ITEM 5       DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND             
                 CONTROL PERSONS............................................33
    ITEM 6       EXECUTIVE COMPENSATION.....................................36
    ITEM 7       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............43
    ITEM 8       DESCRIPTION OF SECURITIES..................................45

PART II......................................................................48 

ITEM 1       MARKET PRICE FOR COMMON EQUITY  AND RELATED              
                 STOCKHOLDER MATTERS........................................48
    ITEM 2       LEGAL PROCEEDINGS..........................................49
ITEM 3       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON         
                  ACCOUNTING AND FINANCIAL DISCLOSURE.......................49
    ITEM 4       RECENT SALES OF UNREGISTERED SECURITIES....................50
    ITEM 5       INDEMNIFICATION OF DIRECTORS AND OFFICERS..................56

PART F/S          ...........................................................57 

    INDEX TO FINANCIAL STATEMENTS...........................................57

PART III..................................................................III-1 

    ITEM 1       INDEX AND DESCRIPTION OF EXHIBITS.......................III-1

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PART I

   Under the Private Securities Litigation Reform Act of 1995, companies are
provided with a "safe harbor" for making forward-looking statements about the   
potential risks and rewards of their strategies. Forward-looking statements     
often include the words "believe," "expect," "anticipate," "intend," "plan,"    
"estimate" or similar expressions. In this registration, forward-looking        
statements also include:                                                        

o    statements about our business plans;                             

o    statements about the potential for the development, regulatory   
approval and public acceptance of new services;             

o    estimates of future financial performance;                       

     o    predictions of national or international economic, political or market
conditions;                                                 

o    statements regarding other factors that could affect our future  
operations or financial position; and                       

o    other statements that are not matters of historical fact.        

     These statements may be found under "Management's Discussion and Analysis,"
"Plan of Operations" and "Description of Business" as well as in this Amendment 
1 to Form 10-SB generally. Our ability to achieve our goals depends on many     
known and unknown risks and uncertainties, including changes in general economic
and business conditions. These factors could cause our actual performance and   
results to differ materially from those described or implied in forward-looking 
statements.                                                                     

These forward-looking statements speak only as of the date of this    
Amendment 1 to Form 10-SB. We believe it is in the best interests of our        
investors to use forward-looking statements in discussing future events.        
However, we are not required to, and you should not rely on us to, revise or    
update these statements or any factors that may affect actual results, whether  
as a result of new information, future events or otherwise.                     

ITEM 1 DESCRIPTION OF OUR BUSINESS

a. Organization of AssureTec Holdings                                 

AssureTec Holdings, Inc. ("AssureTec Holdings", "Holdings" or "the    
Company"- formerly named Tech Ventures, Inc.) was formed as a Delaware          
corporation on June 12, 2002 by Element 21 Golf Company ("Element 21"- formerly 
named BRL Holdings, Inc.), a publicly traded company quoted on the              
Over-the-Counter Bulletin Board (the "OTCBB") under the symbol EGLF. Element 21 
acquired all the common stock of AssureTec Systems, Inc., a privately held      
company engaged in security solutions for identification documents ("AssureTec  
Systems" or "Systems") in November 2001. On April 1, 2002, Element 21 exchanged 
2,852,000 of the shares of Systems common stock that it had received in the     

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acquisition of Systems for 5,704,000 shares of Element 21 common stock, from    
substantially all the founders and consultants from whom Element 21's interest  
in Systems was originally acquired. In addition, options to acquire 4,750,000   
shares of Element 21 common stock then held by these individuals were cancelled.
As a result of these transactions and the issuance of additional shares of      
Systems common stock to employees upon the exercise of stock options, Element   
21's ownership of Systems decreased to 34.2% of the outstanding shares of       
Systems' common stock. Element 21 undertook this latter transaction because     
Systems, a development stage company, is in a entirely different industry that  
requires a different management focus, a different business and strategic focus,
different operating characteristics, a different investment profile, different  
sources of capital, and a different identity. It is our understanding that      
Element 21 did not believe it could focus its financial and management resources
properly on its own business and still be able to generate sufficient capital to
support Systems as a wholly owned subsidiary.                                   

     After Holdings was formed by Element 21, Element 21 contributed to Holdings
all the Systems common stock owned by Element 21. At the time of the formation  
of Holdings, these 2,716,900 shares of Systems common stock represented a 34.2% 
ownership of Systems by Holdings. Element 21 also contributed into Holdings     
stock ownership it held in three corporations, Biorelease Technologies, Inc.,   
IJAM Inc, and Advanced Conductor Technologies, all of which were inactive and   
carried by Element 21 at no value. A total of 5,433,800 shares of Holdings      
common stock were issued to Element 21 Golf in consideration for the            
contribution of Element 21's investment in Systems along with the other three   
zero value entities contributed by Element 21. Since its formation, Holdings'   
only material asset has been its investment in Systems.                         

    Systems, a development stage company, was formed as a Delaware corporation
in October 2001. Systems' business is the selling of technology that identifies 
and authenticates documents that are used to enable its customers to recognize  
and validate a large variety of travel documents automatically. (See - The      
Business of AssureTec Systems, Inc.).                                           

    In March 2004, Holdings acquired the remaining outstanding common stock of
Systems by issuing to each holder of the common stock of Systems two shares of  
Holdings common stock in exchange for one share of Systems common stock (the    
"Systems Exchange"). Since that date, Systems has been a wholly owned subsidiary
of Holdings. Immediately after the Systems Exchange, Holdings effected a        
1-for-31 reverse split of Holdings common stock and securities convertible into 
Holdings common stock. As part of the Systems Exchange, Holdings also issued one
share of Holdings Preferred Stock in exchange for each outstanding share of     
Preferred Stock of Systems (a total of 601 shares).                             

In April 2004, Holdings commenced a private offering of its Series A-2
Preferred Stock, pursuant to which it issued 25.2 shares of Series A-2 Preferred
Stock to officers of the Company and of its subsidiary for gross proceeds of    
$67,800 in cash and in satisfaction of a total of $184,200 of debt. The shares  

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of Series A-2 Preferred Stock were later cancelled, upon approval of the Series 
A-2 holders, and exchanged for a total of 252 shares of Series A-1 Preferred    
Stock.                                                                          

   Between May 2004 and November 2005 the Company issued an additional 3,560
shares of Series A-1 Preferred Stock for aggregate proceeds of $3.2 million     
pursuant to one private placement. As of November 15, 2005, there were a total  
of 4,161 shares of Series A-1 Preferred Stock outstanding.                      

   On September 1, 2005 Holdings initiated a private placement to accredited
investors only of up to $1 million of debentures with warrants to purchase      
common stock. These debentures have a six month term and bear interest at 12%   
annually. For each $3.00 of debentures purchased, Holdings issued one warrant to
purchase one share of Holdings common stock at $6.00 per share for a period of  
one year from the date of investment or upon an initial public offering by      
Holdings, whichever occurs earlier. This private offering raised gross proceeds 
of $1.125 million and net proceeds of approximately $1.035 million and in       
October 2005, the Company issued warrants to acquire 375,667 shares of Common   
Stock.                                                                          

   On September 15, 2005 Holdings commenced a private offering to accredited
investors only of up to 1,250,000 shares of Holdings common stock. Pursuant to  
this private offering, the Company is offering units for gross proceeds of      
$12.00 per unit. Each unit is comprised of two shares of common stock at $6.00  
per share with one warrant to acquire one share of common stock at $6.00 per    
share, for each two shares of common stock purchased. The warrants issued in    
this offering are exercisable for a period of one year from the date of         
investment or upon an initial public offering by Holdings, whichever occurs     
earlier. As of October 31, 2005, a total of 333,333 shares have been sold, and  
166,667 warrants have been granted, pursuant to this offering raising gross     
proceeds of $2.0 million, of which $1.125 million was applied to retire the     
September 1, 2005 debentures.                                                   

     AssureTec Holdings has no operations except for the activities of AssureTec
Systems, Inc. and, therefore, the following discussion of products, markets and 
business opportunities relates solely to AssureTec Systems, Inc.                

     The financial information has been prepared using the historical records of
both AssureTec Holdings, Inc. and AssureTec Systems, Inc. The operations of     
AssureTec Holdings, Inc. are limited and consist primarily of certain management
costs, such as compensation and third party management and accounting services. 
Historical references to the Company's operations primarily consist of those    
transactions executed by AssureTec Systems, Inc. in the development of its      
integrated identity document management applications.                           

Element 21 intends to effect a spin-off of Element 21's interest in   
Holdings (the "Holdings Spin-Off") pursuant to an exemption from registration   
under the Securities Act of 1933, as amended (the "Act"). The Holdings Spin-Off 
will be pro-rata to Element 21 stockholders of records as of October 4, 2002,   
excluding, in accordance with the consent of such stockholders, shares held by  

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stockholders who received shares of Element 21 common stock as of October 3,    
2002, in connection with the acquisition by Element 21 of Systems.              

b. The Business of AssureTec Systems, Inc.                            

AssureTec Systems is a development stage company that is a provider of
technology that enables security solutions to automatically recognize, manage   
and authenticate identification documents. With its shipment in early 2004 of   
hardware and software to be used at the international airport in Santiago,      
Chile, AssureTec Systems commenced entry into this document security field as an
integrated solution provider combining its proprietary hardware and software    
product lines - i-Dentify(TM) Reader/Authenticator and AssureID(TM) Software and
Knowledge Base, respectively. These products, combined with biometrics and      
associated integration software provided by others, provide a cost-effective and
automated answer to an essential security question--"What is the risk of entry  
associated with this identity as presented?"                                    

In addition to the Chilean government, we have sold our products and  
services either for production usage or pilot testing for several end-users     
including the U.S. Transportation Security Agency, U.S. Department of State,    
Ministry of Immigration of Australia, and multiple U.S. state and Canadian      
provincial motor vehicle departments. Systems has generated revenues of         
approximately $9,700, $290,000 and $767,000 in fiscal years ended June 30, 2003,
2004 and 2005, respectively. We are continuing to develop our business by       
aggressively targeting end users and major systems integrators and value-add    
resellers serving our target markets as described further below under "Target   
Markets" and "Marketing Strategy."                                              

  Government-issued ID documents come in various sizes, colors and quality
levels. Unlike the field of telecommunications in which all manufacturers agree 
in advance on conventions and standards so as to enable network services and    
solutions, the world of passports and government-issued ID documents has few    
standards. Countries issuing approximately 60% of the most widely used passports
subscribe to International Civil Aviation Organization ("ICAO") standards       
developed by the airline industry almost 10 years ago. But even these "ICAO     
standard" passports are quite often issued and printed "off spec." In addition, 
national identity cards, drivers' licenses, and visas represent over a thousand 
additional types of government issued ID documents worldwide.                   

Since the terrorist events of September 11, 2001 in the United States,
almost every government is struggling with increasing the security of its issued
documents in order to strengthen its borders and protect critical               
infrastructure. New biometric and smart card solutions are proposed and tested  
every day. Absent a cooperative effort to replace every issued identity document
by virtually every government in the world, identity documents that are already 
issued in multiple formats and pursuant to multiple standards will be in        
circulation for another twenty to thirty years. Additionally, when new smart    
card and enhanced passport systems are placed in service, they will add to a    
growing list of disparate documents that a border agent or facilities control   
agent must monitor and evaluate.                                                

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We sell our identity document authentication products and services    
primarily through domestic and international resellers, distributors and systems
integrators into three target markets: border management, travel, and access    
control.                                                                        

We maintain a web site describing our products and services in detail 
(http://www.assuretec.com).                                                     

Targeted Market Segments                                                        

The lack of worldwide standards for over 192 countries(1) results in  
identification documents coming in various sizes, colors, quality levels, and   
varying significantly in security features. Absent a cooperative effort to      
replace all identity documents throughout the world, documents that are already 
in use are likely to be in circulation for up to thirty years. By enabling      
effective authentication methods to existing documents already in circulation,  
we immediately add value and significance to the automated authentication and   
security industry.                                                              

Public concern and new pending legislation that is affecting border   
management and travel security is stimulating demand for improved security      
operations with methods in place to protect the public's privacy. Based upon    
published data, management believes that aggregate worldwide revenues for the   
automated authentication and security industry could approximate $10 billion by 
2008(2).                                                                        

   The following points relate to market opportunities, where our technology
could be specifically applied:                                                  

 1)   The Government Accounting Office (GAO) reports that in 2002, there
   were about 440 million primary inspections conducted at the 330
     primary land, air and sea entry points, by 4,775 inspectors(3) of
  which 279 million inspections were of foreign nationals(4). In
  addition, management estimates there are over several thousand
secondary land, air and sea entry points.                   

2)   Commercial air travel use exceeded 1.5 billion passengers at over
5,000 public and 13,000 private airports(5).                

-------------------------                                                       
(1)  www.countrywatch.com                                                       

(2)  GAO, Brookings Institution, HISA, IATA, Lehman Brothers                    

(3)  "Protecting the American Homeland; A Preliminary Analysis" 2002 Pg 32 and  
ibid Report to Congressional Committees pg30                          

(4)  ibid Report to Congressional Committees pg 54                              

(5)  Department of Transportation Statistics December 2002                      

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  3)   There are 4.6 million commercial buildings, 500 skyscrapers, 12,000
       chemical facilities and 300 major arenas and stadiums in the United
States(6).                                                  

  4)   There are over 50,000 bank branches across the United States(7) and
          over 500,000 branches around the world that need time-effective, proof
         of identification in opening a bank account or for transferring large
sums of money.                                              

Market Advantages                                                               

    We have established a market presence and preferred partnering status with
large integrators including Lockheed Martin Corporation, Unisys Corporation, and
Science Applications International Corporation (SAIC) along with specialty niche
providers for the United States and international border markets. Our           
relationship with Unisys Corporation in providing security solutions to the     
government of Chile significantly strengthens our visibility.                   

    Several companies, with competing identification document reading devices,
have approached us for licensing opportunities. We expect to focus on the       
integration of our software with a variety of devices being developed for the   
growing commercial and governmental markets, thereby becoming the industry      
standard for authentication and document classification devices. Additionally,  
we expect to license or develop biometric and external database management      
capability and to offer security solutions tailored to specific markets such as 
transportation, banking, automated public access applications, and restricted   
goods purchases including chemicals and firearms. Recently, we announced a      
strategic alliance with Digimarc Corporation to provide solutions to state and  
province driver's license issuing authorities to authenticate "breeder          
documents" used to get new licenses.                                            

Common Customer Need                                                            

We believe that we meet, in whole or in part, several common customer 
requirements across all of our markets, which include our ability to:           

    (i)  quickly and effectively identify and read any identification document
types issued by a myriad of organizations;                  

     (ii) facilitate the correlation of biometric markers (facial, fingerprints,
     etc.) and other security information between the document and its
presenter;                                                  

  (iii) assess the risk that the document presented is unaltered, contains
 the appropriate characteristics, and shows not to be expired;

-----------------------                                                         

(6)  "Protecting the American Homeland; A Preliminary Analysis" 2002 pg 47 & pg 
55                                                                    

(7)  "Bank Geographic Structure" The Conference of State Bank Supervisors;      
www.pacb.org/pacb_h11.htm                                             

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(iv) maintain throughput at control point; and                        

(v)  preserve and protect established personal privacy and security   
protocols.                                                  

    Our security products and services are designed to incorporate these goals
into market-driven solutions.                                                   

Our Platform and Management System                                              

    We have developed an integrated identity document management platform that
can automatically identify and validate many identity document types being      
presented, regardless of whether the document has been printed according to ICAO
standards.                                                                      

  Furthermore, our platform includes a proprietary document specifications
library that ascertains the degree to which security features and known document
characteristics are present or absent in any document being presented, whether  
ICAO standard or not. This capability enables a higher level of automation, with
a higher degree of public access and security risk management, to a border,     
passenger check-in terminal, sensitive facility, or other control point.        

     As a subset of this document management software product, we offer document
authentication management for each document type supported. The software        
utilizes a weighted risk-scoring scheme for each security feature confirmed, or 
absent, based on the individual requirements of a particular access point.      

Once a document that is already enrolled in our data library has been 
recognized by our automated identity document management system, predetermined  
protocols are applied according to the specific requirements of the local       
control point. These rules and protocols drive the level of data extraction and 
enable further analyses including: biometrics, document security feature        
analysis (authentication), matching to watch lists, stolen document lists,      
passenger manifests, and the like.                                              

Because of its ability to recognize virtually any travel document in  
circulation, our automated identity document management system can be deployed  
immediately in public transportation or other infrastructure applications,      
including existing airline, travel, and facility control systems, without       
waiting for enrollment under new document issuance. For example, its proprietary
software can be programmed to develop transportation manifests automatically,   
prioritize baggage handling, and integrate with security watch lists. The       
software can work across networks of large facilities to deliver higher levels  
of confidence as to the identity of those persons within the facility.          

Comparison with Competitive Technologies                                        

Competitive ID document automated reader technology is constrained by 
reading limited areas of single document types. On the other hand, because of   
its omni-font capability and advanced pattern matching, our i-Dentify(TM)       
document management system reads the entire document, enabling it to extract    
substantially more data from a travel document than that contained in the       
machine-readable portion of the document. Further, the technology can be applied
to any travel document types in its library.                                    

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  Our ability to recognize a large number of different document types is a
direct result of our patent-pending technology that recognizes any document     
registered in its proprietary document library. By using our proprietary reader 
to register issued document standards, we achieve a high level of sensitivity   
and resolution by controlling image quality and lighting uniformity. This       
maximizes the amount of information being read.                                 

     The resulting document library knowledge base has been built by registering
both ICAO and non-ICAO documents in its knowledge base, thus ensuring a broad   
and high level of document classification and authentication. Also, the         
machine-readable portion of the document is the least secure and easiest portion
for a forger to modify.                                                         

    Our ability to read and extract data from the secure portion of a document
while matching the data to that contained in the machine-readable portion       
enables the processing of a significantly higher percentage of travel documents 
with higher levels of security and automation.                                  

    The automated manner used by the system to extract data permits automation
of a control point with only limited manual clerical intervention. Our high     
level of automation allows inspectors to be "face to face," evaluating human    
behavior, rather than "heads-down," interacting with a keyboard.                

     Processing time is another significant advantage of our document management
software. We use our proprietary knowledge-based software hierarchy to process  
only the images and information necessary to identify a particular document and 
complete the processing protocol. This makes the system faster and keeps lines  
moving.                                                                         

We believe our performance advantages will allow us to capture        
substantial market share.                                                       

Marketing Strategy                                                              

Target end-users of our products and services include security
management firms and solution providers, corporate trustees of facility         
security, domestic government agencies, U.S. Department of Homeland Security,   
U.S. Transportation Security Agency, U.S. Department of State, U.S. Customs,    
state departments of motor vehicles, and comparable organizations in foreign    
countries. Some of the end-users currently using our products and services      
either in production usage or pilot testing include the Chilean government, U.S.
Transportation Security Agency, U.S. Department of State, Ministry of           
Immigration of Australia, and multiple U.S. state and Canadian provincial motor 
vehicle departments. There is no assurance that any of these entities will      
continue to be end-users or that we will secure new end-users.                  

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Our marketing approach seeks to generate product "pull," through our  
program of accessing and influencing high-level agency and government           
specifiers, as described below.                                                 

We distribute our products primarily through reseller and systems     
integrator channels that have significant leadership positions in each targeted 
market segment. For U.S. government applications such as borders and            
transportation, we intend to create market "push" through relations with large  
government integrators such as: Northrop-Grumman, Lockheed Martin, Unisys, CSC, 
SAIC, and comparable integrators located overseas. We currently have reseller   
agreements with, or purchase orders from, Lockheed Martin, Unisys, SAIC, Bearing
Point, Digimarc and other systems integrators, however, there is no assurance   
that we will be able to maintain these working relationships or establish any   
additional relationships.                                                       

  "Pull" is created by regular publication and presentation of projects by
our founders and product managers before domestic and international industry    
forums, supplemented by personal visits to government specifiers. We expect that
this "Pull" combined with the marketing efforts of the leading integrators will 
carry our products into these government channels.                              

     End users routinely conduct pilot programs to evaluate new technologies. We
have products and services currently being used in several pilot programs,      
including international travel applications, banking applications, and border   
management applications, however, there is no assurance that these pilots will  
progress from pilot testing into fully-deployed programs. We expect our         
technology will be a participant in several additional pilot programs both      
domestically and overseas, although there is no assurance that this will occur. 

Specific Products and Services                                                  

We offer an integrated solution that consists of an identity document 
manager software platform, a proprietary document library that can be "trained" 
to recognize almost any document to enable operation without manual             
intervention, and a proprietary, full color, digital document reader. Our       
integrated solution offers competitive security solutions without disrupting the
efficient flow of people and products. Appropriate privacy protection for all   
citizens is enabled as a matter of design.                                      

   The i-DentifyTM Document Reader is the basis of our family of advanced ID
Reader/Authenticator products. Current models have the capability of reading and
authenticating passports and other travel documents regardless of which set of  
government standards or to which Travel Document standards they conform, as well
as providing the capability of reading and authenticating driver's licenses and 
state-issued ID cards. The product is capable of being programmed to read and   
authenticate virtually any document that can be placed in a 3" x 5" viewing     
window.                                                                         

   i-DentifyTM products incorporate patented and patent-pending technologies
to inspect and analyze a document, enable biometrics, link the presenter to that

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document, and enable a search against relevant databases or "watch" lists to    
derive an ultimate risk assessment "score". Most often, these processes happen  
in a matter of seconds, in a manner that minimizes invasion of an individual's  
privacy.                                                                        

   The AssureID(TM) Software and Document Library Knowledge Base is designed
to be a software platform that will serve as an enterprise-wide central document
authentication and analysis solution.                                           

  Our ability to recognize a large number of different document types is a
direct result of our patented(8) and patent-pending technology that recognizes  
any document registered in its proprietary document library (see Proprietary    
Information following). By using our proprietary reader to register issued      
document standards, we achieve the highest level of sensitivity and resolution  
by controlling image quality and lighting uniformity. This maximizes the amount 
of information being read.                                                      

     The resulting document library knowledge base has been built by registering
both ICAO and non-ICAO documents in its knowledge base, thus ensuring the       
broadest and highest level of document classification and authentication. We    
currently do not support other document readers, but we may in the future modify
our software to enable licensing of our software to other competitive reader    
manufacturers.                                                                  

As a subset to the overall platform, we offer rules-based document    
authentication management for each document type supported, along with a        
weighted risk-scoring scheme for each security feature confirmed or found absent
based on the requirements of a particular control or access point.              

     The i-DentifyTM Reader/Authenticator and AssureID(TM) Software and Document
Library Knowledge Base platform is designed to permit easy integration into     
existing systems, centralized management of multiple clients, and as a secure   
node, to link to disparate, trust-authority databases.                          

    We offer Maintenance Services for its i-DentifyTM Readers and Subscription
Services for our AssureID(TM) Software and Document Library Knowledge Base to   
insure end-users stay current with the latest software revisions and updates to 
the Library Knowledge Base of documents. While these services are optional, we  
believe that the majority of our customers will opt for these services, however,
we cannot provide any assurances that our customers will purchase post-contract 
support from us.                                                                

Competition                                                                     

Currently, the market for ID document readers is fragmented, without a
dominant player. The competitive field is comprised of low profile divisions of 
large corporations or small companies. Both lack any real differentiating       
competitive advantage. We believe that our patent pending intellectual property 
and advanced technology platform, including its ability to read an entire       

-----------------                                                               

8    The Company was issued patent #6,785,405 B2 on August 31, 2004 entitled    
Apparatus and Method for Document Reading and Authentication with 22  
approved claims.                                                      

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document and process a document quickly with its omni-font capability and       
advanced pattern matching against any document registered in its proprietary    
document library knowledge base, will allow it to dominate the market,          
effectively creating a barrier to entry for competing solutions that can meet   
the demanding throughput and forensic requirements of the emerging applications;
however, there is no assurance that other companies will not develop competing  
solutions.                                                                      

 We believe that companies such as Canadian Bank Note (Canada), AIT Corp
(Canada, now affiliated with 3M), Imaging Automation (9), Bundesdruckerei       
(Germany), OCE (Germany), Dynjab (Australia), Rochfort-Thompson (U.K.), Smiths  
Heimann Biometrics and DataStrip (U.K./U.S.) have only some of the necessary    
components of the technology necessary to deliver a competitive solution. These 
companies currently occupy an ancillary place in the overall security market.   
Although there is no assurance, they may, in fact, represent a strategic source 
of funding (revenue or equity) as they seek to enhance their product            
capabilities and gain access to our platform technology.                        

The market's evolution towards a better definition of its needs and   
required solutions is influencing the strategic direction of several of the     
players. 3M acquired AIT in 2002 to access its reader technology and passport   
issuance position. Identix acquired Visionics, forming a half-billion dollar    
biometrics enterprise. Viisage acquired Imaging Automation. Companies such as   
Intellicheck, IDLogix and others are trying to adapt existing products          
originally developed for underage screening applications to the general document
reader/authenticator market. Numerous biometrics companies such as Viisage,     
BioKey, Identix and others are looking for broader ways to deliver their limited
biometrics offerings.                                                           

Proprietary Information                                                         

 We have been granted one patent (US Patent 6,785,405 B2, "Apparatus and
Method for Document Reading and Authentication" issued on August 31, 2004) and  
we have applied for four additional U.S. patents in the fields of document      
automation, security and authentication, respectively. Each of these remaining  
patent applications has been petitioned for accelerated review based on its     
application to counter-terrorism activities. There is no assurance that these   
remaining patent applications will ever be issued or, if issued, that our       
business will not be challenged by a competitor as infringing on its respective 
issued patent. Our intellectual property includes our web site, web site        
organization, our domain name, and the name, "AssureTec Systems, Inc."          

Effects of Existing or Probable Government Regulation                           

    Currently, we are not subject to direct federal, state or local regulation
other than regulations applicable to businesses generally or directly applicable
to privacy regulation. However, as we begin to establish an installed base and  
our systems become more widely employed, of which there is no assurance, it is  
possible that a number of laws and regulations may become applicable along with 
other laws and regulations which will be adopted with respect to ID document    
management.                                                                     

--------------                                                                  

9    In September 2004, subsequent to the original date of filing this Form     
10SB, Viisage acquired Imaging Automation.                            

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We are not certain how our business operations and liability may be   
affected by the application of existing laws governing issues such as property  
ownership, copyrights, encryption and other intellectual property issues,       
taxation, libel, qualification to do business, and personal privacy. The vast   
majority of these laws were adopted prior to the events of September 11, 2001 in
New York and Washington, D.C. As a result, they do not contemplate or address   
the unique issues of ID document management and related technologies. Changes in
laws intended to address these issues could create uncertainty in the           
marketplace. This uncertainty could reduce demand for our services; increase the
cost of doing business as a result of litigation costs, and/or increase service 
delivery costs.                                                                 

Sarbanes-Oxley Act                                                    

  The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") imposes a wide
variety of new regulatory requirements on publicly held companies and their     
insiders. Many of these requirements will affect us. For example:               

   o    Our chief executive officer and principal financial officer must now
 certify the accuracy of all our periodic reports that contain
financial statements;                                       
  o    At a later date, our periodic reports must disclose our conclusions
          about the effectiveness of our disclosure controls and procedures; and
   o    On and after July 30, 2002, we may not make any loan to any director
         or executive officer, and we may not materially modify any loans that
existed prior to that date.                                 

     The Sarbanes-Oxley Act has required us to review our current procedures and
policies to determine whether they comply with the Sarbanes-Oxley Act and the   
new regulations promulgated thereunder. We will continue to monitor our         
compliance with all future regulations that are adopted under the Sarbanes-Oxley
Act.                                                                            

Penny Stock                                                           

   If traded, our common stock would likely be a "penny stock" as defined in
Rule 3a51-1 of the Securities and Exchange Commission. Penny stocks are stocks: 

o    with a price of less than five dollars per share;                
o    that are not traded on a "recognized" national exchange;         
    o    whose prices are not quoted on the NASDAQ automated quotation system;
       or in issuers with net tangible assets less than $2,000,000, if the
        issuer has been in continuous operation for at least three years, or
        $5,000,000, if in continuous operation for less than three years, or
    with average revenues of less than $6,000,000 for the last three
years.                                                      

Section 15(g) of the Exchange Act and Rule 15g-2 of the Securities and
Exchange Commission require broker/dealers dealing in penny stocks to provide   
potential investors with a document disclosing the risks of penny stocks and to 

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obtain a manually signed and dated written receipt of the document before making
any transaction in a penny stock for the investor's account. You are urged to   
obtain and read this disclosure carefully before purchasing any of our shares.  

Rule 15g-9 of the Securities and Exchange Commission requires         
broker/dealers in penny stocks to approve the account of any investor for       
transactions in these stocks before selling any penny stock to that investor.   
This procedure requires the broker/dealer to:                                   

   o    get information about the investor's financial situation, investment
experience and investment goals;                            
    o    reasonably determine, based on that information, that transactions in
        penny stocks are suitable for the investor and that the investor can
evaluate the risks of penny stock transactions;             
    o    provide the investor with a written statement setting forth the basis
 on which the broker/dealer made his or her determination; and
  o    receive a signed and dated copy of the statement from the investor,
   confirming that it accurately reflects the investor's financial
situation, investment experience and investment goals.      

    Compliance with these requirements may make it harder for our stockholders
to resell their shares.                                                         

Reports to Security Holders                                           

We are required to file periodic reports with the SEC pursuant to the 
requirements of the Securities Exchange Act of 1934. These reports include,     
among others, a Quarterly Report on Form 10-QSB within 45 days after the end of 
each of the first three quarters of the Company's fiscal year, and an Annual    
Report on Form 10-KSB within 90 days after the end of the Company's fiscal year.
You may read and copy any materials we file with the SEC at the SEC's Public    
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also  
obtain information on the operation of the Public Reference Room by calling the 
SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that  
file electronically with the SEC at (http://www.sec.gov).                       

  Section 14(a) of the Exchange Act requires all companies with securities
registered pursuant to Section 12(g) of the Exchange Act to comply with the     
rules and regulations of the Securities and Exchange Commission regarding proxy 
solicitations, as outlined in Regulation 14A. Matters submitted to stockholders 
of our Company at a special or annual meeting thereof or pursuant to a written  
consent will require our Company to provide our stockholders with the           
information outlined in Schedules 14A or 14C of Regulation 14; preliminary      
copies of this information must be submitted to the Securities and Exchange     
Commission at least 10 days prior to the date that definitive copies of this    
information are forwarded to our stockholders.                                  

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Small Business Issuer                                                 

    The integrated disclosure system for small business issuers adopted by the
Securities and Exchange Commission in Release No. 34-30968 and effective as of  
August 13, 1992, substantially modified the information and financial           
requirements of a "Small Business Issuer," defined to be an issuer that has     
revenues of less than $25,000,000; is a U.S. or Canadian issuer; is not an      
investment company; and if a majority-owned subsidiary, the parent is also a    
small business issuer; provided, however, an entity is not a small business     
issuer if it has a public float (the aggregate market value of the issuer's     
outstanding securities held by non-affiliates) of $25,000,000 or more. We are   
deemed to be a "small business issuer."                                         

Cost of Environmental Compliance                                                

  We do not believe that the production and use of our products represents
any significant environmental impact or risk since its products are constructed 
of readily available commercial components.                                     

Sources and Availability of Raw Materials                                       

   We currently outsource our manufacturing of hardware instrumentation to a
private company, Jewell Instruments, located approximately one mile from our    
facilities in Manchester, New Hampshire. The Company has qualified an additional
manufacturer, EPE Corporation of Manchester, New Hampshire, but is not currently
using its services. Camera components, lenses and associated circuit boards are 
available from at least two suppliers and we believe this will result in no     
significant risk of supply interruption. Current principal suppliers include:   
Pixelink of Ottawa, Canada; Sunex Inc. of Carlsbad, CA; Optical Devices/Miyakawa
Corp. of Tokyo, Japan; and Abbyy Software House of Fremont, CA.                 

Research and Development                                                        

Costs incurred prior to technological feasibility of our technology   
products are expensed as research and development costs. From inception to June 
30, 2005 the Company and its subsidiary have incurred approximately $5.8 million
in research and development costs. We have not capitalized any research and     
development costs to date.                                                      

Employees                                                                       

At June 30, 2005, we employed 14 full-time employees.                 

Risk Factors                                                                    

Our business is subject to many risk factors; including the following 
(references to "our," "we" and words of similar meaning in these Risk Factors   
refer to the Company and to AssureTec Systems):                                 

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    From our inception, we have recognized revenue of approximately $1 million
and have had significant losses to date and we might not be able to achieve     
meaningful revenues or earnings in the future. AssureTec Systems has been       
operational since October of 2001 and has achieved revenues well short of those 
necessary to allow the Company to break even. The consolidated development stage
loss from inception is in excess of $12 million.                                

    We have limited assets, working capital and negative shareholders' equity,
and we might not be able to continue in operation without the infusion of       
additional capital. We have very limited assets; negative working capital and   
limited financial resources. We continue in business by raising capital from    
investors and soliciting advances from affiliated parties. We cannot be certain 
that such capital and advances will be available to the Company when we need    
them and under terms favorable to the Company. Our financial condition may not  
improve.                                                                        

  Our independent auditors' report indicates a substantial doubt about our
ability to continue as a going concern which means that an investment in our    
shares is extremely risky. Our auditors' report (see page F-1) indicates that   
there is substantial doubt about our ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the  
outcome of this uncertainty. If our business fails, the value of any capitalized
items would be adjusted to reflect a distressed market value. We currently have 
no cash reserves and rely on cash from capital raised from investors. There is  
no assurance these funds will continue to be available, however, we have        
operated in this manner since our inception. Now that we have begun to ship     
product, it is more likely outside investment capital can be found, but there   
can be no assurance that outside financing will be available to us. In any      
event, we cannot continue without continuing additional capital from affiliates 
or outside investment capital.                                                  

     We expect to continue to incur losses at least through fiscal year end June
2006 and we may not ever operate profitably. We have incurred losses since      
inception through June 30, 2005 of approximately $12 million. During that       
period, the Company has generated just over $1 million in revenues. We expect,  
but cannot be sure, that our revenues will increase during the next several     
fiscal years. Unless revenues in excess of $2 million annually can be generated,
we will continue to run a deficit. There is no assurance that we will reach     
these annual revenues or can we be assured that we can operate profitably.      

Because we need to raise additional funds and these funds might not be
available to us when we need them, we might need to change our business plan,   
sell or merge our business, or face bankruptcy. From its inception in October   
2001 through June 30, 2005, we have raised a total of $2.9 million from         
unaffiliated investors. Further, as of this date, affiliates of Dr. Reeves have 
invested $958,000 in equity of the Company and have advanced the Company an     
additional $557,374. AssureTec Systems' employees have voluntarily agreed to    
defer $3.5 million in unpaid salaries and related compensation expenses, of     
which $2.2 million was converted in December 2004, into 769,000 options to      
purchase a like number of shares of Common Stock in the Company. Without this   
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continued in business. See "Certain Relationships And Related Transactions"     
beginning at page 43. We will require additional capital to provide tooling for 
manufacturing certain hardware products and will need to spend money for travel 
and collateral materials in order to develop cash flow. Additional capital might
not be available to us on favorable terms when required, or at all. In addition,
our issuance of equity or equity-related securities will dilute the ownership   
interest of existing stockholders and our issuance of debt securities could     
increase the risk that we may not survive.                                      

     We cannot be certain that our products will continue to operate as planned.
Currently we have produced approximately 265 hardware units and multiple        
releases of development software, which have been released to about a dozen     
integrators and smaller developers in the U.S. and in Europe. We have delivered 
60 units of the i-DentifyTM reader authenticator to a reseller in Chile and     
delivered 90 units to a reseller as part of a pilot for the Transportation      
Security Administration, both of whom reported that both hardware and software  
operated as planned. Notwithstanding the foregoing, we have too few of our      
products in service to allow us to be certain that our products will operate as 
planned. If our products do not meet customers' needs and expectations, we will 
lose customers and our business could fail.                                     

Our chief executive officer, who is also our sole director (10), has  
majority control over our common stock and is a major creditor, which will allow
him to have significant influence over our affairs. After consummation of the   
reverse stock split by Holdings and the Systems Exchange, R.T. Robertson        
Consultants, Inc. ("RTRC') and Robertson Financial Advisors, LLC, ("Advisors")  
each controlled by Dr. Reeves, our CEO, owns a combined 958 shares of AssureTec 
Holdings' Series A-1 Preferred Stock. (The "Holdings Preferred"). Each share of 
the Holdings Preferred, which is described in greater detail in "Description of 
Securities" beginning on page 45, is convertible into 322.58 shares of our      
common stock and, as a result, as of June 30, 2005 these two entities           
beneficially owned approximately 309,032 shares, or approximately 16.2% of our  
common stock. In addition, (i) the Holdings Preferred is entitled to vote on an 
"as converted" basis on all matters in which the common stock is entitled to    
vote, and (ii) the holders of our Preferred Stock are entitled to elect three of
up to seven directors of AssureTec Holdings. RTRC is 90% owned by Dr. Reeves'   
wife, Dr. Reeves is Advisors' Managing Director and controlling member and,     
therefore, Dr. Reeves is deemed to beneficially own the shares of stock owned by
RTRC and Advisors. Taking into account the shares owned by Dr. Reeves directly, 
along with the shares owned by RTRC and Advisors, Dr. Reeves beneficially owns  
511,365 shares, or approximately 26.8% of our common stock. As a result, Dr.    
Reeves can exercise substantial control of the affairs of AssureTec Holdings.   

    Dr. Reeves and his affiliates have also made advances to AssureTec Systems
and, therefore, his interest as a creditor may be different from the interests  
of the other stockholders. For example, Dr. Reeves may desire to cause us to use
our funds to repay these advances under terms that may cause us to divert funds 
away from operations at critical times, or that may cause us to fail. Dr. Reeves

-------------------                                                             
10   As of the date of this Amended Form 10SB, Dr. Reeves is the Company's sole 
director.                                                             

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could use his existing control and his position as creditor to acquire more of  
our shares which would give him even more control. Any such actions by Dr.      
Reeves would not require shareholder approval. As of June 30, 2005 the Company  
owed Dr. Reeves' affiliates approximately $557,374 exclusive of $126,972 in     
unpaid interest on advances.                                                    

   We might not succeed in establishing our technologies in the marketplace,
which would adversely affect customer acceptance and our revenues. The market   
for document automation and authentication products is new since September 11,  
2001. Although we believe our products and technologies will be integrated into 
new U.S. exit/entry border technologies and other document automation and       
authentication technologies in the U.S. and around the world, this is a new,    
untested market. We cannot offer assurances that we will have the capital and   
technological advantage to compete with larger and better financed companies in 
this developing market nor can we offer assurances that the market for automated
identity document authentication will ever develop.                             

We must enter into strategic relationships with integrators of our    
technology, and if we fail to develop, maintain or enhance these relationships, 
we might not be able to attract and retain customers, generate adequate market  
exposure, build our AssureTec Systems brand, or enhance our sales and marketing 
capabilities. We believe that our ability to attract customers, generate        
interest in our hardware and software products, facilitate broad market         
acceptance of our services and of the AssureTec Systems brand, and to enhance   
our sales and marketing capabilities depends on our ability to develop and      
maintain strategic relationships with related product integrators that can      
deliver product solutions to customers in diverse product areas. If we are      
unsuccessful in developing or maintaining these relationships, or if these      
relationships do not assist us in attracting or retaining customers, it will be 
difficult to grow our business. At the present time, we rely on these           
integrators to adapt our software development kit to specific applications in   
border control applications facilities access control systems, and public       
transportation solutions.                                                       

     The success of our business depends on selling our products and services to
a large number of government and commercial integrators and we have no current  
relationships or arrangements with these integrators. We believe that our       
reliance on unaffiliated companies to integrate our products into products      
developed by these respective companies for specific market applications as our 
primary marketing strategy will enable us to develop a customer base more       
quickly and cost effectively than the employment of traditional marketing       
methods involving sizable development, a sales staff, and advertising to sell   
products directly to end users. There can be no assurance that this belief or   
strategy is correct. As a new company with new technology applications, we lack 
historic recognition in the market. Our success depends, in large part, on      
attracting a large number of application integrators that advertise in the      
traditional media and that have existing end user relationships and product     
support. Our success is also dependent, in large part, upon ensuring that these 
customers remain loyal long-term customers to the integrators, resulting in a   
continuing flow of our product into theirs. Furthermore, we may be required to  

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incur higher and more sustained advertising and promotional expenditures than we
currently anticipate in order to create direct market demand for our products.  
As a result, we might not be able to achieve or sustain profitability.          

 Competition from traditional providers of border passport readers could
result in price reductions and decreased demand for our automated document      
authenticator technology that could cause our business to fail. The market for  
document readers is competitive. Although we believe our shorter processing     
speed and ability to read and automatically authenticate identification         
documents will provide additional value to our potential target market,         
traditional and established document reader companies may lower their prices to 
compete with us. Competition is expected to intensify in the future, which also 
could result in price reductions, fewer customer orders and reduced gross       
margins. We currently compete with, or may in the future compete with, a variety
of companies located in the United States, Canada and Europe that provide a part
of what our products provide. Many of these companies are established and have  
greater financial, technical, marketing and other resources than we do.         
Additionally, many of these organizations have proven operating histories, which
we lack. Although we expect to compete on the basis of the quality and          
uniqueness of our product and services and, to a lesser extent, on the basis of 
price, this strategy may not be successful.                                     

We might not be able to adequately protect or enforce our intellectual
property rights due to our lack of funds and if we failed to protect our rights,
we could lose market recognition, which would reduce our sales. Our intellectual
property includes one patent and four patent applications covering the process  
of identifying documents and validating the existence or absence of securities  
features to determine a document's validity. Any encroachment upon our          
proprietary information, the unauthorized use of our trademark, the use of a    
similar name by a competing company, or a lawsuit initiated against us for our  
infringement upon another company's proprietary information or improper use of  
existing trademarks could affect our ability to create brand name recognition,  
cause customer confusion, and/or have a detrimental effect on our business.     
Litigation or proceedings before the U.S. Patent and Trademark Office or the    
European Patent Office might be necessary in the future to enforce our          
intellectual property rights, to protect our trade secrets and domain name, and 
to determine the validity and scope of the proprietary rights of others. Any    
litigation or adverse proceeding could result in substantial costs and diversion
of resources and could seriously harm our business and operating results. If and
when we develop markets in Europe and Asia and other places internationally, the
laws of many countries do not protect our proprietary rights to as great an     
extent as the laws of the United States.                                        

It is possible that third parties might claim infringement by us with 
respect to past, current or future technologies, although we do not expect any  
such claims. We expect that participants in our markets will increasingly be    
subject to infringement claims as the number of services and competitors in our 
industry segment grows. Any claim, whether meritorious or not, could be         
time-consuming, result in costly litigation, and could cause service upgrade    
delays or require us to enter into royalty or licensing agreements. These       
royalty or licensing agreements might not be available on terms acceptable to us
or at all.                                                                      

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   Our systems and operations, and those of our customers, are vulnerable to
natural disasters and other unexpected problems, which could reduce customer    
satisfaction and reduce our sales. Substantially all of our computer and        
hardware and our systems infrastructure are housed at our facility in           
Manchester, New Hampshire. Our systems and operations are vulnerable to damage  
or interruption from fire, flood, power loss, telecommunications failure and    
similar events. In addition, our servers are vulnerable to computer viruses,    
physical or electronic break-ins and similar disruptions that could lead to     
interruptions, delays, loss of data or the inability to sell and support our    
network of software products and customer support. Currently, we do not have    
fully redundant systems or a formal disaster recovery plan and do not carry     
business interruption insurance to compensate for losses that could occur. Our  
customers also face these risks. We depend on the efficient operation of        
Internet connections from customers to our systems. These connections, in turn, 
depend on the efficient operation of web browsers, Internet service providers   
and Internet backbone service providers, all of which have had periodic         
operational problems or outages. Any system delays or failure or loss of data,  
whatever the cause, could reduce customer satisfaction with our applications and
services together with the number of visits to our website and also could harm  
our sales of ID document services and data base libraries. A significant barrier
to online communications is the secure transmission of confidential information 
over public networks, and our failure to prevent security breaches could harm   
our business. The service providers rely on encryption and authentication       
technology to effect secure transmission of confidential information. Advances  
in computer capabilities, new discoveries in the field of cryptography, or other
developments might result in a compromise or breach of the technology used by   
the service providers to protect customer data. Any compromise of their security
could harm our reputation and expose us to a risk of loss or to litigation and  
possible liability and, therefore, result in harm to our business. In addition, 
a person who is able to circumvent security measures could misappropriate       
proprietary information or cause interruptions in our operations. To date, we   
have had no security breaches.                                                  

   The loss of the services of key employees could have a negative impact on
our business or cause it to fail. At June 30, 2005, the Company had 14          
employees, several of whom have not been paid their full compensation for many  
months. Any one or all employees could decide to leave us before we can assure  
the employees' long-term services, which may not happen. If we lose the services
of these key employees who have spent many months developing our products and   
technology, our business could be harmed seriously. In addition, we may not be  
able to attract new, skilled employees.                                         

If the market for automated document authentication fails to gain     
widespread acceptance, our business could fail. The market for ID document      
authentication is in its infancy. If this market does not gain widespread       
acceptance, our business could fail. Our success will depend on our ability to  
engage both end users and product integrators, who have established existing    
customer bases in our targeted markets of borders, travel and transportation and
facilities access control. In addition, a large proportion of our early         
customers might begin using our products because they are new and different     
rather than because they believe our products represent the best long-term      
solution. These early customers may use our products only once or twice and then
return to more traditional solutions.                                           

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   We may not be able to respond to rapid technological changes to serve our
customers and meet their expectations and we may lose customers as a result. As 
the document authentication and automation industry evolves, we will need to    
license leading technologies useful in our business, enhance our existing       
services, develop new services and technology that address the increasingly     
sophisticated and varied needs of our prospective customers, and respond to     
technological advances and emerging industry standards and practices on a       
cost-effective and timely basis. We might not be able to successfully implement 
new technologies, proprietary technology and transaction-processing systems to  
customer requirements or emerging industry standards. If we are unable to do so,
it could adversely impact our ability to build the AssureTec Systems brand and  
to attract and retain customers.                                                

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND          
RESULTS OF OPERATIONS                                             

    Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read together with our financial statements and related    
notes included elsewhere in this Amendment 1 to Form 10-SB. This Amendment 1 to 
Form 10-SB, including the following discussion, contains trend analysis and     
other forward-looking statements within the safe harbor provisions of the       
Private Securities Litigation Reform Act of 1995. Any statements in this        
Amendment 1 to Report on Form 10-SB that are not statements of historical facts 
are forward-looking statements. These forward-looking statements are based on a 
number of assumptions and involve risks and uncertainties. Actual results may   
differ materially from those set forth in such forward-looking statements as a  
result of factors set forth elsewhere in this Amendment 1 to Form 10-SB,        
including under "Risk Factors."                                                 

Overview                                                                        

    We develop integrated identity document management applications for use in
government and commercial security applications. Our proprietary document       
management platform automatically reads, records and authenticates              
identification documents, such as passports, visas or driver's licenses, through
our proprietary database software thereby reducing the risk of human error in   
detecting falsified or tampered forms of identification. We are considered to be
a development stage enterprise, as we have not generated significant revenues   
since our inception. We are subject to a number of risks similar to those of    
other companies in an early stage of development. Principal among these risks   
are dependencies on key individuals, competition from other substitute products 
and larger companies, the successful development and marketing of our products  
and the need to obtain adequate financing necessary to fund our future          
operations.                                                                     

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Our historical results of operations have been prepared using the     
historical accounting records of AssureTec Holdings and our wholly owned        
subsidiary AssureTec Systems. Although our ownership of AssureTec Systems was   
less than 50% prior to March 31, 2004 (the date of the Systems Exchange) we     
consolidated the results of these two entities because the two companies shared 
common management and control. The operations of AssureTec Holdings are limited 
and consist primarily of certain management costs, such as compensation and     
third party management and accounting services. Historical references to our    
operations primarily consist of those transactions executed by AssureTec Systems
in the development of our integrated identity document management applications. 

     Our historical results of operations and financial condition do not include
any adjustments relating to the recoverability of assets or the classification  
of liabilities that might be necessary should we be unable to continue as a     
going concern. Our independent auditors' report for the fiscal year ended June  
30, 2003 indicates that there is substantial doubt about our ability to continue
as a going concern.                                                             

Plan of Operation                                                               

    Since our inception on October 2, 2001, our operations have been primarily
funded through:                                                                 

  (i)  cash payments made on our behalf by RTRC and Advisors, corporations
       owned and controlled by our chief executive officer and his family,
  (ii)  the voluntary deferral of employee salaries and wages and consultant
fees and                                                    
 (iii)  the raising of $2,878,000 from unaffiliated investors as of June 30,
2005.                                                       

 Currently, without further salary deferrals and stock for services, our
cash expenses, on an annualized basis, are expected to run at an annual level of
$2.5 million. We believe that we will require at least approximately $3,000,000 
to fund our operating plan through fiscal year 2006.                            

    We currently have limited cash and working capital. Our plan of operations
is highly dependent on our ability to raise significant additional capital.     
Without this capital, it is unlikely we will be able to execute our operating   
plan or continue as a going concern. We intend to attempt to raise this capital 
from individual investors and other private equity sources, and we also may seek
funding from industrial partners. At the present time, we have no commitments   
from any sources.                                                               

  We intend to use the proceeds of any financing transactions primarily to
market our existing technology products and enhance our sales and marketing     
capabilities. We believe our success, if any, in these endeavors will be highly 
determinative of our ability to become profitable. As part of our strategy, we  
will continue to attempt to attract and develop strategic partnerships with     
related security product integrators. In September 2003, we initiated the sale  

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of our technology products through a strategic partner to the government of     
Chile. In late 2004 and early 2005 we delivered units to our reseller in the    
U.S. who won the pilot for the Transportation Worker Identity Credential        
program. We recently announced a development relationship with Digimarc         
Corporation for applications related to the recently passed federal "Real ID    
Act" which requires the states to issue more secure drivers' licenses. We       
believe that strategic partnerships like these will allow us to better          
distribute our technology in the United States and worldwide.                   

On September 1, 2005, we initiated a private placement to accredited  
investors of debentures with warrants to purchase common stock. These debentures
have a six month term and bear interest at 12% annually and are to be repaid at 
the rate of one dollar of debenture for each two dollars raised in a subsequent 
offering. For each $3.00 of debentures purchased, Holdings issued one warrant to
purchase one share of Holdings common stock at $6.00 per share for a period of  
one year from the date of investment or upon an initial public offering by      
Holdings, whichever occurs earlier. This private offering raised gross proceeds 
of $1.125 million and net proceeds of approximately $1.035 million and in       
October 2005, the Company issued warrants to acquire 375,667 shares of Common   
Stock.                                                                          

On September 15, 2005, we commenced a private offering to accredited  
investors of up to 1,250,000 shares of Holdings common stock. Pursuant to this  
private offering, the Company is offering units for gross proceeds of $12.00 per
unit. Each unit is comprised of two shares of common stock at $6.00 per share   
with one warrant to acquire one share of common stock at $6.00 per share, for   
each two shares of common stock purchased. The warrants issued in this offering 
are exercisable for a period of one year from the date of investment or upon an 
initial public offering by Holdings, whichever occurs earlier. As of October 31,
2005, a total of 333,333 shares have been sold, and 166,667 warrants have been  
granted, pursuant to this offering raising gross proceeds of $2.0 million, of   
which $1.125 million was applied to retire the September 1, 2005 debentures.    

     We will use the balance of new proceeds from these offerings, if any, after
retiring the debenture, primarily to strengthen our sales and marketing efforts 
and to better position us for another private placement or a public offering. We
believe that this additional outside financing will be available to us; however,
there can be no assurance that we will obtain this additional financing in an   
amount sufficient to meet our future needs.                                     

We plan to continue our development and enhancement of our technology 
products during the next twelve months. If we are successful in obtaining       
additional financing, we will need to hire additional employees, primarily in   
the areas of marketing, sales, finance, administration, engineering and quality 
assurance. This will require us to purchase additional computer equipment;      
however, any such purchases are not expected to be significant.                 

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Critical Accounting Policies                                                    

   Our accounting policies are fully described in Note 2 to our consolidated
financial statements. The following describes the application of accounting     
principles that have significant impact on our consolidated financial           
statements:                                                                     

 Going Concern Assumption - The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of    
assets or the amounts and classification of liabilities that might be necessary 
should we be unable to continue as a going concern. If the consolidated         
financial statements were prepared on liquidation basis, the carrying value of  
our assets and liabilities would be adjusted to net realizable amounts. In      
addition, the classification of the assets and liabilities would be adjusted to 
reflect the liquidation basis of accounting.                                    

    Deferred Compensation - Our employees and management have been voluntarily
deferring a portion of their earned compensation since our inception. At        
December 2004 the employees converted $2.2 Million of their deferred            
compensation owed as of June 30, 2004 into stock options to acquire common stock
of the Company. This $2.2 million of deferred compensation was converted into   
approximately 769,000 fully vested options exercisable at a price of $0.50 for a
period of 7 years. We have expensed these obligations and the corresponding     
employment taxes associated with these deferred wages and salaries.             

   Revenue Recognition - Revenue is recognized upon shipment to the customer
(which constitutes delivery), provided that persuasive evidence of an           
arrangement exists, the fee is fixed or determinable, and collection is         
reasonably assured. To the extent that one or more of these conditions are not  
met, which has occurred in the past, revenue is deferred until such time as all 
four criteria are met. Revenue from sales to integrators, value-added resellers 
and distributors is recognized on a "sell-through" basis, that is, when these   
parties report to us that resale of the product to the ultimate end customer has
occurred.                                                                       

In general, we require an upfront deposit for significant customer    
purchases. If we receive a payment from a customer prior to meeting all of the  
revenue recognition criteria, the payment is recorded as deferred revenue. Our  
current arrangements with third party integrators, value-added resellers and    
distributors do not provide for any rights of return, price-protection or other 
contingencies. Our general credit terms require complete payment within 30 days 
of shipment.                                                                    

     We record a provision for estimated sales returns and allowances on product
sales in the same period as the related revenue is recorded. These estimates are
based on known and estimated factors.                                           

To date, we have not established vendor specific objective evidence   
("VSOE") of fair value for our software, products and services. For sales where 
maintenance is the only undelivered element, we recognize the total sale ratably
over the term of the embedded maintenance period. We believe that we will       

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establish VSOE of fair value for maintenance; however, the exact timing is      
uncertain. Once VSOE of fair value for maintenance and other services is        
established, we will utilize the residual method of accounting as permitted by  
Statement of Position 98-9, "Modification of SOP 97-2, `Software Revenue        
Recognition,' With Respect to Certain Transactions," and defer the VSOE of      
maintenance and recognize the residual amount of the total sale as software and 
product revenue in the period in which the arrangement exists, the software and 
products are delivered and the fee is collectible. Maintenance revenue will then
be recognized ratably over the maintenance period.                              

    Deferred Income Taxes -We account for income taxes and deferred tax assets
and liabilities in accordance with SFAS No. 109, "Accounting for Income Taxes." 
Because we project future operating losses in the near term, we have provided a 
full valuation allowance against the deferred tax assets created by these       
losses.                                                                         

    Stock-based Compensation - As part of our compensation programs offered to
our employees, we grant stock options. We grant stock options to employees based
on their fair value at the grant date. As allowed under SFAS No. 123,           
"Accounting for Stock-Based Compensation," and SFAS No. 148, "Accounting for    
Stock-Based Compensation - Transition and Disclosure," we have adopted the      
disclosure-only requirements of these accounting standards. Accordingly, we do  
not recognize stock-based compensation expense for stock options granted to     
employees at their fair value. We record stock-based compensation when we issue 
common stock in lieu of cash compensation for services rendered to us or if we  
issue options to purchase common stock to non-employees. Stock-based            
compensation is recorded based on the fair value of the services received. See  
Notes 2 and 8 to our consolidated financial statements for the impact on        
earnings had we fully adopted SFAS 123 and 148.                                 

    Off-Balance Sheet Arrangements - With the exception of our facility lease,
we do not have off-balance sheet arrangements, financings or other relationships
with unconsolidated entities known as "special purpose entities."               

Results of Operations - Three Months Ended September 30, 2003 and 2002          

  Net revenues for the three months ended September 30, 2003 and 2002 were
$7,500 and $0, respectively. The revenues of $7,500 in the quarter ended        
September 30, 2003 resulted from the sale and shipment of hardware and software 
to a potential distributor. We had no sales in 2002.                            

     Cost of revenues for the three months ended September 30, 2003 and 2002 was
$4,300 and $0, respectively. This cost represented the cost of the hardware we  
shipped in connection with our net sales and related third-party software.      

 Selling, general and administrative expenses for the three months ended
September 30, 2003 increased $155,813, or approximately 66%, to $392,198 from   
$236,385 in the comparable period in 2002. This increase was due primarily to   

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increased spending in the areas of selling expenses and sales consultants as we 
began marketing and selling our products in fiscal 2004. The increase was also  
attributable to an increase in personnel in selling, general and administrative 
capacities.                                                                     

   Engineering, research and development expenses for the three month period
ended September 30, 2003 increased $146,866 or approximately 97% to $297,657    
from $150,791 in the comparable period in 2002. The increase of engineering,    
research and development expense consisted primarily of additional staffing     
salaries and related personnel costs.                                           

     Interest expense increased $26,400 for the three months ended September 30,
2003 compared to $0 for the three months ended September 30, 2002. This increase
was primarily attributable to the accrual of interest on related party          
obligations due to RTRC, and interest on deferred employee compensation. Imputed
interest rates vary from 3% to 5%.                                              

For the three months ended September 30, 2003 and 2002 net loss was   
$735,555, or $4.20 per share (basic and diluted), and $409,676, or $2.34 per    
share (basic and diluted), respectively. The increase in net loss of $325,879   
was primarily attributed to increased staffing and related costs associated with
the increase of personnel during the Company's development stage.               

Years Ended June 30, 2003 and 2002                                              

    In 2003, we recorded $9,747 in the initial sale of our technology products
to two unrelated parties. Cost of revenues of $6,557 was recorded in connection 
with the company's initial sales and represented the cost of the hardware,      
software and other related costs. We had no sales in 2002.                      

    Selling, general and administrative expenses consist primarily of salaries
and wages of executive management, finance, marketing, sales and administrative 
personnel, office and occupancy costs, legal, accounting and other professional 
services. Selling, general and administrative expenses increased approximately  
182% or $692,647 in 2003 to $1,072,384 from $379,737 in 2002. The increase in   
selling, general and administrative expenses was primarily attributable to an   
increase in personnel costs and associated overhead as additional employees and 
consultants were hired to expand our operations. In addition, the results of    
2002 only include nine months of operations since we were formed on October 2,  
2001.                                                                           

Engineering, research and development expenses consist primarily of   
salaries and wages of engineers, quality control technicians and external       
development consultants. Engineering, research and development expenses         
increased approximately 285%, or $1,066,342, in 2003 to $1,440,027 from $373,685
in 2002. The majority of our operations and costs have been incurred in the     
development of our technology products. The increase in engineering and research
and development expenses was attributable to the necessary costs of developing  

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our integrated identity document management applications. In addition, the      
results of 2002 only include nine months of operations as we were not formed    
until October 2, 2001.                                                          

     We record stock-based compensation when we issue common stock or options to
purchase common stock to non-employees or in lieu of cash compensation for      
services rendered. In 2002, the Company's subsidiary, AssureTec Systems, issued 
215,638 shares of its common stock to unrelated third parties in lieu of cash   
compensation. We recorded $123,744 in connection with the issuance of these     
shares of common stock based on the fair value of the services we received. In  
March 2004, the shares of the subsidiary's stock were exchanged for shares of   
the Company. In 2002, the Company's subsidiary, AssureTec Systems issued options
to purchase 100,000 (6,452 post split) shares of its common stock to a          
non-employee at $0.001 per share. We recorded $1,279 in stock-based compensation
relating to this grant. The fair value of the stock options awarded to          
non-employees was calculated using the Black-Scholes method. Subsequently the   
options to purchase shares of the subsidiary were exchanged for options to      
purchase shares of the Company.                                                 

Interest expense represents imputed interest applied to deferred      
compensation, advances from RTRC as well as interest recorded based on stated   
interest rates on notes payable by the Company to an individual stockholder.    
Imputed interest rates vary from 3% to 5%. Interest expense increased to $63,903
in 2003 from $12,131 in 2002.                                                   

     For the years ended September 30, 2003 and 2002 net loss was $2,681,600, or
$15.30 per share (basic and diluted), and $848,900, or $4.84 per share (basic   
and diluted), respectively. The increase in net loss of $1,832,700 was primarily
attributed to increased staffing and related costs associated with the increase 
of personnel during the Company's development stage.                            

Financial Condition, Liquidity and Capital Resources                            

 We were formed in October 2001 and since our formation through June 30,
2005, have raised $3.8 million through financing activities, including $958,000 
from parties affiliated with our CEO, Dr. Reeves. In addition to these funds, we
have relied on our employees' deferment of $2.1 million in compensation and     
$557,374 in advances by a related party as of June 2005. Additionally, at       
December 31 2004 the employees converted $2.2 million of deferred compensation  
into options to purchase 769,000 shares of common stock in the Company. At June 
30, 2005, compensation in the aggregate of $1.3 million had been formally       
deferred by the employees until the Company's Board of Directors deems cash is  
sufficient from operating cash flow to make payments on these deferred amounts. 
At June 30, 2005, we had a working capital deficiency of approximately $3.9     
million. Our continuation as a going concern will require that we raise         
significant additional capital and there is no assurance that we will be able to
do so.                                                                          

   We believe that we will continue to be successful in obtaining additional
financing, from which the proceeds will be primarily used for general corporate 
purposes, including working capital, capital expenditures, research and         

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development and other strategic investments. However, no assurances can be      
provided that we will obtain additional financing sufficient to meet our future 
needs on commercially reasonable terms or otherwise. We have not yet developed  
revenues sufficient to bring us to a positive cash flow position and our        
auditors have stated in their audit report that there is substantial doubt about
our ability to continue as a going concern. Our continuation as a going concern 
is dependent upon our ability to raise additional capital, and to generate      
sufficient cash flow to meet our obligations on a timely basis and ultimately   
attain profitability.                                                           

As of October 31, 2005, we had sufficient cash, in our estimation, to 
sustain operations for a period of six months. In addition, we are currently in 
the process of discussing with a partner in Japan the possibility of its        
investing an additional $2 million in Holdings. If we are able to close this    
subscription and receive this $2 million, we believe the $2 million, plus the   
cash currently on hand, would allow us to operate for a period in excess of one 
year without significant revenues.                                              

With the exception of our facility lease, which has been personally   
guaranteed by our chief executive officer, we have no material off-balance sheet
commitments. Our facility lease runs through June 30, 2007 and requires minimum 
annual payments of approximately $48,000 though its expiration.                 

ITEM 3 DESCRIPTION OF PROPERTY                                                  

Neither AssureTec Holdings nor its Subsidiaries presently own any real
property. In June 2002, AssureTec Systems entered into a three-year lease of the
building where both AssureTec Holdings and AssureTec Systems are located, at 200
Perimeter Road, Manchester, NH 03103. The current lease calls for monthly       
payments of $4,041. One of Dr. Reeves' family-controlled entities has guaranteed
the lease. This lease was extended for an additional three-year term in June    
2004. These facilities occupy approximately 5,600 square feet and are located   
adjacent to the runway of the Manchester Airport. The space that AssureTec      
Holdings and AssureTec Systems currently occupy is expected to be adequate to   
meet immediate needs, but additional facilities may be required if AssureTec    
Systems begins to expand and hire additional personnel, of which there is no    
assurance. AssureTec Holdings owns personal property (equipment), comprising    
primarily of furniture, computer and office equipment.                          

ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT           

 For each director and officer of AssureTec Holdings, Inc. and AssureTec
Systems, Inc., and for each person known by AssureTec Holdings to be the        
beneficial owner of 5% or more of the voting securities of AssureTec Holdings as
of June 2005, the table below lists the beneficial ownership of AssureTec       
Holdings' common stock (i) after completion of the Holdings Spin-Off, and (ii)  
after completion of both the Holdings Spin-Off and the Systems Exchange and     
(iii) taking into effect the 1-for-31 reverse stock split. AssureTec Holdings   
was a wholly owned subsidiary of Element 21 and no other person or entity owned 
any shares of AssureTec Holdings prior to the Holdings Spin-Off.                

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                                        Amount and
                                       Nature of
    Name and Address of                                Beneficial     Percentage
    Beneficial Owner               Position          Ownership         Owned
    ----------------               --------          ---------         -----

Officers and Directors                                                          
R. Bruce Reeves, Ph.D.        AssureTec Holdings -     755,612(1,2)      35.1%  
754 Straw Hill                Chairman and CEO                                  
Manchester, NH  03104         Director                                          
AssureTec Systems - 
Chairman and CEO    

Kevin T. McGuire              Assure Tec Holdings -    24,453(1,3)        1.3%  
148 Robinson Road             Treasurer and Secretary                           
Hudson, NH  03051-3124        AssureTec Systems -                               
   Treasurer and Secretary

Bruce Monk                    AssureTec Systems -      259,291(1,4)      13.2%  
8 Robin Drive                 Chief Technology                                  
Hudson, NH  03051             Officer and Director                              
of subsidiary       

Robert J. Schmitt             AssureTec Systems Vice   58,452(1,5)        3.0%  
21 Grand Hill Road            President Business                                
Mont Vernon, NH 03057         Development                                       

Richard G. Search             AssureTec Systems        32,545(1,6)        1.7%  
116 Chestnut Street           Executive Vice                                    
Upton, MA 01568               President, Engineering                            
 and Product Marketing
James L. Riffer               AssureTec Systems Vice   58,972(1,7)        3.0%  
24 Charles Chase Drive        President Sales and                               
Manchester, NH 03104          Marketing                                         

Robert C. Babbitt             AssureTec Systems -      250,541(1,8)       11.9% 
82 Hawthorne Village Road     Director                                          
Nashua, NH  03062                                                               

Officers and Directors of                              1,439,867(1,9)     56.4% 
AssureTec Holdings,                                                             
AssureTec Systems as a                                                          
Group (7 persons)                                                               

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                                        Amount and
                                       Nature of
    Name and Address of                                Beneficial     Percentage
    Beneficial Owner               Position          Ownership         Owned
    ----------------               --------          ---------         -----

Other 5% or greater owners:                                                     
Element 21 Golf Company -     Stockholder              175,284 (10)       9.2%  
Nataliya  Hearn, CEO                                                            
3171 Sandwich Street                                                            
37 Windsor, Ontario                                                             
H3A P7S                                                                         
Canada                                                                          

R.T. Robertson Consultants    Stockholder              276,957(11)       13.8%  
200 Perimeter Road                                                              
Manchester, NH  03103                                                           

Robertson Financial           Stockholder              136,774            7.2%  
Advisors, LLC                                                                   
200 Perimeter Rd                                                                
Manchester, NH 03103                                                            

James Barrons                 Stockholder              241,935           12.6%  
8236 N. 62nd Place                                                              
Paradise Valley, AZ 85253                                                       

John Tiedemann                AssureTec Systems        176,689(12)        8.6%  
11 Wakefield Dr               employee                                          
Nashua, NH 03062                                                                

Andre Dawson                  Stockholder              145,161            7.6%  
10601 Southwest 72nd Ave                                                        
Miami, FL 95030                                                                 

Theodore Kuklinski            AssureTec Systems        117,598(13)        5.9%  
24 Hershaw Terrace            Chief Information                                 
West Newton, MA 02465         Technologist                                      

John & Elaine Proudman        Stockholder              96,774             5.1%  
Little Westcott Farm                                                            
Westcott,Rockbeare, Exeter,                                                     
Devon                                                                           
United Kingdom                                                                  
EX5-2LU                                                                         
Percentage owned includes options exercisable as of August 31, 2005.

(1)  "Beneficial ownership" is defined in the regulations promulgated by the    
   U.S. Securities and Exchange Commission as having or sharing, directly or
    indirectly (1) voting power, which includes the power to vote or to direct

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     the voting, or (2) investment power, which includes the power to dispose or
    to direct the disposition, of shares of the Common Stock of an issuer. The
  definition of beneficial ownership includes shares underlying options or
 warrants to purchase Common Stock, or other securities convertible into
  Common Stock, that currently are exercisable or convertible or that will
become exercisable or convertible within 60 days. Unless otherwise    
indicated, the beneficial owner has sole voting and investment power. 

(2)  Immediately prior to the Element 21 Acquisition, Dr. Reeves owned 1,344,160
     shares, or approximately 49.5% of the outstanding shares of common stock of
Element 21 (then BRL Holdings, Inc.). In connection with the proposed 
 distribution of AssureTec Holdings shares to Element 21 stockholders of
record on October 4, 2002 (see (10) below), Dr. Reeves will receive   
     2,688,320 (86,720 post split) shares of common stock of AssureTec Holdings,
    which represents two shares of AssureTec Holdings issued for each share of
     Element 21 owned by him on the record date for the distribution of Holdings
    shares. Stockholders who acquired shares in connection with the Element 21
 Acquisition have consented to not participate in the Holdings Spin-Off.
 Pursuant to the Systems Exchange, Dr. Reeves received 107,548 shares of
  AssureTec Holdings common stock and options to acquire 139,548 shares of
  AssureTec Holdings common stock at a price per share of $0.50 until June
     30, 2012. Additionally AssureTec Holdings Preferred Stock owned by RTRC and
  Advisors is convertible into 309,032 shares of AssureTec Holdings common
     stock. In addition to the 86,720 shares of Element 21 beneficially owned by
him, Dr. Reeves is deemed to beneficially own the shares of AssureTec 
     Holdings held by RTRC, Robertson Financial Advisors, and 8,065 shares owned
by Dr. Reeves' spouse.                                                

(3)  Immediately prior to the Element 21 Acquisition, Mr. McGuire owned 61,443  
    shares, or approximately 2.3% of the outstanding shares of common stock of
   Element 21 (then BRL Holdings, Inc.). In connection with the distribution
of AssureTec Holdings shares to Element 21 stockholders of record on  
   October 4, 2002 (see (10) below), Mr. McGuire will receive 122,886 (3,964
   post split) shares of common stock of AssureTec Holdings. Pursuant to the
   Systems Exchange, Mr. McGuire received options to acquire 8,065 shares of
    AssureTec Holdings common stock at a price per share of $.83 until July 1,
2009 and 6,618 options to acquire a like number of shares of Holdings 
    common stock at a price per share of $.50 until June 30, 2012 In addition,
   the 18 shares of Holdings Series A-1 Preferred Stock owned by Mr. McGuire
are convertible into 5,806 of AssureTec Holdings common stock.        

(4)  Mr. Monk owns 209,032 shares of Holdings' common stock. He received options
    to acquire 130,259 shares of common stock at $.50 per share until June 30,
  2012, of which he exercised 80,000 during the fiscal year ended June 30,
2005.                                                                 

(5)  Mr. Schmitt owns 56 shares of Series A-1 Preferred Stock convertible into  
18,064 shares of common stock. Mr. Schmitt also has 6,048 options to  
acquire common stock at $3.10 per share through April 1, 2011; 22,243 
options to acquire Holdings common stock at $.50 per share exercisable
   until December 31, 2011; and options to acquire 12,097 shares of Holdings
     common stock at $3.10 per share exercisable until April 1, 2012 and options
to acquire 6,048 shares of Holdings common stock at $3.10 per share   
exercisable until April 1, 2013.                                      

(6)  Mr. Search has options to acquire 6,048 shares of Holdings common stock at 
   $3.10 per share; options to acquire 14,400 shares of common stock at $.50
per share exercisable until December 31, 2011; and options to acquire 
     10,097 shares of common stock at $3.10 per share exercisable until April 1,
    2012 and options to acquire 6,048 shares of Holdings common stock at $3.10
per share exercisable until April 1, 2013.                            

(7)  Mr. Riffer has options to acquire 6,048 shares of Holdings common stock at 
$3.10 per share exercisable until October 13, 2010; options to acquire
     12,097 shares at $3.10 per share until October 13, 2011; options to acquire
 40,827 shares at $.50 per share exercisable until December 31, 2011 and
    options to acquire 6,048 shares at $3.10 per share exercisable until April
13, 2012.                                                             

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(8)  Includes 44,677 shares of common stock and common stock equivalents owned  
   by Mr. Babbitt. Also includes options to purchase 12,903 shares of common
    stock at a price per share of $3.10, exercisable until September 30, 2008,
    and options to purchase 22,581 shares of common stock at a price per share
  of $3.10 exercisable until December 31, 2011, options to purchase 19,355
shares of common stock at a price per share of $3.10 vesting through  
     January 20, 2004, which are exercisable until December 31, 2011, options to
   purchase 85,402 shares of common stock at a price per share of $.50 fully
  vested options which are exercisable until December 31, 2011, options to
purchase 22,581 shares of common stock at a price per share of $4.96  
   exercisable until December 31, 2011, options to purchase 24,373 shares of
   common stock at a price per share of $7.44 exercisable until February 12,
  2010 and options to purchase 18,669 shares of common stock at a price of
$10.34 exercisable until February 12, 2010.                           

(9)  Includes Footnotes (1)-(8).                                                

(10) Element 21 Golf Company owns 175,284 shares (9.2%) of Holdings common      
 stock. These shares were issued for contribution of Element 21's equity
 interest in Systems. Element 21 shareholders of record as of October 4,
    2002 are the beneficial owners of these shares of which Dr. Reeves and his
     affiliates control 49.5% of these shares. Element 21 has committed to cause
  a distribution of these shares to these beneficial owners. Subsequent to
     Element 21's distribution of Holdings common stock, Element 21 will have no
ownership in AssureTec Holdings and these shares will be owned by     
approximately 3,600 shareholders.                                     

(11) RTRC owns 534 shares of Holdings Series A-1 Preferred Stock convertible    
into 172,258 shares of AssureTec Holdings common stock. RTRC also has 
  options to acquire 104,699 shares of Holdings common stock at $.50 until
     December 31, 2011. Sandra J. Reeves, Dr. Reeves' spouse, owns 90 percent of
RTRC.                                                                 

(12) Includes 157,334 options exercisable as of August 31, 2005.                

(13) Includes 99,211 options exercisable as of August 31, 2005.                 

Change of Control                                                               

From inception to December 2003, Element 21 owned 100% of AssureTec   
Holdings' issued and outstanding common stock. Upon completion of the Holdings  
Spin-Off, Element 21 will own no shares of AssureTec Holdings and AssureTec     
Holdings will be owned by approximately 3,600 stockholders.                     

Following the completion of the Holdings Spin-Off, Dr. Reeves will    
beneficially own 26.8 % of AssureTec Holdings common stock and securities       
convertible into common stock.                                                  

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ITEM 5 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS             

    The directors and officers of AssureTec Holdings and AssureTec Systems are
as follows:                                                                     

Name                  Age                      Position             
----------------            ---    ---------------------------------------------

R. Bruce Reeves             65     President and Director of AssureTec Holdings 
                                 and Chief Executive Officer and Director of
       AssureTec Systems

Kevin T. McGuire            55     Treasurer and Secretary of AssureTec Holdings
           and AssureTec Systems

Bruce Monk                  58     Chief Technology Officer and Director of     
         AssureTec Systems

Robert C. Babbitt           62     Director of AssureTec Systems                

Richard C. Search           58     Executive Vice President of Engineering and  
                             Product Management of AssureTec Systems

Robert J. Schmitt           61     Vice President of Business Development of    
       AssureTec Systems

James L. Riffer             60     Vice President of Sales & Marketing of       
       AssureTec Systems

    The officers and directors listed will serve until the next annual meeting
of the stockholders or until death, resignation, retirement, removal or         
disqualification, or until their successors have been duly elected and          
qualified. Vacancies in the Board are filled by majority vote of the remaining  
directors. Officers of AssureTec Holdings and AssureTec Systems serve at the    
will of the Board.                                                              

Background                                                                      

Executive Officers and Directors                                                
--------------------------------                                                

    R. Bruce Reeves, Ph.D. is Chairman, Cofounder, Chief Executive Officer and
Director of AssureTec Systems and AssureTec Holdings. Dr. Reeves has over       
twenty-five years of experience in start-up ventures, and has spent over ten    
years in high-tech business and product development, including five years with  
General Electric Company on several new business development operations. In     
1998, Dr. Reeves successfully led the acquisition, by his affiliate, of Meridian
Instruments, a leading developer of laser based imaging instrumentation. Dr.    
Reeves subsequently sold the Meridian manufacturing assets to Genomic Systems,  

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Inc. a biotechnology genomic instrumentation company that was subsequently      
acquired by Perkin Elmer Corp. From 1992 to October 2, 2002, Dr. Reeves was an  
officer and director of Element 21, which was involved in sponsoring development
stage businesses, including a venture to develop artificial blood, as well as   
initially sponsoring AssureTec Systems during that time period. Dr. Reeves has a
Bachelor of Science degree in Chemistry and a Ph.D. in Physical Chemistry.      

  Kevin T. McGuire. Kevin T. McGuire has been AssureTec Systems' Treasurer
and Secretary since its inception in October 2001 and has been AssureTec        
Holdings' Treasurer and Secretary since its inception in June 2002 and was the  
Treasurer of Element 21 from June 1992 until October 2, 2002. He works on a     
contracted as-needed basis through an accounting firm owned by the spouse of Mr.
McGuire. Mr. McGuire is a graduate of Bentley College of Accounting. Mr. McGuire
has 32 years of business experience including 16 years with public accounting   
firms.                                                                          

Bruce Monk. Since April 2003, Mr. Monk has served as Chief Technology 
Officer of AssureTec Systems and has served as a Director of the subsidiary     
since its inception in October 2001. From AssureTec Systems' inception through  
March 2003, Mr. Monk served as President and Chief Operating Officer. Mr. Monk  
has more than 20 years of senior management level experience in engineering,    
marketing and sales management in the high technology field. Since November     
2000, Mr. Monk has served as President of Integrated Security Technologies, LLC,
which is a distributor of forensic products. From 1991 to 2000, Mr. Monk served 
as an officer and director for Imaging Automation, which, under Mr. Monk's      
leadership, developed the first version of a document recognition and           
authentication product technology platform. Mr. Monk coordinates technical and  
industry efforts to develop our leadership position in versatile imaging-based  
document authentication devices and systems. Prior to founding Imaging          
Automation, Mr. Monk served in development, engineering and marketing/sales     
positions with Chorus Data Systems, Analogic, Sanders Associates and Hewlett    
Packard. Mr. Monk is a graduate of Rennselear Polytechnic Institute with a BS in
Electrical Engineering.                                                         

   Robert J. Schmitt, Vice-President Business Development - Mr. Schmitt is a
veteran of IBM and Digital Equipment Corp, where he held positions in sales and 
marketing. He worked at IBM from 1968-1978 in various sales and marketing       
positions, his last position being sales manager of the IBM office in Buffalo,  
New York. He joined Digital in New Hampshire as sales manager for the           
telecommunications business. He held various positions during his tenure at     
Digital including VP of Marketing for the United States, VP of Sales and        
Marketing for Far East Area, and VP of Technical Support for the US, and was    
responsible for the operations of the sales support organization of over 2,000  
people. Mr. Schmitt left Digital in 1997 to become VP of Marketing for Viisage  
Technology, and left Viisage in 1998 to form Biometrica Systems, Inc. Mr.       
Schmitt is a graduate of Hobart College with a BA in English.                   

Richard G. Search, Executive Vice President Engineering and Product   
Management- Mr. Search is a 35 year veteran in the computer industry. He has    
held executive positions in hardware and software engineering, product          
management, marketing and sales in Fortune 100 corporations as well as emerging 

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firms. Prior to joining AssureTec Systems in May 2004, Richard was SVP/VP of    
Marketing & Product Management at McDATA Corporation, DotHill Corporation and   
Hitachi Data Systems, where he provided the leadership in designing and         
implementing new product and marketing strategies, successfully growing revenues
and increasing market recognition and penetration of existing and newly         
introduced product lines. Previously, Mr. Search spent 13 years at Digital      
Equipment Corporation where he was VP of Storage Solutions Engineering and      
Director of Product Management and Marketing, playing a key role in the         
development and successful launching of DEC's StorageWorks product line into the
open storage market, with revenues in excess of $1.6B. Additionally, Richard    
spent 18 years at IBM where he held numerous management positions in            
engineering, marketing, and sales. Mr. Search holds a B.S. from Penn State      
University.                                                                     

   James L. "Monty" Riffer -VP Sales & Marketing- Mr. Riffer was formerly VP
of Sales & Marketing at Acadient, a business-to-business software developer. He 
previously held management positions at Geac Computers, Cantoc Business Systems,
Pilot Software, and Pansophic Systems. Prior to Pansophic he spent 10 years with
Polaroid in management. Mr. Riffer is a graduate of Southern Illinois University
where he earned both undergraduate and graduate degrees in Education.           

Robert C. Babbitt. Mr. Babbitt served AssureTec Systems as its Chief  
Operating Officer and President from June 2003 to February 2, 2005 (the date of 
his retirement). Prior to that time he served as Executive Vice President of    
Sales after joining AssureTec Systems in January 2003. He currently is a member 
of the Board of Directors of the subsidiary. He has over thirty years of        
experience in leading sales, technical support, and service organizations in    
both the information technology and communications industries. Mr. Babbitt is a 
graduate of Ohio University where he earned both undergraduate and graduate     
degrees in Mathematics.                                                         

Key Consultant                                                                  
--------------                                                                  

Ken Gorton- Consultant, Financial Compliance- Mr. Gorton, serves as a 
financial consultant to the Board of Directors and serves as a consultant to our
Audit Committee and to our Compensation Committee. Over the past 35 years, Mr.  
Gorton has been involved in financial and strategic planning roles in both the  
private and public sector. Mr. Gorton is currently the Director-Finance &       
Operations for a $60 million school district in the Pittsburgh area. He is the  
former President of a Foundation Chapter, and served as the Managing Director of
a non-profit organization. From 1994 to 2000, he was the CFO of a New England   
college directing financial management, and was instrumental in formulating a   
five-year strategic plan, resulting in property acquisition and expansions,     
funded by innovative financing vehicles. For the previous twenty-five years, Mr.
Gorton's career was with major corporations involved in natural resource -      
DuPont, Consol Energy and Conoco, where he coordinated finance functions        
responsible for cash management, project finance, accounts receivable           
management, treasury operations, and business process improvement. Mr. Gorton   
received his MBA from Oklahoma State University, and did post graduate work at  
Columbia University.                                                            

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Family Relationships                                                            

     There are no family relationships between or among the directors, executive
officers or persons nominated or charged by AssureTec Holdings to become        
officers and directors.                                                         

Committees

Compensation Committee                                                          

   Dr. Reeves, the Company's President and sole Director, serves as the sole
member of the Company's Compensation Committee. Ken Gorton, who is engaged by   
the Company as a consultant, serves as an advisor to the Compensation Committee.

Audit Committee                                                                 

   Dr. Reeves, the Company's President and sole Director, serves as the sole
member of the Company's Audit Committee. Dr. Reeves, our "audit committee       
financial expert", is not considered to be an "independent" director pursuant to
Securities and Exchange Commission rules and regulations. Ken Gorton, an outside
consultant to the Company serves as an advisor to the Audit Committee. Under the
direction of Dr. Reeves, Mr. Gorton oversees the audits of the Company by its   
independent auditors, and directly communicates with the independent auditors   
regarding the Company's financial statements and financial disclosures.         
Professional biographical information concerning Mr. Gorton is included above   
under "Directors, Executive Officers, Promoters and Control Persons - Key       
Consultant".                                                                    

ITEM 6 EXECUTIVE COMPENSATION                                                   

  AssureTec Holdings has only two employees, both of whom are officers and
who currently do not receive any cash or other compensation from AssureTec      
Holdings, nor have they received any compensation from us in the past. These two
individuals also serve as officers of AssureTec Systems for which they are      
compensated. Dr. Reeves has agreed to act as President of Holdings without      
compensation. However, AssureTec Holdings may in the future from time to time   
authorize the payment of cash or the issuance of common stock and/or options to 
purchase common stock for payment for services provided to AssureTec Holdings by
its officers and/or their family controlled companies. To date, AssureTec       
Holdings has not issued any common stock or options, as payments for services to
Holdings, to either of these two officers.                                      

    Neither AssureTec Holdings nor its Subsidiaries have adopted a retirement,
pension, profit sharing, stock option, insurance programs or other similar      
programs. It is anticipated that AssureTec Systems will adopt an employee stock 
option plan upon approval of the stockholders.                                  

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The following table sets forth in summary form the compensation of the
current Chief Executive Officer and each other executive officer that received  
total salary and bonus exceeding $100,000 since its inception ("Named Executive 
Officers") of the subsidiary, AssureTec Systems.                                

                                                        · Enlarge/Download Table


                                                                            Long-Term Compensation                      
                                                                         --------------------------------               
                             Annual Compensation                           Awards            Payouts                    
                       ---------------------------------                 ----------     -----------------               
       Name and        Fiscal                             Other Annual   Restricted     Options/     LTIP     All Other 
  Principal Position   Year     Salary(A)      Bonus ($)  Compensation  Stock Awards    SARs (#)    Payout  Compensation
  ------------------   ----     ---------      ---------  ------------  ------------    --------    ------  ------------

                                                                                                                        
Dr. R. Bruce Reeves,   2005      $180,000         0             0            0          139,548        0         0      
CEO(1)(2)              2004      $171,000         0             0            0           11,489        0         0      
                       2003      $150,000         0             0            0             0           0         0      
                       2002       $99,000         0             0            0             0           0         0      

Bruce C. Monk, Chief   2005      $180,000         0             0            0          130,259        0         0      
Technology                                                                                                              
Officer(1)(3)          2004      $171,000         0             0            0           4,494         0         0      
                       2003      $150,000         0             0            0             0           0         0      
                       2002       $99,000         0             0            0           64,517        0         0      

Robert J. Schmitt,     2005      $138,000         0             0            0           40,388        0         0      
Vice-President                                                                                                          
Business Development                                                                                                    
(1)(4)                 2004       $34,500         0             0            0           6,048         0         0      

Richard Search,        2005      $138,000         0             0            0           38,593        0         0      
Executive Vice                                                                                                          
President Engineering                                                                                                   
and Product                                                                                                             
Management (1)(5)      2004       $23,000         0             0            0           6,048         0         0      

James L. Riffer, Vice  2005      $138,000         0             0            0           58,972        0         0      
President Sales and                                                                                                     
Marketing (1)(6)                                                                                                        
                       2004      $138,000         0             0            0             0           0         0      
                       2003      $103,500         0             0            0           6,048         0         0      

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----------------------------                                                    

(A)  A portion of the salaries of the above named executive officers have been  
   deferred until such time as the company has sufficient funds available to
  pay such compensation and the board of directors approves such payments.

(1)  Pursuant to a September 30, 2003 letter agreement between AssureTec Systems
and the employees and consultants who are deferring compensation, the 
   Company will allocate out of funding that becomes available, an aggregate
    of $335,000 for salary and related costs, plus the amount necessary to pay
   FICA and other required amounts, to pay a previously agreed to portion of
the deferred compensation of all participating employees, on a        
proportionate basis. Also, pursuant to the September 30, 2003 letter  
   agreement, interest shall accrue at 3% on unpaid gross compensation until
such compensation is paid in full.                                    

(2)  Dr. Reeves was appointed CEO on October 21, 2001. Dr. Reeves' compensation 
was $10,000 per month from October 21, 2001 through December 31, 2001.
Effective January 1, 2002, Dr. Reeves' salary increased to $11,500 per
    month ($138,000 per year). During the fiscal year ended June 30, 2002, Dr.
Reeves was paid $0 and during the fiscal year ended June 30, 2003 Dr. 
Reeves was paid $0. Dr. Reeves' salary is, effective January 1, 2003, 
    $162,000 per year, and $180,000 effective January 1, 2004. Pursuant to the
September 30, 2003 letter agreement, Dr. Reeves received an option to 
  purchase one share of common stock for each dollar of deferred take home
   compensation, at a price per share of $5.81 until September 30, 2008. See
note (1) above.                                                       

(3)  Mr. Monk served as President of Systems from October 10, 2001 to May 1,    
     2003. Mr. Monk's salary was $10,000 per month from October 10, 2001 through
   December 31, 2001. Effective January 1, 2002, Mr. Monk's salary increased
     to $11,500 per month ($138,000 per year) and to $13,500 per month ($162,000
  per year) effective January 1, 2003 and to $180,000 effective January 1,
     2004. During the fiscal year ended June 30, 2002, Mr. Monk was paid $12,000
  and during the fiscal year ended June 30, 2003 Mr. Monk was paid $2,660.
     The remainder of his salary for these periods was deferred. Pursuant to the
September 30, 2003 letter agreement, Mr. Monk received an option to   
  purchase one share of common stock for each dollar of deferred take home
   compensation, at a price per share of $5.81 until September 30, 2008. See
    note (1) above. For the period December 1, 2004 through December 31, 2005,
     50% of the balance of Mr. Monk's compensation in excess of $7,500 per month
is currently being deferred and the remaining 50% is being granted in 
options to purchase one share of common stock for each dollar of      
compensation, at a price per share of $0.50.                          

(4)  Mr. Schmitt serves Systems as the Vice-President of Business Development   
 since April 1, 2004. Mr. Schmitt's salary is $11,500 per month. For the
  period December 1, 2004 through December 31, 2005, 50% of the balance of
     Mr. Schmitt's compensation in excess of $7,500 per month is currently being
    deferred and the remaining 50% is being granted in options to purchase one
     share of common stock for each dollar of compensation, at a price per share
of $0.50.                                                             

(5)  Mr. Search serves Systems as the Executive Vice President of Engineering   
     and Product Management since May 12, 2004 at a salary of $11,500 per month.
For the period December 1, 2004 through December 31, 2005, 50% of the 
balance of Mr. Search's compensation in excess of $7,500 per month is 

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    currently being deferred and the remaining 50% is being granted in options
     to purchase one share of common stock for each dollar of compensation, at a
price per share of $0.50.                                             

(6)  Mr. Riffer serves Systems as the Vice President of Sales and Marketing     
   since October 13, 2003 at a salary of $11,500. For the period December 1,
2004 through December 31, 2005, 50% of the balance of Mr. Riffer's    
    compensation in excess of $7,500 per month is currently being deferred and
the remaining 50% is being granted in options to purchase one share of
common stock for each dollar of compensation, at a price per share of 
$0.50.                                                                

Aggregated Option Exercises And Fiscal Year-End Option Value Table

The following table provides certain summary information concerning   
individual grants of stock options made to Named Executive Officers during each 
of the fiscal years ended June 30, 2005, 2004 and 2003, respectively. Except as 
set forth in the table below, during fiscal year 2005, the Company did not grant
any stock options under the Company's Incentive Plans to any of the Named       
Executive Officers.                                                             

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                                                        · Enlarge/Download Table


                                   Option Grants In Fiscal Year June 30, 2005                                               
-----------------------------------------------------------------------------------------------------------------           
                           Number of      % of Total                                                                        
                          Securities       Options                                  Potential Realizable Value at           
                          Underlying      Granted to     Exercise                   Assumed Annual Rates of Stock           
                            Options      Employees in      Price      Expiration    Price Appreciation for Option           
          Name            Granted (#)    Fiscal Year     ($/Share)       Date                    Term                       
-------------------       -----------    ------------    ---------    ---------     -----------------------------           
                                                                                          5%               10%              
                                                                                    --------------   ------------           
                                                                                                                            
Dr. R. Bruce Reeves        139,548        10.3%             n/a            n/a            n/a              n/a              
Bruce C. Monk              130,259        10.4%             n/a            n/a            n/a              n/a              
Kevin T. McGuire           14,683         0.1%              n/a            n/a            n/a              n/a              
Richard C. Search          38,593         3.1%              n/a            n/a            n/a              n/a              
Robert J. Schmitt          40,388         3.2%              n/a            n/a            n/a              n/a              
James L. Riffer            58,972         4.7%              n/a            n/a            n/a              n/a              

------------------------------------------------------------------------------------------------------------------          
                                 Aggregated Option Exercises For Fiscal Year Ended                                          
                                      June 30, 2004 And Year-End Option Values                                              
                             Number of      % of Total                                                                      
                            Securities       Options                                  Potential Realizable Value at         
                            Underlying      Granted to     Exercise                   Assumed Annual Rates of Stock         
                              Options      Employees in      Price      Expiration    Price Appreciation for Option         
          Name              Granted (#)    Fiscal Year     ($/Share)       Date                    Term                     
-------------------        -----------    ------------    ---------    ---------     -----------------------------          
                                                                                          5%              10%               
                                                                                     --------------   ------------          
Dr. R. Bruce Reeves        0              0.0%               n/a          n/a            n/a              n/a               
Bruce C. Monk              0              0.0%               n/a          n/a            n/a              n/a               
Kevin T. McGuire           0              0.0%               n/a          n/a            n/a              n/a               
Richard C. Search          0              0.0%               n/a          n/a            n/a              n/a               
Robert J. Schmitt          0              0.0%               n/a          n/a            n/a              n/a               
James L. Riffer            0              0.0%               n/a          n/a            n/a              n/a               

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                                      Aggregated Option Exercises For Fiscal Year Ended                                     
                                          June 30, 2003 And Year-End Option Values                                          
----------------------------------------------------------------------------------------------------------------------------
                                                           Number of Securities Underlying         Value of Unexercised     
                                                            Unexercised Options at Fiscal     In-the-Money Options at Fiscal
                                                                     Year-End (#)                      Year-End ($)         
                                                           --------------------------------   ------------------------------
                               Shares                                                                                       
                             Acquired on       Value                                                                        
           Name               Exercise      Realized ($)    Exercisable     Unexercisable     Exercisable     Unexercisable 
-------------------          -----------    ------------    -----------     -------------     -----------     ------------- 

Dr. R. Bruce Reeves               0              $0              0                0                $0               $0      
Bruce C. Monk                     0              $0              0                0                $0               $0      
Kevin T. McGuire                  0              $0              0                0                $0               $0      

   The Company has no supplemental benefits or incentive arrangements except
for specific incentive statutory options given to employees and officers of     
AssureTec Systems as a part of employment agreements. As of December 10, 2003   
AssureTec Holdings has 183,026 shares of common stock outstanding. Pursuant to  
the Systems Exchange, in March 2004, AssureTec Holdings issued 474,717 shares of
common stock, 601 shares of Series A-1 Preferred Stock and 448,127 options to   
purchase Holdings common stock.                                                 

Employment Agreements                                                           

     Dr. Reeves is party to an Employment Agreement with AssureTec Systems dated
October 2, 2001. Pursuant to the agreement, Dr. Reeves was to serve as Chief    
Executive Officer until October 2, 2004, unless sooner terminated by death or   
disability. This agreement currently runs from year to year. The Company expects
to extend the agreement. The agreement provides that from October 2, 2001       
through December 31, 2001, Dr. Reeves earned compensation at the rate of $10,000
per month and, effective January 1, 2002 the rate of compensation was increased 
to $138,000 per year. Effective January 1, 2003, Dr. Reeves' salary was         
increased to $162,000 per year and to $180,000 effective January 1, 2004. In    
addition to the compensation described above and pursuant to his employment     
agreement, Dr. Reeves received options to purchase 45,161 shares of common stock
at an exercise price of $0.000001 per share that were exercised in fiscal 2002. 

   Bruce C. Monk entered into an employment agreement with AssureTec Systems
on October 10, 2001, pursuant to which he agreed to serve as President and Chief
Operating Officer of AssureTec Systems. The term of the agreement is three      
years, unless sooner terminated by death or disability. This agreement currently
runs from year to year. Pursuant to this agreement, from October 10, 2001       
through December 31, 2001, Mr. Monk earned compensation at the rate of $10,000  
per month and, effective January 1, 2002, the rate of compensation increased to 
$138,000 per year. Effective January 1, 2003 Mr. Monks salary was increased to  
$162,000 per year and to $180,000 effective January 1, 2004. In addition,       
pursuant to the agreement, Mr. Monk purchased 1,000,000 (64,516 post split)     

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founder's shares at $.000001 per share and received options to purchase         
1,000,000 (64,516 post split) shares of common stock of AssureTec Systems, which
options were fully vested on October 10, 2001 and exercised in June 2002. Also, 
pursuant to the September 30 2003 letter agreement Mr. Monk received an option  
to acquire 69,661 post-split shares of AssureTec Holdings common stock at a     
price of $5.81 per share until September 30, 2008. A portion of Mr. Monk's      
compensation is being deferred pursuant to the September 30, 2003 letter        
agreement, as described below.                                                  

   Pursuant to a September 30, 2003 letter agreement between the Company and
the employees and consultants who are deferring compensation, and all other     
officers of Systems, the Company will allocate out of funding that becomes      
available, an aggregate of $335,000 for salary and related costs, plus the      
amount necessary to pay FICA and other required amounts, to pay previously      
deferred compensation of all employees, on a proportionate basis. Also, pursuant
to the September 30, 2003 letter agreement, interest shall accrue at 3% on      
unpaid gross compensation until such compensation is paid in full. In addition, 
each employee or consultant could elect to receive an option to either (i)      
convert any portion of his or her deferred compensation at June 30, 2003, net of
affiliate advances, into common stock at a price of $0.375 ($5.81 post split)   
per share, or (ii) purchase options to purchase one share of AssureTec Systems  
common stock, at an exercise price per share of $0.75 ($11.63 post split) until 
September 30, 2008, at the rate of one dollar of deferred compensation in       
exchange for an option to acquire one share of AssureTec Systems common stock.  
As part of the Systems Exchange the options covered by the September 30, 2003   
letter agreement will be modified to be options to purchase shares of AssureTec 
Holdings.                                                                       

   Under the terms of the September 30, 2003 letter agreement with officers,
employees and consultants, $335,000 in deferred compensation will be paid out of
future financing. The amount of distribution to be paid to each individual will 
be determined on a pro rata basis, taking into account the amount of            
compensation that has been deferred by that individual and the total amount of  
deferred compensation by all participating individuals. The portion of this     
amount relating to officers of Systems and all others is set forth below:       

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             Name            Deferred           % of Total Deferred     Prorated
                         Compensation(1)            Comp.(2)           Payment
--------------------------------------------------------------------------------

Bruce Reeves(3)                $260,400            --                           
Bruce Monk                     $243,140            10%                  $34,503 
Kevin T. McGuire                $15,000            1%                   $2,129  
                              -------            --                   ------
Subtotal                       $518,540            11%                  $36,632 

Other (24 people)            $2,102,606            89%                 $298,368 
                            ----------            ---                 --------

TOTAL                        $2,621,146           100%                 $335,000 
                            ==========           ====                 ========

(1)  Total deferred compensation, excluding employee advances and     
associated accrued payroll taxes as of 9/30/2003            
(2)  Calculated as % of total deferred compensation amount, excluding 
amount owed to Dr. Reeves ($2,360,746)                      
(3)  Dr. Reeves has elected not to participate                        

Deferred Compensation Agreements                                                

    Pursuant to the September 30, 2003 letter agreement described above, as of
September 30, 2003 there was $2,621,146 in deferred compensation outstanding,   
excluding employee advances and associated accrued payroll taxes. Also, pursuant
to the September 30, 2003 letter agreements as amended by the Exchange          
Agreement, options were issued to acquire a total of 80,874 post split shares of
Holdings common stock at a price per share of $6.21 per share, and a total of   
33,157 shares of Holdings, at $5.81 per share, have been issued.                

ITEM 7 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                           

     This section describes the transactions we have engaged in with our current
and past directors and current and past officers and persons known by us to be  
the beneficial owners of 5% or more of our common stock during the past two     
fiscal years, other than the transactions described above in "Employment        
Agreements and Deferred Compensation Agreements" and in "DESCRIPTION OF         
BUSINESS", and in "RECENT SALES OF UNREGISTERED SECURITIES."                    

Dr. Reeves, our President and a Director, and Kevin T. McGuire, our   
Treasurer and Secretary, have been officers, directors or investors in various  
companies that at one point in time have been related to AssureTec Holdings,    
including Element 21 Golf Company. Dr. Reeves and Mr. McGuire resigned their    
positions as officers of Element 21 on October 4, 2002 which was the date of the
acquisition of Element 21.                                                      

  Prior to the Systems Exchange, AssureTec Holdings had 183,026 post split
shares of common stock outstanding. On April 1, 2004, upon the completion of the
Systems Exchange, AssureTec Holdings issued 474,717 shares and 448,127 options  
to shareholders of Systems. AssureTec Holdings now owns 100% of Systems. Dr.    
Reeves currently serves as President and director of AssureTec Holdings. Dr.    
Reeves also serves as Chairman and CEO of Systems and as of June 30, 2005       

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beneficially owns approximately 26.8% of AssureTec Holdings common stock and    
common stock equivalents. As described above in "Executive Compensation," Dr.   
Reeves currently receives a salary of $180,000 pursuant to his Employment       
Agreement with Systems, which salary is being deferred.                         

In April 2004, Holdings commenced a private offering of its Series A-2
Preferred Stock, pursuant to which it issued 25.2 shares of Series A-2 Preferred
Stock to officers of the Company and of its subsidiary for gross proceeds of    
$67,800 in cash and in satisfaction of a total of $184,200 of debt. The Series  
A-2 Preferred shares were later cancelled, upon approval of the Series A-2      
holders, and exchanged for a total of 252 shares of Series A-1 Preferred Stock. 

   A large percentage of the Company's obligations have been paid to date on
its behalf by RT Robertson Consultants, Inc. and Robertson Financial Advisors,  
LLC, companies owned and controlled by Dr. Reeves and his family. The Company   
believes that the interest rate applied to the RTRC and Advisors obligation is  
on terms as favorable as those it could obtain from independent sources.        

In November 2002, a mutual agreement between Dr. Reeves and AssureTec 
Systems was created whereby, at the close of each quarter, any advances from Dr.
Reeves made to AssureTec Systems from inception became convertible into         
Preferred Stock of AssureTec Systems. At the written request of AssureTec       
Systems, it could "Put" the cumulative balance to Dr. Reeves forcing conversion 
of all balances at a price of $3.10 per share (post split) in the alternative,  
Dr. Reeves could "Call" shares using the advances at his option at a price of   
$3.88 (post split) per share until cancelled in writing subject to a 30 day     
advance notice in writing. This mutual option was terminated on November 28,    
2003.                                                                           

     Effective December 31, 2003, a portion of the money owed by Systems to RTRC
and Advisors was converted into 462 shares of Holdings Series A-1 Preferred     
Stock at the ratio of 1 share for each $1,000 of debt outstanding. (See         
discussion of Holdings Preferred under "Description of Securities" below). This 
debt was converted into shares of Series A-1 Preferred Stock at the same        
purchase price as was previously offered to outside investors for the Series A-1
Preferred Stock. The Holdings Preferred has preferential rights, including the  
right to vote on an "as converted" basis on all matters on which the common     
stock is entitled to vote and the right to appoint three directors of AssureTec 
Holdings. The Holdings Preferred also has conversion rights.                    

   As of June 30, 2005, and after the conversion of $958,160 into 958 shares
of Holdings Preferred, AssureTec Systems owed approximately $557,374 to RTRC and
Advisors, entities owned by Dr. Reeves and his family. Dr. Reeves functions as  
President of AssureTec Holdings and Chief Executive Officer of AssureTec        
Systems, and performs the duties and services normally associated with these    
titles in accordance with the terms of this agreement. After the consummation of
the Holdings Spin-Off, Element 21 will own no AssureTec Holdings stock and Dr.  
Reeves will own 10.6% of Holdings while RTRC and Advisors will own 16.2% of     
Holdings' outstanding shares of common stock and common stock equivalents. All  
holders of shares and options issued or exchanged in connection with the Element
21 Acquisition waived any rights with respect to the Holdings Spin-Off.         

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  RTRC and Advisors has provided advances to approximately 20 employees of
Systems, none of whom are officers or directors of the Company, in the form of  
non-recourse loans between these entities and the individual employees,         
respectively. Repayment of these advances by the individual employees is        
contingent upon the payment of deferred compensation by the Company to the      
individual employees. As of October 31, 2005 there is approximately $37,000 of  
unsettled advances to employees outstanding.                                    

 AssureTec Systems entered into a three-year lease of the building where
both AssureTec Holdings and AssureTec Systems are located. The lease calls for  
monthly payments of $4,041 through June 2007. Both Dr. Reeves and RTRC have     
guaranteed the lease and no consideration was received by either party in       
exchange for the guarantee. The lease was extended for a period of three years. 

ITEM 8 DESCRIPTION OF SECURITIES                                                

AssureTec Holdings, Inc.                                                        

AssureTec Holding's authorized capital stock consists of one hundred  
million (100,000,000) shares of common stock with a par value of $0.001 per     
share and five million (5,000,000) shares of Preferred Stock at a par value of  
$0.001 per share. Effective June 30, 2005 there were 659,493 shares of common   
stock outstanding, options to acquire up to 1,902,522 shares of common stock    
outstanding, and 3,871 shares of Series A-1 Preferred Stock outstanding. The    
following discussion of the capital stock and options of AssureTec Holdings is a
summary only and is qualified in its entirety by the provisions of AssureTec    
Holdings' Certificate of Incorporation, as amended.                             

Common Stock                                                          
------------                                                          

All shares of common stock have equal voting rights and, when validly 
issued and outstanding, are entitled to one vote per share in all matters to be 
voted upon by stockholders. The shares of common stock have no preemptive,      
subscription, conversion or redemption rights and may be issued only as fully   
paid and nonassessable shares. Cumulative voting in the election of directors is
not permitted, which means that the holders of a majority of the issued and     
outstanding shares of common stock represented at any meeting at which a quorum 
is present will be able to elect the entire Board, if they so choose. In the    
event of liquidation of AssureTec Holdings, each stockholder is entitled to     
receive a proportionate share of AssureTec Holding's assets available for       
distribution to stockholders after the payment of liabilities and after         
distribution in full of preferential amounts, if any. All shares of AssureTec   
Holdings common stock issued and outstanding are fully paid and nonassessable.  
Holders of the common stock are entitled to share pro rata in dividends and     
distributions with respect to the common stock, as may be declared by the Board 
out of funds legally available therefore.                                       

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Preferred Shares                                              
----------------                                              

  Shares of Preferred Stock may be issued from time to time in one or more
series, as may be determined by the Board. The Board shall establish the voting 
powers, preferences and the relative rights of each such series and the         
qualifications, limitations and restrictions.                                   

  AssureTec Holdings has designated 1,000,000 shares of Preferred Stock as
Series A-1 Preferred Stock. The Holdings Preferred shares are entitled to voting
rights on an "as-converted" basis. The holders of Holdings Preferred are        
entitled to dividends at the rate of 5% of the Holdings Preferred price per     
share ($1,000, as adjusted to reflect any stock split, stock dividend,          
combination, reclassification or reorganization). The Holdings Preferred shares 
have a liquidation preference over all other junior shares of capital stock,    
including the common stock. Any transaction or series of transactions which     
results in a change in control is deemed to be a liquidation, dissolution or    
winding up, unless the holders of at least 75% of the outstanding shares of     
Holdings Preferred approve the transaction. Each share of Holdings Preferred is 
convertible, any time at the option of the holder, into 322.58 shares of        
AssureTec Holdings common stock at a price per share of $3.10, which may be paid
for with cash or conversion into common stock. Each share of Holdings Preferred 
shall be automatically converted into shares of common stock upon the closing of
a public offering of common stock. Stockholders of the Holdings Preferred Stock 
shall be entitled to receive dividends when declared on the common stock, on an 
as-converted basis. The holders of the Holdings Preferred have, so long as 20%  
of the shares initially issued as Holdings Preferred are outstanding, the right 
to elect three of the seven directors of AssureTec Holdings. The shareholders of
the Holdings Preferred, voting on an "as converted to common stock" basis, and  
the holders of common stock will vote together as one class on all matters to be
voted upon by the holders of common stock, including the election of the other  
four directors, two of whom will be independent directors, and one of whom will 
be the Chief Executive Officer.                                                 

Options                                                               
-------                                                               

     Over time, Element 21 has issued options to various individuals pursuant to
a directors' plan and to consultants and employees in exchange for services     
rendered, which options totaled 51,200 at June 30, 2005 (the "Element 21        
Options"). Each holder of an Element 21 Option, upon the exercise of his or her 
Element 21 Options, will receive two shares of AssureTec Holdings common stock  
in addition to one share of Element 21 common stock. As a result, up to 102,400 
(3,303 post split) shares of AssureTec Holdings could be issued pursuant to the 
exercise of the Element 21 Options.                                             

 Change in Control. AssureTec Holdings' Certificate of Incorporation, as
amended by the Holdings Preferred designations, could delay, defer or prevent a 
change in control of AssureTec Holdings. Pursuant to the Holdings Preferred     
designations, any transaction or series of related transactions that results in 
a Change of Control (as defined below) will be deemed to constitute a           
liquidation, dissolution or winding up of AssureTec Holdings, giving rise to    
liquidation rights (each share of Holdings Preferred is entitled to the         
applicable Holdings Preferred initial price per share plus all unpaid and       
accrued dividends), unless the holders of at least 75% of the then outstanding  
shares of Holdings Preferred, voting together as a single class (on an          

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as-converted basis), elect to waive this provision. For this purpose, the term  
"Change in Control" means any merger, consolidation, or reorganization of       
AssureTec Holdings, or sale of all or substantially all of its assets or the    
effectuation of any transaction or series of related transactions in which more 
than 50% of the voting power of AssureTec Holdings is disposed of, excluding any
capital raising transaction approved in advance by a majority of the outstanding
Holdings Preferred (voting together as a single class and on an as-converted    
basis).                                                                         

    In any of such events, if the consideration received by AssureTec Holdings
is other than cash, the value of the Preferred Stock will be deemed its fair    
market value as determined in good faith by the Board of Directors of AssureTec 
Holdings. At least ten days prior to the closing of any transaction that would  
constitute a Change of Control (without giving effect to the paragraph above),  
AssureTec Holdings shall provide written notice to each holder of Holdings      
Preferred of its reasonable estimate of the amount that the holder of Holdings  
Preferred would be entitled to receive upon the completion of such Change of    
Control and the amount that such holder would otherwise be entitled to receive  
if all outstanding Holdings Preferred were converted into Common Stock          
immediately prior to the occurrence of such Change of Control. Any securities   
shall be valued as follows:                                                     

(1) If traded on a securities exchange or through the NASDAQ National 
Market, the value shall be deemed to be the average of the closing prices of the
securities on such exchange over the thirty-day period ending three (3) days    
prior to the closing;                                                           

  (2) If actively traded over-the-counter, the value shall be deemed to be
the average of the closing bid or sale prices (whichever is applicable) over the
thirty-day period ending three (3) days prior to the closing; and               

     (3) If there is no active public market, the value shall be the fair market
value thereof, as mutually determined by the disinterested members of the Board 
of Directors of AssureTec Systems and the holders of at least a majority of the 
voting power of then outstanding shares of System Preferred.                    

 In the event of a merger or consolidation of AssureTec Holdings with or
into another corporation or entity or a sale by AssureTec Holdings of all or    
substantially all of its assets, and in the case of successive such mergers,    
consolidations or sales (except for any such transactions as are treated as a   
liquidation), thereafter the shares of Holdings Preferred then outstanding shall
be convertible into the number and kind of securities of the acquiring or       
surviving corporation (or such other entity whose securities are delivered in   
exchange for the Common Stock of AssureTec Holdings) to which the holders of the
Holdings Preferred would have been entitled if such holders had converted their 
Holdings Preferred into Common Stock or the common stock of any successor to    
AssureTec Holdings upon the consummation of such sale, merger or consolidation; 
and, in such case, appropriate adjustment (as determined in good faith by the   
Board of Directors) shall be made with respect to the rights and interest       
thereafter of the holders of Holdings Preferred, to the end that the provisions 
set forth in the Holdings Preferred designations (including provisions with     

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respect to changes in and other adjustments of the Conversion Prices) shall     
thereafter be applicable, as nearly as reasonably may be, in relation to any    
shares of stock or other property thereafter deliverable upon the conversion of 
Holdings Preferred.                                                             

PART II 

ITEM 1 MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS           

   There is no trading market for AssureTec Holdings common stock at present
and there has been no trading market to date. Management has not undertaken any 
discussions, preliminary or otherwise, with any prospective market maker        
concerning the participation of such market maker in the after-market for       
AssureTec Holdings securities. There is no assurance that a trading market will 
ever develop or, if such a market does develop, that it will continue.          

As of June 30, 2005, 3,303 shares were subject to issuance upon the   
exercise of Element 21 Options.                                                 

   Currently 35 stockholders hold AssureTec Holdings common stock. After the
Holdings Spin-Off, there will be approximately 3,600 stockholders of AssureTec  
Holdings common stock.                                                          

    AssureTec Holdings has not paid any dividends to date, and has no plans to
do so in the immediate future.                                                  

   Upon completion of the Holdings Spin-Off, the Company will act as its own
transfer agent and registrar for AssureTec Holdings.                            

Securities Authorized for Issuance Under Equity Compensation Plans              

   In December 2004, the Company's Board of Directors adopted a Stock Option
Plan (the "Option Plan') authorizing the issuance of up to 1,500,000 options    
from currently authorized but un-issued shares of common stock for services to  
the Company and Systems. Non-qualified stock options may be granted by an Option
Committee designated by the Board of Directors to employees and consultants for 
their services to the Company and Systems. At June 30, 2005, 769,000 options    
have been granted in lieu of $2.2 million of deferred compensation. At June 30, 
2005, the total number of options issued under this option plan is 1.3 million  
at an exercise price of $.50 per share, deemed by the Option Committee to be the
fair market price of the common stock after reflecting both the senior          
liquidation preference of the Series A-1 Preferred Stock as well as the then    
uncertain financial condition of the Company.                                   

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                                                        · Enlarge/Download Table


                                                                                           Number of Securities  
                                                                                          Remaining Available for
                                                                                           Future Issuance under 
                               Number of Securities to be                                   Equity Compensation  
                                 Issued Upon Exercise of     Weighted-Average Exercise       Plans (Excluding    
                                  Outstanding Options,     Price of Outstanding Options,  Securities Reflected in
          Plan Category            Warrants and Rights          Warrants and Rights            Column (a))*      
-----------------------------  --------------------------  -----------------------------  -----------------------
                                           (a)                          (b)                         (c)          

                                                                                                                 
Equity compensation plans                                                                                        
approved by security holders                0                            0                           0           
Equity compensation plans not                                                                                    
approved by security holders            1,292,912                      $0.50                      207,088        
                                        ---------                      -----                      -------        
Total                                   1,292,912                      $0.50                      207,088        

------------------                                                              
* At June 30, 2005                                                              

ITEM 2 LEGAL PROCEEDINGS                                                        

There is no litigation pending or threatened by or against AssureTec  
Holdings to the knowledge of its management.                                    

ITEM 3 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND          
FINANCIAL DISCLOSURE                                              

None                                                                  

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ITEM 4   RECENT SALES OF UNREGISTERED SECURITIES                                

AssureTec Holdings                                                              
------------------                                                              

On March 31, 2004, Holdings acquired all outstanding common stock of  
Systems by issuing to each holder of the common stock of Systems two shares of  
Holdings common stock in exchange for one share of Systems common stock (the    
"Systems Exchange"). Holders of 7,358,115 shares of Systems common stock and    
options to purchase 6,945,966 shares of Systems common stock exchanged these    
securities and their associated rights for 474,717 shares of Holdings common    
stock and options to purchase 448,127 shares of Holdings common stock. As a     
result of this transaction, as of March 31, 2004, Systems became a wholly owned 
subsidiary of Holdings. Also as part of the Systems Exchange, Holdings issued   
one share of Holdings Preferred Stock in exchange for each outstanding share of 
Preferred Stock of Systems (a total of 601 shares). Immediately after the       
Systems Exchange, Holdings effected a 1-for-31 reverse split of Holdings common 
stock and of securities convertible into Holdings common stock.                 

 On March 31, 2004, 601 shares of Convertible Preferred Stock of Systems
were exchanged for a like number of shares of Holdings Series A-1 Preferred     
Stock. Each share is convertible into 322.58 shares of common stock. The holders
of Series A-1 Preferred Stock shall be entitled to receive dividends out of     
funds legally available, therefor, at the rate of 5% of the applicable "Series  
A-1 Price", adjusted to reflect any stock-split, stock dividend, combination,   
recapitalization or reorganization occurring after the original issue date.     

In April 2004, Holdings commenced a private offering of its Series A-2
Convertible Preferred Stock, pursuant to which it issued 25.2 shares of Series  
A-2 Convertible Preferred Stock to officers of the Company and of its subsidiary
for gross proceeds of $67,800 in cash and in satisfaction of a total of $184,200
of debt. The Series A-2 Preferred shares were later cancelled, upon approval of 
the Series A-2 holders, and exchanged for a total of 252 shares of Series A-1   
Preferred Stock.                                                                

    In July 2004, the Company granted employee stock options to purchase 6,400
shares of common stock for services provided. The stock options are exercisable 
at $3.20 per share. The Company did not recognize additional stock based        
compensation since there was no intrinsic value from the granting of the        
options.                                                                        

 On August 13, 2004 the Company offered, in an Amended Private Placement
Offering, the sale of up to 1,250 shares of Series A-1 Convertible Preferred    
Stock, to Accredited Investors Only, at a price of $1,000 per share (10 share   
minimum). In case of over-subscription, the Company may accept up to an         
additional 500 shares. The Related Party was issued 300 shares in settlement of 
$300,000 owed by the Company to the Related Party under terms identical to those
of the Private Placement Offering. On February 21, 2005, the Company amended the
Private Placement Offering from 1,250 shares to 2,500 shares of the Company's   

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Series A-1 Convertible Preferred Stock. As of November 15, 2005, there have been
4,161 shares issued, raising approximately $3.2 million in net proceeds from the
offering.                                                                       

In September 2004, the Company granted non-employee stock options to  
purchase 500 shares of common stock at an exercise price of $4.00 per share for 
services provided. Under the Black-Scholes option valuation model the valuation 
of the option was approximately $1,360.                                         

During the quarter ended September 30, 2004, the Company sold to a    
non-affiliate 295 shares of Series A-1 Preferred Stock for gross proceeds of    
$295,000                                                                        

During the quarter ended December 31, 2004, the Company sold to a     
non-affiliate 875 shares of Series A-1 Preferred Stock for gross proceeds of    
$875,000.                                                                       

   During the quarter ended December 31, 2004, the Company issued 300 shares
of Series A-1 Preferred Stock for settlement of related party debt of $300,000. 

During the quarter ended December 31, 2004, the Company converted 860 
shares of common stock to 19 shares of Series A-1 Preferred Stock. No additional
consideration was received for this transaction.                                

    During the quarter ended December 31, 2004, an officer and employee of the
Systems performed an exercise of 80,000 employee stock options at a price of    
$0.50 per share for the settlement of debt owed to him of $40,000.              

 During the quarter ended December 31, 2004, the Company converted 4,000
shares of common stock to 14 shares of Series A-1 Preferred Stock. The          
transaction originally occurred during the year ended June 30, 2004 as a sale of
the Company's common stock for gross proceeds of $14,000.                       

During the quarter ended December 31, 2004, an ex-employee returned 72
shares of the Company common stock and had it converted it to $418 of accrued   
compensation to participate in the settlement of accrued compensation for       
employee stock options. The Company retired the 72 shares of common stock.      

  In December 2004, the Company granted employee stock options to purchase
708,632 shares of common stock at a price of $0.50 per share for the settlement 
of approximately $1.9 million of accrued compensation.                          

 In December 2004, at the option of the stockholder, the Company retired
31,867 shares of common stock and granted 90,632 employee stock options at a    
price of $0.50 per share. The options were valued under APB No. 25 and carried  
an intrinsic value amount of approximately $236,000.                            

 In December 2004 the Company granted employee stock options to purchase
43,334 shares of common stock at a price of $0.50 per share for services        
provided. The options were valued under APB No. 25 and carried an intrinsic     
value amount of approximately $113,000.                                         

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  In December 2004, the Company granted employee stock options to purchase
68,506 shares of common stock at a price of $0.50 per share for the settlement  
of approximately $186,000 of accrued compensation. The term of the settlement is
13 months and the Company will recognize a settlement of accrued compensation of
approximately $14,350 per month.                                                

    During the quarter ended December 31, 2004, the Company granted options to
purchase 79,337 shares of common stock at a price of $0.50 per share to outside 
vendors for the settlement of payables of approximately $212,000.               

During the quarter ended December 31, 2004, the Company granted       
non-employee options to purchase 63,214 shares of common stock at a price of    
$0.50 per share to outside parties for services provided. Under the             
Black-Scholes option valuation model the valuation of the options was           
approximately $172,000 which was included in stock-based compensation. The      
services were for consulting fees incurred for capital raising.                 

 During the quarter ended March 31, 2005, the Company sold 465 shares of
Series A-1 Preferred Stock for gross proceeds of $465,000.                      

In June 2005, the Company issued 21,774 shares of common stock to an  
ex-employee and officer of Systems as part of a severance package. The shares   
were valued at $6.20 per share and the Company recognized stock-based           
compensation of $135,000.                                                       

  On June 20, 2005, the Company granted employee stock options to purchase
3,300 shares of common stock at a price of $0.50 per share for services         
provided. The options were valued under APB No. 25 and carried an intrinsic     
value amount of approximately $8,600.                                           

  During the quarter ended June 30, 2005, the Company sold 1,050 shares of
Series A-1 Preferred Stock for gross proceeds of $1,050,000.                    

During the quarter ended June 30, 2005, the Company rescinded employee
stock options to purchase 80,874 shares of common stock at a price per share of 
$6.21 granted on September 30, 2003, and in their place granted employee stock  
options to purchase 460,882 shares of common stock at a price of $0.50 per share
for services provided. The options were valued under APB No. 25 and carried an  
intrinsic value amount of approximately $1.2 million                            

    During the quarter ended June 30, 2005, the Company granted 74,436 options
to non-employees at a price of $0.50 per share for services provided. Under the 
Black-Scholes option valuation model the valuation of the options was           
approximately $75,760.                                                          

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    In July 2005, the Company granted employee stock-options to acquire 16,129
shares of Common Stock exercisable at $0.50 per share for the settlement of     
accrued compensation of $50,000. The employee stock-options are fully vested and
have a life of seven years.                                                     

    In July 2005, at the option of the stockholder, the Company retired 21,774
shares of Common Stock for consideration of $135,000 and in their place granted 
employee stock options to acquire 21,838 shares of Common Stock exercisable at  
$0.50 per share.                                                                

  In September 2005, the Company granted employee stock options to acquire
900 shares of Common Stock, exercisable at $6.00 per share, for services        
provided. The employee stock options will vest over a period of three years and 
have a life of five years.                                                      

     During the quarter ended September 30, 2005, the Company sold 290 shares of
A-1 Preferred Stock for gross proceeds of $290,000.                             

   On September 1, 2005 Holdings initiated a private placement to accredited
investors of debentures with warrants to purchase common stock. These debentures
have a six month term and bear interest at 12% annually. For each $3.00 of      
debentures purchased, Holdings issued one warrant to purchase one share of      
Holdings common stock at $6.00 per share for a period of one year from the date 
of investment or upon an initial public offering by Holdings, whichever occurs  
earlier. This private offering raised gross proceeds of $1.125 million and net  
proceeds of approximately $1.035 million and in October 2005, Holdings issued   
warrants to acquire 375,667 shares of Common Stock.                             

   On September 15, 2005 Holdings commenced a private offering to accredited
investors of up to 1,250,000 shares of Holdings common stock. Pursuant to this  
private offering, the Company is offering units for gross proceeds of $12.00 per
unit. Each unit is comprised of two shares of common stock at $6.00 per share   
with one warrant to acquire one share of common stock at $6.00 per share, for   
each two shares of common stock purchased. The warrants issued in this offering 
are exercisable for a period of one year from the date of investment or upon an 
initial public offering by Holdings, whichever occurs earlier. As of October 31,
2005, a total of 333,333 shares had been sold, and 166,667 warrants have been   
granted, pursuant to this offering raising gross proceeds of $2.0 million, of   
which $1.125 million was applied to retire the September 1, 2005 debentures.    

     In September 2005, the Company granted warrants to acquire 73,548 shares of
Common Stock exercisable at $3.255 per share to the registered broker dealers   
and their assigns for services provided with capital raising efforts related to 
the Preferred A-1 offering. The warrants are fully vested and have a life of 5  
years.                                                                          

    In October 2005, the Company granted warrants to acquire 200,000 shares of
Common Stock, exercisable at $6.00 per share, to a related party in exchange for
a covenant not to request repayment of advances to the Company by Affiliates    
which were in excess of $600,000. The warrant coverage was identical to that    

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offered to unrelated parties under the September 1, 2005 offering of debentures.
The warrants are fully vested and have a life of one year or upon an initial    
public offering by Holdings, whichever occurs earlier.                          

   In October 2005, the Company granted warrants to acquire 16,667 shares of
Common Stock exercisable at $6.30 per share to the registered broker dealers and
their assigns for services provided with capital raising efforts related to the 
September 1, 2005 debenture offering. The warrants are fully vested and have a  
life of 5 years.                                                                

   In October 2005, the Company granted warrants to acquire 33,333 shares of
Common Stock exercisable at $6.30 per share to the registered broker dealers and
their assigns for services provided with capital raising efforts related to the 
September 15, 2005 private offering. The warrants are fully vested and have a   
life of 5 years.                                                                

In October 2005, the Company granted employee stock options to acquire
103,000 shares of Common Stock, exercisable at $6.00 per share, for services    
provided. The employee stock options will vest over a period of three years and 
have a life of five years.                                                      

In October 2005, the Company sold 25 shares of A-1 Preferred Stock for
gross proceeds of $25,000.                                                      

   In October 2005, at the option of the stockholder, the Company retired 25
of 50 shares of Preferred A-1 Stock and returned the investment of $25,000 to   
the former stockholder and ex-director of the Company.                          

  Element 21 intends to effect a spin-off of Element 21's shares of common
stock of Holdings (the "Holdings Spin-Off") pursuant to an exemption from       
registration under the Securities Act of 1933, as amended (the "Act"). The      
Holdings Spin-Off will be pro-rata to Element 21 stockholders of records as of  
October 4, 2002, excluding, in accordance with the consent of such stockholders,
shares held by stockholders who received shares of Element 21 common stock in   
connection with the acquisition by Element 21 of Systems.                       

Each of the above issuances was made pursuant to Section 4(2) of the  
Securities Act of 1933 and pursuant to Regulation D promulgated thereunder.     

AssureTec Systems                                                               
-----------------                                                               

   AssureTec Systems made the following issuances of unregistered securities
during the past three years, all of which were made pursuant to Section 4(2) of 
the Securities Act and pursuant to Regulation D promulgated thereunder.         

   In 2002, AssureTec Systems issued options to purchase 100,000 (6,452 post
split) shares of its common stock to a non-employee at $0.001 per share. We     
recorded $1,279 in stock-based compensation relating to this grant. In 2002,    
AssureTec Systems issued 215,638 shares of its common stock to unrelated third  

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parties in lieu of cash compensation. We recorded $123,744 in connection with   
the issuance of these shares of common stock based on the fair value of the     
services we received. The fair value of the stock options awarded to            
non-employees was calculated using the Black-Scholes method.                    

   In November 2002, AssureTec Systems issued shares of Common Stock for the
acquisition of $9,167 of property and equipment.                                

In January 2003, AssureTec Systems issued options to purchase 200,000 
shares of common stock at a price per share of $0.375 to Robert Babbitt,        
President of Systems, vesting September 2003 and expiring in September 2008     
pursuant to his employment agreement. In addition, pursuant to his agreement,   
Mr. Babbitt received options to purchase a total of 1,800,000 shares of common  
stock of AssureTec Systems; of which options to purchase 350,000 shares at      
$0.375 are exercisable effective January 20, 2003 and expire on September 30,   
2008; of which options to purchase 300,000 shares at $0.375 per share vest      
through January 2004 and expire on December 31, 2011; of which options to       
purchase 350,000 shares at $0.60 per share vest through January 2005 and expire 
on December 31, 2011; of which options to purchase 400,000 shares at $0.90 vest 
through January 2006 and expire on February 12, 2010; and of which options to   
purchase 400,000 shares at $1.25 vest through December 31, 2006 and expire on   
February 12, 2010. Upon the completion of the Exchange Agreement with Holdings, 
these 2,000,000 Systems options were converted to 129,032 Holdings options at   
exercise prices ranging from $5.81 to $19.38.                                   

    In March 2003, AssureTec Systems sold 33,334 (2,151 post split) shares for
$17,000 to an accredited investor with no prior relationship with the Company.  

  In July 2003, AssureTec Systems sold 135,000 shares of common stock at a
price per share of $0.37 to Thomas Colatosti, a director of the Company and of  
AssureTec Systems. In March 2004 these shares were converted to 50 shares of    
convertible Series A Preferred Stock.                                           

     In July 2003, AssureTec Systems issued options to acquire 150,000 shares of
common stock at a price per share of $0.37 to Tom Colatosti, which vest over a  
twelve-month period in consideration for executing a consulting agreement. On   
March 31, 2004, at the time of the Systems Exchange, Holdings assumed these     
options and converted them to options to acquire 9,677 shares of common stock of
Holdings at $5.74 per share.                                                    

As described under "Deferred Compensation" on page 43, pursuant to the
September 30, 2003 letter agreements as amended by the Exchange Agreement,      
options were issued to acquire a total of 80,874 post split shares of Holdings  
common stock at a price per share of $6.21 per share, and a total of 33,157     
shares of Holdings, at $5.81 per share, have been issued.                       

  In December 2003, AssureTec Systems issued shares of its Common Stock to
employees for settlement of approximately $192,700 of accrued compensation.     

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     During the fiscal year ended June 30, 2004, AssureTec Systems issued shares
of its Common Stock to related and unrelated parties in lieu of cash            
compensation, primarily for services rendered on behalf of AssureTec Systems.   
AssureTec Systems recorded $423,664, in stock-based compensation relating to the
issuance of these shares of its Common Stock for the year then ended. The value 
of the stock-based compensation was based on the fair value of the services     
received in accordance with SFAS No. 123 and EITF No. 96-18.                    

As described under "Securities Authorized for Issuance Under Equity   
Compensation Plans" on page 48, pursuant to the Company's Option Plan, at June  
30, 2005, 769,000 options have been granted in lieu of $2.2 million of deferred 
compensation. At June 30, 2005, the total number of options issued under this   
option plan is 1.3 million at an exercise price of $.50 per share, deemed by the
Option Committee to be the fair market price of the common stock at the time of 
issuance of the options, after reflecting both the senior liquidation preference
of the Series A-1 Preferred Stock as well as the then uncertain financial       
condition of the Company.                                                       

ITEM 5 INDEMNIFICATION OF DIRECTORS AND OFFICERS                                

AssureTec Holdings' Certificate of Incorporation provides for the     
indemnification of directors to the fullest extent of Delaware law.             
Specifically, it provides that no director shall be liable to the corporation or
any of its stockholders for monetary damages for breach of fiduciary duty as a  
director, except with respect to (1) a breach of the director's duty of loyalty 
to the corporation or its stockholders, (2) acts or omissions not in good faith 
or which involve intentional misconduct or a knowing violation of law, (3)      
liability under Section 174 of the Delaware General Corporation Law or (4) a    
transaction from which the director derived an improper personal benefit.       

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the      
issuing company pursuant to the foregoing provisions, AssureTec Holdings has    
been informed that in the opinion of the Commission, such indemnification is    
against public policy as expressed in the Securities Act of 1933 and is         
therefore unenforceable.                                                        

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PART F/S

ASSURETEC HOLDINGS, INC.
(a development stage enterprise)

 INDEX TO FINANCIAL STATEMENTS

ANNUAL REPORT FOR YEAR ENDED JUNE 30, 2003 and 2002                        Page 
---------------------------------------------------                             

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                     F-1 

Consolidated Balance Sheets as of June 30, 2003 and 2002                    F-2 

Consolidated  Statements  of  Operations for the Years                      F-3 
Ended June 30,  2003 and 2002 and for the  Period  from                         
October 2, 2001 (Dated of Inception) to June 30, 2003                           

Consolidated  Statement of Stockholders' Deficiency for                     F-4 
the Period From October 2, 2001 (Date of Inception) to                          
June 30, 2003                                                                   

Consolidated Statements of Cash Flows for the Years Ended                 F5-F6 
June 30,  2003 and 2002 and for the  Period  From                             
October 2, 2001 (Date of Inception) to June 30, 2003                            

Notes to Consolidated Financial Statements                               F7-F34 

INTERIM REPORT FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003                    
------------------------------------------------------------                    

Consolidated Balance Sheet as of September 30, 2003 (Unaudited)            F-35 

Consolidated  Statements of Operations for the Three Months                F-36 
Ended September 30, 2003 and 2002 and for the Period                            
From October 2, 2001 (Date of Inception) to                                     
September 30, 2003 (Unaudited)                                                  

Consolidated  Statements of Cash Flows for the Three Months            F-37-F38 
Ended September 30, 2003 and 2002 and for the Period                            
From October 2, 2001 (Date of Inception) to                                     
September 30, 2003 (Unaudited)                                                  

Notes to Unaudited Consolidated Financial Statements                 F-39 - F-57

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 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors                                      
AssureTec Holdings, Inc. and Subsidiary:                                        

We have audited the accompanying consolidated balance sheets of AssureTec       
Holdings, Inc. and Subsidiary (a Development Stage Enterprise) (the "Company")  
as of June 30, 2003 and 2002, and the related consolidated statements of        
operations, stockholders' deficiency, and cash flows for each of the years ended
June 30, 2003 and 2002 and for the period from October 2, 2001 (date of         
inception) to June 30, 2003. 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. The Company is not required to    
have, nor were we engaged to perform, an audit of its internal control over     
financial reporting. Our audits included consideration of internal control over 
financial reporting as a basis for designing audit procedures that are          
appropriate in the circumstances, but not for the purpose of expressing an      
opinion on the effectiveness of the Company's internal control over financial   
reporting. Accordingly, we express no such opinion. An audit also includes      
examining, on a test basis, evidence supporting the amounts and disclosures in  
the financial statements, 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 consolidated financial position of        
AssureTec Holdings, Inc. and Subsidiary (A Development Stage Enterprise) as of  
June 30, 2003 and 2002, and the results of its consolidated operations and      
its consolidated cash flows for each of the years ended June 30, 2003 and 2002  
and for the period from October 2, 2001 (date of inception) to June 30, 2003, in
conformity with accounting principles generally accepted in the United States of
America.                                                                        

The accompanying consolidated financial statements have been prepared assuming  
the Company will continue as a going concern. As discussed in Note 1 to the     
consolidated financial statements, the Company has had recurring losses from    
operations and has a working capital deficiency as of June 30, 2003. These      
conditions raise substantial doubt about its ability to continue as a going     
concern. Management's plans concerning those matters also are described in      
Note 1. The consolidated financial statements do not include any adjustments    
that might result from the outcome of this uncertainty.                         

/s/ Marcum & Kliegman LLP                                                       

January 14, 2005, except for Note 11                                            
as to which the date is October 31, 2005                                        

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                                                        · Enlarge/Download Table


                                              ASSURETEC HOLDINGS INC. AND SUBSIDIARY                                               
                                                (A Development Stage Enterprise)                                                   

                                                   CONSOLIDATED BALANCE SHEETS                                                     

                                                            ASSETS                                                                 
                                                                                        June 30,                                   
                                                                                2003                   2002                        

                                                                                                                                   
Current Assets:                                                                                                                    
   Cash and cash equivalents                                                $     7,714            $     2,152                     
                                                                            -----------            -----------                     

          Total current assets                                                    7,714                  2,152                     

Property and equipment - net                                                     42,094                 37,437                     
Patents                                                                          28,090                   --                       
Other assets                                                                      3,544                  3,607                     
                                                                            -----------            -----------                     

          Total Assets                                                      $    81,442            $    43,196                     
                                                                            ===========            ===========                     

                                         LIABILITIES AND STOCKHOLDERS' DEFICENCY                                                   

Current Liabilities:                                                                                                               
   Accounts payable and accrued liabilities                                 $   499,100            $   144,822                     
   Accrued compensation and related payroll taxes                             2,054,983                293,485                     
   Notes payable - related party                                                164,265                155,205                     
   Advances from affiliates                                                     641,683                196,584                     
                                                                            -----------            -----------                     

          Total current liabilities                                           3,360,031                790,096                     
                                                                            -----------            -----------                     

Commitments and Contingencies (Note 9)                                                                                             

Stockholders' Deficiency:                                                                                                          
   Convertible Preferred stock - $0.001 par value; authorized                                                                      
      5,000,000 shares; issued and outstanding, 0 shares                           --                     --                       
   Common stock - $0.001 par value; authorized, 100,000,000                                                                        
      shares; issued and outstanding, 175,284 shares                                175                    175                     
   Additional paid- in capital                                                  251,736                101,825                     
   Deficit accumulated during the development stage                          (3,530,500)              (848,900)                    
                                                                            -----------            -----------                     

          Total Stockholders' Deficiency                                     (3,278,589)              (746,900)                    
                                                                            -----------            -----------                     

          Total Liabilities and Stockholders' Deficiency                    $    81,442            $    43,196                     
                                                                            ===========            ===========                     

             The accompanying notes are an integral part of these consolidated financial statements.                               

                                                           F-2                                                                     

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                                           ASSURETEC HOLDINGS INC. AND SUBSIDIARY                                                  
                                             (A Development Stage Enterprise)                                                      

                                          CONSOLIDATED STATEMENTS OF OPERATIONS                                                    

                                                                                             For the Period from                   
                                                         For the Years Ended June 30,           October 2, 2001                    
                                                       ----------------------------------    (Date of Inception) to                
                                                           2003                  2002            June 30, 2003                     
                                                       ------------------------------------------------------------                

Net revenues                                            $     9,747           $      --             $     9,747                    
Cost of revenues                                              6,557                  --                   6,557                    
                                                        -----------           -----------           -----------                    

          Gross profit                                        3,190                  --                   3,190                    
                                                        -----------           -----------           -----------                    

Costs and expenses:                                                                                                                
   Selling, general and administrative (1)                1,072,384               379,737             1,452,121                    
   Engineering, research and development (1)              1,440,027               373,685             1,813,712                    
   Management fees - related party                           90,000                  --                  90,000                    
   Consulting fees - related party                           21,236                83,347               104,583                    
                                                        -----------           -----------           -----------                    
                                                          2,623,647               836,769             3,460,416                    
                                                        -----------           -----------           -----------                    

          Loss from operations                           (2,620,457)             (836,769)           (3,457,226)                   
                                                        -----------           -----------           -----------                    

Other income (expense):                                                                                                            
   Interest expense - related party                         (42,000)               (7,800)              (49,800)                   
   Interest expense                                         (21,903)               (4,331)              (26,234)                   
   Other income                                               2,760                  --                   2,760                    
                                                        -----------           -----------           -----------                    

          Net loss                                      $(2,681,600)          $  (848,900)          $(3,530,500)                   
                                                        ===========           ===========           ===========                    

Net loss per share - basic and diluted                  $    (15.30)          $     (4.84)                                         
                                                        ===========           ===========                                          
Weighted average shares outstanding - basic                                                                                        
   and diluted                                              175,284               175,284                                          
                                                        ===========           ===========                                          

(1) Includes compensatory element of stock issuances as follows:                                                                   

Selling, general and administrative                     $    70,237           $     1,279                71,516                    
Engineering, research, and development                       53,507                  --             $    53,507                    
                                                        -----------           -----------           -----------                    

                                                        $   123,744           $     1,279           $   125,023                    
                                                        ===========           ===========           ===========                    

       The accompanying notes are an integral part of these consolidated financial statements.                                     

                                                      F-3                                                                          

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                                                 ASSURETEC HOLDINGS INC. AND SUBSIDIARY                                            
                                                    (A Development Stage Enterprise)                                               

                                           CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY                                      

                                   For the Period from October 2, 2001 (Inception) to June 30, 2003                                

                                                                                                       Deficit                     
                                                                                                     Accumulated                   
                                               Preferred                 Common         Additional   During The          Total     
                                            ------------------   -------------------      Paid-in    Development      Stockholders'
                                   Date      Shares    Amount      Shares    Amount       Capital       Stage          Deficiency  
                                  ---------  ------   --------   ---------  --------    -----------    ----------      ----------  

Balance at October 2, 2001                     --     $   --          --     $    --      $    --      $      --        $    --    
   (Inception)                                                                                                                     
--------------------------                                                                                                         

  Issuance of common stock        10/2/2001    --         --       175,284         175       100,546           --         100,721  
    to founders                                                                                                                    
  Effect of subsidiary's equity                                                                                                    
    transaction - issuance                                                                                                         
    of option to acquire                                                                                                           
    shares of common stock                                                                                                         
    for legal services rendered   6/25/2002    --         --          --          --           1,279           --           1,279  

  Net loss                                     --         --          --          --            --         (848,900)     (848,900) 
                                            ------   --------   ---------   ---------    -----------    -----------     ---------  

Balance at June 30,2002                        --         --       175,284         175       101,825       (848,900)     (746,900) 
-----------------------                                                                                                            

Effect of subsidiary's equity                                                                                                      
   transaction - issuance of                                                                                                       
   common stock for the                                                                                                            
   acquisition of                                                                                                                  
   property and equipment         11/14/2002   --         --          --          --           9,167           --           9,167  
Effect of subsidiary's equity                                                                                                      
   transaction - compensatory                                                                                                      
   elements of stock issuance                                                                                                      
   of common stock                12/31/2002   --         --          --          --         123,744           --         123,744  
Effect of subsidiary's equity                                                                                                      
   transaction - issuance                                                                                                          
   of common stock for net                                                                                                         
   proceeds of $17,000            3/10/2003    --         --          --          --          17,000           --          17,000  

  Net loss                                     --         --          --          --            --       (2,681,600)   (2,681,600) 
                                             ------   --------   ---------   ---------   -----------    -----------   -----------  

Balance at June 30,2003                        --     $   --       175,284   $     175   $   251,736     (3,530,500)   (3,278,589) 
-----------------------                      ------   --------   ---------   ---------   -----------    -----------   -----------  

                        The accompanying notes are an integral part of these consolidated financial statements                     

                                                                     F-4                                                           

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                                           ASSURETEC HOLDINGS INC. AND SUBSIDIARY                                                  
                                               (A Development Stage Enterprise)                                                    

                                             CONSOLIDATED STATEMENTS OF CASH FLOWS                                                 

                                                                                                    For the Period from            
                                                                  For the Years Ended June 30,        October 2, 2001              
                                                                 -------------------------------    (Date of Inception)            
                                                                     2003               2002         to June 30, 2003              
                                                                 ----------------------------------------------------              

Cash flows from operating activities:                                                                                              
   Net loss                                                      $(2,681,600)        $  (848,900)        $(3,530,500)              
   Adjustments to reconcile net loss to net cash used in                                                                           
      operating activities:                                                                                                        
         Depreciation                                                 14,126                 956              15,082               
         Compensatory element of stock issuances                     123,744               1,279             125,023               
         Changes in operating assets and liabilities:                                                                              
             Other assets                                                 63              (3,607)             (3,544)              
             Accounts payable and accrued liabilities                354,278             144,822             499,100               
             Accrued compensation                                  1,770,558             376,690           2,147,248               
                                                                 -----------         -----------         -----------               

                 Net cash used in operating activities              (418,831)           (328,760)           (747,591)              
                                                                 -----------         -----------         -----------               

CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                              
   Purchase of property and equipment                                 (9,616)            (38,393)            (48,009)              
   Acquisition of patents                                            (28,090)               --               (28,090)              
                                                                 -----------         -----------         -----------               

             Net cash used in investing activities                   (37,706)            (38,393)            (76,099)              
                                                                 -----------         -----------         -----------               

CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                              
   Net proceeds from issuance of equity securities by                                                                              
       subsidiary                                                     17,000                --                17,000               
   Issuance of common stock to founders                                 --               100,721             100,721               
   Proceeds from notes payable - related party                          --                72,000              72,000               
   Advances from affiliates                                          445,099             196,584             641,683               
                                                                 -----------         -----------         -----------               

             Net cash provided by financing activities               462,099             369,305             831,404               
                                                                 -----------         -----------         -----------               

NET INCREASE IN CASH AND CASH                                                                                                      
  EQUIVALENTS                                                          5,562               2,152               7,714               

CASH AND CASH EQUIVALENTS, BEGINNING OF                                                                                            
  PERIOD                                                               2,152                --                  --                 
                                                                 -----------         -----------         -----------               

CASH AND CASH EQUIVALENTS, END OF PERIOD                         $     7,714         $     2,152         $     7,714               
                                                                 ===========         ===========         ===========               

         The accompanying notes are an integral part of these consolidated financial statements.                                   

                                                           F-5                                                                     

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                                              ASSURETEC HOLDINGS INC. AND SUBSIDIARY                                               
                                                (A Development Stage Enterprise)                                                   

                                              CONSOLIDATED STATEMENTS OF CASH FLOWS                                                

                                                                                                 For the Period from               
                                                                    For the Years Ended June 30,    October 2, 2001                
                                                                    ---------------------------  (Date of Inception)               
                                                                      2003              2002      to June 30, 2003                 
                                                                    -------------------------------------------                    

SUPPLEMENTAL CASH FLOW INFORMATION:                                                                                                
   Interest paid                                                   $    --           $    --           $  --                       
                                                                   =========         =========         =======                     
   Income taxes paid                                               $    --           $    --           $  --                       
                                                                   =========         =========         =======                     

   Non-Cash Investing Activities:                                                                                                  
      Issuance of common stock for property and equipment          $   9,167         $    --           $ 9,167                     
                                                                   =========         =========         =======                     

   Non-Cash Financing Activities:                                                                                                  
      Conversion of accrued compensation into notes payable        $   9,060         $  83,205         $92,265                     
                                                                   =========         =========         =======                     

                        The accompanying notes are an integral part of these consolidated financial statements.                    

                                                                   F-6                                                             

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Nature of Business and Operations                                          

The Company                                                           

  AssureTec Holdings, Inc. and Subsidiary (a development stage enterprise)
(the "Company") develops integrated identity document management      
  applications for use in government and commercial security applications.
     The Company's proprietary document management platform automatically reads,
records and authenticates identification documents, such as passports,
visas or driver's licenses, through its proprietary database software,
     thereby reducing the risk of human error in detecting falsified or tampered
forms of identification.                                              

    The Company has not generated significant revenues from products that have
been developed to date; accordingly, the Company is considered a      
   development stage enterprise as defined in Financial Accounting Standards
  Board No. 7, "Accounting and Reporting for Development Stage Companies."
The Company is subject to a number of risks similar to those of other 
     companies in an early stage of development. Principal among these risks are
     dependencies on key individuals, competition from other substitute products
and larger companies, the successful development and marketing of its 
     products and the need to obtain adequate financing necessary to fund future
operations.                                                           

Going Concern                                                         

    The accompanying consolidated financial statements have been prepared on a
   going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.         

The Company has experienced accumulated losses of approximately $3.5  
 million since inception. As of June 30, 2003, the Company has a working
capital deficit of approximately $3.4 million. The Company's continued
  existence is dependent upon its ability to obtain needed working capital
   through additional equity and/or debt financing, and the acceptability of
its integrated identity document management applications for use in   
   government and commercial security applications to create sales that will
help the Company achieve a profitable level of operations.            

These matters raise substantial doubt about the Company's ability to  
continue as a going concern. However, the accompanying consolidated   
 financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of the    
   liabilities in the normal course of business. The financial statements do
not include any adjustments relating to the recovery of assets or the 
     classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.                                

F-7 

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Nature of Business and Operations (continued)                              

Going Concern (continued)                                             

Management believes that it will be successful in obtaining additional
  financing, from which the proceeds will be primarily used to execute its
 operating plan. However, no assurances can be provided that the Company
will obtain additional financing or achieve a profitable level of     
operations.                                                           

Business Development                                                  

  On June 12, 2002, AssureTec Holdings, Inc ("ATH") was incorporated under
    the laws of the state of Delaware. The sole stockholder of ATH was Element
    21 Golf Company ("Element 21"). Upon incorporation, Element 21 transferred
certain assets and liabilities into ATH, including cash, accounts     
receivable and payable and all of Element 21's ownership of AssureTec 
Systems, Inc. (a development stage enterprise) ("ATS"). At the time of
transfer, Element 21 owned approximately 34.2% of the issued and      
outstanding common stock of ATS.                                      

    In addition, all of Element 21's ownership in three non-operating entities
was transferred into ATH. The three non-operating entities were (i)   
 Biorelease Technologies, Inc., (ii) I-Jam Entertainment, Inc. and (iii)
Advanced Conductor Technologies, Inc. The ownership of these three    
   non-operating entities was transferred to two stockholders of ATH, one of
    whom is the Company's chief executive officer, effective April 21, 2003 in
consideration for the complete indemnification of ATH by the two      
  stockholders of all current and future liabilities associated with these
entities.                                                             

 Several individuals incorporated AssureTec Systems, Inc. (a development
stage enterprise) ["ATS"] under the laws of the state of Delaware on  
 October 2, 2001. ATS was formed to develop integrated identity document
management applications for use in government and commercial security 
   applications. Effective November 9, 2001, Element 21 acquired 100% of the
     issued and outstanding shares of ATS common stock in exchange for shares of
   Element 21 common stock. Element 21 is a Delaware corporation that, until
     October 2003, was doing business under the name BRL Holdings, Inc. ("BRL").
 Element 21 was controlled by the same individuals who incorporated ATS.
    This transaction was executed between Element 21 and the individual owners
  of ATS to provide a better means of raising capital financing to further
the commercialization of both ATS and Element 21 technologies.        

ATS operated as a wholly owned subsidiary of Element 21 until April 1,
   2002. On April 1, 2002, Element 21 transferred approximately 65.8% of its
   ownership of ATS to the original individual owners of ATS in exchange for
shares of Element 21 common stock held by these individuals. This     
transaction was executed as Element 21 was unsuccessful in obtaining  
significant capital financing for both its and ATS' technologies and  
Element 21 was unable to support ATS' operations as a wholly owned    
subsidiary.                                                           

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Nature of Business and Operations (continued)                              

Basis of Presentation                                                 

   On March 10, 2004, the Company's Board of Directors authorized a 1-for-31
    reverse stock split of its common stock and common stock equivalents. This
reverse stock split was effective on March 10, 2004. All historical   
     references to shares of common stock and price per share have been restated
to reflect the 1-for-31 reverse stock split.                          

    On March 31, 2004, the Company completed its common stock and common stock
equivalent share exchange with the individual stockholders of ATS (the
"Share Exchange"). Holders of 7,358,115 shares of ATS common stock and
  options to purchase 6,945,966 shares of ATS common stock exchanged these
    securities and their associated rights for 474,717 shares of the Company's
     common stock and options to purchase 448,127 shares of the Company's common
 stock. The Share Exchange was accounted for as a common control merger.
  Effective as of March 31, 2004, there were no minority interests in ATS.
    The Company has complete ownership of the issued and outstanding shares of
ATS common stock and common stock equivalents.                        

The consolidated financial statements have been prepared using the    
  historical accounting records of both ATH and ATS as the same management
     controlled both entities prior to the Share Exchange. The operations of ATH
are limited and consist primarily of certain management costs, such as
     compensation and third party management and accounting services. Historical
references to the Company's operations primarily consist of those     
    transactions executed by ATS in the development of its integrated identity
document management applications. See Notes 8 and 11.                 

2.   Summary of Significant Accounting Policies                                 

Principles of Consolidation - As described in Note 1, the consolidated
financial statements include the accounts of ATH and ATS as the same  
management controls each development stage enterprise.                

     For all periods presented, losses attributable to minority interest were in
 excess of any investment in ATS by such minority interest investors. In
     addition, individual entities comprising minority interest did not have any
   commitment to fund any losses of ATS; accordingly no minority interest is
presented in the accompanying financial statements.                   

   All material intercompany balances and transactions have been eliminated.

     Issuance of Stock by Subsidiary - The Company's subsidiary, ATS, has issued
stock to related and unrelated parties during the normal course of its
    business (see Note 8). As a result of these stock issuances, the Company's
net investment decreases. The Company records the decrease in its     
Consolidated Statements of Stockholders' Deficiency as "Effect of     
    subsidiary's equity transactions". All historical references to the shares
issued by subsidiary have been restated to the March 31, 2004 share   
exchange.                                                             

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

  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 and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during each of the reporting
periods. Actual results could differ from those estimates.            

   Cash and Cash Equivalents - Cash and cash equivalents consist of cash and
temporary investments with maturities of three months or less when    
purchased. The Company had no cash equivalents as of June 30, 2003 and
2002.                                                                 

     Inventory - Inventory consists of finished goods and is stated at the lower
     of cost or market utilizing the first-in, first-out method. The Company had
no inventory as of June 30, 2003 and 2002.                            

     Advertising Costs - Advertising costs are expensed as incurred. Advertising
    costs, which are included in selling, general and administrative expenses,
were immaterial for each of the years ended June 30, 2003 and 2002,   
respectively.                                                         

   Shipping and handling costs - Shipping and handling costs are expensed as
incurred as part of cost of revenues. These costs were deemed to be   
immaterial during each of the reporting periods.                      

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

 Fair Value of Financial Instruments - Statement of Financial Accounting
    Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
requires that the Company disclose estimated fair values of financial 
  instruments. The carrying amounts reported in the statement of financial
     position for current assets and current liabilities qualifying as financial
   instruments approximate fair value because of their short maturities. The
fair value of the Company's notes payable and advances to related and 
 affiliated parties are not reasonably determinable based on the related
party nature of the transactions.                                     

Property and Equipment - Property and equipment consists primarily of 
     computer equipment and is stated at cost. Depreciation and amortization are
 provided using the straight-line method over the estimated useful lives
  (generally three to seven years) of the related assets. Expenditures for
  maintenance and repairs, which do not extend the economic useful life of
   the related assets, as charged to operations as incurred. Gains or losses
 on disposal of property and equipment are reflected in the statement of
operations in the period of disposal.                                 

Impairment of Long-Lived Assets - The Company periodically reviews the
carrying value of property and equipment to determine if events and   
circumstances exist indicating that the assets might be impaired. When
    evaluating assets for potential impairment, the Company first compares the
 carrying amount of the asset to the asset's estimated future cash flows
   (undiscounted and without interest charges). If the estimated future cash
     flows used in this analysis are less than the carrying amount of the asset,
     an impairment loss calculation is prepared. The impairment loss calculation
   compares the carrying amount of the asset to the asset's estimated future
   cash flows (discounted and with interest charges). If the carrying amount
exceeds the asset's estimated futures cash flows (discounted and with 
  interest charges), the loss is allocated to the long-lived assets of the
group on a pro rata basis using the relative carrying amounts of those
assets.                                                               

Patents - Patents consist of unamortized patent costs. The Company    
   capitalizes external costs such as legal fees and patent application fees
it incurs until a patent is granted from the United States Patent and 
Trademark Office. Once a patent is granted, the Company amortizes its 
   capitalized patent costs using the straight-line method over 17 years. At
    June 30, 2003, none of the Company's pending patents have been approved or
granted. The Company assesses the carrying value of its patents for   
   impairment each year. Based on its assessments, the Company did not incur
any impairment charges for the years ended June 30, 2003 and 2002.    

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

  Accrued Compensation - Employees and management of the Company have been
  deferring their earned compensation since the Company's inception due to
 the Company's insufficient working capital levels. The Company properly
expensed these obligations and the corresponding employment taxes     
    associated with these deferred wages and salaries as incurred. The Company
has accrued interest costs at a rate of 3% per annum on the unpaid    
     balances. Certain employees have converted their deferred compensation into
  unsecured, zero-interest notes payable by the Company. During the fiscal
    years ended June 30, 2003 and 2002, $9,060 and $83,205, respectively, were
converted from accrued compensation to notes payable.                 

     Revenue Recognition - Generally, revenue is recognized upon shipment to the
     customer (which constitutes delivery), provided that persuasive evidence of
    an arrangement exists, the fee is fixed or determinable, and collection is
    reasonably assured. To the extent that one or more of these conditions are
 not met, which has occurred in the past, revenue is deferred until such
time as all four criteria are met. Revenue from sales to integrators, 
  value-added resellers and distributors is recognized on a "sell-through"
     basis, that is, when these parties report to the Company that resale of the
product to the ultimate end customer has occurred.                    

In general, the Company requires an upfront deposit for significant   
     customer purchases. If the Company receives a payment from a customer prior
     to meeting all of the revenue recognition criteria, the payment is recorded
as deferred revenue. The Company's current arrangements with its third
  party integrators, value-added resellers and distributors do not provide
for any rights of return, price-protection or other contingencies. The
     Company's general credit terms requires a 50% deposit on order and complete
 payment within 30 days of shipment. As of June 30, 2003 and 2002, there
were no deposits for open orders.                                     

    The Company records a provision for estimated sales returns and allowances
 on product sales in the same period as the related revenue is recorded.
     These estimates are based on known and estimated factors. Sales returns and
allowances during each of the reporting periods have been deemed      
immaterial.                                                           

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

   To date, the Company has not established VSOE ("Vendor Specific Objective
     Evidence") of fair value for its software, products and services. For sales
   where maintenance is the only undelivered element, the Company recognized
  the total sale ratably over the term of the embedded maintenance period.
The Company believes that it will establish VSOE of fair value for    
     maintenance however, the exact timing is uncertain. Once VSOE of fair value
     for maintenance and other services is established, the Company will utilize
    the residual method of accounting as permitted under Statement of Position
98-9, "Modification of SOP 07-2, `Software Revenue Recognition, ` With
 Respect to Certain Transactions," and defer the VSOE of maintenance and
 recognize the residual amount of the total sale as software and product
 revenue in the period in which the arrangement exists, the software and
     products are delivered and the fee is collectible. Maintenance revenue will
then be recognized ratably over the maintenance period.               

Research and Development Costs - Research and development costs are   
expensed as incurred.                                                 

Software Development Costs - Costs incurred prior to technological    
     feasibility of the Company's software products are expensed as research and
   development costs. Certain costs incurred after technological feasibility
 has been established are capitalized. As of June 30, 2003 and 2002, the
Company has not capitalized any software costs.                       

    Income Taxes - Deferred tax liabilities and assets are determined based on
 the difference between the financial statement carrying amounts and tax
bases of existing assets and liabilities, using enacted tax rates. The
effect of a change in rates is recognized as income or expense in the 
     period of the change. A valuation allowance is established, when necessary,
    to reduce the deferred income tax assets to the amount that is more likely
than not to be realized.                                              

  Stock-Based Compensation - The Company accounts for stock-based employee
  compensation arrangements using the intrinsic value method in accordance
 with Accounting Principles Board Opinion ("APB) No. 25, "Accounting for
   Stock Issued to Employees" and complies with the disclosure provisions of
   Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
  for Stock-Based Compensation" as amended by SFAS No. 148 "Accounting for
    stock-based compensation - Transition and Disclosure, an amendment of FASB
123", issued in December 2002.                                        

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

Equity instruments issued to non-employee vendors are accounted for in
  accordance with the provisions of SFAS No. 123, and Emerging Issues Task
     Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are
Issued To Other Than Employees for Acquiring, or in Conjunction with  
  Selling, Goods or Services." All transactions in which goods or services
   are the consideration received for the issuance of equity instruments are
accounted for based on the fair value of the equity instrument issued,
 whichever is more reliably measurable. The measurement date of the fair
value of the equity instrument issued is the date on which the counter
party's performance is complete.                                      

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
  Compensation- Transition and Disclosure - an Amendment of FASB Statement
     No. 123." This statement amends SFAS No. 123 to provide alternative methods
of transition for a voluntary change to the fair-value based method of
     accounting for stock-based employee compensation, In addition, SFAS No. 148
 amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the 
   method of accounting for stock-based employee compensation and the effect
 of the method used on reported results. SFAS No. 148 also requires that
     those effects be disclosed more prominently by specifying the form, content
   and location of those disclosures. The Company has adopted the disclosure
only requirements of SFAS No. 148.                                    

     The Company does not maintain a formal incentive compensation plan covering
   its employees, directors and independent contractors. Options to purchase
the Company's common stock vest at varying intervals, but in general, 
   typically vest over two to four year periods. An option's maximum term is
  ten years. See Note 8 for additional information regarding the Company's
stock options.                                                        

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

 The following table provides an expanded reconciliation for all periods
  presented that adds back to reported net loss the recorded expense under
  APB No. 25, deducts the total fair value expense under SFAS No. 123, and
shows the reported and pro forma earnings per share amounts:          

                                                        · Enlarge/Download Table

                                                                  Years Ended June 30,         
                                                             2003                      2002    
                                                          ------------------------------------ 

                                                                                               
Net loss, as reported                                     $(2,681,600)             $  (848,900)
Add:  stock-based employee compensation costs included                                         
            in net loss, as reported                             --                       --   
Less:  stock-based employee compensation as determined                                         
            under fair value based method for all awards     (110,466)                 (57,154)
                                                          -----------              ----------- 

Pro forma net loss                                        $(2,792,066)             $  (906,054)
                                                          ===========              =========== 

Weighted average shares outstanding, basic and diluted        175,284                  175,284 
                                                          ===========              =========== 

Net loss per share, basic and diluted, as reported        $    (15.30)             $     (4.84)
                                                          ===========              =========== 

Net loss per share, basic and diluted, pro forma          $    (15.93)             $     (5.17)
                                                          ===========              =========== 

  The fair value of each employee option grant is estimated on the date of
the grant using the Black-Scholes option-pricing model. Key           
weighted-average assumptions used to apply this pricing model are as  
follows:                                                              

                                                   2003         2002
                                                       -------------------------

Risk-free interest rate                             3.25%       3.25% 
Expected life of option grants                     4 years     4 years
Expected volatility of underlying stock              20%         20%  

 Net Loss Per Share - Net loss per share is computed in accordance  with
  Statement of Financial Standards No. 128, "Earnings Per Share"("SFAS No.
  128"). SFAS No. 128 requires the presentation for both basic and diluted
earnings per share.                                                   

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

     Basic net loss per common share is computed by dividing net loss applicable
to common stockholders by the weighted average number of common shares
     outstanding during the year. Diluted net loss per common share reflects, in
 addition to the weighted average number of common shares, the potential
   dilution if common stock options were exercised into common stock, unless
the effects of such exercise would be anti-dilutive.                  

   Basic and diluted loss per common share are the same for 2003 and 2002 as
  potentially dilutive stock options totaling 248,003 at June 30, 2003 and
   70,906 at June 30, 2002 have not been included in calculations of diluted
net loss per share, as their inclusion would be anti-dilutive.        

  Comprehensive Loss - Comprehensive loss is equal to net loss for each of
the reporting periods presented.                                      

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

Recently Issued Accounting Pronouncements - In January 2003, the FASB 
issued FASB interpretation No. 46, "Consolidation of Variable Interest
  Entities". In December 2003, the FASB issued FIN No. 46 (Revised), ("FIN
     46-R") to address certain FIN 46 implementation issues. This interpretation
   requires that the assets, liabilities, and the results of activities of a
Variable Interest Entity ("VIE") be consolidated into the financial   
  statements of the enterprise that has a controlling interest in the VIE.
   FIN 46R also requires additional disclosures by primary beneficiaries and
     other significant variable interest holders. For variable interest entities
acquired or created before February 1, 2003, this interpretation is   
  effective no later than the end of the first interim or reporting period
 ending after December 15, 2003, for all entities acquired subsequent to
    January 31, 2003, this interpretation is effective as of the first interim
     or annual period ending after December 31, 2003. In December 2003, the FASB
   issued Interpretation No. 46R which revised certain provisions of FIN 46.
    Publicly reporting entities that are small business issuers must apply FIN
   46R to all entities subject to FIN 46R no later than the end of the first
reporting period that ends after December 15, 2004 (as of December 31,
  2004, for a calendar year enterprise). The effective date includes those
     entities to which FIN 46 had previously been applied. However, prior to the
 application of FIN 46R, a public entity that is a small business issuer
shall apply FIN 46 or FIN 46R to those entities that are considered   
     special-purpose entities no later than as of the end of the first reporting
   period that ends after December 15, 2003. The adoption of FIN 46R did not
    have a material impact on the Company's results of operations or financial
position.                                                             

    In April 2003, the FASB issued SFAS No 149, "Amendment of Statement 133 on
 Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
  clarifies financial accounting and reporting for derivative instruments,
  including certain derivative instruments embedded in other contracts and
for hedging activities under SFAS No. 133, "Accounting for Derivative 
instruments and Hedging Activities." SFAS No. 149 is effective for    
 contracts entered into or modified after June 30, 2003. The adoption of
 SFAS No. 149 did not have a material impact on the Company's results of
operations or financial position.                                     

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain    
     Financial Instruments with Characteristics of both Liabilities and Equity."
SFAS No. 150 establishes standards for how an issuer classifies and   
measures certain financial instruments with characteristics of both   
   liabilities and equity. It is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the
  beginning of the first interim period beginning after June 15, 2003. The
  adoption of SFAS No. 150 did not have a material impact on the Company's
results of operations or financial position.                          

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

    In October 2004, the FASB ratified the consensus reached in EITF Issue No.
04-8, "The Effect of Contingently Convertible Instruments on Diluted  
Earnings per Share." The EITF reached a consensus that contingently   
convertible instruments, such as contingently convertible debt,       
    contingently convertible preferred stock, and other such securities should
be included in diluted earnings per share (if dilutive) regardless of 
whether the market price trigger has been met. The consensus became   
    effective for reporting periods ending after December 15, 2004. Management
   is evaluating the impact of this pronouncement on the Company's financial
statements.                                                           

 In December 2004, the FASB issued SFAS No. 123R "Shared Based Payment".
 This statement is a revision of SFAS Statement No. 123, "Accounting for
  Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting
  for Stock Issued to Employees," and its related implementation guidance.
SFAS 123R addresses all forms of shared based payment ("SBP") awards, 
     including shares issued under employee stock purchase plans, stock options,
     restricted stock and stock appreciation rights. Under SFAS 123R, SBP awards
   result in a cost that will be measured at fair value on the awards' grant
     date, based on the estimated number of awards that are expected to vest and
will be reflected as compensation cost in the historical financial    
  statements. This statement is effective for public entities that file as
     small business issuers - as of the beginning of the first interim or annual
     reporting period that begins after December 15, 2005. The Company is in the
 process of evaluating whether the SFAS No. 123R will have a significant
impact on the Company's overall results of operations or financial    
position.                                                             

In May 2005, the FASB issued SFAS 154 "Accounting Changes and Error   
    Corrections" a replacement of APB Opinion No. 20 and FASB Statement No. 3.
    This statement replaces APB Opinion No. 20, "Accounting Changes," and FASB
Statement No. 3, "Reporting Accounting Changes in Interim Financial   
Statements," and changes the requirements for the accounting for and  
  reporting of a change in accounting principle. This statement applies to
   all voluntary changes in accounting principle. It also applies to changes
  required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. When a 
 pronouncement includes specific transition provisions, those provisions
    should be followed. This statement is effective for accounting changes and
 corrections of errors made in fiscal years beginning after December 15,
2005. Management is evaluating the impact of this pronouncement on the
Company's financial statements.                                       

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

  In June 2005, the EITF reached consensus on Issue No. 05-6, "Determining
    the Amortization Period for Leasehold Improvements" (EITF 05-6). EITF 05-6
provides guidance on determining the amortization period for leasehold
   improvements acquired in a business combination or acquired subsequent to
  lease inception. The guidance in EITF 05-6 will be applied prospectively
  and is effective for periods beginning after June 29, 2005. EITF 05-6 is
not expected to have a material impact on the Company's consolidated  
financial position or results of operations.                          

In September 2005, the FASB ratified the Emerging Issues Task Force's 
("EITF") Issue No. 05-7. "Accounting for Modifications to Conversion  
   Options Embedded in Debt Instruments and Related Issues", which addresses
   whether a modification to a conversion option that changes its fair value
affects the recognition of interest expense for the associated debt   
    instrument after the modification, and whether a borrower should recognize
a beneficial conversion feature, not a debt extinguishment, if a debt 
  modification increases the intrinsic value of the debt. EITF 05-7 is not
    expected to have a material impact on the Company's consolidated financial
position or results of operations.                                    

     On September 28, 2005, the FASB ratified the following consensus reached in
    EITF Issue 05-8 ("Income Tax Consequences of Issuing Convertible Debt with
     a Beneficial Conversion Feature"): a) The issuance of convertible debt with
   a beneficial conversion feature results in a basis difference in applying
   FASB Statement of Financial Accounting Standards SFAS No. 109, Accounting
    for Income Taxes. Recognition of such a feature effectively creates a debt
    instrument and a separate equity instrument for book purposes, whereas the
  convertible debt is treated entirely as a debt instrument for income tax
  purposes. b) The resulting basis difference should be deemed a temporary
 difference because it will result in a taxable amount when the recorded
     amount of the liability is recovered or settled. c) Recognition of deferred
   taxes for the temporary difference should be reported as an adjustment to
additional paid-in capital. This consensus is effective in the first  
     interim or annual reporting period commencing after December 15, 2005, with
     early application permitted. The effect of applying the consensus should be
     accounted for retroactively to all debt instruments containing a beneficial
   conversion feature that are subject to EITF Issue 00-27 , "Application of
Issue No. 98-5 to Certain Convertible Debt Instruments" (and thus is  
   applicable to debt instruments converted or extinguished in prior periods
   but which are still presented in the financial statements). Management is
evaluating the impact of this pronouncement on the Company's financial
statements.                                                           

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.   Property and Equipment                                                     

Property and equipment, net at June 30, 2003 and 2002 consists of the 
following:                                                            

                                                            2003        2002
                                                           -------------------
    Computer equipment                                     $48,806     $31,282
    Furniture, fixtures and office equipment                 8,370       7,111
                                                           -------     -------
              Total                                         57,176      38,393
     Less:  accumulated depreciation and amortization       (15,082)       (956)
                                                           -------     -------

              Property and equipment - net                 $42,094     $37,437
                                                           =======     =======

     Depreciation expense for the years ended June 30, 2003 and 2002 was $14,126
and $956, respectively.                                               

4.   Accounts Payable and Accrued Liabilities                                   

     Accounts Payable and Accrued Liabilities at June 30, 2003 and 2002 consists
of the following:                                                     

                                       2003             2002
                                       ----             ----
  Trade Payables                        $286,213          $120,911
  Professional fees                      142,500             5,000
  Accrued Interest                        70,387            10,987
  Other                                       --             7,924
                                      ----------------------------
                                        $499,100          $144,822
                                      ============================

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.       Notes and Loans Payable to Stockholders                                

    The Company has issued several interest and non-interest bearing unsecured
   notes payable to individual stockholders of the Company. Notes payable at
June 30, 2003 and 2002 consisted of the following:                    

                                                     2003           2002
                                                      ------------------------
Note payable to a stockholder accruing                                
interest at 5.0% per annum. One half of the                           
principal note balance, plus accrued                                  
interest, is payable at such time as the                              
Company raises additional capital financing                           
in excess of $1.0 million. Remaining unpaid                           
    balance is payable on demand.                      $72,000         $72,000

Unsecured, zero-interest notes payable -                              
    converted from accrued compensation.                92,265          83,205
                                                      --------        --------

                                                      $164,265        $155,205
                                                      ========        ========

    Interest expense is included, as part of interest expense-related party as
  part of the statements of operations, of approximately $3,600 and $1,800
for the years ended June 30, 2003 and 2002, respectively.             

6.   Income Taxes                                                               

The Company has federal and state tax net operating loss carryforwards
  available for future periods of approximately $994,000 at June 30, 2003.
    The federal tax net operating loss carryforwards expire beginning in 2022.
  As a result of the changes in the ownership of the Company, there may be
    limitations on the amounts of net operating loss carryforwards that may be
utilized in any one year.                                             

    The tax effect of significant items, comprising the Company's net deferred
tax assets at June 30, 2003, is as follows:                         

      Deferred tax assets:                        2003              2002
                                                  ----              ----
        Net operating loss carryforwards          $268,000           $89,000
         Valuation allowance                       (268,000)          (89,000)
                                                  ---------          -------

          Net deferred tax assets                $    --            $   --
                                                  =========          =======

The Company believes that uncertainty exists with respect to future   
realization of the deferred tax assets and has established a valuation
    allowance for the full amount as of June 30, 2003. The valuation allowance
   in 2003 increased by approximately $179,000. The Company is delinquent in
its annual tax filings.                                               

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   Stockholders' Deficiency                                                   

Equity Issuances of AssureTec Holdings                                

Common Stock                                                          

   The Company has 100,000,000 authorized shares of common stock, $0.001 par
     value. At June 30, 2003 and 2002, there were 175,284 shares of common stock
issued and outstanding.                                               

Preferred stock                                                       

     The Company has 5,000,000 shares of Convertible Preferred Stock, $0.001 par
    value, authorized, issuable in series with rights, preferences, privileges
and restrictions as determined by the Board of Directors.             

 At June 30, 2003 and 2002 there were no outstanding shares of Preferred
Stock. See Subsequent Events - Note 11.                               

Common Stock of ATH                                                   
-------------------                                                   

   In October of 2001, ATH issued to founders 175,284 shares of common stock
for their investment in ATS formerly known as Tech Ventures.          

Equity Issuances of AssureTec Systems                                 

Common Stock of ATS                                                   
-------------------                                                   

  In June 2002, ATS granted options to purchase 6,452 shares of its Common
 Stock to a non-employee for services provided. These options were fully
 vested at the grant date and carried an exercise price of approximately
    $0.001 per share. The Company recognized a stock-based compensation charge
    of $1,279 relating to the granting of these options. The fair value of the
stock option awarded to the non-employee was calculated using the     
 Black-Scholes method. The options vested immediately and have a life of
five years.                                                           

    In November 2002, ATS issued shares of common stock for the acquisition of
$9,167 of property and equipment.                                     

In March 2003, ATS issued shares of its common stock to an accredited 
    investor in connection with an unregistered private placement for proceeds
of $17,000 in cash.                                                   

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   Stockholders' Deficiency (continued)                                       

     During the fiscal year ended June 30, 2003, ATS issued shares of its common
stock to related and unrelated parties in lieu of cash compensation,  
    primarily for services rendered on behalf of ATS. ATS recorded $123,744 in
  stock-based compensation relating to the issuance of these shares of its
     common stock for the year ended June 30, 2003. The value of the stock-based
compensation was based on the fair value of the services received in  
accordance with SFAS No. 123 and EITF No. 96-18.                      

8.   Stock Options                                                              

     The Company does not maintain a formal incentive compensation plan covering
   its employees, directors and independent contractors. Options to purchase
the Company's common stock vest at varying intervals, but in general, 
   typically vest over two to four year periods. An option's maximum term is
ten years.                                                            

   As discussed in Note 2, the Company accounts for stock options granted to
  employees using the intrinsic value method in accordance with APB No. 25
    and complies with the disclosure provisions of SFAS No. 123. Stock options
are granted to employees at exercise prices the Company's Board of    
Directors believes reflects the fair value of the Company.            

The Company records stock-based compensation when it grants options to
purchase its or its subsidiary's common stock to non-employees.       

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.   Stock Options (continued)                                                  

  The stock option activity reflected in the table below takes into effect
the 1-for-31 reverse stock split and the Share Exchange.              

                                                        · Enlarge/Download Table


                                                 Number of           Weighted            Average 
                                                  Options         Exercise Price       Fair Price
                                                  -------         --------------       ----------

                                                                                                 
Outstanding at October 2, 2001 (inception)          --               $   --             $   --   
Granted                                          226,301                 0.73               0.29 
Exercised                                       (153,226)                0.00               0.20 
Forfeited                                         (2,169)                1.55               0.34 
                                                --------             --------           -------- 
Outstanding June 30, 2002                         70,906             $   2.28           $   0.49 

Granted                                          178,710                 9.82               2.13 
Exercised                                           --                  --                 --    
Forfeited                                         (1,613)                9.69               2.10 
                                                --------             --------           -------- 
Outstanding June 30, 2003                        248,003             $   7.66           $   1.66 
                                                ========             ========           ======== 

Exercisable at June 30, 2002                      45,543                                         
                                                ========                                         
Exercisable at June 30, 2003                     136,587                                         
                                                ========                                         

                                            Weighted Average     Weighted           Number       
     Number of              Range of         Remaining Life       Average         Currently      
      Options            Exercise Price        (In Years)     Exercise Price     Exercisable     
      -------            --------------        ----------     --------------     -----------     

              70,201         $ 1.55               5.1             $ 1.55                 70,201  
              85,867  $  4.00 to $ 7.75           7.2             $ 5.86                 45,732  
              66,129  $  9.30 to $15.50           7.9             $11.93                 17,966  
              25,806         $19.38               8.6             $19.38                  2,688  
             -------                                                                    -------  
             248,003                                                                    136,587  
             =======                                                                    =======  

  Pro Forma Disclosure - SFAS No. 123 requires the disclosure of pro forma
   information as if the Company adopted the fair value method for grants or
  awards made to employees. For purposes of the pro forma disclosures, the
fair value of options on their grant date was measured using the      
Black-Scholes option-pricing model. Forfeitures are recognized as they
occur.                                                                

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.       Commitments and Contingencies                                          

  The Company has a non-cancelable facility lease for office space with an
 unrelated third party lessor, which expires on June 30 2007. Total rent
   expense, included as part of selling, general and administrative costs in
the consolidated statement of operations was approximately $58,100 and
  $15,000 for the years ended June 30, 2003 and 2002, respectively. Future
     minimum rental payments under the Company's non-cancelable office lease are
   approximately $48,000 in 2004 through 2007. The Company's chief executive
   officer has personally guaranteed this non-cancelable facility lease with
the Company's landlord.                                               

Systems has employment agreements with its key executive officers. The
  employment agreements provide for termination without cause by providing
    continuance of salary. The continuation period varies from three to twelve
  months. The maximum amount of salary continuation under these employment
agreements was approximately $393,000 at June 30, 2003. The employment
agreement between Systems and its former president provided for the   
   conversion of earned and unpaid salary into shares of common stock in the
   event that the termination is a result of the Company's inability to meet
its financial obligations as they become due.                         

Litigation                                                            

In the normal course of business, the Company may be involved in legal
     proceedings in the ordinary course of business. Such matters are subject to
many uncertainties, and outcomes are not predictable with assurance.  

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  Related Party Transactions                                                 

 The majority of the Company's obligations have been paid to date on its
    behalf by RT Robertson Consultants, Inc. and Robertson Financial Advisors,
LLC, companies owned and controlled by the Company's chief executive  
officer (the "Related Party"). At June 30, 2003, the Company owes the 
   Related Party approximately $642,000. Effective July 1, 2002, the Company
   agreed to accrue interest on these amounts at 5.0% per annum. The Company
recorded approximately $42,000 in 2003 and $7,800 in 2002 in interest 
expense - related party in the consolidated statements of operations. 

  The Company believes that the interest rate applied to the Related Party
obligation is on terms as favorable as those it could obtain from     
independent sources.                                                  

  The Related Party advanced approximately $450,100 and $181,500 in fiscal
  years ended June 30, 2003 and 2002, respectively, to employees of ATS in
     the form of non-recourse loans between the Related Party and the individual
employees, respectively. Repayment of these advances by the individual
  employees is contingent upon the payment of deferred compensation by the
Company to the individual employees.                                  

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  Subsequent Events                                                          

On October 28, 2003, ATS authorized 1,000,000 shares of Series A      
    Convertible Preferred Stock, $0.001 par value, designated as Series A. The
    price per share was $1,000. Each share is convertible into 5,000 shares of
  Common Stock of ATS. At March 31, 2004, the Shareholders of the Series A
Convertible Preferred Stock converted their shares into 601 shares of 
Series A-1 Preferred Stock of ATH.                                    

   On March 10, 2004, the Company's Board of Directors authorized a 1-for-31
    reverse stock split of its common stock and common stock equivalents. This
reverse stock split was effective on March 10, 2004. All historical   
     references to shares of common stock and price per share have been restated
to reflect the 1-for-31 reverse stock split.                          

    On March 31, 2004, the Company completed its common stock and common stock
equivalent share exchange with the individual stockholders of ATS (the
"Share Exchange"). Holders of 7,358,115 shares of ATS common stock and
  options to purchase 6,945,966 shares of ATS common stock exchanged these
    securities and their associated rights for 474,717 shares of the Company's
     common stock and options to purchase 448,127 shares of the Company's common
   stock. Effective March 31, 2004, there were no minority interests in ATS.
    The Company has complete ownership of the issued and outstanding shares of
ATS common stock and common stock equivalents.                        

In April 2004, ATH authorized 500 shares of Series A-2 Convertible    
  Preferred Stock, $0.001 par value. The price per share was $10,000. Each
share is convertible into 2,000 shares of common stock. The holders of
  Series A-2 Preferred Stock shall be entitled to receive dividends in the
     form of shares of common stock. Dividends shall accrue at an annual rate of
 200 shares of Common stock per share of Series A-2 Preferred Stock on a
    pro-rata basis based upon the Original Issue Date. In August 2004, holders
     of Series A-2 Preferred Stock were given rescission rights and/or rights to
exchange their shares for Series A-1 Preferred Stock. At June 30, 2004
there were 25.2 shares of Series A-2 Preferred Stock outstanding.     

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  Subsequent Events (continued)                                              

  In July 2003, a director of the Company purchased shares of ATS's common
 stock for cash proceeds of $50,000. Subsequently, in December 2003, the
director converted the common stock into 50 shares of Series A-1      
Convertible Preferred Stock.                                          

   In December 2003, the Company issued 7,742 shares of its common stock for
services valued at $120,000.                                          

     In December 2003, the Related Party converted approximately $462,200 of the
 amounts owed into 462 shares of Series A-1 Convertible Preferred Stock.

  In December 2003, ATS issued shares of its common stock to employees for
settlement of approximately $192,700 of accrued compensation.         

At December 31, 2003, officers of the Company converted approximately 
$89,000 of the amounts owed into 89 shares of Series A-1 Convertible  
Preferred Stock.                                                      

     In March 2004, ATH issued 4,000 shares of its common stock for net proceeds
of $14,000.                                                           

    In April 2004, ATH issued 19.6 shares of its Series A-2 Preferred Stock to
 the Related Party for the settlement of approximately $184,600 of debt,
  plus a cash payment, by the Related Party in the amount of approximately
   $11,400. These shares were subsequently converted to 196 shares of Series
A-1 Preferred Stock in August 2004.                                   

    In April 2004, ATH issued 5.6 shares of its Series A-2 Preferred Stock for
 net proceeds of $47,000. These shares were subsequently converted to 56
shares of Series A-1 Preferred Stock in August 2004.                  

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  Subsequent Events (continued)                                              

During the three months ended June 30, 2004, ATH granted employee     
stock-options to acquire 110,615 shares of Common Stock for services  
provided. The exercise prices of the employee stock-options range from
  $3.10 to $15.50 per share and the life of the options range from five to
   seven years. The Company did not recognize an additional charge for stock
    based compensation since there was no intrinsic value from the granting of
the options.                                                          

     During the fiscal year ended June 30, 2004, ATS issued shares of its Common
Stock to related and unrelated parties in lieu of cash compensation,  
     primarily for services rendered on behalf of ATS. ATS recorded $423,664, in
  stock-based compensation relating to the issuance of these shares of its
Common Stock for the year then ended. The value of the stock-based    
compensation was based on the fair value of the services received in  
accordance with SFAS No. 123 and EITF No. 96-18.                      

 On August 13, 2004 the Company offered, in an Amended Private Placement
Offering, the sale of up to 1,250 shares of Series A-1 Convertible    
 Preferred Stock, to Accredited Investors Only, at a price of $1,000 per
 share (10 share minimum). In case of over-subscription, the Company may
  accept up to an additional 500 shares. On February 21, 2005, the Company
     amended the Private Placement Offering from 1,250 shares to 2,500 shares of
the Company's Series A-1 Convertible Preferred stock.                 

     Shareholders of Series A-2 Convertible Preferred Stock, in the aggregate of
     25.2 shares of Series A-2 Convertible Preferred Stock were given rescission
    rights for their Series A-2 Preferred Stock and given the option of either
   a refund of their purchase price or given the right to acquire Series A-1
Convertible Preferred Stock. In August 2004, all of these shareholders
    converted their 25.2 shares of Series A-2 Convertible Preferred Stock into
252 shares of Series A-1 Convertible Preferred Stock. Therefore, an   
additional 227 shares of Series A-1 Preferred Stock are transacted in 
    addition to the previous 25 for a total of 252 Series A-1 Preferred Stock.
  Of these shareholders, the Related Party owned 19.6 shares of Series A-2
Convertible Preferred Stock and converted all shares into Series A-1  
Convertible Preferred Stock.                                          

   In December 2004, the Company's Board of Directors adopted a Stock Option
Plan (the "Option Plan') authorizing the issuance of up to 1.5 million
    options from currently authorized but un-issued shares of common stock for
   services to the company. Non-qualified stock options may be granted by an
Option Committee designated by the Board of Directors to employees and
  consultants for their services to the Company. At June 30, 2005, 769,000
     options have been granted in lieu of $2.2 million of deferred compensation.
     At June 30, 2005, the total number of options issued under this option plan
     is 1.3 million at an exercise price of $.50 per share, deemed by the Option
    Committee to be the fair market price of the common stock after reflecting
   both the senior liquidation preference of the A-1 Preferred Stock as well
as the then uncertain financial condition of the Company.             

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  Subsequent Events (continued)                                              

In July 2004, the Company granted 6,400 of employee stock options for 
  services provided. The stock options are exercisable at $3.20 per share.
 The Company did not recognize additional stock based compensation since
     there was no intrinsic value from the granting of the options. The employee
stock-options vested immediately and have a life of seven years.      

     In September 2004, the Company granted 500 non-employee options exercisable
  at $4.00 per share for services provided. Under the Black-Scholes option
   valuation model the valuation of the option was approximately $1,360. The
options vested immediately and have a life of seven years.            

 During the quarter ended September 30, 2004, ATH sold 295 shares of A-1
Preferred Stock for gross proceeds of $295,000 (net cash proceeds of  
$267,425).                                                            

    During the quarter ended December 31, 2004, the Company sold 875 shares of
  A-1 Preferred Stock for gross proceeds of $875,000 (net cash proceeds of
$746,500).                                                            

  During the quarter ended December 31, 2004, ATH issued 300 shares of A-1
Preferred Stock for settlement of related party debt of $300,000.     

 During the quarter ended December 31, 2004, ATH converted 860 shares of
common stock to 19 shares of A-1 Preferred Stock. No additional       
consideration was received for this conversion.                       

    During the quarter ended December 31, 2004, an officer and employee of the
subsidiary performed an exercise of employee stock options for the    
     settlement of debt owed to him of $40,000. The exercise price was $0.50 for
    80,000 shares of common stock. During the quarter ended December 31, 2004,
   certain holders of common stock contributed to the Company 65,321 shares,
the Company effectively retired the common stock.                     

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  Subsequent Events (continued)                                              

     During the quarter ended December 31, 2004, certain holders of common stock
  contributed to the Company 1,613 shares, the Company effectively retired
the common stock.                                                     

     During the quarter ended December 31, 2004, certain holders of common stock
   contributed to the Company 291 shares the Company effectively retired the
common stock.                                                         

   During the quarter ended December 31, 2004, ATH converted 4,000 shares of
common stock to 14 shares of A-1 Preferred Stock. The transaction     
  originally occurred during the year ended June 30, 2004 as a sale of ATH
common stock for gross proceeds of $14,000.                           

During the quarter ended December 31, 2004, an ex-employee of the     
subsidiary returned 72 shares of the Company common stock and had the 
shares converted to $418 of accrued compensation to participate in the
    settlement of accrued compensation for employee stock options. The Company
retired the 72 shares of common stock.                                

     In December 2004, ATH granted 708,632 of employee stock-options exercisable
at $0.50 per share for the settlement of approximately $1.9 million of
 accrued compensation. The employee stock-options vested immediately and
have a life of seven years.                                           

In December 2004, at the option of the stockholder, ATH retired 31,867
shares of common stock and granted 90,632 employee stock-options      
  exercisable at $0.50 per share. The options were valued under APB No. 25
and carried an intrinsic value amount of approximately $236,000. The  
   employee stock-options vested immediately and have a life of seven years.

    In December 2004, ATH granted 43,334 of employee stock-options exercisable
     at $0.50 per share for services provided. The options were valued under APB
     No. 25 and carried an intrinsic value amount of approximately $113,000. The
   employee stock-options vested immediately and have a life of seven years.

    In December 2004, ATH granted 68,506 of employee stock-options exercisable
    at $0.50 per share for the settlement of approximately $186,000 of accrued
    compensation. The term of the settlement is 13 months and will recognize a
    settlement of accrued compensation of approximately $14,350 per month. The
   employee stock-options vested immediately and have a life of seven years.

During the quarter ended December 31, 2004, ATH granted 79,337 options
 exercisable at $0.50 per share to outside vendors for the settlement of
  payables of approximately $212,000. The stock-options vested immediately
and have a life of seven years.                                       

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  Subsequent Events (continued)                                              

     During the quarter ended December 31, 2004, ATH granted 63,214 non-employee
options exercisable at $0.50 per share to outside parties for services
   provided. Under the Black-Scholes option valuation model the valuation of
  the options was approximately $172,000 which was included in stock-based
  compensation. The services were for consulting fees for capital raising.
The stock-options vested immediately and have a life of seven years.  

During the quarter ended March 31, 2005, ATH sold 465 shares of A-1   
Preferred Stock for gross proceeds of $465,000 (net cash proceeds of  
$414,950).                                                            

  In June 2005, ATH issued 21,774 shares of common stock to an ex-employee
  and officer of the subsidiary as part of a severance package. The shares
were valued at $6.20 per share and the Company recognized stock based 
compensation of $135,000.                                             

   On June 20, 2005, ATH granted 3,300 of employee stock-options exercisable
     at $0.50 per share for services provided. The options were valued under APB
   No. 25 and carried an intrinsic value amount of approximately $8,600. The
   employee stock-options vested immediately and have a life of seven years.

During the quarter ended June 30, 2005, ATH sold 1,050 shares of A-1  
Preferred Stock for gross proceeds of $1,050,000 (net cash proceeds of
$896,750).                                                            

     During the quarter ended June 30, 2005, ATH rescinded 80,874 employee stock
   options granted on September 30, 2003, and in their place granted 460,882
of employee stock options exercisable at $0.50 per share for services 
     provided. The options were valued under APB No. 25 and carried an intrinsic
value amount of approximately $1.2 million. The employee stock-options
vested immediately and have a life of seven years.                    

During the quarter ended June 30, 2005, ATH granted 74,436 options    
exercisable at $0.50 per share to non-employees for services provided.
     Under the Black-Scholes option valuation model the valuation of the options
    was approximately $75,760. The stock-options vested immediately and have a
life of seven years.                                                  

    In July 2005, the Company granted employee stock-options to acquire 16,129
     shares of Common Stock exercisable at $0.50 per share for the settlement of
accrued compensation of $50,000. The employee stock-options are fully 
vested and have a life of seven years.                                

    In July 2005, at the option of the stockholder, the Company retired 21,774
 shares of Common Stock for consideration of $135,000 and in their place
 granted employee stock-options to acquire 21,838 shares of Common Stock
exercisable at $0.50 per share.                                       

  In September 2005, the Company granted employee stock-options to acquire
  900 shares of Common Stock, exercisable at $6.00 per share, for services
     provided. The employee stock-options will vest over a period of three years
and have a life of five years.                                        

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  Subsequent Events (continued)                                              

     During the quarter ended September 30, 2005, the Company sold 290 shares of
  A-1 Preferred Stock for gross proceeds of $290,000 (net cash proceeds of
$252,300).                                                            

On September 1, 2005 the Company initiated a private placement to     
   accredited investors only of up to $1 million of debentures with warrants
   to purchase common stock. These debentures have a six month term and bear
interest at 12% annually. For each $3.00 of debentures purchased, the 
   Company issued one warrant to purchase one share of Holdings common stock
    at $6.00 per share for a period of one year from the date of investment or
     upon an initial public offering by Holdings, whichever occurs earlier. This
   private offering raised gross proceeds of $1.125 million and net proceeds
  of approximately $1.035 million, and in October 2005, the Company issued
warrants to acquire 375,667 shares of Common Stock. The Company is    
evaluating the financial and accounting impact of this transaction.   

On September 15, 2005 the Company commenced a private offering to     
accredited investors only of up to 1,250,000 shares of Holdings common
     stock. Pursuant to this private offering, the Company is offering units for
    gross proceeds of $12.00 per unit. Each unit is comprised of two shares of
  common stock at $6.00 per share with one warrant to acquire one share of
common stock at $6.00 per share, for each two shares of common stock  
purchased. The warrants issued in this offering are exercisable for a 
  period of one year from the date of investment or upon an initial public
    offering by the Company, whichever occurs earlier. As of October 31, 2005,
  a total of 333,333 shares have been sold, and 166,667 warrants have been
    granted, pursuant to this offering raising gross proceeds of $2.0 million,
of which $1.125 million was applied to retire the September 1, 2005   
   debentures. The Company is evaluating the financial and accounting impact
of this transaction.                                                  

     In September 2005, the Company granted warrants to acquire 73,548 shares of
Common Stock exercisable at $3.255 per share to the registered broker 
dealers and their assigns for services provided with capital raising  
efforts related to the Preferred A-1 offering. The warrants are fully 
vested and have a life of 5 years.                                    

    In October 2005, the Company granted warrants to acquire 200,000 shares of
Common Stock, exercisable at $6.00 per share, to a related party in   
     exchange for a covenant not to request repayment of advances to the Company
  by Affiliates which were in excess of $600,000. The warrant coverage was
 identical to that offered to unrelated parties under the September 2005
  offering of debentures. The warrants are fully vested and have a life of
   one year or upon an initial public offering by Holdings, whichever occurs
earlier.                                                              

   In October 2005, the Company granted warrants to acquire 16,667 shares of
Common Stock exercisable at $6.30 per share to the registered broker  
dealers and their assigns for services provided with capital raising  
   efforts related to the September 1, 2005 debenture offering. The warrants
are fully vested and have a life of 5 years.                          

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  Subsequent Events (continued)                                              

   In October 2005, the Company granted warrants to acquire 33,333 shares of
Common Stock exercisable at $6.30 per share to the registered broker  
dealers and their assigns for services provided with capital raising  
  efforts related to the September 15, 2005 private offering. The warrants
are fully vested and have a life of 5 years.                          

In October 2005, the Company granted employee stock options to acquire
103,000 shares of Common Stock, exercisable at $6.00 per share, for   
  services provided. The employee stock options will vest over a period of
three years and have a life of five years.                            

In October 2005, the Company sold 25 shares of A-1 Preferred Stock for
gross proceeds of $25,000 (net cash proceeds of $21,750).             

   In October 2005, at the option of the stockholder, the Company retired 25
    of 50 shares of Preferred A-1 Stock and returned the investment of $25,000
to the former stockholder and ex-director of the Company.             

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ASSURETEC HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Enterprise)

CONSOLIDATED BALANCE SHEET

 September 30,2003
 (Unaudited)

ASSETS

Current Assets:                                                                 
  Cash and cash equivalents                                        $        93
  Inventory                                                            152,400
                                                                   -----------
         Total current assets                                          152,493

Property and equipment - net                                             37,093 
Patents                                                                  28,090 
Other assets                                                              3,544 
                                                                   -----------

         Total Assets                                              $   221,220
                                                                   ===========

LIABILITIES AND STOCKHOLDERS' DEFICENCY 
Current Liabilities:                                                            
  Accounts payable and accrued liabilities                         $   643,900
  Accrued compensation and related payroll taxes                     2,597,526
  Customer deposits                                                    111,697
  Notes payable - related party                                        164,265
  Advances from affiliates                                             667,975
                                                                   -----------

         Total current liabilities                                   4,185,363
                                                                   -----------

Commitments and Contingencies                                                   

Stockholders' Deficiency:                                                       
Convertible Preferred stock - $0.001 par value; authorized                
    5,000,000 shares; issued and outstanding, 0 shares                  --
Common stock-$0.001par value; authorized,100,000,000 shares;              
      issued and outstanding, 175,284 shares                               175
  Additional paid- in capital                                          301,737
   Deficit during the development stage                              (4,266,055)
                                                                   -----------

          Total Stockholders' Deficiency                             (3,964,143)
                                                                   -----------

         Total Liabilities and Stockholders' Deficiency            $   221,220
                                                                   ===========

The accompanying notes are an integral part of these unaudited
consolidated financial statements.

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                                           ASSURETEC HOLDINGS INC. AND SUBSIDIARY                                         
                                              (A Development Stage Enterprise)                                            

                                          CONSOLIDATED STATEMENTS OF OPERATIONS                                           

                                                                  (Unaudited)             For the Period from             
                                                            For the Three Months Ended      October 2, 2001               
                                                                 September 30,           (Date of Inception) to           
                                                          -------------------------------  September 30, 2003             
                                                             2003              2002             (Unaudited)               
                                                          ------------------------------------------------------          

                                                                                                                          
Net revenues                                              $     7,500       $      --         $    17,247                 
Cost of revenues                                                4,300              --              10,857                 
                                                          -----------       -----------       -----------                 

          Gross profit                                          3,200              --               6,390                 
                                                          -----------       -----------       -----------                 

Costs and expenses:                                                                                                       
   Selling, general and administrative (1)                    392,198           236,385         1,844,319                 
   Engineering, research and development (1)                  297,657           150,791         2,111,369                 
   Management fees - related party                             22,500            22,500           112,500                 
   Consulting fees - related party                               --                --             104,583                 
                                                          -----------       -----------       -----------                 
                                                              712,355           409,676         4,172,771                 
                                                          -----------       -----------       -----------                 

          Loss from operations                               (709,155)         (409,676)       (4,166,381)                
                                                          -----------       -----------       -----------                 

Other income (expense):                                                                                                   
   Interest expense - related party                           (11,900)             --             (61,700)                
   Interest expense                                           (14,500)             --             (40,734)                
   Other income (expense)                                        --                --               2,760                 
                                                          -----------       -----------       -----------                 

          Net loss                                        $  (735,555)      $  (409,676)      $(4,266,055)                
                                                          ===========       ===========       ===========                 

Net loss per share - basic and diluted                    $     (4.20)      $     (2.34)                                  
                                                          ===========       ===========                                   
Weighted average shares outstanding - basic                                                                               
   and diluted                                                175,284           175,284                                   
                                                          ===========       ===========                                   

(1) Includes compensatory element of stock issuances as follows:                                                          

Selling, general and administrative                       $      --         $      --         $    71,516                 
Engineering, research, and development                           --                --              53,507                 
                                                          -----------       -----------       -----------                 

                                                          $      --         $      --         $   125,023                 
                                                          ===========       ===========       ===========                 

      The accompanying notes are an integral part of these unaudited consolidated financial statements.                   

                                                           F-36                                                           

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                                            ASSURETEC HOLDINGS INC. AND SUBSIDIARY                                        
                                                (A Development Stage Enterprise)                                          

                                             CONSOLIDATED STATEMENTS OF CASH FLOWS                                        

                                                                           (Unaudited)               For the Period from  
                                                                   For the Three Months Ended           October 2, 2001   
                                                                         September 30,              (Date of Inception)   
                                                                 --------------------------------   to September 30, 2003 
                                                                     2003               2002              (Unaudited)     
                                                                 ---------------------------------------------------------

Cash flows from operating activities:                                                                                     
   Net loss                                                      $  (735,555)        $  (409,676)        $(4,266,055)     
   Adjustments to reconcile net loss to net cash used in                                                                  
      operating activities:                                                                                               
         Depreciation and amortization                                 5,000                 660              20,082      
         Compensatory element of stock issuances                        --                  --               125,023      
         Changes in operating assets and liabilities:                                                                     
             Change in inventory                                    (152,400)               --              (152,400)     
             Other assets                                               --                  --                (3,544)     
             Accounts payable and accrued liabilities                144,802              (2,561)            643,902      
             Customer deposits                                       111,697                --               111,697      
             Accrued compensation                                    542,543             297,569           2,689,791      
                                                                 -----------         -----------         -----------      

                   Net cash used in operating activities             (83,913)           (114,008)           (831,504)     
                                                                 -----------         -----------         -----------      

CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                     
   Purchase of property and equipment                                   --                  --               (48,009)     
   Acquisition of patents                                               --                  --               (28,090)     
                                                                 -----------         -----------         -----------      

             Net cash used in investing activities                      --                  --               (76,099)     
                                                                 -----------         -----------         -----------      

CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                     
   Net proceeds from issuance of securities by                                                                            
   subsidiary                                                         50,000                --                67,000      
   Issuance of common stock                                             --                  --               100,721      
   Proceeds from notes payable - related party                          --                  --                72,000      
   Advances from affiliates                                           26,292             113,143             667,975      
                                                                 -----------         -----------         -----------      

             Net cash provided by financing activities                76,292             113,143             907,696      
                                                                 -----------         -----------         -----------      

NET (DECREASE) INCREASE IN CASH AND CASH                                                                                  
  EQUIVALENTS                                                         (7,621)               (865)                 93      

CASH AND CASH EQUIVALENTS, BEGINNING OF                                                                                   
  PERIOD                                                               7,714               2,152                --        
                                                                 -----------         -----------         -----------      

CASH AND CASH EQUIVALENTS, END OF PERIOD                         $        93         $     1,287         $        93      
                                                                 ===========         ===========         ===========      

       The accompanying notes are an integral part of these unaudited consolidated financial statements.                  

                                                            F-37                                                          

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                                               ASSURETEC HOLDINGS INC. AND SUBSIDIARY                                     
                                                  (A Development Stage Enterprise)                                        

                                               CONSOLIDATED STATEMENTS OF CASH FLOWS                                      

                                                                           (Unaudited)              For the Period from   
                                                               For the Three Months Ended             October 2, 2001     
                                                                      September 30,                (Date of Inception)    
                                                               --------------------------          to September 30, 2003  
                                                                  2003               2002               (Unaudited)       
                                                               -----------------------------------------------------      

SUPPLEMENTAL CASH FLOW INFORMATION:                                                                                       
   Interest paid                                               $    --             $    --                   $    --      
                                                               =======             =======                   =======      
   Income taxes paid                                           $    --             $    --                   $    --      
                                                               =======             =======                   =======      

   Non-Cash Investing Activities:                                                                                         
      Issuance of common stock for property and equipment      $    --             $    --                  $  9,167      
                                                               =======             =======                  ========      

   Non-Cash Financing Activities:                                                                                         
      Conversion of accrued compensation into notes payable    $    --             $    --                  $ 92,265      
                                                               =======             =======                  ========      

                   The accompanying notes are an integral part of these unaudited consolidated financial statements.      

                                                                    F-38                                                  

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Nature of Business and Operations                                          

The Company                                                           

  AssureTec Holdings, Inc. and Subsidiary (a development stage enterprise)
(the "Company") develops integrated identity document management      
  applications for use in government and commercial security applications.
    The Company's proprietary document management platform automatically reads
records and authenticates identification documents, such as passports,
visas or driver's licenses, through its proprietary database software,
     thereby reducing the risk of human error in detecting falsified or tampered
forms of identification.                                              

    The Company has not generated significant revenues from products that have
been developed to date; accordingly, the Company is considered a      
   development stage enterprise as defined in Financial Accounting Standards
  Board No. 7, "Accounting and Reporting for Development Stage Companies."
The Company is subject to a number of risks similar to those of other 
     companies in an early stage of development. Principal among these risks are
     dependencies on key individuals, competition from other substitute products
and larger companies, the successful development and marketing of its 
     products and the need to obtain adequate financing necessary to fund future
operations.                                                           

Going Concern                                                         

    The accompanying consolidated financial statements have been prepared on a
   going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.         

The Company has experienced accumulated losses of approximately $4.3  
million since inception. As of September 30, 2003, the Company has a  
working capital deficit of approximately $4.0 million. The Company's  
    continued existence is dependent upon its ability to obtain needed working
capital through additional equity and/or debt financing, and the      
   acceptability of its integrated identity document management applications
    for use in government and commercial security applications to create sales
that will help the Company achieve a profitable level of operations.  

The consolidated financial statements do not include any adjustments  
   relating to the recoverability and classification of asset amounts or the
   classifications of liabilities that might be necessary should the Company
be unable to continue as a going concern.                             

These matters raise substantial doubt about the Company's ability to  
continue as a going concern. However, the accompanying consolidated   
 financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of the    
   liabilities in the normal course of business. The financial statements do
not include any adjustments relating to the recovery of assets or the 
     classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.                                

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Nature of Business and Operations (continued)                              

Going Concern (continued)                                             

Management believes that it will be successful in obtaining additional
  financing, from which the proceeds will be primarily used to execute its
 operating plan. However, no assurances can be provided that the Company
will obtain additional financing or achieve a profitable level of     
operations.                                                           

Business Development                                                  

  On June 12, 2002, AssureTec Holdings, Inc ("ATH") was incorporated under
    the laws of the state of Delaware. The sole stockholder of ATH was Element
    21 Golf Company ("Element 21"). Upon incorporation, Element 21 transferred
certain assets and liabilities into ATH, including cash, accounts     
receivable and payable and all of Element 21's ownership of AssureTec 
Systems, Inc. (a development stage enterprise) ("ATS"). At the time of
transfer, Element 21 owned approximately 34.2% of the issued and      
outstanding common stock of ATS.                                      

    In addition, all of Element 21's ownership in three non-operating entities
was transferred into ATH. The three non-operating entities were (i)   
 Biorelease Technologies, Inc., (ii) I-Jam Entertainment, Inc. and (iii)
Advanced Conductor Technologies, Inc. The ownership of these three    
   non-operating entities was transferred to two stockholders of ATH, one of
    whom is the Company's chief executive officer, effective April 21, 2003 in
consideration for the complete indemnification of ATH by the two      
  stockholders of all current and future liabilities associated with these
entities.                                                             

 Several individuals incorporated AssureTec Systems, Inc. (a development
stage enterprise) ["ATS"] under the laws of the state of Delaware on  
 October 2, 2001. ATS was formed to develop integrated identity document
management applications for use in government and commercial security 
   applications. Effective November 9, 2001, Element 21 acquired 100% of the
     issued and outstanding shares of ATS common stock in exchange for shares of
   Element 21 common stock. Element 21 is a Delaware corporation that, until
     October 2003, was doing business under the name BRL Holdings, Inc. ("BRL").
 Element 21 was controlled by the same individuals who incorporated ATS.
    This transaction was executed between Element 21 and the individual owners
  of ATS to provide a better means of raising capital financing to further
the commercialization of both ATS and Element 21 technologies.        

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Nature of Business and Operations (continued)                              

ATS operated as a wholly owned subsidiary of Element 21 until April 1,
   2002. On April 1, 2002, Element 21 transferred approximately 65.8% of its
   ownership of ATS to the original individual owners of ATS in exchange for
shares of Element 21 common stock held by these individuals. This     
transaction was executed as Element 21 was unsuccessful in obtaining  
significant capital financing for both its and ATS' technologies and  
Element 21 was unable to support ATS' operations as a wholly owned    
subsidiary.                                                           

Basis of Presentation                                                 

   On March 10, 2004, the Company's Board of Directors authorized a 1-for-31
    reverse stock split of its common stock and common stock equivalents. This
reverse stock split was effective on March 10, 2004. All historical   
     references to shares of common stock and price per share have been restated
to reflect the 1-for-31 reverse stock split. See Note 7.              

    On March 31, 2004, the Company completed its common stock and common stock
equivalent share exchange with the individual stockholders of ATS (the
"Share Exchange"). Holders of 7,358,115 shares of ATS common stock and
  options to purchase 6,945,966 shares of ATS common stock exchanged these
    securities and their associated rights for 474,717 shares of the Company's
     common stock and options to purchase 448,127 shares of the Company's common
 stock. The Share Exchange was accounted for as a common control merger.
  Effective as of March 31, 2004, there were no minority interests in ATS.
    The Company has complete ownership of the issued and outstanding shares of
ATS common stock and common stock equivalents. See Note 7.            

The consolidated financial statements have been prepared using the    
  historical accounting records of both ATH and ATS as the same management
     controlled both entities prior to the Share Exchange. The operations of ATH
are limited and consist primarily of certain management costs, such as
     compensation and third party management and accounting services. Historical
references to the Company's operations primarily consist of those     
    transactions executed by ATS in the development of its integrated identity
document management applications. See Note 7.                         

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies                                 

Principles of Consolidation - As described in Note 1, the consolidated
financial statements include the accounts of ATH and ATS as the same  
management controls each development stage enterprise.                

     For all periods presented, losses attributable to minority interest were in
 excess of any investment in ATS by such minority interest investors. In
     addition, individual entities comprising minority interest did not have any
   commitment to fund any losses of ATS; accordingly no minority interest is
presented in the accompanying financial statements.                   

   All material intercompany balances and transactions have been eliminated.

     Issuance of Stock by Subsidiary - The Company's subsidiary, ATS, has issued
stock to related and unrelated parties during the normal course of its
business. As a result of these stock issuances, the Company's net     
    investment decreases. The Company records the decrease in its Consolidated
  Statements of Stockholders' Deficiency as "Effect of subsidiary's equity
transactions".                                                        

  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 and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during each of the reporting
periods. Actual results could differ from those estimates.            

   Cash and Cash Equivalents - Cash and cash equivalents consist of cash and
temporary investments with maturities of three months or less when    
purchased. The Company had no cash equivalents at September 30, 2003. 

     Inventory - Inventory consists of finished goods and is stated at the lower
of cost or market utilizing the first-in, first-out method.           

     Advertising Costs - Advertising costs are expensed as incurred. Advertising
    costs, which are included in selling, general and administrative expenses,
 were immaterial for the three months ended September 30, 2003 and 2002,
respectively.                                                         

   Shipping and handling costs - Shipping and handling costs are expensed as
incurred as part of cost of revenues. These costs were deemed to be   
immaterial during each of the reporting periods.                      

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

 Fair Value of Financial Instruments - Statement of Financial Accounting
    Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
requires that the Company disclose estimated fair values of financial 
  instruments. The carrying amounts reported in the statement of financial
     position for current assets and current liabilities qualifying as financial
   instruments approximate fair value because of their short maturities. The
fair value of the Company's notes payable and advances to related and 
 affiliated parties are not reasonably determinable based on the related
party nature of the transactions.                                     

Property and Equipment - Property and equipment consists primarily of 
     computer equipment and is stated at cost. Depreciation and amortization are
 provided using the straight-line method over the estimated useful lives
  (generally three to seven years) of the related assets. Expenditures for
  maintenance and repairs, which do not extend the economic useful life of
   the related assets, as charged to operations as incurred. Gains or losses
 on disposal of property and equipment are reflected in the statement of
operations in the period of disposal.                                 

Impairment of Long-Lived Assets - The Company periodically reviews the
carrying value of property and equipment to determine if events and   
circumstances exist indicating that the assets might be impaired. When
    evaluating assets for potential impairment, the Company first compares the
 carrying amount of the asset to the asset's estimated future cash flows
   (undiscounted and without interest charges). If the estimated future cash
     flows used in this analysis are less than the carrying amount of the asset,
     an impairment loss calculation is prepared. The impairment loss calculation
  compares the carrying amount of the asset to he asset's estimated future
   cash flows (discounted and with interest charges). If the carrying amount
exceeds the asset's estimated futures cash flows (discounted and with 
  interest charges), the loss is allocated to the long-lived assets of the
group on a pro rata basis using the relative carrying amounts of those
assets.                                                               

Patents - Patents consist of unamortized patent costs. The Company    
   capitalizes external costs such as legal fees and patent application fees
it incurs until a patent is granted from the United States Patent and 
Trademark Office. Once a patent is granted, the Company amortizes its 
   capitalized patent costs using the straight-line method over 17 years. At
    June 30, 2003, none of the Company's pending patents have been approved or
granted. The Company assesses the carrying value of its patents for   
   impairment each year. Based on its assessments, the Company did not incur
any impairment charges for the three months ended September 30, 2003. 

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ASSURETEC HOLDINGS, INC. AND SUBSIDIARY 
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

  Accrued Compensation - Employees and management of the Company have been
  deferring their earned compensation since the Company's inception due to
 the Company's insufficient working capital levels. The Company properly
expensed these obligations and the corresponding employment taxes     
    associated with these deferred wages and salaries as incurred. The Company
has accrued interest costs at a rate of 3% per annum on the unpaid    
     balances. Certain employees have converted their deferred compensation into
    unsecured, zero-interest notes payable by the Company. As of September 30,
  2003, $92,265 of accrued compensation has been converted into unsecured,
zero-interest notes payable.                                          

     Revenue Recognition - Generally, revenue is recognized upon shipment to the
     customer (which constitutes delivery), provided that persuasive evidence of
    an arrangement exists, the fee is fixed or determinable, and collection is
    reasonably assured. To the extent that one or more of these conditions are
 not met, which has occurred in the past, revenue is deferred until such
time as all four criteria are met. Revenue from sales to integrators, 
  value-added resellers and distributors is recognized on a "sell-through"
     basis, that is, when these parties report to the Company that resale of the
product to the ultimate end customer has occurred.                    

In general, the Company requires an upfront deposit for significant   
     customer purchases. If the Company receives a payment from a customer prior
     to meeting all of the revenue recognition criteria, the payment is recorded
as deferred revenue. The Company's current arrangements with its third
  party integrators, value-added resellers and distributors do not provide
for any rights of return, price-protection or other contingencies. The
     Company's general credit terms requires a 50% deposit on order and complete
   payment within 30 days of shipment. At September 30, 2003 there was a 50%
     deposit of $111,697 on orders that were shipped subsequent to September 30,
2003.                                                                 

    The Company records a provision for estimated sales returns and allowances
 on product sales in the same period as the related revenue is recorded.
     These estimates are based on known and estimated factors. Sales returns and
allowances during each of the reporting periods have been deemed      
immaterial.                                                           

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

   To date, the Company has not established VSOE ("Vendor Specific Objective
     Evidence") of fair value for its software, products and services. For sales
   where maintenance is the only undelivered element, the Company recognized
  the total sale ratably over the term of the embedded maintenance period.
The Company believes that it will establish VSOE of fair value for    
     maintenance however, the exact timing is uncertain. Once VSOE of fair value
     for maintenance and other services is established, the Company will utilize
    the residual method of accounting as permitted under Statement of Position
98-9, "Modification of SOP 07-2, `Software Revenue Recognition, ` With
 Respect to Certain Transactions," and defer the VSOE of maintenance and
 recognize the residual amount of the total sale as software and product
 revenue in the period in which the arrangement exists, the software and
     products are delivered and the fee is collectible. Maintenance revenue will
then be recognized ratably over the maintenance period.               

Research and Development Costs - Research and development costs are   
expensed as incurred.                                                 

Software Development Costs - Costs incurred prior to technological    
     feasibility of the Company's software products are expensed as research and
   development costs. Certain costs incurred after technological feasibility
     has been established are capitalized. As of September 30, 2003, the Company
has not capitalized software costs.                                   

    Income Taxes - Deferred tax liabilities and assets are determined based on
 the difference between the financial statement carrying amounts and tax
bases of existing assets and liabilities, using enacted tax rates. The
effect of a change in rates is recognized as income or expense in the 
     period of the change. A valuation allowance is established, when necessary,
    to reduce the deferred income tax assets to the amount that is more likely
than not to be realized.                                              

  Stock-Based Compensation - The Company accounts for stock-based employee
  compensation arrangements using the intrinsic value method in accordance
 with Accounting Principles Board Opinion ("APB) No. 25, "Accounting for
   Stock Issued to Employees" and complies with the disclosure provisions of
   Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
  for Stock-Based Compensation" as amended by SFAS No. 148 "Accounting for
    stock-based compensation - Transition and Disclosure, an amendment of FASB
123", issued in December 2002.                                        

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

 The following table provides an expanded reconciliation for all periods
  presented that adds back to reported net loss the recorded expense under
  APB No. 25, deducts the total fair value expense under SFAS No. 123, and
shows the reported and pro forma earnings per share amounts:          

                                                        · Enlarge/Download Table


                                                            Three Months Ended September 30,
                                                              2003                  2002    
                                                          --------------------------------- 

                                                                                            
Net loss, as reported                                     $(735,555)             $(409,676) 
Add:  stock-based employee compensation costs included                                      
            in net loss, as reported                           --                     --    
Less:  stock-based employee compensation as determined                                      
            under fair value based method for all awards   (242,192)                (8,101) 
                                                          ---------              ---------  

Pro forma net loss                                        $(977,747)             $(417,777) 
                                                          =========              =========  

Weighted average shares outstanding, basic and diluted      175,284                175,284  
                                                          =========              =========  

Net loss per share, basic and diluted, as reported        $   (4.20)             $   (2.34) 
                                                          =========              =========  

Net loss per share, basic and diluted, pro forma          $   (5.58)             $   (2.38) 
                                                          =========              =========  

  The fair value of each employee option grant is estimated on the date of
the grant using the Black-Scholes option-pricing model. Key           
weighted-average assumptions used to apply this pricing model are as  
follows:                                                              

                                                         2003           2002
                                                         -----------------------

   Risk-free interest rate                               3.25%         3.25%
    Expected life of option grants                       4 years       4 years
  Expected volatility of underlying stock                20%           20%

Net Loss Per Share - Net loss per share is computed in accordance with
  Statement of Financial Standards No. 128, "Earnings Per Share"("SFAS No.
  128"). SFAS No. 128 requires the presentation for both basic and diluted
earnings per share.                                                   

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 ASSURETEC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

     Basic net loss per common share is computed by dividing net loss applicable
to common stockholders by the weighted average number of common shares
     outstanding during the year. Diluted net loss per common share reflects, in
 addition to the weighted average number of common shares, the potential
   dilution if common stock options were exercised into common stock, unless
the effects of such exercise would be anti-dilutive.                  

   Basic and diluted loss per common share are the same for 2003 and 2002 as
   potentially dilutive stock options totaling 341,768 at September 30, 2003
    and 81,213 at September 30, 2002 have not been included in calculations of
diluted net loss per share, as their inclusion would be anti-dilutive.

  Comprehensive Loss - Comprehensive loss is equal to net loss for each of
the reporting periods presented.                                      

Recently Issued Accounting Pronouncements - In January 2003, the FASB 
issued FASB interpretation No. 46, "Consolidation of Variable Interest
  Entities". In December 2003, the FASB issued FIN No. 46 (Revised), ("FIN
     46-R") to address certain FIN 46 implementation issues. This interpretation
   requires that the assets, liabilities, and the results of activities of a
Variable Interest Entity ("VIE") be consolidated into the financial   
  statements of the enterprise that has a controlling interest in the VIE.
   FIN 46R also requires additional disclosures by primary beneficiaries and
     other significant variable interest holders. For variable interest entities
acquired or created before February 1, 2003, this interpretation is   
  effective no later than the end of the first interim or reporting period
 ending after December 15, 2003, for all entities acquired subsequent to
    January 31, 2003, this interpretation is effective as of the first interim
     or annual period ending after December 31, 2003. In December 2003, the FASB
   issued Interpretation No. 46R which revised certain provisions of FIN 46.
    Publicly reporting entities that are small business issuers must apply FIN
   46R to all entities subject to FIN 46R no later than the end of the first
reporting period that ends after December 15, 2004 (as of December 31,
  2004, for a calendar year enterprise). The effective date includes those
     entities to which FIN 46 had previously been applied. However, prior to the
 application of FIN 46R, a public entity that is a small business issuer
shall apply FIN 46 or FIN 46R to those entities that are considered   
     special-purpose entities no later than as of the end of the first reporting
   period that ends after December 15, 2003. The adoption of FIN 46R did not
    have a material impact on the Company's results of operations or financial
position.                                                             

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

    In April 2003, the FASB issued SFAS No 149, "Amendment of Statement 133 on
 Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
  clarifies financial accounting and reporting for derivative instruments,
  including certain derivative instruments embedded in other contracts and
for hedging activities under SFAS No. 133, "Accounting for Derivative 
instruments and Hedging Activities." SFAS No. 149 is effective for    
 contracts entered into or modified after June 30, 2003. The adoption of
 SFAS No. 149 did not have a material impact on the Company's results of
operations or financial position.                                     

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain    
     Financial Instruments with Characteristics of both Liabilities and Equity."
SFAS No. 150 establishes standards for how an issuer classifies and   
measures certain financial instruments with characteristics of both   
   liabilities and equity. It is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the
  beginning of the first interim period beginning after June 15, 2003. The
  adoption of SFAS No. 150 did not have a material impact on the Company's
results of operations or financial position.                          

    In October 2004, the FASB ratified the consensus reached in EITF Issue No.
04-8, "The Effect of Contingently Convertible Instruments on Diluted  
Earnings per Share." The EITF reached a consensus that contingently   
convertible instruments, such as contingently convertible debt,       
    contingently convertible preferred stock, and other such securities should
be included in diluted earnings per share (if dilutive) regardless of 
whether the market price trigger has been met. The consensus became   
    effective for reporting periods ending after December 15, 2004. Management
   is evaluating the impact of this pronouncement on the Company's financial
statements.                                                           

 In December 2004, the FASB issued SFAS No. 123R "Shared Based Payment".
 This statement is a revision of SFAS Statement No. 123, "Accounting for
  Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting
  for Stock Issued to Employees," and its related implementation guidance.
SFAS 123R addresses all forms of shared based payment ("SBP") awards, 
     including shares issued under employee stock purchase plans, stock options,
     restricted stock and stock appreciation rights. Under SFAS 123R, SBP awards
   result in a cost that will be measured at fair value on the awards' grant
     date, based on the estimated number of awards that are expected to vest and
will be reflected as compensation cost in the historical financial    
  statements. This statement is effective for public entities that file as
     small business issuers - as of the beginning of the first interim or annual
     reporting period that begins after December 15, 2005. The Company is in the
 process of evaluating whether the SFAS No. 123R will have a significant
impact on the Company's overall results of operations or financial    
position.                                                             

In May 2005, the FASB issued SFAS 154 "Accounting Changes and Error   
    Corrections" a replacement of APB Opinion No. 20 and FASB Statement No. 3.
    This statement replaces APB Opinion No. 20, "Accounting Changes," and FASB
Statement No. 3, "Reporting Accounting Changes in Interim Financial   
Statements," and changes the requirements for the accounting for and  
  reporting of a change in accounting principle. This statement applies to
   all voluntary changes in accounting principle. It also applies to changes
  required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. When a 
 pronouncement includes specific transition provisions, those provisions
    should be followed. This statement is effective for accounting changes and
 corrections of errors made in fiscal years beginning after December 15,
2005. Management is evaluating the impact of this pronouncement on the
Company's financial statements.                                       

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Summary of Significant Accounting Policies (continued)                     

  In June 2005, the EITF reached consensus on Issue No. 05-6, "Determining
    the Amortization Period for Leasehold Improvements" (EITF 05-6). EITF 05-6
provides guidance on determining the amortization period for leasehold
   improvements acquired in a business combination or acquired subsequent to
  lease inception. The guidance in EITF 05-6 will be applied prospectively
  and is effective for periods beginning after June 29, 2005. EITF 05-6 is
not expected to have a material impact on the Company's consolidated  
financial position or results of operations.                          

In September 2005, the FASB ratified the Emerging Issues Task Force's 
("EITF") Issue No. 05-7. "Accounting for Modifications to Conversion  
   Options Embedded in Debt Instruments and Related Issues", which addresses
   whether a modification to a conversion option that changes its fair value
affects the recognition of interest expense for the associated debt   
    instrument after the modification, and whether a borrower should recognize
a beneficial conversion feature, not a debt extinguishment, if a debt 
  modification increases the intrinsic value of the debt. EITF 05-7 is not
    expected to have a material impact on the Company's consolidated financial
position or results of operations.                                    

     On September 28, 2005, the FASB ratified the following consensus reached in
    EITF Issue 05-8 ("Income Tax Consequences of Issuing Convertible Debt with
     a Beneficial Conversion Feature"): a) The issuance of convertible debt with
   a beneficial conversion feature results in a basis difference in applying
   FASB Statement of Financial Accounting Standards SFAS No. 109, Accounting
    for Income Taxes. Recognition of such a feature effectively creates a debt
    instrument and a separate equity instrument for book purposes, whereas the
  convertible debt is treated entirely as a debt instrument for income tax
  purposes. b) The resulting basis difference should be deemed a temporary
 difference because it will result in a taxable amount when the recorded
     amount of the liability is recovered or settled. c) Recognition of deferred
   taxes for the temporary difference should be reported as an adjustment to
additional paid-in capital. This consensus is effective in the first  
     interim or annual reporting period commencing after December 15, 2005, with
     early application permitted. The effect of applying the consensus should be
     accounted for retroactively to all debt instruments containing a beneficial
   conversion feature that are subject to EITF Issue 00-27 , "Application of
Issue No. 98-5 to Certain Convertible Debt Instruments" (and thus is  
   applicable to debt instruments converted or extinguished in prior periods
   but which are still presented in the financial statements). Management is
evaluating the impact of this pronouncement on the Company's financial
statements.                                                           

3.   Inventory                                                                  

  Inventory consisted of $152,400 in finished goods at September 30, 2003.

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.   Stockholders' Deficiency                                                   

Equity Issuances of AssureTec Holdings                                

Common Stock                                                          

   The Company has 100,000,000 authorized shares of common stock, $0.001 par
    value. At September 30, 2003 and 2002, there were 175,284 shares of common
stock issued and outstanding.                                         

Preferred stock                                                       

     The Company has 5,000,000 shares of Convertible Preferred Stock, $0.001 par
    value, authorized, issuable in series with rights, preferences, privileges
and restrictions as determined by the Board of Directors.             

At September 30, 2003 and 2002 there were no outstanding shares of    
Preferred Stock. See Subsequent Events - Note 7.                      

Equity Issuances of AssureTec Systems                                 

Preferred Stock of ATS                                                
----------------------                                                

  In July 2003, a director of the Company purchased shares of ATS's common
  stock for $50,000. Subsequently in December 2003, the director converted
    the common stock into 50 shares of Series A-1 Convertible Preferred Stock.

5.   Commitments and Contingencies                                              

Litigation                                                            

In the normal course of business, the Company may be involved in legal
     proceedings in the ordinary course of business. Such matters are subject to
many uncertainties, and outcomes are not predictable with assurance.  

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.   Related Party Transactions                                                 

 The majority of the Company's obligations have been paid to date on its
    behalf by RT Robertson Consultants, Inc. and Robertson Financial Advisors,
LLC, companies owned and controlled by the Company's chief executive  
    officer (the "Related Party"). At September 30, 2003, the Company owes the
Related Party $667,975. Effective July 1, 2002, the Company agreed to 
  accrue interest on these amounts at 5.0% per annum. The Company recorded
   approximately $11,900 in the three months ended September 30, 2003 and $0
   in 2002 in interest expense - related party in the consolidated statement
of operations.                                                        

  The Company believes that the interest rate applied to the Related Party
obligation is on terms as favorable as those it could obtain from     
independent sources.                                                  

     The Related Party advanced $509,632 and $325,643 through September 30, 2003
 and 2002, respectively, to employees of ATS in the form of non-recourse
     loans between the Related Party and the individual employees, respectively.
    Repayment of these advances by the individual employees is contingent upon
the payment of deferred compensation by the Company to the individual 
employees.                                                            

7.       Subsequent Events                                                      

On October 28, 2003, ATS authorized 1,000,000 shares of Series A      
    Convertible Preferred Stock, $0.001 par value, designated as Series A. The
    price per share was $1,000. Each share is convertible into 5,000 shares of
  Common Stock of ATS. At March 31, 2004, the Shareholders of the Series A
Convertible Preferred Stock converted their shares into 601 shares of 
Series A-1 Preferred Stock of ATH.                                    

   On March 10, 2004, the Company's Board of Directors authorized a 1-for-31
    reverse stock split of its common stock and common stock equivalents. This
reverse stock split was effective on March 10, 2004. All historical   
     references to shares of common stock and price per share have been restated
to reflect the 1-for-31 reverse stock split.                          

    On March 31, 2004, the Company completed its common stock and common stock
equivalent share exchange with the individual stockholders of ATS (the
"Share Exchange"). Holders of 7,358,115 shares of ATS common stock and
  options to purchase 6,945,966 shares of ATS common stock exchanged these
    securities and their associated rights for 474,717 shares of the Company's
     common stock and options to purchase 448,127 shares of the Company's common
    stock. Effective as of March 31, 2004, there were no minority interests in
ATS. The Company has complete ownership of the issued and outstanding 
shares of ATS common stock and common stock equivalents.              

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   Subsequent Events (continued)                                              

In April 2004, ATH authorized 500 shares of Series A-2 Convertible    
  Preferred Stock, $0.001 par value. The price per share was $10,000. Each
share is convertible into 2,000 shares of common stock. The holders of
  Series A-2 Preferred Stock shall be entitled to receive dividends in the
     form of shares of common stock. Dividends shall accrue at an annual rate of
 200 shares of Common stock per share of Series A-2 Preferred Stock on a
    pro-rata basis based upon the Original Issue Date. In August 2004, holders
     of Series A-2 Preferred Stock were given rescission rights and/or rights to
exchange their shares for Series A-1 Preferred Stock.                 

   In December 2003, the Company issued 7,742 shares of its common stock for
services valued at $120,000.                                          

     In December 2003, the Related Party converted approximately $462,200 of the
 amounts owed into 462 shares of Series A-1 Convertible Preferred Stock.

  In December 2003, ATS issued shares of its common stock to employees for
settlement of approximately $192,700 of accrued compensation.         

At December 31, 2003, officers of the Company converted approximately 
$89,000 of the amounts owed into 89 shares of Series A-1 Convertible  
Preferred Stock.                                                      

     In March 2004, ATH issued 4,000 shares of its common stock for net proceeds
of $14,000.                                                           

    In April 2004, ATH issued 19.6 shares of its Series A-2 Preferred Stock to
 the Related Party for the settlement of approximately $184,600 of debt,
  plus a cash payment, by the Related Party in the amount of approximately
   $11,400. These shares were subsequently converted to 196 shares of Series
A-1 Preferred Stock in August 2004.                                   

   In April 2004, ATHissued 5.6 shares of its Series A-2 Preferred Stock for
 net proceeds of $47,000. These shares were subsequently converted to 56
shares of Series A-1 Preferred Stock in August 2004.                  

During the three months ended June 30, 2004, ATH granted employee     
stock-options to acquire 110,615 shares of Common Stock for services  
provided. The exercise prices of the employee stock-options range from
  $3.10 to $15.50 per share and the life of the options range from five to
   seven years. The Company did not recognize an additional charge for stock
    based compensation since there was no intrinsic value from the granting of
the options.                                                          

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   Subsequent Events (continued)                                              

     During the fiscal year ended June 30, 2004, ATS issued shares of its Common
Stock to related and unrelated parties in lieu of cash compensation,  
     primarily for services rendered on behalf of ATS. ATS recorded $423,664, in
  stock-based compensation relating to the issuance of these shares of its
Common Stock for the year then ended. The value of the stock-based    
compensation was based on the fair value of the services received in  
accordance with SFAS No. 123 and EITF No. 96-18.                      

 On August 13, 2004 the Company offered, in an Amended Private Placement
Offering, the sale of up to 1,250 shares of Series A-1 Convertible    
 Preferred Stock, to Accredited Investors Only, at a price of $1,000 per
 share (10 share minimum). In case of over-subscription, the Company may
  accept up to an additional 500 shares. On February 21, 2005, the Company
     amended the Private Placement Offering from 1,250 shares to 2,500 shares of
the Company's Series A-1 Convertible Preferred Stock.                 

     Shareholders of Series A-2 Convertible Preferred Stock, in the aggregate of
     25.2 shares of Series A-2 Convertible Preferred Stock were given rescission
    rights for their Series A-2 Preferred Stock and given the option of either
   a refund of their purchase price or given the right to acquire Series A-1
Convertible Preferred Stock. In August 2004 all of these shareholders 
    converted their 25.2 shares of Series A-2 Convertible Preferred Stock into
252 shares of Series A-1 Convertible Preferred Stock. Therefore, an   
additional 227 shares of Series A-1 Preferred Stock are transacted in 
    addition to the previous 25 for a total of 252 Series A-1 Preferred Stock.
  Of these shareholders, the Related Party owned 19.6 shares of Series A-2
Convertible Preferred Stock and converted all shares into Series A-1  
Convertible Preferred Stock.                                          

   In December 2004, the Company's Board of Directors adopted a Stock Option
Plan (the "Option Plan') authorizing the issuance of up to 1.5 million
    options from currently authorized but un-issued shares of common stock for
   services to the company. Non-qualified stock options may be granted by an
Option Committee designated by the Board of Directors to employees and
  consultants for their services to the Company. At June 30, 2005, 769,000
     options have been granted in lieu of $2.2 million of deferred compensation.
     At June 30, 2005, the total number of options issued under this option plan
     is 1.3 million at an exercise price of $.50 per share, deemed by the Option
    Committee to be the fair market price of the common stock after reflecting
   both the senior liquidation preference of the A-1 Preferred Stock as well
as the then uncertain financial condition of the Company.             

In July 2004, the Company granted 6,400 of employee stock options for 
  services provided. The stock options are exercisable at $3.20 per share.
 The Company did not recognize additional stock based compensation since
     there was no intrinsic value from the granting of the options. The employee
stock-options vested immediately and have a life of seven years.      

     In September 2004, the Company granted 500 non-employee options exercisable
  at $4.00 per share for services provided. Under the Black-Scholes option
   valuation model the valuation of the option was approximately $1,360. The
options vested immediately and have a life of seven years.            

 During the quarter ended September 30, 2004, ATH sold 295 shares of A-1
Preferred Stock for gross proceeds of $295,000 (net cash proceeds of  
$267,425).                                                            

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   Subsequent Events (continued)                                              

    During the quarter ended December 31, 2004, the Company sold 875 shares of
  A-1 Preferred Stock for gross proceeds of $875,000 (net cash proceeds of
$746,500).                                                            

  During the quarter ended December 31, 2004, ATH issued 300 shares of A-1
Preferred Stock for settlement of related party debt of $300,000.     

 During the quarter ended December 31, 2004, ATH converted 860 shares of
common stock to 19 shares of A-1 Preferred Stock. No additional       
consideration was received for this conversion.                       

    During the quarter ended December 31, 2004, an officer and employee of the
subsidiary performed an exercise of employee stock options for the    
     settlement of debt owed to him of $40,000. The exercise price was $0.50 for
    80,000 shares of common stock. During the quarter ended December 31, 2004,
   certain holders of common stock contributed to the Company 65,321 shares,
the Company effectively retired the common stock.                     

     During the quarter ended December 31, 2004, certain holders of common stock
  contributed to the Company 1,613 shares, the Company effectively retired
the common stock.                                                     

     During the quarter ended December 31, 2004, certain holders of common stock
   contributed to the Company 291 shares the Company effectively retired the
common stock.                                                         

   During the quarter ended December 31, 2004, ATH converted 4,000 shares of
common stock to 14 shares of A-1 Preferred Stock. The transaction     
  originally occurred during the year ended June 30, 2004 as a sale of ATH
common stock for gross proceeds of $14,000.                           

During the quarter ended December 31, 2004, an ex-employee of the     
subsidiary returned 72 shares of the Company common stock and had the 
shares converted to $418 of accrued compensation to participate in the
    settlement of accrued compensation for employee stock options. The Company
retired the 72 shares of common stock.                                

     In December 2004, ATH granted 708,632 of employee stock-options exercisable
at $0.50 per share for the settlement of approximately $1.9 million of
 accrued compensation. The employee stock-options vested immediately and
have a life of seven years.                                           

In December 2004, at the option of the stockholder, ATH retired 31,867
shares of common stock and granted 90,632 employee stock-options      
  exercisable at $0.50 per share. The options were valued under APB No. 25
and carried an intrinsic value amount of approximately $236,000. The  
   employee stock-options vested immediately and have a life of seven years.

   In December 2004 ATH granted 43,334 of employee stock-options exercisable
     at $0.50 per share for services provided. The options were valued under APB
     No. 25 and carried an intrinsic value amount of approximately $113,000. The
   employee stock-options vested immediately and have a life of seven years.

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   Subsequent Events (continued)                                              

    In December 2004, ATH granted 68,506 of employee stock-options exercisable
    at $0.50 per share for the settlement of approximately $186,000 of accrued
    compensation. The term of the settlement is 13 months and will recognize a
    settlement of accrued compensation of approximately $14,350 per month. The
   employee stock-options vested immediately and have a life of seven years.

During the quarter ended December 31, 2004, ATH granted 79,337 options
 exercisable at $0.50 per share to outside vendors for the settlement of
  payables of approximately $212,000. The stock-options vested immediately
and have a life of seven years.                                       

     During the quarter ended December 31, 2004, ATH granted 63,214 non-employee
options exercisable at $0.50 per share to outside parties for services
   provided. Under the Black-Scholes option valuation model the valuation of
  the options was approximately $172,000 which was included in stock-based
  compensation. The services were for consulting fees for capital raising.
The stock-options vested immediately and have a life of seven years.  

During the quarter ended March 31, 2005, ATH sold 465 shares of A-1   
Preferred Stock for gross proceeds of $465,000 (net cash proceeds of  
$414,950).                                                            

  In June 2005, ATH issued 21,774 shares of common stock to an ex-employee
  and officer of the subsidiary as part of a severance package. The shares
were valued at $6.20 per share and the Company recognized stock based 
compensation of $135,000.                                             

   On June 20, 2005, ATH granted 3,300 of employee stock-options exercisable
     at $0.50 per share for services provided. The options were valued under APB
   No. 25 and carried an intrinsic value amount of approximately $8,600. The
   employee stock-options vested immediately and have a life of seven years.

During the quarter ended June 30, 2005, ATH sold 1,050 shares of A-1  
Preferred Stock for gross proceeds of $1,050,000 (net cash proceeds of
$896,750).                                                            

     During the quarter ended June 30, 2005, ATH rescinded 80,874 employee stock
   options granted on September 30, 2003, and in their place granted 460,882
of employee stock options exercisable at $0.50 per share for services 
     provided. The options were valued under APB No. 25 and carried an intrinsic
value amount of approximately $1.2 million. The employee stock-options
vested immediately and have a life of seven years.                    

During the quarter ended June 30, 2005, ATH granted 74,436 options    
exercisable at $0.50 per share to non-employees for services provided.
     Under the Black-Scholes option valuation model the valuation of the options
    was approximately $75,760. The stock-options vested immediately and have a
life of seven years.                                                  

    In July 2005, the Company granted employee stock-options to acquire 16,129
     shares of Common Stock exercisable at $0.50 per share for the settlement of
accrued compensation of $50,000. The employee stock-options are fully 
vested and have a life of seven years.                                

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(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   Subsequent Events (continued)                                              

    In July 2005, at the option of the stockholder, the Company retired 21,774
 shares of Common Stock for consideration of $135,000 and in their place
 granted employee stock-options to acquire 21,838 shares of Common Stock
exercisable at $0.50 per share.                                       

  In September 2005, the Company granted employee stock-options to acquire
  900 shares of Common Stock, exercisable at $6.00 per share, for services
     provided. The employee stock-options will vest over a period of three years
and have a life of five years.                                        

     During the quarter ended September 30, 2005, the Company sold 290 shares of
  A-1 Preferred Stock for gross proceeds of $290,000 (net cash proceeds of
$252,300).                                                            

On September 1, 2005 the Company initiated a private placement to     
   accredited investors only of up to $1 million of debentures with warrants
   to purchase common stock. These debentures have a six month term and bear
interest at 12% annually. For each $3.00 of debentures purchased, the 
   Company issued one warrant to purchase one share of Holdings common stock
    at $6.00 per share for a period of one year from the date of investment or
     upon an initial public offering by Holdings, whichever occurs earlier. This
   private offering raised gross proceeds of $1.125 million and net proceeds
  of approximately $1.035 million, and in October 2005, the Company issued
warrants to acquire 375,667 shares of Common Stock. The Company is    
evaluating the financial and accounting impact of this transaction.   

On September 15, 2005 the Company commenced a private offering to     
accredited investors only of up to 1,250,000 shares of Holdings common
     stock. Pursuant to this private offering, the Company is offering units for
    gross proceeds of $12.00 per unit. Each unit is comprised of two shares of
  common stock at $6.00 per share with one warrant to acquire one share of
common stock at $6.00 per share, for each two shares of common stock  
purchased. The warrants issued in this offering are exercisable for a 
  period of one year from the date of investment or upon an initial public
    offering by