As filed with the Securities and Exchange Commission on August 20, 1999
Registration No. 333-85429
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SFBC INTERNATIONAL, INC.
(Name of Small Business Issuer in its Charter)
DELAWARE 8731
(State or jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
59-2407464
(I.R.S. Employer Identification No.)
11190 BISCAYNE BLVD.
N. MIAMI, FL 33181
(305) 895-0304
(Address and telephone number of principal executive offices)
11190 BISCAYNE BLVD.
N. MIAMI, FL 33181
(305) 895-0304
(Address of principal place of business or intended principal place of business)
MR. ARNOLD HANTMAN
11190 BISCAYNE BLVD.
N. MIAMI, FL 33181
(305) 895-0304
(Name, address and telephone number of agent for service)
PLEASE SEND A COPY OF ALL COMMUNICATIONS TO:
Michael D. Harris, Esq. Gerald L. Fishman, Esq.
Beth J. Harris, Esq. Barton J. Springer, Esq.
Peter A. Savarese, Esq. Adam D. Fishman, Esq.
MICHAEL HARRIS, P.A. WOLIN & ROSEN, LTD.
1645 Palm Beach Lakes Boulevard, Suite 550 2 N. La Salle Street
West Palm Beach, FL 33401 Suite 1776
(561) 478-7077 Chicago, IL 60602
Facsimile: (561) 478-1817 (312) 346-3600
Facsimile: (312) 346-0464
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
<PAGE>
If this Form is filed to register additional shares for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
[ ] . . . . . . . . . .
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
[ ] . . . . . . . . . .
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
[ ] . . . . . . . . . .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box
[ ] . . . . . . . . . .
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
ii
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Each Class of Amount to Be Price Offering Registration
Securities To Be Registered Registered Per Security(1)(2) Price Fee
- --------------------------------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value (3) 1,322,500 $ 6.50 $8,596,250 $ 2,389.76
Underwriter's Warrants 115,000 $ 0 $115 $ 0
Common Stock, $.001 par value, 115,000 $ 7.80(5) $897,000 $ 249.37
Total Registration Fee $ 2,639.13
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Estimated to be between $5.75 to $6.50 per share. However, for the purpose
of calculating the registration fee, we have assumed the highest price per
share.
(3) Includes (i) 1,150,000 shares initially offered and (ii) 172,500 shares
issuable pursuant to the underwriter's over-allotment option.
(4) Pursuant to Rule 416, we are also registering such additional shares as
may be required for issuance pursuant to the anti-dilution provisions of
the underwriter's warrants.
(5) Equal to 120% of the proposed initial offering price of the common stock.
iii
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBERS AND CAPTION HEADING IN PROSPECTUS
<S> <C> <C>
1. Front of the Registration Statement
and Outside Front Cover of Prospectus.................... Cover Page of Form SB-2 and of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus...................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors....................... Prospectus Summary and Risk Factors
4. Use of Proceeds............................................ Use of Proceeds
5. Determination of Offering Price............................ Cover Page of Prospectus and Risk Factors
6. Dilution................................................... Dilution
7. Selling Security Holders................................... Not applicable
8. Plan of Distribution....................................... Cover Page of Prospectus and Underwriting
9. Legal Proceedings.......................................... Not Applicable
10. Directors, Promoters, Executive Officers, Promoters
and Control Persons....................................... Management
11. Security Ownership of Certain Beneficial
Owners and Management.................................... Principal Stockholders
12. Description of Securities.................................. Description of Securities
13. Interest of Named Experts and Counsel...................... Legal Matters
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................................. Part II
15. Organization Within Last Five Years........................ Related Party Transactions
16. Description of Business.................................... Risk Factors and Business
iv
<PAGE>
FORM SB-2 ITEM NUMBERS AND CAPTION HEADING IN PROSPECTUS
17. Management's Discussion and Analysis or
Plan of Operation........................................ Management's Discussion and Analysis of Results
of Operations and Financial Condition
18. Description of Property.................................... Business
19. Certain Relationships and Related Transactions............. Related Party Transactions
20. Market for Common Equity and Related
Stockholder Matters...................................... Not Applicable
21. Executive Compensation..................................... Management
22. Financial Statements....................................... Financial Statements
23. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure................... Not Applicable
</TABLE>
v
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 20, 1999
PROSPECTUS
1,150,000 SHARES OF COMMON STOCK
SFBC INTERNATIONAL, INC.
This is an initial public offering of shares of common stock of SFBC
International, Inc.
We are a contract research organization located in the metropolitan
Miami, Florida area which conducts clinical research and provides drug
development services for clients in the pharmaceutical and biotechnology
industries. We plan to list our common stock on the Nasdaq National Market under
the symbol "SFBI".
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE ___.
=========================================================================
PER SHARE TOTAL
- -------------------------------------------------------------------------
Public offering price $ $
- -------------------------------------------------------------------------
Underwriting discounts $ $
- -------------------------------------------------------------------------
Proceeds to SFBC International, Inc. $ $
=========================================================================
Our underwriters have a 45 day option from SFBC International to purchase up to
172,500 additional shares to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We anticipate the initial public offering price for the shares we are offering
will be between $5.75 - $6.50 per share. The initial public offering price may
not reflect the market price after the offering. The underwriters expect to
deliver the common stock on , 1999.
SCHNEIDER SECURITIES, INC.
_________________, 1999
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
-1-
<PAGE>
ABOUT THIS PROSPECTUS
You should only rely on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. We are offering to sell, and seeking offers
to buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
See the section of this prospectus entitled "Risk Factors" for a
discussion on certain factors that you should consider before investing in the
common stock offered in this prospectus.
Until ____________, 1999, all dealers selling shares of our common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PROSPECTUS SUMMARY
The information in this prospectus includes statements and statistical
data regarding the health care industry and the pharmaceutical and biotechnology
market. We obtained this data from industry publications, articles and reports
which we believe to be reliable sources; however, we cannot guarantee the
accuracy or completeness of this information. We have not independently verified
the data or sought the consent of the organizations to refer to their reports in
this prospectus.
In order to make it easier for you to understand this prospectus, we
have defined certain terms that are used in this prospectus.
"We" or "our" refers to SFBC International, Inc., a Delaware
corporation, which is offering its common stock for sale to the public. Unless
otherwise clear from the context, these terms also refer to us, together with
our wholly-owned subsidiary, South Florida Kinetics, Inc., and our predecessor,
Bio Clinic Management Company. We acquired our subsidiary on June 7, 1999. All
of the financial information contained in this prospectus prior to that date is
that of our subsidiary.
We are assuming that the initial public offering price will be $6.00
per share in calculating:
o information in the "Dilution" section of this prospectus,
o the number of shares of common stock we will have outstanding
after this offering,
o the number of shares of common stock we will issue upon
conversion of our convertible notes,
o the number and exercise price of warrants we will issue upon
conversion of our convertible notes, and
o the amount of net proceeds we will receive and working capital
we will have available.
This summary highlights information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully. Unless otherwise indicated, all information contained in
this prospectus assumes that the underwriter will not exercise its
over-allotment option. This prospectus contains forward-looking statements which
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
prospectus.
- 2 -
<PAGE>
The Company
Our Business...We are a contract research organization which conducts clinical
research and provides drug development services for clients in
the pharmaceutical and biotechnology industries. We believe that
our recent growth over the last 12 months reflects industry
recognition of the high quality and cost-effective services we
provide our clients.
Approximately 85% of our revenues currently come from Phase I and
Phase II clinical trial services. We believe that with over 250
beds we are one of the largest single site Phase I and Phase II
clinical trials facilities in the United States. We offer our
clients the ability to reduce their own research expenses and
save time in developing drugs. Phases I, II, III and IV refer to
the stages of drug development commencing with human testing as
outlined by the United States Food and Drug Administration
regulations. Commencing at page ___ of this prospectus under the
section called "Business - The Drug Development Process", we
explain what occurs at each of these four phases.
We provide a wide range of clinical research and drug development
services in Phases I, II, III and IV. We :
o recruit participants and doctors for all phases;
o conduct clinical trials;
o provide clinical monitoring and management;
o assist in writing protocols which are the blueprints that tell
how to conduct a clinical trial;
o provide clinical data management and medical writing; and
o provide consulting services to our clients concerning United
States Food and Drug Administration procedures and their new
drug submissions.
Our base of approximately 60 clients includes 23 of the top 25
leading pharmaceutical companies including:
o Abbott Laboratories,
o Bristol-Myers Squibb Co.,
o Glaxo Wellcome Inc.,
o Merck & Co., Inc. ,
o Pfizer, Inc., and
o Johnson & Johnson.
In 1998, six clients including three of these companies accounted
for approximately 70% of our revenues. Industry information
indicates that pharmaceutical and biotechnology companies are
increasing their spending to develop new drugs. We and other
contract research organizations are benefiting from this increase
in research spending. Last year, UBS Securities LLC, a large
stockbrokerage firm, projected the following annual revenues for
our industry:
1997 $3.14 billion
1998 $3.69 billion estimated
1999 $4.33 billion estimated
2000 $5.09 billion estimated
Our Strategy...We believe our recent growth is partly because our industry is
expanding. Pharmaceutical and biotechnology companies are relying
on companies like ours, which provide high- quality services on a
timely basis and expedite the process of bringing drugs to the
public market. Our objectives are to continue to enhance our
reputation as a high-quality provider of clinical trial services
and to expand the range of services we provide our clients. Our
strategy consists of the following key elements:
o We want to offer our clients a full range of services in the
clinical research process.
o We will continue to complement our clients' research and drug
development departments.
o We intend to continue to increase the industry's recognition of
us as a provider of high quality services.
o We want to acquire other companies to expand our geographic
presence and increase our clinical research capabilities.
o We want to buy or start a clinical laboratory.
About SFBC.....Our offices and clinic are currently located at
SFBC International, Inc.
11190 Biscayne Boulevard
N. Miami, Florida 33181
(305) 895-0304
Our website address is www.sfbci.com. Information contained on
our website is not part of this prospectus.
The Offering
Common stock offered..... 1,150,000 shares.
Common stock outstanding
Before offering......... 2,080,000 shares.
After offering.......... 3,474,956 shares including 244,956 shares issuable
upon conversion of our outstanding convertible notes
that automatically convert upon the closing of this
offering.
Use of proceeds......... We will repay indebtedness, move to a larger
facility, expand our marketing, add to our working
capital, buy additional equipment and have funds for
potential acquisitions.
<PAGE>
Summary Financial Data
Statement of Operations Data
<TABLE>
<CAPTION>
(Unaudited)
Year ended December 31, Six months ended June 30
-------------------------- ----------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales ............................................................. $ 4,261,505 $ 5,869,987 $ 2,045,273 $ 3,944,523
Operating income (loss) ............................................... 76,957 707,300 (25,067) 660,278
Provision for income taxes ............................................ -- -- -- 241,000
Net income (loss) ..................................................... $ (162,750) $ 507,716 $ (120,833) $ 317,001
=========== =========== =========== ===========
Pro forma data (unaudited) (1):
Income (loss) before provision for income taxes ....................... $ (162,750) $ 507,716 $ (120,833) $ 558,001
Provision (benefit) for income taxes (2) .............................. (61,000) 191,000 (45,000) 210,000
----------- ----------- ----------- -----------
Pro forma net income (loss) ........................................... $ (101,750) $ 316,716 $ (75,833) $ 348,001
=========== =========== =========== ===========
===========
Shares used in computation of pro forma net income (loss) per share (3) 3,474,956 3,474,956 3,474,956 3,474,956
=========== =========== =========== ===========
Pro forma net income (loss) per share (3) ............................. $ (.03) $ .09 $ (.02) $ .10
=========== =========== =========== ===========
</TABLE>
(1) The unaudited pro forma statements of income data have been adjusted
for income taxes which would have been recorded had our subsidiary not
been an S corporation, based on the tax laws in effect during the
periods presented. Pro forma deferred income taxes relate primarily to
temporary differences between financial and income tax reporting for
the cash basis to accrual basis adjustments and depreciation expense.
The net effect of these and other temporary differences has not been
reflected in the financial statements since our subsidiary was an S
corporation prior to June 7, 1999.
(2) From inception through June 7, 1999, our subsidiary elected to be taxed
as an S corporation under the Internal Revenue Code. Accordingly,
taxable income or loss passed directly to the shareholders, and the
financial statements through that date did not provide for income
taxes. The S corporation election was terminated effective June 7,
1999. In connection with this termination, our subsidiary recorded
deferred taxes of $204,000.
(3) Net income (loss) per share of common stock has been computed using the
number of shares of common stock that will be outstanding immediately
after the offering.
The following balance sheet data is presented:
o on a historical basis; and
o on a pro forma as adjusted basis to reflect also our receipt
of the net proceeds from the sale of 1,150,000 shares of
common stock in this offering at an assumed $6.00 per share
after deducting underwriting discounts and estimated offering
expenses, the use of a portion of the net proceeds to pay all
debt and accrued interest and the automatic conversion of our
convertible notes.
Balance Sheet Data (Unaudited)
At June 30, 1999
----------------------------
Pro Forma as
Actual Adjusted
----------- -----------
Cash $ 452,502 5,261,785
Working capital 578,108 5,978,108
Total assets 2,447,815 7,257,098
Short term debt and accrued interest 590,717 --
Long-term debt, less current portion 1,575,899 --
Total stockholders' equity (603,036) 6,372,863
RISK FACTORS
An investment in our common stock involves a high degree of risk, and
you should purchase our common stock only if you can afford a complete loss. You
should consider carefully information about these risks, and all information
contained in this prospectus, before you buy our common stock.
We rely on a limited number of clients for a large percentage of our revenues
which means that we face a greater risk of loss of revenues if we lose clients
During 1998, six companies accounted for approximately 70% of our
revenues. We generated more than 10% of our revenues from each of four of these
clients. These clients accounted for approximately 17%, 15%, 14%, and 12% of our
revenues in 1998. In 1997, three clients accounted for approximately 52% of our
revenues, individually generating approximately 22%, 16% and 14% of our
revenues. Our largest clients vary from year to year. We believe that this kind
of client concentration in the contract research organization industry is common
and expect it to continue. The loss of any client could have a material adverse
effect on our business and future results of operations.
If we cannot effectively manage our growth, we may not continue to operate at
the same levels of profitability
We have grown rapidly starting in July 1998. Any future growth is
likely to place substantial strain on our administrative, operational and
financial resources. To manage this growth, we must establish efficient systems
and train and manage our employees. We have limited management depth and we will
have to employ experienced executives and key employees capable of providing the
necessary support. We can not assure you that our management will be able to
manage our growth effectively or successfully. Our failure to meet these
challenges could have a material adverse effect on our business and future
profitability.
Because we are significantly smaller than the majority of our competitors, we
may lack the financial resources needed to increase our market share.
There are a large number of contract research organizations ranging in
size from one person consulting firms to full service, global drug development
corporations. It is easy for a new company to enter our industry. This
competition may lead to price and other forms of competition that could
adversely affect our business. Many of our competitors have substantially
greater size and other resources than we do. For this reason, we may lack the
financial resources needed to increase our market share.
Our clients may cancel or delay our contracts which could reduce our future
revenues and profits
Our clients may cancel or delay our contracts at any time for no
reason. They may also cancel a clinical trial for a variety of reasons
including:
o inadequate patient enrollment;
o manufacturing problems resulting in a shortage of the
potential product;
o a decision by a client to de-emphasize or cancel the
development of a potential product;
o adverse patient reaction to a potential product;
o unexpected results; and
o United States Food and Drug Administration request.
The loss or delay of a large project or contract or the loss or delay of
multiple small contracts could have a material adverse effect on our business
and future results of operations.
We have only limited experience in providing phase iii and phase iv clinical
trials and may not successfully expand this aspect of our business
As part of our strategy, we plan to expand our Phase III and Phase IV
clinical trials business. The Phase III and Phase IV business is substantially
different than the Phase I and Phase II business. The Phase III and Phase IV
business is widely scattered and involves research performed by individual
physicians who may be located throughout the United States. Our lack of
experience in managing Phase III and Phase IV clinical trials conducted at
multiple sites may handicap us if we expand this part of our business.
We may not be able to carry out our growth strategy if we cannot make future
acquisitions
Following this offering we plan to acquire Phase III and Phase IV
clinical trials businesses as part of our growth strategy. We may also buy or
start a clinical laboratory. Although we are currently exploring potential
acquisitions, we are not engaged in any negotiations. We may not be successful
in acquiring any business. Additionally, we have no experience in making
acquisitions.
Acquisitions may disrupt or have a negative impact on our business.
If we make an acquisition, we could have difficulty integrating that
company's personnel and operations with our own. In addition, the key personnel
of the acquired business may not be willing to work for us. We cannot predict
the effect expansion may have on our core business of Phase I and Phase II
clinical trials. Regardless of whether we are successful in making an
acquisition, the negotiations could disrupt our ongoing business, distract our
management and employees, increase our expenses and adversely affect our future
results of operations.
We have broad discretion to use the offering proceeds which may increase the
risk that they will not be used effectively
Our management will have broad discretion to spend the proceeds of this
offering without having to seek the approval of our stockholders. This means you
are relying on our management to use our funds properly. We may use a portion of
the proceeds to make acquisitions. Changes in our business plans, new needs or
opportunities and industry trends may cause our management to spend our funds
for uses that we cannot predict at this time.
Fluctuations in our operating results may cause our stock price to fall
Our revenues have been higher in the second half of the year. These
fluctuations are usually due to the level of new business authorizations in a
particular quarter or year and the timing of the initiation, progress, or
cancellation of significant projects. We anticipate that this seasonality may
continue as long as our revenues are derived mostly from Phase I and Phase II
clinical trials. Our varying quarterly results may result in the drop of our
common stock price.
We face a risk of liability from our disposal of medical wastes
Our clinical trials activities involve the controlled disposal of
medical wastes which are considered hazardous materials. We believe that our
safety procedures for handling the disposal of these medical wastes comply with
all state and federal environmental regulations. However, we cannot completely
eliminate the risk of accidental contamination or injury from these materials.
If this occurs, we could be held liable for damages, face significant fines, and
face the permanent or temporary shutdown of our operations.
We risk potential liability when conducting clinical trials
Our clinical trials involve administering drugs to humans in order to
determine the effects of the drugs. By doing so we are subject to the general
risks of liability to these persons which include:
o adverse side effects and reactions resulting from the
administration of these drugs to a clinical trial participant,
o improper administration of the new drug, or
o potential professional malpractice of our employees including
physicians.
To protect ourselves, our contracts generally have indemnification agreements in
which our clients agree to indemnify us in the event of adverse consequences to
our participants caused by their products. We also carry liability insurance.
However, if there were a damage claim not covered by insurance or the
indemnification agreement and our client was insolvent, any resulting award
against us could have a material adverse effect on our business and financial
condition.
Our chief executive officer will benefit from this offering which creates a
conflict of interest
From the proceeds of this offering, we are repaying debt including
$191,500 owed to Mr. Arnold Hantman, our chief executive officer. Mr. Hantman
guaranteed payment of $500,000 of the debt we are repaying.
We are controlled by our management who may have a conflict of interest
After this offering, Dr. Lisa Krinsky and Mr. Arnold Hantman combined
will beneficially own approximately 43.8% of our outstanding common stock after
the automatic conversion of our outstanding convertible notes into common stock.
As a result, they will probably be able to exercise control over all matters
requiring stockholder approval including the election of directors and approval
of significant corporate transactions. Their voting control could have the
effect of delaying or preventing a change of control which might benefit our
stockholders.
A change in government regulation could reduce our business
The market for our services is based on strict government regulation of
the drug development process. The general trend in the United States is for
increased regulation. However, in Europe the regulatory process is more relaxed.
The United States could change its regulatory structure. This could reduce our
clients' needs for our services.
We are dependent on the research and development expenditures of the
pharmaceutical and biotechnology industries
Our continued business and expansion is dependent on the research and
development expenditures of our clients. Our business could be materially
adversely affected by any economic downturn, any decrease in our clients'
research and development expenditures or a change in the regulatory environment
in which these companies operate.
Our clients and suppliers' systems may not be year 2000 compliant
The Year 2000 problem is the inability of some computer software to
determine whether "00" means 1900 or 2000. This may result in computer failures
or the failure of the computer to produce accurate information. We have recently
upgraded our computer systems and determined that they are Year 2000 compliant.
We are in the process of verifying that our clients and suppliers are Year 2000
complaint. Our business and our cash flow may suffer if the computer systems of
our clients and third party suppliers are not Year 2000 compliant.
We may issue preferred stock without approval of our stockholders which could
make it more difficult for a third-party to acquire us
We have the authority to issue preferred stock without a vote of our
stockholders. In the future, our board of directors may issue one or more series
of preferred stock that has more than one vote per share. This could permit our
board of directors to issue such stock to investors who support our management
and give effective control of our business to our management. Furthermore, under
some circumstances issuing preferred stock may violate the rules of the Nasdaq
Stock Market, which could result in our common stock being delisted from that
market. The delisting of our common stock from the Nasdaq National Market could
result in both a drop in the stock price and decline in interest in the stock
which could make it more difficult for stockholders to sell their shares.
There has never been a trading market for our common stock and we
cannot predict the extent to which a market will develop
There has not been a public market for our common stock, and we cannot
predict whether a trading market will develop after this offering. We negotiated
the initial public offering price with Schneider Securities, Inc., the
underwriter. This price is not based on our book value, earnings or future
prospects. It is possible that after this offering there will not be a market
for our common stock and that the initial public offering price may be greater
than the prices that will prevail in the trading market.
2,324,956, or 66.9% of our total outstanding shares are restricted from
immediate resale but may be publicly sold after 13 months. This could cause the
market price of our common stock to drop significantly, even if our business is
doing well.
After this offering, we will have outstanding 3,474,956 shares of
common stock. This includes the 1,150,000 we are selling in this offering, which
may be resold in the public market immediately. The remaining 66.9%, or
2,324,956 shares, of our total outstanding shares will become available for
resale in the public market 13 months from the date of this prospectus, due to
an agreement these stockholders have with our underwriters. However, the
underwriters can waive this restriction at any time and allow these stockholders
to sell their shares earlier.
As restrictions on resale end, the market price could drop
significantly if the holders of these restricted shares sell them or are
perceived by the market as intending to sell them.
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that address, among
other things, our expectations with regard to the pharmaceutical market, the
future of health care and new drug development, the continued expansion of our
clinical trials facility and our ability to acquire other businesses operating
within our industry. In addition to these statements, trend analysis and other
information including words such as "seek," "anticipate," "believe," "plan,"
"estimate," "expect," "intend" and other similar expressions are forward looking
statements. These statements may be found in the sections of this prospectus
entitled "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." We anticipate that some or
all of the results will not occur because of various factors including, but not
limited to all of the risks discussed in "Risk Factors" and elsewhere in this
prospectus.
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds from the offering to be approximately
$5,800,000, or $6,731,500 if the underwriter exercises its over-allotment option
in full. These amounts are after the payment of underwriting discounts and
estimated expenses of this offering. The following table represents our best
estimates of how we will use the net proceeds of this offering:
<TABLE>
<CAPTION>
Approximate
Net Proceeds % of Total
---------- -------
<S> <C> <C>
Acquisitions $2,500,000 43.1%
Repayment of debt 784,000 13.5%
Buy computer hardware and software and medical equipment 500,000 8.6%
Expand our marketing program including hiring additional personnel 500,000 8.6%
Payment of interest on minority stockholder debt 262,000 4.5%
New facility leasehold improvements and moving expenses 400,000 6.9%
Working capital 854,000 14.8%
---------- -----
TOTAL $5,800,000 100%
========== =====
</TABLE>
We may use a portion of the net proceeds to acquire additional clinical
research businesses and buy or start our own clinical laboratory. We are not
currently engaged in any negotiations. We are not sure that we will make any
acquisitions and, if we do, whether we will pay cash or issue our securities.
Our management will have broad discretion in how we spend these net proceeds.
We are repaying $784,000 of debt. We do not have to pay interest on
$500,000 of this debt if we pay it by December 31, 1999. We must pay it from the
proceeds of this offering or in $20,000 monthly installments commencing January
1, 2000 with 8% interest. Our subsidiary incurred this debt in 1995. We recently
issued approximately $1,176,000 of three-year convertible notes to our minority
stockholders in exchange for their past due notes. When we close this offering,
the convertible notes automatically convert into shares of our common stock at
the rate of $4.80 per share. Minority stockholders owning approximately $284,000
of notes did not elect to exchange their original notes for the convertible
notes. We are also repaying these notes from the proceeds of this offering. From
the proceeds of this offering, we are paying accrued interest at the rate of 10%
per year on all minority stockholder notes, including the convertible notes.
Interest on the convertible notes has been accruing since January 1, 1999.
Interest on the notes held by the stockholders who did not convert has been
accruing for over two years. The amount in the table estimates a November 1,
1999 closing date.
We anticipate that the net proceeds we receive from this offering will
be sufficient to satisfy our cash needs for at least 12 months. However, our
current plans may change due to unanticipated events. Thus, we may need
additional financing in the future. We cannot assure you that any needed
additional financing will be available on acceptable terms. If we cannot obtain
acceptable financing, our future results of operations may be adversely
affected.
Pending our use of the proceeds, we intend to invest them in
interest-bearing, investment-grade instruments, certificates of deposit or
direct or guaranteed obligations of the United States.
CAPITALIZATION
Our capitalization is presented:
o on an actual basis; and
o on an adjusted basis to give effect to:
o our repayment of debt including a note held by Mr.
Arnold Hantman, our chief executive officer;
o the conversion of our outstanding convertible notes
into common stock; and
o our receipt of the net proceeds of this offering.
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1999
----------------------------
Actual As Adjusted
----------- -----------
<S> <C> <C>
Short-term debt:
Secured notes $ 100,000 -0-
Minority stock holder notes and accrued interest 490,717 -0-
Long-term debt 1,575,899 -0-
=========== =====
Stockholders' equity (deficiency in assets):
Preferred stock, par value $.10 per share;
5,000,000 shares authorized, no shares issued or outstanding -0- -0-
Common stock, par value $.001 per share, 20,000,000
shares authorized, 2,080,000 shares issued and outstanding
as of June 30, 1999 and 3,474.956 shares issued and
outstanding as adjusted 2,080 3,475
Paid-in capital 425,623 7,400,127
Retained earnings (deficit) (1,030,739) (1,030,739)
----------- -----------
Stockholders' equity (603,036) 6,372,863
----------- -----------
Total capitalization $ 1,563,580 $ 6,372,863
=========== ===========
</TABLE>
The outstanding shares of common stock do not include:
o 700,000 shares of common stock issuable under our 1999 stock
option plan, of which we have granted options to purchase
596,000 shares;
o 172,500 shares of common stock which may be issued if the
underwriter exercises its over-allotment option;
o 115,000 shares of common stock which may be issued pursuant to
the underwriter's warrants; and
o 244,956 shares of common stock issuable upon exercise of the
warrants to be issued to minority stockholders who recently
received our convertible notes in exchange for their old
notes. We offered the warrants to induce the noteholders to
forbear from collecting on past-due notes and receive our
notes convertible into common stock at 80% of our public
offering price. The warrants are exercisable over a three year
period commencing with the closing of this offering.
We will have two classes of warrants outstanding following this offering:
o minority stockholder warrants to purchase 244,956 shares of
common stock exercisable at $7.20 per share; and
o underwriter's warrants to purchase 115,000 shares of common
stock exercisable at $7.20 per share.
<PAGE>
DILUTION
As of June 30, 1999, the pro forma net tangible book value of our
common stock was $572,863, or approximately $.25 per share. Since our
convertible notes automatically convert into common stock upon completion of
this offering, in computing net tangible book value per share we have treated
these notes as having been converted on June 30, 1999. The pro forma net
tangible book value per share represents the amount of our tangible assets less
our liabilities divided by 2,324,956, which is the number of shares of our
common stock currently outstanding plus the shares issuable upon conversion of
the convertible notes. The net tangible book value, as adjusted for this
offering, does not reflect any change in our net book value which may result
from our operations subsequent to June 30, 1999.
After selling the 1,150,000 shares of common stock that are offered by
this prospectus at an assumed price of $6.00 per share, deducting the
underwriter's discount and the estimated expenses of this offering, our pro
forma net tangible book value would have been $6,372,863 or $1.83 per share.
This change in pro forma net tangible book value represents an immediate
increase in net tangible book value per share of approximately $1.58 to our
present stockholders and an immediate dilution (the difference between the
offering price of the shares and the pro forma net tangible book value per share
after the offering) per share of approximately $4.17 to investors buying our
common stock in this offering.
The following table illustrates the dilution of one share of common
stock as of June 30, 1999:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share $6.00
Pro forma net tangible book value per share at June 30, 1999 $ .25
Increase per share attributable to investors in this offering $1.58
-----
Pro forma net tangible book value per share after this offering $1.83(1)
-----
Dilution to public investors in this offering $4.17(1)
=====
</TABLE>
(1) If Schneider Securities, Inc. exercises its over-allotment option to
purchase 172,500 additional shares of our common stock this will result
in an increase in the net tangible book value per share of $.16 and
dilution to investors in this offering of $4.01 per share.
The following table summarizes on a pro-forma basis as of June 30, 1999
the total consideration and average purchase price paid by our present
stockholders, after giving effect to the conversion of our convertible notes,
and by the investors who purchase common stock in this offering, based on an
assumed initial public offering price of $6.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
-------------------- --------------------- Price
Number Percent Amount Percent Per Share
---------- ----- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Present stockholders 2,324,956 66.9% $1,276,899 15.6% $ .55
New investors 1,150,000 33.1% $6,900,000 84.4% $6.00
---------- ----- ---------- ----- -----
Total 3,474,956 100.0% $8,176,899 100.0% $2.35
========== ===== ========== ===== =====
</TABLE>
<PAGE>
Selected Financial Data
We derived the selected financial data presented below from our
historical financial statements and related notes included in another part of
this prospectus. You should read the selected financial data together with our
historical financial statements and the section of the prospectus entitled
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations."
Kaufman, Rossin & Co., independent certified public accountants,
audited our historical financial statements for the years ended December 31,1998
and December 31, 1997. These financial statements represent our results of
operations for the following periods:
Statement of Operations Data
<TABLE>
<CAPTION>
(Unaudited)
Year ended December 31, Six months ended June 30,
---------------------------- ----------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 4,261,505 $ 5,869,987 $ 2,045,273 $ 3,944,523
Cost of sales 2,801,192 3,838,923 1,367,950 2,379,293
Gross profit 1,460,313 2,031,064 667,323 1,565,230
General and administrative expenses 1,383,356 1,323,764 702,390 904,952
Income (loss) from operations 76,957 707,300 (25,067) 660,278
Interest expense 239,707 199,584 95,766 102,277
Income (loss) before income taxes (162,750) 507,716 (120,833) 558,001
Provision (benefit) for income taxes -- -- -- 241,000
Net income (loss) $ (162,750) $ 507,716 $ (120,833) $ 317,001
=========== =========== =========== ===========
Pro forma (unaudited): (1)
Income (loss) as reported before provision
for income taxes $ (162,750) $ 507,716 $ (120,833) $ 558,001
Provision (benefit) for income taxes (2) (61,000) 191,000 (45,000) 210,000
----------- ----------- ----------- -----------
Pro forma net income (loss) $ (101,750) $ 316,716 $ (75,833) $ 348,001
=========== =========== =========== ===========
Shares used in computation of pro forma
net income (loss) per share (3) 3,474,956 3,474,956 3,474,956 3,474,956
=========== =========== =========== ===========
Pro forma net income (loss)per share (3) $ (.03) .09 (.02) .10
=========== =========== =========== ===========
</TABLE>
(1) The unaudited pro forma statements of income data have been adjusted
for income taxes which would have been recorded had our subsidiary not
been an S corporation, based on the tax laws in effect during the
periods presented. Pro forma deferred income taxes relate primarily to
temporary differences between financial and income tax reporting for
the cash basis to accrual basis adjustments and depreciation expense.
The net effect of these and other temporary differences has not been
reflected in the financial statements since our subsidiary was an S
corporation prior to June 7, 1999.
(2) From inception through June 7, 1999 our subsidiary elected to be taxed
as an S corporation under the Internal Revenue Code. Accordingly,
taxable income or loss passed directly to the shareholders, and the
financial statements through that date did not provide for income
taxes. The S corporation election was terminated effective June 7,
1999. In connection with this termination, our subsidiary recorded
deferred taxes of $204,000.
(3) Net income (loss) per share of common stock has been computed using the
number of shares of common stock that will be outstanding immediately
after the offering.
The following balance sheet data is presented:
o on a historical basis; and
o on a pro forma as adjusted basis to reflect also the net
proceeds from the sale of 1,150,000 shares of common stock in
this offering at an assumed price of $6.00 per share after
deducting underwriting discounts and estimated offering
expenses, and the repayment and conversion of our debt and
automatic conversion of our convertible notes.
Balance Sheet Data (Unaudited) As of June 30, 1999
----------------------------
Pro Forma
Actual as Adjusted
----------- -----------
Cash $ 452,502 $ 5,261,785
Working capital 578,108 5,978,108
Total assets 2,447,815 7,257,098
Short-term debt and accrued interest 590,717 --
Long-term debt, less current portion 1,575,899 --
Total stockholders' equity $ (603,036) $ 6,372,863
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with the financial statements and related
notes included in another part of the prospectus and which are deemed to be
incorporated into this section. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in those forward-looking statements as a
result of certain factors, including but not limited to, those contained in
other sections of this prospectus.
Overview
As permitted by accounting rules, all historical financial information
reflects the financial statements of our subsidiary. As long as our primary
revenues are derived from Phase I and II clinical trials, we anticipate we will
generate higher revenue in the second half of each year.
Six months ended June 30, 1998 and June 30, 1999
The following table reflects our results of operations for the six
months ended June 30, 1998 and 1999.
(Unaudited)Six months ended June 30,
----------------------------
1998 1999
----------- -----------
Net sales $ 2,045,273 $ 3,944,523
Cost of sales 1,367,950 2,379,293
Gross profit 667,323 1,565,230
General and administrative expenses 702,390 904,952
Income (loss) from operations (25,067) 660,278
Interest expense 95,766 102,277
Income (loss) before income taxes (120,833) 558,001
Provision for income taxes -- 241,000
----------- -----------
Net income (loss) $ (120,833) $ 317,001
=========== ===========
Net sales for the first six months of 1999 increased by $1,899,250 or
approximately 92.9% over the same period for 1998. Compared to the last half of
1998, our sales slightly increased by $119,809 or approximately 3.1%. Because of
the seasonality of our business, our net sales for the balance of 1999 may
exceed the first half. While it is difficult to pinpoint the reasons for our
recent growth, we believe it is a combination of an increase in outsourcing to
contract research organizations and a growing recognition of the high-quality
services we provide to our clients.
Our gross profit margin for the six months ended June 30, 1999
increased to 39.7% from 32.6% during the same period in 1998. We believe this
increase is a direct result of the increase in revenues since our cost of sales
is relatively fixed. Historically, we required annual revenues of approximately
$4.2 million to breakeven from operations. Once we are public, we expect we will
need annual revenues of approximately $4.6 million to breakeven from operations.
Selling, general and administrative expenses increased by $202,562 or
approximately 28.8% over the first six months of 1998. The major increases came
from increased facility expenses of $90,000, consulting and professional fees of
$47,000 and payroll and payroll taxes of $42,000.
Interest expense increased by approximately 7% during the first six
months of 1999. Our total indebtedness declined by $324,000 in late May 1999
when our subsidiary restructured its indebtedness. We will eliminate interest
expense upon the closing of this offering when our convertible notes
automatically convert into common stock and we repay the balance of our debt.
Year ended December 31, 1997 and December 31, 1998
During 1998 we worked to reduce overhead and improve efficiencies in
all areas of operations. The following table shows our results of operations for
each of the past two fiscal years:
Year ended December 31,
----------------------------
1997 1998
----------- -----------
Net sales $ 4,261,505 $ 5,869,987
Cost of sales 2,801,192 3,838,923
Gross profit 1,460,313 2,031,064
Selling, general and administrative expenses 1,383,356 1,323,764
Income from operations 76,957 707,300
Interest expense 239,707 199,584
Net income (loss) $ (162,750) $ 507,716
For 1998, our net sales increased by $1,608,482 or approximately 37.7%
over 1997. The reasons for this increase are the same as those for the increase
for the first six months. Our gross profit margins increased slightly to
approximately 34.6% in 1998 from approximately 34.3% in 1997. However, the
significant increase in revenues provided us with net income for 1998 in
contrast to a loss for 1997. Selling, general and administrative expenses for
1998 decreased by $59,592 or approximately 4.3% compared to 1997. Interest
expense decreased by $40,123 or approximately 16.7% in 1998 over the prior year
principally due to interest paid to the Internal Revenue Service in 1997.
Liquidity and Capital Resources
In 1995 and 1996, our subsidiary financed its operations with
borrowings from its former stockholders. As a result of our June 1999
acquisition of our subsidiary, our balance sheet at June 30, 1999 includes
approximately $1,667,000 owed to our subsidiary's former stockholders who are
now our minority stockholders. In August 1999, most of our minority stockholders
agreed to accept our three-year convertible notes in exchange for their old
notes. We recently issued approximately $1,175,899 in convertible notes. These
convertible notes are treated as long-term debt. At the closing of this
offering, our convertible notes automatically convert into a total of 244,956
shares of our common stock at a 20% discount from our assumed initial public
offering price or at $4.80 per share. We also agreed to issue warrants to each
convertible noteholder. The number of warrants is equal to the number of shares
of common stock issuable upon conversion of each note. The exercise price of the
warrants is at a 20% premium over our assumed initial public offering price or
$7.20 per share during the three year term of the warrants. We will issue a
total of 244,956 warrants when we close this offering.
Net cash provided by operating activities was $471,823 for the six
months ended June 30, 1999 and $46,536 for the year ended December 31, 1998. For
the six months ended June 30, 1998, operating activities used $19,739 of net
cash flow. For the year ended December 31, 1997, operating activities provided
$88,734 in net cash flow. Because our subsidiary reduced its interest payments
on its outstanding debt, this improved our cash flow from operations in the six
months ended June 30, 1999. Higher accounts receivable at June 30, 1998
contributed to a reduction in the negative cash flow from operations for 1998.
Despite our subsidiary's net income in 1998, cash flows from operations were
significantly less because of a substantial increase in accounts receivable
arising in the second half of the year when operations became profitable. For
1997, cash flows from operations were positive because our subsidiary was slow
in paying trade liabilities and failed to pay interest on its debt.
We used net cash in investing activities of $33,743 for the six months
ended June 30, 1999, $28,750 for the six months ended June 30, 1998, $118,410
for 1998 and $9,318 in 1997. We used this cash to purchase property and
equipment and also in 1998 to advance $92,965 to our principal stockholder, Lisa
Krinsky, M.D. She has agreed to repay this loan in three years with annual
interest payments of 6%.
Net cash used in financing activities was $41,329 for the six months
ended June 30, 1999, $54,571 for the six months ended June 30, 1998, $7,145 for
1998 and $58,882 for 1997. The higher amounts used for the six months ended June
30th each year reflect the fact our subsidiary finances its insurance premiums
in the second half of each year. The remaining net cash used in financing
activities consist of our subsidiary's payments of principal on its debt,
primarily in 1997.
At December 31, 1998, we had a working capital deficit of $1,631,096.
This arose from the classification of our subsidiary's outstanding secured debt
and its minority stockholder debt as short-term debt. With the restructuring of
the secured debt, and our recent issuance of approximately $1,175,899 in
convertible notes in exchange for the notes of our subsidiary, our working
capital improved substantially.
At June 30, 1999, we had approximately $578,108 in working capital
including approximately $452,000 in cash. Until we complete this offering, we
anticipate spending up to $400,000 for leasehold improvements and moving
expenses if we enter into a lease for a new facility. We also expect to pay an
additional $______ in expenses related to this offering. We will use our
existing working capital to pay these expenses.
We believe that the net proceeds from this offering will be sufficient
to meet our anticipated working capital and expansion plans for the next 12
months. Following that period, we may require additional financing. If
additional financing is raised by selling equity securities, our existing
stockholders may experience significant dilution. Furthermore, additional
financing may not be available or if available, it may not be on favorable
terms. If additional financing is not available on acceptable terms, it could
have a material adverse effect on our business, financial condition or results
of operations.
Year 2000 Compliance
The Year 2000 problem is the inability of some software, hardware and
systems to determine the correct century. For example, software with
date-sensitive functions that are not Year 2000 compliant may not be able to
determine whether "00" means 1900 or 2000, which may result in computer failures
or the failure of the computer to produce accurate information. Our cash flow
could be adversely affected if our computer systems, those of our clients and
third party suppliers are not Year 2000 compliant.
We have made an assessment of the Year 2000 readiness of our internal
software and hardware systems. Our assessment plan included:
o contacting third party vendors from whom we purchase or
license our hardware, software, services and supplies;
o assessing repair, upgrade or replacement requirements and
implementing repair, upgrade or replacement;
o testing certain internal and third party, hardware, software
and systems; and
o contacting our clients.
Based on the results of this assessment we recently upgraded our
computer systems and have determined that our software, hardware and computer
systems are Year 2000 compliant. In 1999 we spent approximately $30,000 to
upgrade our computer systems. These expenses were related to time spent by
employees and consultants in the evaluation process as well as any needed
repair, upgrade or replacement.
We are in the process of verifying that our clients and suppliers are
Year 2000 compliant.
If our clients and suppliers are not Year 2000 compliant, it could
result in:
o a decrease in our net revenues;
o an increase in the allocation of our resources to address Year
2000 problems; and
o an increase in litigation costs as a result of the failure of
our clients to pay us or suppliers to provide services on a
timely basis.
Furthermore, the purchasing patterns of our clients may be affected by Year 2000
issues as companies expend significant resources to correct their current
systems. These expenditures may result in reduced funds available for clinical
trials and the other services we provide our clients which could materially and
adversely harm our business condition and future results of operations.
We are not currently aware of any Year 2000 compliance problems
relating to our systems that would have a material adverse effect on our
business, results of operations, or financial condition.
<PAGE>
BUSINESS
We have been operating a high quality clinical trials facility for the
past 15 years. Over the last 12 months, our business has rapidly grown. With the
recent addition of Dr. Gregory Holmes, we have strengthened our management team
and thereby further increased our ability to grow.
We are known as a contract research organization. The name is derived
from the growing tendency of pharmaceutical and biotechnology companies to
"contract with" outside companies to conduct research for products they are
developing.
We primarily conduct Phase I and Phase II clinical trials for
pharmaceutical and biotechnology companies. However, we provide a full range of
other clinical services for short-term studies and more complex long-term Phase
I and Phase II studies, including:
o protocol design;
o data management;
o electronic data transfer;
o report writing; and
o Institutional Review Board services.
Since 1995 our clients have included 23 of the 25 leading pharmaceutical
companies according to a ranking compiled by MedAd News in September 1998. Our
client base includes:
o Abbott Laboratories,
o Bristol- Myers Squibb Co.
o Glaxo Wellcome Inc.,
o Merck & Co., Inc.,
o Pfizer, Inc., and
o Johnson & Johnson.
The mix of our clients and revenues generated from individual clients varies
from year to year.
Trends Affecting the Contract Research Industry
We believe that outsourcing of drug development activities by
pharmaceutical and biotechnology companies has been increasing and will continue
to increase. The Association of Clinical Research Professionals reported that:
o Outsourcing to contract research organizations is undergoing
rapid growth.
o It cited UBS Securities as estimating the following industry
revenues:
YEAR AMOUNT
---- -----------------------
1997 $3.14 billion
1998 $3.69 billion estimated
1999 $4.33 billion estimated
2000 $5.09 billion estimated
o Pharmaceutical companies increased their utilization of
contract research organizations from 28% in 1993 to 60% in
1997.
The contract research organization industry, by specializing in
clinical trials management, is often able to perform the needed services with a
higher level of expertise or specialization and recruit participants more
quickly and at a lower cost than pharmaceutical and biotechnology companies can
do themselves.
The trends listed below have contributed to the growth of our industry
and provide a growing market for our services.
Our Clients Face Pressure to Reduce Their Costs.
Faced with the need to reduce costs, pharmaceutical and biotechnology
companies are increasingly relying on outsourcing to contract research
organizations. For a fixed fee budgeted in advance, these companies can contract
for required services. This reduces their financial uncertainties and the number
of full-time highly specialized clinical personnel they must employ.
As startup biotechnology companies have matured, they have developed a
demand for the expertise and specialized services provided by outside sources,
including contract research organizations. Instead of having to employ all the
various specialists required to develop a product and maintain the numerous
facilities necessary to complete the lengthy testing period, the companies can
contract for them on an "as-needed" basis.
There Is a Need for More Rapid Drug Development.
Pharmaceutical and biotechnology companies are trying to reduce the
amount of time it takes to develop and bring a new drug to market. One way to do
this is to outsource drug testing to contract research organizations that
provide multiple services required to develop and obtain approval of a new drug
instead of using a different research organization for each phase of clinical
trials.
There Is an Increasing Focus on Chronic Diseases.
Worldwide research and development expenditures are increasing for new
medicines due to increasing pressure to develop medication for the treatment of
chronic illnesses and life threatening diseases.
Pharmaceutical and Biotechnology Companies Are Conserving Internal
Resources.
Pharmaceutical and biotechnology companies are trying to conserve their
internal resources for the technical development of new drugs. They are using
contract research organizations to design, manage and conduct clinical studies
and trials.
Who We Are and What We Do
We were founded in 1984 and have been providing contract research
services for the pharmaceutical industry and more recently the biotechnology
industry primarily in Phase I and Phase II clinical trials. We also conduct a
limited number of Phase III and Phase IV clinical trials at our facility. We
conduct these trials efficiently, accurately and with a commitment to service
and quality that has allowed us to retain existing clients and expand our client
base. We have a full time on site medical director. We specialize in clinical
trials that require special populations such as geriatrics, pediatrics,
diabetics, post menopausal women, people with kidney and liver diseases and
persons with HIV. Based upon input from our clients, we have been told that we
have a reputation for rapidly commencing our clinical trials and enrolling a
very high percentage of volunteers based upon the number required.
The Drug Development Process
Clinical trials are either conducted internally by pharmaceutical and
biotechnology companies or they are outsourced to contract research
organizations like ours. When outsourced to us, our clients pay us for
conducting clinical trials and performing other services.
Outsourcing is the contracting by pharmaceutical and biotechnology
companies with outside companies for the purpose of performing specific services
on behalf of the pharmaceutical or biotechnology company.
Protocols
Before starting human clinical trials, a drug's sponsor must submit an
investigational new drug application to the Food and Drug Administration. The
application contains what is known in the industry as a protocol. A protocol is
the blueprint for each drug study. The protocol tells us:
o who we must recruit as qualified participants;
o how often to administer the product;
o what tests to perform on the participants; and
o what dosage of the product to give to the participants.
Institutional Review Board
An Institutional Review Board is an independent committee of
professionals and lay persons which reviews clinical research trials involving
human beings and is required to adhere to guidelines issued by the Food and Drug
Administration. However, its members are not appointed by the Food and Drug
Administration. All clinical trials must be approved by an Institutional Review
Board. The Institutional Review Board's role is to protect the rights of our
participants. It approves the protocols we use, the advertisements we use to
recruit participants and the form of consent which our participants sign.
The government sets very specific requirements which must be followed
in order to market a new drug in the United States. Drug products generally
require approval by the Food and Drug Administration before marketing to the
public.
Human clinical trials or testing of a potential product are done in
three, and sometimes four, stages known as Phase I through Phase IV testing. The
names of the phases are derived from the regulations of the Food and Drug
Administration. Generally, there are multiple trials conducted in each phase.
Phase I
Phase I trials involve testing a drug or product on a limited number of
healthy participants, typically 24 to 100 people at a time. Phase I trials
determine a drug's basic safety and how the drug is absorbed by and eliminated
from the body. This phase lasts an average of six months to a year. We give our
participants free medical examinations which may include physical exams, blood
and urine tests, electrocardiograms and bone scans. For women, we often give
them pap smears and mammograms. We pay our participants a fee for participating
in our clinical trials. We provide them free room and board in our clinic as
necessary.
Phase II
Phase II trials involve testing up to 200 participants at a time who
may suffer from the targeted disease or condition. Phase II testing typically
lasts an average of one to two years. In Phase II, the drug is tested to
determine its safety and effectiveness for treating a specific illness or
condition. Phase II testing also involves determining acceptable dosage levels.
In Phase II, we usually select participants who have the disease or condition
for which the drug may help. If Phase II tests show that a new drug has an
acceptable range of safety risks and probable effectiveness, a company will move
on to Phase III testing.
Phase III
Phase III trials involve testing large numbers of participants,
typically several hundred to several thousand persons. The purpose is to verify
effectiveness and long-term safety on a large scale. These trials generally last
two to three years. Like the other phases, Phase III requires the doctor
conducting the tests or a third party business like ours - to keep detailed
records of data collected and procedures performed.
Phase IV
The Food and Drug Administration may require that the sponsor conduct
additional clinical trials following new drug approval. The purpose of these
trials, known as Phase IV trials, is to monitor long-term risks and benefits,
study different dosage levels or evaluate safety and effectiveness. In recent
years, the Food and Drug Administration has increased its reliance on these
trials. Phase IV trials usually involve thousands of participants. Phase IV
trials also may be initiated by the pharmaceutical companies to gain broader
market value for an approved drug. For example, large-scale trials may also used
to prove effectiveness and safety of new forms of drug delivery for approved
drugs. Examples may be using an inhalation spray versus taking tablets or a
sustained- release form of medication versus capsules taken multiple times per
day.
New Product Approval
When the sponsor of a potential product in the United States believes
it has sufficient information to support the safety and effectiveness of its
product, it submits an application to the Food and Drug Administration
requesting that the product be approved for marketing. The application is a
comprehensive, multi-volume filing that includes the results of all clinical
studies, information about the drug's composition and the sponsor's plans for
producing, packaging and labeling the product. The Food and Drug
Administration's review of an application can take a few months to many years,
with the average review lasting 18 months. Once approved, drugs and other
products may be marketed in the United States, subject to any conditions imposed
by the Food and Drug Administration.
Our Strategies
Our objectives are to build on our current reputation as a provider of
high quality Phase I and Phase II testing, to expand the range of services we
provide to our clients and to acquire complementary businesses.
Our general strategies consist of the following:
We Want to Make Key Acquisitions.
We intend to supplement our internal growth through expanding our
geographic presence throughout the United States, by acquiring or creating
strategic alliances with Phase III and Phase IV clinical trials management
businesses and increasing our clinical research capabilities.
To date, we have conducted Phase III and Phase IV clinical trials
primarily at our facility. We have limited experience in managing Phase III and
Phase IV clinical trials conducted at multiple sites. With regard to private
medical practices that specialize in Phase III and Phase IV testing, we intend
to acquire only the clinical research portion of a practice, not the medical
care portion of the practice.
We are also exploring buying a clinical laboratory since we are
required to use their services. We rely on outside clinical laboratories to test
our participants' blood and urine. In 1999, we expect to pay approximately
$500,000 to outside clinical laboratories. We believe our clinic's profit
margins will increase if we have our own clinical laboratory. Since the
laboratory will also provide services to outside doctors, we believe it can
assist us in expanding our Phase III and Phase IV business by fostering
relationships with doctors who conduct Phase III and Phase IV trials but do not
want the paperwork burdens.
We Intend to Expand our Database of "Special Population" Participants
in order to Meet the Increasing Requirements of our Clients.
"Special population" refers to the need of our clients in Phase I and
Phase II clinical trials to test products on participants who have those
specific diseases or conditions. The special population and therapeutic areas
which we specialize in generally are cardiology, geriatrics, pediatrics,
post-menopausal females, diabetics, persons with kidney and liver diseases, HIV,
allergy and asthma. We believe we are one of the leading United States companies
in recruiting of participants for special population clinical trials. This is
particularly important since medications require extensive testing in many
special populations. We intend to expand our database by networking with our
existing participants, increasing our presence with support groups and
establishing relationships with additional doctors.
We Intend to Continue with the Training and Professionalization of our
Employees.
Employees are a key to our success. Many of our employees have been
working for us for more than 10 years. We have an in-house training program, and
we regularly bring in outside instructors to upgrade our employees' skills. We
will seek to maintain the employee satisfaction that in the past has kept our
employee turnover rate low. The satisfaction of our employees is a resource we
believe we can draw on to find and hire additional qualified employees.
We Intend to Expand our Marketing to our Clients and Potential Clients.
We will continue to build our name recognition within the
pharmaceutical and biotechnology industries through the use of direct mail,
presence at professional trade shows and display advertisements in generally
accepted pharmacology magazines. Our marketing staff maintains a regular
schedule of personal visits to our existing customers and new contacts. With the
proceeds we receive from this offering, we intend to hire additional experienced
marketing executives with industry-wide contacts.
Potential Health Care Reform
The federal and state governments have recently undertaken efforts to
control growing health care costs through legislation, regulation and voluntary
agreements with medical care providers and pharmaceutical, biotechnology and
medical device companies. The intent of recent comprehensive health care reform
proposals introduced in the United States Congress was to generally expand
health care coverage for the uninsured and reduce the growth of total health
care costs. Although none of these proposals have been adopted, it is highly
likely that health care reform will again be addressed by the United States
Congress. The result of such potential reform would increase cost containment
pressures which in turn could reduce research and development expenditures by
pharmaceutical and biotechnology companies. This could decrease our business
opportunities. We are unable to predict whether or when this type of legislation
will be enacted into law, or what effect this reform might have on our future
business.
Our Employees
We currently have approximately 40 full-time employees including our
executive officers. We also have approximately 10 persons we employ on an
as-needed basis. We employ two physicians including an on-site medical director,
a pharmacist, a certified dietician and other healthcare professionals. All of
our employees are required to complete a formal in-house training program which
includes an orientation, review of our standard operating procedure manual, CPR,
seminars in updated and new medical techniques and information, and regular
performance reviews. We do not have any agreements with labor unions, and we
consider our relationships with our employees and independent contractors to be
excellent based on our historically low employee turnover rate.
Our Facility
We are located in greater Miami, Florida. The metropolitan area
provides us with access to over 5,000,000 people from which we recruit our
testing participants. We conduct trials in our 250 bed inpatient/outpatient
facility using advanced equipment. We believe we have one of the largest single
site facilities in the United States.
Our medical technology and equipment includes cardiac telemetry,
computerized electrocardiograms, holter monitors, intravenous infusion pumps,
exercise treadmills, ambulatory blood pressure monitors and synchronized digital
clocks. Meals for our participants are prepared on-site under the supervision of
a certified dietician. Our food service system allows us to offer special diets
when required by the guidelines set by our clients and also to perform food
effects studies. Throughout our clinic, security is maintained by the use of a
limited access magnetic card system.
We are currently negotiating a lease in order to move to a
state-of-the-art facility located near our current clinic. This five-story
facility was a hospital. Its location and improved physical appearance will
enhance our visibility with our clients. Although we do not intend to initially
increase our bed capacity, this facility will provide us the space to expand and
increase our services. With our new facility, we will be in a position to expand
our business by opening a Phase III and Phase IV clinic and a clinical
laboratory. Until we expand our use of this new facility, we intend to sublet
the ground floor to healthcare providers and related businesses. We cannot
assure you we will sign this lease.
Our Competitors
The clinical research industry is highly fragmented and made up of a
number of large, full-service contract clinical research organizations and many
small contract clinical research organizations and limited service providers.
Our major competitors in this industry include the research departments of
pharmaceutical and biotechnology companies and other contract research
organizations. We compete in this market on the basis of our ability to provide
high quality personalized service and our ability to very quickly fill a
client's need for particular types of participants allowing our clients to
complete the research necessary in Phases I and II to quickly move on to further
development of a new drug.
However, many of our competitors have substantially greater size and
financial and other resources than we do. Moreover, the decision of a client as
to whether or not to outsource its research places us in competition with a
client's in-house development group. Once that decision to outsource research is
made, not only do we compete with other private companies, but to a lesser
extent we also compete with universities and teaching hospitals. Generally
contract research organizations compete on the basis of:
o experience,
o medical and scientific expertise in specific therapeutic areas
that clients are interested in,
o the quality of their clinical research,
o the range of services they provide,
o their ability to organize and manage large-scale trials,
o their ability to manage large and complex medical databases,
o their ability to recruit doctors and participants, and
o their financial stability.
Our principal competitors include Quintiles Transnational, Covance, PPD, Inc.,
and Phoenix International.
The general trend toward contract research organization consolidation
has resulted in increased competition for clients. Consolidation within the
pharmaceutical industry as well as the trend by the pharmaceutical industry to
limit outsourcing to fewer rather than more contract research organizations has
also heightened competition for contracts from that industry.
Potential Liability and Insurance
Clinical research involves the testing of new drugs and other products
on humans according to guidelines set by our clients and approved by the Food
and Drug Administration. This testing can expose us to the risk of liability for
personal injury or death to our participants resulting from many things,
including unforeseen adverse side effects or failure to follow the guidelines we
are given. In addition to our doctors who supervise our clinical trials, we also
contract with outside doctors to provide medical services. For this reason we
also face potential liability for a doctor's malpractice. We attempt to reduce
these risks by requiring our clients to indemnify us for any product liability
we might incur while performing services for those clients. These
indemnification provisions are subject to negotiation with our clients and often
vary. Generally, our contracts do not protect us if we are negligent or if the
doctor is negligent. Most of our clients are large, well capitalized companies
but there is always a risk that a client may not have the financial ability to
fulfill its obligation to indemnify us. Additionally, all clinical trial
participants sign an informed consent form approved by an Institutional Review
Board. As required by the Food and Drug Administration, we explain the risks of
a trial to our participants. We believe the informed consents reduce our risk of
liability.
We also maintain liability insurance to further protect us and staff
doctors against these risks. We also will require our doctors to maintain
malpractice insurance. Additional insurance beyond our current coverage might
not be available to us on commercially reasonable terms or available at any
price.
We could be materially and adversely affected if we were required to
pay damages or defense costs in connection with a claim that is beyond the scope
of an indemnification provision or level of insurance where our client does not
fulfill its indemnification obligation or for negligence and malpractice that is
not covered by insurance.
Government Regulation
Once we begin a clinical trial, all phases of that test are governed by
extensive Food and Drug Administration regulations. Our clients are responsible
for selecting qualified doctors, providing those doctors with protocols and any
other necessary information, monitoring the testing and reporting any changes or
modification of the clinical trials to the Food and Drug Administration and
reporting any serious and unexpected adverse reaction to the new drug to the
Food and Drug Administration. When we perform any of these functions on behalf
of our clients, we must comply with these requirements.
The purpose of the Food and Drug Administration regulations is to
assure that the products are safe and effective before offered for sale to the
public. Our services are subject to various regulatory requirements designed to
ensure the quality and integrity of the testing process. The industry standard
for conducting clinical research and development studies is contained in
regulations established for good clinical practice. As a practical matter, the
Food and Drug Administration requires the test results submitted to it based on
studies that are conducted according to these regulations. The regulations cover
subject matters including:
o complying with regulations governing the selection of
qualified doctors;
o obtaining specific written commitments from the doctors;
o verifying that informed consent is obtained from participants;
o monitoring the validity and accuracy of data;
o verifying that we account for the drugs provided to us by our
clients; and
o instructing doctors to maintain records and reports.
Failure to comply with these regulations can result in the entire
disqualification of all data collected during the clinical trials. We are
subject to regulatory action for failure to comply with these rules.
Additionally, because as a matter of course we frequently deal with
what is referred to as contaminated or hazardous medical waste material, we must
properly comply with environmental regulations maintained by the federal, state
and county governments regarding disposal of these waste materials. As is
standard in the industry, we contract with an outside licensed company to handle
this waste disposal and rely on their compliance with the rules for proper
disposal.
Because we use narcotic drugs and other controlled substances in some
of our clinical trials, we are required to have a license from the United States
Drug Enforcement Administration. We must also use special care and security
procedures to safeguard and account for all controlled substances.
We believe we have an outstanding record of regulatory compliance
relating to our clinical trials. We also believe we are in material compliance
with all other federal, state and local regulations.
Legal Proceedings
We are not a party to any material legal proceedings.
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information concerning our
directors and executive officers.
Lisa Krinsky, M.D. 36 President, chief operating officer, secretary,
and chairman of the board of directors
Arnold Hantman 63 Chief executive officer, chief financial and
chief accounting officer, treasurer and director
Dr. Gregory B. Holmes 43 Executive vice president of clinical operations
Jack Levine, C.P.A. 48 Director
Dr. Leonard I. Weinstein 54 Director
Lisa Krinsky, M.D. founded our operating subsidiary in 1995. Since that
time, Dr. Krinsky has been our subsidiary's president and chief executive
officer, secretary, treasurer and chairman of its board of directors. Since June
1999, Dr. Krinsky has been our president and chief operating officer, secretary
and chairman of our board of directors. Prior to 1995, she worked in various
research positions with us and Baxter HealthCare Corporation. Dr. Krinsky has 13
years of experience in research and development of new pharmaceutical products.
Dr. Krinsky's accomplishments include developing and implementing new services,
strategic planning, increasing revenues, and establishing a solid relationship
of confidence and respect with our growing client base. Dr. Krinsky has overseen
approximately 300 clinical trials at our subsidiary. She received her M.D.
degree from Spartan Health Sciences University School of Medicine in 1990.
Arnold Hantman is one of our founders. Mr. Hantman has been our chief
executive officer since 1993. Previously, he served as a member of the board of
directors of Amerifirst Bank, Miami, Florida. Mr. Hantman received a Bachelor of
Business Administration degree from City College of New York in accounting in
1956, and a Juris Doctor degree from the University of Miami School of Law in
1962. Mr. Hantman is a licensed attorney in Florida and a member of the American
and Florida Institutes of Certified Public Accountants. His license as a
certified public accountant in the State of Florida is inactive.
<PAGE>
Dr. Gregory Holmes became executive vice president of clinical
operations of our subsidiary in February 1999. From January 1997 through
February 1999, Dr. Holmes was president of clinical research for Phoenix
International Life Sciences in Cincinnati, Ohio . From May 1988 to January 1997,
Dr. Holmes was employed by Pharmaco International in Austin, Texas. While
employed by Pharmaco, he held various vice president offices listed below:
August - October 1994 vice president of strategic planning
October 1994 - May 1995 vice president of clinical research, bioanalytic
laboratories and toxicology services
June 1995 - January 1997 vice president of international business
Phoenix International, the parent of Phoenix International Life
Sciences, and Pharmaco, now known as PPD, Inc., are two of our leading
competitors. Dr. Holmes received a Doctorate in Pharmacy from the University of
Minnesota College of Pharmacy and is board certified in pharmacology.
Jack Levine, C.P.A., joined our board of directors in August 1999. Mr.
Levine is a certified public accountant in the State of Florida and president of
Jack Levine, P.A., a certified public accounting firm located in North Miami
Beach, Florida, where he has been employed since 1984. Most of his firm's
accounting practice consists of representing health care corporations, managed
care companies and large physician groups. From March 1996 through November
1998, Mr. Levine was a director of Bankers Savings Bank of Coral Gables, Florida
when it was acquired by Republic Bank, Inc. Mr. Levine is a member of the
American Institute of Certified Public Accountants, the Florida Institute of
Certified Public Accountants and New York Society of Certified Public
Accountants.
Dr. Leonard I. Weinstein, has been a director of our company since June
1999 and of our subsidiary since May 1995. Dr. Weinstein specializes in
providing consulting and mergers and acquisition services to the health care
industry including physicians. Since June 1994, he has been president of
Tropical Healthcare, Inc. Dr. Weinstein received a doctorate of public
administration in health care administration from Nova Southeastern University
in 1982.
Key Employees
Wayne W. Hutman, M.D., has been our medical director since January
1996. Dr. Hutman was employed as medical director of the Miami Shores, Florida
office of the Greater Miami Medical Center in Miami, Florida from September 1993
through July 1995. Prior to joining us, Dr. Hutman traveled abroad after leaving
the Greater Miami Medical Center. He is a member of the American Academy of
Pharmaceutical Physicians. Dr. Hutman is board certified in internal medicine.
Dr. Hutman received his M.D. degree from Ross University School of Medicine,
Domonica, British West Indies.
Maria E. Quant is vice president of regulatory affairs of our
subsidiary. She has worked for us since 1989. She is a certified English-Spanish
translator.
James F. Schomann has been our subsidiary's vice president of business
development since August 1995. From December 1993 through July 1995, Mr.
Schomann was employed by Pharma Kinetics Laboratories, Inc. as a senior account
executive. Mr. Schomann oversees our sales and promotional programs and
supervises our business development staff.
Committees of the Board of Directors
Our board of directors currently has audit and compensation committees.
At least a majority of the audit and compensation committees will be independent
directors. The audit committee will review the scope of our audit, recommend to
the board the engagement of our independent auditors, review the financial
statements and review any transactions between us and any of our officers,
directors or other related parties. Our compensation committee will evaluate our
compensation policies, approve executive compensation and executive employment
contracts and administer our stock option plan. Messrs. Hantman, Levine and
Weinstein are members of the audit committee. Dr. Krinsky, Mr. Levine and Dr.
Weinstein are members of the compensation committee. We intend to pay our
independent directors a fee of $500 for each board and committee meeting which
they attend. We also granted each independent director non-qualified options to
purchase 15,000 shares of common stock. The options are exercisable at $6.00 per
share over a 10-year period subject to vesting. The options will vest each June
30 and December 31, commencing December 31, 1999 over a three-year period,
subject to the director remaining on our board of directors as of each vesting
date.
Our certificate of incorporation eliminates the liability of our
directors for monetary damages to the fullest extent possible. However, our
directors remain liable for:
o for any breach of the director's duty of loyalty to us or our
stockholders,
o for acts or omission not in good faith or that involve
intentional misconduct or a knowing violation of law,
o for payments of dividends or approval of stock repurchases or
redemptions that are prohibited by the Delaware law, or
o for any transaction from which the director derives an
improper personal benefit.
These provisions do not affect any liability any director may have
under federal and state securities laws.
Executive Compensation
Set forth below is information with respect to compensation paid by us
for 1998, 1997 and 1996 to our chief executive officer and chief operating
officer who are the only executive officers whose compensation exceeded $100,000
for 1998.
<PAGE>
Annual Compensation
-------------------
(b) (c) (e) (i)
Other
Annual All other
Name and Principal Position Year Salary($) Compensation Compensation($)
- --------------------------- ---- --------- ------------ ---------------
Arnold Hantman, 1998 $120,000 0 0
chief executive officer 1997 120,000 0 0
1996 103,846 53,000(1) 0
Lisa Krinsky, M.D., 1998 $250,000 21,902(2) 0(3)
president and chief 1997 $200,000 19,806(2) 0
operating officer 1996 $163,462 0 0
(1) Consists of consulting fees paid by our subsidiary.
(2) Consists of automobile allowance and insurance payments.
(3) Does not include $92,965 of personal expenses our subsidiary paid for
Dr. Krinsky in 1998. In June 1999, Dr. Krinsky issued our subsidiary a
three year 6% promissory note providing for annual payments of interest
only.
In August 1999, we entered into three year written employment
agreements with Dr. Krinsky and Mr. Hantman. Dr. Krinsky receives an annual
salary of $250,000, which will be reduced to $199,000 upon the closing of this
offering. Mr. Hantman receives an annual salary of $120,000. Dr. Krinsky shall
receive an annual bonus of $25,000 if we have annual pre-tax income of at least
$1,000,000, an additional $25,000 if we have pre-tax income of at least
$1,250,000 and another $25,000 if we have pre-tax income of at least $1,500,000.
Additionally, Dr. Krinsky receives an automobile allowance of $1,334 per month
and Mr. Hantman receives a monthly automobile allowance of $650 per month. We
also pay the costs of their automobile insurance. We also pay the premiums for a
life and a disability policy for Dr. Krinsky. Our monthly cost is $330. Dr.
Krinsky and Mr. Hantman may terminate their employment agreements if: (i) their
duties are substantially modified, (ii) we materially breach the terms of their
employment agreements or (iii) if any entity or person who is not currently an
executive officer or shareholder of ours becomes individually or as part of a
group the owner of more than 30% of our common stock. If this occurs, each may
chose to receive full compensation and benefits provided for in her or his
employment agreement for the remainder of the term of the agreement or a release
from the non-competition provisions of the employment agreement. These
provisions may discourage a hostile takeover even if the takeover is in the best
interest of all of our other stockholders.
In February 1999, our subsidiary entered into an employment agreement
with Dr. Holmes employing him for a one year term as executive vice president of
clinical operations at an annual salary of $120,000 per year. The agreement is
automatically renewable each year unless either party gives notice of
termination within 90 days of the expiration of the term. Our subsidiary
reimbursed Dr. Holmes for his moving expenses from Kentucky and provides him
with an automobile allowance of $650 per month. Subject to a maximum of $3,600
per year, our subsidiary will reimburse Dr. Holmes one trip per month to
Cincinnati, Ohio. We also paid for a temporary apartment in South Florida at a
monthly cost of $1,700 through September 1999.
In August 1999, our subsidiary renewed Mr. James Schomann's one-year
employment agreement with as vice president of business development. Mr.
Schomann receives a base salary of $102,000 annually and a commission based upon
sales.
Stock Option Plan
In June 1999, we adopted our 1999 stock option plan. We may issue
incentive stock options, as defined in the Internal Revenue Code of 1986, or
non-qualified stock options to purchase up to 700,000 shares of common stock
under the plan. We have issued stock options to purchase an aggregate of 596,000
shares of common stock to 34 employees and two independent contractors
including:
Employee No. of Options Exercise Price
------------------ -------------- --------------
Dr. Gregory Holmes 200,000 $1.00
Dr. Lisa Krinsky 100,000 $6.00
Arnold Hantman 50,000 $6.00
James Schomann 35,000 $6.00
Dr. Wayne Hutman 30,000 $6.00
Maria Quant 15,000 $6.00
Of the options we granted to Dr. Holmes, 50,000 options are currently vested and
the balance vest in 50,000 share increments on March 15th of each year in 2000
through 2002. These options replaced the February 1999 grant to Dr. Holmes by
our subsidiary of the same number of options on the same terms and conditions.
We have also issued 15,000 options to each of our non-employee director
exercisable at $6.00 per share.
Except for Dr. Holmes, all options vest in increments of one-sixth, on
June 30 and December 31 each year, commencing on December 31, 1999, provided
that the option holder is employed by us, providing services to us or acting as
a director on such vesting date. The options expire in 2009, except that, in the
event of the death or termination of employment, all options terminate one year
from the date of death or the person's relationship with us or three months
after any other termination of the person's relationship with us. If the option
holder's relationship with us is terminated for cause, the options terminate
immediately.
RELATED PARTY TRANSACTIONS
In May 1999, we issued $500,000 of secured notes in exchange for
cancellation of approximately $824,000 of past-due secured notes. Of this May
1999 debt, Mr. Arnold Hantman, our chief executive officer, holds a note of
$191,500. All notes are due without interest upon the closing of this offering
or in installments with 8% interest if this offering does not close by December
31, 1999. Mr. Hantman guaranteed payment of the May 1999 notes.
Lisa Krinsky, M.D. organized our subsidiary and is considered to be our
founder together with Mr. Hantman. As part of the acquisition of our subsidiary,
Dr. Krinsky received 1,014,487 shares of our common stock in exchange for her
shares of the common stock of our subsidiary. In 1998, we paid $92,965 of
personal expenses on behalf of Dr. Krinsky. In August 1999, Dr. Krinsky issued
us a three-year 6% $92,965 note providing for annual payments of interest only.
The note is due in August 2002.
We provide the use of four offices consisting of approximately 1,000
square feet to Lam Pharmaceuticals Corp. Lam, based in Toronto, Ontario,
develops drug compounds. We have charged Lam no rent. Effective October 1, 1999,
we intend to charge Lam rent of $1,250 per month. Mr. Hantman and Dr. Krinsky
together own approximately 14% of Lam's common stock.
PRINCIPAL STOCKHOLDERS
The following table provides certain information as of July 31, 1999
and as adjusted to give effect to the sale of 1,150,000 shares of common stock
in this offering, concerning the beneficial ownership of our common stock by
each director; each person known by us to be the beneficial owner of at least 5%
of our common stock; and all executive officers and directors as a group. For
the purpose of computing the number of shares of common stock issuable upon
conversion of our convertible notes, we have used an assumed initial public
offering price of $6.00 per share. The number of shares shown in the table
assumes conversion of these notes.
Number of Percentage of
Shares of Common Stock
Common Stock ------------------
Name and Address of Beneficially Prior to After
Beneficial Owner Owned(1) Offering Offering
- ------------------------ ------------ -------- --------
Lisa Krinsky, M.D
11190 Biscayne Boulevard
N. Miami, FL 33181 1,014,487 48.8% 29.2%
Arnold Hantman
11190 Biscayne Boulevard
N. Miami, FL 33181 507,244 24.4% 14.6%
Dr. Gregory Holmes(2)
11190 Biscayne Boulevard
N. Miami, FL 33181 50,000 2.3% 1.4%
Jack Levine, C.P.A
16855 N.E. 2nd Avenue
N. Miami Beach, FL 33162 0 0 0
Dr. Leonard I. Weinstein
3423 N. 31st Terrace
Hollywood, FL 33021 10,000 * *
All executive officers and
directors as a group (five persons)(2) 1,581,731 74.2% 44.9%
(1) Beneficial ownership exists when a person has either the power to vote
or sell our common stock. Unless otherwise indicated, we believe that
all persons named in the table have sole voting and investment power
with respect to all securities beneficially owned by them. A person is
deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days from the date whether upon the exercise of
options or otherwise.
(2) Represents or includes 50,000 shares of common stock issuable upon
exercise of vested options.
Escrowed Shares
Of the outstanding 2,080,000 shares of common stock prior to this
offering, four of our stockholders have placed into escrow a total of 100,000
shares of common stock. These shares must remain in escrow and may not be sold
assignable or transferred, but may be voted, until such time, if ever, as they
are released from escrow in accordance with the terms of an escrow agreement,
dated __________, 1999. ________________ is acting as the escrow agent. These
shares held in escrow are beneficially owned by the following people:
NAME NO. OF SHARES
----------------------------- -------------
Lisa Krinsky, M.D. 64,166
Arnold Hantman 30,833
Michael D. and Beth J. Harris 5,000
The shares of common stock held in escrow may be released upon the
earlier of the following times:
o we have pre-tax net income of $3,000,000 in 2000;
o we have pre-tax net income of $5,000,000 in 2001;
o seven years from the date of this prospectus the shares of common stock
will be released from escrow even if either of the two above tests are
not met.
DESCRIPTION OF CAPITAL STOCK
The following summary of the material terms of our capital stock. It is
not complete and is subject in all respects to applicable Delaware law and to
the provisions of our certificate of incorporation. A copy has been filed as an
exhibit to the registration statement containing this prospectus.
Our authorized capital stock consists of 20,000,000 shares of common
stock, par value $.001 per share and 5,000,000 shares of preferred stock, $.10
par value.
Common Stock
Each holder of common stock outstanding is entitled to one vote per
share on all matters submitted to a vote of our stockholders including the
election of directors. Holders do not have cumulative voting rights.
In the event we dissolve or liquidate or wind up our business, whether
voluntary or involuntary, the holders of our common stock are entitled to share
ratably in all assets remaining after payment of our liabilities and any
preferences on outstanding preferred stock.
Each share of common stock has an equal right to receive dividends when
and if our board of directors decides to declare a dividend. We do not
anticipate paying cash dividends in the foreseeable future. The holders of our
common stock are not entitled to preemptive rights.
Preferred Stock
We currently have no shares of preferred stock issued or outstanding.
The board of directors is authorized to fix the following rights and
preferences of the preferred stock:
o The rate of dividends and whether such dividends shall be
cumulative.
o The price at and the terms and conditions on which shares may
be redeemed.
o The amount payable in the event of voluntary or involuntary
liquidation.
o Whether or not a sinking fund shall be provided for the
redemption or purchase of shares.
o The terms and conditions on which shares may be converted.
o Whether, and in what proportion to any series, another series
shall have voting rights other than required by law, and, if
voting rights are granted, the number of voting rights per
share.
We have no plans, agreements or understandings with respect to the issuance of
any shares of preferred stock.
Certain Anti-Takeover Effects of Delaware Law
Following this offering, we will be subject to the "business
combination" provisions of Section 203 of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly-held Delaware corporation from
engaging in various "business combination" transactions such as a merger with
any "interested stockholder" which includes, a stockholder owning 15% of a
corporation's outstanding voting securities, for a period of three years after
the date in which the person became an interested stockholder, unless:
o the transaction is approved by the corporation's board of
directors prior to the date the stockholder became an
interested stockholder;
o upon closing of the transaction which resulted in the
stockholder becoming an interested stockholder, the
stockholder owned at least 85% of the shares of stock entitled
to vote generally in the election of directors of the
corporation outstanding excluding those shares owned by
persons who are both directors and officers and specified
types of employee stock plans; or
o on or after such date, the business combination is approved by
the board of directors and at least 66 2/3% of outstanding
voting stock not owned by the interested stockholder.
Indemnification and Liability of Our Directors and Officers
Section 145 of the Delaware General Corporation Law provides a
corporation with the power to indemnify any officer or director acting in his
capacity as our representative who is or is threatened to be made a party to any
lawsuit or other proceeding for expenses, judgment and amounts paid in
settlement in connection with such lawsuit or proceeding. The indemnity
provisions apply whether the action was instituted by a third party or was filed
by one of our stockholders. The Delaware General Corporation Law provides that
Section 145 is not exclusive of other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise. We have provided for this
indemnification in our certificate of incorporation because we believe that it
is important to attract qualified directors and officers. We have also entered
into indemnification agreements with our directors and officers which agreements
are designed to indemnify them to the fullest extent permissible by law, subject
to one limitation described in the next sentence. We have further provided in
our certificate of incorporation that no indemnification shall be available,
whether pursuant to our certificate of incorporation or otherwise, arising from
any lawsuit or proceeding in which we assert a direct claim, as opposed to a
stockholders' derivative action, against any directors and officers. This
limitation is designed to insure that if we sue a director or officer we do not
have to pay for his defense. We have been advised that the Securities and
Exchange Commission believes it is against public policy for us to indemnify our
directors and officers for violations of the Securities Act of 1933 and the
Securities Exchange Act of 1934. Accordingly, we have agreed that unless our
attorneys advise us that the courts have ultimately decided whether the SEC is
correct, we will let a court determine whether we can indemnify our directors
and officers under such laws.
Transfer Agent
American Stock Transfer & Trust Co., New York , New York, is the
transfer agent for our common stock.
Stock Market Listing
We have applied for listing of our common stock on the Nasdaq National
Market under the symbol SFBI. We do not know if our application will be
approved. Even if it is approved, an active trading market for our common stock
may not develop.
Dividend Policy
Our board of directors does not intend to pay dividends on our common
stock in the future. Instead, we intend to retain future income, if any, to
finance the growth of our business.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market
following this offering could adversely affect our ability to raise capital at a
time when we need it or on terms favorable to us. Following this offering, we
will have 3,474,956 shares of common stock outstanding assuming that the
underwriter does not exercise its over-allotment option to sell up to an
additional 172,500 shares.
None of our shares of common stock outstanding may be publicly sold for
13 months following the date of this prospectus. Following the expiration of
this period, the shares of common stock may be publicly sold under Rule 144
under the Securities Act of 1933.
In general, Rule 144, as currently in effect, provides that, commencing
90 days after the date of this prospectus, any person who has held restricted
common stock for at least one year, is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the total
number of outstanding shares or, the average weekly trading volume during the
four calendar weeks preceding the filing of a notice of sale. Sales under Rule
144 are also subject to certain manner of sale provisions, notice requirements
and the availability of current and public information about us. A person who
has not been an affiliate of for at least three months immediately preceding the
sale and who has owned such shares of common stock for at least two years is
entitled to sell the shares under Rule 144(k) without regard to any of the
limitations described above.
Following 13 months from the date of this prospectus, all of our
outstanding shares will be eligible for sale under Rule 144. Upon exercise of
the 244,956 warrants we will issue at the time of closing of this offering to
our minority stockholders, the shares of common stock issued upon exercise of
the warrants will be restricted and may only be sold under Rule 144 after a
one-year holding period. In addition, at the time of the closing of this
offering, we will issue Schneider Securities, Inc. warrants to purchase 115,000
shares of common stock exercisable at $7.20 per share commencing one year
following the date of this prospectus. The warrants to be issued to Schneider
Securities contain certain provisions requiring us to register the shares of
common stock in the future once they become exercisable.
In addition, under our 1999 stock option plan, we have issued options
to purchase a total of 396,000 shares of our common stock exercisable at $6.00
per share and 200,000 shares exercisable at $1.00 per share. We intend to
register the shares of common stock issuable under our stock option plan as soon
as practicable following the date of this prospectus. The option holders have
agreed not to publicly sell the shares of common stock issuable upon exercise of
the options for a period of 13 months following the date of this prospectus.
Generally these options vest over a three year period provided that the holders
are working for us or are serving as directors on the vesting dates.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, for which Schneider Securities, Inc. is acting as the
underwriter's representative, have agreed to purchase from us the shares of
common stock set forth opposite their names and will purchase the shares of
common stock at the price to the public less the underwriting discounts
contained on the cover page of this prospectus.
Underwriter Number of Shares
Schneider Securities, Inc. ........ ________
Total.............................. 1,150,000
=========
The underwriting agreement provides that the underwriters' obligations
are subject to a number of conditions and that the underwriters are committed to
purchase all 1,150,000 shares of common stock offered in this prospectus if the
underwriters purchase any shares of common stock. The representative has advised
us that the underwriters propose to offer the shares of common stock directly to
the public at the price to public contained on the cover page of this prospectus
and that they may allow to certain dealers which are members of NASD Regulation,
Inc., concessions not in excess of $______. After the initial public
distribution of the common stock is completed, the price of the common stock may
change as a result of market conditions. No change in such terms will change the
amount of proceeds to be received by us. The representative has further advised
us that the underwriters do not intend to confirm sales to any accounts over
which any of them exercises discretionary authority.
We have agreed to pay the representative a nonaccountable expense
allowance of 3% of the total public offering price of the shares of common stock
offered by this prospectus, including shares of common stock sold on exercise of
the over-allotment option. We have already paid the representative $50,000. We
have also agreed to pay all expenses in connection with qualifying the shares of
common stock offered for sale under the laws of such states as the
representative may designate.
We have granted the underwriters an option, exercisable for 45 days
after the date of this prospectus, to purchase up to 172,500 additional shares
of common stock at the same price as the initial shares of common stock offered.
The underwriters may purchase the shares of common stock solely to cover
over-allotments, if any, in connection with the sale of the shares of common
stock offered by this prospectus. If the over-allotment option is exercised in
full, the total public offering price will be $____________, the underwriting
discounts will be $____________, the nonaccountable expense allowance will be
$____________ and the proceeds to us will be $____________ .
The underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act of 1934. Over-allotment
involves syndicate sales in excess of the offering size, which create a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the shares of
common stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the underwriters
to reclaim a selling concession from a syndicate member when the shares of
common stock originally sold by such syndicate member are purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the common stock to be higher than it would otherwise be in
the absence of such transactions.
Neither we nor the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor any
of the underwriters makes any representation that the underwriters will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The representative has required that the shares of common stock owned
by officers, directors and the current stockholders and option holders may not
be sold until at least 13 months after the date of this prospectus without the
prior written consent of the representative. The representative has no present
intention to waive or shorten this 13 month period.
In connection with this offering, we will sell to the representative
for a total purchase price of $115, the representative's warrants entitling the
representative or its assigns to purchase 115,000 shares of our common stock at
an exercise price of 120% of the public offering price listed on the cover of
this prospectus for five years from the date of this prospectus. The
representative's warrants will contain customary anti-dilution provisions and
provide for the cashless exercise of the representative's warrants utilizing our
securities which will reduce the number of shares of common stock we will have
to issue. We will at all times have available a sufficient number of shares of
common stock to be issued upon exercise of the representative's warrants. The
representative's warrants and underlying shares of common stock will be
restricted from sale, transfer, assignment or hypothecation for a period of one
year after the date of this prospectus, except to officers of the
representative, co-underwriters, selling group members and their officers or
partners. Thereafter, the representative's warrants and underlying shares of
common stock will be transferable provided such transfer is in accordance with
the provisions of the Securities Act of 1933. Subject to certain limitations and
exclusions, we have agreed, at the request of the representative and at our
cost, to register the warrants and the shares of common stock issuable upon
exercise of the representative's warrants under the Securities Act.
Additionally, if during the next seven years we file a new registration
statement, we will offer at our cost to register the shares of common stock
issuable upon exercise of the warrants on two occasions at our expense.
For the next five years, the representative has the right to have an
observer attend meetings of our board of directors and receive the same cash
compensation and expenses we pay to our directors.
Prior to this offering, there has not been a public market for our
common stock. The public offering price of the common stock has been determined
by arms-length negotiation between us and the representative. There is no direct
relation between the offering price of the common stock and our assets, book
value or net worth. Among the factors we and the representative considered in
pricing the common stock were our results of operations, our current financial
condition and future prospects, the experience of our management, the amount of
ownership to be retained by our present stockholders, the general condition of
the economy and the securities markets and the demand for securities of
companies considered comparable to us.
In connection with this offering, we and the underwriters have agreed
to indemnify each other against certain liabilities, including liabilities under
the Securities Act, and if such indemnification is unavailable or insufficient,
we and the underwriters have agreed to damage contribution arrangements based
upon relative benefits received from this offering and relative fault resulting
in such damage.
The underwriting agreement also requires us within 90 days after the
date of this prospectus, to obtain key man life insurance in the amount of
$1,000,000 each on the lives of Arnold Hantman and Lisa Krinsky, M.D., our chief
executive and chief operating officers.
LEGAL MATTERS
The legality of the shares of common stock offered by this prospectus
will be passed upon for us by Michael Harris, P.A., West Palm Beach, Florida.
Employees of this law firm own 76,635 shares of common stock. Certain legal
matters will be passed upon for the underwriter by Wolin & Rosen, Ltd., Chicago,
IL 60602.
EXPERTS
The financial statements of our subsidiary for the years ended December
31, 1997 and 1998 appearing in this prospectus and registration statement have
been audited by Kaufman, Rossin & Co., independent auditors, as set forth in
their report appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We will file annual, quarterly, and special reports, proxy statements
and other information with the Securities and Exchange Commission. These
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the SEC, at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional
offices located at 7 World Trade Center, New York, New York 10048 and Northwest
Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
SEC Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates. The SEC maintains a website that contains all information
filed by us. The address of the SEC website is www.sec.gov.
This prospectus constitutes a part of a registration statement on Form
SB-2 filed by us with the SEC under the Securities Act of 1933 with respect to
the common stock offered by this prospectus. This prospectus does not contain
all the information which is in the registration statement. Certain parts of the
registration statement are omitted as allowed by the rules and regulations of
the SEC. Please refer to the registration statement and to the exhibits in the
registration statement for further information with respect to us and the common
stock offered in this prospectus. Copies of the registration statement are on
file at the offices of the SEC and may be obtained upon payment of the
prescribed fee or may be examined without charge at the public reference
facilities of the SEC described above. Statements contained in this prospectus
concerning the provisions of documents are necessarily summaries of the material
provision of such documents, and each statement is qualified in its entirety by
reference to the copy of the applicable document filed with the SEC.
REPORTS TO STOCKHOLDERS
We intend to distribute to our stockholders annual reports containing
audited financial statements and will make available to our stockholders other
information as we deem appropriate.
<PAGE>
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS
Balance Sheet F-3
Statements of Operations and Deficit F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
South Florida Kinetics, Inc.
Miami, Florida
We have audited the accompanying balance sheet of South Florida Kinetics, Inc.
as of December 31, 1998 and the related statements of operations and deficit and
cash flows for each of the two years in the period ended December 31, 1998.
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 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 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 South Florida Kinetics, Inc. as
of December 31, 1998 and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
Kaufman, Rossin & Co.
Miami, Florida
April 2, 1999 (except for Note 8, as to which the date is June 9, 1999)
F-2
<PAGE>
SOUTH FLORIDA KINETICS, INC.
BALANCE SHEET
DECEMBER 31, 1998
================================================================================
ASSETS
================================================================================
CURRENT ASSETS
Cash $ 55,751
Accounts receivable (Notes 2 and 3) 1,410,287
Prepaid expenses 60,074
- --------------------------------------------------------------------------------
Total current assets 1,526,112
LOAN RECEIVABLE FROM STOCKHOLDER (NOTE 4) 92,965
PROPERTY AND EQUIPMENT (NOTE 5) 213,891
OTHER ASSETS 77,500
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 1,910,468
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
================================================================================
CURRENT LIABILITIES
Accounts payable $ 360,135
Notes payable (Note 6) 1,924,154
Accrued liabilities 303,312
Accrued interest (Note 6) 508,152
Advance billings (Note 3) 61,455
- --------------------------------------------------------------------------------
Total current liabilities 3,157,208
- --------------------------------------------------------------------------------
COMMITMENTS (NOTES 7 AND 8)
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 10,000 shares authorized,
issued and outstanding 1,000
Additional paid-in capital 100,000
Deficit (1,347,740)
- --------------------------------------------------------------------------------
Total stockholders' equity (1,246,740)
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,910,468
================================================================================
See accompanying notes.
F-3
<PAGE>
SOUTH FLORIDA KINETICS, INC.
STATEMENTS OF OPERATIONS AND DEFICIT
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
========================================================================================================
1998 1997
========================================================================================================
<S> <C> <C>
NET SALES $ 5,869,987 $ 4,261,505
COST OF SALES 3,838,923 2,801,192
- --------------------------------------------------------------------------------------------------------
GROSS PROFIT 2,031,064 1,460,313
GENERAL AND ADMINISTRATIVE EXPENSES 1,323,764 1,383,356
- --------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 707,300 76,957
INTEREST EXPENSE 199,584 239,707
- --------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) 507,716 (162,750)
DEFICIT - BEGINNING (1,855,456) (1,692,706)
- --------------------------------------------------------------------------------------------------------
DEFICIT - ENDING $(1,347,740) $(1,855,456)
========================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Basic and Diluted) 10,000 10,000
========================================================================================================
NET INCOME (LOSS) PER COMMON SHARE (Basic and Diluted) $ 50.77 $ (16.28)
========================================================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
SOUTH FLORIDA KINETICS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
======================================================================================================
1998 1997
======================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 507,716 $(162,750)
- ------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation 56,945 54,047
Provision for bad debts 14,066 30,372
Accrued interest on notes payable - purchase of assets 35,297 32,270
Changes in operating assets and liabilities:
Accounts receivable (752,950) (113,146)
Prepaid expenses 1,829 6,039
Other assets (6,225) (7,281)
Accounts payable 47,631 12,254
Accrued liabilities (11,591) 113,123
Accrued interest 118,363 120,601
Advance billings 35,455 3,205
- ------------------------------------------------------------------------------------------------------
Total adjustments (461,180) 251,484
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 46,536 88,734
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (25,445) (9,318)
Loans to stockholder (92,965) --
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (118,410) (9,318)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of notes payable - insurance (3,242) (4,341)
Principal payments on notes payable - stockholders -- (46,715)
Principal payments on notes payable - purchase of assets (3,903) (7,826)
- ------------------------------------------------------------------------------------------------------
Net cash used in financing activities (7,145) (58,882)
- ------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (79,019) 20,534
CASH AT BEGINNING OF PERIOD 134,770 114,236
- ------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 55,751 $ 134,770
======================================================================================================
Supplemental Disclosures:
- ------------------------------------------------------------------------------------------------------
Interest paid $ 81,221 $ 119,106
======================================================================================================
Income taxes paid $ -- $ --
======================================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
SOUTH FLORIDA KINETICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
South Florida Kinetics, Inc., d/b/a South Florida Bioavailability Clinic (the
"Company"), was incorporated in 1995 in the State of Florida. The Company is a
contract research organization located in Miami, Florida, that provides clinical
research and drug development services to pharmaceutical and biotechnology
companies.
REVENUE AND COST RECOGNITION
Revenues from contracts are recognized on the percentage-of-completion method,
measured by the percentage of costs incurred to date to estimated total costs
for each contract. This method is used because management considers total costs
incurred to be the best available measure of progress on the contracts.
Contract costs include all direct costs related to contract performance.
Selling, general and administrative costs are charged to expense as incurred.
Provisions for estimated losses, if any, on uncompleted contracts are made in
the period in which losses are determined. Changes in job performance and
estimated profitability may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Due to the
inherent uncertainties in estimating costs, it is at least reasonably possible
that the estimates used will change in the near term and the change could be
material. Revenue recognized on contracts in progress at December 31, 1998
amounted to approximately $1,600,000.
Included in accounts receivable are unbilled amounts, which represent revenue
recognized in excess of amounts billed. Advance billings represent amounts
billed in excess of revenue recognized.
CASH
The Company, from time to time, maintains cash balances with financial
institutions in amounts that exceed federally insured limits.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Expenditures for major betterments
and additions are charged to the asset accounts while replacements, maintenance
and repairs which do not improve or extend the lives of the respective assets
are charged to expense currently.
F-6
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION
Depreciation is computed using the straight-line method based upon the estimated
useful lives of the assets. The range of useful lives is as follows:
Furniture and fixtures 7 years
Machinery and equipment 5 - 7 years
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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 respective reporting
period. Actual results could differ from those estimates.
The allowance for changes in contracts is an estimate established through
reductions to sales while the allowance for doubtful accounts is an estimate
established through charges to general and administrative expenses. Management's
judgment in determining the adequacy of the allowances is based upon several
factors which include, but are not limited to, analysis of subsequent changes to
contracts, analysis of delinquent accounts, the nature and volume of the
accounts, the payment histories of the accounts and management's judgment with
respect to current economic conditions. Given the nature of accounts receivable,
it is reasonably possible the Company's estimate of the allowances will change
in the near term.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. The Company performs services and
extends credit based on an evaluation of the customers' financial condition
without requiring collateral. Exposure to losses on receivables is expected to
vary by customer due to the financial condition of each customer. The Company
monitors exposure to credit losses and maintains allowances for anticipated
losses considered necessary under the circumstances.
INCOME TAXES
No provision for income taxes has been made in the accompanying financial
statements as the Company has elected, with the consent of the stockholders, to
be taxed under S Corporation provisions of the Internal Revenue Code. Under
these provisions, the taxable income of the Company is reflected by the
stockholders on their personal income tax returns.
F-7
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
If the proposed initial public offering of securities is successful (see Note
8), the Company's S Corporation status would terminate and accordingly, the
Company prospectively would pay income taxes on its taxable income. At December
31, 1998 the aggregate temporary differences was approximately $422,000 and
approximately $159,000 would have been recorded as a deferred tax liability if
the Company was a "C" corporation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash, loan receivable from stockholder and accrued
liabilities approximate their fair values due to the short-term maturity of
these instruments.
The fair value of the accrued interest and notes payable are discussed in Note
6.
NET INCOME (LOSS) PER SHARE
The Company applies Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (FAS 128). FAS 128 requires dual presentation of net income
per share; Basic and Diluted. Net income per share - Basic excludes dilution and
is computed by dividing net income by the weighted average number of common
shares outstanding during the reported period. Net income per share - Diluted
reflects the potential dilution that could occur if stock options and warrants
were exercised. As there is no potential dilution, net income per share - Basic
and net income per share - Diluted are the same for the years ended December 31,
1998 and 1997.
IMPACT OF THE "YEAR 2000" COMPUTER ISSUE
Because computers frequently use only two digits to recognize years, on January
1, 2000, many computer systems, as well as equipment that uses embedded computer
chips, may be unable to distinguish between the years 1900 and 2000. If not
remediated, this problem could create system errors and failures resulting in
the disruption of normal business operations. In the event the Company fails to
identify or correct a material Year 2000 problem, there could be disruptions in
normal business operations, which could have a material adverse effect on the
Company's results of operations, liquidity or financial condition. Further,
there may be some third parties, such as governmental agencies, utilities,
telecommunication companies, vendors, suppliers and customers who may not be
able to continue business with the Company due to their own year 2000 problems.
There can be no assurance that any efforts made will fully mitigate the effect
of Year 2000 issues.
NOTE 2. MAJOR CUSTOMERS
During the year ended December 31, 1998, sales to four customers amounted to
approximately 58% of net sales. At December 31, 1998, four customers accounted
for approximately 61% of accounts receivable.
During the year ended December 31, 1997, sales to three customers accounted for
approximately 52% of net sales.
F-8
<PAGE>
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31, 1998:
Accounts receivable - billed $ 870,205
Accounts receivable - unbilled 726,520
Less allowance for changes in contracts (142,000)
Less allowance for doubtful accounts (44,438)
- -------------------------------------------------------
$ 1,410,287
=======================================================
Accounts receivable are billed when certain milestones defined in customer
contracts are achieved. All unbilled accounts receivable are expected to be
billed and collected within one year.
Advance billings at December 31, 1998 amounted to $61,455.
NOTE 4. LOAN RECEIVABLE FROM STOCKHOLDER
Loan receivable from stockholder consists of certain expenses paid by the
Company on behalf of its majority stockholder. The loan is non-interest bearing
and due on demand.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1998:
Furniture and fixtures $ 31,866
Machinery and equipment 377,378
- ------------------------------------------
409,244
Less accumulated depreciation 195,353
- ------------------------------------------
$213,891
==========================================
Depreciation of property and equipment for the years ended December 31, 1998 and
1997 amounted to $56,945 and $54,047, respectively.
F-9
<PAGE>
NOTE 6. NOTES PAYABLE
Notes payable consisted of the following at December 31, 1998:
Notes payable - stockholders $1,083,863
Notes payable - purchase of assets 798,962
Notes payable - insurance 41,329
- -----------------------------------------------------------------------------
$1,924,154
=============================================================================
NOTES PAYABLE - STOCKHOLDERS
During 1995 and 1996, the Company issued notes payable and shares of common
stock to private investors. These notes are unsecured and bear interest at 10%
per annum, with principal and interest due one year from the date of the note.
No interest and minimal principal payments have been made through December 31,
1998. The present value of the notes at December 31, 1998, at an imputed
interest rate of approximately 14% per annum, was $1,083,863 plus accrued
interest of $508,152. The difference between the present value of the notes and
the cash received represents the consideration received for the stock, and is
included in additional paid-in-capital in the accompanying financial statements.
As described in Note 8, subsequent to year-end, the Company offered these note
holders the option to convert the principal balances and accrued interest into
common stock.
NOTES PAYABLE - PURCHASE OF ASSETS
In connection with a purchase of assets in 1995, the Company entered into
promissory notes for $298,471 and $650,000. The $298,471 promissory note bears
interest at 9% per annum and is secured by all of the assets of the Company with
principal and interest payable monthly. The $650,000 promissory note is
non-interest bearing and is secured with payments due monthly based on the net
sales of the Company. The Company imputed interest on this note at a rate of 9%
per annum. Actual payments have not been in accordance with the terms of the
notes. At December 31, 1998, the balance of the notes, including accrued
interest was $798,962.
Based on borrowing rates currently available to the Company for loans with
similar terms and maturities, the fair value of notes payable approximates
carrying value.
Interest expense on all indebtedness amounted to $199,584 and $239,707, for the
years ended December 31, 1998 and 1997, respectively.
F-10
<PAGE>
NOTE 7. COMMITMENTS
FACILITIES LEASE
The company leases its facilities on a month-to-month basis. Rent expense under
this lease agreement amounted to $270,706 and $238,512 for the years ended
December 31, 1998 and 1997, respectively.
LEASE COMMITMENTS
The Company is obligated under two operating leases on equipment expiring from
2001 through 2003. The approximate minimum annual lease commitments on these
leases are $7,000 per year for 1999 through 2001 and $4,000 per year for 2002
and 2003.
NOTE 8. SUBSEQUENT EVENTS
RECAPITALIZATION - RESTRUCTURING OF DEBT
In June 1999, the Company entered into an Agreement and Plan of Merger with a
newly formed wholly-owned subsidiary of SFBC International, Inc. (SFBC), a
non-operating company that is the creditor with respect to the notes payable -
purchase of assets discussed in Note 6. The agreement provides for, among other
things, that SFBC acquire all of the common stock of the Company. The resulting
ownership of SFBC is 54% by the former majority stockholder of the Company, 19%
by the former minority stockholders of the Company and 27% by the former sole
stockholder of SFBC. In connection with the merger, SFBC entered into a letter
of intent regarding a proposed initial public offering of securities.
Concurrent with the merger, approximately $300,000 of the notes payable -
purchase of assets was extinguished and the original notes were replaced with
three new notes aggregating $500,000. These notes bear interest at 8% per annum,
are secured by all of the assets of the Company and are personally guaranteed by
an officer of the Company. The notes are due upon the closing of the registered
initial public offering of securities of SFBC. If the offering is not completed
by December 31, 1999 the notes are payable in aggregate monthly installments of
$20,000 plus interest, starting January 1, 2000.
STOCKHOLDER NOTES
In April 1999, the Company offered the holders of the notes payable -
stockholders, the option to convert their note balances and accrued interest
into new three year, 10% convertible notes. Upon the closing of the registered
initial public offering of securities of SFBC, these new notes would be required
to be converted into common stock of SFBC. In the conversion, the note holders
would receive shares of SFBC at a 20% discount off the initial public offering
price and one warrant for each share of stock issued. The warrants would be
exercisable at 120% of the initial public offering price and have a three-year
life.
F-11
<PAGE>
NOTE 8. SUBSEQUENT EVENTS (CONTINUED)
EMPLOYMENT CONTRACT
In February 1999, in contemplation of the recapitalization discussed above, the
Company entered into a one-year employment agreement with the Executive Vice
President of Clinical Operations. This agreement automatically renews annually
and may be terminated without cause by either party with 90-day notice. Pursuant
to the agreement, the employee received an option to purchase 200,000 shares of
common stock of SFBC at an exercise price of $1.00 per share. The option is
exercisable in four equal annual installments of 50,000 shares each, commencing
on March 15, 1999. No options had been exercised through June 9, 1999.
F-12
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
=====================================================================================
ASSETS
=====================================================================================
<S> <C>
CURRENT ASSETS
Cash $ 452,502
Accounts receivable, net of allowances of $199,438 1,510,280
Prepaid expenses 90,278
- -------------------------------------------------------------------------------------
Total current assets 2,053,060
LOAN RECEIVABLE FROM STOCKHOLDER 92,965
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $226,091 219,290
OTHER ASSETS 82,500
- -------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,447,815
=====================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
=====================================================================================
CURRENT LIABILITIES
Accounts payable $ 366,133
Notes payable-shareholders 283,996
Accrued liabilities 310,338
Accrued interest 206,721
Advance billings 3,764
Current portion of long-term debt 100,000
Deferred tax liability 204,000
- -------------------------------------------------------------------------------------
Total current liabilities 1,474,952
- -------------------------------------------------------------------------------------
LONG-TERM DEBT 1,575,899
- -------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 5,000,000 shares authorized,
zero shares issued and outstanding --
Common stock, $.001 par value, 20,000,000 shares authorized,
2,080,000 shares issued and outstanding 2,080
Additional paid-in capital 425,623
Deficit (1,030,739)
- -------------------------------------------------------------------------------------
Total stockholders' equity (603,036)
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,447,815
=====================================================================================
</TABLE>
See accompanying notes.
F-13
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
====================================================================
June 30, 1999 June 30, 1998
====================================================================
NET SALES $ 3,944,523 $ 2,045,273
COST OF SALES 2,379,293 1,367,950
- --------------------------------------------------------------------
GROSS PROFIT 1,565,230 667,323
GENERAL AND ADMINISTRATIVE EXPENSES 904,952 702,390
- --------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 660,278 (25,067)
INTEREST EXPENSE 102,277 95,766
- --------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 558,001 (120,833)
INCOME TAXES 241,000 --
- --------------------------------------------------------------------
NET INCOME (LOSS) $ 317,001 $ (120,833)
====================================================================
See accompanying notes.
F-14
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTH PERIOD ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Common stock, $.001 par
value; 20,000,000
shares authorized Additional
------------------------- Paid-In
Shares Par Value Capital Deficit Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
BALANCES - JANUARY 1, 1999 1,520,000 $ 1,520 $ 99,480 $(1,347,740) $(1,246,740)
Acquisition of assets of SFBC International, Inc. 560,000 560 326,143 -- 326,703
Net income -- -- -- 317,001 317,001
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES - JUNE 30, 1999 2,080,000 $ 2,080 $ 425,623 $(1,030,739) $ (603,036)
====================================================================================================================================
</TABLE>
See accompanying notes.
F-15
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
============================================================================================
June 30, 1999 June 30, 1998
============================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 317,001 $(120,833)
- ------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation 30,738 26,982
Provision for bad debts - -- 10,066
Accrued interest on notes payable - purchase of assets 25,347 35,195
Changes in operating assets and liabilities:
Accounts receivable (99,993) 89,302
Prepaid expenses (30,204) 37,837
Other assets (5,000) (30,000)
Accounts payable 5,998 (78,267)
Accrued liabilities 7,026 (23,214)
Accrued interest 74,601 59,193
Advance billings (57,691) (26,000)
Deferred tax liability 204,000 --
Total adjustments 154,822 101,094
- ------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 471,823 (19,739)
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (36,137) (14,786)
Loans to stockholder -- (13,964)
Cash balance of Company acquired 2,394 --
- ------------------------------------------------------------------------------------------
Net cash used in investing activities (33,743) (28,750)
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of notes payable - insurance (41,329) (44,571)
Principal payments on notes payable - purchase of assets -- (10,000)
- ------------------------------------------------------------------------------------------
Net cash used in financing activities (41,329) (54,571)
- ------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 396,751 (103,060)
CASH AT BEGINNING OF PERIOD 55,751 134,770
- ------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 452,502 $ 31,710
==========================================================================================
Supplemental Disclosures:
- ------------------------------------------------------------------------------------------
Interest paid $ 27,676 $ 36,573
==========================================================================================
Income taxes paid $ -- $ --
==========================================================================================
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
- ------------------------------------------------------------------------------------------
In June 1999, the Company reduced long-term debt by $324,309 through the
issuance of common stock.
In June 1999, the Company converted $376,032 of accrued interest to long-term
debt.
</TABLE>
See accompanying notes.
F-16
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying financial statements do not include all of the disclosures made
in South Florida Kinetics, Inc. balance sheet as of December 31, 1998 and the
related statements of operations and deficit and cash flows for each of the two
years in the period ended December 31, 1998, which should be read in conjunction
with these statements. The financial information included herein has not been
audited. However, in the opinion of management, the statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of the periods presented. The results for the
periods presented is not necessarily indicative of the results for the full
fiscal years.
The consolidated financial statements include the accounts of SFBC
International, Inc. a Delaware corporation and its subsidiary, South Florida
Kinetics, Inc. a Florida corporation. SFBC owns 100% of the subsidiary. All
material intercompany balances and transactions have been eliminated in
consolidation.
NOTE 2. OTHER EVENTS
RECAPITALIZATION
On June 7, 1999, all of the outstanding stock of the subsidiary was acquired by
SFBC. For accounting purposes, the acquisition has been treated as an
acquisition of the assets of SFBC by the subsidiary and as a recapitalization of
the subsidiary. The historical financial statements prior to June 7, 1999 are
those of the subsidiary.
STOCK SPLIT
In June 1999, SFBC effected a four-for-five reverse stock split. All stock data
and per share amounts in the consolidated financial statements have been
restated to give effect to the stock split.
INCOME TAXES
Through June 7, 1999, our subsidiary had elected, with the consent of the
stockholders, to be taxed under S Corporation provisions of the Internal Revenue
Code. Under these provisions, the taxable income of our subsidiary is reflected
by the stockholders on their personal income tax returns. Effective June 8,
1999, our subsidiary terminated its S Corporation status and in connection
therewith, it recorded a deferred tax liability of $204,000, through a charge to
the statement of operations. In addition, our subsidiary recorded a current
income tax liability of $37,000 related to taxable income for the period from
June 8, 1999 through June 30, 1999.
F-17
<PAGE>
NOTE 2. OTHER EVENTS (Continued)
LONG-TERM DEBT
In August 1999, certain holders of the notes payable - stockholders, converted
their note balances and accrued interest in the aggregate amount of $1,175,899
into new three year, 10% convertible notes. Upon the closing of the registered
initial public offering of securities of SFBC, these new notes would be required
to be converted into common stock of SFBC. In the conversion, the note holders
would receive shares of SFBC at a 20% discount off the initial public offering
price and one warrant for each share of stock issued. The warrants would be
exercisable at 120% of the initial public offering price and have a three-year
life.
LOAN RECEIVABLE FROM STOCKHOLDER
Loan receivable from stockholder consists of a promissory note providing for
annual payments of interest at a rate of 6% per annum, with principal due in
August 2002.
F-18
<PAGE>
[LOGO]
1,150,000
Shares of Common Stock
SFBC INTERNATIONAL, INC.
PROSPECTUS
SCHNEIDER SECURITIES, INC.
_____________________, 1999
You should only rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in states and other jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock.
TABLE OF CONTENTS Page
Prospectus Summary
Risk Factors
Forward-Looking Statements
Use of Proceeds
Capitalization
Dilution
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Business
Management
Related Party Transactions
Principal Stockholders
Description of Capital Stock
Shares Eligible for Future Sale
Underwriting
Experts
Legal Matters
Additional Information
Reports to Stockholders
Index to Financial Statements F-1
Until __________ 1999, all dealers selling shares of the common stock, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Our amended and restated certificate of incorporation
provides that we shall indemnify our officers and directors, employees and
agents and former officers, directors, employees and agents against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
arising out of his or her services on behalf of us subject to the qualifications
contained in Delaware law as it now exists. We also cannot indemnify our
officers and directors when we assert a direct claim against them. We have
entered into indemnification agreements with our officers and directors
providing for indemnification and containing an advancement of expenses
provision. Delaware law generally provides that a corporation shall have such
power to indemnify such persons to the extent they acted in good faith in a
manner they reasonably believed to be in, or not opposed to, the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe the conduct was unlawful. In the event any such
person shall be judged liable such indemnification shall apply only if approved
by the court in which the action was brought. Any other indemnification shall be
made by a majority vote of the board of directors (excluding any directors who
were party to such action), or by a committee of directors designated by
majority vote of the board of directors or by independent legal counsel in a
written opinion, or by a majority vote of stockholders (excluding any
stockholders who were parties to such action).
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE
SECURITIES ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS
CONTROLLING SFBC INTERNATIONAL, INC. PURSUANT TO THE FOREGOING PROVISIONS, WE
HAVE BEEN INFORMED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE
COMMISSION, SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE
ACT AND IS THEREFORE UNENFORCEABLE.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with the issuance and
distribution of the securities being registered hereby (except for the
underwriting discounts and commissions) will be borne by SFBC and are estimated
to be as follows:
Registration Fee ................................ $ 2,436.11
Nasdaq Listing Fee .............................. 10,000.00
NASD Filing Fee ................................. 1,450.00
Transfer Agent Fee .............................. *
Printing Costs .................................. *
Legal Fees and Expenses ......................... *
Accounting Fees and Expenses .................... *
Blue Sky Fees and Expenses ...................... *
Underwriters' Non-Accountable Expense Allowance *
Miscellaneous ................................... *
------------
Total ........................................... $ *
============
* To be supplied by Amendment.
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
During the past three years, the following persons and entities
acquired shares of stock and other securities from us as set forth in the table
below. The number of shares of our common stock have been adjusted by our
four-for-five reverse stock split.
We sold the securities listed below in reliance upon exemptions from
registration pursuant to Section 4(2) of the Securities Act of 1933. Each person
listed below, except for Mr. Arnold Hantman, our chief executive officer
exchanged his or her common stock of our subsidiary for our common stock when we
acquired our subsidiary on June 7, 1999. The convertible notes were offered to
the South Florida Kinetics minority stockholders at the time they voted on the
merger in exchange for their cancellation of South Florida Kinetics notes but
not issued until August 4, 1999.
<TABLE>
<CAPTION>
Class Amount of
Stockholder of Securities Securities Sold Consideration Received(1)
- ----------------------------------- ---------------- ------------- -----------------------------------------
<S> <C> <C> <C>
Jay W. Atkins common stock 11,106 shares common stock
Maurice L. Baldwin c/o Maurice L convertible note $ 18,943.08 cancellation of note and accrued interest
and Mary L. Baldwin Family Trust common stock 2,563 shares common stock
Donald E. Birzer common stock 6,835 shares common stock
Robert P. Bisaillon convertible note $ 16,108.33 cancellation of note and accrued interest
common stock 2,136 shares common stock
Roland W. Boone convertible note $ 25,588.34 cancellation of note and accrued interest
common stock 8,543 shares common stock
Keith C. Carini, M.D convertible note $ 8,629.17 cancellation of note and accrued interest
common stock 2,478 shares common stock
Harold and Marilyn F. Chalmers convertible note $ 74,129.17 cancellation of note and accrued interest
common stock 21,358 shares common stock
Norman Cloutier convertible note $ 7,690.37 cancellation of note and accrued interest
common stock 2,136 shares common stock
Hilda S. Davis convertible note $ 18,943.08 cancellation of note and accrued interest
common stock 2,563 shares common stock
Patricia DeLovely common stock 9,398 shares common stock
Robert L. Dible convertible note $ 24,000.00 cancellation of note and accrued interest
common stock 12,815 shares common stock
II-2
<PAGE>
Rudolph Dickson convertible note $ 18,722.92 cancellation of note and accrued interest
common stock 8,971 shares common stock
Robert Dudley convertible note $ 15,937.57 cancellation of note and accrued interest
common stock 2,136 shares common stock
Howard L. Foglesong convertible note $ 7,974.63 cancellation of note and accrued interest
common stock 2,136 shares common stock
Curtis L. Franz common stock 3,845 shares common stock
Edmond W. and Georgia Gardiner convertible note $ 7,246.47 cancellation of note and accrued interest
common stock 2,136 shares common stock
Raymond L. Gehris common stock 17,087 shares common stock
Harold T., Ruth B. George, Trustees convertible note $ 16,197.92 cancellation of note andaccrued interest
U.D.T., dated February 18, 1984 common stock 2,136 shares common stock
Dennis D. Glass convertible note $ 31,265.30 cancellation of note and accrued interest
common stock 4,272 shares common stock
Joseph J. and E. Lenore Goetz common stock 2,648 shares common stock
Margaret K. Greene convertible note $ 12,185.33 cancellation of note and accrued interest
common stock 1,709 shares common stock
Dale and Sandra Halverstadt common stock 8,543 shares common stock
William and Helen A. Havel convertible note $ 16,250.00 cancellation of note and accrued interest
common stock 2,136 shares common stock
Dennis Hieronymus convertible note $ 12,738.44 cancellation of note and accrued interest
common stock 3,417 shares common stock
Frank L. Jenkins convertible note $ 6,896.00 cancellation of note and accrued interest
common stock 8,543 shares common stock
Kurt H. Knecht convertible note $ 65,852.52 cancellation of note and accrued interest
common stock 8,543 shares common stock
II-3
<PAGE>
David M. Kushner, M.D. convertible note $ 25,003.20 cancellation of note and accrued interest
common stock 34,173 shares common stock
Philip A. Linda C. Magyar convertible note $ 16,262.07 cancellation of note and accrued interest
common stock 2,136 shares common stock
Edith L. Marion convertible note $ 22,137.91 cancellation of note and accrued interest
common stock 3,076 shares common stock
Edith L. Marion convertible note $ 10,760.09 cancellation of note and accrued interest
common stock 2,562 shares common stock
George L. and Linda J. May convertible note $ 8,241.67 cancellation of note and accrued interest
common stock 1,111 shares common stock
Joanne B. May convertible note $ 18,585.83 cancellation of note and accrued interest
common stock 2,563 shares common stock
Robert I. and Debbie Miller common stock 2,136 shares common stock
Miller Trust, MargaretAnn Miller, convertible note $ 43,076.33 cancellation of note and accrued interest
Trustee common stock 14,523 shares common stock
Patrick Murphy, M.D convertible note 62,365.57 cancellation of note and accrued interest
common stock 11,790 shares common stock
Jerry Nash convertible note $ 20,023.39 cancellation of note and accrued interest
common stock 2,990 shares common stock
Howard Nunn, Jr., M.D. convertible note $ 16,056.33 cancellation of note and accrued interest
common stock 2,136 shares common stock
Jay L. Rentzel convertible note $ 93,849.58 cancellation of note and accrued interest
common stock 29,902 shares common stock
Integrity Associates convertible note $ 21,935.83 cancellation of note and accrued interest
common stock 2,990 shares common stock
II-4
<PAGE>
Roscoe M. Smith convertible note $ 15,344.32 cancellation of note and accrued interest
common stock 4,272 shares common stock
Howard W. Stacey common stock 3,076 shares common stock
John and Mary Sviatek convertible note $ 56,625.00 cancellation of note and accrued interest
common stock 8,543 shares common stock
Carl J. Wallace convertible note $ 15,685.33 cancellation of note and accrued interest
common stock 4,689 shares common stock
Leo Watkins convertible note $ 34,521.32 cancellation of note and accrued interest
common stock 8,885 shares common stock
Robert K. Wawrousek, Trustee convertible note $ 137,694.33 cancellation of note and accrued interest
common stock 59,804 shares common stock
Joseph E. Webb convertible note $ 25,526.91 cancellation of note and accrued interest
common stock 4,357 shares common stock
Gordon Wilbur convertible note $ 18,161.84 cancellation of note and accrued interest
common stock 2,392 shares common stock
James R. and Mildred H. Williams convertible note $ 72,350.00 cancellation of note and accrued interest
common stock 25,630 shares common stock
Raymond F. Zuczuski convertible note $ 15,605.00 cancellation of note and accrued interest
common stock 2,136 shares common stock
Jerry Frost convertible note $ 20,788.53 cancellation of note and accrued interest
common stock 3,930 shares common stock
Lisa Krinsky, M.D common stock 1,014,487 shares common stock
Arnold Hantman common stock 507,244 shares common stock
Michael D. and Beth J. Harris common stock 76,635 shares common stock
C.L.R. Associates, Inc. common stock 71,635 shares common stock
Dr. Leonard Weinstein common stock 10,000 shares common stock
</TABLE>
(1) We issued our shares of common stock in exchange for shares of our
subsidiary except for Mr. Hantman who exchanged shares of our
predecessor. The convertible notes we issued were exchanged for our
subsidiary's notes.
II-5
<PAGE>
Item 27. Exhibits.
1.1 -- Form of Underwriting Agreement(1)
1.2 -- Form of Selected Dealer's Agreement(1)
1.3 -- Form of Underwriter's Warrants(1)
2 -- Agreement and Plan of Merger(1)
3.1 -- Certificate of Incorporation(1)
3.2 -- First Amendment to Certificate of Incorporation(1)
3.3 -- Bylaws(1)
4.1 -- Form of Common Stock Certificate(1)
5. -- Opinion of Michael Harris, P.A.(1)
10.1 -- Employment Agreement of Arnold Hantman(2)
10.2 -- Employment Agreement of Lisa Krinsky, M.D.(2)
10.3 -- Employment Agreement of Dr. Gregory Holmes(1)
10.4 -- 1999 Stock Option Plan(1)
10.5 -- Form of Convertible Note(1)
10.6 -- $383,000 Secured Note(1)
10.7 -- $100,000 Secured Note(1)
10.8 -- $17,000 Secured Note(1)
21 -- Subsidiaries(1)
23.1 -- Consent of Kaufman, Rossin & Co.
23.2 -- Consent of Michael Harris, P.A.(3)
_______________________________
(1) Contained in Form SB-2 filed on August 17, 1999
(2) To be filed by amendment
(3) Contained in Opinion of Michael Harris, P.A.
II-6
<PAGE>
Item 28. Undertakings.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions or otherwise, we have been advised that, in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by a director, officer or controlling
person of SFBC International, Inc. in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(b) The registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement
to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
such post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as
part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of the registration statement as of
the time it was declared effective.
(5) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and has authorized this registration
statement to be signed on its behalf by the undersigned, in North Miami, State
of Florida, on the 20th day of August, 1999.
SFBC International, Inc.
By: /s/ Arnold Hantman
-----------------------------
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement on Form SB-2 was signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ----------------------- ---------------------------------- --------------
<S> <C> <C>
/s/ Lisa Krinsky, M.D.
Lisa Krinsky, M.D. Chairman of the Board of Directors August 20, 1999
/s/ Arnold Hantman August 20, 1999
Arnold Hantman Director and Principal Financial Officer
and Accounting Officer
/s/ Jack Levine August 20, 1999
Jack Levine Director
/s/ Dr. Leonard Weinstein August 20, 1999
Dr. Leonard Weinstein Director
</TABLE>
II-8
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
Form SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SFBC INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
EXHIBIT INDEX
23.1 -- Consent of Kaufman, Rossin & Co.
II-9
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated April 2, 1999, relating to the financial statements of South
Florida Kinetics, Inc., and to the reference to our Form under the caption
"Experts" in the Prospectus.
/s/ KAUFMAN, ROSSIN & CO.
Miami, Florida
August 20, 1999
