U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB/A
(Amendment No. 2)
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ___________ to ___________
Commission File Number: 000-50095
IT&E INTERNATIONAL GROUP
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(Name of Small Business Issuer in Its Charter)
Nevada 77-0436157
------------------------------- -----------------------------------
(State or other jurisdiction of I.R.S. Employer Identification #
incorporation or organization)
505 Lomas Santa Fe Drive, Suite 200, Solana Beach, California 92075
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(Address of principal executive offices) (Zip Code)
(858) 366-0970
--------------------------
Issuer's Telephone Number
Securities registered under Section 12(b) of the Exchange Act:
Title of each class registered: None Name of each exchange on which
registered: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001
-----------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for 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 [ ]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $13,843,137.
The aggregate market value on December 31, 2004 of voting stock held by
non-affiliates was $3,840,000.
Common Stock, $0.001 par value per share, 70,000,000 shares authorized,
19,000,000 issued and outstanding as of December 31, 2004. Preferred Stock,
$0.001 par value per share, 5,000,000 shares authorized, 2,000,000 shares,
issued and outstanding, and 820,000 to be issued subject to shareholder
approval, as of December 31, 2004.
Documents incorporated by reference: See Item 13. Exhibits and Reports
on Form 8-K in Part III.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
1
Forward-Looking Statements
This report contains forward-looking statements. The forward-looking statements
include all statements that are not statements of historical fact. The
forward-looking statements are often identifiable by their use of words such as
"may," "expect," "believe," "anticipate," "intend," "could," "estimate," or
"continue," "plans" or the negative or other variations of those or comparable
terms. Our actual results could differ materially from the anticipated results
described in the forward-looking statements. Factors that could affect our
results include, but are not limited to, those discussed in Item 6,
"Management's Discussion and Analysis or Plan of Operation" and included
elsewhere in this report.
2
Explanatory Note
IT&E International Group (the "Company") is filing this Amendment No. 2 on Form
10-KSB/A to its annual report on Form 10-KSB for the year ended December 31,
2004 that was originally filed on March 25, 2005 (the "Original Form 10-KSB")
and subsequently amended and refiled on July 15, 2005 (the "Amended Form
10-KSB") to restate its financial statements for the year ended December 31,
2004 to reflect that the Company has determined that the item "Cash-restricted"
in the amount of $2,506,862 reflected on the balance sheet as a current asset
does not fall within the definition of an "asset" under generally accepted
accounting principles ("GAAP") since the restricted cash was under the sole
dominion and control of Laurus Master Fund, Ltd. In addition, the item
"Long-term convertible note payable, less current portion" reflected on the
balance sheet has been correspondingly reduced by $2,500,000 because the Company
has also determined that the portion of the proceeds from the issuance of such
convertible promissory note that was placed in the restricted account does not
fall within the definition of "liability" under GAAP. This restatement also
impacts the Statements of Operations, the Statements of Stockholders' Equity,
and the Statements of Cash Flow for the year ended December 31, 2004, as
interest income of $6,862 had been previously recorded, along with accrued
interest payable of $38,455 on the restricted proceeds. Several
reclassifications were also made to prior interest expense transactions, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Footnote 6 to the financial statements included herein have been
amended to reflect the foregoing.
While this Amendment does not update any other information contained in the
Amended Form 10-KSB, for the convenience of the reader, this Amendment amends in
its entirety the Amended Form 10-KSB. This Amendment continues to speak as of
the date of the Original Form 10-KSB, and the Company has not updated the
disclosure contained herein to reflect any events that have occurred after that
date.
CONTENTS
PAGE
PART I
Item 1. Description of Business........................................4
Item 2. Description of Property.......................................11
Item 3. Legal Proceedings.............................................11
Item 4. Submission of Matters to a Vote of Security Holders...........12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters......13
Item 6. Management's Discussion and Analysis or Plan of Operation.....14
Item 7. Financial Statements..........................................18
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................19
Item 8A. Controls and Procedures.......................................19
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act...............................................20
Item 10. Executive Compensation........................................23
Item 11. Security Ownership of Certain Beneficial Owners and
Management.................................................26
Item 12. Certain Relationships and Related Transactions................28
Item 13. Exhibits and Reports on Form 8-K..............................28
Item 14. Principal Accountant Fees and Services........................29
SIGNATURES ..............................................................30
3
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(i) Business Development, Organization and Acquisition Activities
IT&E International Group., a life science company, hereinafter referred to as
"we", "us", "our", "the Company", "IT&E" or "the Registrant" was organized under
the name Clinical Trials Assistance Corporation, or ("Clinical Trials") by the
filing of Articles of Incorporation with the Secretary of State of the State of
Nevada on April 22, 2002. On June 14, 2004, Clinical Trials merged with IT&E
International, Inc. and amended its Articles to change the corporate name to
IT&E International Group.
We are a life sciences organization focused on providing our clients with
solutions to complex needs in clinical research and regulatory compliance. We
serve a variety of clients, including those in the private industry, public
institutions, research facilities and the government. By focusing on specialized
practice areas in regulatory compliance, clinical research, and international
development of global health and advanced technology research, we are able to
offer solutions with one common goal in mind, to improve the human condition by
delivering solutions to the Life Sciences community.
(ii) Principal Products, Services, and Principal Markets
IT&E is a provider of a broad range of services to the Life Sciences Industries.
We primarily provide our clients with solutions to complex needs in clinical
research and regulatory compliance.
We provide regulatory compliance services to pharmaceutical, biotech, healthcare
and other life science companies by providing to them the expertise to evaluate,
structure, implement and maintain effective quality programs and processes that
ensure compliance with applicable FDA regulations. We offer a diverse, all
encompassing solution for the validation and compliance of quality systems,
laboratory and manufacturing processes, clinical data systems, laboratory
automation, content management, electronic document management, and a complete
solution for facilities, utilities and equipment validation and compliance.
We also offer a suite of clinical trial support services, such as patient and
investigator recruitment, biostatistical analysis, data management, data entry
and verification and regulatory affairs services. In data management, we provide
case report form design, protocol development, data entry and verification, full
tracking and audit trail documentation, adverse event reporting and FDA
submission. Our biostatistical analysis group provides data mining studies,
database design, representation at FDA and other regulatory meetings, and
additional specialized biostatistical analysis.
4
Program Management and Outsourcing
----------------------------------
IT&E offers a broad range of validation and compliance services from management
consulting to protocol development and execution. We are dedicated to designing,
developing and implementing practices that protect the integrity of the
computerized systems and equipment used in health product research and
manufacturing processes. We ensure that these systems are maintained in a
validated state throughout their entire lifecycle by following documented
protocols and standardized procedures. IT&E has the ability to deliver
regulatory compliance services in the following fields:
o Guidelines Interpretation - IT&E provides services related to the
interpretation of U.S. Food and Drug Administration ("FDA") validation &
compliance criteria. We then provide consulting teams to assist the client in
implementing such compliance strategies.
o Planning & Strategy - IT&E assists customers in developing an overall FDA
validation and compliance strategy and developing methods and procedures for
staying in compliance.
o Corporate policies and procedures - IT&E works with its customers in
designing overall quality assurance, quality control and FDA regulatory
compliance policies and procedures. In addition, part of our services is to then
implement those procedures throughout an organization.
o Independent Vendor Audits & Assessments - IT&E works with a client to
assess its vendors to ensure they are in compliance with FDA regulations and are
operating in a validated state.
o SOP (standard operating procedure) Generation and Revision - IT&E
provides services to customers to prepare Standard Operating Procedures in the
area of FDA Regulatory compliance, and to establish ongoing SOP's to keep a
customer in compliance with FDA regulations.
o Gap Analysis - IT&E will work with a customer in preparing a SWAT
(software analysis testing) analysis, identifying gaps in their compliance and
validations procedures. We then will work with a customer in closing those gaps
in their procedures in their laboratory, clinical and manufacturing
environments.
o Risk Analysis - Business and Regulatory - IT&E will work with a customer
in assessing FDA Regulatory exposures in their cGxP (current good manufacturing,
lab and clinical practices) environments.
o Remediation - IT&E will perform project based remediation (corrective
action) projects in support of FDA 483 warning letters, and other regulatory
processes.
o Training end users and program managers
IT&E provides services in the CSV (Computer Systems Validation), CFR (Code of
Federal Regulations) Part 11, CFR Part 210/211, CFR Part 58, Part 320, Part
820/QSR, GAMP4 (Good Automated Manufacturing Practices version 4.0) as well as
European and Asian standards. Our validation and compliance team (estimated
around 100 people both outside contractors and full-time employees) designs,
develops and implements practices that protect the integrity of the computerized
systems, equipment and facilities used in health product research and
manufacturing processes. Further, we ensure that these systems are maintained in
a validated state throughout their entire lifecycle by following documented
protocols and standardized procedures. By analyzing market trends, continually
reengineering our best practices, utilizing leading technology and keeping
abreast of changes from the regulatory bodies, we are able to ensure a high
degree of quality standards are being met.
In addition, we specialize in quality procedures, programs and management
consulting in FDA regulated areas within the pharmaceutical and biotechnology
industries including: audits, remediation, quality systems, and validation and
qualification of processes, cleaning, environment, and computerized systems. We
have developed and implemented several plant-wide systems in the pharmaceutical
and biotechnology industries and are recognized as a verifiable quality leader.
IT&E has developed an extensive database which includes formats and templates
5
to get FDA Validation & Compliance projects off and running quicker and maximize
the efficiency in development and the ensuing validation and compliance
processes. We provide services focused around GxP compliance, validation and
regulatory affairs for the life sciences industry, including the following:
o Computer Systems Validation (CSV)
o 21 CFR Part 210/211 - Good Manufacturing Practices
o 21 CFR Part 11 - Electronic Signatures and Electronic Records
o Several other FDA and EMEA regulated areas
o Computerized Systems Validation
o Cleaning Validation
o Facility, equipment and Utility Validation
o Sterilization and Sanitization Validation
o Process Validation
The following are representative of program management and outsourcing client
engagements within the last two years:
Computer systems validation and software testing for a pharmaceutical company:
We provided project management and remediation services related to computer
systems validation and software testing for a pharmaceutical company that
involved three primary systems: 1) Labware, 2) LIMS (Laboratory Information
Management System), and 3) Documentum (A specialized FDA validation document
management system). This project included the creation of standard operating
procedures, management of requirements, and responsibility for integration of
numerous related systems.
Strategic validation and compliance guidance and computer system and software
validation for a research hospital:
In their continued search to find treatments for cancer in children, our client
built a facility to manufacture vaccines and stem cells to support phase I / II
clinical trials. The new facility needed to be in compliance with the various
FDA regulations applicable to it. We created a validation road map for the
client, managed the design and implementation of their network, computer system
and software which included standardized desktop environment, Internet
connectivity, security, core systems, laboratory and network monitoring systems;
then produced validation plans and trained the client's staff on the standard
operating procedures.
Computer systems validation and software testing for a biotechnology company:
We provided LIMS (Laboratory Information Management System) customization
programming and validation support for a biotechnology company client. This
included creating the standard operating procedures related to the system.
Software validation for a biotechnology company:
We created validation and compliance policies, procedures and guidelines related
to a statistical programming environment validation for SAS software.
Computer systems validation for a laboratory in the United States:
We conducted an evaluation of the quality systems overseeing the computer system
validation and 21 CFR Part 11 compliance for manufacturing systems for a
laboratory in the United States. We reviewed corporate guidelines and associated
procedures against 21 CFR Part 11 guidelines and related computer systems
validation regulatory requirements. We performed a procedural assessment
identifying procedures required for the ongoing compliance of the systems, and
we were responsible for defining gaps in compliance and suggesting remediation
for those gaps
We also reviewed how the 21 CFR Part 11 assessments are conducted by the client.
We assessed high visibility manufacturing and laboratory systems for 21 CFR Part
11 compliance, how the systems were defined, how remediation activities were
conducted and how computer systems validation issues were resolved. We also
advised the client regarding quality system structure, layout, communication,
and suggested adjustments.
Computer systems assessment for a pharmaceutical company:
We evaluated the customer's quality system to determine its compliance with
respect to current U.S. and European regulatory guidance and quality standards.
The evaluation was performed to assess the quality system in the areas of
computer systems lifecycle development and implementation, project management,
network infrastructure, security, and computer systems validation. We also
reviewed and analyzed the client's information technology department's
compliance with the current corporate headquarters standard operating
procedures.
Computer systems validation and CFR Part 11 validation for a biotechnology
company:
We performed project management and remediation services related to Argus 9.2,
including incremental validation. Argus 9.2 is a drug safety database used for
FDA submissions.
IT&E offers a solution for the clinical trials and clinical research industry,
including:
Clinical Data Entry and Data Management
---------------------------------------
IT&E is capable of providing SAS (R) based solutions throughout every stage of a
drug's lifecycle: from discovery, development, and through commercialization. We
focus on assessing, advising, and designing comprehensive systems solutions in
the pharmaceutical, biotechnology, and medical devices industries. We provide
leading and emerging pharmaceutical and biotechnology companies with
project-based consulting services in the areas of Data Management (SAS(R)
databases and Oracle(R) Clinical systems), Clinical Programming, Biostatistics,
and Clinical Validation (GCP). The IT&E team of project/program managers (a team
of approximately 30 to 35 people, both outside contractors and full-time
employees) bring an average of 10+ years of biopharma experience to their
clients, as well as the tools, talent and strategies necessary to carry a
project from conception to completion. IT&E's extensive database selects and
employs project-specific analysts to provide constant monitoring of project
scope, budget, and deliverables while utilizing the IT&E Project Tracking System
to provide clients with real-time, comprehensive status reports.
6
Data Management
---------------
IT&E provides a full range of data management solutions, including SAS(R)
databases and Oracle(R) Clinical, as well as web-based or conventional means of
data capture. Following are some of the specific areas of expertise:
o SAS (R) databases - Major functions supported
o Datasets
o Case Report Form design and analysis
o Safety Information
o Data marts for Data mining
o Integrated Data Analysis Systems
o Data Validation Specifications
o Database Design, install, and upgrade
o Data Quality Assurance
o Global Database Integration
o Oracle(R) Clinical - Major functions supported
o Define and manage a Clinical Study (Protocol)
o Define data elements to be collected in a Clinical study
o Define and generate data entry screens
o Define edit checks to be applied to the data
o Validation and derivation procedures [data]
o Collect and manage the data
o Data Extract to SAS for analysis
Clinical Programming
--------------------
IT&E provides accurate and reliable programming to support regulatory
submissions and clinical study reports. Because of the extensive experience of
the IT&E consultants, we are able to optimize the flow of valuable scientific
and operational data thereby assisting our clients to get their products to
market faster.
7
Biostatistics
-------------
IT&E's biostatisticians focus on the delivery of quality design consulting and
statistical analyses for clients engaged in complex clinical studies. This team
delivers superior results for targeted summaries of key findings within the
regulatory finding process, as well as producing creative scientific
presentations. Some of the areas of expertise are as follows:
o Clinical Study Design
o Estimation of sample size
o Trial duration
o Structuring of treatment comparisons
o Definition of key endpoints
o Number and timing of analyses
o Precise interpretations of results
o Data displays and interpretations
o Clinical development programs
o ISS/ISE preparation
o Prepare integrated clinical/statistical reports
o Design tables and graphics
o Analysis planning and preparation
o Summary of statistical methodologies
o Support submissions to regulatory agencies (FDA)
Clinical Validation (GCP)
-------------------------
IT&E's clinical validation practice goes hand-in-hand with the efforts of the
Compliance Group. Our regulatory and safety services must compliment our
clients' drug development process from beginning to end. The IT&E and Client
Partnership is truly a "Partnership That Works". By partnering with our clients
to design a study that combines an unsurpassed understanding of the regulatory
environment and current FDA regulations, we ensure a smooth and efficient
development cycle. IT&E has designed its own Clinical Validation Methodology for
the enterprise that is designed to satisfy regulated business practices and
procedures that involves multiple groups within the organization (users,
systems, database administrators, and other support staff).
8
Typically, the IT&E Validation Plan describes the system and scope, outlines the
schedule and resources (GANTT), defines the testing strategy (and SOPs), and
describes the deliverables that will document the validation process. The steps
are as follows:
o Validation Plan Preparation
o System Inventory Preparation
o Preparing the work plan using the 5C's: System Classification, Complexity,
Control, Compliance, Criticality
o Preparing Individual System Profiles & Gap Analysis
o Global Technological & Procedural Gap Matrix Preparation
o Preparing, Monitoring and Executing various Validation Protocols
including Design Qualifications (DQ), Installation Qualifications (IQ),
Operational Qualifications, (OQ), Performance Qualifications (PQ),
Equipment Qualifications (EQ)
o Risk Analysis Matrix (The validation effort is premised on a determination of
risk and after addressing the 5 C's can we ascertain what level of design
documentation is sufficient for a specified system)
The following are representative of client engagements within the last two years
with respect to our clinical services:
1) We provided global biostatistics support and in particular
biostatistics support for Phases I, II and III clinical trials related to
oncology and nephrology for a biotechnology company client.
2) We provided biostatistics support for Phase IV (post-marketing)
clinical trial related to oncology and statistical programming services for a
biotechnology company client.
3) We provided biostatistics support services for Phase II and III
clinical trials related to oncology for a biotechnology company client.
4) We provided statistical programming services for Phase I, II and III
clinical trials related to HIV for a pharmaceutical company client and assisted
with the preparation of the New Drug Application related thereto.
5) We provided clinical data management services for Phase II and III
clinical trials related to HIV for a pharmaceutical company client.
6) We provided statistical programming services for Phase II and III
clinical trials related to allergies and respiratory diseases for a
pharmaceutical company client.
(iii) Competition
------------------
The drug and medical device development outsourcing industry consists of
hundreds of smaller, limited-service providers and a number of full-service
global development companies. The industry continues to experience consolidation
and, in recent years, a group of large, full-service competitors has emerged.
This trend of industry consolidation appears to have created greater competition
among the larger companies for clients and acquisition candidates.
In addition to competing with a number of other global, full-service companies,
IT&E also competes against some medium-sized companies, in-house research and
development departments of pharmaceutical and biotechnology companies, as well
as universities and teaching hospitals. In addition, the industry has few
barriers to entry. Newer, smaller entities with specialty focuses, such as those
aligned to a specific disease or therapeutic area, compete aggressively against
larger companies for clients. Increased competition might lead to price and
other forms of competition that might adversely affect our operating results.
IT&E competes on the basis of a number of factors, including reputation for on-
time quality performance, expertise and experience in specific therapeutic
areas, scope of service offerings, price, strengths in various geographic
markets, technological expertise and systems, data management capabilities for
time savings with data integrity, ability to acquire, process, analyze and
report data in a time-saving accurate manner, ability to manage large-scale
clinical trials both domestically and internationally, and expertise and
experience in healthcare economics. There are no assurances that IT&E will be
able to compete favorability in these areas.
9
For specialty areas such as laboratory and manufacturing validation, medical
communications, and protocol development, IT&E competes in a market that has a
myriad of niche providers. For the most part, these niche providers offer
specialty services and products with a focus on a specific geographic region, a
particular service or function and/or a specific stage or phase of drug
development. By contrast, IT&E provides its services on a global basis across
functional areas. IT&E competes principally on the basis of reputation,
scientific and technical expertise, experience and qualifications of
professional staff, quality of services, and ability to deliver quality products
to the client's specifications. The outsourced preclinical research industry
consists of a number of large providers and numerous smaller niche companies. As
such, there is significant competition for these opportunities, and IT&E success
will depend on our ability to identify and competitively bid for risk-sharing
programs that are likely to be productive.
(iv) Government Regulation
--------------------------
IT&E's clients are subject to extensive regulations by government agencies.
Consequently, the services IT&E provides for these clients must comply with
relevant laws and regulations, which IT&E is and has been fully compliant.
Prior to commencing human clinical trials in the United States, a company
developing a new drug must file an Investigational New Drug application, or IND,
with the FDA. The IND must include information about animal toxicity and
distribution studies, manufacturing and control data, stability data and a
detailed plan, or study protocol, for the proposed clinical trial of the drug or
biologic in humans. If the FDA does not object within 30 days after the IND is
filed, human clinical trials may begin. The study protocol will also be reviewed
and approved by the institutional review board, or IRB, in each institution in
which a study is conducted, and the IRB may impose additional requirements on
the way in which the study is conducted in its institution.
Human trials usually start on a small scale to assess safety and then expand to
larger trials to test efficacy along with safety in the target population. The
trials are generally conducted in three phases, which sometimes overlap,
although the FDA may require a fourth phase as a condition of approval. After
the successful completion of the first three clinical phases, a company requests
approval for marketing its product by submitting a new drug application, or NDA.
The NDA is a comprehensive, multi-volume filing that includes, among other
things, the results of all pre-clinical and clinical studies, information about
how the product will be manufactured and tested, additional stability data and
proposed labeling. The FDA's review can last from six months to many years, with
the average review lasting 18 months. Once the NDA is approved, the product may
be marketed in the United States subject to any conditions imposed by the FDA.
10
IT&E must conform to regulatory requirements that are designed to ensure the
quality and integrity of the testing process. To help ensure compliance with
these regulations, IT&E has established quality assurance at our laboratory
facilities to monitor ongoing compliance by auditing test data and conducting
regular inspections of testing procedures and our laboratory facilities.
(v) Employees
--------------
At December 31, 2004, IT&E employed approximately 100 employees. These employees
represent the following employment mix for the company: 10% administration, 7%
recruiting, 5% sales, and 78% contract service providers. Additionally we
utilize the services of approximately 30 outside consultants who work as
independent contractors for IT&E.
ITEM 2. DESCRIPTION OF PROPERTY.
A. Description of Property
We do not own any real estate properties. Our executive offices are located at
505 Lomas Santa Fe Drive, Suite 200, Solana Beach, California 92075 and our
telephone number is (858) 366-0970. We pay a base monthly rent of approximately
$7,000, which includes rent, common area maintenance, insurance and real estate
taxes. Management believes that these facilities are adequate for our current
and anticipated needs.
We also maintain an office at:
31 N. Second Street, Ste. 250
San Jose, CA 95113
B. Investment Policies
The Company does not currently own and the Company has not made any investments
in real estate, including real estate mortgages, and the Company does not intend
to make such investments in the near future.
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to any legal proceeding. The Company from time to time may be
involved in litigation incident to the conduct of its business. Certain
litigation with third parties and present and former shareholders of the Company
are routine and incidental.
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Registrant held its annual shareholder meeting on March 5, 2004. At this
meeting the shareholders voted and approved the following proposals:
1. To increase the number of the Company's authorized Common Shares, from
twenty million (20,000,000) to seventy million (70,000,000) shares;
2. Election of two Directors (Kamill Rohny and Eugene P. Boling, MD);
3 Forward Split the Common Stock three-for-one;
4. Approval to issue warrants to purchase up to 1,800,000 shares of the
Company's Common Stock;
5. Ratification of Beckstead and Watts, LLP as independent auditors.
12
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
A. MARKET INFORMATION
Our Common Stock is quoted on the OTC Bulletin Board under the symbol ITER,
since October 27, 2003. As of December 31, 2004, there were approximately 200
holders of record of our Common Stock. The following table sets forth the high
and low bid prices for our Common Stock for the periods indicated as reported by
the OTC Bulletin Board. The prices state inter-dealer quotations, which do not
include retail mark-ups, mark-downs or commissions. Such prices do not
necessarily represent actual transactions.
FISCAL 2003 High Low
-------------------------------- ---- ----
Cleared for trading on October 27, 2003
Quarter ended December 31, 2003 $0.00 $0.00
FISCAL 2004
-------------------------------- ---- ----
Quarter ended March 31, 2004 $0.00 $0.00
Quarter ended June 30, 2004 $2.05 $1.25
Quarter ended September 30, 2004 $1.94 $0.62
Quarter ended December 31, 2004 $1.00 $0.16
The source of this information is the OTC Bulletin Board and other quotation
services. The quotations reflect inter-dealer prices, without retail markup,
markdown or commission and may not represent actual transactions.
B. HOLDERS
-----------
As of December 31, 2004, there were approximately 200 holders of record of our
common stock.
C. DIVIDENDS
-------------
To date, we have not paid any dividends on its common stock and do not expect to
declare or pay any dividends on such common stock in the foreseeable future.
Payment of any dividends will be dependent upon future earnings, if any, our
financial condition, and other factors as deemed relevant by our Board of
Directors.
13
D. STOCK REPURCHASE
--------------------
The Company did not repurchase any of its shares during the fiscal year covered
by this report.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Introduction
------------
On April 14, 2004, IT&E International Group entered into an Acquisition
Agreement and Plan of Merger with Clinical Trials Assistance Corporation, or
Clinical Trials, through its wholly-owned subsidiary, Merger Sub. Pursuant to
the Acquisition Agreement, Clinical Trials acquired IT&E in exchange for
11,000,000 shares of the Registrant's common stock which were issued to the
holders of IT&E stock and 2,820,000 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
----------------
We are a life sciences service organization focused on providing our clients
with project-based consulting services in the areas of FDA regulatory
compliance, data management, biometrics and clinical validation throughout the
clinical trials lifecycle. Our services range from recruitment of patients for
clinical trials and providing skilled personnel to assist with managing clinical
trials, to providing enterprise software solutions and training to manage data
to ensure FDA compliance. We also provide validation services for new
pharmaceutical manufacturing facilities. We serve a variety of clients,
including those in the private industry, public institutions, research
facilities and the government.
Our client list includes such well-known companies as Eli Lilly, Novartis,
Pfizer, Bristol-Myers Squibb, Glaxo Smith Kline Abbott, Schering-Plough, Amgen,
Baxter, Aventis Pasteur, Wyeth, Vaxgen, Boston Scientific and
Genentech. For the year ended December 31, 2003, we delivered approximately 31%
and 12% of our revenues from Schering-Plough and Amgen, respectively. For the
year ended December 31, 2004, we derived approximately 16%, 11% and 10% of our
revenue from Schering-Plough, Genentech and Vaxgen, respectively.
We are in the process of seeking other businesses to acquire so that we can
expand our operations. The analysis of new businesses opportunities and
evaluation of new business strategies will be undertaken by or under the
supervision of our Board of Directors. In analyzing prospective businesses
opportunities, management will consider, to the extent applicable, the
14
available technical, financial and managerial resources of any given business
venture. We will also consider the nature of present and expected competition;
potential advances in research and development or exploration; the potential for
growth and expansion; the likelihood of sustaining a profit within given time
frames; the perceived public recognition or acceptance of products, services,
trade or service marks; name identification; and other relevant factors.
We will analyze all relevant factors and make a determination based on a
composite of available information, without reliance on any single factor. The
period within which we will decide to participate in a given business venture
cannot be predicted and will depend on certain factors, including the time
involved in identifying businesses, the time required for us to complete our
analysis of such businesses, the time required to prepare appropriate
documentation and other circumstances.
The overall outlook for our continued financial growth remains very positive as
our pipeline for new customers remains solid. We will continue to move ahead on
the execution of our strategic plans to raise additional capital to be used to
make further strategic acquisitions in the coming quarters, positioning IT&E for
a leadership position in our industry.
Results of Operations
---------------------
As of December 31, 2004, the Company's current assets exceeded its current
liabilities by $1,618,258. This includes $2.5 million from a financing from
Laurus Master Fund Ltd., or Laurus, an institutional fund that specializes in
direct investments in growing, small and micro-cap companies, that closed in
October 2004. In addition to these funds is $2.5 million of restricted funds
that are under the control of Laurus for either additional growth working
capital or for a future acquisition, which is a part of our long-term strategy.
The loan has a three year term and an interest rate of prime plus 2.5%. Interest
has been payable monthly. Principal payments of $83,333.33 commence on May 1,
2005.
Accounts receivable at December 31, 2004 was $2.6 million, net of an allowance
for doubtful accounts of $75,000, as compared to accounts receivable at December
31, 2003 of $1.6 million, net of an allowance for doubtful accounts of $118,000.
The increase was due primarily to an aggressive sales strategy during the second
and third quarter of 2004 to sign new long-term and preferred vendor
relationships with the leading pharmaceutical and biotechnology companies to
further expand and broaden our customer base. An additional result of
establishing contracts with such established companies is that the risk of
uncollectible accounts is reduced. Our standard collection terms on our
contracts are 30-45 days and our customers generally pay according to these
terms. We have incurred bad debt expense of approximately $38,000 and $33,000
for the years ended December 31, 2004 and 2003, respectively. We review our
outstanding receivables on a monthly basis to determine collectibility.
15
For the year ended December 31, 2004, we generated service revenues of $13.4
million as compared to $10.0 million in revenues for the year ended December 31,
2003, an increase of 34%. Service revenues for the fourth quarter ended December
31, 2004, were $4.0 million as compared to $2.8 million during the same quarter
of 2003, an increase of 44% from the prior year's fourth quarter. This increase
in revenues is a direct result in our change in sales strategy noted above.
Our strategy of signing major clients has begun to produce some good results. We
have signed new agreements with several big pharmaceutical companies, large
biotech firms, an alternative supplement manufacturers, and a medical device
company. In addition, we expanded our extensive services to clients supporting
the U.S. Government's Bio Defense initiatives by assisting companies that are
producing needed vaccines for anti-terrorism measures.
We have also secured renewals and extensions of major initiatives within
existing clients, such as Schering-Plough, Pfizer, Novartis, GlaxoSmithKline,
Baxter Pharmaceutical, Aventis Pasteur, Bayer, Wyeth Global, Genentech, Chiron,
Amgen, Boston Scientifc and VaxGen.
The cost of revenue for the year ended December 31, 2004 was $$9.5 million, or
71% of revenues, as compared to $6.4 million, or 64% of revenues for the year
ended December 31, 2004. Our gross profit for the fourth quarter of 2004 was 29%
as compared to 36% during the same quarter of 2003. The increase in cost of
revenue exceeded management's expectations and we are working to improve these
margins by way of controlling the cost of providing our contractors to the
customer.
Total operating expenses for the year ended December 31, 2004 were $4.3 million,
or 32% of revenues, as compared to $3.4 million, or 34% of revenues, for the
same period last year. Total operating expenses for the fourth quarter of 2004
were $1.5 million as compared to $866,000 for the same period in 2003. During
2004, we incurred costs not previously incurred, such as costs associated with
our reverse merger with Clinical Trials Assistance Corporation, costs associated
with becoming a public entity and costs associated with the amortization of loan
fees related to the convertible loan with Laurus. In addition to the significant
investment to broaden our customer base, we began to implement a company-wide
quality management system to better serve our customers. We also added depth to
our management team and began the process of recruiting independent outside
Board members. We expect these costs to continue during 2005 as we continue to
grow as a public entity and move ahead with our strategy of seeking follow-on
investors to support our acquisition strategy and prepare for our future move to
a National Stock Exchange.
For the year ended December 31, 2004, we had a net loss of $467,000, or $0.02
per share, as compared to net income $82,000, or $0.17 per share, for the same
period in 2003. The number of shares used in the calculation of earnings per
share changed substantially as a result of our merger with Clinical Trials
Assistance Corporation. At December 31, 2003 481,500 shares were issued and
outstanding as compared to 19,000,000 shares issued and outstanding at December
31, 2004.
16
Need for Additional Funding
---------------------------
With our current contract backlog and sales pipeline of $33.0 million, the
highest in company history, and our current cash and accounts receivables
balance, we believe that we have adequate resources to fund our operations
through 2005. There can be no assurance that market conditions will permit us to
raise sufficient funds for strategic acquisitions or that additional financing
will be available when needed or on terms acceptable to us.
Liquidity and Capital Resources
-------------------------------
The Company is authorized to issue 70,000,000 shares of its $0.001 par value
common stock, and 5,000,000 shares of its $0.001 par value preferred stock.
On October 18, 2004, we issued a $5,000,000 secured convertible term note
("Note") to Laurus Master Fund, Ltd. ("Laurus"). The Note is convertible into
shares of our common stock at an initial conversion price of $0.75 per share.
Pursuant to this agreement, we also issued to Laurus a warrant ("Warrant") to
purchase up to 1,924,000 shares of our common stock, of which 962,000 shares
will have an exercise price of $0.94 and 962,000 shares will have an exercise
price of $1.12. The warrants expire on October 18, 2011.
The Note has a term of three years and accrues interest at the prime rate plus
2.5% per year (7.50% as of December 31, 2004). The Note is secured by all our
assets and the assets of our subsidiaries. The Note consists of a non-
restricted facility of $2.5 million and a restricted facility of $2.5 million.
The non-restricted facility was used to pay off an outstanding line of credit of
approximately $1.5 million, with the remaining $1.0 million, net of transaction
fees, being used for working capital. The second $2.5 million facility is
restricted for either additional internal growth working capital requirements or
for a future acquisition, which is a part of our strategic long-term growth
plans. These funds are under the sole dominion and control of Laurus as security
for our obligations under the Securities Purchase Agreement
and other related agreements. As such, the restricted cash and corresponding
portion of the note payable to Laurus were not included on our balance sheet at
December 31, 2004. (See financial footnote 6 entitled "Convertible
Debt.")
As a result of obtaining the Note, we were able to increase our sales focus and
obtain contracts not previously attainable. The nature of our contracts result
in us needing to have cash available to pay our employees and contractors before
we receive payment on our invoices from our customers. Before the Note, we had
to be more selective about the jobs on which we could propose in order to have
sufficient funds to pay our staff. As a result of our increased sales efforts,
we were able to receive contracts that have increased our cash available for
operations. We anticipate current and future contracts to continue to provide us
the cash necessary to fund our operations and to pay the principal and interest
due on the Note.
17
ITEM 7. FINANCIAL STATEMENTS.
a) Financial Statements
IT&E INTERNATIONAL GROUP
FINANCIAL STATEMENTS
December 31, 2003
December 31, 2004
CONTENTS
PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM - December 31, 2004 F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM - December 31, 2003 F-2
BALANCE SHEETS F-3
STATEMENTS OF OPERATIONS F-4
STATEMENT OF STOCKHOLDERS' EQUITY F-5
STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7-19
18
BECKSTEAD AND WATTS, LLP
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
2425 W Horizon Ridge Parkway
Henderson, NV 89052
702.257.1984 (tel)
702.362.0540 (fax)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying restated balance sheet of IT&E International
Group as of December 31, 2004, and the related restated statements of income,
retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above, revised as described
in Note 2, present fairly, in all material respects, the financial position of
IT&E International Group as of December 31, 2004, and the results of its
operations, equity and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the financial statements, the Company's 2004 total
assets and total liabilities reported as $6,919,018 and $6,027,398 should have
been $4,412,156 and $3,488,945, respectively, and retained earnings and net loss
previously reported as $7,080 and $(499,058), respectively, should have been
$38,673 and $(467,465), respectively. This discovery was made subsequent to the
issuance of the financial statements. The financial statements have been
restated to reflect this correction.
/s/ Beckstead and Watts, LLP
-----------------------------
Henderson, Nevada
March 22, 2005, except for Note 2, as to which the date is October 19, 2005
F-1
BECKSTEAD AND WATTS, LLP
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
2425 W Horizon Ridge Parkway
Henderson, NV 89052
702.257.1984 (tel)
702.362.0540 (fax)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying balance sheet of IT&E International Group (the
"Company"), as of December 31, 2003, and the related statement of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IT&E International Group as of
December 31, 2003, and the results of its operations, equity and cash flows for
the year then ended, in conformity with U.S. generally accepted accounting
principles.
/s/ Beckstead and Watts, LLP
Henderson, Nevada
March 22, 2005
F-2
IT&E INTERNATIONAL GROUP
Balance Sheets
December 31,
2004 December 31,
(restated) 2003
Assets ------------ -------------
Current assets:
Cash $ 402,779 $ 173,236
Accounts receivable, net of
allowance for doubtful accounts
of $75,000 and $118,118, respectively 2,644,501 1,639,907
Unbilled revenue 133,398 195,607
Prepaid and other current assets 77,175 71,965
------------ ------------
Total current assets 3,257,853 2,080,715
------------ ------------
Fixed assets, net 313,435 82,618
Loan fees, net 807,144 -
Deposits 33,724 23,382
------------ ------------
$ 4,412,156 $ 2,186,715
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 596,189 $ 254,855
Accrued payroll and employee benefits 322,300 168,296
Line of credit - bank - 855,015
Current portion of capital lease
obligations 3,089 -
Current portion of convertible
note payable 666,667 -
Deferred rent 30,293 -
Other accrued liabilities 21,057 27,731
------------ ------------
Total current liabilities 1,639,595 1,305,897
Long-term capital lease obligations,
less current portion 16,015 -
Long-term convertible note payable,
less current portion 1,833,333 -
------------ ------------
3,488,945 1,305,897
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value,
70,000,000 shares authorized,
19,000,000 shares issued and
outstanding 19,000 100,750
Preferred stock
$.001 par value, 5,000,000 shares
authorized, 2,000,000 shares
issued and outstanding 2,000 -
Additional paid-in capital 863,540 273,930
Retained earnings 38,673 506,138
------------ ------------
923,213 880,818
------------ ------------
$ 4,412,156 $ 2,186,715
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
IT&E INTERNATIONAL GROUP
Statements of Operations
For the years ended
------------------------------
December 31,
2004
(restated) 2003
------------ -------------
Service revenue $ 13,437,388 $ 10,018,459
Reimbursement revenue 405,749 392,426
------------- -------------
Total revenue 13,843,137 10,410,885
Cost of revenue 9,497,806 6,444,287
Reimbursable out-of-pocket expenses 405,749 392,426
------------- -------------
Gross profit 3,939,582 3,574,173
Operating Expenses:
General and administrative expenses 2,876,100 2,795,472
Sales and marketing expenses 982,077 333,730
Depreciation expense 21,588 18,438
Officer salaries 457,981 300,000
------------- -------------
Total operating expenses 4,337,746 3,447,640
------------- -------------
Net operating income (loss) (398,165) 126,533
Other income (expense):
Other income (expense) 32,831 (8,298)
Interest expense (102,131) (33,206)
------------- -------------
Total other income (expense) (69,300) (41,504)
------------- -------------
Income (loss) before provision
for income taxes (467,465) 85,029
Provision for income taxes - 3,000
------------- -------------
Net income (loss) $ (467,465) $ 82,029
============= =============
Weighted average number of
common shares outstanding - basic
and fully diluted 19,000,000 19,000,000
============= =============
Net income (loss) per share - basic
and fully diluted $ (0.02) $ 0.00
============= =============
The accompanying notes are an integral part of these financial statements.
F-4
IT&E INTERNATIONAL GROUP
STATEMENTS OF STOCKHOLDERS' EQUITY
STATEMENT OF STOCKHOLDERS' EQUITY
Total
Common Stock Preferred Stock Additional Stock-
------------- --------------- Paid-in Retained holders'
Shares Amount Shares Amount Capital Earnings Equity
------- ------ ------ ------ --------- -------- -------
Balance,
Dec 31, 2002,
Restated 19,000,000 $19,000 2,000,000 $2,000 $353,680 $424,109 $ 798,789
Net income 82,029 82,029
---------- ------- --------- ------ -------- -------- ---------
Balance,
Dec 31,
2003,
Restated 19,000,000 19,000 2,000,000 2,000 353,680 506,138 880,818
Issuance of
Warrants 509,860 - 509,860
Net loss,
Restated (467,465) (467,465)
---------- ------- --------- ------ -------- -------- ---------
Balance,
Dec 31,
2004,
Restated 19,000,000 $19,000 2,000,000 $2,000 $863,540 $ 38,673 $ 923,213
========== ======= ========= ====== ======== ======== =========
The accompanying notes are an integral part of these financial statements.
F-5
IT&E INTERNATIONAL GROUP
Statements of Cash Flow
For the years ended
------------------------------
December 31,
2004
(restated) 2003
------------ -------------
Cash flows from operating activities
Net income (loss) (467,465) 82,029
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation expense 21,588 18,438
Amortization of loan fees 60,235 -
Loss on disposal of fixed assets - 8,298
Deferred rent 30,293 -
Changes in assets and liabilities:
Accounts receivable (1,004,594) (854,727)
Unbilled revenue 62,209 (112,130)
Prepaid and other current assets (5,210) 7,170
Accounts payable 341,334 48,423
Accrued payroll and employee benefits 154,004 51,180
Other accrued liabilities (6,673) 3,000
----------- ----------
Net cash used by operating activities (814,279) (748,319)
----------- ----------
Cash flows from investing activities
Purchase of fixed assets, including
internal-use software (252,405) (57,355)
Deposits (10,342) 2,853
Loan fees (357,519) -
----------- ----------
Net cash used by investing activities (620,267) (54,502)
----------- ----------
Cash flows from financing activities
Proceeds from line of credit 758,000 816,021
Payments on line of credit (1,613,015) -
Proceeds from capital lease obligation 20,039 -
Payments on capital lease obligations (935) -
Proceeds from convertible note payable 2,500,000 -
----------- ----------
Net cash provided by financing activities 1,664,089 816,021
----------- ----------
Net increase in cash and cash equivalents 229,543 13,200
Cash and cash equivalents, beginning of year 173,236 160,036
----------- ----------
Cash and cash equivalents, end of year 402,779 173,236
=========== ===========
Supplemental disclosures:
Interest paid 82,109 -
=========== ===========
Income taxes paid - -
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
IT&E INTERNATIONAL GROUP
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
------------------
In this discussion, the terms "Company", "we", "us", and "our", refer to IT&E
International Group and subsidiaries, except where it is made clear otherwise.
We are a life sciences service organization focused on providing our clients
with project-based consulting services in the areas of FDA regulatory
compliance, data management, biometrics and clinical validation throughout the
clinical trials lifecycle. Our services range from recruitment of patients for
clinical trials and providing skilled personnel to assist with managing clinical
trials, to providing enterprise software solutions and training to manage data
to ensure FDA compliance. We also provide validation services for new
pharmaceutical manufacturing facilities. We serve a variety of clients,
including those in the private industry, public institutions, research
facilities and the government.
We were incorporated in the State of Nevada in 2002 as Clinical Trials
Assistance Corporation. In April 2004, we merged with IT&E International, Inc.
and changed our name to IT&E International Group.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Correction of an Error
----------------------
We have previously issued our consolidated financial statements for the year
ended December 31, 2004 and are now correcting our financial statements for the
year ended December 31, 2004 to reflect that we have determined that the item
"Cash-restricted" in the amount of $2,506,862 reflected on the balance sheet as
a current asset does not fall within the definition of an "asset" under
generally accepted accounting principles ("GAAP") since the restricted cash was
under the sole dominion and control of Laurus Master Fund, Ltd. In addition, the
item "Long-term convertible note payable, less current portion" reflected on the
balance sheet has been correspondingly reduced by $2,500,000 because the Company
has also determined that the portion of the proceeds from the issuance of such
convertible promissory note that was placed in the restricted account does not
fall within the definition of "liability" under GAAP. This correction also
impacts the Statements of Operations, the Statements of Stockholders' Equity,
and the Statements of Cash Flow for the year ended December 31, 2004, as
interest income of $6,862 had been previously recorded, along with accrued
interest payable of $38,455 on the restricted proceeds. The net impact is a
reduction of the net loss of $31,593. Several reclassifications were also made
to prior interest expense transactions, and Footnote 6 to the financial
statements included herein has been amended to reflect the foregoing. In
addition a reclassification of $820 was made between preferred stock and
additional paid-in capital to correct for fully paid Series A preferred stock
issued in excess of the number of Series A preferred stock authorized. These
shares require shareholder authorization before they can be issued.
F-7
The effects on our previously issued 2004 financial statements are summarized as
follows:
Balance Sheet as of December 31, 2004
Previously Increase
Reported (Decrease) Restated
----------- ------------- ------------
Cash - restricted $2,506,862 $( 2,506,862) $ -
Total Current Assets 5,764,715 (2,506,862) 3,257,853
Total Assets 6,919,018 (2,506,862) 4,412,156
Current Liabilities 1,678,050 (38,455) 1,639,595
Long-term convertible note payable, less 4,333,333 (2,500,000) 1,833,333
current portion
Total Liabilities 6,027,398 (2,538,453) 3,488,945
Stockholders' Equity:
Preferred Stock 2,820 (820) 2,000
Additional Paid-in Capital 862,720 820 863,540
Net Loss for 2004 (499,058) 31,593 (467,465)
Total Liabilities and
Stockholders' Deficit 6,919,018 (2,506,862) 4,412,156
Statement of Operations for the Year Ended December 31, 2004
Previously Increase
Reported (Decrease) Restated
----------- ------------- ------------
Interest Income $ 3,298 $ (3,298) $ -
Interest Expense (137,022) 34,891 (102,131)
Net Loss (499,058) 31,593 (467,465)
Net Loss Per Share - Basic
and Diluted (0.03) 0.01 (0.02)
Statement of Stockholders' Equity as of December 31, 2004
Total
Additional Stockholders'
Number of Preferred Paid-in Retained Equity
Shares Stock Capital Earnings (Deficit)
--------------- --------------- ---------------- -- --------------- ---------------
Balance at January
1, 2004, as
previously reported 2,820,000 $2,820 $352,860 $506,138 $880,818
Shares issued, but
not yet authorized (820,000) (820) 820 -
Net loss for 2004,
as restated (467,465) (467,465)
Balance at
December 31, 2004,
as restated 2,000,000 $2,000 $863,540 $ 38,673 $923,213
Use of Estimates
----------------
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
We maintain an allowance for doubtful accounts for estimated losses resulting
from an inability of clients to make required payments. This allowance is based
on account receivables, historical collection experience, current economic
trends, and changes in the customer payment terms.
F-8
IT&E INTERNATIONAL GROUP
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents, including Restricted Cash
----------------------------------------------------
We consider all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents. Our restricted cash
equivalents consist primarily of a short-term money market deposit. Our cash
accounts are with certain financial institutions. The balances in these accounts
exceed the maximum U.S federally insured amount. We have not experienced any
losses in such accounts and we believe that we are not exposed to any
significant credit risk on our cash and cash equivalents.
Revenue Recognition, Accounts Receivable, and Unbilled Receivables
------------------------------------------------------------------
Revenues are derived primarily from FDA validation and compliance outsourcing
services, consulting, and systems integration. Revenues are recognized on a
time-and-materials, level-of-effort, percentage-of-completion, or straight-line
basis. Before revenues are recognized, the following four criteria must be met:
(a) persuasive evidence of an arrangement exists; (b) delivery has occurred or
services rendered; (c) the fee is fixed and determinable; and (d) collectibility
is reasonably assured. We determine if the fee is fixed and determinable and
collectibility is reasonably assured based on our judgment regarding the nature
of the fee charged for services rendered and products delivered and the
collectibility of those fees. Arrangements range in length from less than one
year to several years.
Revenues from time-and-materials arrangements are generally recognized based
upon contracted hourly billing rates as the work progresses. Revenues from
level-of-effort arrangements are recognized based upon a fixed price for the
level of resources provided. Revenues from fixed fee arrangements for consulting
are generally recognized on a rate per hour or percentage-of- completion basis.
For each of our fixed fee contracts we maintain estimates of total revenue and
cost over the contract term. For purposes of periodic financial reporting on the
fixed price consulting contracts, we accumulate total actual costs incurred to
date under the contract. The ratio of those actual costs to its then-current
estimate of total costs for the life of the contract is then applied to its
then-current estimate of total revenues for the life of the contract to
determine the portion of total estimated revenues that should be recognized. We
follow this method because reasonably dependable estimates of the revenues and
costs applicable to various stages of a contract can be made. In addition, total
actual costs incurred would approximate measuring revenue based on labor hours
since total actual costs are derived from the labor hours incurred. No material
difference would occur if such costs were measured by total actual costs as
compared to labor hours incurred.
F-9
IT&E INTERNATIONAL GROUP
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
Revenues recognized on fixed price consulting contracts are subject to revisions
as the contract progresses to completion. If we do not accurately estimate the
resources required or the scope of the work to be performed, do not complete our
projects within the planned periods of time, or do not satisfy our obligations
under the contracts, then profit may be significantly and negatively affected or
losses may need to be recognized. Revisions in our contract estimates are
reflected in the period in which the determination is made that facts and
circumstances dictate a change of estimate. Favorable changes in estimates
result in additional revenues recognized, and unfavorable changes in estimates
result in a reduction of recognized revenues. Provisions for estimated losses on
individual contracts are made in the period in which the loss first becomes
known.
Over 95% of our contracts are performed on a time and materials basis, with the
remaining 5% being fixed fee contracts.
At the beginning of 2003, we adopted EITF 00-21, "Accounting for Revenue
Arrangements with Multiple Deliverables," which addresses how to account for
arrangements that involve the delivery or performance of multiple products,
services, and/or rights to use assets. Revenue arrangements with multiple
deliverables are divided into separate units of accounting if the deliverables
in the arrangement meet the following criteria: (1) the delivered item has value
to the customer on a stand-alone basis; (2) there is objective and reliable
evidence of the fair value of undelivered items; and (3) delivery of any
undelivered item is probable. Arrangement consideration is allocated among the
separate units of accounting based on their relative fair values, with the
amount allocated to the delivered item being limited to the amount that is not
contingent on the delivery of additional items or meeting other specified
performance conditions. Our contracts are primarily time and material contracts
devoted to a specific deliverable rather than to multiple deliverables.
On certain contracts, or elements of contracts, costs are incurred subsequent to
the signing of the contract, but prior to the rendering of service and
associated recognition of revenue. Where such costs are incurred and realization
of those costs is either paid for upfront or guaranteed by the contract, those
costs are deferred and later expensed over the period of recognition of the
related revenue. At December 31, 2004 and 2003, the Company had no deferred
costs.
Unbilled receivables represent revenues recognized for services performed that
were not billed at the balance sheet date. The majority of these amounts are
billed in the subsequent month. As of December 31, 2004 and 2003, the Company
had unbilled revenues included in current receivables of $133,398 and $195,607,
respectively.
F-10
IT&E INTERNATIONAL GROUP
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
Reimbursable Out-of-Pocket Expenses
-----------------------------------
In addition to the standard costs incurred to provide services to our customers,
we pay other incidental expenses, in excess of contract amounts, which are
generally reimbursable under the terms of the contract. These expenses are
recorded as both revenues and direct cost of services in accordance with the
provisions of EITF 01-14, "Income Statement Characterization of Reimbursements
Received for `Out-of-Pocket' Expenses Incurred."
Credit Risks
------------
Financial instruments that subject us to concentrations of credit risks consist
primarily of cash and cash equivalents and billed and unbilled accounts
receivable. Our clients are primarily involved in the healthcare and
pharmaceutical industries. The significant majority of our accounts receivable
exposure is to large, well established firms. Concentrations of credit risk with
respect to billed and unbilled accounts receivable are mitigated, to some
degree, based upon the nature of our clients. Management considers the
likelihood of material credit risk exposure as remote.
The healthcare and life sciences industries may be affected by economic factors,
which may impact accounts receivable. At December 31, 2004, approximately 75% of
the outstanding trade receivables are due from nine customers who also accounted
for approximately 65% of total sales. Management does not believe that any
single customer or geographic area represents significant credit risk.
Fair Value of Financial Instruments
-----------------------------------
The carrying value of cash and cash equivalents, restricted cash, accounts
receivable, accounts payable, and certain other liabilities approximate their
estimated fair values due to the short-term nature of these instruments.
Investments available for sale are carried at fair value.
F-11
IT&E INTERNATIONAL GROUP
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation and amortization are
provided on a straight-line basis in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives, which range
from three to seven years. Leasehold improvements are amortized over the lives
of the respective leases or the service lives of the improvements, whichever are
shorter.
We account for costs incurred to develop computer software for internal use in
accordance with Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. As required by SOP
98-1, we capitalize the costs incurred during the application development stage,
which include costs to design the software configuration and interfaces, coding,
installation, and testing. Costs incurred during the preliminary project along
with post-implementation stages of internal use computer software are expensed
as incurred. Capitalized development costs are amortized over various periods up
to three years. Costs incurred to maintain existing product offerings are
expensed as incurred. The capitalization and ongoing assessment of
recoverability of development costs requires considerable judgment by management
with respect to certain external factors, including, but not limited to,
technological and economic feasibility, and estimated economic life. For the
years ended December 31, 2004 and December 31, 2003, we capitalized product
development costs of $210,444 and $16,000, respectively, and will begin to
amortize such costs in 2005 over the estimated useful life of three years.
Upon sale or retirement of property and equipment, the costs and related
accumulated depreciation are eliminated from the accounts, and any gain or loss
on such disposition is reflected in the consolidated statements of operations.
Expenditures for repairs and maintenance are charged to operations as incurred.
Income Taxes
------------
Income taxes are computed using the asset and liability approach, which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in our financial statements
or tax returns. In estimating future tax consequences, we generally consider all
expected future events other than the enactment of changes in tax law or rates.
If it is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is recorded.
F-12
IT&E INTERNATIONAL GROUP
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
Net Income (Loss) Per Share
---------------------------
Net income (loss) per basic share is computed using the weighted average number
of common shares outstanding. Net income (loss) per diluted share is computed
using the weighted average common shares and potential common shares
outstanding. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period. Warrants to purchase 3,924,000 shares of common stock were
outstanding during 2004, but were not included in the computation of earnings
per diluted shares because the effect would be antidilutive. There were no stock
options issued and outstanding as of December 31, 2004 and 2003.
Recent Accounting Pronouncements
--------------------------------
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 123 (revised 2004) "Share-Based
Payment" ("SFAS 123R), which is a revision of FASB Statement No. 123, Accounting
for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and amends FASB Statement No. 95,
Statement of Cash Flows. Generally, the approach in Statement 123R is similar to
the approach described in Statement 123. However, Statement 123R requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative.
Statement 123R must be adopted no later than July 1, 2005. Early adoption will
be permitted in periods in which financial statements have not yet been issued.
We expect to adopt Statement 123R on July 1, 2005. Statement 123R permits public
companies to adopt its requirements using one of two methods:
1. A "modified prospective" method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of Statement
123R for all share-based payments granted after the effective date and (b) based
on the requirements of Statement 123 for all awards granted to employees prior
to the effective date of Statement 123R that remain unvested on the effective
date.
2. A "modified retrospective" method which includes the requirements of the
modified prospective method described above, but also permits entities to
restate based on the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior periods presented or (b)
prior interim periods of the year of adoption.
We are currently evaluating the two different methods for the adoption of
Statement 123 and have not determined which of the two methods we will adopt.
F-13
IT&E INTERNATIONAL GROUP
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
To date, we have not issued stock-based payments to our employees, though we
anticipate the issuance of stock options during 2005. As such, we have not
recognized any stock-based compensation during 2004 and 2003.
We believe that the adoption of Statement 123R's fair value method will have a
material impact on our result of operations, although it will have no impact on
our overall financial position. The impact of adoption of Statement 123R cannot
be predicted at this time because it will depend on levels of share- based
payments granted in the future. Statement 123R also requires the benefits of tax
deductions in excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow as required under
current literature. This requirement will reduce net operating cash flows and
increase net financing cash flows in periods after adoption. We cannot estimate
what those amounts will be as it will depend on the levels of share- based
payments granted in the future.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of these instruments
were previously classified as equity. The guidance in SFAS No. 150 is generally
effective for all financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. We do not believe that the adoption of SFAS No.
150 will have a material impact on our financial statements.
In December 2003, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 104 (SAB 104), "Revenue Recognition", which supersedes
SAB 101, "Revenue Recognition in Financial Statements." SAB 104's primary
purpose is to rescind the accounting guidance contained in SAB 101 related to
multiple-element revenue arrangements that was superseded as a result of the
issuance of EITF 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables" and to rescind the SEC's related "Revenue Recognition in Financial
Statements Frequently Asked Questions and Answers" issued with SAB 101 that had
been codified in SEC Topic 13, "Revenue Recognition." While the wording of SAB
104 has changed to reflect the issuance of EITF 00-21, the revenue recognition
principles of SAB 101 remain largely unchanged by the issuance of SAB 104, which
was effective upon issuance. The adoption of SAB 104 did not have a material
effect on our financial position or results of operations.
Reclassification
----------------
Certain amounts in the 2003 financial statements have been reclassified to
conform to the presentation of the 2004 financial statements.
F-14
IT&E INTERNATIONAL GROUP
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
3. MERGER WITH CLINICAL TRIALS ASSISTANCE CORPORATION
On April 14, 2004, the Company, Clinical Trials Assistance Corporation, a Nevada
corporation ("CTAL"), and Clinical Trials Assistance Acquisition Corporation, a
Nevada corporation ("Merger Sub"), entered into an Acquisition Agreement and
Plan of Merger (collectively the "Agreement") pursuant to which CTAL, through
its wholly-owned subsidiary, Merger Sub, acquired IT&E in exchange for
11,000,000 shares of CTAL common stock which were issued to the holders of IT&E
stock (the "Merger"). Immediately after the Acquisition was consummated, and
further to the Agreement, CTAL's controlling stockholder cancelled 28,000,000
shares of CTAL's Common Stock held by him (the "Cancellation"). The transaction
contemplated by the Agreement was intended to be a "tax-free" reorganization
pursuant to the provisions of Section 351 and 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended.
The stockholders of IT&E (three stockholders owning 481,500 shares), who
unanimously approved the acquisition as of the closing date of the Merger and
after giving effect to the Cancellation, now own approximately 80% of the CTAL's
outstanding common stock. This figure is based on the issuance of 9,000,000
shares of $0.001 par value common stock and the share dilution upon conversion
of the 2,000,000 warrants into common stock.
This transaction was accounted for as a reverse merger, since the stockholders
of IT&E own a majority of the issued and outstanding shares of common stock of
CTAL, and the directors and executive officers of IT&E became the directors and
executive officers of the CTAL. No goodwill or other intangible was recorded as
a part of this transaction and the cost of the transaction was expensed as
incurred. In accordance with reverse merger accounting guidelines, all share
issuances and per share calculations reflect the issuance of the merger shares
on a retroactive basis "as if" the shares were issued from the date of inception
of IT&E before the merger with CTAL.
As a part of this transaction, 2,000,000 warrants were issued to several
individuals for cash totaling $2,000. The warrants are convertible on a one-
for-one basis at a price to be agreed upon on the exercise date by the Company's
board of directors and the warrant holders. The exercise date is not sooner than
one year and not later than five years.
4. ADVANCES TO EMPLOYEES
At December 31, 2004 and 2003, the Company had advanced $21,525 and $46,971,
respectively, to certain employees. The notes are non-interest bearing and due
during 2005. During 2005, an employee advance of $20,000 was deemed
uncollectible.
F-15
IT&E INTERNATIONAL GROUP
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2004 and 2003 consisted of the following:
2004 2003
--------- ---------
Computers $ 135,971 $ 113,940
Furniture and fixtures 41,007 21,082
Internal-use software 210,444 16,000
Leasehold improvements 17.898 1,731
--------- ---------
405,320 152,753
Less accumulated depreciation ( 91,885) ( 70,135)
--------- ---------
$ 313,435 $ 82,618
========= =========
Depreciation expense totaled $21,588 and $18,438 during the years ended December
31, 2004 and 2003, respectively.
6. CONVERTIBLE DEBT
On October 18, 2004, we issued a $5,000,000 secured convertible term note
("Note") to Laurus Master Fund, Ltd. ("Laurus"). The Note is convertible into
shares of our common stock at an initial conversion price of $0.75 per share.
Pursuant to this agreement, we also issued to Laurus a warrant ("Warrant") to
purchase up to 1,924,000 shares of our common stock, of which 962,000 shares
will have an exercise price of $0.94 and 962,000 shares will have an exercise
price of $1.12. The warrants expire on October 18, 2011.
The Note has a term of three years and accrues interest at the prime rate plus
2.5% per year (7.50% as of December 31, 2004). The Note is secured by all our
assets and the assets of our subsidiaries. The Note consists of a non-
restricted facility of $2.5 million and a restricted facility of $2.5 million.
The non-restricted facility was used to pay off an outstanding line of credit of
approximately $1.5 million, with the remaining $1.0 million, net of transaction
fees, being used for working capital. The second $2.5 million facility is
restricted for either additional internal growth working capital requirements or
for a future acquisition, which is a part of our strategic
long-term growth plans. The cash related to the restricted account has not been
recorded as an asset on our balance sheet, nor has the amount of the secured
convertible note that corresponds to the amount in the restricted account been
recorded as a liability on our balance sheet since such funds are under the sole
dominion and control of Laurus as security for our obligations under the
Securities Purchase Agreement and other related agreements. Such restricted cash
does not fall within the definition of an "asset" under generally accepted
accounting principles ("GAAP") nor does the amount of the secured note that
corresponds to the amount of cash in the restricted account fall within the
definition of "liability" under GAAP.
F-16
IT&E INTERNATIONAL GROUP
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
Interest on the unrestricted principal amount is payable monthly, in arrears, on
the first business day of each calendar month until the maturity date. Under the
terms of the Note, the monthly interest payment and the monthly principal
payment are payable either in cash at 103% of the respective monthly
amortization amounts or, if certain criteria are met, in shares of our common
stock. The minimum monthly principal repayment of $83,333.33 commences on May 1,
2005, and continues through the October 18, 2007 maturity date. The principal
criteria for the monthly payments to be made in shares of our common stock
include:
o the effectiveness of a current registration statement covering the shares
of our common stock into which the principal and interest under the Note
are convertible;
o an average closing price of our common stock for the previous five
trading days greater than or equal to 110% of the fixed conversion price;
and
o the amount of such conversion not exceeding 25% of the aggregate dollar
trading volume of our common stock for the previous 22 trading days.
We may prepay the non-restricted facility of the Note at any time by paying 125%
of the principal amount then outstanding, together with accrued but unpaid
interest thereon. We may also prepay the restricted facility of the Note at any
time by paying 115% of the principal amount then outstanding, together with
accrued but unpaid interest thereon. Upon an event of default under the Note,
Laurus may demand repayment of the outstanding principal balance at a rate of
125% of the non-restricted facility of the Note and 115% of the outstanding
principal balance of the restricted facility, plus any accrued interest. If the
Note remains outstanding after an event of default that is not cured, the
interest rate increases to 1.5% per month.
On a month-by-month basis, if we register the shares of common stock issuable
upon conversion of the Note and upon exercise of the Warrant on a registration
statement declared effective by the Securities and Exchange Commission, and the
market price of our common stock for five consecutive trading days exceeds the
conversion price by at least 25%, then the interest rate on the Note for the
succeeding calendar month shall be reduced by 1% for every 25% increase in the
market price of our common stock above the conversion price of the Note, but in
no event shall the interest rate be less than zero percent.
Laurus also has the option to convert all or a portion of the Note into shares
of our common stock at any time, subject to limitations described below, at a
conversion price of $0.75 per share, subject to adjustment as described below.
The Note is currently convertible into 3,333,333 shares of our common stock,
excluding the conversion of any accrued interest. Laurus is limited on its
ability to convert is the conversion of the Note or the exercise of the Warrant
would cause the shares then held be Laurus to exceed 4.99% of our outstanding
shares of common stock unless there has been an event of default or Laurus
provides us with 75 days prior notice.
F-17
IT&E INTERNATIONAL GROUP
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
We were obligated to file a registration statement with the Securities and
Exchange Commission ("SEC") registering the resale of shares of our common stock
issuable upon conversion of the Note and exercise of the Warrant by November 17,
2004, and to have such Statement declared effective by the SEC by no later than
January 25, 2005. We timely filed the registration statement, but it has not yet
been declared effective. If the registration statement is not declared effective
within the timeframe described, if the registration statement is suspended other
than as permitted in the Registration Rights Agreement, or if our common stock
is not listed for three consecutive trading days, we are obligated to pay Laurus
additional cash fees. The cash fees are 2.0% of the original principal amount of
the Note for each 30 day period in which we fail to correct these issues. Since
the registration statement has not yet been declared effective, we are incurring
monthly cash fees to Laurus.
The fair value of the warrants has been estimated on the date of grant using the
Black-Scholes option pricing model. The weighted average fair value of these
warrants are $0.28 and $0.25. The following assumptions were used in computing
the fair value of these warrants: weighted average risk-free interest rate of
6.0%, zero dividend yield, volatility of the Company's common stock of 86.81%
and an expected life of the warrants of two years. Approximately $510,000 was
added to financing costs as a result of the warrants. No warrants have been
exercised through December 31, 2004. In addition to the costs related to the
warrants, we also incurred approximately, $358,000 of loan origination costs for
the debt. We will amortize the total loan costs over the period of the loan. We
amortized approximately $60,000 for the period ending December 31, 2004.
Future maturities of long-term debt are as follows as of December 31, 2004:
2005 $ 666,667
2006 1,000,000
2007 833,333
2008 -
2009 -
Thereafter -
----------
$2,500,000
==========
7. COMMITMENTS AND CONTINGENCIES
During 2004, we entered into a new capital lease obligation totaling $20,039.
This leased equipment has accumulated depreciation of $1,391 at December 31,
2004.
F-18
IT&E INTERNATIONAL GROUP
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (Continued)
Future minimum lease payments on the capital lease obligation at December 31,
2004 are as follows:
For the year ending December 31:
1 $ 5,654
2 5,654
3 5,654
4 5,654
5 3,769
--------
Total 26,385
Less amount representing interest ( 7,281)
--------
Present value of capital lease payments $ 19,104
========
The Company also leases its office facilities, certain office space, and living
accommodations for consultants on short-term projects under operating leases
that expire over the next three years. At December 31, 2004, the Company was
obligated under non-cancelable operating leases with future minimum rentals as
follows:
Years Ending
1 $ 133,241
2 97,402
3 79,971
---------
Total $ 310,614
=========
Rent expense was $226,036 and $206,154 for the years ended December 31, 2003 and
2002, respectively.
We are involved in various legal actions arising in the normal course of
business. We believe that the outcome of these matters will not have a material
adverse effect on our financial position or results of operation.
8. PROFIT SHARING PLANS
We provide a 401(k) salary deferral plan for eligible employees. Employees may
elect to reduce their compensation by an amount that will not exceed the total
amount allowed by the Internal Revenue Code for all contributions to qualified
plans. The plan does provide for discretionary contributions by the employer. No
contributions were made by the Company to the plan for the years ended December
31, 2004 and 2003.
F-19
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None -- Not applicable.
ITEM 8A. CONTROLS AND PROCEDURES
As of December 31, 2004, IT&E International Group carried out an evaluation of
the effectiveness of the design and operation of its disclosure controls and
procedures. This evaluation was carried out under the supervision and with the
participation of management, including our Chief Principal Officer.
Based upon that evaluation, our Chief Principal Officer concluded that IT&E
International Group's disclosure controls and procedures are effective. There
have been no significant changes in our internal controls or in other factors
that could significantly affect internal controls subsequent to the date we
carried out the evaluation.
19
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The names, ages and positions of the Company's directors and executive officers
are as follows:
Director of
Name Age Position with Registrant Registrant Since
----------------- --- ------------------------ ----------------
Peter R. Sollenne 56 CEO/Director April, 2004
Kelly Alberts 37 President/COO/Director April, 2004
Tony Allocca 61 VP Ops/Director April, 2004
David Vandertie 44 Chief Financial Officer N/A
Biographies
-----------
Peter R. Sollenne, Chief Executive Officer/Director
---------------------------------------------------
Mr. Sollenne has served as our Chief Executive Officer since December 2003. From
May 2000 to December 2003, Mr. Sollenne was President and Chief Executive
Officer at FastBreak Growth, Inc. a strategic management consulting and business
solutions company. From December 1998 to May 2000, Mr. Sollenne was Chief
Executive Officer, President and Chief Operating Officer of re-Solutions, Inc.,
an information technology professional services company. Mr. Sollenne received
his Bachelors of Science in Accounting/Business Administration from Boston
College and is a CPA.
Kelly Alberts, Co-Founder, President/COO/Director
-------------------------------------------------
Mr Alberts has served as our President and Chief Operating Officer since our
inception in 1996. Mr. Alberts received his Bachelors of Science from the
University of Iowa.
Tony Allocca, Co-Founder, Vice President Operations/Director
------------------------------------------------------------
Mr. Allocca has served as our Vice President of Operations since our inception
in 1996. Mr. Allocca is a graduate of the University of Maryland and served in
the United States Air Force.
20
David Vandertie, Chief Financial Officer
----------------------------------------
Mr. Vandertie has served as our Chief Financial Officer since January 2005. From
June 2004 to December 2004, Mr. Vandertie was a financial consultant. From May
2002 to June 2004, Mr. Vandertie was Vice President and Chief Financial Officer
at Althea Technologies, Inc., a biotech contract service organization. From June
2000 to May 2002, Mr. Vandertie was Director of Finance and Purchasing at Torrey
Mesa Research Institute, a subsidiary of Syngenta AG. From April 1999 to June
2000, Mr. Vandertie was Corporate Controller at Quidel Corporation, a
manufacturer of diagnostic test kits. Mr. Vandertie is a graduate of the
University of Wisconsin, Whitewater, where he earned a Bachelor of Business
Administration Degree in Accounting, and is a CPA.
Family Relationships
--------------------
None.
Audit Committee
---------------
The company does not have a separately-designated standing Audit Committee. The
members of the Board of Directors sit as the Audit Committee. Accordingly, the
Company does not have an audit committee financial expert.
Code of Ethics
--------------
The company has not adopted a Code of Ethics for the Board and the salaried
employees.
21
Committees and Procedures
-------------------------
(1) The Registrant has no standing audit, nominating and compensation
committees of the Board of Directors, or committees performing similar
functions. The Board acts itself in lieu of committees due to its
small size.
(2) The view of the board of directors is that it is appropriate for the
Registrant not to have such a committee because its sole director
participates in the consideration of director nominees and the board
is so small.
(3) The sole member of the Board who acts as nominating committee is not
independent, pursuant to the definition of independence of a national
securities exchange registered pursuant to section 6(a) of the Act (15
U.S.C. 78f(a).
(4) The nominating committee has no policy with regard to the
consideration of any director candidates recommended by security
holders, but the committee will consider director candidates
recommended by security holders.
(5) The basis for the view of the board of directors that it is
appropriate for the Registrant not to have such a policy is that there
is no need to adopt a policy for a small company.
(6) The nominating committee will consider candidates recommended by
security holders, and by security holders in submitting such
recommendations.
(7) There are no specific, minimum qualifications that the nominating
committee believes must be met by a nominee recommended by security
holders except to find anyone willing to serve with clean background.
(8) The nominating committee's process for identifying and evaluation
nominees for director, including nominees recommended by security
holders, is to find anyone willing to serve with clean background.
There are no differences in the manner in which the nominating
committee evaluates nominees for director based on whether the nominee
is recommended by a security holder, or found by the board.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers, and persons who beneficially own more than ten percent of a
registered class of our equity securities (referred to as "reporting persons"),
to file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of common stock and other
Neighborhood Connections, Inc. (TJ, is this supposed to say IT&E equity??)
equity securities. Reporting persons are required by Commission regulations to
furnish us with copies of all Section 16(a) forms they file.
22
ITEM 10. EXECUTIVE COMPENSATION.
Compensation for 2004 is noted below. We do not have any employment contracts
for our executive officers or directors.
The following table reflects certain compensation due to be paid to our
Executive Officers during the current fiscal year.
Annual Compensation
Other
Annual
Compen-
Name and Principal Position Year Salary($) Bonus ($) sation ($)
----------------------------------------------------------------------------
Kelly Alberts, Pres/COO/Dir. 2004 144,615 - -
Tony Allocca, VP Ops/Dir. 2004 132,500 - -
Peter R. Sollenne, CEO/Director 2004 175,000 - -
David Vandertie, CFO 2004 6,250 - -
----------------------------------------------------------------------------
Long Term Compensation
Awards Payouts
------------------- ----------------
All
Restricted Number Other
Stock of LTIP Compen-
Award(s) Options/ Payouts sation
Name and Principal Position Year ($) Warrants ($) ($)
-------------------------------------------------------------------------------
Kelly Alberts, Pres/COO/Dir. 2004 0 0 0 0
Tony Allocca, VP Ops/Dir. 2004 0 0 0 0
Peter R. Sollenne, CEO/Director 2004 0 0 0 0
David Vandertie, CFO 2004 0 0 0 0
----------------------------------------------------------------------------
23
Option/SAR Grants
-----------------
We did not grant any options or any stock appreciation rights during the year
ended December 31, 2004. We have not granted any stock appreciation rights.
Compensation of Directors
-------------------------
No compensation was paid to our Directors for any service provided as a Director
during the year ended December 31, 2004. There are no other formal or informal
understandings or arrangements relating to compensation; however, Directors may
be reimbursed for all reasonable expenses incurred by them in conducting our
business. These expenses would include out-of-pocket expenses for such items as
travel, telephone, and postage.
Employment Contracts
--------------------
We do not have any employment contracts in place with our Officers or Directors.
Equity Compensation Plan Information
------------------------------------
We do not currently have a formal Employee Benefit and Consulting Services
Compensation Plan in effect.
Audit Committee
---------------
The company does not have an Audit Committee. The sole members of the Board sits
as the Audit Committee. No qualified financial expert has been hired because the
company is to small to afford such expense.
Code of Ethics
--------------
The company has not adopted a Code of Ethics for the Board and the salaried
employees.
24
Committees and Procedures
-------------------------
(1) The Registrant has no standing audit, nominating and compensation
committees of the Board of Directors, or committees performing similar
functions. The Board acts itself in lieu of committees due to its
small size.
(2) The view of the board of directors is that it is appropriate for the
Registrant not to have such a committee because its sole director
participates in the consideration of director nominees and the board
is so small.
(3) The sole member of the Board who acts as nominating committee is not
independent, pursuant to the definition of independence of a national
securities exchange registered pursuant to section 6(a) of the Act (15
U.S.C. 78f(a).
(4) The nominating committee has no policy with regard to the
consideration of any director candidates recommended by security
holders, but the committee will consider director candidates
recommended by security holders.
(5) The basis for the view of the board of directors that it is
appropriate for the Registrant not to have such a policy is that there
is no need to adopt a policy for a small company.
(6) The nominating committee will consider candidates recommended by
security holders, and by security holders in submitting such
recommendations.
(7) There are no specific, minimum qualifications that the nominating
committee believes must be met by a nominee recommended by security
holders except to find anyone willing to serve with clean background.
(8) The nominating committee's process for identifying and evaluation
nominees for director, including nominees recommended by security
holders, is to find anyone willing to serve with clean background.
There are no differences in the manner in which the nominating
committee evaluates nominees for director based on whether the nominee
is recommended by a security holder, or found by the board.
25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. Security Ownership
The following table sets forth certain information concerning the beneficial
ownership of our outstanding common stock as of December 31, 2004, by each
person known by IT&E International Group to own beneficially more than 5% of the
outstanding common stock, by each of our directors and officer and by all of our
directors and officers as a group. Unless otherwise indicated below, to our
knowledge all persons listed below have sole voting and investment power with
respect to their shares of common stock except to the extent that authority is
shared by spouses under applicable law.
Amount
Title Name and Address of shares Percent
of of Beneficial held by of
Class Owner of Shares Position Owner Class (1)
------------------------------------------------------------------------------
Common Kelly Alberts(2) Pres/COO/Dir. 5,967,500 31.41%
Common Tony Allocca(3) VP Ops/Dir. 4,647,500 24.46%
Common Peter R. Sollenne(4) CEO/Director 385,000 2.03%
Common David Vandertie (5) CFO - -
Common Kamill Rohny(6) Shareholder 1,500,000 7.89%
------------------------------------------------------------------------------
All Executive Officers as
a Group (4 persons) 11,000,000 57.89%
(1) The percentages listed in the Percent of Class column are based upon
19,000,000 issued and outstanding shares of Common Stock.
(2) Kelly Alberts, 505 Lomas Santa Fe Drive, Suite 200, Solana Beach,
California 92075, he owns 1,529,850 Preferred shares which converts to
ten-for-one common stock after a holding period of two years. These shares
have ten-for-one voting rights.
(3) Tony Allocca, 505 Lomas Santa Fe Drive, Suite 200, Solana Beach, California
92075, he owns 1,191,450 Preferred shares which converts to ten-for-one
common stock after a holding period of two years. These shares have
ten-for-one voting rights.
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(4) Peter R. Sollenne, 505 Lomas Santa Fe Drive, Suite 200, Solana Beach,
California 92075, he owns 98,700 Preferred shares which converts to
ten-for-one common stock after a holding period of two years. These shares
have ten-for-one voting rights.
(5) David Vandertie, 505 Lomas Santa Fe Drive, Suite 200, Solana Beach,
California, 92075
(6) Kamill Rohny, 2078 Redwood Crest, Vista, California 92081-7340.
B. Persons Sharing Ownership of Control of Shares
No persons other than Kelly Alberts (President/Director) and Tony Allocca
(VP Operations/Director) own or shares the power to vote ten percent (10%) or
more of the Company's securities.
C. Non-voting Securities and Principal Holders Thereof
The Company has not issued any non-voting securities.
D. Options, Warrants and Rights
There are no options, warrants or rights to purchase securities of the
Company.
E. Parents of the Issuer
Under the definition of parent, as including any person or business entity
who controls substantially all (more than 80%) of the issuers of common
stock, the Company has no parents.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Through a Board Resolution, the Company hired the professional services of
Beckstead & Watts, LLP, Certified Public Accountants, to perform the annual
audit of the Company's financial statements. Beckstead & Watts, LLP own no stock
in the Company.
The company has no formal contracts with its accountant, they are paid on a fee
for service basis.
At December 31, 2004, the Company had advanced $21,525 to certain employees. The
notes are non-interest bearing and due during 2005.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
31.1 Certification of Principal Executive Officer to Section 302 of
the Sarbanes-Oxley Act of 2002, promulgated under the Securities
Exchange Act of 1934, as amended.
32.1 Certification of Principal Executive 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
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").
The Company filed a Current Report dated June 23, 2004, pursuant to Item 9
("Regulation FD Disclosure"), a news release entitled "IT&E International Group
Announces New Trading Symbol."
The Company filed an amended Current Report on June 15, 2004, pursuant to Item 1
("Changes in Control of Registrant"), Item 2 ("Acquisition or Disposition of
Assets"), Item 5 ("Other Events"); and Item 7 ("Exhibits") entitled "Acquisition
of IT&E."
The Company filed a Current Report dated June 15, 2004, pursuant to Item 9
("Regulation FD Disclosure"), a news release entitled "Clinical Trials
Assistance Corporation to Acquire IT&E Corporation."
The Company filed a Current Report dated April 14, 2004, pursuant to Item 1
("Changes in Control of Registrant"), Item 2 ("Acquisition or Disposition of
Assets"), Item 5 ("Other Events"); and Item 7 ("Exhibits") entitled "Acquisition
of IT&E."
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Item 14. Principal Accountant Fees and Services
AUDIT FEES
The aggregate fees billed by the Company's auditors for professional services
rendered in connection with the audit of the Company's annual consolidated
financial statements for fiscal 2004 and 2003 and reviews of the consolidated
financial statements included in the Company's Forms 10-KSB for fiscal 2004 and
2003 were approximately $36,000 and $12,000, respectively.
AUDIT-RELATED FEES
The Company's auditors did not bill any additional fees for assurance and
related services that are reasonably related to the performance of the audit or
review of the Company's financial statements and are not reported under "Audit
Fees" above.
TAX FEES
The aggregate fees billed by the Company's auditors for professional services
for tax compliance, tax advice, and tax planning were $0 and $0 for fiscal 2004
and 2003, respectively.
ALL OTHER FEES
The aggregate fees billed by the Company's auditors for all other non-audit
services rendered to the Company, such as attending meetings and other
miscellaneous financial consulting, in fiscal 2004 and 2003 were $0 and $0,
respectively.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, the Registrant caused this report to be signed on its behalf by the
undersigned and duly authorized on October 25, 2005.
IT&E International Group
------------------------------
(Registrant)
By: /s/ Peter R. Sollenne
---------------------------
Peter R. Sollenne
Chief Executive Officer
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
hereunto duly authorized.
Date: October 25, 2005 By: /s/ Kelly Alberts
--------------------- ----------------------------
Kelly Alberts
President/COO
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