As filed with the Securities and Exchange Commission on August 19, 2005
Registration No. 333-123568
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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Amendment No. 3 to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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IT&E INTERNATIONAL GROUP
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(Name of Small Business Issuer in Its Charter)
Nevada 8731 77-0436157
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(State or Other Jurisdiction of (North American Industry (I.R.S. Employer
Incorporation or Organization) Classification System Code) Identification
No.)
505 Lomas Santa Fe Drive, Suite 200
Solana Beach, California 92075
(858) 366-0970
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(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
PETER R. SOLLENNE
Chief Executive Officer
IT&E INTERNATIONAL GROUP
505 Lomas Santa Fe Drive, Suite 200
Solana Beach, California 92075
(858) 366-0970
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
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Adam C. Lenain
Foley & Lardner, LLP
402 W. Broadway, Suite 2300
San Diego, California 92101
Phone: (619) 685-4604
Fax: (619) 234-3510
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As soon as practicable after the effective date of this registration statement
(Approximate Date of Proposed Sale to the Public)
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH PROPOSED
CLASS OF PROPOSED MAXIMUM
SECURITIES AMOUNT OFFERING AGGREGATE AMOUNT OF
TO BE TO BE PRICE PER OFFERING REGISTRATION
REGISTERED RESISTERED(1) SHARE(2) PRICE(2) FEE (5)
Common Stock
$0.001 par value 7,178,612 $0.41 $2,943,231 $346.42
Common Stock
$0.001 par value(3) 962,000 $0.41 $ 394,420 $ 46.42
Common Stock
$0.001 par value(4) 962,000 $0.41 $ 394,420 $ 46.42
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Totals 9,102,612 $3,732,071 $ 439.26
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(1) The shares being registered for resale by the selling stockholder are
issuable upon conversion of a note and upon exercise of a warrant. Pursuant
to Rule 416 of the Securities Act of 1933, as amended, this Registration
Statement also covers such additional securities as may become issuable to
prevent dilution resulting from stock splits, stock dividends and similar
events.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based upon the average of the bid and ask prices of
the Company's common stock on the Over-the-Counter Bulletin Board on March
18, 2005.
(3) Issuable upon exercise of 962,000 shares of common stock warrants for $0.94
per share
(4) Issuable upon exercise of 962,000 shares of common stock warrants for $1.12
per share.
(5) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
2
PROSPECTUS
Subject to completion.
IT&E INTERNATIONAL GROUP
The Resale of Up to 9,102,612 Shares of Common Stock
The selling price of the shares will be determined by market factors at the time
of their resale.
This prospectus relates to the sale of up to 9,102,612 shares of our common
stock by the selling stockholders listed in this prospectus. The shares
offered by this prospectus include 7,178,612 shares of common stock issuable
upon conversion of principal and interest under a secured convertible promissory
note and a maximum of 1,924,000 shares of our common stock issuable upon the
exercise of a warrant. The warrant entitles the holder to purchase 962,000
shares of common stock for $0.94 per share and an additional 962,000 shares of
common stock for $1.12 per share. We will not receive any of the proceeds from
the sale of these shares by the Selling Shareholders. Further, we have not
received the aggregate of $1,981,720 from the exercise of warrants to purchase
1,924,000 shares to be sold hereunder. See "Use of Proceeds." We will bear all
costs relating to the registration of the shares. All of such shares of Common
Stock are being offered for resale by the Selling Shareholders.
Our Common Stock is traded on the OTC Bulletin Board Market under the symbol
"ITER."
Investing in the common stock involves a high degree of risk. You should invest
in the common stock only if you can afford to lose your entire investment. See
"Risk Factors" beginning on page 8 of this prospectus.
Please read this prospectus carefully. It describes our company, finances,
products and services. Federal and state securities laws require that we include
in this prospectus all the important information that you will need to make an
investment decision.
You should rely only on the information contained or incorporated by reference
in this prospectus to make your investment decision. We have not authorized
anyone to provide you with different information. The selling shareholders are
not offering these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus is accurate as of any
date other than the date on the front page of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is August __, 2005
3
The following table of contents has been designed to help you find important
information contained in this prospectus. We encourage you to read the entire
prospectus.
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY..................................................... 6
FORWARD LOOKING STATEMENTS............................................. 7
RISK FACTORS........................................................... 8
DESCRIPTION OF BUSINESS................................................ 16
DESCRIPTION OF PROPERTY................................................ 23
LEGAL PROCEEDINGS...................................................... 23
USE OF PROCEEDS........................................................ 24
MARKET FOR OUR COMMON STOCK AND
RELATED SHAREHOLDER MATTERS............................................ 24
MANAGEMENT'S PLAN OF OPERATION......................................... 26
DIRECTORS AND EXECUTIVE OFFICERS....................................... 30
EXECUTIVE COMPENSATION................................................. 33
COMPENSATION OF DIRECTORS.............................................. 34
OWNERSHIP OF SECURITIES BY BENEFICIAL OWNER AND MANAGEMENT............. 35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................... 36
DESCRIPTION OF THE TRANSACTIONS........................................ 36
SELLING SHAREHOLDERS................................................... 37
PLAN OF DISTRIBUTION................................................... 39
DESCRIPTION OF SECURITIES.............................................. 41
INDEMNIFICATION DISCLOSURE FOR SECURITIES ACT LIABILITIES.............. 43
EXPERTS................................................................ 43
LEGAL MATTERS.......................................................... 43
WHERE YOU CAN FIND MORE INFORMATION ABOUT US........................... 44
INDEX TO FINANCIAL STATEMENTS.......................................... 45
4
You should rely only on the information contained in this prospectus and in any
prospectus supplement we may file after the date of this prospectus. We have not
authorized anyone to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. We
are not making an offer to sell these securities in any jurisdiction where an
offer or sale is not permitted. You should assume that the information appearing
in this prospectus is accurate as of the date on the front cover of this
prospectus only, regardless of the time of delivery of this prospectus or of any
sale of our Common Stock. Our business, financial condition, results of
operations and prospects may have changed since that date.
5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This
summary is not complete and does not contain all of the information you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section and the financial
statements and related notes.
Unless the context otherwise requires, the terms "we," "our," "us," "Company"
and "IT&E" refer to IT&E International Group, a Nevada corporation. Our
principal offices are located at 505 Lomas Santa Fe Drive, Suite 200 Solana
Beach, California 92075. Our telephone number is (858) 366-0970. The address of
our website is www.iteinternational.com. Information contained on our website is
not a part of this prospectus.
The Offering
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Securities Offered Up to 9,102,612 shares of Common Stock.
Offering Price The shares being registered hereunder are
being offered by the selling security holders from
time to time at the then current market price
Dividend Policy IT&E International Group does not anticipate
paying dividends on its Common Stock in
the foreseeable future.
Use of Proceeds The shares offered herein are being sold by the
selling security holders and as such, IT&E
International Group will not receive any of
the proceeds of the offering (see, "Use of
Proceeds" section).
Material Risk Factors This offering involves a high degree of risk,
elements of which include possible lack of
profitability, competition, death or incapacity
of management and inadequate insurance coverage.
There is a risk to investors due to the
speculative nature of this investment, historical
losses from operations, a shortage of capital,
lack of dividends, dilution factors, control by
present shareholders and economic conditions in
general. There is a material risk that we may
have insufficient funding to engage in any or all
of the proposed activities.
6
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements (as defined in Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934
(the "Exchange Act"). Forward-looking statements relate to our future
operations. They estimate the occurrence of future events and are not based on
historical facts. Forward-looking statements can be identified by the use of
words such as "expects," "plans" "will," "may," "anticipates," believes,"
"should," "intends," "estimates," and other words of similar meaning. These
statements are subject to risks and uncertainties that cannot be predicted or
quantified and consequently, actual results may differ materially from those
expressed or implied by such forward-looking statements. Such risks and
uncertainties include, without limitation, our ability to raise capital to
finance the development of our products, the effectiveness, profitability and
the marketability of those products, our ability to protect our proprietary
information, general economic and business conditions, the impact of
technological developments and competition, our expectations and estimates
concerning future financial performance and financing plans, our ability to
successfully integrate the businesses of our two active subsidiaries, the impact
of current, pending or future legislation and regulation on the healthcare
industry and other risks detailed from time to time in our filings with the
Securities and Exchange Commission ("SEC"). We do not undertake any obligation
to publicly update any forward-looking statements.
The risk factors discussed in this prospectus are cautionary statements and set
forth all of the material risk factors that could cause actual results to be
significantly different from those predicted in the forward-looking statements,
these include risks associated with our competition, our personnel, maintaining
sensitive patient information, keeping pace with technological changes,
fluctuations with our operating results, protecting our intellectual property,
government regulation both domestic and foreign, factors effecting the market
price of our stock, dilution of our stock, acquisitions which could harm our
operating results, our need for additional capital, and the control influence
our directors have over the Company. The forward-looking statements and
documents incorporated by reference were compiled by IT&E International Group
based upon assumptions it considered reasonable. These assumptions are subject
to significant business, economic, and competitive uncertainties and
contingencies, many of which are beyond our control. Therefore, forecasted and
actual results will likely vary, and these variations may be material.
There can be no assurance that the forward-looking statements, estimates or
projections contained in this prospectus will be achieved. Thus, we make no
representation or warranty as to the accuracy or completeness of any of the
forward-looking statements, estimates or projections contained in this
prospectus. In addition, we cannot guarantee that any forecast in this
prospectus will be achieved.
These forward-looking statements were compiled as of the date of this prospectus
or the date of the documents incorporated by reference, as the case may be. We
do not intend to update these statements, except as required by law. Therefore,
you should evaluate them by considering any changes that may have occurred after
the date these forward-looking statements appear.
7
We cannot guarantee the assumptions relating to the forward-looking statements
or the documents incorporated by reference will prove to be accurate. Therefore,
while these forward-looking statements contain our best good faith estimates as
of the date of this prospectus, we urge you and your advisors to review these
forward-looking statements, to consider the assumptions upon which they are
based, and to ascertain their reasonableness.
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information presented herein:
OVERHANG ON THE EXERCISE OF WARRANTS AND THE SALE OF COMMON SHARES BY LAURUS
COULD DEPRESS OUR STOCK PRICE.
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Laurus, the selling shareholder, has indicated that it is acting independently
of us in determining the manner and extent of sales of the common shares and
warrants included in this offering. We will receive none of the proceeds of such
sales. Such sales of our common shares and warrants by Laurus, or the perception
that those sales may occur, could cause the trading price of our stock to
decrease or to be lower than it might have been in the
absence of those sales or perceptions. In addition, we are obligated to register
an additional 14,841,670 shares that are issuable upon conversion of the Laurus
note as a result of the Omnibus Amendment to the Laurus note which lowered the
conversion price of the Laurus note from $0.75 per share to $0.2445 per share.
Laurus, as the selling shareholder, could also impede our future
capital raising efforts. Laurus has a right of first refusal on future
financing, which places restrictions on our financing activity. Our arrangement
with Laurus gives them effective control over us as a result of its holding a
large interest in us. In addition, an overhang will be created by our
maintenance of an effective resale registration statement regarding a number of
shares that exceeds our public float.
Furthermore, the sale and issuance of the Laurus shares will have a dilutive
impact on our shareholders. As a result, our net income per share could decrease
in future periods, and the market price of our common stock could decline.
In addition, the Laurus note contains anti-dilution protection in favor of
Laurus which states that if we sell shares of our common stock or securities
convertible into or exercisable for our common stock at a price per share or
conversion or exercise price per share less than $.2445 (the "Sale Price"), then
the conversion price of the note shall be automatically adjusted down to equal
the Sale Price. If we trigger this anti-dilution provision by selling shares of
common stock or securities into common stock at a Sale Price less than $.2445
the impact of the sale and issuance of shares to Laurus would be even more
dilutive to our shareholders and our net income per share would decrease even
further.
WE OPERATE IN A MARKET THAT IS HIGHLY COMPETITIVE, AND IF WE ARE UNABLE TO
COMPETE SUCCESSFULLY, OUR REVENUE COULD DECLINE AND WE MAY BE UNABLE TO GAIN
MARKET SHARE.
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The market for life science outsourcing is relatively new and highly
competitive. Our future success will depend on our ability to adapt to changing
technologies, evolving industry standards, product offerings, evolving demands
of the marketplace and to expand our customer base through long-term contracts.
Some of our competitors have longer operating histories and larger customer
bases, which means they have more experience in completing clinical trials in
order to obtain regulatory approvals. In the regulatory compliance area, we
compete against RCM Technologies, Teratec, and Comsys (Venturi Partners), in the
clinical services area, we compete against Covance, Charles River/Inversek, SFBC
International, Covalent, Icon, Kendle, and Parexel. Our competitors have greater
marketing capabilities which has helped them establish stronger name recognition
and longer relationships with clients. We may not be able to compete with those
companies effectively.
Our competitors may also be better positioned to address technological and
market developments or may react more favorably to technological changes. If we
fail to gain market share or lose existing market share, our financial
condition, operating results and business could be adversely affected and the
value of the investment in us could be reduced significantly. We may not have
the financial resources, technical expertise or marketing, distribution or
support capabilities to compete successfully.
8
WE MAY NOT BE ABLE TO ATTRACT, RETAIN OR INTEGRATE KEY PERSONNEL, WHICH MAY
PREVENT US FROM SUCCESSFULLY OPERATING OUR BUSINESS.
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We may not be able to retain our key personnel or attract other qualified
personnel in the future. We believe that our continued success will depend to a
significant extent upon the efforts and abilities of our senior management team,
including Kelly Alberts, our President and COO, and Peter Sollenne, our Chief
Executive Officer. These individuals possess industry knowledge and have
successfully built strong working relationships with our clients. Our failure to
retain Mr. Alberts and Mr. Sollenne, in particular, or to attract and retain
additional qualified personnel, could adversely affect our operations. We do not
currently carry key-man life insurance on any of our executive officers, and no
employment contracts have been executed with our key executive officers.
WE MAY BE RESPONSIBLE FOR MAINTAINING SENSITIVE PATIENT INFORMATION, AND ANY
UNAUTHORIZED USE OR DISCLOSURE COULD RESULT IN SUBSTANTIAL DAMAGE AND HARM TO
OUR REPUTATION.
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We collect and utilize data derived from various sources to recruit patients for
clinical studies. We have access to names and addresses of potential patients
who may participate in these studies. As a result, we know what studies are
taking place, and who may be participating in these studies. In order to deliver
a targeted mail program, we compile specific demographic information. We must
protect this information to address privacy concerns. The information keyed to a
specific disease state could be inadvertently disclosed without the consent of
the patient. Due to these privacy concerns, we must take steps to ensure patient
lists remain confidential. Any unauthorized disclosure or use could result in a
claim against us for substantial damages and could harm our reputation. There
can be no assurance that any protection will be available for such data or that
others will not claim rights to such data.
IF THE COMPANY DOES NOT KEEP PACE WITH RAPID TECHNOLOGICAL CHANGES, ITS PRODUCTS
AND SERVICES MAY BECOME LESS COMPETITIVE OR OBSOLETE, ESPECIALLY IN THE
COMPANY'S PERCEPTIVE INFORMATICS BUSINESS.
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The biotechnology, pharmaceutical and medical device industries generally, and
clinical research specifically, are subject to increasingly rapid technological
changes. The Company's competitors or others might develop technologies,
products or services that are more effective or commercially attractive than the
Company's current or future technologies, products or services, or render its
technologies, products or services less competitive or obsolete. If competitors
introduce superior technologies, products or services and the Company cannot
make enhancements to its technologies, products and services necessary to remain
competitive, its competitive position will be harmed. If the Company is unable
to compete successfully, it may lose customers or be unable to attract new
customers, which could lead to a decrease in revenue.
9
THE COMPANY'S OPERATING RESULTS HAVE FLUCTUATED BETWEEN QUARTERS AND YEARS AND
MAY CONTINUE TO FLUCTUATE IN THE FUTURE, WHICH COULD AFFECT THE PRICE OF ITS
COMMON STOCK
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The Company's quarterly and annual operating results have varied and will
continue to vary in the future as a result of a variety of factors. We suffered
a net operating loss of $398,165 in fiscal 2004. We had a net operating income
of $184,488 in the quarter ended March 31, 2005. Factors that cause these
variations in our operating results include:
- the level of new business authorizations in a particular quarter or year;
- the timing of the initiation, progress, or cancellation of significant
project;
- the mix of services offered in a particular quarter or year;
- the timing of the opening of new offices;
- costs and the related financial impact of acquisitions;
- the timing of internal expansion;
- the timing and amount of costs associated with integrating acquisitions; and
- the timing and amount of startup costs incurred in connection with the
introduction of new products, services or subsidiaries.
Although none of these bullet points have adversely affected our operations in
the past, they are certainly significant factors that need to be considered as
potential risk factors with regards to our operating results.
MANY OF THESE FACTORS, SUCH AS THE INITIATION OF NEW PROJECTS BETWEEN QUARTERS
OR YEARS, ARE BEYOND THE COMPANY'S CONTROL.
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A significant portion of the Company's operating costs relate to personnel,
which accounted for approximately 85% of the Company's total operating costs in
fiscal year 2004. As a result, the effect on the Company's revenues of the
timing of the completion, delay or loss of contracts, or the progress of client
projects, could cause its operating results to vary substantially between
reporting periods. If the Company's operating results do not match the
expectations of securities analysts and investors as a result of these factors,
the trading price of its common stock will likely decrease.
10
IF WE DO NOT ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS MAY
SUFFER, WE MAY LOSE REVENUE OR WE MAY BE REQUIRED TO SPEND SIGNIFICANT TIME AND
RESOURCES TO DEFEND OUR INTELLECTUAL PROPERTY RIGHTS.
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We regard the protection of our patents, trademarks, copyrights, trade secrets
and other intellectual property as critical to our success. We rely on a
combination of patent, copyright, trademark, service mark and trade secret laws
and contractual restrictions to protect our proprietary rights, especially when
it comes to writing FDA protocols for our clients. We have entered into
confidentiality and non-disclosure agreements with our employees, contractors,
and clients, and nondisclosure agreements with parties with whom we conduct
business, in order to limit access to and disclosure of our proprietary
information. These contractual arrangements and the other steps taken by us to
protect our intellectual property may not prevent misappropriation of our
technology intellectual protocols or deter independent third-party development
of similar technologies. protocols.
Our competitors, hold their methodologies to write FDA protocols highly
confidential. The more widely the Company prepares FDA protocols with outside
clients, the more likely the Company's FDA protocols become vulnerable to
duplication by the Company's competition. The are no assurances that the Company
will be able to protect, even if it copyrights its protocols and writing
methodologies, from the competition.
We also seek to protect our proprietary position by filing U.S. and foreign
patent applications related to our proprietary technology, inventions and
improvements that are important to the development of our business. Proprietary
rights relating to our technologies will be protected from unauthorized use by
third parties only to the extent they are covered by valid and enforceable
patents or are effectively maintained as trade secrets.
The steps we have taken to protect our proprietary rights may be inadequate and
third parties may infringe or misappropriate our trade secrets, trademarks and
similar proprietary rights. Any significant failure on our part to protect our
intellectual property could make it easier for our competitors to offer similar
services and thereby adversely affect our market opportunities. In addition,
litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets or to determine the validity and scope of
the proprietary rights of others. Litigation could result in substantial costs
and diversion of management and technical resources and may not be successful.
11
GOVERNMENT REGULATION COULD ADVERSELY EFFECT OUR PROFITABILITY.
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The industry standards for the conduct of clinical research and development
studies are embodied in the regulations for Good Clinical Practice ("GCP"). The
FDA and other regulatory authorities require that results of clinical trials
that are submitted to such authorities be based on studies conducted in
accordance with GCP. These regulations require that IT&E, among other things:
comply with specific requirements governing the selection of qualified
investigators:
o obtain specific written commitments from the investigators;
o verify that appropriate patient informed consent is obtained;
o monitor the validity and accuracy of data;
o instruct investigators and studies staff to maintain records and reports;
o permit appropriate governmental authorities access to data for their
review.
IT&E must also maintain reports for each study for specified periods for
auditing by the study sponsor and by the FDA. IT&E is liable to its clients for
any failure to conduct their studies properly according to the agreed upon
protocol and contract. If IT&E fails to conduct a study properly in accordance
with the agreed upon procedures, IT&E may have to repeat the study at its
expense, reimburse the client for the cost of the study and pay additional
damages. Further, if IT&E fails to meet government specifications with regards
to record-keeping and protocol development, it could result in a major delay,
for its clients to obtain FDA approval for their pharmaceutical product, and
even negate a multi-million dollar client study, where it would be needed to be
repeated from start. Compliance with government regulations to develop a proper
study protocol and record-keeping methodologies, places a major burden on the
Company. Failure to do so, can result in loss of clients, liability to the
Company from these clients, and loss of business.
IN FOREIGN COUNTRIES, INCLUDING EUROPEAN COUNTRIES, WE ARE ALSO SUBJECT TO
GOVERNMENT REGULATION, WHICH COULD DELAY OR PREVENT OUR ABILITY TO SELL OUR
SERVICES IN THOSE JURISDICTIONS.
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In order for us to market our services in Europe and some other International
jurisdictions, we and our agents must obtain required regulatory registrations
or approvals. We must also comply with extensive regulations regarding safety,
efficacy and quality in those jurisdictions. We may not be able to obtain the
required regulatory registrations or approvals, or we may be required to incur
significant costs in obtaining or maintaining any regulatory registrations or
approvals we receive. Delays in obtaining any registrations or approvals
required to market our services, failure to receive these registrations or
approvals, or future loss of previously obtained registrations or approvals
would limit our ability to sell our services internationally.
12
A SIGNIFICANT NUMBER OF OUR SHARES WILL BE ELIGIBLE FOR SALE AND THEIR SALE OR
POTENTIAL SALE MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
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Sales of a significant number of shares of our common stock in the public market
could harm the market price of our common stock. This prospectus covers
9,102,612 shares of our common stock, which represents approximately
42.6% of our currently outstanding 21,344,198 shares of common stock. In
addition, we are obligated to register an additional 14,841,670 shares that are
issuable upon conversion of the Laurus note as a result of the Omnibus Amendment
to the Laurus note which lowered the conversion price of the Laurus note from
$0.75 per share to $0.2445 per share. As additional shares of our common stock
become available for resale in the public market pursuant to this offering and
otherwise, the supply of our common stock will increase, which could decrease
its price. Some or all of the shares of common stock may be offered from time to
time in the open market pursuant to Rule 144, and these sales may have a
depressive effect on the market for our shares of common stock. In general, a
person who has held restricted shares for a period of one year may, upon filing
with the SEC a notification on Form 144, sell into the market common stock in an
amount equal to the greater of 1% of the outstanding shares or the average
weekly number of shares sold in the last four weeks prior to such sale. Such
sales may be repeated once each three months, and any of the restricted shares
may be sold by a non-affiliate after they have been held two years.
Approximately, 1,500,000 of these restricted common shares are currently
eligible for sale under Rule 144K, and another approximately 800,000 restricted
shares which been held by non-affiliates for the past one year are currently
eligible for sale under Rule 144.
ISSUANCE OF STOCK TO FUND OUR OPERATIONS MAY DILUTE YOUR INVESTMENT AND REDUCE
YOUR EQUITY INTEREST.
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We may need to raise capital in the future. Any equity financing may have
significant dilutive effect to stockholders and a material decrease in
stockholders' equity interest in IT&E. We may be required to raise capital, at
time and in amount, which are uncertain, especially under the current capital
market conditions, and on undesirable terms. We could face unforeseen costs, or
our revenues could fall. We do not have any currently identified sources of
additional capital on which we could rely if we find our revenues and the
offering proceeds are insufficient to fund our operations. New sources of
capital may not be available to us when we need it or may be available only on
terms we would find unacceptable. If such capital is not available on
satisfactory terms or is not available at all, we may be unable to continue to
fully develop our business, and our operations and our financial condition may
be materially and adversely affected. Debt financing, if obtained, could
increase our expenses and would be required to be repaid regardless of operating
results. Equity financing, if obtained, could result in dilution to our existing
stockholders. At its sole discretion, the board of directors may
issue additional securities without seeking stockholder approval. There are no
assurances that when we need additional capital that it will be available to us.
13
WE MAY PURSUE STRATEGIC ACQUISITIONS OR INVESTMENTS IN NEW MARKETS AND MAY
ENCOUNTER RISKS ASSOCIATED WITH THESE ACTIVITIES THAT COULD HARM OUR BUSINESS
AND OPERATING RESULTS.
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We may pursue acquisitions of, or investments in, businesses and assets in new
markets that we believe will complement or expand our existing business or our
customer base. Our acquisition strategy involves a number of risks, including:
o difficulty in successfully integrating acquired operations, personnel,
technology, customers, partner relationships, services and businesses
with our operations;
o loss of key employees of acquired operations or inability to hire key
employees necessary for our expansion;
o diversion of our capital and management attention away from other
business issues;
o an increase in our expenses and working capital requirements; and
o other financial risks, such as potential liabilities of the
businesses we acquire.
Our growth may be limited and our competitive position may be harmed if we are
unable to identify, finance and complete future acquisitions. There can be no
assurance that we will be able to identify, negotiate or finance future
acquisitions successfully. Future acquisitions could result in potentially
dilutive issuances of equity securities, the incurrence of debt, contingent
liabilities, amortization expenses related to goodwill and other intangible
assets, a decrease in profitability, or future losses. The incurrence of debt in
connection with any future acquisitions could restrict our ability to obtain
working capital or other financing necessary to operate our business. Our future
acquisitions or investments may not be successful, and if we fail to realize the
anticipated benefits of these acquisitions or investments, our business and
operating results could be harmed.
THE ACTUAL OR ANTICIPATED RESALE BY THE SELLING STOCKHOLDER OF SHARES OF OUR
COMMON STOCK MAY CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE.
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The resale of our common stock by the selling stockholder through open market
transactions or other means may, depending upon the timing of the resales,
depress the market price of our common stock. There are no lock-up or other
restriction on the resale of this stock. Moreover, actual or anticipated
downward pressure on the market price of our common stock due to actual or
anticipated resales of our common stock could cause some institutions or
individuals to engage in short sales of our common stock, which may itself cause
the market price of our common stock to decline.
14
IF WE ARE UNABLE TO DEVELOP OUR SERVICES WITH ANY COLLABORATIVE PARTNERS, WE MAY
BE REQUIRED TO ACCESS ADDITIONAL CAPITAL AND TO DEVELOP ADDITIONAL SKILLS TO
PRODUCE, MARKET AND DISTRIBUTE OUR SERVICES.
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If we are unable to develop our services with any collaborative partner we would
need to seek direct funding to develop and commercialize our services. These
activities require additional resources and capital that we will need to secure.
There is no assurance that we will be able to raise sufficient capital or
attract and retain skilled personnel to enable us to finish development, launch
and market these specialized services. Thus, there can be no assurance that we
will be able to commercialize any such product.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN SCIENTIFIC, TECHNICAL,
MANAGERIAL AND FINANCE PERSONNEL.
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Our ability to operate successfully and manage our future growth depends in
significant part upon the continued service of key scientific, technical, and
managerial personnel, as well as our ability to attract and retain additional
highly qualified personnel in these fields. We may not be able to attract and
retain key employees when necessary, which would limit our operations and
growth.
15
INVESTORS IN OUR SECURITIES MAY SUFFER DILUTION.
------------------------------------------------
The issuance of shares of Common Stock, or shares of Common Stock underlying
warrants, options or preferred stock or convertible notes will dilute the equity
interest of existing shareholders and could have a significant adverse effect on
the market price of our Common Stock. The sale of Common Stock acquired at a
discount could have a negative impact on the market price of our Common Stock
and could increase the volatility in the market price of our Common Stock. In
addition, we may seek additional financing which may result in the issuance of
additional shares of our Common Stock and/or rights to acquire additional shares
of our Common Stock. The issuance of our Common Stock in connection with such
financing may result in substantial dilution to the existing holders of our
Common Stock. Those additional issuances of Common Stock would result in a
reduction of your percentage interest in our company.
WE ARE SIGNIFICANTLY INFLUENCED BY OUR DIRECTORS, EXECUTIVE OFFICERS.
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Our directors and executive officers beneficially owned an aggregate of
approximately 51.6% of our outstanding Common Stock as of July 31, 2004. These
shareholders, acting together, would be able to exert significant influence on
substantially all matters requiring approval by our shareholders, including the
election of directors and the approval of mergers and other business combination
transactions.
LOW-PRICED STOCKS THAT MAY AFFECT YOUR ABILITY TO RESELL YOUR SHARES.
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The SEC has adopted rules that regulate broker/dealer practices in connection
with transactions in penny stocks. Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the Nasdaq system, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange system). The penny stock rules require a
broker/dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document prepared by the
SEC that provides information about penny stocks and the nature and level of
risks in the penny stock market. The broker/dealer also must provide the
customer with bid and offer quotations for the penny stock, the compensation of
the broker/dealer, and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from such rules, the broker/dealer must
make a special written determination that a penny stock is a suitable investment
for the purchaser and receive the purchaser's written agreement to the
transaction. These disclosure requirements may have the effect of reducing the
level of trading activity in any secondary market for a stock that becomes
subject to the penny stock rules, and accordingly, customers in Company
securities may find it difficult to sell their securities, if at all.
16
DESCRIPTION OF BUSINESS
General
-------
We are a life sciences organization focused on providing our clients with
services to address their complex needs in clinical research and regulatory
compliance. By focusing on specialized practice areas in regulatory compliance,
clinical research, and international development of global health and advanced
technology research, we are able to offer services with one common goal in mind,
to improve the human condition by delivering clinical research and regulatory
compliance services to the life sciences community.
We were incorporated in Nevada in 2002 as Clinical Trials Assistance
Corporation. In April 2004, we merged with IT&E International, Inc. and changed
our name to IT&E International Group.
IT&E's Business and Operations
------------------------------
IT & E International, Inc. is a provider of a broad range of services to the
Life Sciences Industries. We primarily provide our clients with solutions to
complex needs in clinical research and regulatory compliance.
We provide regulatory compliance services to pharmaceutical, biotech, healthcare
and other life science companies by providing to them the expertise to evaluate,
structure, implement and maintain effective quality programs and processes that
ensure compliance with applicable FDA regulations. We offer a diverse, all
encompassing solution for the validation and compliance of quality systems,
laboratory and manufacturing processes, clinical data systems, laboratory
automation, content management, electronic document management, and a complete
solution for facilities, utilities and equipment validation and compliance.
We also offer a suite of clinical trial support services, such as patient and
investigator recruitment, biostatistical analysis, data management, data entry
and verification and regulatory affairs services. In data management, we provide
case report form design, protocol development, data entry and verification, full
tracking and audit trail documentation, adverse event reporting and FDA
submission. Our biostatistical analysis group provides data mining studies,
database design, representation at FDA and other regulatory meetings, and
additional specialized biostatistical analysis.
17
Program Management and Outsourcing
----------------------------------
IT&E offers a broad range of validation and compliance services from management
consulting to protocol development and execution. We are dedicated to designing,
developing and implementing practices that protect the integrity of the
computerized systems and equipment used in health product research and
manufacturing processes. We ensure that these systems are maintained in a
validated state throughout their entire lifecycle by following documented
protocols and standardized procedures. IT&E has the ability to deliver
regulatory compliance services in the following fields:
o Guidelines Interpretation - IT&E provides services related to the
interpretation of U.S. Food and Drug Administration ("FDA") validation &
compliance criteria. We then provide consulting teams to assist the client in
implementing such compliance strategies.
o Planning & Strategy - IT & E assists customers in developing an overall FDA
validation and compliance strategy and developing methods and procedures for
staying in compliance.
o Corporate policies and procedures - IT & E works with its customers in
designing overall quality assurance, quality control and FDA regulatory
compliance policies and procedures. In addition, part of our services is to then
implement those procedures throughout an organization.
o Independent Vendor Audits & Assessments - IT & E works with a client to
assess its vendors to ensure they are in compliance with FDA regulations and are
operating in a validated state.
o SOP (standard operating procedure) Generation and Revision - IT & E
provides services to customers to prepare Standard Operating Procedures in the
area of FDA Regulatory compliance, and to establish ongoing SOP's to keep a
customer in compliance with FDA regulations.
o Gap Analysis - IT & E will work with a customer in preparing a SWAT
(software analysis testing) analysis, identifying gaps in their compliance and
validations procedures. We then will work with a customer in closing those gaps
in their procedures in their laboratory, clinical and manufacturing
environments.
o Risk Analysis - Business and Regulatory - IT & E will work with a customer
in assessing FDA Regulatory exposures in their cGxP (current good manufacturing,
lab and clinical practices) environments.
o Remediation - IT & E will perform project based remediation (corrective
action) projects in support of FDA 483 warning letters, and other regulatory
processes.
o Training end users and program managers
IT&E provides services in the CSV (Computer Systems Validation), CFR (Code of
Federal Regulations) Part 11, CFR Part 210/211, CFR Part 58, Part 320, Part
820/QSR, GAMP4 (Good Automated Manufacturing Practices version 4.0) as well as
European and Asian standards.
Our validation and compliance team (estimated around 100 people both outside
contractors and full-time employees) designs, develops and implements practices
that protect the integrity of the computerized systems, equipment and facilities
used in health product research and manufacturing processes. Further, we ensure
that these systems are maintained in a validated state throughout their entire
lifecycle by following documented protocols and standardized procedures. By
analyzing market trends, continually reengineering our best practices, utilizing
leading technology and keeping abreast of changes from the regulatory bodies, we
are able to ensure a high degree of quality standards are being met.
In addition, we specialize in quality procedures, programs and management
consulting in FDA regulated areas within the pharmaceutical and biotechnology
industries including: audits, remediation, quality systems, and validation and
qualification of processes, cleaning, environment, and computerized systems. We
have developed and implemented several plant-wide systems in the pharmaceutical
and biotechnology industries and are recognized as a verifiable quality leader.
IT&E has developed an extensive database which includes formats and templates
18
to get FDA Validation & Compliance projects off and running quicker and maximize
the efficiency in development and the ensuing validation and compliance
processes. We provide services focused around GxP compliance, validation and
regulatory affairs for the life sciences industry, including the following:
o Computer Systems Validation (CSV)
o 21 CFR Part 210/211 - Good Manufacturing Practices
o 21 CFR Part 11 - Electronic Signatures and Electronic Records
o Several other FDA and EMEA regulated areas
o Computerized Systems Validation
o Cleaning Validation
o Facility, equipment and Utility Validation
o Sterilization and Sanitization Validation
o Process Validation
The following are representative of program management and outsourcing client
engagements within the last two years:
Computer systems validation and software testing for a pharmaceutical company
We provided project management and remediation services related to computer
systems validation and software testing for a pharmaceutical company that
involved three primary systems: 1) Labware, 2) LIMS (Laboratory Information
Management System), and 3) Documentum (A specialized FDA validation document
management system). This project included the creation of standard operating
procedures, management of requirements, and responsibility for integration of
numerous related systems.
Strategic validation and compliance guidance and computer system and software
validation for a research hospital In their continued search to find treatments
for cancer in children, our client built a facility to manufacture vaccines and
stem cells to support phase I / II clinical trials. The new facility needed to
be in compliance with the various FDA regulations applicable to it. We created a
validation road map for the client, managed the design and implementation of
their network, computer system and software which included standardized desktop
environment, Internet connectivity, security, core systems, laboratory and
network monitoring systems; then produced validation plans and trained the
client's staff on the standard operating procedures.
Computer systems validation and software testing for a biotechnology company
We provided LIMS (Laboratory Information Management System) customization
programming and validation support for a biotechnology company client. This
included creating the standard operating procedures related to the system.
Software validation for a biotechnology company
We created validation and compliance policies, procedures and guidelines related
to a statistical programming environment validation for SAS software.
Computer systems validation for a laboratory in the United States
We conducted an evaluation of the quality systems overseeing the computer system
validation and 21 CFR Part 11 compliance for manufacturing systems for a
laboratory in the United States. We reviewed corporate guidelines and associated
procedures against 21 CFR Part 11 guidelines and related computer systems
validation regulatory requirements. We performed a procedural assessment
identifying procedures required for the ongoing compliance of the systems, and
we were responsible for defining gaps in compliance and suggesting remediation
for those gaps
We also reviewed how the 21 CFR Part 11 assessments are conducted by the client.
We assessed high visibility manufacturing and laboratory systems for 21 CFR Part
11 compliance, how the systems were defined, how remediation activities were
conducted and how computer systems validation issues were resolved. We also
advised the client regarding quality system structure, layout, communication,
and suggested adjustments.
Computer systems assessment for a pharmaceutical company
We evaluated the customer's quality system to determine its compliance with
respect to current U.S. and European regulatory guidance and quality standards.
The evaluation was performed to assess the quality system in the areas of
computer systems lifecycle development and implementation, project management,
network infrastructure, security, and computer systems validation. We also
reviewed and analyzed the client's information technology department's
compliance with the current corporate headquarters standard operating
procedures.
Computer systems validation and CFR Part 11 validation for a biotechnology
company
We performed project management and remediation services related to
Argus 9.2, including incremental validation. Argus 9.2 is a drug safety database
used for FDA submissions.
IT&E offers a solution for the clinical trials and clinical research industry,
including:
Clinical Data Entry and Data Management
---------------------------------------
IT&E is capable of providing SAS (R) based solutions throughout every stage of a
drug's lifecycle: from discovery, development, and through commercialization. We
focus on assessing, advising, and designing comprehensive systems solutions in
the pharmaceutical, biotechnology, and medical devices industries. We provide
leading and emerging pharmaceutical and biotechnology companies with
project-based consulting services in the areas of Data Management (SAS(R)
databases and Oracle(R) Clinical systems), Clinical Programming, Biostatistics,
and Clinical Validation (GCP). The IT&E team of project/program managers (a team
of approximately 30-35 people, both outside contractors and full-time employees)
bring an average of 10+ years of biopharma experience to their clients, as well
as the tools, talent and strategies necessary to carry a project from conception
to completion. IT&E's extensive database selects and employs project-specific
analysts to provide constant monitoring of project scope, budget, and
deliverables while utilizing the IT&E Project Tracking System to provide clients
with real-time, comprehensive status reports.
19
Data Management
---------------
IT&E provides a full range of data management solutions, including SAS(R)
databases and Oracle(R) Clinical, as well as web-based or conventional means of
data capture. Following are some of the specific areas of expertise:
o SAS (R) databases - Major functions supported
o Datasets
o Case Report Form design and analysis
o Safety Information
o Data marts for Data mining
o Integrated Data Analysis Systems
o Data Validation Specifications
o Database Design, install, and upgrade
o Data Quality Assurance
o Global Database Integration
o Oracle(R) Clinical - Major functions supported
o Define and manage a Clinical Study (Protocol)
o Define data elements to be collected in a Clinical study
o Define and generate data entry screens
o Define edit checks to be applied to the data
o Validation and derivation procedures [data]
o Collect and manage the data
o Data Extract to SAS for analysis
Clinical Programming
--------------------
IT&E provides accurate and reliable programming
to support regulatory submissions and clinical study reports. Because of the
extensive experience of the IT&E consultants, we are able to optimize the flow
of valuable scientific and operational data thereby assisting our clients to get
their products to market faster.
20
Biostatistics
-------------
IT&E's biostatisticians focus on the delivery of quality design consulting and
statistical analyses for clients engaged in complex clinical studies. This team
delivers superior results for targeted summaries of key findings within the
regulatory finding process, as well as producing creative scientific
presentations. Some of the areas of expertise are as follows:
o Clinical Study Design
o Estimation of sample size
o Trial duration
o Structuring of treatment comparisons
o Definition of key endpoints
o Number and timing of analyses
o Precise interpretations of results
o Data displays and interpretations
o Clinical development programs
o ISS/ISE preparation
o Prepare integrated clinical/statistical reports
o Design tables and graphics
o Analysis planning and preparation
o Summary of statistical methodologies
o Support submissions to regulatory agencies (FDA)
Clinical Validation (GCP)
-------------------------
IT&E's clinical validation practice goes hand-in-hand with the efforts of the
Compliance Group. Our regulatory and safety services must compliment our
clients' drug development process from beginning to end. The IT&E and Client
Partnership is truly a "Partnership That Works". By partnering with our clients
to design a study that combines an unsurpassed understanding of the regulatory
environment and current FDA regulations, we ensure a smooth and efficient
development cycle. IT&E has designed its own Clinical Validation Methodology for
the enterprise that is designed to satisfy regulated business practices and
procedures that involves multiple groups within the organization (users,
systems, database administrators, and other support staff).
21
Typically, the IT&E Validation Plan describes the system and scope, outlines the
schedule and resources (GANTT), defines the testing strategy (and SOPs), and
describes the deliverables that will document the validation process. The steps
are as follows:
o Validation Plan Preparation
o System Inventory Preparation
o Preparing the work plan using the 5C's: System Classification, Complexity,
Control, Compliance, Criticality
o Preparing Individual System Profiles & Gap Analysis
o Global Technological & Procedural Gap Matrix Preparation
o Preparing, Monitoring and Executing various Validation Protocols
including Design Qualifications (DQ), Installation Qualifications (IQ),
Operational Qualifications, (OQ), Performance Qualifications (PQ),
Equipment Qualifications (EQ)
o Risk Analysis Matrix (The validation effort is premised on a determination of
risk and after addressing the 5 C's can we ascertain what level of design
documentation is sufficient for a specified system)
The following are representative of client engagements within the last two years
with respect to our clinical services:
1) We provided global biostatistics support and in particular
biostatistics support for Phases I, II and III clinical trials related to
oncology and nephrology for a biotechnology company client.
2) We provided biostatistics support for Phase IV (post-marketing)
clinical trial related to oncology and statistical programming services for a
biotechnology company client.
3) We provided biostatistics support services for Phase II and III
clinical trials related to oncology for a biotechnology company client.
4) We provided statistical programming services for Phase I, II and III
clinical trials related to HIV for a pharmaceutical company client and assisted
with the preparation of the New Drug Application related thereto.
5) We provided clinical data management services for Phase II and III
clinical trials related to HIV for a pharmaceutical company client.
6) We provided statistical programming services for Phase II and III
clinical trials related to allergies and respiratory diseases for a
pharmaceutical company client.
Competition
-----------
The drug and medical device development outsourcing industry consists of
hundreds of smaller, limited-service providers and a number of full-service
global development companies. The industry continues to experience consolidation
and, in recent years, a group of large, full-service competitors has emerged.
This trend of industry consolidation appears to have created greater competition
among the larger companies for clients and acquisition candidates.
In addition to competing with a number of other global, full-service companies,
IT&E also competes against some medium-sized companies, in-house research and
development departments of pharmaceutical and biotechnology companies, as well
as universities and teaching hospitals. In addition, the industry has few
barriers to entry. Newer, smaller entities with specialty focuses, such as those
aligned to a specific disease or therapeutic area, compete aggressively against
larger companies for clients. In the regulatory compliance area, we compete
against such companies as RCM Technologies, Teratec, and Comsys (Venturi
Partners). Increased competition might lead to price and other forms of
competition that might adversely affect our operating results.
IT&E competes on the basis of a number of factors, including reputation for on-
time quality performance, expertise and experience in specific therapeutic
areas, scope of service offerings, price, strengths in various geographic
markets, technological expertise and systems, data management capabilities for
time savings with data integrity, ability to acquire, process, analyze and
report data in a time-saving accurate manner, ability to manage large-scale
clinical trials both domestically and internationally, and expertise and
experience in healthcare economics. There are no assurances that IT&E will be
able to compete favorability in these areas.
22
For specialty areas such as laboratory and manufacturing validation, medical
communications, and protocol development, IT&E competes in a market that has a
myriad of niche providers. For the most part, these niche providers offer
specialty services and products with a focus on a specific geographic region, a
particular service or function and/or a specific stage or phase of drug
development. By contrast, IT&E provides its services on a global basis across
functional areas. IT&E competes principally on the basis of reputation,
scientific and technical expertise, experience and qualifications of
professional staff, quality of services, and ability to deliver quality products
to the client's specifications. The outsourced preclinical research industry
consists of a number of large providers and numerous smaller niche companies.
For example, in the in the clinical services area alone, we compete against such
companies as Covance, Charles River/Inversek, SFBC International, Covalent,
Icon, Kendle, and Parexel. As such, there is significant competition for these
opportunities, and IT&E success will depend on our ability to identify and
competitively bid for risk-sharing programs that are likely to be productive.
Government Regulation
---------------------
IT&E's clients are subject to extensive regulations by government agencies.
Consequently, the services IT&E provides for these clients must comply with
relevant laws and regulations.
Prior to commencing human clinical trials in the United States, a company
developing a new drug must file an Investigational New Drug application, or IND
with the FDA. The IND must include information about animal toxicity and
distribution studies, manufacturing and control data, stability data and a
detailed plan, or study protocol, for the proposed clinical trial of the drug or
biologic in humans. If the FDA does not object within 30 days after the IND is
filed, human clinical trials may begin. The study protocol will also be reviewed
and approved by the institutional review board, or IRB, in each institution in
which a study is conducted, and the IRB may impose additional requirements on
the way in which the study is conducted in its institution.
Human trials usually start on a small scale to assess safety and then expand to
larger trials to test efficacy along with safety in the target population. The
trials are generally conducted in three phases, which sometimes overlap,
although the FDA may require a fourth phase as a condition of approval. After
the successful completion of the first three clinical phases, a company requests
approval for marketing its product by submitting a new drug application, or NDA.
The NDA is a comprehensive, multi-volume filing that includes, among other
things, the results of all pre-clinical and clinical studies, information about
how the product will be manufactured and tested, additional stability data and
proposed labeling. The FDA's review can last from six months to many years, with
the average review lasting 18 months. Once the NDA is approved, the product may
be marketed in the United States subject to any conditions imposed by the FDA.
23
IT&E must conform to regulatory requirements that are designed to ensure the
quality and integrity of the testing process. To help ensure compliance with
these regulations, IT&E has established quality assurance at our laboratory
facilities to monitor ongoing compliance by auditing test data and conducting
regular inspections of testing procedures and our laboratory facilities. IT&E
believes that it is in material compliance with each of the laws, rules and
regulations applicable to its business.
Employees
---------
At December 31, 2004, IT&E employed approximately 100 employees. These employees
represent the following employment mix for the company: 10% administration, 7%
recruiting, 5% sales, and 78% contract service providers. Additionally we
utilize the services of approximately 30 outside consultants who work as
independent contractors for IT&E.
DESCRIPTION OF PROPERTY
We do not own any real estate properties. Our executive offices are located at
505 Lomas Santa Fe Drive, Suite 200, Solana Beach, California 92075 and our
telephone number is (858) 366-0970.. We pay a base monthly rent of approximately
$7,000, which includes rent, common area maintenance, insurance and real estate
taxes. Management believes that these facilities are adequate for our current
and anticipated needs.
We also maintain an office at:
31 N. Second Street, Ste. 250
San Jose, CA 95113
LEGAL PROCEEDINGS
We are not a party to any legal proceeding. The Company from time to time may be
involved in litigation incident to the conduct of its business. Certain
litigation with third parties and present and former shareholders of the Company
are routine and incidental.
USE OF PROCEEDS
The selling stockholders will receive all of the proceeds from the sale of the
shares offered for sale by them under this prospectus. We will receive none of
the proceeds from the sale of the shares by the selling stockholders, except
upon exercise of the warrants currently outstanding. In that case, we could
receive a maximum of $1,981,720 (962,000 shares of common stock warrants for
$0.94 per share and 962,000 shares of common stock warrants for $1.12 per
share). We will bear all expenses incident to the registration of the shares of
our common stock under federal and state securities laws other than expenses
incident to the delivery of the shares to be sold by the selling stockholders.
Any transfer taxes payable on these shares and any commissions and discounts
payable to underwriters, agents, brokers or dealers will be paid by the selling
stockholders.
24
We plan to use the proceeds of Laurus Financing to pay off our existing Senior
Debt to Bank of Walnut Creek, which represents $1,500,000; to pay fees
outstanding fees we owe for closing the Clinical Trials transaction (attorneys,
broker, etc.), which represents $150,000; and $850,000 to be used as general
working capital for the company. This represents a total of $2,500,000. The
general working capital is needed to help us with our daily cash flows as we
anticipate an increase of accounts receivable growth from potential new
business. The other $2,500,000 in the restricted account is earmarked to find an
acquisition candidate for the company. We are seeking an acquisition which can
enhance our current operations.
MARKET FOR OUR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Our Common Stock is quoted on the OTC Bulletin Board under the symbol ITER,
since October 27, 2003. As of December 31, 2004, there were approximately 200
holders of record of our Common Stock. The following table sets forth the high
and low bid prices for our Common Stock for the periods indicated as reported by
the OTC Bulletin Board. The prices state inter-dealer quotations, which do not
include retail mark-ups, mark-downs or commissions. Such prices do not
necessarily represent actual transactions.
FISCAL 2003 High Low
--------------------------------------- ----- -----
Cleared for trading on October 27, 2003
Quarter ended December 31, 2003 $0.00 $0.00
FISCAL 2004
-------------------------------- ----- -----
Quarter ended March 31, 2004 $0.00 $0.00
Quarter ended June 30, 2004 $2.05 $1.25
Quarter ended September 30, 2004 $1.94 $0.62
Quarter ended December 31, 2004 $1.00 $0.16
FISCAL 2005
-------------------------------- ----- -----
Quarter ended March 31, 2005 $0.51 $0.33
Quarter ended June 30, 2005 $0.49 $0.20
The source of this information is the OTC Bulletin Board and other quotation
services. The quotations reflect inter-dealer prices, without retail markup,
markdown or commission and may not represent actual transactions.
25
Holders
-------
As of December 31, 2004, there were approximately 200 holders of record of our
common stock.
Dividends
---------
To date, we have not paid any dividends on its common stock and do not expect to
declare or pay any dividends on such common stock in the foreseeable future.
Payment of any dividends will be dependent upon future earnings, if any, our
financial condition, and other factors as deemed relevant by our Board of
Directors.
26
MANAGEMENT'S PLAN OF OPERATION
Statements contained herein that are not historical facts are forward-looking
statements as that term is defined by the Private Securities Litigation Reform
Act of 1995. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, the forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
from those projected. We caution investors that any forward-looking statements
made by us are not guarantees of future performance and that actual results may
differ materially from those in the forward-looking statements. Such risks and
uncertainties include, without limitation: well-established competitors who have
substantially greater financial resources and longer operating histories,
regulatory delays or denials, ability to compete as a start-up company in a
highly competitive market, and access to sources of capital.
The following discussion and analysis should be read in conjunction with our
financial statements and notes thereto included elsewhere in this Prospectus.
Except for the historical information contained herein, the discussion in this
Prospectus contains certain forward-looking statements that involve risks and
uncertainties, such as statements of our plans, objectives, expectations and
intentions. The cautionary statements made in this Prospectus should be read as
being applicable to all related forward-looking statements wherever they appear
in this Prospectus. Our actual results could differ materially from those
discussed here.
Introduction
------------
On April 14, 2004, IT&E International Group entered into an Acquisition
Agreement and Plan of Merger with Clinical Trials Assistance Corporation, or
Clinical Trials, through its wholly-owned subsidiary, Merger Sub. Pursuant to
the Acquisition Agreement, Clinical Trials acquired IT&E in exchange for
11,000,000 shares of the Registrant's common stock which were issued to the
holders of IT&E stock and 2,000,000 preferred shares, which can be converted for
common shares at a ten-for-one ratio, beginning on April 14, 2006. In addition,
the Company is obligated to issue and additional 820,000 preferred shares to
such holders. Additionally, once the merger was consummated and further to the
Agreement, the then controlling stockholder of the Registrant, cancelled
28,000,000 shares of the Registrant's Common Stock held by him. Clinical Trials
and IT&E were engaged in the same general business. The transaction contemplated
by the Agreement was intended to be a "tax-free" reorganization pursuant to the
provisions of Section 351 and 368(a)(1)(A) of the Internal Revenue Code of 1986,
as amended.
27
Company Overview
----------------
We are a life sciences service organization focused on providing our clients
with project-based consulting services in the areas of FDA regulatory
compliance, data management, biometrics and clinical validation throughout the
clinical trials lifecycle. Our services range from recruitment of patients for
clinical trials and providing skilled personnel to assist with managing clinical
trials, to providing enterprise software solutions and training to manage data
to ensure FDA compliance. We also provide validation services for new
pharmaceutical manufacturing facilities.
Our client list includes such well-known companies as Eli Lilly, Novartis,
Pfizer, Bristol-Myers Squibb, Glaxo Smith Kline Abbott, Schering- Plough, Amgen,
Baxter, Aventis Pasteur, Wyeth, Vaxgen, Boston Scientific and Genentech. For the
year ended December 31, 2003, we derived approximately 31% and 12% of our
revenues from Schering-Plough and Amgen, respectively. For the year ended
December 31, 2004, we derived approximately 16%, 11% and 10% of our revenues
from Schering-Plough, Genentech and Vaxgen, respectively.
We are in the process of seeking other businesses to acquire so that we can
expand our operations. The analysis of new businesses opportunities and
evaluation of new business strategies will be undertaken by or under the
supervision of our Board of Directors. In analyzing prospective businesses
opportunities, management will consider, to the extent applicable, the available
technical, financial and managerial resources of any given business venture. We
will also consider the nature of present and expected competition; potential
advances in research and development or exploration; the potential for growth
and expansion; the likelihood of sustaining a profit within given time frames;
the perceived public recognition or acceptance of products, services, trade or
service marks; name identification; and other relevant factors.
We will analyze all relevant factors and make a determination based on a
composite of available information, without reliance on any single factor. The
period within which we will decide to participate in a given business venture
cannot be predicted and will depend on certain factors, including the time
involved in identifying businesses, the time required for us to complete our
analysis of such businesses, the time required to prepare appropriate
documentation and other circumstances.
We will continue to move ahead on the execution of our strategic plans to raise
additional capital to be used to make further strategic acquisitions in the
coming quarters.
28
Financial Results for the Quarter Ended June 30, 2005
---------------------
Service Revenues
Service revenues for the second quarter ended June 30, 2005, were $4.3 million,
an increase of 33% from the same quarter last year of $3.2 million. This
increase in revenue is a result of our change in sales strategy that we began
during the second half of 2004 to target major pharmaceutical and biotechnology
customers. We also expanded our services to clients supporting the U.S.
Government's Bio Defense initiatives by assisting companies that are producing
needed vaccines for anti-terrorism measures.
Service revenues for the six months ended June 30, 2005, were $8.7 million, an
increase of 37% from the same period in 2004 of $6.4 million. This increase is
also due the reasons noted in the previous paragraph.
Reimbursement Revenues
Reimbursable out-of-pocket revenues fluctuate from period to period, primarily
due to the level of service activity in a particular period. Reimbursement
revenues increased 62% to $98,000 in the first quarter of 2005 from $61,000 in
the same quarter of 2004.
Operating Expenses
Cost of revenues for the three months ended June 30, 2005 were $3.0 million, an
increase of approximately 40%, from $2.2 million in the second quarter of 2004.
Gross profit as a percentage of service revenues were 30% for the second quarter
of 2005 as compared to 33% during the same period in 2004. Cost of revenues for
the six months ended June 30, 2005 were $6.0 million as compared to $4.3 million
during the same period of 2004. Gross profit as a percentage of service revenues
during those six month periods were 31% and 33% in 2005 and 2004, respectively.
During the second quarter of 2005 we earned lower margins than in 2004 as a
result of servicing contracts in which we initially took lower margins to secure
selected new business. In addition, during the second quarter of 2005, we
completed several projects and were not able to immediately place our personnel
on new projects resulting in costs being incurred without the ability to invoice
a customer. We are working to improve these margins by way of controlling the
cost of providing our contractors to the customer, as well as to improve our
personnel management to reduce the amount of time our employees are not
billable.
General and administrative expenses increased by approximately $74,000, or 11%,
to $753,000 during the second quarter of 2005 as compared to $680,000 during the
second quarter of 2004. This increase is primarily the result of increased costs
associated with being a public company that we did not have in 2004, as well as
costs incurred to add depth to our management team, and for outside consultants
to assist us with our merger and acquisition strategy. We expect these costs to
continue throughout 2005 as we continue to grow as a public entity and move
ahead with our strategy of seeking follow-on investors to support our
acquisition strategy.
Sales and marketing expenses increased by $244,000 to $471,000 in the second
quarter of 2005 from $227,000 during the second quarter of 2004. The increase is
primarily the result of the issuance of 500,000 shares of common stock to our
former Vice President of Sales for his part in the growth of the company. These
shares were valued at $200,000 on the date of issuance.
29
Depreciation and amortization expense increased to $25,601 in the second quarter
of 2005 from $4,780 during the same period in 2004. The increase is due to our
beginning to depreciate our developed internal-use software during the first
quarter of 2005.
Officer compensation increased to $242,000 during the second quarter of 2005 as
compared to $119,000 in 2004. During 2004, the cash situation was such that the
officers paid themselves a reduced salary in order to pay other company
commitments.
Other Income (Expense)
We did not earn any interest income during the first six months of 2004.
Interest income began to be earned when the $5 million convertible note with
Laurus Master Fund, Ltd ("Laurus") occurred in October 2004. Interest income for
the three and six months ended June 30, 2005 was $19,000 and $35,000,
respectively.
Interest expense increased to approximately $120,000 and $220,000 during the
three and six months ended June 30, 2005 from approximately $9,000 and $30,000
during the same periods in 2004. This increase is the result of moving from a
$1.5 million bank line of credit to the $5 million convertible note with Laurus.
Loan fee amortization was approximately $72,000 and $144,000 for the three and
six months ended June 30, 2005. The loan fee costs were incurred related to the
$5 million convertible note with Laurus. There were no loan fees incurred during
the same periods in 2004.
During the first quarter of 2005, we incurred fees to Laurus as a result of not
meeting the requirement of causing the registration statement covering the
shares of our common stock into which the principal and interest under the note
are convertible to become effective. During April 2005, Laurus released $500,000
of the restricted funds to pay these fees, along with the accrued interest on
those funds. In addition, the requirement to have the registration statement
become effective was extended to June 15, 2005 before any additional fees are
incurred. This requirement was further extended to August 31, 2005 upon the
release of the final $2 million of restricted funds.
During the first quarter of 2005, we issued 83,330 shares of our common stock to
SBI USA as payment for investment banking consulting services valued at $62,500.
During the second quarter ended June 30, 2005, 500,000 shares of common stock
were issued to our former Vice President of Sales for services rendered, and
1,784,250 shares were issued as the result of the exercise of warrants
previously granted to individuals associated with the April 2004 reverse merger.
Financial Results for the Year Ended December 31, 2004
------------------------------------------------------
As of December 31, 2004, the Company's current assets exceeded its current
liabilities by $4,086,665. This includes a $5.0 million loan from Laurus Master
Fund Ltd., or Laurus, an institutional fund that specializes in direct
investments in growing, small and micro-cap companies, that closed in October
2004. Of these funds, $2.5 million are restricted and under the control of
Laurus for either additional working capital or for a future acquisition, which
is a part of our long-term strategy. The loan has a three year term and an
interest rate of prime plus 2.5%. Interest has been payable monthly. Principal
payments of $83,333.33 commenced on May 1, 2005.
Accounts receivable at December 31, 2004 was $2.6 million, net of an allowance
for doubtful accounts of $75,000, as compared to accounts receivable at December
31, 2003 of $1.6 million, net of an allowance for doubtful accounts of $118,000.
The increase was due primarily to an aggressive sales strategy during the second
and third quarter of 2004 pursuant to which we were able to sign new long-term
and preferred vendor relationships with pharmaceutical and biotechnology
companies to further expand and broaden our customer base. An additional result
of establishing contracts with such established companies is that the risk of
uncollectible accounts has been correspondingly reduced. Our standard collection
terms on our contracts are 30-45 days and our customers generally pay according
to these terms. We have incurred bad debt expense of approximately $38,000 and
$33,000 for the years ended December 31, 2004 and 2003, respectively. We review
our outstanding receivables on a monthly basis to determine collectibility.
For the year ended December 31, 2004, we generated service revenues of $13.4
million as compared to $10.0 million in revenues for the year ended December 31,
2003, an increase of 34%. Service revenues for the fourth quarter ended December
31, 2004, were $4.0 million as compared to $2.8 million during the same quarter
of 2003, an increase of 44% from the prior year's fourth quarter. This increase
in revenues is a direct result in our change in sales strategy noted above.
Our strategy of pursuing major clients has begun to produce some good results.
We have signed new agreements with several pharmaceutical companies, large
biotech firms, an alternative supplement manufacturer, and two medical device
companies. In addition, we expanded our extensive services to clients supporting
the U.S. government's bio-defense initiatives by assisting companies that are
producing needed vaccines for anti-terrorism activities.
We have signed new agreements with certain pharmaceutical companies, biotech
firms, an alternative supplement manufacturer, and a medical device company. In
addition, we have expanded our services to clients supporting the U.S.
Government's Bio Defense initiatives by assisting companies that are producing
needed vaccines for anti-terrorism measures.
We have also secured renewals and extensions of major initiatives within
existing clients, such as Schering-Plough, Pfizer, Novartis, GlaxoSmithKline,
Baxter Pharmaceutical, Aventis Pasteur, Bayer, Wyeth Global, Genentech, Chiron,
Amgen, Boston Scientifc and VaxGen.
The cost of revenue for the year ended December 31, 2004 was $9.5 million, or
71% of revenues, as compared to $6.4 million, or 64% of revenues for the year
ended December 31, 2004. Our gross profit for the fourth quarter of 2004 was 29%
as compared to 36% during the same quarter of 2003. The increase in cost of
revenue exceeded management's expectations and we are working to improve these
margins by way of controlling the cost of providing our contractors to the
customer.
30
Total operating expenses for the year ended December 31, 2004 were $4.3 million,
or 32% of revenues, as compared to $3.4 million, or 34% of revenues, for the
same period last year. Total operating expenses for the fourth quarter of 2004
were $1.5 million as compared to $866,000 for the same period in 2003. During
2004, we incurred costs not previously incurred, such as costs associated with
our reverse merger with Clinical Trials Assistance Corporation, costs associated
with becoming a public entity and costs associated with the amortization of loan
fees related to the convertible loan with Laurus. In addition to the significant
investment to broaden our customer base, we began to implement a company-wide
quality management system to better serve our customers. We also added depth to
our management team and began the process of recruiting independent outside
Board members. We expect these costs to continue during 2005 as we continue to
grow as a public entity and move ahead with our strategy of seeking follow-on
investors to support our acquisition strategy and prepare for our future move to
a National Stock Exchange.
Need for Additional Funding
---------------------------
With our current contract backlog and sales pipeline of $33.0 million, the
highest in company history, and our current cash and accounts receivables
balance, we believe that we have adequate resources to fund our operations
through 2005. There can be no assurance that market conditions will permit us to
raise sufficient funds for strategic acquisitions or that additional financing
will be available when needed or on terms acceptable to us.
Liquidity and Capital Resources
-------------------------------
The Company is authorized to issue 70,000,000 shares of its $0.001 par value
common stock, 2,000,000 shares of its $0.001 par value Series A preferred stock,
2,000,000 shares of its $0.001 par value Series B preferred stock, and 1,000,000
shares of its $0.001 par value Series C preferred shares.
On October 18, 2004, we issued a $5,000,000 secured convertible term note
("Note") to Laurus Master Fund, Ltd. ("Laurus"). The principal and interest
under the Note was convertible into shares of our common stock at an initial
conversion price of $0.75 per share. As a result of a subsequent amendment to
the Note, the conversion price is currently $0.2445.
We also issued to Laurus a warrant ("Warrant") to purchase up to 1,924,000
shares of our common stock, of which 962,000 shares have an exercise price of
$0.94 and 962,000 shares have an exercise price of $1.12. The warrants expire on
October 18, 2011.
In addition, the Note contains anti-dilution protection in favor of Laurus which
states that if we sell shares of our common stock or securities convertible into
or exercisable for our common stock at a price per share or conversion or
exercise price per share less than $.2445 (the "Sale Price"), then the
conversion price of the note shall be automatically adjusted down to equal the
Sale Price. If we trigger this anti-dilution provision by selling shares of
common stock or securities into common stock at a Sale Price less than $.2445,
the impact of the sale and issuance of shares to Laurus would be dilutive to our
shareholders.
The Note has a term of three years and accrues interest at the prime rate plus
2.5% per year (7.50% as of December 31, 2004). The Note is secured by all our
assets and the assets of our subsidiaries. The Note initially consisted of a
non-restricted facility of $2.5 million and a restricted facility of $2.5
million. The non-restricted facility was used to pay off an outstanding line of
credit of approximately $1.5 million, with the remaining $1.0 million, net of
transaction fees, being used for working capital. The second $2.5 million
facility was restricted for either additional working capital requirements or
for a future acquisition, which is a part of our strategic long-term growth
plan. On July 29, 2005, Laurus released these funds to us in connection with the
amendment of the Note and they are no longer restricted. (See financial footnote
6 entitled "Convertible Debt.")
As a result of receiving the loan from Laurus, we were able to increase our
sales focus and obtain contracts not previously attainable. The nature of our
contracts result in us needing to have cash available to pay our employees and
contractors before we receive payment on our invoices from our customers. Before
the Note, we had to be more selective about the jobs on which we could propose
in order to have sufficient funds to pay our staff. As a result of our increased
sales efforts, we were able to receive contracts that have increased our cash
available for operations. We anticipate current and future contracts to continue
to provide us the cash necessary to fund our operations and to pay the principal
and interest due on the Note.
31
DIRECTORS AND EXECUTIVE OFFICERS
The Company has a Board of Directors which is currently comprised of three
members. Each director holds office until the next annual meeting of
shareholders or until a successor is elected or appointed. The members of our
Board of Directors and our executive officers and their respective age and
position are as follows:
Director of
Name Age Position with Registrant Registrant Since
----------------- --- ------------------------ ----------------
Peter R. Sollenne 56 CEO/Director April, 2004
Kelly Alberts 37 President/COO/Director April, 2004
Tony Allocca 61 VP Ops/Director April, 2004
David Vandertie 44 Chief Financial Officer N/A
Biographies
-----------
Peter R. Sollenne, Chief Executive Officer/Director
---------------------------------------------------
Mr. Sollenne has served as our Chief Executive Officer since December 2003. From
May 2000 to December 2003, Mr. Sollenne was President and Chief Executive
Officer at FastBreak Growth, Inc. a strategic management consulting and business
solutions company. From December 1998 to May 2000, Mr. Sollenne was Chief
Executive Officer, President and Chief Operating Officer of re-Solutions, Inc.,
an information technology professional services company. Mr. Sollenne received
his Bachelors of Science in Accounting/Business Administration from Boston
College and is a CPA.
Kelly Alberts, Co-Founder, President/COO/Director
-------------------------------------------------
Mr Alberts has served as our President and Chief Operating Officer since our
inception in 1996. Mr. Alberts received his Bachelors of Science from the
University of Iowa.
Tony Allocca, Co-Founder, Vice President Operations/Director
------------------------------------------------------------
Mr. Allocca has served as our Vice President of Operations since our inception
in 1996. Mr. Allocca is a graduate of the University of Maryland and served in
the United States Air Force.
32
David Vandertie, Chief Financial Officer
----------------------------------------
Mr. Vandertie has served as our Chief Financial Officer since January 2005. From
June 2004 to December 2004, Mr. Vandertie was a financial consultant. From May
2002 to June 2004, Mr. Vandertie was Vice President and Chief Financial Officer
at Althea Technologies, Inc., a biotech contract service organization. From June
2000 to May 2002, Mr. Vandertie was Director of Finance and Purchasing at Torrey
Mesa Research Institute, a subsidiary of Syngenta AG. From April 1999 to June
2000, Mr. Vandertie was Corporate Controller at Quidel Corporation, a
manufacturer of diagnostic test kits. Mr. Vandertie is a graduate of the
University of Wisconsin, Whitewater, where he earned a Bachelor of Business
Administration Degree in Accounting, and is a CPA.
Family Relationships
--------------------
None.
Audit Committee
---------------
The company does not have a separately-designated standing Audit Committee. The
members of the Board of Directors sit as the Audit Committee. Accordingly, the
Company does not have an audit committee financial expert.
Code of Ethics
--------------
The company has not adopted a Code of Ethics for the Board and the salaried
employees.
33
Committees and Procedures
-------------------------
(1) The registrant has no standing audit, nominating and compensation
committees of the Board of Directors, or committees performing similar
functions. The Board acts itself in lieu of committees due to its
small size.
(2) The view of the board of directors is that it is appropriate for the
registrant not to have such a committee because its sole director
participates in the consideration of director nominees and the board
is so small.
(3) The sole member of the Board who acts as nominating committee is not
independent, pursuant to the definition of independence of a national
securities exchange registered pursuant to section 6(a) of the Act (15
U.S.C. 78f(a).
(4) The nominating committee has no policy with regard to the
consideration of any director candidates recommended by security
holders, but the committee will consider director candidates
recommended by security holders.
(5) The basis for the view of the board of directors that it is
appropriate for the registrant not to have such a policy is that there
is no need to adopt a policy for a small company.
(6) The nominating committee will consider candidates recommended by
security holders, and by security holders in submitting such
recommendations.
(7) There are no specific, minimum qualifications that the nominating
committee believes must be met by a nominee recommended by security
holders except to find anyone willing to serve with clean background.
(8) The nominating committee's process for identifying and evaluation
nominees for director, including nominees recommended by security
holders, is to find anyone willing to serve with clean background.
There are no differences in the manner in which the nominating
committee evaluates nominees for director based on whether the nominee
is recommended by a security holder, or found by the board.
34
EXECUTIVE COMPENSATION
Compensation for 2004 is noted below. We do not have any employment contracts
for our executive officers or directors.
The following table reflects certain compensation due to be paid to our
Executive Officers during the current fiscal year.
Annual Compensation
Other
Annual
Compen-
Name and Principal Position Year Salary($) Bonus ($) sation ($)
----------------------------------------------------------------------------
Kelly Alberts, Pres/COO/Dir. 2004 144,615 - -
Tony Allocca, VP Ops/Dir. 2004 132,500 - -
Peter R. Sollenne, CEO/Director 2004 175,000 - -
Mike Ruchman, VP Sales 2004 150,000 1,500 -
David Vandertie, CFO 2004 6,250 - -
----------------------------------------------------------------------------
Long Term Compensation
Awards Payouts
------------------- ----------------
All
Restricted Number Other
Stock of LTIP Compen-
Award(s) Options/ Payouts sation
Name and Principal Position Year ($) Warrants ($) ($)
-------------------------------------------------------------------------------
Kelly Alberts, Pres/COO/Dir. 2004 0 0 0 0
Tony Allocca, VP Ops/Dir. 2004 0 0 0 0
Peter R. Sollenne, CEO/Director 2004 0 0 0 0
Mike Ruchman, VP Sales 2004 0 0 0 0
David Vandertie, CFO 2004 0 0 0 0
----------------------------------------------------------------------------
35
OPTION/SAR GRANTS
We did not grant any options or any stock appreciation rights during the year
ended December 31, 2004. We have not granted any stock appreciation rights.
LONG-TERM INCENTIVE PLANS ("LTIP") - AWARDS IN LAST FISCAL YEAR
This table has been omitted, as no executive officers named in the Summary
Compensation Table above received any awards pursuant to any LTIP during the
fiscal year ended December 31, 2004.
COMPENSATION OF DIRECTORS
No compensation was paid to our Directors for any service provided as a Director
during the year ended December 31, 2004. There are no other formal or informal
understandings or arrangements relating to compensation; however, Directors may
be reimbursed for all reasonable expenses incurred by them in conducting our
business. These expenses would include out-of-pocket expenses for such items as
travel, telephone, and postage.
Employment Contracts
--------------------
We do not have any employment contracts in place with our Officers or Directors.
Equity Compensation Plan Information
------------------------------------
We do not currently have a formal Employee Benefit and Consulting Services
Compensation Plan in effect.
36
OWNERSHIP OF SECURITIES BY BENEFICIAL OWNER AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of July 31, 2005 by all persons known by us to
be beneficial owners of more than 5% of its common stock and all of our officers
and directors, both individually and as a group. Unless otherwise indicated, all
shares are directly beneficially owned and investing power is held by the
persons named.
Amount
Title Name and Address of shares Percent
of of Beneficial held by of
Class Owner of Shares Position Owner Class (1)
------------------------------------------------------------------------------
Common Kelly Alberts(2) Pres/COO/Dir. 5,967,500 30.0%
Preferred 1,085,000 54.3%
Common Tony Allocca(3) VP Ops/Dir. 4,647,500 21.8%
Preferred 845,000 42.3%
Common Peter R. Sollenne(4) CEO/Director 430,138 2.0%
Preferred 70,000 3.5%
Common David Vandertie (5) CFO - -
Common Kamill Rohny(6) Shareholder 1,500,000 7.0%
All Executive Officers as a group (4 persons)
Common 11,045,138 51.6%
Preferred 2,000,000 100%
(1) The percentages listed in the Percent of Class column are based upon
21,344,198 issued and outstanding shares of Common Stock and 2,000,000
issued and outstanding shares of Series A Preferred Stock.
(2) Kelly Alberts, 505 Lomas Santa Fe Drive, Suite 200, Solana Beach,
California 92075. Mr. Alberts owns 1,085,000 shares of Series A Preferred
Stock, each share of which is convertible into ten shares of common stock
beginning on April 14, 2006.
(3) Tony Allocca, 505 Lomas Santa Fe Drive, Suite 200, Solana Beach, California
92075. Mr. Allocca owns 845,000 shares of Series A Preferred Stock, each
share of which is convertible into ten shares of common stock beginning on
April 14, 2006.
(4) Peter R. Sollenne, 505 Lomas Santa Fe Drive, Suite 200, Solana Beach,
California 92075. Includes 45,138 shares of common stock subject to options
held by Mr. Sollenne. Mr. Sollenne owns 70,000 shares of Series A Preferred
Stock, each share of which is convertible into ten shares of common stock
beginning on April 14, 2006.
37
(5) David Vandertie, 505 Lomas Santa Fe Drive, Suite 200, Solana Beach,
California, 92075
(6) Kamill Rohny, 2078 Redwood Crest, Vista, California 92081-7340.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Through a Board Resolution, the Company hired the professional services of
Beckstead & Watts, LLP, Certified Public Accountants, to perform the annual
audit of the Company's financial statements. Beckstead & Watts, LLP own no stock
in the Company.
The company has no formal contracts with its accountant, they are paid on a fee
for service basis.
DESCRIPTION OF THE TRANSACTIONS
On April 14, 2004, IT&E International Group entered into an Acquisition
Agreement and Plan of Merger with Clinical Trials Assistance Corporation,
through its wholly-owned subsidiary, Merger Sub. Pursuant to the Acquisition
Agreement, Clinical Trials acquired IT&E in exchange for 11,000,000 shares of
the Registrant's common stock which were issued to the holders of IT&E stock and
2,000,000 preferred shares, which can be converted for common shares at a
ten-for-one ratio, after they are held for two years. The company remains
obligated to issue certain of such holders an additional 820,000 shares of
preferred stock. Additionally, once the merger was consummated and further to
the Agreement, the then controlling stockholder of the Registrant, cancelled
28,000,000 shares of the Registrant's Common Stock held by him. Clinical Trials
and IT&E were engaged in the same general business. The transaction contemplated
by the Agreement was intended to be a "tax-free" reorganization pursuant to the
provisions of Section 351 and 368(a)(1)(A) of the Internal Revenue Code of 1986,
as amended.
38
SELLING SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of common stock as of July 31, 2005 by the selling stockholder and the
shares issuable upon conversion of the secured convertible term note and upon
exercise of the warrants being offered by the selling stockholder.
Laurus Master Fund, Ltd. is offering for resale up to an aggregate of
9,102,612 shares of our common stock. In October 2004, we entered into a
securities purchase agreement with Laurus, pursuant to which we sold a secured
convertible term note in an aggregate principal amount of $5,000,000, due
October 18, 2007, with interest at prime rate plus 2.50% per annum. Prior to
October 18, 2007, Laurus may convert the note, including principal and accrued
interest, into shares of common stock at a current conversion price of $0.2445
per share, subject to certain adjustments. As of July 31, 2005, there was
$4,700,000 in principal amount outstanding under the Laurus note. In connection
with this note, we issued to Laurus a warrant to purchase up to 1,924,000 shares
of our common stock. The warrant is fully vested and exercisable at any time
until October 18, 2011. The exercise price for the first 962,000 shares is $0.94
per shares and the exercise price for the second 962,000 shares is $1.12 per
share, subject to certain adjustments. In connection with the transaction, we
paid to Laurus a fee equal to 3.5% of the aggregate principal amount of the
note.
To our knowledge, Laurus is not a registered broker-dealer. Laurus is
deemed as an underwriter. Unless otherwise described below, to our knowledge,
neither selling stockholder nor any of its affiliates has held any position
oroffice with, been employed by or otherwise has had any material relationship
with us or our affiliates during the three years prior to the date of this
prospectus.
Information with respect to beneficial ownership of the selling
stockholder is based upon information furnished by the selling stockholder.
Information with respect to shares owned beneficially after the offering assumes
the sale of all of the shares offered and no other purchases or sales of common
stock.
39
Number
Shares Beneficially of Shares Beneficially
Owned Prior to Shares Owned After
Offering (1) Being Offering (1)
Name of Beneficial Owner Number Percent Offered Number Percent
----------------------- ------ ------- ------- ------ -------
Laurus Master Fund, Ltd.(2) 1,065,075 4.99% 9,102,612 1,519,295 4.99%
----------------------------------------------------------------------------
------------------------
(1)There were 21,344,198 shares of common stock outstanding as of July 31, 2005.
In computing the number of shares of common stock beneficially owned by a
person or entity and the percentage ownership of that person or entity prior
to the offering, we deemed outstanding shares of common stock subject to
options and shares of common stock subject to convertible securities held by
that person that are currently exercisable or exercisable within 60 days of
September 30, 2004. However, in computing the number of shares of common
stock beneficially owned by a person or entity and the percentage of
ownership of that person or entity after the offering, we have assumed that
30,446,810 shares of common stock will be outstanding upon completion of the
offering assuming conversion and exercise of all outstanding convertible
securities held by the selling stockholder listed above.
(2)Eugene Grin and David Grin are the sole members of Laurus Capital Management
L.L.C., the manager of Laurus Master Fund Ltd., and consequently have voting
and investment control over the securities held by Laurus Master Fund Ltd.
The selling stockholder holds a convertible note and a warrant to purchase
shares of our common stock as set forth in the Selling Stockholder table and
has exercised his right to include such shares in this prospectus pursuant to
a registration rights agreement dated October 18, 2004. As of the date
hereof, the selling stockholder has not converted any portion of the note or
exercised the warrant. Under the terms of the secured convertible term note
and the warrant, the selling stockholder may not convert the note or the
warrant if the number of shares issued upon such conversion and/or exercise
would cause the selling stockholder to beneficially own more than 4.99% of
our issued and outstanding shares of common stock without 75 days prior
notice.
40
PLAN OF DISTRIBUTION
We are registering an aggregate 9,102,612 shares of common stock covered by this
prospectus on behalf of the Selling Shareholders. The selling stockholder may
offer and sell the shares covered by this prospectus at various times. As used
in this prospectus, the term "selling stockholder" includes donees, pledgees,
transferees or other successors-in-interest selling shares received from a named
selling stockholder as a gift, partnership distribution, or other
non-sale-related transfer after the date of this prospectus. The selling
stockholder will act independently of IT&E in making decisions with respect to
the timing, manner and size of each sale. The shares may be sold by or for the
account of the selling stockholder in transactions on the Over-the-Counter
Bulletin Board or otherwise. These sales may be made at fixed prices, at market
prices prevailing at the time of sale, at prices related to prevailing market
prices, or at negotiated prices. The shares may be sold by means of one or more
of the following methods:
o a block trade in which the broker-dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of the
block as a principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by that
broker-dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions in which the broker solicits
purchasers;
o in connection with the loan or pledge of shares registered hereunder to
a broker-dealer, and the sale of the shares so loaned or the sale of
the shares so pledged upon a default;
o in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions
in standardized or over-the-counter options;
o privately negotiated transactions; or
o in a combination of any of the above methods.
If required, we will distribute a post-effective amendment to the
registration statement to include any additional or changed material information
regarding the plan of distribution and to reflect any fundamental change in the
information in the registration statement.
The selling stockholder may sell the shares described in this prospectus
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. In effecting sales, broker-dealers engaged by the selling
stockholder may arrange for other broker-dealers to participate in resales.
Broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling stockholder or from the purchasers of the shares or
from both. This compensation may exceed customary commissions. The selling
stockholder may also transfer, devise or gift these shares by other means not
described in this prospectus.
41
The selling stockholder also may resell all or a portion of the shares
covered by this prospectus that qualify for sale under Rule 144 of the
Securities Act and any applicable state securities laws in open market
transactions in reliance upon Rule 144 under the Securities Act and such state
securities laws. The selling stockholder has not advised us of any specific
plans for the distribution of the shares covered by this prospectus. When and if
we are notified by the selling stockholder that any material arrangement has
been entered into with a broker-dealer or underwriter for the sale of a material
portion of the shares covered by this prospectus, we will file a prospectus
supplement or post-effective amendment to the registration statement with the
SEC. This supplement or amendment will include the following information:
o the name of the participating broker-dealer(s) or underwriters;
o the number of shares involved;
o the price(s) at which the shares were sold;
o the commissions paid or discounts or concessions allowed by the
selling stockholder to the broker- dealers or underwriters, if any;
and
o other information material to the transaction.
The selling stockholder and any broker-dealers, agents or underwriters
that participate with the selling stockholder in the distribution of the shares
may be deemed to be "underwriters" within the meaning of the Securities Act of
1933. Any commissions paid or any discounts or concessions allowed to any of
those persons, and any profits received on the resale of the shares purchased by
them, may be deemed to be underwriting commissions or discounts under the
Securities Act. The selling stockholder will be subject to the prospectus
delivery requirements of the Securities Act. We have advised the selling
stockholder that the anti-manipulation rules promulgated under the Exchange Act,
including Regulation M, may apply to sales of the shares offered by the selling
stockholder.
The selling stockholder may agree to indemnify any agent, broker or dealer
that participates in sales of common stock against liabilities arising under the
Securities Act from sales of common stock.
We will not receive any proceeds from the sale of the shares by the
selling stockholder. However, we will receive the exercise price if a selling
stockholder exercises its warrant. We cannot be certain as to when and if this
warrant will be exercised.
IT&E has agreed to bear all expenses of registration of the shares,
including fees and expenses, if any, of one counsel to the selling stockholder.
Any commissions, discounts, concessions or other fees, if any, payable to
broker-dealers in connection with any sale of the shares will be borne by the
selling stockholder selling those shares.
42
There can be no assurances that the selling stockholder will sell all or
any of the shares of common stock offered under this prospectus.
This registration statement to which this prospectus relates is being
filed pursuant to the Investors Agreement. Subject to the terms and conditions
of the Registration Rights Agreement, we agreed to keep this registration
statement effective until the earlier of:
o the date as of which all shares of our common stock registered under
this registration statement have been sold; or
o the date as of which the selling stockholder may sell all its shares of
our common stock registered under this registration statement during
any 90 day period pursuant to Rule 144 of the Securities Act and are
registered or qualified or exempt form registration or qualification
under the registration, permit or qualification of all applicable state
securities laws.
DESCRIPTION OF SECURITIES
We are authorized to issue 70,000,000 shares of Common Stock, par value $0.001
per share, and 5,000,000 shares of Preferred Stock, par value $0.01 per share.
As of July 31, 2004, there were issued and outstanding (i) 21,344,198 shares of
Common Stock held of record by approximately 200 shareholders (ii)
2,000,000 shares of Series A Preferred Stock held of record by three
shareholders which can be converted for common shares at a ten-for-one ratio,
beginning on April 14, 2006.
Common Stock
------------
We are authorized to issue up to 70,000,000 Shares of Common Stock, $0.001 par
value per share, which may be issued from time-to-time as designated by our
Board of Directors
Holders of shares of Common Stock are entitled to cast one vote for each share
held at all shareholder's meetings for all purposes, including the election of
directors and to share equally on a per share basis in such dividends as may be
declared by the Board of Directors out of funds legally available therefor. Upon
our liquidation or dissolution, and after satisfaction of all liabilities and
preferences of the outstanding Preferred Stock, holders of Common Stock will be
entitled to share equally, on a pro rata basis, in the remainder of our assets
legally available for distribution to the holders of Common Stock. No holder of
Common Stock has a preemptive or preferential right to purchase or subscribe for
any additional shares of Common Stock. The Common Stock does not have cumulative
voting rights.
43
Preferred Stock
---------------
We are authorized to issue up to 5,000,000 Shares of Preferred Stock, $0.001 par
value per share, which may be issued from time-to-time in one or more series,
the terms of which may be designated by the Board of Directors without further
action by shareholders and may include voting rights, preferences with respect
to dividends, liquidation, conversion and other rights, but will not have
preemptive rights. The issuance of Preferred Stock may reduce the rights of the
holders of Common Stock and therefore, the value of the Common Stock. Specific
rights granted to future holders or Preferred Stock could be used to restrict
our ability to merge with or sell our assets to a third party.
The holders of our Convertible Preferred Stock are entitled to receive
non-cumulative preferential dividends, if and when declared, before any
dividends may be declared in the shares of Common Stock and are entitled to a
preference over holders of Common Stock in the event of a liquidation of our
assets.
We have issued and outstanding 2,000,000 shares of Series A Preferred Stock,
held of record by three directors of the Registrant which can be converted
for common shares at a ten-for-one ratio, beginning on April 14, 2006. In
addition, we are obligated to issue such directors an additional 820,000 shares
of such preferred stock.
Anti-Takeover Provisions of Nevada Corporation Law
--------------------------------------------------
The anti-takeover provisions of Sections 78.411 through 78.445 of the Nevada
Corporation Law apply to ITER. Section 78.438 of the Nevada law prohibits the
Company from merging with or selling ITER or more than 5% of our assets or stock
to any shareholder who owns or owned more than 10% of any stock or any entity
related to a 10% shareholder for three years after the date on which the
shareholder acquired the ITER shares, unless the transaction is approved by
ITER's Board of Directors. The provisions also prohibit the Company from
completing any of the transactions described in the preceding sentence with a
10% shareholder who has held the shares more than three years and its related
entities unless the transaction is approved by our Board of Directors or a
majority of our shares, other than shares owned by that 10% shareholder or any
related entity.
44
INDEMNIFICATION DISCLOSURE FOR SECURITIES ACT LIABILITIES
Sections 78.7502 and 78.751 of the General Corporation Law of Nevada
provides for the indemnification of officer, directors, and other corporate
agents in terms sufficiently broad to indemnify such persons under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act. Nevada Law provides, among other things, that
a corporation may indemnify a person who was or is a party to or is threatened
to be made a party to, any threatened pending or completed action by reason of
their service to the corporation. Expenses include attorney's fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with the action suit or proceeding. In order to be entitled
to indemnification such person must have reasonably relied on information
provided by the corporation or acted in good faith. Further, discretionary
indemnification may be authorized by the Board of Directors, the stockholders, a
majority vote of a quorum of disinterested directors, of if no quorum can be
obtained, by legal opinion of counsel. Article V of the Registrant's Bylaws
(Exhibit 3.2 to the Registrant's Form 10-SB (File No. 000- 50095)) provide for
indemnification of the Registrant's directors, officers, employees and other
agents to the extent and under the circumstances permitted by the General
Corporation Law of Nevada.
EXPERTS
The consolidated financial statements of IT&E International Group as of, and for
the years ended, December 31, 2004 and 2003, appearing in this prospectus and
registration statement, have been audited by Beckstead and Watts, LLP.
independent registered public accounting firm, as stated in their reports
thereon.
LEGAL MATTERS
The validity of the securities offered by the prospectus is being passed upon
for us by the law firm of Foley & Lardner LLP, San Diego, California.
45
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and current reports, information statements and other
information with the SEC. Our filings are available to the public over the
internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's Public Reference Room, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. Further information on the Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330.
This prospectus is part of a Registration Statement on Form SB-2 filed with the
SEC under the Securities Act. This prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. For further
information, reference is made to the Registration Statement and the exhibits
filed as a part thereof, which may be found at the location and website
referenced above.
Our website is http://www.iteinternational.com. We make available free of
charge, on or through our website, our annual, quarterly and current reports,
and any amendments to those reports, as soon as reasonably practicable after
electronically filing such reports with the SEC. Information contained on our
website is not part of this registration statement.
You may also request a copy of our most recent annual report on Form 10-KSB, and
any Exchange Act reports filed after the most recent Form 10-KSB, by writing or
calling us at:
IT&E International Group
505 Lomas Santa Fe Drive, Suite 200
Solana Beach, California 92075
Attn: Peter R. Sollenne, Chief Executive Officer
Telephone: (858) 366-0970
Exhibits to the documents incorporated by reference will not be sent, however,
unless these exhibits have been specifically referenced in this prospectus.
46
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
December 31, 2004
June 30, 2005
IT&E International Group Page
------
Report of Independent Registered Public Accounting Firm............... F-1
Balance Sheets as of December 31, 2004 and 2003....................... F-2
Statements of Operations for the years ended December 31, 2004 and 2003 F-3
Statements of Stockholders' Equity for the years ended December 31,
2004 and 2003...................................................... F-4
Statements of Cash Flows for the years ended December 31,
2004 and 2003...................................................... F-5
Notes to Consolidated Financial Statements............................ F-6-17
Balance Sheets as of June 30, 2005 and December 31, 2004.............. F-18
Statements of Operations for the three months and six months
ended June 30, 2005 and 2004....................................... F-19
Statements of Cash Flows for the six months ended June 30,
2005 and 2004...................................................... F-20
Notes to Unaudited Consolidated Financial Statements.................. F-21-22
47
BECKSTEAD AND WATTS, LLP
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
2425 W Horizon Ridge Parkway
Henderson, NV 89052
702.257.1984 (tel)
702.362.0540 (fax)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying balance sheets of IT&E International Group (the
"Company"), as of December 31, 2004 and 2003, and the related statement of
operations, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IT&E International Group as of
December 31, 2004 and 2003, and the results of its operations and cash flows for
the years then ended, in conformity with U.S. generally accepted accounting
principles.
/s/ Beckstead and Watts, LLP
-----------------------------
Henderson, Nevada
March 22, 2005
F-1
IT&E International Group
Balance Sheets
December 31, December 31,
2004 2003
Assets ------------ -------------
Current assets:
Cash - unrestricted $ 402,779 $ 173,236
Cash - restricted 2,506,862 -
Accounts receivable, net of
allowance for doubtful accounts
of $75,000 and $118,118, respectively 2,644,501 1,639,907
Unbilled revenue 133,398 195,607
Prepaid and other current assets 77,175 71,965
------------ ------------
Total current assets 5,764,715 2,080,715
------------ ------------
Fixed assets, net 313,435 82,618
Loan fees, net 807,144 -
Deposits 33,723 23,382
------------ ------------
$ 6,919,018 $ 2,186,715
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 612,647 $ 254,855
Accrued payroll and employee benefits 322,300 168,296
Line of credit - bank - 855,015
Current portion of capital lease
obligations 3,089 -
Current portion of convertible
note payable 666,667 -
Deferred rent 30,293 -
Other accrued liabilities 43,055 27,731
------------ ------------
Total current liabilities 1,678,050 1,305,897
Long-term capital lease obligations,
less current portion 16,015 -
Long-term convertible note payable,
less current portion 4,333,333 -
------------ ------------
6,027,398 1,305,897
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value,
70,000,000 shares authorized,
19,000,000 shares issued and
outstanding 19,000 100,750
Preferred stock, Series A,
$.001 par value, 5,000,000 shares
authorized, no shares issued and
outstanding - -
Preferred stock, Series B,
$.001 par value, 5,000,000 shares
authorized, no shares issued and
outstanding - -
Preferred stock, Series C,
$.001 par value, 5,000,000 shares
authorized, 2,820,000 shares
issued and outstanding 2,820 -
Additional paid-in capital 862,720 273,930
Retained earnings 7,080 506,138
------------ ------------
891,620 880,818
------------ ------------
$ 6,919,018 $ 2,186,715
============ ============
The accompanying notes are an integral part of these financial statements.
F-2
IT&E International Group
Statements of Operations
For the years ended
------------------------------
December 31,
2004 2003
------------ -------------
Service revenue $ 13,437,388 $ 10,018,459
Reimbursement revenue 405,749 392,426
------------- -------------
Total revenue 13,843,137 10,410,885
Cost of revenue 9,497,806 6,444,287
Reimbursable out-of-pocket expenses 405,749 392,426
------------- -------------
Gross profit 3,939,582 3,574,173
Operating Expenses:
General and administrative expenses 2,876,100 2,795,472
Sales and marketing expenses 982,077 333,730
Depreciation expense 21,588 18,438
Officer salaries 457,981 300,000
------------- -------------
Total operating expenses 4,337,746 3,447,640
------------- -------------
Net operating income (loss) (398,165) 126,533
Other income (expense):
Interest income 3,298 -
Other income (expense) 32,831 (8,298)
Interest expense (137,022) (33,206)
------------- -------------
Total other income (expense) (100,893) (41,504)
------------- -------------
Income (loss) before provision
for income taxes (499,058) 85,029
Provision for income taxes - 3,000
------------- -------------
Net income (loss) $ (499,058) $ 82,029
============= =============
Weighted average number of
common shares outstanding - basic
and fully diluted 19,000,000 19,000,000
============= =============
Net income (loss) per share - basic
and fully diluted $ (0.03) $ 0.00
============= =============
The accompanying notes are an integral part of these financial statements.
F-3
IT&E International Group
STATEMENTS OF STOCKHOLDERS' EQUITY
STATEMENT OF STOCKHOLDERS' EQUITY
Total
Common Stock Preferred Stock Additional Stock-
------------- --------------- Paid-in Retained holders'
Shares Amount Shares Amount Capital Earnings Equity
------- ------ ------ ----- --------- -------- -------
Balance,
Dec 31, 2002 19,000,000 $19,000 2,820,000 $2,820 $352,860 $424,109 $ 798,789
Net income 82,029 82,029
-------- ------- ------- ------ --------- -------- ----------
Balance,
Dec 31,
2003 19,000,000 19,000 2,820,000 2,820 352,860 506,138 880,818
Issuance of
Warrants 509,860 - 509,860
Net loss (499,058) (499,058)
-------- ------- ------- ------ -------- -------- ----------
Balance,
Dec 31,
2004 19,000,000 $19,000 2,820,000 $2,820 $862,720 $ 7,080 $ 891,620
========== ======= ========== ======= ======== ======== =========
The accompanying notes are an integral part of these financial statements.
F-4
IT&E International Group
Statements of Cash Flow
For the years ended
------------------------------
December 31,
2004 2003
------------ -------------
Cash flows from operating activities
Net income (loss) (499,058) 82,029
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation expense 21,588 18,438
Amortization of loan fees 60,235 -
Loss on disposal of fixed assets - 8,298
Deferred rent 30,293 -
Changes in assets and liabilities:
Accounts receivable (1,004,594) (854,727)
Unbilled revenue 62,209 (112,130)
Prepaid and other current assets (5,210) 7,170
Accounts payable 357,791 48,423
Accrued payroll and employee benefits 154,004 51,180
Other accrued liabilities 15,324 3,000
----------- ----------
Net cash used by operating activities (807,418) (748,319)
----------- ----------
Cash flows from investing activities
Purchase of fixed assets, including
Internal-use software (252,405) (57,355)
Deposits (10,341) 2,853
Loan fees (357,519) -
----------- ----------
Net cash used by investing activities (620,265) (54,502)
----------- ----------
Cash flows from financing activities
Proceeds from line of credit 758,000 816,021
Payments on line of credit (1,613,015) -
Proceeds from capital lease obligation 20,039 -
Payments on capital lease obligations (935) -
Proceeds from convertible note payable 5,000,000 -
----------- ----------
Net cash provided by financing activities 4,164,089 816,021
----------- ----------
Net increase in cash and cash equivalents 2,736,405 13,200
Cash and cash equivalents, beginning of year 173,236 160,036
----------- ----------
Cash and cash equivalents, end of year 2,909,641 173,236
=========== ===========
Supplemental disclosures:
Interest paid 82,109 -
=========== ===========
Income taxes paid - -
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
------------------
In this discussion, the terms "Company", "we", "us", and "our", refer to IT&E
International Group and subsidiaries, except where it is made clear otherwise.
We are a life sciences service organization focused on providing our clients
with project-based consulting services in the areas of FDA regulatory
compliance, data management, biometrics and clinical validation throughout the
clinical trials lifecycle. Our services range from recruitment of patients for
clinical trials and providing skilled personnel to assist with managing clinical
trials, to providing enterprise software solutions and training to manage data
to ensure FDA compliance. We also provide validation services for new
pharmaceutical manufacturing facilities. We serve a variety of clients,
including those in the private industry, public institutions, research
facilities and the government.
We were incorporated in the State of Nevada in 2002 as Clinical Trials
Assistance Corporation. In April 2004, we merged with IT&E International, Inc.
and changed our name to IT&E International Group.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
----------------
The preparation of consolidated 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 the reporting period. Actual results could differ
from those estimates.
We maintain an allowance for doubtful accounts for estimated losses resulting
from an inability of clients to make required payments. This allowance is based
on account receivables, historical collection experience, current economic
trends, and changes in the customer payment terms.
F-6
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents, including Restricted Cash
----------------------------------------------------
We consider all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents. Our restricted cash
equivalents consist primarily of a short-term money market deposit. Our cash
accounts are with certain financial institutions. The balances in these accounts
exceed the maximum U.S federally insured amount. We have not experienced any
losses in such accounts and we believe that we are not exposed to any
significant credit risk on our cash and cash equivalents.
Revenue Recognition, Accounts Receivable, and Unbilled Receivables
------------------------------------------------------------------
Revenues are derived primarily from FDA validation and compliance outsourcing
services, consulting, and systems integration. Revenues are recognized on a
time-and-materials, level-of-effort, percentage-of-completion, or straight-line
basis. Before revenues are recognized, the following four criteria must be met:
(a) persuasive evidence of an arrangement exists; (b) delivery has occurred or
services rendered; (c) the fee is fixed and determinable; and (d) collectibility
is reasonably assured. We determine if the fee is fixed and determinable and
collectibility is reasonably assured based on our judgment regarding the nature
of the fee charged for services rendered and products delivered and the
collectibility of those fees. Arrangements range in length from less than one
year to several years.
Revenues from time-and-materials arrangements are generally recognized based
upon contracted hourly billing rates as the work progresses. Revenues from
level-of-effort arrangements are recognized based upon a fixed price for the
level of resources provided. Revenues from fixed fee arrangements for consulting
are generally recognized on a rate per hour or percentage-of- completion basis.
For each of our fixed fee contracts we maintain estimates of total revenue and
cost over the contract term. For purposes of periodic financial reporting on the
fixed price consulting contracts, we accumulate total actual costs incurred to
date under the contract. The ratio of those actual costs to its then-current
estimate of total costs for the life of the contract is then applied to its
then-current estimate of total revenues for the life of the contract to
determine the portion of total estimated revenues that should be recognized. We
follow this method because reasonably dependable estimates of the revenues and
costs applicable to various stages of a contract can be made. In addition, total
actual costs incurred would approximate measuring revenue based on labor hours
since total actual costs are derived from the labor hours incurred. No material
difference would occur if such costs were measured by total actual costs as
compared to labor hours incurred.
F-7
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues recognized on fixed price consulting contracts are subject to revisions
as the contract progresses to completion. If we do not accurately estimate the
resources required or the scope of the work to be performed, do not complete our
projects within the planned periods of time, or do not satisfy our obligations
under the contracts, then profit may be significantly and negatively affected or
losses may need to be recognized. Revisions in our contract estimates are
reflected in the period in which the determination is made that facts and
circumstances dictate a change of estimate. Favorable changes in estimates
result in additional revenues recognized, and unfavorable changes in estimates
result in a reduction of recognized revenues. Provisions for estimated losses on
individual contracts are made in the period in which the loss first becomes
known.
Over 95% of our contracts are performed on a time and materials basis, with the
remaining 5% being fixed fee contracts.
At the beginning of 2003, we adopted EITF 00-21, "Accounting for Revenue
Arrangements with Multiple Deliverables," which addresses how to account for
arrangements that involve the delivery or performance of multiple products,
services, and/or rights to use assets. Revenue arrangements with multiple
deliverables are divided into separate units of accounting if the deliverables
in the arrangement meet the following criteria: (1) the delivered item has value
to the customer on a stand-alone basis; (2) there is objective and reliable
evidence of the fair value of undelivered items; and (3) delivery of any
undelivered item is probable. Arrangement consideration is allocated among the
separate units of accounting based on their relative fair values, with the
amount allocated to the delivered item being limited to the amount that is not
contingent on the delivery of additional items or meeting other specified
performance conditions. Our contracts are primarily time and material contracts
devoted to a specific deliverable rather than to multiple deliverables.
On certain contracts, or elements of contracts, costs are incurred subsequent to
the signing of the contract, but prior to the rendering of service and
associated recognition of revenue. Where such costs are incurred and realization
of those costs is either paid for upfront or guaranteed by the contract, those
costs are deferred and later expensed over the period of recognition of the
related revenue. At December 31, 2004 and 2003, the Company had deferred $0 and
$170,255, respectively, of such deferred costs.
Unbilled receivables represent revenues recognized for services performed that
were not billed at the balance sheet date. The majority of these amounts are
billed in the subsequent month. As of December 31, 2004 and 2003, the Company
had unbilled revenues included in current receivables of $133,398 and $195,607,
respectively.
F-8
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reimbursable Out-of-Pocket Expenses
-----------------------------------
In addition to the standard costs incurred to provide services to our customers,
we pay other incidental expenses, in excess of contract amounts, which are
generally reimbursable under the terms of the contract. These expenses are
recorded as both revenues and direct cost of services in accordance with the
provisions of EITF 01-14, "Income Statement Characterization of Reimbursements
Received for `Out-of-Pocket' Expenses Incurred."
Credit Risks
------------
Financial instruments that subject us to concentrations of credit risks consist
primarily of cash and cash equivalents and billed and unbilled accounts
receivable. Our clients are primarily involved in the healthcare and
pharmaceutical industries. The significant majority of our accounts receivable
exposure is to large, well established firms. Concentrations of credit risk with
respect to billed and unbilled accounts receivable are mitigated, to some
degree, based upon the nature of our clients. Management considers the
likelihood of material credit risk exposure as remote.
The healthcare and life sciences industries may be affected by economic factors,
which may impact accounts receivable. At December 31, 2004, approximately 75% of
the outstanding trade receivables are due from nine customers who also accounted
for approximately 65% of total sales. Management does not believe that any
single customer or geographic area represents significant credit risk.
Fair Value of Financial Instruments
-----------------------------------
The carrying value of cash and cash equivalents, restricted cash, accounts
receivable, accounts payable, and certain other liabilities approximate their
estimated fair values due to the short-term nature of these instruments.
Investments available for sale are carried at fair value.
F-9
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation and amortization are
provided on a straight-line basis in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives, which range
from three to seven years. Leasehold improvements are amortized over the lives
of the respective leases or the service lives of the improvements, whichever are
shorter.
We account for costs incurred to develop computer software for internal use in
accordance with Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. As required by SOP
98-1, we capitalize the costs incurred during the application development stage,
which include costs to design the software configuration and interfaces, coding,
installation, and testing. Costs incurred during the preliminary project along
with post-implementation stages of internal use computer software are expensed
as incurred. Capitalized development costs are amortized over various periods up
to three years. Costs incurred to maintain existing product offerings are
expensed as incurred. The capitalization and ongoing assessment of
recoverability of development costs requires considerable judgment by management
with respect to certain external factors, including, but not limited to,
technological and economic feasibility, and estimated economic life. For the
years ended December 31, 2004 and December 31, 2003, we capitalized product
development costs of $210,444 and $16,000, respectively, and will begin to
amortize such costs in 2005 over the estimated useful life of three years.
Upon sale or retirement of property and equipment, the costs and related
accumulated depreciation are eliminated from the accounts, and any gain or loss
on such disposition is reflected in the consolidated statements of operations.
Expenditures for repairs and maintenance are charged to operations as incurred.
Income Taxes
------------
Income taxes are computed using the asset and liability approach, which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in our financial statements
or tax returns. In estimating future tax consequences, we generally consider all
expected future events other than the enactment of changes in tax law or rates.
If it is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is recorded.
Net Income (Loss) Per Share
---------------------------
Net income (loss) per basic share is computed using the weighted average number
of common shares outstanding. Net income (loss) per diluted share is computed
using the weighted average common shares and potential common shares
outstanding. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period. Warrants to purchase 3,924,000 shares of common stock were
outstanding during 2004, but were not included in the computation of earnings
per diluted shares because the effect would be antidilutive. There were no stock
options issued and outstanding as of December 31, 2004 and 2003.
F-10
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
--------------------------------
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 123 (revised 2004) "Share-Based
Payment" ("SFAS 123R), which is a revision of FASB Statement No. 123, Accounting
for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and amends FASB Statement No. 95,
Statement of Cash Flows. Generally, the approach in Statement 123R is similar to
the approach described in Statement 123. However, Statement 123R requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative.
Statement 123R must be adopted no later than July 1, 2005. Early adoption will
be permitted in periods in which financial statements have not yet been issued.
We expect to adopt Statement 123R on July 1, 2005. Statement 123R permits public
companies to adopt its requirements using one of two methods:
1. A "modified prospective" method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of Statement
123R for all share-based payments granted after the effective date and (b) based
on the requirements of Statement 123 for all awards granted to employees prior
to the effective date of Statement 123R that remain unvested on the effective
date.
2. A "modified retrospective" method which includes the requirements of the
modified prospective method described above, but also permits entities to
restate based on the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior periods presented or (b)
prior interim periods of the year of adoption.
We are currently evaluating the two different methods for the adoption of
Statement 123 and have not determined which of the two methods we will adopt.
To date, we have not issued stock-based payments to our employees, though we
anticipate the issuance of stock options during 2005. As such, we have not
recognized any stock-based compensation during 2004 and 2003.
We believe that the adoption of Statement 123R's fair value method will have a
material impact on our result of operations, although it will have no impact on
our overall financial position. The impact of adoption of Statement 123R cannot
be predicted at this time because it will depend on levels of share- based
payments granted in the future. Statement 123R also requires the benefits of tax
deductions in excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow as required under
current literature. This requirement will reduce net operating cash flows and
increase net financing cash flows in periods after adoption. We cannot estimate
what those amounts will be as it will depend on the levels of share- based
payments granted in the future.
F-11
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of these instruments
were previously classified as equity. The guidance in SFAS No. 150 is generally
effective for all 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. We do not believe that the adoption of SFAS No.
150 will have a material impact on our financial statements.
In December 2003, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 104 (SAB 104), "Revenue Recognition", which supersedes
SAB 101, "Revenue Recognition in Financial Statements." SAB 104's primary
purpose is to rescind the accounting guidance contained in SAB 101 related to
multiple-element revenue arrangements that was superseded as a result of the
issuance of EITF 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables" and to rescind the SEC's related "Revenue Recognition in Financial
Statements Frequently Asked Questions and Answers" issued with SAB 101 that had
been codified in SEC Topic 13, "Revenue Recognition." While the wording of SAB
104 has changed to reflect the issuance of EITF 00-21, the revenue recognition
principles of SAB 101 remain largely unchanged by the
issuance of SAB 104, which was effective upon issuance. The adoption of SAB 104
did not have a material effect on our financial position or results of
operations.
Reclassification
----------------
Certain amounts in the 2003 financial statements have been reclassified to
conform to the presentation of the 2004 financial statements.
3. MERGER WITH CLINICAL TRIALS ASSISTANCE CORPORATION
On April 14, 2004, the Company, Clinical Trials Assistance Corporation, a Nevada
corporation ("CTAL"), and Clinical Trials Assistance Acquisition Corporation, a
Nevada corporation ("Merger Sub"), entered into an Acquisition Agreement and
Plan of Merger (collectively the "Agreement") pursuant to which CTAL, through
its wholly-owned subsidiary, Merger Sub, acquired IT&E in exchange for
11,000,000 shares of CTAL common stock which were issued to the holders of IT&E
stock (the "Merger"). Immediately after the Acquisition was consummated, and
further to the Agreement, CTAL's controlling stockholder cancelled 28,000,000
shares of CTAL's Common Stock held by him (the "Cancellation"). The transaction
contemplated by the Agreement was intended to be a "tax-free" reorganization
pursuant to the provisions of Section 351 and 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended.
F-12
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The stockholders of IT&E (three stockholders owning 481,500 shares), who
unanimously approved the acquisition as of the closing date of the Merger and
after giving effect to the Cancellation, now own approximately 80% of the CTAL's
outstanding common stock. This figure is based on the issuance of 9,000,000
shares of $0.001 par value common stock and the share dilution upon conversion
of the 2,000,000 warrants into common stock.
This transaction was accounted for as a reverse merger, since the stockholders
of IT&E own a majority of the issued and outstanding shares of common stock of
CTAL, and the directors and executive officers of IT&E became the directors and
executive officers of the CTAL. No goodwill or other intangible was recorded as
a part of this transaction and the cost of the transaction was expensed as
incurred. In accordance with reverse merger accounting guidelines, all share
issuances and per share calculations reflect the issuance of the merger shares
on a retroactive basis "as if" the shares were issued from the date of inception
of IT&E before the merger with CTAL.
As a part of this transaction, 2,000,000 warrants were issued to several
individuals for cash totaling $2,000. The warrants are convertible on a one-
for-one basis at a price to be agreed upon on the exercise date by the Company's
board of directors and the warrant holders. The exercise date is not sooner than
one year and not later than five years.
4. ADVANCES TO EMPLOYEES
At December 31, 2004 and 2003, the Company had advanced $21,525 and $46,971,
respectively, to certain employees. The notes are non-interest bearing and due
during 2005. During 2005, an employee advance of $20,000 was deemed
uncollectible.
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2004 and 2003 consisted of the following:
2004 2003
--------- ---------
Computers $ 135,971 $ 113,940
Furniture and fixtures 41,007 21,082
Internal-use software 210,444 16,000
Leasehold improvements 17,898 1,731
--------- ---------
405,320 152,753
Less accumulated depreciation ( 91,885) ( 70,135)
--------- ---------
$ 313,435 $ 82,618
========= =========
Depreciation expense totaled $21,588 and $18,438 during the years ended December
31, 2004 and 2003, respectively.
F-13
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. CONVERTIBLE DEBT
On October 18, 2004, we issued a $5,000,000 secured convertible term note
("Note") to Laurus Master Fund, Ltd. ("Laurus"). The Note is convertible into
shares of our common stock at an initial conversion price of $0.75 per share.
Pursuant to this agreement, we also issued to Laurus a warrant ("Warrant") to
purchase up to 1,924,000 shares of our common stock, of which 962,000 shares
will have an exercise price of $0.94 and 962,000 shares will have an exercise
price of $1.12. The warrants expire on October 18, 2011.
The Note has a term of three years and accrues interest at the prime rate plus
2.5% per year (7.50% as of December 31, 2004). The Note is secured by all our
assets and the assets of our subsidiaries. The Note consists of a non-
restricted facility of $2.5 million and a restricted facility of $2.5 million.
The non-restricted facility was used to pay off an outstanding line of credit of
approximately $1.5 million, with the remaining $1.0 million, net of transaction
fees, being used for working capital. The second $2.5 million facility is
restricted for either additional internal growth working capital requirements or
for a future acquisition, which is a part of our strategic long-term growth
plans. These funds are under the sole dominion and control of Laurus as security
for our obligations under the Securities Purchase Agreement and other related
agreements.
Interest on the unrestricted principal amount is payable monthly, in arrears, on
the first business day of each calendar month until the maturity date. Under the
terms of the Note, the monthly interest payment and the monthly principal
payment are payable either in cash at 103% of the respective monthly
amortization amounts or, if certain criteria are met, in shares of our common
stock. The minimum monthly principal repayment of $83,333.33 commences on May 1,
2005, and continues through the October 18, 2007 maturity date. The principal
criteria for the monthly payments to be made in shares of our common stock
include:
o the effectiveness of a current registration statement covering the shares
of our common stock into which the principal and interest under the Note
are convertible;
o an average closing price of our common stock for the previous five
trading days greater than or equal to 110% of the fixed conversion price;
and
o the amount of such conversion not exceeding 25% of the aggregate dollar
trading volume of our common stock for the previous 22 trading days.
F-14
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We may prepay the non-restricted facility of the Note at any time by paying 125%
of the principal amount then outstanding, together with accrued but unpaid
interest thereon. We may also prepay the restricted facility of the Note at any
time by paying 115% of the principal amount then outstanding, together with
accrued but unpaid interest thereon. Upon an event of default under the Note,
Laurus may demand repayment of the outstanding principal balance at a rate of
125% of the non-restricted facility of the Note and 115% of the outstanding
principal balance of the restricted facility, plus any accrued interest. If the
Note remains outstanding after an event of default that is not cured, the
interest rate increases to 1.5% per month.
On a month-by-month basis, if we register the shares of common stock issuable
upon conversion of the Note and upon exercise of the Warrant on a registration
statement declared effective by the Securities and Exchange Commission, and the
market price of our common stock for five consecutive trading days exceeds the
conversion price by at least 25%, then the interest rate on the Note for the
succeeding calendar month shall be reduced by 1% for every 25% increase in the
market price of our common stock above the conversion price of the Note, but in
no event shall the interest rate be less than zero percent.
Laurus also has the option to convert all or a portion of the Note into shares
of our common stock at any time, subject to limitations described below, at a
conversion price of $0.75 per share, subject to adjustment as described below.
The Note is currently convertible into 8,590,667 shares of our common stock,
excluding the conversion of any accrued interest. Laurus is limited on its
ability to convert is the conversion of the Note or the exercise of the Warrant
would cause the shares then held be Laurus to exceed 4.99% of our outstanding
shares of common stock unless there has been an event of default or Laurus
provides us with 75 days prior notice.
We were obligated to file a registration statement with the Securities and
Exchange Commission ("SEC") registering the resale of shares of our common stock
issuable upon conversion of the Note and exercise of the Warrant by November 17,
2004, and to have such Statement declared effective by the SEC by no later than
January 25, 2005. We timely filed the registration statement, but it has not yet
been declared effective. If the registration statement is not declared effective
within the timeframe described, if the registration statement is suspended other
than as permitted in the Registration Rights Agreement, or if our common stock
is not listed for three consecutive trading days, we are obligated to pay Laurus
additional cash fees. The cash fees are 2.0% of the original principal amount of
the Note for each 30 day period in which we fail to correct these issues. Since
the registration statement has not yet been declared effective, we are incurring
monthly cash fees to Laurus.
F-15
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of the warrants has been estimated on the date of grant using the
Black-Scholes option pricing model. The weighted average fair value of these
warrants are $0.28 and $0.25. The following assumptions were used in computing
the fair value of these warrants: weighted average risk-free interest rate of
6.0%, zero dividend yield, volatility of the Company's common stock of 86.81%
and an expected life of the warrants of two years. Approximately $510,000 was
added to financing costs as a result of the warrants. No warrants have been
exercised through December 31, 2004. In addition to the costs related to the
warrants, we also incurred approximately, $358,000 of loan origination costs for
the debt. We will amortize the total loan costs over the period of the loan. We
amortized approximately $60,000 for the period ending December 31, 2004.
Future maturities of long-term debt are as follows as of December 31, 2004:
2005 $ 666,667
2006 1,000,000
2007 3,333,333
2008 -
2009 -
Thereafter -
----------
$5,000,000
==========
7. COMMITMENTS AND CONTINGENCIES
During 2004, we entered into a new capital lease obligation totaling $20,039.
This leased equipment has accumulated depreciation of $1,391 at December 31,
2004.
Future minimum lease payments on the capital lease obligation at December 31,
2004 are as follows:
For the year ending December 31:
1 $ 5,654
2 5,654
3 5,654
4 5,654
5 3,769
--------
Total 26,385
Less amount representing interest ( 7,281)
--------
Present value of capital lease payments $ 19,104
========
The Company also leases its office facilities, certain office space, and living
accommodations for consultants on short-term projects under operating leases
that expire over the next three years. At December 31, 2004, the Company was
obligated under non-cancelable operating leases with future minimum rentals as
follows:
Years Ending
1 $ 133,241
2 97,402
3 79,971
---------
Total $ 310,614
=========
Rent expense was $226,036 and $206,154 for the years ended December 31, 2003 and
2002, respectively.
F-16
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We are involved in various legal actions arising in the normal course of
business. We believe that the outcome of these matters will not have a material
adverse effect on our financial position or results of operation.
8. PROFIT SHARING PLANS
We provide a 401(k) salary deferral plan for eligible employees. Employees may
elect to reduce their compensation by an amount that will not exceed the total
amount allowed by the Internal Revenue Code for all contributions to qualified
plans. The plan does provide for discretionary contributions by the employer. No
contributions were made by the Company to the plan for the years ended December
31, 2004 and 2003.
F-17
IT&E INTERNATIONAL GROUP
BALANCE SHEETS
June 30,
2005 December 31,
(unaudited) 2004
------------------- ------------------
Assets
Current assets:
Cash - unrestricted $ 1,018,298 $ 402,779
Cash - restricted 2,039,233 2,506,862
Accounts receivable, net of allowance for doubtful accounts
of $75,000 at June 30, 2005 and December 31, 2004 2,252,731 2,644,501
Unbilled revenue 218,603 133,398
Prepaid and other current assets 148,545 77,175
------------------ -----------------
Total current assets 5,677,410 5,764,715
------------------ -----------------
Fixed assets, net 288,398 313,435
Loan fees, net 662,581 807,144
Deposits 14,354 33,724
------------------ -----------------
$ 6,642,743 $ 6,919,018
================== =================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 483,259 $ 612,647
Accrued payroll and employee benefits 612,884 322,300
Current portion of capital lease obligations 3,280 3,089
Current portion of convertible note payable 1,200,000 666,667
Accrued interest on note payable 136,550 38,454
Deferred rent 27,183 30,293
Other accrued liabilities 40,000 4,600
------------------ -----------------
Total current liabilities 2,503,156 1,678,050
------------------ -----------------
Long-term capital lease obligations, less current portion 14,591 16,015
Long-term convertible note payable, less current portion 3,600,000 4,333,333
------------------ -----------------
6,117,747 6,027,398
Stockholders' equity:
Common stock, $.001 par value, 70,000,000 shares
authorized, 21,344,198 and 19,000,000 shares issued
and outstanding, respectively 21,344 19,000
Preferred stock, $.001 par value, 5,000,000 shares
authorized, 2,000,000 shares issued and outstanding 2,000 2,000
Additional paid-in capital 1,125,496 863,540
Retained earnings (deficit) (623,844) 7,080
------------------ -----------------
524,996 891,620
------------------ -----------------
$ 6,642,743 $ 6,919,018
================== =================
The accompanying notes are an integral part of these financial statements.
F-18
IT&E INTERNATIONAL GROUP
STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended For the six months ended
June 30, June 30,
-------------------------- ------------------------
2005 2004 2005 2004
-------- ---------- ------- --------
Service revenue $ 4,297,356 $ 3,221,834 $ 8,743,936 $ 6,366,382
Reimbursement revenue 134,608 143,524 232,955 204,186
----------- ----------- ----------- -----------
Total revenue 4,431,964 3,365,358 8,976,891 6,570,568
Cost of revenue 3,006,847 2,153,185 6,021,457 4,282,538
Reimburseable out-of-pocket expenses 134,608 143,524 232,955 204,186
----------- ----------- ----------- -----------
Gross profit 1,290,509 1,068,649 2,722,479 2,083,844
Operating Expenses:
General and administrative expenses 753,440 679,823 1,553,715 1,224,883
Sales and marketing expenses 470,667 226,839 701,350 446,230
Depreciation expense 25,601 4,780 42,749 9,636
Officer compensation 242,096 118,750 448,843 217,500
----------- ----------- ----------- -----------
Total operating expenses 1,491,804 1,030,192 2,746,657 1,898,249
----------- ----------- ----------- -----------
Net operating income (201,295) 38,457 (24,178) 185,595
Other income (expense):
Interest income 18,629 - 34,689 -
Interest expense (119,994) (8,778) (220,333) (30,464)
Loan fee amortization (72,281) - (144,563) -
Fees on long-term debt 0 - (214,039) -
Non-cash financing costs 0 - (62,500) -
Other income (expense) 0 - 0 14,490
----------- ----------- ----------- -----------
Total other income (expense) (173,646) (8,778) (606,746) (15,974)
----------- ----------- ----------- -----------
Income (loss) before provision for income taxes (374,941) 29,679 (630,924) 169,621
Provision for state income taxes - - - -
----------- ----------- ----------- -----------
Net income (loss) $ (374,941) $ 29,679 $ (630,924) $ 169,621
=========== =========== =========== ===========
Weighted average number of
common shares outstanding - basic and fully diluted 20,844,437 19,000,000 19,938,363 19,000,000
=========== =========== =========== ===========
Net income (loss) per share - basic and fully diluted $ (0.02) $ 0.00 $ (0.03) $ 0.01
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-19
IT&E INTERNATIONAL GROUP
STATEMENTS OF CASH FLOW
(Unaudited)
For the six months ended
June 30,
------------------------
2005 2004
---- ----
Cash flows from operating activities
Net income (loss) $ (630,924) $ 169,621
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation expense 42,749 9,636
Amortization of loan fees 144,563 -
Deferred rent (3,110) -
Stock issued for financing costs 62,500 -
Stock issued for compensation 200,000 -
Changes in assets and liabilities:
Accounts receivable 391,770 (674,839)
Unbilled revenue (85,205) -
Prepaid and other current assets (71,370) (19,626)
Accounts payable (129,388) 109,560
Accrued payroll and employee benefits 290,584 165,156
Accrued interest on note payable 98,096 -
Other current liabilities 35,400 12,337
----------------- ------------------
Net cash provided by operating activities 345,665 (228,155)
----------------- ------------------
Cash flows from investing activities
Purchase of fixed assets, including internal-use software (17,712) (166,405)
Deposits 19,370 (18,196)
----------------- ------------------
Net cash (used) by investing activities 1,658 (184,601)
----------------- ------------------
Cash flows from financing activities
Proceeds from line of credit, net - 443,000
Payments on capital lease obligations (1,233) -
Payments on convertible note payable (200,000) -
Proceeds from exercise of warrants 1,800 -
Distributions to shareholders - (16,850)
----------------- ------------------
Net cash provided (used) by financing activities (199,433) 426,150
----------------- ------------------
Net increase in cash and cash equivalents 147,890 13,394
Cash and cash equivalents, beginning of period 2,909,641 173,236
----------------- ------------------
Cash and cash equivalents, end of period $ 3,057,531 $ 186,630
================= ==================
Supplemental disclosures:
Interest paid $ 83,783 $ 30,464
================= ==================
Income taxes paid $ - $ -
================= ==================
The accompanying notes are an integral part of these financial statements.
F-20
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
In this discussion, the terms "Company", "we", "us", and "our", refer to IT&E
International Group and subsidiaries, except where it is made clear otherwise.
We are a life sciences service organization focused on providing our clients
with project-based consulting services in the areas of FDA regulatory
compliance, data management, biometrics and clinical validation throughout the
clinical trials lifecycle. Our services range from recruitment of patients for
clinical trials and providing skilled personnel to assist with managing clinical
trials, to providing enterprise software solutions and training to manage data
to ensure FDA compliance. We also provide validation services for new
pharmaceutical manufacturing facilities. We serve a variety of clients,
including those in the private industry, public institutions, research
facilities and the government.
We were incorporated in the State of Nevada in 2002 as Clinical Trials
Assistance Corporation. In April 2004, we merged with IT&E International, Inc.
and changed our name to IT&E International Group.
2. BASIS OF PRESENTATION
The consolidated interim financial statements included herein, presented in
accordance with United States generally accepted accounting principles and
stated in US dollars, have been prepared by us, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although we believe
that the disclosures are adequate to make the information presented not
misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments, which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
consolidated interim financial statements be read in conjunction with our
consolidated financial statements for the year ended December 31, 2004 and the
notes thereto. We have followed the same accounting policies in the preparation
of these consolidated interim reports.
Results of operations for the interim periods are not indicative of annual
results. Certain amounts in the 2004 financial statements have been reclassified
to conform to the presentation of the 2005 financial statements.
F-21
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. FIXED ASSETS
During the six months ended June 30, 2005 we had $17,712 of fixed asset
additions.
Depreciation expense totaled $25,601 and $4,780 for the three months ended
June 30, 2005 and 2004, respectively, and $42,749 and $9,636 for the six months
ended June 30, 2005 and 2004, respectively.
4. CONVERTIBLE DEBT
We have outstanding a $5,000,000 secured convertible term note to Laurus Master
Fund, Ltd ("Laurus"). $2.5 million of these funds were originally placed into a
restricted cash account that was under the sole dominion and control of Laurus
as security for our obligations. During the first quarter of 2005, as a result
of not meeting the requirement of causing the registration statement covering
the shares of our common stock into which the principal and interest under the
Note are convertible to become effective, we have incurred fees of approximately
$214,000. During April 2005, Laurus released $500,000 of the restricted funds to
pay these fees, along with the accrued interest owed on the $500,000. During
August 2005, Laurus released the remaining $2 million, plus the interest that
had been earned on the restricted funds. Of this amount, approximately $128,000
was used to pay interest that had been accruing under the note owed to Laurus.
The remaining $1.9 million is intended to be used for potential merger and
acquisition activity, as well as other general operating purposes. The minimum
monthly principal repayment of $100,000 began on May 1, 2005 and continued
through the August 1, 2005 payment. With the release of the remaining $2
million, the minimum monthly principal repayment will increase to approximately
$177,000 and continue through the October 18, 2007 maturity date. We recorded
interest expense of approximately $119,000 and $218,000 for the three and six
months ended June 30, 2005 related to this convertible note, and approximately
$9,000 and $30,000 for the three and six months ended June 30, 2004 related to a
bank line of credit that was paid off with the proceeds of the Laurus note.
5. STOCKHOLDER'S EQUITY
During March 2005, 83,330 shares of common stock were issued to SBI USA as
payment for investment banking consulting services valued at $62,500.
During April 2005, 500,000 shares of common stock were issued to our former Vice
President of Sales for services rendered at a value of $200,000, and in May
2005, 1,760,868 shares were issued as the result of the exercise of warrants
previously granted to individuals associated with the April 2004 reverse merger.
Preferred stock outstanding at June 30, 2005 and December 31, 2005 has been
adjusted by $820 to account for 820,000 shares that were previously noted as
outstanding, but are in fact to be issued subject to shareholder approval.
Stock options
On April 29, 2005, we adopted the "2005 Equity Incentive Plan" (the "Plan")to
provide a means by which we can retain and maximize the services of our current
employees, directors and consultants. An aggregate of 7.5 million shares of our
common stock may be issued pursuant to awards from the Plan. The Plan, and the
options granted thereunder, are subject to shareholder approval. On that same
date, incentive and nonqualified stock options with rights to purchase 1,784,250
shares of the Company's $0.001 par value common stock were granted at an
exercise price of $.25. Of the options granted to date, 1,333,750 options were
granted to our officers.
The following is a summary of activity of outstanding stock options under the
2005 Equity Incentive Plan:
Weighted
Average
Number Exercise
of Shares Price
--------------- ---------------
Options granted April 29, 2005 1,784,250 $ 0.25
Options exercised - -
---------------
Balance at June 30, 2005 1,784,250 $ 0.25
===============
Exercisable at June 30, 2005 127,041 $ 0.25
===============
The following is a summary of information about the 2005 Stock Option Plan
options outstanding at June 30, 2005:
Shares Underlying
Shares Underlying Options Outstanding Options Exercisable
----------------------------------------------------------------- -------------------------------
Average Weighted
Range of Remaining Average
Exercise Outstanding Contractual Exercise Options Exercise
Prices Options Life Price Exercisable Price
---------------- --------------- -------------- ------------ --------------- --------------
$0.25-$0.25 1,784,250 3 years $ 0.25 127,041 $ 0.25
We measure our stock-based compensation using the intrinsic value method of
accounting in accordance with Accounting Principles Board No. 25, "Accounting
for Stock Issued to Employees." Because we establish the exercise price based on
the fair market value of our common stock at the date of grant, the options have
no intrinsic value upon grant, and therefore no expense is recorded. Equity
instruments issued to non-employees for goods and services are accounted for at
fair value.
As required by Financial Accounting Standards Board (FAS) No. 123, "Accounting
for Stock-Based Compensation," and FAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," the pro forma effects of stock-based
compensation on net loss and net loss per common share have been estimated at
the date of grant using the Black-Scholes option pricing model with the
following assumptions used for grants under the fixed option plan: average
risk-free interest rate of 3.73%, average expected life of 3 years, and a
volatility rate of 70.20%.
Three Months Ended Six Months Ended
June 30, 2005 June 30, 2005
----------------------------- ------------------------------
2005 2004 2005 2004
-------------- ------------ -------------- -------------
Net income (loss) attributable to
common stockholders:
As reported $(374,941) $ 29,679 $(630,924) $169,621
Fair value of stock-based employee compensation (211,304) - (211,304) -
-------------- ------------ -------------- -------------
Pro forma $(586,245) $ 29,679 $(842,228) $169,621
============== ============ ============== =============
The Black-Scholes option valuation model was developed for use in estimating the
fair value of short-term traded options that have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including expected stock price volatility.
Because our stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
F-22
Part II
-------
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Sections 78.7502 and 78.751 of the General Corporation Law of Nevada
provides for the indemnification of officer, directors, and other corporate
agents in terms sufficiently broad to indemnify such persons under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act. Nevada Law provides, among other things, that
a corporation may indemnify a person who was or is a party to or is threatened
to be made a party to, any threatened pending or completed action by reason of
their service to the corporation. Expenses include attorney's fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with the action suit or proceeding. In order to be entitled
to indemnification such person must have reasonably relied on information
provided by the corporation or acted in good faith. Further, discretionary
indemnification may be authorized by the Board of Directors, the stockholders, a
majority vote of a quorum of disinterested directors, of if no quorum can be
obtained, by legal opinion of counsel. Article V of the Registrant's Bylaws
(Exhibit 3.2 to the Registrant's Form 10-SB (File No. 000- 50095)) provide for
indemnification of the Registrant's directors, officers, employees and other
agents to the extent and under the circumstances permitted by the General
Corporation Law of Nevada.
Item 25. Other Expenses of Issuance and Distribution
The expenses payable by the Registrant in connection with this Registration
Statement are estimated as follows:
SEC registration fee.............. $ 852
Blue Sky Qualification Fees and Expenses 1,500
Legal Fees and Expenses........... 17,000
Accounting Fees and Expenses...... 2,500
Miscellaneous..................... 598
--------
$ 22,450
II-1
Item 26. Recent Sales of Unregistered Securities
During the last three years, we have issued the following unregistered
securities. None of these transactions involved any underwriters, underwriting
discounts or commissions, except as specified below, or any public offering, and
we believe that each transaction was exempt from the registration requirements
of the Securities Act by virtue of Section 4(2) thereof and/or Regulation D
promulgated thereunder. All recipients had adequate access, through their
relationships with us, to information about us.
On September 30, 2002, the Company completed a private offering of shares of
common stock of the Company pursuant to Regulation D, Rule 504 of the Securities
Act of 1933, as amended, which resulted in the sale of an additional 2,000,000
shares of its $0.001 par value common stock to approximately 46 shareholders.
This sale took place before the Registrant was fully reporting with the SEC.
On April 14, 2004, the Company issued 11,000,000 shares of common stock and
2,000,000 shares of Series A Preferred Stock to the holders of IT&E
International, Inc. in connection with the reverse merger with Clinical Trials
Assistance Corporation.
During the quarter ended June 2005, the Company issued and sold 500,000 shares
of our common stock to the Company's former Vice President of Sales for services
rendered and 1,784,250 shares of our common stock upon the cashless exercise of
warrants granted to certain individuals who performed services for the Company
in connection with the Company's April 2004 reverse merger.
II-2
Item 27. Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
4.1 Secured Convertible Term Note (incorporated by reference to
Exhibit 4.1 of the Registrant's Current Report on Form 8-K
filed on October 22, 2004).
4.2 Common Stock Purchase Warrant(incorporated by reference to
Exhibit 4.2 of the Registrant's Current Report on Form 8-K
filed on October 22, 2004).
4.3 Registration Rights Agreement dated October 18, 2004, by and
between the Registrant and Laurus Master Fund Ltd.
(incorporated by reference to Exhibit 4.3 of the Registrant's
Current Report on Form 8-K filed on October 22, 2004).
5.1+ Opinion of Foley & Lardner, LLP
10.1 Securities Purchase Agreement dated October 18, 2004, by and
between the Registrant and Laurus Master Fund Ltd.
(incorporated by reference to Exhibit 99.1 of the Registrant's
Current Report on Form 8-K filed on October 22, 2004).
10.2 Restricted Account Agreement dated October 18, 2004, by and
among the Registrant, North Fork Bank, and Laurus Master Fund,
Ltd. (incorporated by reference to Exhibit 99.2 of the
Registrant's Current Report on Form 8-K filed on October 22,
2004).
10.3 Security Agreement dated October 18, 2004, by and between the
Registrant and Laurus Master Fund Ltd. (incorporated by
reference to Exhibit 99.3 of the Registrant's Current Report
on Form 8-K filed on October 22, 2004).
10.4 Amendment to Securities Purchase Agreement dated November 16,
2004, by and between the Registrant and Laurus Master Fund,
Ltd., filed as Exhibit 10.4 to the Company's Form S-3 filed on
November 17, 2004.
10.5+ Revised Securities Purchase Agreement dated October 18, 2004,
by and between the Registrant and Laurus Master Fund, Ltd.,
filed as Exhibit 99.1 of the Registrant's Current Report on
Form 8-K filed on October 22, 2004. This filing contains all
of the Exhibits, not included in the original filing.
10.6 Omnibus Amendment dated July 29, 2005 by and between the
Registrant and Laurus Master Fund Ltd. and the related
Amendment and Restricted Secured Convertible Term Note
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30,
2005).
23.1* Consent of Beckstead and Watts LLP Independent Registered
Public Accountants
24.2+ Power of Attorney (see page II-5)
---------------------------------------
* Filed herewith
+ Previously filed
II-3
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a) (3) of the Securities
Act of 1933;
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement;
(iii) Include any additional or changed information on the plan of
distribution.
(2) For determining liability under the Securities Act, the Registrant will
treat each such post-effective amendment as a new registration statement of the
securities offered, and the offering of such securities at that time to be the
initial bona fide offering.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described under Item 24 above, or otherwise, the
Registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding, is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement on Form SB-2 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Solana Beach, State of California.
IT&E International Group
Date: August 19, 2005 By: /s/ Peter R. Sollenne
-------------------------------
Peter R. Sollenne
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------------------- ---------------- -----------
/s/ Peter R. Sollenne CEO and Director August 19, 2005
---------------------- (Principal Executive Officer)
Peter R. Sollenne
/s/ David Vandertie Chief Financial Officer August 19, 2005
-------------------- (Principal Financial and
David Vandertie Accounting Officer)
/s/ * President, COO and Director August 19, 2005
--------------------
Kelly Alberts
/s/ * Chief Financial Officer August 19, 2005
-------------------- and Directors
Tony Allocca
* By /s/Peter Sollenne
----------------------
Peter Sollene
Attorney-in-fact
II-5