As filed with the Securities and Exchange Commission on May 4, 2005
Registration No. 333-123568
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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Amendment No 1 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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THOMAS C. COOK
The Law Offices of Thomas C. Cook, Ltd.
2921 N. Tenaya Way, Suite 234
Las Vegas, Nevada 89128
Phone: (702) 952-8520
Fax: (702) 952-8521
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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 9,276,000 $0.41 $3,803,160 $ 447.64
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 11,200,000 $4,592,000 $ 540.48
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(1) This registration statement shall also cover any additional shares of
common stock that shall become issuable by reason of any stock dividend,
stock split, recapitalization or other similar transaction affected without
the receipt of consideration that result in an increase in the number of
the outstanding shares of common stock.
(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 11,200,000 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 11,200,000 shares of our common
stock by the selling stockholders listed in this prospectus. The shares
offered by this prospectus include 9,276,000 presently outstanding shares of
our common stock and a maximum of 1,924,000 shares of our common stock issuable
upon the conversion of a secured convertible term note and 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 3 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 May __, 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................................................ 17
DESCRIPTION OF PROPERTY................................................ 24
LEGAL PROCEEDINGS...................................................... 24
USE OF PROCEEDS........................................................ 25
MARKET FOR OUR COMMON STOCK AND
RELATED SHAREHOLDER MATTERS............................................ 25
MANAGEMENT'S PLAN OF OPERATION......................................... 26
DIRECTORS AND EXECUTIVE OFFICERS....................................... 31
EXECUTIVE COMPENSATION................................................. 34
COMPENSATION OF DIRECTORS.............................................. 35
OWNERSHIP OF SECURITIES BY BENEFICIAL OWNER AND MANAGEMENT............. 36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................... 37
DESCRIPTION OF THE TRANSACTIONS........................................ 37
SELLING SHAREHOLDERS................................................... 38
PLAN OF DISTRIBUTION................................................... 40
DESCRIPTION OF SECURITIES.............................................. 42
INDEMNIFICATION DISCLOSURE FOR SECURITIES ACT LIABILITIES.............. 44
EXPERTS................................................................ 44
LEGAL MATTERS.......................................................... 44
WHERE YOU CAN FIND MORE INFORMATION ABOUT US........................... 45
INDEX TO FINANCIAL STATEMENTS.......................................... 46
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.
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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 11,200,000 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.
They identify some of the factors that could cause actual results to be
significantly different from those predicted in the forward-looking statements,
this includes 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 statements, estimates, and projections
contained in this prospectus will be achieved. Thus, we make no
representation or warranty as to their accuracy or completeness. 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:
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.
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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. Factors
that cause these variations 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
11,200,000 shares of our common stock, which represents approximately
57.8% of our currently outstanding 19,000,000 shares of common stock. 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
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 have indicated that they are 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 occurs, could cause the trading
price of our stock to decrease or to be lowered than it might be in the
absence of those sales or perceptions.
Further, Laurus, as the selling shareholder, could impede our future
capital raising. Laurus has a right of first refusal on future financing,
which places restrictions on our financing activity. This financing
arrangement with Laurus gives them control over the company, as a result of
its holding a large interest in it; and there is an overhang created by our
maintenance of an effective resale registration statement regarding a number
of shares that exceeds your public float. The sale of their shares will have
a dilutive impact on our stockholders. As a result, our net income per share
could decrease in future periods, and the market price of our common stock
could decline. Additionally, we have a lack of control over the $2.5 million,
which Laurus has placed in the restricted account.
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.
---------------------------------------------------------------------
Our directors and executive officers beneficially owned an aggregate of
approximately 57.9% of our outstanding Common Stock as of December 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.
---------------------------------------------------------------------
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
solutions to complex needs in clinical research and regulatory compliance. Our
strengths are derived from a solid foundation of forward thinking and
continuous investment in training and research. We serve a variety of clients,
including those in the private industry, public institutions, research
facilities and the government. 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 solutions
with one common goal in mind, to improve the human condition by delivering
forward thinking our solutions to the global 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 leading 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 full 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's clients rely on us to protect the integrity of their data and provide
for a secure environment for successful delivery. Our program managers
consist of senior medical professionals with specific expertise in designing,
developing, and managing Phase I through Phase III and Post-Marketing Clinical
Trials. Program managers work directly with our trial sponsors to ensure that
all deliverables are met and budget constraints are followed closely. They can
also serve as liaisons between the numerous coordinating sites and individuals
involved in the final completion of the project.
We offer a complete 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
o Planning & Strategy
o Corporate policies and procedures
o Methodology
o Independent Vendor Audits & Assessments
o SOP Generation and Revision
o Gap Analysis
o Risk Analysis - Business and Regulatory
o Remediation
o Training end users and program managers
IT&E provides services in the CSV, Part 11, Part 210/211, Part
58, Part 320, Part 820/QSR, GAMP4 as well as European and Asian standards.
Our validation and compliance team 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 includeing: 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 and
verifiable quality leader. Along with the strategic alliance, of a proprietary
methodology, with Correlate & IBM, IT&E has developed and has access to an
extensive database which includes formats and templates
18
to get 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
IT&E offers a complete solution
for the clinical trials and clinical research industry, including:
Clinical Data Entry and Data Management
---------------------------------------
IT&E is capable of providing SAS (R) end-to-end 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 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 custom 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)
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.
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
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 October 18, 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 2,820,000 preferred shares, which can be converted
for common shares at a ten-for-one ratio, after they are held for two years.
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. We serve a variety of
clients, including those in the private industry, public institutions,
research facilities and the government.
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. 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.
The overall outlook for our continued financial growth remains very positive as
our pipeline for new customers remains solid. 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, positioning IT&E
for a leadership position in our industry.
28
Financial Results
-----------------
As of December 31, 2004, the Company's current assets exceeded its current
liabilities by $4,086,665. This includes a $5.0 million financing 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 growth 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 commence 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 to sign new long-term and preferred
vendor relationships with the leading 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 is reduced. 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 signing major clients has begun to produce some good results.
We have signed new agreements with several big pharmaceutical companies, large
biotech firms, an alternative supplement manufacturers, and a medical device
company. 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 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.
29
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.
30
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
Mike Ruchman 55 Vice President Sales N/A
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.
31
Mike Ruchman, Vice President Sales
----------------------------------
Mr. Ruchman has served as our Vice President of Sales since June, 2004. From
1999 to June 2004, Mr. Ruchman served as our Sales Director for Regulatory
Compliance and Clinical consulting. From 1997 to 1999, Mike was the Vice
President of Sales for XXCAL/NTS Corp. Mr. Ruchman holds a Bachelors of
Science in Mechanical Engineering from California State University Los Angeles,
a Masters of Science in Civil Engineering from California State University
Los Angeles, a MBA and an MS in Information Systems Technology from the
University of Texas.
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.
32
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.
33
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
----------------------------------------------------------------------------
34
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.
35
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 December 31, 2004 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 31.41%
Common Tony Allocca(3) VP Ops/Dir. 4,647,500 24.46%
Common Peter R. Sollenne(4) CEO/Director 385,000 2.03%
Common Mike Ruchman (5) VP Sales - -
Common David Vandertie (6) CFO - -
Common Kamill Rohny(7) Shareholder 1,500,000 7.89%
-----------------------------------------------------------------------------
All Executive Officers as
a Group (5 persons) 11,000,000 57.89%
(1) The percentages listed in the Percent of Class column are based upon
19,000,000 issued and outstanding shares of Common Stock.
(2) Kelly Alberts, 505 Lomas Santa Fe Drive, Suite 200, Solana Beach,
California 92075, he owns 1,529,850 Preferred shares which converts
to ten-for-one common stock after a holding period of two years. These
shares have ten-for-one voting rights.
(3) Tony Allocca, 505 Lomas Santa Fe Drive, Suite 200, Solana Beach,
California 92075, he owns 1,191,450 Preferred shares which converts
to ten-for-one common stock after a holding period of two years. These
shares have ten-for-one voting rights.
(4) Peter R. Sollenne, 505 Lomas Santa Fe Drive, Suite 200, Solana Beach,
California 92075, he owns 98,700 Preferred shares which converts to
ten-for-one common stock after a holding period of two years. These
shares have ten-for-one voting rights.
36
(5) Mike Ruchman, 505 Lomas Santa Fe Drive, Suite 200, Solana Beach,
California 92075
(6) David Vandertie, 505 Lomas Santa Fe Drive, Suite 200, Solana Beach,
California, 92075
(7) 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.
At December 31, 2004, the Company had advanced $21,525 to certain employees.
The notes are non-interest bearing and due during 2005.
DESCRIPTION OF THE TRANSACTIONS
On October 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 2,820,000 preferred shares, which can be converted for common shares at a
ten-for-one ratio, after they are held for two years. 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.
37
SELLING SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of common stock as of December 31, 2004 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
11,200,000 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. We may
issue to Laurus an additional note up to $2,000,000 prior to July 15, 2005.
Such note, if any, will be governed by the terms and conditions of the
securities purchase agreement. Prior to October 18, 2007, Laurus may convert
the note, including principal and accrued interest, into shares of common stock
at an initial conversion price of $0.75 per share, subject to certain
adjustments. 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 or
office 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.
38
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) 948,000 4.99% 11,200,000 0 -
----------------------------------------------------------------------------
________________________
(1)There were 19,000,000 shares of common stock outstanding as of September 30,
2004. 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
19,000,000 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 not
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.
39
PLAN OF DISTRIBUTION
We are registering an aggregate 11,200,000 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.
40
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.
41
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 December 31, 2004, there were issued and outstanding (i) 19,000,000
shares of Common Stock held of record by approximately 200 shareholders (ii)
2,820,000 shares of Preferred Stock held of record by three shareholders which
can be converted for common shares at a ten-for-one ratio, after they are held
for two years.
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.
42
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 2,820,000 shares of Preferred Stock, Series A,
held of record by three directors of the Registrant which can be converted
for common shares at a ten-for-one ratio, after they are held for two years.
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.
43
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 The Law Offices of Thomas C. Cook, Ltd., 2921 N.
Tenaya Way, Suite 234, Las Vegas, Nevada 89128.
44
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.
45
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
December 31, 2004
IT&E International Group Page
------
Report of Independent Registered Public Accounting Firm..................F-1
Balance Sheets........................................................ F-2
Statements of Operations.............................................. F-3
Statements of Stockholders' Equity .................................. F-4
Statements of Cash Flow............................................... F-5
Notes to Consolidated Financial Statements............................ F-6-17
46
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, Inc.
(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, Inc. 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 17, 2005
F-1
IT&E Corporation
Balance Sheet
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 102,991 66,618
Investment in technology 210,444 16,000
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 Corporation
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 19,000,000 481,500
============= =============
Net income (loss) per share - basic
and fully diluted $ (0.03) $ 0.17
============= =============
The accompanying notes are an integral part of these financial statements.
F-3
IT&E CORPORATION
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 481,500 $100,750 - - $ 273,930 $424,109 $ 798,789
Net income 82,029 82,029
-------- ------- ------- ------ --------- -------- ----------
Balance,
Dec 31,
2003 481,500 100,750 - - 273,930 506,138 880,818
Merger
Trans-
action 18,518,500 (81,750) 2,820,000 2,820 78,930 - -
Issuance of
Warrants 509,860 - 509,860
Net loss (499,058) (499,058)
-------- ------- ------- ------ -------- -------- ----------
Balance,
Dec 31,
2004 19,000,000 $19,000 2,2820,000 $2,820 $862,720 $ 7,080 $ 891,620
========== ======= ========== ======= ======== ======== =========
The accompanying notes are an integral part of these financial statements.
F-4
IT&E Corporation
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 (57,961) (41,355)
Deposits (10,341) 2,853
Loan fees (357,519) -
Investment in technology (194,444) (16,000)
----------- ----------
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.
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.
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.
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,
whichrange 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.
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.
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
Leasehold improvements 17.898 1,731
--------- ---------
194,876 136,753
Less accumulated depreciation ( 91,885) ( 70,135)
--------- ---------
$ 102,991 $ 66,618
========= =========
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.
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
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 two 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.
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 The Law Offices of Thomas C. Cook, Ltd. filed as
Exhibit 5.1 to the Company's Form SB-2 filed on March 24,
2005.
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.
23.1 Consent of Independent Registered Public Accountants, filed
as Exhibit 23.1 to the Company's Form SB-2 filed on March 24,
2005.
23.2* Consent of Independent Registered Public Accountants.
24.1 Power of Attorney (see page II-3), filed as Exhibit 24.1 to
the Company's Form SB-2 filed on March 24, 2005.
24.2* Power of Attorney (see page II-3)
---------------------------------------
* This filing
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: May 3, 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.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below in so signing also makes, constitutes and appoints Peter R. Sollenne and
Kelly Alberts his true and lawful attorney-in-fact and agent, with full
power of substitution and reconstitution, for him and in his name, place, and
stead, in any and all capacities, to sign and file Registration Statement(s)
and any and all pre-or post-effective amendments to such Registration
Statement(s), with all exhibits thereto and hereto, and other documents with
the Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause
to be done by virtue hereof.
Signatures Title Date
---------------------- ---------------- -----------
/s/ Peter R. Sollenne CEO and Director May 4, 2005
----------------------
Peter R. Sollenne
/s/ Kelly Alberts President, COO and Director May 4, 2005
--------------------
Kelly Alberts
II-5