U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 June 30, 2005.
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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,
21,344,198 issued and outstanding as of June 30, 2005. Preferred Stock, $0.001
par value per share, 5,000,000 shares authorized, 2,000,000 issued and
outstanding, and 820,000 to be issued subject to shareholder approval as of June
30, 2005.
Traditional Small Business Disclosure Format (check one)
Yes [ ] No [X]
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................. 3
Balance Sheets as of June 30, 2005 (unaudited) and
December 31, 2004 (audited).......................... 4
Statements of Operations for the three and six months
Ended June 30, 2005 and 2004(unaudited).............. 5
Statements of Cash Flows for the six months ended
June 30, 2005 and 2004 (unaudited)................... 6
Notes to Unaudited Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 9
Item 3. Controls and Procedures.................................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 16
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds............................................. 16
Item 3. Defaults upon Senior Securities............................ 16
Item 4. Submission of Matters to a Vote
of Security Holders....................................... 16
Item 5. Other Information.......................................... 16
Item 6. Exhibits .................................................. 16
Signatures........................................................... 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND EXHIBITS
As prescribed by Item 310 of Regulation S-B, the registered independent public
accounting firm has reviewed these unaudited interim financial statements of the
registrant for the three and six months ended June 30, 2005. 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 three and six months
ended June 30, 2005, follow.
3
IT&E INTERNATIONAL GROUP
Balance Sheet
June 30,
2005 December 31,
(unaudited) 2004
----------- -----------
Assets
Current assets:
Cash - unrestricted $ 1,018,298 $ 402,779
Cash - restricted 2,039,233 2,506,862
Accounts receivable, net of allowance for doubtful accounts
of $75,000 at June 30, 2005 and December 31, 2004 2,252,731 2,644,501
Unbilled revenue 218,603 133,398
Prepaid and other current assets 148,545 77,175
------------------ -----------------
Total current assets 5,677,410 5,764,715
------------------ -----------------
Fixed assets, net 288,398 313,435
Loan fees, net 662,581 807,144
Deposits 14,354 33,724
------------------ -----------------
$ 6,642,743 $ 6,919,018
================== =================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 483,259 $ 612,647
Accrued payroll and employee benefits 612,884 322,300
Current portion of capital lease obligations 3,280 3,089
Current portion of convertible note payable 1,200,000 666,667
Accrued interest on note payable 136,550 38,454
Deferred rent 27,183 30,293
Other accrued liabilities 40,000 4,600
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Total current liabilities 2,503,156 1,678,050
------------------ -----------------
Long-term capital lease obligations, less current portion 14,591 16,015
Long-term convertible note payable, less current portion 3,600,000 4,333,333
------------------ -----------------
6,117,747 6,027,398
Stockholders' equity:
Common stock, $.001 par value, 70,000,000 shares
authorized, 21,344,198 and 19,000,000 shares issued
and outstanding, respectively 21,344 19,000
Preferred stock, $.001 par value, 5,000,000 shares
authorized, 2,000,000 shares issued and outstanding 2,000 2,000
Additional paid-in capital 1,125,496 863,540
Retained earnings (deficit) (623,844) 7,080
------------------ -----------------
524,996 891,620
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$ 6,642,743 $ 6,919,018
================== =================
The accompanying notes are an integral part of these financial statements.
4
IT&E INTERNATIONAL GROUP
Statements of Operations
(Unaudited)
For the three months ended For the six months ended
June 30, June 30,
-------------------------- -------------------------
2005 2004 2005 2004
------- -------- -------- --------
Service revenue $ 4,297,356 $ 3,221,834 $ 8,743,936 $ 6,366,382
Reimbursement revenue 134,608 143,524 232,955 204,186
----------- ----------- ----------- -----------
Total revenue 4,431,964 3,365,358 8,976,891 6,570,568
Cost of revenue 3,006,847 2,153,185 6,021,457 4,282,538
Reimburseable out-of-pocket expenses 134,608 143,524 232,955 204,186
----------- ----------- ----------- -----------
Gross profit 1,290,509 1,068,649 2,722,479 2,083,844
Operating Expenses:
General and administrative expenses 753,440 679,823 1,553,715 1,224,883
Sales and marketing expenses 470,667 226,839 701,350 446,230
Depreciation expense 25,601 4,780 42,749 9,636
Officer compensation 242,096 118,750 448,843 217,500
----------- ----------- ----------- -----------
Total operating expenses 1,491,804 1,030,192 2,746,657 1,898,249
----------- ----------- ----------- -----------
Net operating income (201,295) 38,457 (24,178) 185,595
Other income (expense):
Interest income 18,629 - 34,689 -
Interest expense (119,994) (8,778) (220,333) (30,464)
Loan fee amortization (72,281) - (144,563) -
Fees on long-term debt 0 - (214,039) -
Non-cash financing costs 0 - (62,500) -
Other income (expense) 0 - 0 14,490
----------- ----------- ----------- -----------
Total other income (expense) (173,646) (8,778) (606,746) (15,974)
----------- ----------- ----------- -----------
Income (loss) before provision for income taxes (374,941) 29,679 (630,924) 169,621
Provision for state income taxes - - - -
----------- ----------- ----------- -----------
Net income (loss) $ (374,941) $ 29,679 $ (630,924) $ 169,621
=========== =========== =========== ===========
Weighted average number of
common shares outstanding - basic and fully diluted 20,844,437 19,000,000 19,938,363 19,000,000
=========== =========== =========== ===========
Net income (loss) per share - basic and fully diluted $ (0.02) $ 0.00 $ (0.03) $ 0.01
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
5
IT&E INTERNATIONAL GROUP
Statements of Cash Flow
(Unaudited)
For the six months ended
June 30,
----------------------------------
2005 2004
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Cash flows from operating activities
Net income (loss) $ (630,924) $ 169,621
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation expense 42,749 9,636
Amortization of loan fees 144,563 -
Deferred rent (3,110) -
Stock issued for financing costs 62,500 -
Stock issued for compensation 200,000 -
Changes in assets and liabilities:
Accounts receivable 391,770 (674,839)
Unbilled revenue (85,205) -
Prepaid and other current assets (71,370) (19,626)
Accounts payable (129,388) 109,560
Accrued payroll and employee benefits 290,584 165,156
Accrued interest on note payable 98,096 -
Other current liabilities 35,400 12,337
----------------- ------------------
Net cash provided by operating activities 345,665 (228,155)
----------------- ------------------
Cash flows from investing activities
Purchase of fixed assets, including internal-use software (17,712) (166,405)
Deposits 19,370 (18,196)
----------------- ------------------
Net cash (used) by investing activities 1,658 (184,601)
----------------- ------------------
Cash flows from financing activities
Proceeds from line of credit, net - 443,000
Payments on capital lease obligations (1,233) -
Payments on convertible note payable (200,000) -
Proceeds from exercise of warrants 1,800 -
Distributions to shareholders - (16,850)
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Net cash provided (used) by financing activities (199,433) 426,150
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Net increase in cash and cash equivalents 147,890 13,394
Cash and cash equivalents, beginning of period 2,909,641 173,236
----------------- ------------------
Cash and cash equivalents, end of period $ 3,057,531 $ 186,630
================= ==================
Supplemental disclosures:
Interest paid $ 83,783 $ 30,464
================= ==================
Income taxes paid $ - $ -
================= ==================
The accompanying notes are an integral part of these financial statements.
6
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
In this discussion, the terms "Company", "we", "us", and "our", refer to IT&E
International Group and subsidiaries, except where it is made clear otherwise.
We are a life sciences service organization focused on providing our clients
with project-based consulting services in the areas of FDA regulatory
compliance, data management, biometrics and clinical validation throughout the
clinical trials lifecycle. Our services range from recruitment of patients for
clinical trials and providing skilled personnel to assist with managing
clinical trials, to providing enterprise software solutions and training to
manage data to ensure FDA compliance. We also provide validation services for
new pharmaceutical manufacturing facilities. We serve a variety of clients,
including those in the private industry, public institutions, research
facilities and the government.
We were incorporated in the State of Nevada in 2002 as Clinical Trials
Assistance Corporation. In April 2004, we merged with IT&E International, Inc.
and changed our name to IT&E International Group.
2. BASIS OF PRESENTATION
The consolidated interim financial statements included herein, presented in
accordance with United States generally accepted accounting principles and
stated in US dollars, have been prepared by us, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although we
believe that the disclosures are adequate to make the information presented not
misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments, which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
consolidated interim financial statements be read in conjunction with our
consolidated financial statements for the year ended December 31, 2004 and the
notes thereto. We have followed the same accounting policies in the
preparation of these consolidated interim reports.
Results of operations for the interim periods are not indicative of annual
results. Certain amounts in the 2004 financial statements have been
reclassified to conform to the presentation of the 2005 financial statements.
7
IT&E INTERNATIONAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. FIXED ASSETS
During the six months ended June 30, 2005 we had $17,712 of fixed asset
additions.
Depreciation expense totaled $25,601 and $4,780 for the three months ended June
30, 2005 and 2004, respectively, and $42,749 and $9,636 for the six months ended
June 30, 2005 and 2004, respectively.
4. CONVERTIBLE DEBT
We have outstanding a $5,000,000 secured convertible term note to Laurus Master
Fund, Ltd ("Laurus"). $2.5 million of these funds were originally placed into a
restricted cash account that was under the sole dominion and control of Laurus
as security for our obligations. During the first quarter of 2005, as a result
of not meeting the requirement of causing the registration statement covering
the shares of our common stock into which the principal and interest under the
Note are convertible to become effective, we have incurred fees of approximately
$214,000. During April 2005, Laurus released $500,000 of the restricted funds to
pay these fees, along with the accrued interest owed on the $500,000. During
August 2005, Laurus released the remaining $2 million, plus the interest that
had been earned on the restricted funds. Of this amount, approximately $128,000
was used to pay interest that had been accruing under the note owed to Laurus.
The remaining $1.9 million is intended to be used for potential merger and
acquisition activity, as well as other general operating purposes. The minimum
monthly principal repayment of $100,000 began on May 1, 2005 and continued
through the August 1, 2005 payment. With the release of the remaining $2
million, the minimum monthly principal repayment will increase to approximately
$177,000 and continue through the October 18, 2007 maturity date.
We recorded interest expense of approximately $119,000 and $218,000 for the
three and six months ended June 30, 2005 related to this convertible note, and
approximately $9,000 and $30,000 for the three and six months ended June 30,
2004 related to a bank line of credit that was paid off with the proceeds of the
Laurus note.
5. STOCKHOLDER'S EQUITY
During March 2005, 83,330 shares of common stock were issued to SBI USA as
payment for investment banking consulting services valued at $62,500.
During April 2005, 500,000 shares of common stock were issued to our former Vice
President of Sales for services rendered at a value of $200,000, and in May
2005, 1,760,868 shares were issued as the result of the exercise of warrants
previously granted to individuals associated with the April 2004 reverse merger.
Preferred stock outstanding at June 30, 2005 and December 31, 2005 has been
adjusted by $820 to account for 820,000 shares that were previously noted as
outstanding, but are in fact to be issued subject to shareholder approval.
Stock options
On April 29, 2005, we adopted the "2005 Equity Incentive Plan" (the "Plan")to
provide a means by which we can retain and maximize the services of our current
employees, directors and consultants. An aggregate of 7.5 million shares of our
common stock may be issued pursuant to awards from the Plan. The Plan, and the
options granted thereunder, are subject to shareholder approval. On that same
date, incentive and nonqualified stock options with rights to purchase 1,784,250
shares of the Company's $0.001 par value common stock were granted at an
exercise price of $.25. Of the options granted to date, 1,333,750 options were
granted to our officers.
The following is a summary of activity of outstanding stock options under the
2005 Equity Incentive Plan:
Weighted
Average
Number Exercise
of Shares Price
--------------- ---------------
Options granted April 29, 2005 1,784,250 $ 0.25
Options exercised - -
---------------
Balance at June 30, 2005 1,784,250 $ 0.25
===============
Exercisable at June 30, 2005 127,041 $ 0.25
===============
The following is a summary of information about the 2005 Stock Option Plan
options outstanding at June 30, 2005:
Shares Underlying
Shares Underlying Options Outstanding Options Exercisable
----------------------------------------------------------------- -------------------------------
Average Weighted
Range of Remaining Average
Exercise Outstanding Contractual Exercise Options Exercise
Prices Options Life Price Exercisable Price
---------------- --------------- -------------- ------------ --------------- --------------
$0.25-$0.25 1,784,250 3 years $ 0.25 127,041 $ 0.25
We measure our stock-based compensation using the intrinsic value method of
accounting in accordance with Accounting Principles Board No. 25, "Accounting
for Stock Issued to Employees." Because we establish the exercise price based on
the fair market value of our common stock at the date of grant, the options have
no intrinsic value upon grant, and therefore no expense is recorded. Equity
instruments issued to non-employees for goods and services are accounted for at
fair value.
As required by Financial Accounting Standards Board (FAS) No. 123, "Accounting
for Stock-Based Compensation," and FAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," the pro forma effects of stock-based
compensation on net loss and net loss per common share have been estimated at
the date of grant using the Black-Scholes option pricing model with the
following assumptions used for grants under the fixed option plan: average
risk-free interest rate of 3.73%, average expected life of 3 years, and a
volatility rate of 70.20%.
Three Months Ended Six Months Ended
June 30, 2005 June 30, 2005
---------------------------- -----------------------------
2005 2004 2005 2004
-------------- ------------ -------------- -------------
Net income (loss) attributable to
common stockholders:
As reported $(374,941) $ 29,679 $(630,924) $169,621
Fair value of stock-based employee compensation (211,304) - (211,304) -
-------------- ------------ -------------- -------------
Pro forma $(586,245) $ 29,679 $(842,228) $169,621
============== ============ ============== =============
Net income (loss) per share:
As reported $ (0.02) $ - $ (0.03) $ 0.01
============== ============ ============== =============
Proforma $ (0.03) $ - $ (0.04) $ 0.01
============== ============ ============== =============
The Black-Scholes option valuation model was developed for use in estimating the
fair value of short-term traded options that have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including expected stock price volatility.
Because our stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information discussed below is derived from the Financial Statements
included in this Form 10-QSB for the three and six months ended June 30, 2005,
and should be read in conjunction therewith. Our results of operations for a
particular quarter may not be indicative of results expected during subsequent
quarters or for the entire year.
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. We are managed in one reportable segment.
Our contracts are primarily time and materials contracts that recognize revenue
as hours are worked based on the hourly billing rates for each contract.
We incur out-of-pocket costs in excess of contract amounts. These out-of-pocket
costs are generally reimbursable by our customers. We include out-of-pocket
costs as reimbursement revenues and reimbursable out-of-pocket expenses in the
Statements of Operations.
Cost of revenue consists of compensation and related payroll taxes for our
project-related staff, as well as for externally contracted personnel. Sales and
marketing expenses consist of compensation and related payroll taxes for sales
and marketing personnel, along with their out-of-pocket costs, as well other
costs such as advertising and trade shows. General and administrative expenses
consist of compensation and related payroll taxes for our administrative staff,
fringe benefits for all personnel, outside professional costs, facility costs
and other costs.
Our industry continues to be dependent on the research and development efforts
of pharmaceutical and biotechnology companies as major customers, and we believe
this dependence will continue. Our client list includes many of the top-tier
pharmaceutical and biotechnology companies. Through the six months ended June
30, 2005, contracts with Boston Scientific, Schering-Plough and Pfizer resulted
in approximately 20%, 13% and 12% of our service revenues, respectively. The
loss of business from any of our major customers could have a material adverse
effect on us.
9
We are in the process of seeking other businesses to acquire so that we can
expand our operations. These acquisitions could result in us needing to incur
additional debt or sell or issue additional equity to fund the transactions.
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 acquisition 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 raise the funds required for
the transaction, the time required to prepare appropriate documentation and
other circumstances.
Though the overall outlook for our continued financial growth remains positive
as our pipeline for new customers remains solid, our results of operations are
subject to volatility due to a variety of factors. The cancellation or delay of
contracts and cost overruns could have short-term adverse affects on the
financial statements. Fluctuations in the ability to maintain large customer
contracts or to enter into new contracts could hinder our long-term growth. In
addition, our aggregate backlog, consisting of signed contracts and letters of
intent, is not necessarily a meaningful indicator of future results.
Accordingly, no assurance can be given that we will be able to realize the
service revenues included in our backlog.
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 stronger position in our industry.
10
Results of Operations
---------------------
Service Revenues
Service revenues for the second quarter ended June 30, 2005, were $4.3 million,
an increase of 33% from the same quarter last year of $3.2 million. This
increase in revenue is a result of our change in sales strategy that we began
during the second half of 2004 to target major pharmaceutical and biotechnology
customers. We also expanded our services to clients supporting the U.S.
Government's Bio Defense initiatives by assisting companies that are producing
needed vaccines for anti-terrorism measures.
Service revenues for the six months ended June 30, 2005, were $8.7 million, an
increase of 37% from the same period in 2004 of $6.4 million. This increase is
also due the reasons noted in the previous paragraph.
Reimbursement Revenues
Reimbursable out-of-pocket revenues fluctuate from period to period, primarily
due to the level of service activity in a particular period. Reimbursement
revenues increased 62% to $98,000 in the first quarter of 2005 from $61,000 in
the same quarter of 2004.
Operating Expenses
Cost of revenues for the three months ended June 30, 2005 were $3.0 million, an
increase of approximately 40%, from $2.2 million in the second quarter of 2004.
Gross profit as a percentage of service revenues were 30% for the second quarter
of 2005 as compared to 33% during the same period in 2004. Cost of revenues for
the six months ended June 30, 2005 were $6.0 million as compared to $4.3 million
during the same period of 2004. Gross profit as a percentage of service revenues
during those six month periods were 31% and 33% in 2005 and 2004, respectively.
During the second quarter of 2005 we earned lower margins than in 2004 as a
result of servicing contracts in which we initially took lower margins to secure
selected new business. In addition, during the second quarter of 2005, we
completed several projects and were not able to immediately place our personnel
on new projects resulting in costs being incurred without the ability to invoice
a customer. We are working to improve these margins by way of controlling the
cost of providing our contractors to the customer, as well as to improve our
personnel management to reduce the amount of time our employees are not
billable.
General and administrative expenses increased by approximately $74,000, or 11%,
to $753,000 during the second quarter of 2005 as compared to $680,000 during the
second quarter of 2004. This increase is primarily the result of increased costs
associated with being a public company that we did not have in 2004, as well as
costs incurred to add depth to our management team, and for outside consultants
to assist us with our merger and acquisition strategy. We expect these costs to
continue throughout 2005 as we continue to grow as a public entity and move
ahead with our strategy of seeking follow-on investors to support our
acquisition strategy.
Sales and marketing expenses increased by $244,000 to $471,000 in the second
quarter of 2005 from $227,000 during the second quarter of 2004. The increase is
primarily the result of the issuance of 500,000 shares of common stock to our
former Vice President of Sales for his part in the growth of the company. These
shares were valued at $200,000 on the date of issuance.
11
Depreciation and amortization expense increased to $25,601 in the second quarter
of 2005 from $4,780 during the same period in 2004. The increase is due to our
beginning to depreciate our developed internal-use software during the first
quarter of 2005.
Officer compensation increased to $242,000 during the second quarter of 2005 as
compared to $119,000 in 2004. During 2004, the cash situation was such that the
officers paid themselves a reduced salary in order to pay other company
commitments.
Other Income (Expense) We did not earn any interest income during the first six
months of 2004. Interest income began to be earned when the $5 million
convertible note with Laurus Master Fund, Ltd ("Laurus") occurred in October
2004. Interest income for the three and six months ended June 30, 2005 was
$19,000 and $35,000, respectively.
Interest expense increased to approximately $120,000 and $220,000 during the
three and six months ended June 30, 2005 from approximately $9,000 and $30,000
during the same periods in 2004. This increase is the result of moving from a
$1.5 million bank line of credit to the $5 million convertible note with Laurus.
Loan fee amortization was approximately $72,000 and $144,000 for the three and
six months ended June 30, 2005. The loan fee costs were incurred related to the
$5 million convertible note with Laurus. There were no loan fees incurred during
the same periods in 2004.
During the first quarter of 2005, we incurred fees to Laurus as a result of not
meeting the requirement of causing the registration statement covering the
shares of our common stock into which the principal and interest under the note
are convertible to become effective. During April 2005, Laurus released $500,000
of the restricted funds to pay these fees, along with the accrued interest on
those funds. In addition, the requirement to have the registration statement
become effective was extended to June 15, 2005 before any additional fees are
incurred. This requirement was further extended to August 31, 2005 upon the
release of the final $2 million of restricted funds.
During the first quarter of 2005, we issued 83,330 shares of our common stock to
SBI USA as payment for investment banking consulting services valued at $62,500.
During the second quarter ended June 30, 2005, 500,000 shares of common stock
were issued to our former Vice President of Sales for services rendered, and
1,784,250 shares were issued as the result of the exercise of warrants
previously granted to individuals associated with the April 2004 reverse merger.
Liquidity and Capital Resources
-------------------------------
At June 30, 2005, cash and cash equivalents was approximately $3.1 million, an
increase of approximately, $148,000 from December 31, 2004. At June 30, 2005 and
December 31, 2004, $2.0 million and $2.5 million of the cash and cash
equivalents were restricted. In August 2005, the remaining $2 million was
released from the restricted account is intended to be used for potential merger
and acquisition activity, as well as other general operating purposes. The
minimum monthly principal repayment of $100,000 began on May 1, 2005 and
continued through the August 1, 2005 payment. With the release of the remaining
$2 million, the minimum monthly principal repayment will increase to $177,000
and continue through the October 18, 2007 maturity date.
Accounts receivable at June 30, 2005 was $2.3 million, net of an allowance for
doubtful accounts of $75,000, as compared to accounts receivable at December 31,
2004 of $2.6 million, net of an allowance for doubtful accounts of $75,000. The
decrease was due primarily to increased activity in bringing our accounts
receivable more current. We review our outstanding receivables on a monthly
basis to determine collectibility, and we believe that maintaining our allowance
at $75,000 is proper due the number of well-established customers that we are
servicing and our collection history.
12
Unbilled revenues are receivables recognized as revenue for which services or
costs have been incurred, but invoices have not been sent to customers as of the
end of a month. At June 30, 2005, unbilled revenues were approximately $219,000,
as compared to $133,000 at December 31, 2004.
Need for Additional Funding
---------------------------
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.
Total Current Assets at June 30, 2005 were approximately $5.7 million as
compared to approximately $5.8 million as of December 31, 2004.
Total Current Liabilities at June 30, 2005 were approximately $2.5 million as
compared to approximately $1.7 million at December 31, 2004. This increase is
primarily the result of an increase in accrued payroll and employee benefits, an
increase in the current portion owed on the note payable to Laurus since
principal payments began on May 1, 2005, and an increase in accrued interest and
fees owed on the note to Laurus.
Total Liabilities at June 30, 2005 were approximately $6.1 million as compared
to $6.0 million at December 31, 2004. Of the amount due at June 30, 2005, $4.9
million was due to Laurus.
We anticipate that our cash requirements will continue to increase as we
continue to expend substantial resources to build our infrastructure, develop
our business plan and expand our sales and marketing network operations,
customer support and administrative organizations. We currently anticipate that
our available cash resources and cash generated from operations will be
sufficient to meet our presently anticipated working capital and capital
expenditure requirements for the next twelve months. If we are unable to
maintain profitability, or seek further expansion, additional funding will
become necessary. No assurances can be given that either equity or debt
financing will be available.
Employees
---------
At June 30, 2005, IT&E employed 88 employees. These employees represent the
following employment mix for the company: 10% administration, 5% recruiting, 5%
sales, and 80% contract service providers. Additionally, we utilize the services
of approximately 20 outside consultants who work as independent contractors.
13
Market For Company's Common Stock
(i) Market Information
----------------------
Our 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 our common stock.
We did not repurchase any of our shares during the first six months of 2005.
(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 we expect or
anticipate 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 our business and
operations, and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by us in light of
our experience and our perception of historical trends, current conditions and
expected future developments, as well as other factors we believe are
appropriate in the circumstances.
However, whether actual results or developments will conform with our
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 us; changes in laws or
regulation; and other factors, most of which are beyond our control.
14
This Form 10-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," "intends," "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, our directors or our officers with respect to,
among other things: (i) trends affecting our financial condition or results of
operations for our limited history; (ii) our business and growth strategies;
and, (iii) our 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, our limited operating history, potential
fluctuations in quarterly operating results and expenses, government regulation,
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 us will be realized or, even if
substantially realized, that they will have the expected consequence to or
effects on the Company or our business or operations. We assume 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, we conducted an evaluation,
under the supervision and with the participation of the principal executive
officer and principal financial officer, of our 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 our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in reports that we file or submit 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 our internal control over financial reporting during our most
recently completed fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
15
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
We are not a party to any legal proceedings.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the second quarter ended June 30, 2005, we issued 500,000 shares of
common stock to our former Vice President of Sales for services rendered, and
1,760,868 shares were issued as the result of the cashless exercise of warrants
previously granted to individuals associated with the April 2004 reverse merger.
The offers, sales and issuance of these securities were deemed exempt from
registration under the Securities Act of 1933, as amended (the "Securities Act")
in reliance on Section 4(2) of the Securities Act and/or Regulation D
promulgated thereunder as transactions not involving a public offering.
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 our security holders.
ITEM 5. Other Information
None.
ITEM 6. Exhibits
(a) Exhibits
Exhibit
Number Title of Document
-----------------------------------------------
10.1 Omnibus Amendment dated July 29, 2005 by and between the
Registrant and Laurus Master Fund Ltd. and related Amended and
Restated Secured Convertible Term Note.
31.1 Certifications of the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certifications of the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1 Certifications of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
32.2 Certifications of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
16
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: August 15, 2005 By: /s/ Peter R. Sollenne
--------------- ---------------------------------
Peter R. Sollenne
Chief Executive Officer
Director
Dated: August 15, 2005 By: /s/ Kelly Alberts
--------------- ---------------------------------
Kelly Alberts
President/COO
Director
17