U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
Form 10-QSB
(Mark One)
[x] Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2004.
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[ ] Transition Report under Section 13 or 15(d)of the Exchange Act For the
Transition Period from ________ to ___________
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Commission File Number: 000-50095
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IT&E International Group
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(Exact name of small business issuer as specified in its charter)
Nevada 77-0436157
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 Lomas Santa Fe Drive, Suite 200, Solana Beach CA 92075
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(Address of principal executive offices) (zip code)
Issuers telephone number: 858-366-0970
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12
months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the Registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Common Stock, $0.001 par value per share, 70,000,000 shares authorized,
19,000,000 issued and outstanding as of September 30, 2004. Preferred Stock,
$0.001 par value per share, 5,000,000 shares authorized, 2,820,000 issued
and outstanding as of September 30, 2004.
Traditional Small Business Disclosure Format (check one)
Yes [ ] No [X]
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................. 3
Balance Sheet (unaudited)............................ 4
Statements of Operations (unaudited)................. 5
Statements of Cash Flows (unaudited)................. 6
Notes to Financial Statements........................ 7-8
Item 2. Management's Discussion and Analysis of Plan
of Operation........................................ 9
Item 3. Controls and Procedures.............................. 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 24
Item 2. Changes in Securities and Use of Proceeds............ 24
Item 3. Defaults upon Senior Securities...................... 24
Item 4. Submission of Matters to a Vote
of Security Holders................................. 24
Item 5. Other Information..................................... 24
Item 6. Exhibits and Reports on Form 8-K...................... 24
Signatures...................................................... 25
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND EXHIBITS
As prescribed by Item 310 of Regulation S-B, the independent auditor has
reviewed these unaudited interim financial statements of the registrant
for the nine months ended September 30, 2004. The financial statements reflect
all adjustments which are, in the opinion of management, necessary to a
fair statement of the results for the interim period presented. The
unaudited financial statements of registrant for the nine months ended
September 30, 2004, follow.
3
IT&E Corporation
Balance Sheet
(Unaudited)
BALANCE SHEET
September 30,
2004
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Assets
Current assets
Cash $ 291,760
Accounts receivable, net of allowance for
doubtful accounts of $69,703 2,082,356
Unbilled revenue 354,039
Prepaid and other current assets 56,888
Advances to employees 27,984
Investments 176,109
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Total current assets 2,989,136
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Fixed assets, net 93,501
Deposits 41,579
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$ 3,124,216
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Liabilities and Stockholders' Equity
Current Liabilities:
Line of credit - bank $ 1,494,150
Accounts payable 453,156
Accrued payroll and employee benefits 548,126
Other current liabilities 23,779
State income tax payable 4,600
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Total current liabilities 2,523,811
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Stockholders' equity:
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
Common stock, $.001 par value, 70,000,000 shares
authorized, 19,000,000 shares issued and outstanding 19,000
Additional paid-in capital 352,860
Retained earnings 225,725
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600,405
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$ 3,124,216
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The accompanying notes are an integral part of these financial statements.
4
IT&E Corporation
Statements of Operations
(Unaudited)
STATEMENTS OF OPERATIONS
For the three months ended For the nine months
ended
September 30, September 30,
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2004 2003 2004 2003
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Revenue $ 3,038,582 $ 2,570,229 $ 9,404,394 $ 7,221,941
Cost of revenue 2,410,783 1,550,390 6,693,321 4,444,606
----------- ----------- ----------- -----------
Gross profit 627,799 1,019,839 2,711,073 2,777,335
Operating expenses:
General and administrative
expenses 853,223 892,834 2,519,828 2,359,947
Sales and marketing
expenses 42,982 8,521 67,819 28,374
Depreciation expense 4,677 4,608 14,314 13,411
Officer salaries 66,731 60,000 186,731 180,000
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Total operating expenses 967,613 965,963 2,788,692 2,581,732
----------- ----------- ----------- -----------
Net operating income (339,814) 53,876 (77,619) 195,603
Other income (expense):
Other income - 4,220 - 11,453
Other (expenses) (76,397) (6,712) (136,912) (41,952)
Interest expense (18,569) (9,106) (49,032) (15,259)
----------- ----------- ----------- ------------
Total other income (expense) (94,966) (11,598) (185,944) (45,758)
Income before provision for
income taxes (434,780) 42,278 (263,563) 149,845
Provision for state
income taxes - - - -
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Net income (Loss) $ (434,780) $ 42,278 $ (263,563) $ 149,845
=========== =========== =========== ===========
Weighted average number of
common shares outstanding -
basic and fully diluted 19,000,000 11,000,000 19,000,000 11,000,000
=========== =========== =========== ===========
Net income per share -
basic and fully diluted $ (0.02) $ 0.004 $ (0.01) $ 0.01
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
5
IT&E Corporation
Statement of Cash Flow
(Unaudited)
STATEMENT OF CASH FLOWS
For the nine months ended
September 30,
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2004 2003
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Cash flows from operating activities
Net income $ (263,563) $ 149,846
Adjustments to reconcile net (loss) to
net cash (used) by operating activities:
Depreciation expense 14,314 13,411
Loss on disposal of fixed assets - -
Changes in operating assets:
Accounts receivable (600,881) (885,443)
Prepaid and other current assets (31,895) 66,829
Advances to employees 18,987 (33,687)
Accounts payable & Accrued Liabilities 306,175 20,350
Accrued payroll and employee benefits 252,565 36,305
Other current liabilities - -
State franchise tax payable - -
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Net cash (used) by operating activities (304,298) (602,389)
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Cash flows from investing activities
Purchase of fixed assets (41,197) (12,164)
Deposits (18,196) 3,874
Investment in Valtrek J.V. (160,109) -
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Net cash (used) by investing activities (219,502) (8,290)
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Cash flows from financing activities
Advances to shareholders - (2,594)
Proceeds from AFG financing 20,039 -
Proceeds from line of credit, net 639,135 550,000
Payments made on loan to former shareholder - (36,400)
Distributions to shareholders (16,850) -
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Net cash provided by financing activities 642,324 511,006
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Net increase in cash 118,524 (99.673)
Cash - beginning 173,236 160,036
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Cash - ending $ 291,760 $ 60,363
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Supplemental disclosures:
Interest paid $ - $ -
========= =========
Income taxes paid $ - $ -
========= =========
The accompanying notes are an integral part of these financial statements.
6
IT&E Corporation
Notes to financial statements
Note 1 - Basis of presentation
The consolidated interim financial statements included herein, presented in
accordance with United States generally accepted accounting principles and
stated in US dollars, have been prepared by the Company, without audit,
pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments, which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
consolidated interim financial statements be read in conjunction with the
consolidated financial statements of the Company for the period ended December
31, 2003 and notes thereto. The Company follows the same accounting policies
in the preparation of consolidated interim reports.
Results of operations for the interim periods are not indicative of annual
results.
Note 2 - Fixed assets
Depreciation expense totaled $14,314 and $13,411 for the nine-month periods
ended September 30, 2004 and 2003, respectively.
Note 3 - Line of credit - bank
The Company has a $1,500,000 renewable line of credit with a commercial bank.
The line bears interest at the bank's prime rate plus 1%. There was an
outstanding balance as of September 30, 2004 of $1,494,150. The line expires
on
November 1, 2004, and is guaranteed by all of the assets of the Company and the
personal guarantees of the stockholders. The line has certain financial
covenants.
The Company recorded interest expense of $49,032 for the nine months ended
September 30, 2004 and $15,259 for the nine months ended September 30, 2003.
Note 4 - Warrants and options
On April 13, 2004, the Company issued 2,000,000 warrants 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.
7
IT&E Corporation
Notes to financial statements
Note 5 - Reverse Merger
On April 14, 2004, the Company ("IT&E"), Clinical Trials Assistance
Corporation,
a Nevada corporation (the "Registrant") or ("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 the Registrant, through its wholly-owned subsidiary, Merger
Sub, 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 are convertible on a ten-for-one basis into CTAL $0.001 par value
common stock, after they are held for two years (the "Merger"). Immediately
after the Acquisition was consummated and further to the Agreement, Kamill
Rohny, the controlling stockholder of the Registrant, cancelled 28,000,000
shares of the Registrant'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.
The stockholders of IT&E (six 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
Registrant's common stock outstanding as of June 10, 2004. 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.
For accounting purposes, this transaction was being 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 the Registrant, and the directors and
executive officers of IT&E became the directors and executive officers of the
Registrant.
Note 6 - Subsequent events
On October 19, 2004 the Company completed a private placement transaction for
the sale of $5,000,000 newly issued convertible notes to Laurus Master Fund,
Ltd., a New York based institutional fund that specialized in direct
investments in growing, small and micro-cap companies. The financing consisted
of two facilities: A $2.5 million facility that was used to pay off the
company's then current Senior Credit Facility with Bank of Walnut Creek, for
$1.5 million and the remaining $1.0 million, net of transaction fees used for
grow working capital; the second facility is a $2.5 million convertible note
which is to be used towards either additional internal growth working capital
requirements or towards a strategic acquisition, which is a part of the
company's strategic long-term growth plans. The transaction also provides
Laurus Funds an additional right to invest up to an additional $2.0 million
prior to July 15, 2005, at their option also to be used towards a strategic
acquisition.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS
Introduction
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On April 14, 2004, IT&E International Group entered into an Acquisition
Agreement and Plan of Merger with Clinical Trials Assistance Corporation, or
Clinical Trials, through its wholly-owned subsidiary, Merger Sub. Pursuant to
the Acquisition Agreement, Clinical Trials acquired IT&E in exchange for
11,000,000 shares of the Registrant's common stock which were issued to the
holders of IT&E stock and 2,820,000 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.
Company Overview
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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 pharmaceuticals and biotechnology
companies as Eli Lilly, Novartis, Chiron, 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 business 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.
9
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.
Results of Operations
---------------------
As of September 30, 2004, the Company's current assets exceeded its current
liabilities by $465,325.
Accounts receivable at September 30, 2004 was $2.1 million, net of an allowance
for doubtful accounts of $69,703, as compared to accounts receivable at
September 30, 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 first, second and third quarters 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 nine months ended September 30, 2004, we generated service revenues of
$9.4 million as compared to $7.2 million in revenues for the nine months ended
September 30, 2003, an increase of 30.6%. Service revenues for the third
quarter ended September 30, 2004, were $3.0 million as compared to $2.6 million
during the same quarter of 2003, an increase of 18%. This increase in revenues
is a direct result in our change in sales strategy noted above.
Our strategy of signing new 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 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.
10
The cost of revenue for the nine months ended September 30, 2004 was $6.7
million, or 71% of revenues, as compared to $4.4 million, or 61% of revenues
for the nine months ended September 30, 2003. Our gross profit for the third
quarter of 2004 was 20.7% as compared to 39% 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. Also, during the quarter we incurred
additional costs of sale in taking some lower margins initially to secure
selected new business.
The nature of other expenses, are miscellaneous non-operating related expenses.
For the three months ended September 30, 2004 the expenses were unusually high
due to a $32,000 additional provision for Bad Debts to bring the Reserve to a
level the company felt was appropriate as the level of receivables had grown
significantly and payments of $16,000 were paid on outstanding accounts
payable.
Total operating expenses for the nine months ended September 30, 2004 were $2.8
million, or 29% of revenues, as compared to $2.6 million, or 36% of revenues,
for the same period last year. Total operating expenses for the third quarter
of 2004 were $967,000 as compared to $965,000 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
and costs associated with becoming a public entity. 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
the fourth quarter and into 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.
As of September 30, 2004 the allowance for doubtful accounts is deemed
appropriate by company management. While the allowance for doubtful accounts
has decreased from $183,500 at December 31, 2003 to $69,703 at September 30,
2004 and receivables have gone from $2,152,059 at September 30, 2004 from
$1,758,025, the resulting decrease in the allowance for doubtful accounts is
supported by the company writing-off old non-collectable accounts in 2004, and
the overall nature of receivables has changed from 2003 to 2004, with a much
larger level of receivables represented by top pharmaceutical and biotech
companies versus smaller dot com related companies from 2002 and 2003.
Need for Additional Funding
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With our current contract backlog and sales pipeline of in excess of $20.0
million, 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.
11
Liquidity and Capital Resources
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The Company is authorized to issue 70,000,000 shares of its $0.001 par value
common stock, 5,000,000 shares of its $0.001 par value Series A preferred
stock, 5,000,000 shares of its $0.001 par value Series B preferred stock, and
5,000,000 shares of its $0.001 par value Series C preferred shares.
Current Assets
Cash. For the period ending September 30, 2004, the Company had
$291,760 in cash. This money came from the Company's operating cash flows.
Account receivables amounted to $2,082,356, this number includes net of
allowance for doubtful accounts of $69,703.
Prepaid expenses. Prepaid expenses increased from $24,951 at September 30, 2003
to $158,158 at September 30, 2004, an increase of $133,207.
Total Current Assets. Total Current Assets were $2,989,136.
Liabilities
Total Current Liabilities. Total Current Liabilities were $2,523,811, which
gives the company a current ratio of 1.18.
Total Liabilities. Total Liabilities were $2,523,811.
The Company anticipates that its cash requirements will continue to increase
as it continues to expend substantial resources to build its infrastructure,
develop its business plan and expand its sales and marketing network
operations,
customer support and administrative organizations. The Company currently
anticipates that its available cash resources and cash generated from
operations
and the private placement will be sufficient to meet its presently anticipated
working capital and capital expenditure requirements for the next twelve
months.
If the Company is unable to maintain profitability, or seeks further expansion,
additional funding will become necessary. No assurances can be given that
either equity or debt financing will be available.
Subsequent Event:
-----------------
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.
12
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. (See financial footnote 6 entitled "Convertible
Debt.")
Employees
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IT&E employs approximately 80-85 staff 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 50-55 outside consultants who work as independent contractors
for IT&E.
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.
13
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.
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.
14
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.
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.
15
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.
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
intellectual protocols or deter independent third-party development of similar
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.
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.
16
GOVERNMENT REGULATION COULD ADVERSELY EFFECT OUR PROFITABILITY.
---------------------------------------------------------------
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.
17
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. 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
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:
18
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.
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.
19
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.
20
INVESTORS IN OUR SECURITIES MAY SUFFER DILUTION.
------------------------------------------------
The issuance of shares of Common Stock, or shares of Common Stock underlying
warrants, options or preferred stock or convertible notes will dilute the
equity interest of existing shareholders and could have a significant adverse
effect on the market price of our Common Stock. The sale of Common Stock
acquired at a discount could have a negative impact on the market price of
our Common Stock and could increase the volatility in the market price of our
Common Stock. In addition, we may seek additional financing which may result
in the issuance of additional shares of our Common Stock and/or rights to
acquire additional shares of our Common Stock. The issuance of our Common
Stock in connection with such financing may result in substantial dilution to
the existing holders of our Common Stock. Those additional issuances of Common
Stock would result in a reduction of your percentage interest in our company.
WE ARE SIGNIFICANTLY INFLUENCED BY OUR DIRECTORS, EXECUTIVE OFFICERS.
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Our directors and executive officers beneficially owned an aggregate of
approximately 57.9% of our outstanding Common Stock as of September 30, 2004.
These shareholders, acting together, would be able to exert significant
influence on substantially all matters requiring approval by our shareholders,
including the election of directors and the approval of mergers and other
business combination transactions.
LOW-PRICED STOCKS THAT MAY AFFECT YOUR ABILITY TO RESELL YOUR SHARES.
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The SEC has adopted rules that regulate broker/dealer practices in connection
with transactions in penny stocks. Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities registered
on certain national securities exchanges or quoted on the Nasdaq system,
provided that current price and volume information with respect to transactions
in such securities is provided by the exchange system). The penny stock rules
require a broker/dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document
prepared by the SEC that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker/dealer also must
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker/dealer, and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules require that prior
to a transaction in a penny stock not otherwise exempt from such rules, the
broker/dealer must make a special written determination that a penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in any secondary market for a
stock that becomes subject to the penny stock rules, and accordingly, customers
in Company securities may find it difficult to sell their securities, if at
all.
21
Market For Company's Common Stock
(i) Market Information
----------------------
The Company's Common Stock is traded on the OTC Bulletin Board under the
symbol "ITER." There has been limited trading activity in the Common Stock.
There are no assurances trading activity will take place in the future
for the Company's Common Stock.
(a) There are currently 2,000,000 warrants for shares of Common Stock which
are subject to conversion on a one-to-one basis. These are five year warrants,
which include piggyback registration rights on the underlying stock, with an
exercise price of to be mutually determined by the Board of Directors and
Warrant Holder(s), the exercise date is not sooner than one year and not later
than five years, ending April, 2009. There are no outstanding options to
purchase, or securities convertible into, the Company's common stock.
(b) There are currently 1,875,000 shares common stock of the Company which
could be sold under Rule 144k under the Securities Act of 1933, as amended.
(c) The Company did not repurchase any of its shares during the second quarter
of the fiscal year covered by this report.
(ii) Dividends
--------------
Holders of common stock are entitled to receive such dividends as the board
of directors may from time to time declare out of funds legally available for
the payment of dividends. No dividends have been paid on our common stock, and
we do not anticipate paying any dividends on our common stock in the
foreseeable future.
Forward-Looking Statements
--------------------------
This Form 10-QSB includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included or incorporated by reference in this
Form 10-QSB which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such things
as future capital expenditures (including the amount and nature thereof),
finding suitable merger or acquisition candidates, expansion and growth of the
Company's business and operations, and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses
made by the Company in light of its experience and its perception of
historical trends, current conditions and expected future developments as
well as other factors it believes are appropriate in the circumstances.
22
However, whether actual results or developments will conform with the
Company's expectations and predictions is subject to a number of risks and
uncertainties, general economic market and business conditions; the business
opportunities (or lack thereof) that may be presented to and pursued by the
Company; changes in laws or regulation; and other factors, most of which
are beyond the control of the Company.
This Form10-QSB contains statements that constitute "forward-looking
statements." These forward-looking statements can be identified by the use of
predictive, future-tense or forward-looking terminology, such as "believes,"
"anticipates," "expects," "estimates," "plans," "may," "will," or similar
terms. These statements appear in a number of places in this Registration and
include statements regarding the intent, belief or current expectations of
the Company, its directors or its officers with respect to, among other
things: (i) trends affecting the Company's financial condition or results of
operations for its limited history; (ii) the Company's business and growth
strategies; and, (iii) the Company's financing plans. Investors are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties, and that actual
results may differ materially from those projected in the forward-looking
statements as a result of various factors. Factors that could adversely
affect actual results and performance include, among others, the Company's
limited operating history, dependence on continued growth in the irrigation
industry, potential fluctuations in quarterly operating results and expenses,
government regulation dealing with irrigation systems, technological change
and competition.
Consequently, all of the forward-looking statements made in this Form 10-QSB
are qualified by these cautionary statements and there can be no assurance
that the actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have the expected
consequence to or effects on the Company or its business or operations. The
Company assumes no obligations to update any such forward-looking statements.
Item 3. Controls and Procedures
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the principal
executive officer and principal financial officer, of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based on this
evaluation, the principal executive officer and principal financial officer
concluded that the Company's disclosure controls and procedures are effective
to ensure that information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. There was no change in the Company's
internal control over financial reporting during the Company's most recently
completed fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial reporting.
23
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not a party to any legal proceedings.
ITEM 2. Changes in Securities and Use of Proceeds
On October 18, 2004, the Registrant, entered into a Securities Purchase
Agreement with and Laurus Master Funds, Ltd., an accredited investor. Pursuant
to the Agreement, the Registrant sold to Laurus a Secured Convertible Term Note
in an aggregate principal amount of $5,000,000 and issued a warrant to purchase
up to 1,924,000 shares of the Company's common stock. The Company may issue to
Laurus an additional note up to $2,000,000 prior to July 15, 2005. The funds
from the Note will be used to pay off the Company's existing debt in the amount
of $1,500,000 and for working capital; provided, however, $2,500,000 has been
placed in a restricted cash account to be distributed in accordance with the
terms and condition of the Restricted Account Agreement dated October 18, 2004.
The Agreement also grants Laurus a right of first refusal to participate in any
future issuance of debt or equity securities by the Company. (See Current
Report, dated October 18, 2004, filed with the Commission.)
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
During the quarter ended, no matters were submitted to the Company's
security holders.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Title of Document
-----------------------------------------------
31.1 Certifications of the Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K, during the Quarter ended September 30, 2004.
The Company filed a Current Report dated October 18, 2004, pursuant to Item
1.01; ("Entry into a Material Definitive Agreement"); Item 3.02 ("Unregistered
Sales of Equity Securities"); and Item 9.01 ("Exhibits").
24
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
IT&E International Group
------------------------
(Registrant)
Dated: May 4, 2005 By: /s/ Peter R. Sollenne
----------- ---------------------------------
Peter R. Sollenne
Chief Executive Officer
Director
Dated: May 4, 2005 By: /s/ Kelly Alberts
----------- ---------------------------------
Kelly Alberts
President/COO
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
IT&E International Group
Dated: May 4, 2005 By: /s/ Peter R. Sollenne
----------- ---------------------------------
Peter R. Sollenne
Chief Executive Officer
Director
Dated: May 4, 2005 By: /s/ Kelly Alberts
----------- ---------------------------------
Kelly Alberts
President/COO
25