<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 28, 1997
------------------
Premier Research Worldwide, Ltd.
- -------------------------------------------------------------------------------
(Exact name of registrant specified in Charter)
Delaware 0-29100 22-3264604
- -------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employee
of incorporation) File Number) Identification No.)
124 South 15th Street
Philadelphia, PA 19102
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone, including area code: (215) 972-0420
- -------------------------------------------------------------------------------
(Former name and former address, if changed since last report)
<PAGE>
The Registrant has previously filed a Report on Form 8-K, dated as of
November 11, 1997, in connection with the Registrant's acquisition of all of the
assets of DLB Systems, in Delaware corporation ("DLB"), and DLB's wholly-owned
subsidiary, Recalmon, Inc., a Delaware corporation. This transaction also
included the acquisition by the Registrant of certain assets owned by an
affiliate of DLB, DLB Systems Limited, a corporation formed and existing under
the laws of England. The Registrant is hereby amending the aforementioned report
on Form 8-K to include the financial statements required by Item 7 of Form 8-K.
Index to Financial Statements for DLB Systems, Inc.
Independent Auditors' Report -
KPMG Peat Marwick LLP ............................................. F-2
Balance Sheets - December 31, 1995 and 1996
and September 30, 1997 (unaudited)................................. F-3
Statements of Operations - For the five months ended December 31, 1995,
twelve months ended December 31, 1996
and nine months ended September 30, 1997 (unaudited)............... F-4
Statements of Stockholders' Deficit - December 31, 1995 and 1996
and September 30, 1997 (unaudited) ................................ F-5
Statements of Cash Flows - For the five months ended December 31, 1995,
tweleve months ended December 31, 1996
and nine months ended September 30, 1997 (unaudited) .............. F-6
Notes to Financial Statements ............................................. F-7
Index to Financial Statements for DLB Systems Limited
Directors Report ..........................................................F-18
Auditors' Report to the Members of DLB Systems Limited - Imray & Co........F-20
Accounting Policies........................................................F-22
Consolidatetd Profit and Loss Account - For the years ended
March 31, 1996 and 1995 ...........................................F-25
Consolidated Balance Sheet - March 31, 1996 and 1995 ......................F-26
Company Balance Sheet - March 31, 1996 and 1995............................F-27
Notes to the Accounts .....................................................F-28
Index to Unaudited Pro Forma Combined Financial Statements
Basis of Presentation .....................................................F-37
Unaudited Pro Forma Combined Balance Sheet - September 30, 1997............F-38
Unaudited Pro Forma Combined Statement of Operations
for the nine months ended September 30, 1997.......................F-39
Unaudited Pro Forma Combined Statement of Operations
for the year ended December 31, 1996...............................F-40
Notes to Unaudited Pro Forma Combined Financial Statements.................F-41
Exhibit 2.1 Asset Purchase Agreement among Premier Research Worldwide, Ltd.,
DLB Systems, Inc. and Recalmon, Inc., dated October 28, 1997.
(This exhibit was filed as part of the original Form 8-K filing
made by the Registrant on November 11, 1997 with respect to this
transaction.)
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
January 12, 1998 PREMIER RESEARCH WORLDWIDE, LTD.
By:_________________________________
Name: Fred M. Powell
Title: Chief Financial Officer
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
DLB Systems, Inc.:
We have audited the accompanying balance sheets of DLB Systems, Inc. as of
December 31, 1996 and 1995, and the related statements of operations,
stockholders' deficit, and cash flows for the year ended December 31, 1996 and
for the period from July 31, 1995 (date of incorporation) to December 31,
1995. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide 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 DLB Systems, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for the year ended December 31, 1996 and for the period from July 31,
1995 (date of incorporation) to December 31, 1995 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
March 21, 1997
F-2
<PAGE>
DLB SYSTEMS, INC.
Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
--------------------------------- ----------------
Assets 1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash $ 10,013 $ 29,002 $ 86,788
Accounts receivable - trade, net of allowance for
doubtful accounts of $46,800 and $265,281 and $86,000,
respectively 1,203,983 2,259,059 856,751
Receivables - related parties 342,835 340,627 --
Prepaid expenses and other current assets 31,146 45,631 42,824
---------- ----------- ----------
Total current assets 1,587,977 2,674,319 986,363
Furniture, fixtures, equipment and leasehold
improvements, net 498,413 455,940 353,590
Other assets 72,922 64,340 71,687
---------- ----------- ----------
Total assets $ 2,159,312 $ 3,194,599 $ 1,411,640
========== =========== ==========
Liabilities and Stockholders' Deficit
Current liabilities:
Notes payable to banks $ 1,016,932 $ 2,318,667 $ 2,166,169
Note payable to related parties 50,000 1,050,000 1,400,000
Accounts payable 400,898 824,773 717,657
Due to related parties 93,121 -- --
Accrued expenses 220,412 409,165 406,801
Deferred revenue 1,864,363 2,445,450 1,689,338
Accrued dividend on preferred stock -- 250,000 475,000
---------- ----------- ----------
Total current liabilities 3,645,726 7,298,055 6,854,965
Long-term debt 429,490 -- --
---------- ----------- ----------
Total liabilities 4,075,216 7,298,055 6,854,965
---------- ----------- ----------
Stockholders' deficit:
Series A redeemable cumulative preferred stock, $.01
par value. Authorized 1,000,000 shares; issued and
outstanding 621,999 in 1995 and 860,000 shares in
1996 and 1997, liquidation value $2.89 per share 6,220 8,600 8,600
Series B redeemable cumulative preferred stock, $.01 par value.
authorized 1,000,000 shares, issued and outstanding 210,000 in -- --
1997, liquidation value $4.76 per share 2,100
Common stock, $.01 par value. Authorized 1,000,000
shares; issued and outstanding 200,000 shares 2,000 2,000 2,000
Paid-in capital (1,120,004) (172,384) 600,516
Accumulated deficit (804,120) (3,941,672) (6,056,541)
---------- ----------- ----------
Total stockholders' deficit (1,915,904) (4,103,456) (5,443,325)
---------- ----------- ----------
Total liabilities and stockholders' deficit $ 2,159,312 $ 3,194,599 $ 1,411,640
========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
DLB SYSTEMS, INC.
Statements of Operations
<TABLE>
<CAPTION>
Priod from
July 31, 1995
(Date of For the For the Nine
Incorporation) to Year Ended Months Ended
December 31, December 31, September 30,
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Software license fees $ 782,500 $ 2,880,983 $ 1,870,720
Software maintenance and continuing
support contracts 925,457 2,611,237 2,049,923
Consulting/training services 138,226 839,482 498,267
--------- ----------- ---------
Net revenue 1,846,183 6,331,702 4,418,910
Cost of revenue 492,565 2,409,583 1,166,585
--------- ----------- ---------
Gross margin 1,353,618 3,922,119 3,252,325
--------- ----------- ---------
Operating expenses:
Selling and marketing 224,286 672,769 1,254,888
Research and development 912,998 1,281,388 2,061,035
General and administrative 959,799 4,910,911 1,458,986
--------- ----------- ---------
Total operating expenses 2,097,083 6,865,068 4,774,909
--------- ----------- ---------
Operating loss (743,465) (2,942,949) (1,522,584)
Other expenses:
Interest expense, net 65,555 182,853 251,658
Loss (gain) on sale of assets (4,900) 11,750
--------- ----------- ---------
Total other expenses 60,655 194,603 251,658
--------- ----------- ---------
Net loss $ (804,120) $(3,137,552) $ (1,774,242)
========= =========== =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
DLB SYSTEMS, INC.
Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
Series A redeemable Series B redeemable Total
preferred stock preferred stock Common stock Accumu- stock-
------------------- ------------------- ------------------ Paid-in lated holders'
Shares Amount Shares Amount Shares Amount capital deficit deficit
------ ------ ------ ------ ------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period -- $ -- -- $ -- -- $ -- $ -- $ -- $ --
Net book value of assets
contributed and
liabilities assumed in
exchange for issuance
of shares to DLB Systems,
Inc., a New Jersey
Corporation (note 1) -- -- -- -- 200,000 2,000 (2,911,784) -- (2,909,784)
Issuance of shares to
Safeguard Scientifics, Inc. 621,999 6,220 -- -- -- -- 1,791,780 -- 1,798,000
Net loss -- -- (804,120) (804,120)
------- ------ ------- ------- ------- ------ ---------- ---------- ----------
Balance, December 31, 1995 621,999 6,220 -- -- 200,000 2,000 (1,120,004) (804,120) (1,915,904)
Issuance of shares to
Safeguard Scientifics, Inc. 28,001 280 -- -- -- -- 199,720 -- 200,000
Preferred stock dividend -- -- -- -- (250,000) -- (250,000)
Conversion of debt to equity 210,000 2,100 -- -- -- -- 997,900 -- 1,000,000
Net loss -- -- -- -- -- (3,137,552) (3,137,552)
------- ------ ------- -------- ------- ------ ---------- ---------- ----------
Balance, December 31, 1996 860,000 8,600 -- -- 200,000 2,000 (172,384) (3,941,672) (4,103,456)
======= ====== ======= ======== ======= ====== ========== ========== ==========
Issuance of Series B shares
(unaudited) -- -- 210,000 2,100 -- -- 997,900 -- 1,000,000
Preferred stock dividend
(unaudited) -- -- -- -- -- -- (225,000) -- (225,000)
Foregiveness of related party
receivable (unaudited) -- -- -- -- -- -- (340,627) -- (340,627)
Net loss (unaudited) -- -- -- -- -- -- -- (1,774,242) (1,774,242)
------- ------ ------- -------- ------- ------ ---------- ---------- ----------
Balance, September 30, 1997
(unaudited) 860,000 $8,600 210,000 $2,100 200,000 $2,000 $ 600,516 $(6,056,541) $(5,443,325)
======= ====== ======== ====== ======= ====== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
DLB SYSTEMS, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Period from
July 31, 1995
(Date of Nine months
Incorporation) to Years ended ended
December 31, December 31, September 30,
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (804,120) $(3,137,552) $(1,774,242)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 62,908 199,334 177,210
(Gain) loss on sale of furniture, fixtures, equipment
and leasehold improvements (4,900) 11,750 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable - trade, net of
allowance (337,805) (1,055,076) 1,402,308
(Increase) decrease in receivables - related parties (214,898) 2,208 --
(Increase) decrease in prepaid expenses and other
current assets (12,786) (14,485) 2,807
(Increase) decrease in other assets 3,075 8,582 (7,347)
Increase (decrease) in accounts payable (327,099) 423,875 (107,116)
Increase (decrease) in due to related parties 93,121 (93,121) --
Increase (decrease) in accrued expenses (141,707) 188,753 (2,364)
Increase (decrease) in deferred revenue 220,906 581,087 (756,112)
----------- ----------- -----------
Net cash used in operating activities (1,463,305) (2,884,645) (1,064,856)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of fixed assets (66,348) (172,511) (74,860)
Proceeds from sales of assets -- 3,900 --
----------- ----------- -----------
Net cash used in investing activities (66,348) (168,611) (74,860)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of note payable for payment of services rendered 100,000 -- --
Proceeds from financing arrangements 659,638 3,051,037 350,000
Payments of principal on financing arrangements (708,665) (178,792) (152,498)
Proceeds from issuance of common stock 2,000 -- --
Proceeds from issuance of Series A redeemable
cumulative preferred stock 1,378,000 200,000 --
Proceeds from issuance of Series B redeemable cumulative
preferred stock -- -- 1,000,000
----------- ----------- -----------
Net cash provided by financing activities 1,430,973 3,072,245 1,197,502
----------- ----------- -----------
Net increase (decrease) in cash (98,680) 18,989 57,786
Cash at beginning of period 108,693 10,013 29,002
----------- ----------- -----------
Cash at end of period $ 10,013 $ 29,002 $ 86,788
=========== =========== ===========
Supplemental information:
Cash paid for interest $ 57,246 $ 185,155 $ 175,419
=========== =========== ===========
Supplemental noncash financing activities:
Conversion of notes payable into Series A redeemable
preferred stock $ 420,000 $ 1,000,000 $ --
Accrual of preferred stock dividend -- 250,000 340,627
Forgiveness of related party receivable -- -- 225,000
=========== =========== ===========
</TABLE>
F-6
<PAGE>
DLB SYSTEMS, INC.
Notes to Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
Organization and Operations
DLB Systems, Inc. (DLB or the Company) was organized under the laws
of the State of Delaware on July 31, 1995 to continue to conduct
certain business operations formerly conducted by DLB Systems, Inc.,
a New Jersey Corporation (DLB-NJ). The principal activities of the
Company are the development and licensing of computer software
products and associated services to the pharmaceutical industry to
assist with clinical research and development and regulatory
compliance.
DLB-NJ was founded in 1992 as a wholly-owned subsidiary of DLB
Systems, Ltd. (DLB-Ltd.), a U.K.-based company. Both DLB-NJ AND
DLB-Ltd. performed the same principal activities of the Company.
On August 1, 1995, substantially all of the assets and liabilities
of DLB-NJ were transferred to the Company under an asset purchase
agreement between DLB, DLB-NJ and DLB-Ltd. (the Agreement). The
assets and liabilities transferred to the Company had a negative net
book value of $(2,911,784). The transfer has been accounted for at
historical book values without any purchase accounting adjustments
due to the common shareholders of DLB and DLB-NJ.
As part of the Agreement, Safeguard Scientific, Inc. (Safeguard)
committed to contribute a minimum of $1 million to the Company in
exchange for Series A redeemable cumulative preferred stock
(Series A Preferred Stock) and an additional $1 million in exchange
for additional shares of Series A Preferred Stock as necessary over
the first 12 months from the date of the Agreement. During 1996 and
1995, Safeguard was issued 28,001 and 621,999 shares, respectively,
of Series A Preferred Stock and warrants for the purchase of common
stock of the Company in exchange for $1,998,000 in capital
contributions (see note 4). Proceeds from the issuance of stock were
used to reduce the outstanding liabilities and to provide working
capital for operations and general corporate purposes of the Company.
DLB-NJ was issued 200,000 shares of common stock of the Company as
part of the Agreement. Upon execution of the Agreement, two officers
of DLB-NJ entered into employment agreements with the Company (see
note 9). DLB-NJ and its parent, DLB-Ltd., are paid monthly support
service fees, in accordance with the Agreement (see note 9), to cover
their operating expenses as they provide customer support and
marketing and selling support to the Company. As part of the
Agreement, Peapack-Gladstone Bank (PG Bank) agreed to the Company's
assumption of DLB-NJ's indebtedness to the Bank.
F-7
<PAGE>
DLB SYSTEMS
Notes to Financial Statements, Continued
(1) Summary of Significant Accounting Policies, cont.
As part of this assumption of indebtedness, the Bank extended the
due date on its term note assumed by DLB from DLB-NJ, from June 30,
1996 to March 31, 1998 (see note 2). The Company also assumed
certain other liabilities and commitments of DLB-NJ.
The Company has incurred loses of $3,941,672 since inception and has
relied on Safeguard for financing, when necessary, to sustain its
business and finance its research and development activities.
Safeguard has committed to provided sufficient financing to the
Company and/or implement appropriate strategies or take other
measures to assure that the Company will continue as a going concern
through 1997.
The Company plans to achieve sustained profitability over time and
may require additional financing until it has the ability to
generate cash flows to further develop its software products and
continue operating activities in future periods. There can be no
assurance that the Company will achieve profitability or be able to
generate cash flows to sustain future operations. Nor can there be
any assurance that if the Company requires additional financing
after 1997 that the Company would be able to obtain such additional
financing on favorable terms, if at all.
Revenue Recognition
Revenue is derived primarily from one-time software license fees,
software maintenance and support contracts and consulting/training
services. DLB recognizes revenue from software license transactions
as of the date of installation or upon customer acceptance, as
appropriate. Revenue from software maintenance and continuing
support contracts is recognized on a straight-line basis over the
period in which the software maintenance and continuing support is
provided. Revenue from consulting/training services is recognized
when services are performed.
Deferred revenues arise primarily from advance billing under licensing
agreements and software maintenance and continuing support contracts.
Furniture, Fixtures, Equipment and Leasehold Improvements
Furniture, fixtures, equipment and leasehold improvements are stated
at cost to the Company. The cost of repairs and maintenance is
charged to operating expenses as incurred; significant renewals and
leasehold improvements are capitalized.
Depreciation is provided using the straight-line method over the
estimated useful lives of the assets. The cost of leasehold
improvements is amortized using the straight-line method over the
shorter of the lease term or the estimated useful life of the asset.
F-8
<PAGE>
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(1) Summary of Significant Accounting Policies, cont.
The useful lives, for purposes of computing depreciation and
amortization, are as follows:
Leasehold improvements 2 years
Computer hardware and software 3 years
Equipment and furniture 3-5 years
=========
Income Taxes
The asset and liability method prescribed by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes,"
requires recognition of deferred tax assets and liabilities for the
estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Under this method,
deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets
and liabilities using tax rates in effect for the year in which the
differences are expected to reverse.
Research and Development and Software Development Costs
Research and development costs are charged to expense when incurred.
Costs incurred in the research and development of new software
products and enhancements to existing software products are also
expensed as incurred until the technological feasibility of the
product or enhancement has been established. After technological
feasibility has been established and prior to product release, any
additional development costs are capitalized in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for
the Cost of Computer Software to be Sold, Leased or Otherwise
Marketed," and are included in the balance sheet. However, to date,
software development costs on DLB products, after achieving
technological feasibilty, have been immaterial.
F-9
<PAGE>
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(1) Summary of Significant Accounting Policies, cont.
Stock-based Employee Compensation
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. As such, compensation
expense would be recorded on the date of the grant only if the
current market price of the underlying stock exceeded the exercise
price. On January 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS No. 123) No. 123, "Accounting for
Stock-Based Compensation", which permits entities to recognize as
expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB No. 25 and
provide pro forma net earnings disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires DLB to make estimates and
assumptions that affect the reported amounts of 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.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company adopted the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell. Adoption of this Statement did not have any impact on the
Company's financial position, results of operations, or liquidity.
F-10
<PAGE>
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(2) Financing Arrangements
The Company's outstanding financing arrangements as of December 31,
1995 and 1996 are as follows:
1995 1996
---- ----
Line of credit $ 826,342 $ 877,379
Term loan note payable to bank 561,639 441,288
Note payable to bank - 1,000,000
Notes payable to related parties 100,000 1,050,000
Installment loan payable to bank 8,441 -
--------- ------------
Total debt 1,496,422 3,368,667
Less current portion of notes payable to:
Banks 1,016,932 2,318,667
Related parties 50,000 1,050,000
--------- ------------
Net long-term debt $ 429,490 $ -
========= ============
Line of credit
At December 31, 1996, the Company's unused portion of its line
of credit with Peapack-Gladstone Bank (PG Bank) is approximately
$222,621. The line of credit in the aggregate amount of
$1,100,000 is subject to renewal in May 1997. The Company was
in default of its debt covenants at December 31, 1996, which
were waived by PG Bank. This instrument (and the PG Bank term
loan noted below) is secured by a lien on substantially all of
the Company's assets. The line of credit is also secured by the
assignment of life insurance policies of its two key employees
of the Company. Interest is charged at 2.25% above PG Bank's
prime rate, as defined (10.5% at December 31, 1996).
Term loan note - payable to bank
At December 31, 1996, the Company has a term loan with PG Bank
with a maturity date of May 1, 1997. Interest is charged at
2.25% above PG Bank's prime rate, as defined (10.5% at December
31, 1996). As of December 31, 1996, there is no collateral held
by the bank. Two key employees of the Company have guaranteed
this note.
Note payable to bank
At December 31, 1996, the Company has a loan payable to another
bank in the amount of $1,000,000, which is due October 5, 1997.
Interest is charged at LIBOR plus 2%. As of December 31, 1996
there is no collateral held by the bank and Safeguard is the
guarantor.
F-11
<PAGE>
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(2) Financing Arrangements, cont.
Notes payable to related parties
At December 31, 1996, the Company has a loan payable to Safeguard in
the amount of $1,000,000, which is due July 25, 1997. Interest is
charged at 9.25%. As of December 31, 1996 there is no collateral
held by Safeguard and no guarantors.
In addition, the Company has outstanding a note payable to a
software development consulting company which performed research and
development services for DLB in prior years. Under the terms of the
note, final payment of $50,000 is due on September 30, 1997.
Interest is charged at a rate of 7%. As of December 31, 1996 there
is no collateral held by the software developer and no guarantors.
Installment loan - payable to bank
The installment loan outstanding at December 31, 1995, matured in
April 1996 and was secured by certain office furniture and computer
equipment of the Company. Interest was charged at 8%.
(3) Furniture, Fixtures, Equipment and Leasehold Improvements, at Cost
Furniture, fixtures, equipment and improvements at December 31, 1995
and 1996 consist of the following:
1995 1996
---- ----
Equipment and furniture $ 229,483 $ 224,338
Computer hardware and software 322,176 473,524
Leasehold improvements 36,702 36,702
---------- ---------
588,361 734,564
Less accumulated depreciation and
amortization 89,948 278,624
---------- ---------
$ 498,413 $ 455,940
========== =========
(4) Common Stock, Preferred Stock, Stock Options and Warrants
Pursuant to the Agreement, the Company sold 621,999 shares of Series A
Preferred Stock to Safeguard during the period August 1, 1995 to December
31, 1995 and 28,001 shares in 1996. In accordance with a Voting and Stock
Restriction Agreement executed together with the Agreement, the Series A
Preferred Stock is entitled to one vote per share; however, the aggregate
number of votes Safeguard shall be entitled to exercise shall be reduced
upon the exercise of certain common stock warrants.
F-12
<PAGE>
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(4) Common Stock, Preferred Stock, Stock Options and Warrants, cont.
Also in 1996, the Company's Board of Directors approved the conversion of
$1,000,000 of then outstanding term notes owed to Safeguard into 210,000
shares of Series A Preferred Stock.
For each share of Series A Preferred Stock issued, a warrant for the
purchase of a share of common stock was issued in accordance with the
Agreement. The Voting and Stock Restriction Agreement also addresses the
preferred shareholders' rights regarding dispositions of their stock.
The Series A Preferred Stock has a par value of $.01 per share and
accrues cumulative dividends at an annual rate of 10% of the original
issue price per share and is redeemable at the option of the Company any
time on or after January 1, 1997, and at the option of the holders of a
majority of the outstanding shares of Series A Preferred Stock,
commencing at any time on or after December 31, 2000 at the original
issue price per share plus all accrued and unpaid dividends thereon. In
1996, $250,000 of dividends have been accrued for the aforementioned
preferred stock. Safeguard waived the Company's obligation to pay
dividends of approximately $58,000 for the period August 1, 1995 through
December 31, 1995 and, as a result, the Company has properly not accrued
for dividends payable as of December 31, 1995.
Pursuant to an incentive stock option purchase plan (the Plan) established
in September 1995 as part of the Agreement, certain key employees have been
granted options to purchase up to 200,000 shares of the Company's common
stock at exercise prices equal to or greater than the estimated fair value
of the Company's common stock; as determined by the Board of Directors at
the date of grant. Generally such options vest over a five-year period,
with the exception of 17,000 options which vested immediately when they
were granted to an employee of DLB-Ltd. All options expire either on the
close of business on September 24, 2005 or upon termination, subject to the
terms of the Plan.
Activity in the Plan is as follows:
Number
of shares
---------
Granted in 1995 ($3.00 per share) 136,000
---------
Balance, December 31, 1995 136,000
Granted ($3.00-$4.75 per share) 71,000
Forfeited ($3.00 per share) (26,000)
---------
Balance, December 31, 1996 181,000
=========
Excercisable at December 31, 1996 40,800
=========
F-13
<PAGE>
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(4) Common Stock, Preferred Stock, Stock Options and Warrants, cont.
At December 31, 1996, there were 19,000 additional shares available for grant
under the Plan. The per share weighted-average fair value of stock options
granted during 1996 and 1995 was determined to be zero on the date of grant
using the Black Scholes option-pricing model with the following weighted
average assumptions: 1996 - expected dividend yield 0%, risk-free interest
rate of 6.5%, volatility of 0.0% and an expected life of 7.23 years; 1995 -
expected dividend yield 0%, risk-free interest rate of 6.5%, volatility of
0.0% and an expected life of 7.5 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its options in the
financial statements. Had the Company recorded compensation cost based on the
fair value at the grant date for its stock options under SFAS No. 123, the
effect on the Company's net loss would have been immaterial.
At December 31, 1996, the number of options exercisable was 40,800, the
weighted-average exercise price of those options was $3.00, and the
weighted-average remaining contractual life of outstanding options was 9.81
years.
Subject to the Agreement, Safeguard was issued warrants to purchase 650,000
shares of common stock for $.1667 per share. If Safeguard exercises all of the
warrants, based on the Company's capital structure as of December 31, 1996, it
would own 65% of the Company. The Agreement also addresses certain limited
rights of the holders of warrants and the warrant stock to include the warrant
stock in a registration statement of the Company. The warrants expire on
August 1, 2002, and are exercisable immediately. The purchase price of the
stock may be paid at the warrantholder's option through the application of
indebtedness of the Company to the warrantholder on a dollar-for-dollar basis.
None of the warrants have been exercised as of December 31, 1996.
(5) Lease Commitments
At December 31, 1996, the Company is obligated under operating leases which
expire through 1998 for office space and equipment. The aggregate minimum
rental commitments under noncancellable operating leases are as follows:
1997 $110,080
1998 7,220
--------
Total minimum lease
payments $117,300
========
Rental expense for operating leases during 1996 and during the period July 31,
1995 to December 31, 1995 amounted to $218,361 and $53,800, respectively.
F-14
<PAGE>
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(6) Income Taxes
Differences between pre-tax book losses and taxable losses are generated
mainly from certain nondeductible permanent differences and temporary
differences such as accelerated methods of calculating tax depreciation.
Deferred tax assets and liabilities at December 31, 1995 and 1996 are
comprised of the following:
1995 1996
--------- --------
Deferred tax assets:
Loss carryforwards $ 1,093,232 $ 2,266,127
Research and experimentation credits 54,147 54,147
Allowance accruals 18,692 105,953
----------- -----------
Gross deferred tax assets 1,166,071 2,426,227
Deferred tax asset valuation allowance (1,158,393) (2,408,298)
----------- -----------
7,678 17,929
Deferred tax liabilities:
Property and equipment (7,678) (17,929)
----------- -----------
Gross deferred tax liabilities (7,678) (17,929)
----------- -----------
Net deferred tax assets (liability) $ - $ -
=========== ===========
The net changes in the total valuation allowance for the year ended December
31, 1996 and period from incorporation to December 31, 1995 were increases of
$1,249,905 and $1,158,393, respectively. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. Based upon the level of historical
taxable losses and projections for future tax losses over the periods which
the deferred tax assets are deductible, management believes it is not more
likely than not the Company will realize the benefits of these deductible
differences. Accordingly, a valuation allowance at December 31, 1996 and 1995
has been established for the full amount of the net deferred assets.
F-15
<PAGE>
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(6) Income Taxes, cont.
At December 31, 1996, the Company had net Federal and state net operating
losses available for carryforward of approximately $6,007,000 and $3,765,000,
respectively expiring through the years 2011 and 2003, respectively. If
certain substantial changes in the Company's ownership should occur, there
could be an annual limitation on the amount of the Federal net operating loss
carryforwards which could be utilized annually.
(7) Concentration of Credit Risk
During 1996 and for the period from July 31, 1995 to December 31, 1995, three
customers and one customer, respectively, accounted for 41% and 26%,
respectively, of net revenue. Accounts receivable from such customers were
approximately $826,000 and $305,000 at December 31, 1996 and 1995,
respectively. Substantially all sales are made to customers who are in the
pharmaceutical industry. The Company performs periodic credit evaluations of
its customers' financial condition and frequently does not require collateral.
The Company does not believe that this concentration of sales and credit risk
represents a material risk of loss with respect to its financial position as
of Decmeber 31, 1996.
(8) Related-party Transactions
For the period from July 31, 1995 to December 31, 1995, DLB utilized the
services of a software development consulting company (the consultant) that
was affiliated with both an executive officer of DLB and Safeguard. During
1996, the aforementioned executive officer was no longer affiliated with the
consultant. DLB incurred approximately $1,303,000 and $485,000 in research and
development expenditures for services provided by the consultant. As of
December 31, 1996 and 1995, due to related parties includes none and $43,900,
respectively, of consulting fees due to the consultant and none and $28,000,
respectively, of consulting fees due to an executive officer of DLB and
$18,961 and $11,990, respectively, to DLB-NJ. DLB also maintains a note
payable to the consultant as of December 31, 1996 and 1995 (see note 2).
DLB had the following accounts receivable from related parties:
1995 1996
-------- --------
Receivable from DLB-Ltd. $244,167 $244,167
Loans receivable from employees 98,668 96,460
-------- --------
Receivables - other $342,835 $340,627
======== ========
F-16
<PAGE>
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(8) Related-party Transactions, cont.
DLB and DLB-NJ entered into a consulting agreement which in effect provides
for the payment of support service fees to DLB-NJ. These fees cover the
consultuing and related costs of specified employees of DLB-NJ including the
two directors identified in the employment agreements entered into with DLB
(see note 9). The consulting agreement will continue until terminated by DLB.
During 1996 and for the period July 31, 1995 to December 31, 1995, DLB paid
$1,302,684 and $480,000, respectively and $561,722 and $190,886, respectively
in support service fees to DLB-Ltd. and DLB-NJ, respectively.
Upon execution of the Agreement, DLB and Safeguard entered into an
Administrative Services Agreement whereby Safeguard will provide the Company
with certain administrative support services, as defined in the Administrative
Services Agreement, for which Safeguard shall be paid an annual fee equal to
1/2% of the Company's gross revenues each year. The Administrative Services
Agreement was effective through April 1, 1996 and shall automatically continue
on an annual basis, subject to termination on the final day of any succeeding
calendar year by delivery of 90 days' notice by either party prior to the
termination date. As of December 31, 1996 and 1995, DLB owed $44,436 and
$9,231 to Safeguard in accordance with the Administrative Services Agreement
for 1996 and for the period July 31, 1995 through December 31, 1995,
respectively.
(9) Employment Agreements
In August 1995, DLB entered into two-year employment agreements with two
employees of DLB-NJ. These agreements include nondisclosure and noncompetiton
clauses and are subject to renewal for consecutive one-year periods.
(10) Retirement Savings Plan
The Company maintains a 401(k) retirement savings plan (the 401(k) Plan). The
Company administers the 401(k) Plan at its own expense and provides no match
to employee contributions.
F-17
<PAGE>
DLB SYSTEMS LIMITED
DIRECTORS REPORT
The directors present their report and the accounts for the year ended
31 March 1996.
PRINCIPAL ACTIVITIES
The principal activities of the group are the supply of computer software
products and associated services to the healthcare industry, to assist with
clinical research and development and regulatory compliance.
DIRECTORS
The directors who held office during the year were as follows;
S.T. Jolley (Chairman)
J. Jolley
P.N. Greenwood
P.N. Greenwood resigned 31 July 1997.
DIRECTORS' INTERESTS
The directors who held office at 31 March 1996 had the following interests in
the shares of the company:
Ordinary Shares of 5p
---------------------
1996 1995
---- ----
S.T. Jolley 997 997
J. Jolley 117 117
In addition, S.T. Jolley and J. Jolley have an interest in a discretionary
settlement, the Trustees of which held 1,000 Ordinary Shares of 5p each in the
company at 31 March 1996 and 1995.
F-18
<PAGE>
DLB SYSTEMS LIMITED
DIRECTORS' REPORT (Continued)
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare accounts for each financial year
which give a true and fair view of the state of affairs of the company as at
the end of the financial year and of the profit or loss of the company for
that period. In preparing those accounts, the directors are required to:
- select suitable accounting policies and then apply them
consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the accounts on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the accounts comply with the
Companies Act. They are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities
AUDITORS
A resolution to propose the reappointment of Imray & Co. as auditors to the
company will be put to the annual general meeting.
This report has been prepared taking advantage of the exemptions conferred by
Part II of Schedule 8 of the Companies Act 1985, on the grounds that in the
opinion of the directors the company and group is entitled to these exemptions
as a small company and group.
BY ORDER OF THE BOARD
S.T. JOLLEY
Secretary
January 9, 1998
F-19
<PAGE>
AUDITORS' REPORT TO THE MEMBERS OF DLB SYSTEMS LIMITED
We have audited the accounts on pages 6 to 20 which have been prepared under
the historical cost convention and the accounting policies set out on pages 6
to 8.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described an page 3 the company's directors are responsible for the
preparation of the accounts. It is our responsibility to form an independent
opinion, based on our audit, an those statements and to report our opinion to
you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the accounts. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the accounts, and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the accounts are free
from material misstatement, whether caused by fraud or other irregularity or
error. In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the accounts.
FUNDAMENTAL UNCERTAINTY
In forming our opinion we have considered the adequacy of the disclosures in
the accounts concerning the contention by the Inland Revenue that there has
been a transfer of goodwill by the company to its subsidiary. The
investigation has not been completed and the eventual settlement may result
in an additional corporation tax charge. Details of this fundamental
uncertainty are given in Note 5 of the accounts. Our opinion is not qualified
in this respect.
GOING CONCERN
The accounts have been prepared on a going concern basis, the validity of
which depends upon the financial support of Premier Research Worldwide Limited
and the ability of the directors to obtain any necessary finance to support
the group as explained on page 7 and in Note 18. The accounts do not include
any adjustments that would result from the absence of the required level of
support. In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the accounts.
F-20
<PAGE>
AUDITORS' REPORT TO THE MEMBERS OF DLB SYSTEMS LIMITED (Continued)
OPINION: DISCLAIMER ON VIEW GIVEN BY ACCOUNTS
Because of the possible effect of the limitation in evidence available to us, we
are unable to form an opinion as to whether the accounts give a true and fair
view of the state of affairs of the company and the group as at 31 March 1996 or
of the profit of the group for the year then ended. In all other respects, in
our opinion the accounts have been properly prepared in accordance with the
Companies Act 1985 as applicable to small companies.
In respect alone of the limitation on our work relating to the going concern
basis we have not obtained all the information and explanations that we
considered necessary for the purpose of our audit.
IMRAY & CO.
Chartered Accountants and
Registered Auditor
Cambridge
January 9, 1998
F-21
<PAGE>
DLB SYSTEMS LIMITED
ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accounts have been prepared on the historical cost basis of accounting and
in accordance with applicable accounting standards. The company has taken
advantage of the exemption in Financial Reporting Standard No. 1 from
producing a cash flow statement on the grounds that it is a small company.
Whilst, as referred to above, the accounts have been prepared in accordance with
applicable Accounting Standards in the United Kingdom, the figures and amounts
shown in the accounts and notes would be compatible with United States Generally
Accepted Accounting Principles if the accounts had been prepared on that basis.
However, if the accounts had been prepared under United States Generally
Accepted Accounting Principles the presentation and extent of information and
disclosures shown in the accounts and notes would not be in the format and style
used.
BASIS OF PREPARATION OF THE ACCOUNTS
As explained in Note 15, on 31 October 1997 Premier Research Worldwide Limited
("Premier") assumed certain assets and liabilities of the company and its
subsidiary existing at that date.
The accounts have been prepared on the going concern basis which assumes that
the group will continue in operational existence for the foreseeable future.
The validity of this assumption depends on both the support of Premier in its
assumption of the company's liabilities, as referred in the Agreement with
Premier, and the ability of the directors to obtain sufficient finance to meet
any liabilities that might occur and which will not be met by Premier.
BASIS OF CONSOLIDATION
The group's accounts consolidate the accounts of the company and its
subsidiary up to 31 March 1996.
No profit and loss account is presented for DLB Systems Limited, the parent
company, as permitted by section 230 of the Companies Act 1985.
TURNOVER
Turnover represents the value of goods and services supplied by the group,
excluding value added tax.
F-22
<PAGE>
DLB SYSTEMS LIMITED
ACCOUNTING POLICIES (Continued)
TANGIBLE FIXED ASSETS
Tangible fixed assets are stated at cost to the group, less accumulated
depreciation.
Depreciation is provided at the following annual rates on a straight line
basis in order to write off each asset over its estimated useful life:
Motor vehicles 20%
Office equipment 14% to 20%
Computer equipment 33 1/3%
Leasehold improvements are depreciated over the shorter of the estimated
useful life or the term of the lease.
RESEARCH AND DEVELOPMENT
Expenditure on research and development is written off to the profit and loss
account in the period in which it is incurred.
FOREIGN CURRENCIES
Assets and liabilities denominated in foreign currencies are translated at the
rate of exchange ruling at the balance sheet date. Transactions in foreign
currencies are recorded at the rate ruling at the date of the transaction.
Exchange differences arising in the ordinary course of business are taken
to the profit and loss account. The accounts of the overseas subsidiary are
translated at the rate of exchange ruling at the balance sheet date.
DEFERRED INCOME
Income arising from maintenance contracts is credited to the profit and loss
account evenly over the term of the contract.
DEFERRED TAXATION
The group provides for deferred taxation at current and future known rates of
tax on timing differences, except where it can be demonstrated with
reasonable certainty that no corporation tax liability will arise in the
foreseeable future.
F-23
<PAGE>
DLB SYSTEMS LIMITED
ACCOUNTTTNG POLICIES (Continued)
FINANCE LEASES AND HIRE PURCHASE AGREEMENTS
Assets held under finance leases and hire purchase agreements that give rights
approximating to ownership are treated as if they had been purchased and an
amount equivalent to their cost is included in tangible fixed assets.
Depreciation is provided in accordance with the accounting policy for
tangible fixed assets.
Finance lease and hire purchase payments are treated as consisting of capital
and finance charge elements and the finance charge is charged to the profit
and loss account.
All other leases are operating leases and the annual rentals are charged to
the profit and loss account.
F-24
<PAGE>
DLB SYSTEMS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 1996
<TABLE>
<CAPTION>
Note 1996 1995
---- ---- ----
L L
<S> <C> <C> <C>
TURNOVER
1,403,700 3,248,564
Net operating expenses 2 (2,367,912) (5,038,546)
--------- -----------
OPERATING LOSS (964,212) (1,789,982)
Exceptional credit 3 1,829,135 -
--------- -----------
864,923 (1,789,982)
Interest payable (59,903) (75,899)
--------- -----------
PROFIT (LOSS) ON ORDINARY ACTIVITIES
BEFORE TAXATION 805,020 (1,865,881)
Taxation credit 5 4,740 146,566
--------- -----------
RETAINED PROFIT (LOSS) FOR THE YEAR 12 L 809,760 L(1,719,315)
========= ===========
</TABLE>
In 1996 and 1995 the company had no recognized gains and losses other than the
profit (1995: loss) for the year.
During 1996 the company's operations are being discontinued.
F-25
<PAGE>
DLB SYSTEMS LIMITED
CONSOLIDATED BALANCE SHEET AT 31 MARCH 1996
<TABLE>
<CAPTION>
Note 1996 1995
---- ---- ----
L L
<S> <C> <C> <C>
FIXED ASSETS
Tangible fixed assets 6 45,687 429,240
Investments 7 - -
-------- ----------
45,687 429,240
CURRENT ASSETS
Debtors 8 41,266 1,609,612
Cash at bank 12,156 18,228
-------- ----------
53,422 1,627,840
CURRENT LIABILITIES
CREDITORS: Amounts falling due
within one year 9 (295,863) (3,019,811)
-------- ----------
NET CURRENT LIABILITIES (242,441) (1,391,971)
-------- ----------
TOTAL ASSETS LESS CURRENT LIABILITIES (196,754) (962,731)
CREDITORS: Amounts falling due after
more than one year 9 - 43,783
-------- ----------
NET LIABILITIES (982,508) L(1,006,514)
======== ==========
CAPITAL AND RESERVES
Called-up share capital 11 153 153
Share premium account 12 237,077 237,077
Profit and loss account 12 (433,984) (1,243,744)
-------- ----------
SHAREHOLDERS FUNDS - equity interests 12 L(196,754) L(1,006,514)
======== ==========
</TABLE>
In preparing these accounts the directors have taken advantage of the
exemptions applicable to small companies and groups conferred by Section A of
Part 1 of Schedule 8 to the Companies Act 1985 and have done so on the basis
that, in their opinion, the company satisfies the criteria for exemption as
a small company and group.
The accounts on pages 6 to 20 were approved by the Board of Directors
on January 9, 1998 and were signed on its behalf by:
S.T. JOLLEY )
) Director
J. JOLLEY )
F-26
<PAGE>
DLB SYSTEMS LIMITED
COMPANY BALANCE SHEET AT 31 MARCH 1996
<TABLE>
<CAPTION>
Note 1996 1995
---- ---- ----
L L
<S> <C> <C> <C>
FIXED ASSETS
Tangible fixed assets 6 45,687 38,217
Investment 7 - 472,229
-------- --------
45,687 510,446
-------- --------
CURRENT ASSETS
Debtors 8 41,266 56,250
Cash at bank 315 673
-------- --------
41,581 56,923
-------- --------
CURRENT LIABILITIES
CREDITORS: Amounts falling due
within one year 9 (1,069,574) (734,536)
-------- --------
NET CURRENT LIABILITIES (1,027,995) (677,613)
-------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES (982,308) (167,167)
CREDITORS: Amounts falling due after
more one year 9 - 5,695
-------- --------
NET LIABILITIES 9 L(982,308) L(172,862)
======== ========
CAPITAL AND RESERVES
Called-up share capital 11 153 153
Share premium account 12 237,077 237,077
Profit and loss account 12 (1,219,538) (410,092)
-------- --------
L (982,308) L(172,862)
======== ========
</TABLE>
In preparing these accounts the directors have taken advantage of the
exemptions applicable to small companies conferred by Section A of Part 1 of
Schedule 8 to the Companies Act 1985 and have done so on the basis that, in
their opinion, the company satisfies the criteria for exemption as a small
company.
The accounts on pages 6 to 20 were approved by the Board of Directors
on January 9, 1998 and were signed on its behalf by:
S.T. JOLLEY )
) Director
J. JOLLEY )
F-27
<PAGE>
DLB SYSTEMS LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 1996
1. LOSS FOR THE FINANCIAL YEAR
The loss for the financial year dealt with in the accounts of the holding
company is L644,668 (1995 loss: L584,974).
2. NET OPERATING EXPENSES
1996 1995
---- ----
L L
Depreciation 84,135 195,858
Loss (profit) on disposals of
fixed assets 18,114 (128)
Operating lease-rentals:
- equipment 52,260 60,194
- buildings 131,949 231,272
Other operating charges 2,076,454 4,539,350
Auditors' remuneration 5,000 12,000
--------- ---------
L2,367,912 L5,038,546
========= =========
Depreciation includes L11,950 (1995: L16,124) in respect of assets held
under finance leases and hire purchase agreements.
3. EXCEPTIONAL CREDIT
On 1 August 1995, substantially all of the trade, assets and liabilities
of the company's wholly owned subsidiary DLB Systems, Inc (incorporated in
New Jersey, USA), ("DLB New Jersey") were sold at book value without any
purchase consideration, to a new company, DLB Systems, Inc (incorporated
in Delaware, USA) ("DLB Delaware"), in exchange for a 24% stake in DLB
Delaware being transferred to DLB New Jersey. The remainder of DLB
Delaware is owned by Safeguard Scientific, Inc (Safeguard). Subsequent
to the sale, up to 31 October 1997, Safeguard have provided financial
support to the company and its subsidiary and, in return, the company and
its subsidiary have provided technical support and other services for
Safeguard.
As a result of there being an excess of liabilities over assets sold to
DLB Delaware, without any purchase consideration, the net credit arising
from this transaction is L1,829,135.
F-28
<PAGE>
DLB SYSTEMS LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 1996 (Continued)
4. DIRECTORS
1996 1995
---- ----
Directors' remuneration:
Emoluments (including pension
contributions) L263,998 L371,035
======== ========
5. TAXATION
1996 1995
---- ----
L L
UK corporation tax based on profits
for the year at 25%:
Current - -
Overseas taxation:
Current credit 4,740 146,566
-------- --------
L4,740 L146,566
======== ========
It is contended by the Inland Revenue that there has been a transfer of
goodwill by the company to its subsidiary during 1993. No amounts have been
provided for corporation tax that might become payable in respect of such a
transfer on the grounds that the amount of such gain, if any, is
uncertain. It is expected that trading tax losses incurred in the years
from 31 March 1995-1996, will, if agreed by the Inland Revenue, be carried
back to set against any gain.
F-29
<PAGE>
DLB SYSTEMS LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 1996 (Continued)
6. TANGIBLE FIXED ASSETS
Group:
Leasehold Motor Office Computer
improvements vehicles equipment equipment Total
------------ -------- --------- --------- -----
L L L L L
COST
At 1 April 1995 47,964 47,883 236,257 604,385 936,489
Additions - - - 44,195 44,195
Disposals (47,964) (47,883) (204,237) (420,420) (720,504)
------ ------ ------- ------- -------
At 31 March 1996 - - 32,020 228,160 260,180
------ ------ ------- ------- -------
DEPRECIATION
At 1 April 1995 19,134 26,335 81,878 379,902 507,249
Charged 3,155 3,150 14,017 63,813 84,135
Released on sale (22,289) (29,485) (68,121) (256,996) (376,891)
------ ------ ------- ------- -------
At 31 March 1996 - - 27,774 186,719 214,493
------ ------ ------- ------- -------
NET BOOK VALUE
At 31 March 1996 L - L - L 4,246 L 41,441 L 45,687
====== ====== ======= ======= =======
At 31 March 1995 L28,830 L21,548 L154,379 L224,483 L429,240
====== ====== ======= ======= =======
At 31 March 1996 the net book value of tangible fixed assets held under finance
leases and hire purchase agreements was L5,695 (1995: L43,010).
F-30
<PAGE>
DLB SYSTEMS LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 1996 (Continued)
6. TANGIBLE FIXED ASSETS (Continued)
Company:
Office Computer
equipment equipment Total
--------- --------- -----
L L L
COST
At 1 April 1995 32,020 195,997 228,017
Additions -- 32,163 32,163
------ ------- -------
At 31 March 1996 32,020 228,160 260,180
------ ------- -------
DEPRECIATION
At 1 April 1995 25,236 164,564 189,800
Charged 2,538 22,155 24,693
------ ------- -------
At 31 March 1996 27,774 186,719 214,493
------ ------- -------
NET BOOK VALUE
At 31 March 1996 L 4,246 L 41,441 L 45,687
======= ======== ========
At 31 March 1995 L 6,784 L 31,433 L 38,217
======= ======== ========
At 31 March 1996 the net book value of tangible fixed assets held under
finance leases and hire purchase agreements was L5,695 (1995: L11,390)
7. FIXED ASSET INVESTMENTS
Group:
Investment in associated company:
1996 1995
---- ----
The investment represents 200,000
common stock of shares of $0.01 per
value of DLB Systems, Inc. (incorporated
in Delaware, USA). This holding
represents 24% of all shares issued by
DLB Delaware. As set out in Note 3 the
shares were acquired during the year for
no purchase consideration. L- L-
F-31
<PAGE>
DLB SYSTEMS LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 1996 (Continued)
7. FIXED ASSET INVESTMENTS (Continued)
Company:
1996 1995
---- ----
L L
Investment in subsidiary 472,229 472,229
Less: Amounts written off (472,229) -
------- -------
L - L472,229
======= =======
The investment in the company's subsidiary, DLB Systems, Inc. is shown at
cost and represents 100% of the Common Stock issued of 100 shares of no par
value. DLB Systems, Inc. was incorporated in New Jersey, USA and supplies
computer software and associated services to the pharmaceutical industry.
Following the sale of the trade, assets and liabilities of DLB Systems,
Inc. (Note 3) the cost has been written off.
8. DEBTORS
Group Company
----- -------
1996 1995 1996 1995
---- ---- ---- ----
L L L L
Amounts falling due within
one year:
Trade debtors - 1,419,604 - -
Other debtors 20,977 86,165 20,977 17,230
Prepayments and accrued
income 20,289 103,843 20,289 39,020
------ --------- ------ ------
L41,266 L1,609,612 L41,266 L56,250
====== ========= ====== ======
F-32
<PAGE>
DLB SYSTEMS LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 1996 (Continued)
9. CREDITORS
Group Company
----- -------
1996 1995 1996 1995
---- ---- ---- ----
L L L L
Amounts falling due
within one year:
Bank loans and overdraft
(secured) 2,845 1,110,970 2,845 108,210
Other loans - 107,448 - -
Finance leases and hire
purchase 4,414 18,732 4,414 5,695
Trade creditors 221,816 422,370 212,662 85,275
Corporation tax - 9,960 - 9,960
Other taxation and social
security payable 12,439 7,550 4,551 7,550
Accruals and deferred
income 54,349 1,342,781 44,481 25,000
Amount owed to
subsidiary company - - 800,621 492,846
------- --------- ------- -------
L295,863 L3,019,811 L1,069,574 L734,536
======= ========= ======= =======
L L L L
Amounts falling due after
more than one year:
Bank loans (secured) - 17,668 - -
Finance leases and hire
purchase agreements - 26,115 - 5,695
------- --------- ------- -------
L- L43,783 L- L5,695
======= ========= ======= =======
F-33
<PAGE>
DLB SYSTEMS LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 1996 (Continued)
10. FINANCE LEASE
Finance lease commitments are repayable as follows:
Group Company
----- -------
1996 1995 1996 1995
---- ---- ---- ----
L L L L
Payable within one year 5,149 23,522 5,149 6,637
Payable between two and
five years - 29,462 - 6,637
----- ------ ----- -----
5,149 52,984 5,149 13,274
Less future finance charges (735) (8,137) (735) (1,184)
----- ------ ----- -----
L4,414 L44,847 L4,414 L11,390
===== ====== ===== ======
11. CALLED-UP SHARE CAPITAL
Company:
1996 1995
---- ----
Authorized:
200,000 Ordinary Shares of 5p each L10,000 L10,000
====== ======
Allotted, called-up and fully paid:
3,066 Ordinary Shares of 5p each L 153 L 153
====== ======
F-34
<PAGE>
DLB SYSTEMS LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 1996 (Continued)
12. STATEMENT OF MOVEMENT IN RESERVES AND RECONCILIATION OF
MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
Total
shareholders'
Share funds
Share premium Profit and reconciliation
capital account loss account of movements
------- ------- ------------ --------------
L L L L
<S> <C> <C> <C> <C>
Group:
At 1 April 1995 153 237,077 (1,243,744) (1,006,514)
Profit for the year - - 809,760 974,538
------ -------- ---------- ---------
At 31 March 1996 L153 L237,077 L (433,984) L (31,976)
====== ======== ========== =========
Company:
At 1 April 1995 153 237,077 (410,092) (172,862)
Loss for the year - - (809,446) (644,668)
------ -------- ---------- ---------
At 31 March 1996 L153 L237,077 L(1,219,538) L(817,530)
====== ======== ========== =========
</TABLE>
13. OPERATING LEASES
Payments to which the group and the company are committed to in the
following year under operating leases are as follows:
Group:
1996 1995
---- ----
Land & Land &
Equipment buildings Equipment buildings
--------- --------- --------- ---------
L L L L
Expiring:
Within one year 6,636 9,500 - -
Between two and
five years 20,895 - 17,267 196,558
------- ------ ------- --------
L27,531 L9,500 L17,267 L196,558
======= ======= ======= ========
F-35
<PAGE>
DLB SYSTEMS LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 1996 (Continued)
13. OPERATING LEASES
1996 1995
---- ----
Land & Land &
Equipment buildings Equipment buildings
--------- --------- --------- ---------
L L L L
Expiring:
Within one year 6,636 9,500 - -
Between two and
five years 20,895 - 7,867 57,000
------ ----- ------ -------
L27,531 L9,500 L7,867 $57,000
14. RELATED PARTIES
Support service provided by DLB Systems, Inc (Incorporated in Delaware,
USA) to both the company and its subsidiary amounted to, in total for the
year to 31 March 1996, L737,396.
15. POST BALANCE SHEET EVENTS
As a result of an Agreement dated 28 October 1997 substantially all of
the trade, assets and liabilities of DLB Delaware (See Note 3) were
acquired by Premier Research Worldwide Limited (Premier), effectively at 31
October 1997. Additionally, under this Agreement, Premier acquired various
assets of DLB Systems Limited situated at its premises in Cambridge, UK,
and certain trade payables as defined in the Agreement.
At this date the company and its subsidiary ceased to trade. The directors
do not expect, as a result of this Agreement, to receive any proceeds for
its investment in DLB Delaware.
F-36
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited pro forma combined financial statements give effect
to the acquisition by Premier Research Worldwide, Ltd. and subsidiaries
("Premier" or "the Company") of certain net assets of DLB Systems, Inc.
("DLB") in a transaction to be accounted for as a purchase as described in
Note 2 of Notes to Unaudited Pro Forma Combined Financial Statements. The
unaudited pro forma combined balance sheet is based on the individual balance
sheets of Premier and DLB and has been prepared to reflect the acquisition of
DLB by Premier as of September 30, 1997. The unaudited pro forma combined
statements of operations are based on the individual statements of operations
of Premier and DLB and combine the results of operations of Premier and DLB as
if the acquisition had occurred on December 31, 1995.
The unaudited pro forma combined financial statements have been prepared by
management and should be read in conjunction with the historical financial
statements of Premier (as included in the Company's S-1 registration statement
filed with the Securities and Exchange Commission as part of its initial
public offering on February 3, 1997 and the Company's quarterly report filed
on Form 10-Q for the period ended September 30, 1997) and DLB (as
included herewith). These statements are based on certain assumptions and
preliminary estimates which are subject to change and do not purport to be
indicative of the financial position or results of operations that might have
occurred, nor are they indicative of future results.
F-37
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(in thousands)
The Pro Forma Combined
ASSETS Company DLB Adjustments Pro Forma
------- ------- ----------- ---------
(Note 1) (Note 1) (Note 3)
Current assets:
Cash and cash equivalents $16,248 $ 87 $ (6,575)a $ 8,594
(1,166)b
Marketable securities 15,722 - - 15,722
Accounts receivable, net 3,062 857 - 3,919
Prepaid expenses and other 557 43 - 600
Deferred income taxes 106 - - 106
------- ------- --------- ---------
Total current assets 35,695 987 (7,741) 28,941
Property and equipment, net 1,287 353 - 1,640
Investment in DLB, at cost 1,000 - (1,000)c -
Deferred income taxes and other 1,006 72 3,080 d 4,158
Goodwill - - 2,843 e 2,843
------- ------- --------- ---------
$38,988 $ 1,412 $ (2,818) $ 37,582
======= ======= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of
long-term debt $ - $ 3,566 $ (2,400)f $ -
(1,166)b
Accounts payable 558 718 - 1,276
Accrued expenses and other 732 407 - 1,139
Deferred revenues 1,779 1,689 - 3,468
Accrued dividends - 475 (75)f 400
------- ------- --------- ---------
Total current liabilities 3,069 6,855 (3,641) 6,283
Stockholders' equity (deficit) 35,919 (5,443) 5,443 f 31,299
(4,620)g
------- ------- --------- ---------
$38,988 $ 1,412 $ (2,818) $ 37,582
======= ======= ========= =========
The accompanying notes are an integral part of these statements.
F-38
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(in thousands, except per share amounts)
The Pro Forma Combined
Company DLB Adjustments Pro Forma
------- ------- ----------- ---------
(Note 1) (Note 1) (Note 3)
Net revenues $ 9,559 $ 4,419 $ - $ 13,978
------- ------- --------- ---------
Costs and expenses:
Direct costs 4,668 1,167 - 5,835
Selling, general and
administrative 6,956 4,598 - 11,554
Depreciation and
amortization 440 177 267 h 884
------- ------- --------- ---------
Total costs and expenses 12,064 5,942 267 18,273
------- ------- --------- ---------
Loss from operations (2,505) (1,523) (267) (4,295)
Other (income) expense, net (1,051) 251 328 i (713)
(241)j
------- ------- --------- ---------
Loss before income taxes (1,454) (1,774) (354) (3,582)
Income tax benefit 697 - 176 k 1,473
------- ------- --------- ---------
Net loss $ (757) $(1,774) $ 422 $ (2,109)
======= ======= ========= =========
Net loss per share $ (0.11) $ (0.32)
======= =========
Weighted average number of
common shares outstanding 6,632 6,632
======= =========
The accompanying notes are an integral part of these statements.
F-39
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
The Pro Forma Combined
Company DLB Adjustments Pro Forma
-------- ------- ----------- ---------
(Note 1) (Note 1) (Note 3)
<S> <C> <C> <C> <C>
Net revenues $ 15,283 $ 6,332 $ - $ 21,615
-------- ------- ---------- ---------
Costs and expenses:
Direct costs 6,285 2,410 - 8,695
Selling, general and administrative 6,783 6,666 - 13,449
Depreciation and amortization 704 199 355 h 1,258
-------- ------- ---------- ---------
Total costs and expenses 13,772 9,275 355 23,402
-------- ------- ---------- ---------
Income (loss) from operations 1,511 (2,943) (355) (1,787)
Other (income) expense, net - 195 787 i 799
(183)j
-------- ------- ---------- ---------
Income (loss) before income taxes(1) 1,511 (3,138) (959) (2,586)
Income tax provision (benefit)(1) 633 - (1,716)k (1,083)
-------- ------- ---------- ---------
Net income (loss)(1) $ 878 $(3,138) $ 757 $ (1,503)
======== ======= ========== =========
Net income (loss) per share(1) $ 0.18 $ (0.30)
======== =========
Weighted average number of
common shares outstanding(1) 5,003 5,003
======== =========
</TABLE>
(1) Reflects the conversion of the minority interest in the limited liability
company into common stock of the Company as if it had converted as of
January 1, 1996, instead of at the closing of the initial public
offering. The minority interest in the loss of the limited liability
company was $332,000 for the year ended December 31, 1996.
The accompanying notes are an integral part of these statements.
F-40
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. HISTORICAL FINANCIAL STATEMENTS
The historical balances represent the financial position and results of
operations for each company and were derived from the respective financial
statements for the indicated periods.
The unaudited DLB balance sheet and statement of operations have been
prepared on a basis consistent with the DLB audited financial statements
included elsewhere in this filing. The unaudited Premier balance sheet and
statement of operations have been prepared on a basis consistent with the
Premier audited financial statements for the year ended December 31, 1996
included in the Company's S-1 registration statement filed with the Securities
and Exchange Commission as part of its initial public offering on February 3,
1997. In the opinion of management, these historical financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial condition and results of operations
for the periods presented.
2. ACQUISITION OF DLB SYSTEMS, INC. ("DLB")
On October 14, 1997, Premier exercised an option to purchase the assets and
ongoing business operations of DLB and DLB's wholly-owned subsidiary,
Recalmon, Inc., a Delaware corporation ("Recalmon" together, with DLB, the
"Sellers"). The purchase option was granted to Premier pursuant to the terms
and provisions of a certain Preferred Stock Purchase Agreement dated as of
June 30, 1997 between the Company and DLB (the "Stock Purchase Agreement").
Pursuant to the terms and provisions of the Stock Purchase Agreement, Premier
acquired fourteen percent (14%) of the outstanding capital stock of DLB on
June 30, 1997 for $1 million. Premier's ownership interest in DLB was
canceled, without the payment of any form of consideration, as part of the
asset purchase transaction.
The closing for the asset purchase transaction was held on October 28, 1997,
with the acquisition being effective, for tax and accounting purposes, as of
October 31, 1997. Under the terms of the Asset Purchase Agreement entered into
between Premier and the Sellers, Premier purchased the Sellers' assets and
ongoing business operations for $6,500,000 in cash, the payment of $1,166,000
in bank debt previously incurred by the Sellers, the cancellation of
Premier's $1 million investment and the assumption of certain net liabilities of
the Sellers totaling $1,802,000. The acquisition was recorded using the purchase
method of accounting. The total purchase price of $10,543,000, including
estimated transaction costs of $75,000, was allocated to the fair value of the
assets acquired and liabilities assumed. The excess of purchase price over book
value on the acquisition date was allocated based on an independent appraisal as
follows: (1) $7,700,000 to acquired research and development, which has been
charged to Premier's statement of operations as a non-recurring item during the
Company's fourth quarter ended December 31, 1997; and (2) $2,843,000 to goodwill
being amortized over eight years.
DLB designed, developed, licensed, supported, maintained and enhanced
F-41
<PAGE>
proprietary software products for international clinical trial research for the
pharmaceutical, biotechnology and device industries. Recalmon owned all of the
intellectual property rights utilized by DLB to conduct its business. The assets
purchased by Premier include the Sellers' cash, accounts receivable, equipment,
intellectual property rights (including all proprietary software products),
customer contracts, trademarks and leasehold fixtures and improvements. Premier
intends to utilize the assets which it has acquired from the Sellers to continue
the business heretofore conducted by the Sellers.
3. PRO FORMA ADJUSTMENTS
The following pro forma adjustments are reflected as if the acquisition of DLB
had occurred as of September 30, 1997 in the case of the unaudited pro forma
combined balance sheet, or as of December 31, 1995 in the case of the
unaudited pro forma combined statements of operations. The unaudited pro forma
combined statements of operations do not include a one-time charge of
$7,700,000 related to acquired research and development.
Pro Forma Combined Balance Sheet
- --------------------------------
a) Reflects the payment of the cash portion of purchase price ($6,500,000)
including estimated transaction costs of $75,000.
b) Reflects the payment of the assumed bank debt paid off at closing.
c) Elimination of the prior investment in DLB.
d) Reflects the deferred tax effect of the acquired research and development
charge.
e) Portion of purchase price allocated to goodwill.
f) Reflects the application of purchase accounting, including the elimination
of DLB's historical equity and certain liabilities not acquired.
g) Reflects the retained earnings effect for the charge to income related to
acquired research and development, net of tax.
Pro Forma Combined Statements of Operations
- -------------------------------------------
h) Amortization of goodwill on a straight-line basis over eight years.
i) Adjustment to reflect interest expense at 9% or reduced interest income at 5%
related to the cash payment of the purchase price ($6,500,000), assumed
bank debt paid off at closing ($1,166,000), Premier's investment in DLB
($1,000,000) and estimated transaction costs ($75,000).
j) Reflects the elimination of DLB interest expense as debt was repaid at
closing.
k) Adjustment of income tax benefit for combined operating results.
4. PRO FORMA NET LOSS PER SHARE
The shares used in computing pro forma net loss per share assumes the
acquisition of DLB by Premier had occurred as of the beginning of each period
presented. The loss per share calculations do not include the effect of
outstanding stock options as their inclusion would be antidilutive.
F-42
