As filed with the Securities and Exchange Commission on July 21, 2000
Registration No. 333-85429
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
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 59-2407464
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
11190 Biscayne Blvd., Miami, FL 33181
(305) 895-0304
(Address and telephone number or intended principal place of business)
11190 Biscayne Blvd., Miami, FL 33181
(305) 895-0304
(Address of principal place of business or intended principal place of business)
Mr. Arnold Hantman
SFBC International, Inc.
11190 Biscayne Blvd., 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. Charles J. Mack, Esq.
Kristen K. Thomas, Esq. Wolin & Rosen, Ltd.
Michael Harris, P.A 55 West Monroe Street, Suite 3600
1645 Palm Beach Lakes Blvd., Suite 550 Chicago, Illinois 60603
West Palm Beach, FL 33401 Telephone: (312)424-0600
Telephone: (561) 478-7077 Facsimile: (312) 424-0660
Facsimile: (561) 478-1817
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
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 delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
--------------------------------- ------------------ --------------------- ---------------- ----------------------------
Proposed Proposed
Amount to Be Maximum Maximum
Title of Each Class of Registered Offering Aggregate Amount of
Securities Price Offering Registration
To Be Registered Per Security (1) Price Fee (2)
--------------------------------- ------------------ --------------------- ---------------- ----------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value (3) 1,437,500 $8.00 $11,500,000 $3,036.00
--------------------------------- ------------------ --------------------- ---------------- ----------------------------
Underwriter's Warrants (4) 125,000 $0 $150 $0
--------------------------------- ------------------ --------------------- ---------------- ----------------------------
Common Stock, $.001 par value 125,000 $9.60 (5) $1,200,000 $316.80
--------------------------------- ------------------ --------------------- ---------------- ----------------------------
Total Registration Fee (6) $3,352.80
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Calculated pursuant to the new fee rate of .000264 of the aggregate
offering amount.
(3) Includes (i) 1,250,000 shares initially offered and (ii) 187,500 shares
issuable pursuant to the underwriters' 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 underwriters' warrants.
(5) Equal to 120% of the proposed initial offering price of the common
stock.
(6) $2,506.25 was paid with the original SB-2 filed on August 20, 1999 at
the fee rate then in effect, which was .000278 of the aggregate
offering amount. Due to an increase in the number of securities being
registered, the registration fee has increased by $846.55 which is
being paid concurrently with the filing of this Amendment No. 2.
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 of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Securities and Exchange Commission, acting pursuant to Section 8,
may determine.
ii
<PAGE>
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
Subject to completion, dated July 21, 2000
Prospectus
1,250,000 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 which conducts clinical research and
provides drug development services for clients in the pharmaceutical and
biotechnology industries. We have applied to list our common stock on the Nasdaq
National Market under the symbol "SFBX."
Investing in our common stock involves a high degree of risk. See the risks
which are described in the "Risk Factors" section beginning on page 8 of this
prospectus.
-------------------------------------------- ---------------- -----------------
Per Share Total
-------------------------------------------- ---------------- -----------------
Public offering price ..................... $8.00 $10,000,000
-------------------------------------------- ---------------- -----------------
Underwriting discounts .................... $0.80 $1,000,000
-------------------------------------------- ---------------- -----------------
Proceeds to SFBC International, Inc. ...... $7.20 $9,000,000
-------------------------------------------- ---------------- -----------------
HD Brous & Co., Inc. as our underwriter or representative of several
underwriters has a 45 day option from SFBC International, Inc. to purchase up to
187,500 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 $8.00 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 __________, 2000.
HD Brous & Co., Inc.
The date of this prospectus is ____, 2000
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
----
<S> <C>
Prospectus Summary........................................................................... 3
Risk Factors................................................................................. 8
Forward Looking Statements................................................................... 10
Use of Proceeds.............................................................................. 11
Capitalization............................................................................... 12
Dilution..................................................................................... 14
Selected Financial Data...................................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of Operations........ 17
Business..................................................................................... 21
Management................................................................................... 32
Related Party Transactions................................................................... 37
Principal Stockholders....................................................................... 38
Description of Capital Stock................................................................. 39
Shares Eligible for Future Sale.............................................................. 41
Plan of Distribution......................................................................... 42
Legal Matters................................................................................ 44
Experts...................................................................................... 44
Additional Information....................................................................... 44
Index to Financial Statements................................................................ F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this
prospectus and may not contain all the information that is important to you. To
understand our business and this offering fully, you should read this entire
prospectus carefully, including the financial statements and the related notes
beginning on page F-1. When we refer in this prospectus to "SFBC International,"
"SFBC," "we," "our," and "us," we mean SFBC International, Inc., a Delaware
corporation, together with our subsidiaries and our predecessors. This
prospectus contains forward-looking statements and information relating to SFBC.
See "Forward Looking Statements" on page 10.
SFBC International
Our Business
We are a specialized provider of outsourced drug development research
services for the pharmaceutical and biotechnology industries. We have one of the
largest contract research sites in the United States today. Most of the business
conducted at that site has been Phase I and II clinical trials and related
services that variously determine and document the safety, absorption and dosing
of potential new drugs developed by our clients. In March 2000, we expanded into
Phase III clinical trial work through the acquisition the assets of
Pharmaceutical Development Associates. Phase III clinical trials are conducted
to determine the therapeutic benefit of a potential new drug on a specific
disease. We believe that the business we acquired, which we operate through
SFBC/Pharmaceutical Development Associates, Inc., a wholly-owned subsidiary, is
among the most active providers of ophthalmology drug studies, a leading
provider of dermatology drug studies and one of few established providers of
clinical equivalency studies for potential new generic drugs in the United
States. Clinical equivalency studies began to be required by the federal Food
and Drug Administration for new generic drugs in 1997.
While we have been in business for 16 years, we introduced our current
business model in 1995. Over the past five years, we have served over 50
clients, including 23 of the top 25 pharmaceutical companies in the United
States. We have focused on building a reputation for producing results rapidly
in compliance with each clinical trial protocol and the Food and Drug
Administration requirements. We believe our pharmaceutical and biotechnology
clients can realize greater financial benefits from more rapidly available valid
clinical trial results. To realize our goal, we have built and continue to
expand a database of volunteers representing a broad range of special
populations, including post-menopausal women, children with specific diseases,
and individuals who are HIV positive to be able to accommodate quickly most
early phase clinical trials. SFBC/Pharmaceutical Development Associates has
established physician networks in ophthalmology and dermatology. We consider our
responsiveness to clients, particularly with restrictive, special population
studies, to have been key to: (1) attracting new clients, (2) earning the repeat
business of our established clients, and (3) capturing the unfulfilled work of
other, generally larger, contract research organizations that do not have the
ready access to the required participants. We count among our niche expertise
the following special populations:
o cardiac o pediatrics
o diabetics o liver diseases
o geriatrics o post-menopausal females
o kidney disease o HIV positive
o ophthamology o Dermatology
3
<PAGE>
Some or our clients and other companies that we work with are as
follows:
Pharmaceutical Companies Biotechnology Companies
------------------------ -----------------------
Abbott Laboratories Immunex Corp.
Bristol-Myers Squibb Company Medeva Americas, Inc.
Glaxo Wellcome Inc. Genaissance Pharmaceuticals, Inc.
Johnson & Johnson, Inc. Celtrix Pharmaceuticals, Inc.
Merck & Co., Inc. Elan Corp, PLC
Pfizer, Inc. Hughes Institute
Agouron Pharmaceuticals, Inc.
Sarawak Medichem Pharmaceuticals, Inc.
Contract Research Organizations
-------------------------------
Quintiles Transnational Corp.
Phoenix International
PPD, Inc.
Premier Research
Although we derived approximately 85% of our revenues (approximately
38.1% from three clients) during the year ended December 31, 1999 from Phases I
and II clinical trials for pharmaceutical companies, biotechnology companies and
other contract research organizations, we provide a range of other clinical
research services for short-term studies and more complex, long-term Phases I
and II studies, as well as Phases III and IV studies, including:
o protocol design: designing clinical trials for customers in
conformance FDA regulations;
o report writing: providing a comprehensive summary of the
conduct of a study for customers submission to the FDA;
o data management: including the transfer of study data to
clinical report forms;
o institutional review board services: preparing paperwork and
all documents to be submitted to an institutional review board
for approval; and
o electronic data transfer: transferring study data to the study
sponsor instantaneously or to other data banks via computer.
Our Strategy
Our goal is to become the comprehensive provider of choice for a
widening range of specialized clinical trials. This involves expanding the
breadth of our clinical trials and related services to provide turnkey contract
research organization solutions. We expect to include the building and
acquisition of complementary businesses. Our strategy includes the following key
elements:
o Continue to build our proprietary database of special
participant populations;
o Continue to expand the range of services offered to our
clients through acquisitions and strategic alliances; and
o Continue to recruit and train our employees.
4
<PAGE>
In carrying out these strategies, we face a number of obstacles
including competition from competitors of various size in South Florida drawing
resources from the same special populations, competition from larger companies
seeking the same acquisition targets, and competition from other participants in
the healthcare field seeking qualified employees.
Our executive offices and clinic are located at 11190 Biscayne
Boulevard, Miami, Florida 33181 and our telephone number is (305) 895-0304. Our
new subsidiary, SFBC/Pharmaceutical Development Associates, maintains offices in
Charlotte, North Carolina. Our website is located at www.sfbci.com. Information
contained on our website is not part of this prospectus.
The Offering
Common stock offered ..................... 1,250,000 shares
Common stock outstanding immediately
prior to this offering .................. 2,335,736 shares
Common stock outstanding immediately
following this offering ............. 3,589,642 shares
Use of proceeds .......................... We intend to use the net proceeds of
this offering for various purposes
including:
o repayment of indebtedness,
o expansion of our current clinic
or move to a larger facility,
o expansion of our business
development and marketing
efforts,
o to open a clinical laboratory,
o expansion of our business
through acquisitions of, and
investment in, complementary or
competitive businesses, and
o for general corporate purposes
including working capital.
Proposed Nasdaq NMS trading symbol ....... "SFBX"
Risk factors ............................. An investment in our common stock is
highly speculative and involves a
high degree of risk. You should read
the "Risk Factors" section beginning
on page 8.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following selected statement of operations data for the years ended
December 31, 1998 and 1999 are derived from our financial statements and related
notes, which were audited by Kaufman, Rossin & Co., our independent auditors,
and are included in this prospectus.
5
<PAGE>
The pro forma unaudited selected statement of operations data for the
year ended December 31, 1999, includes the actual results of operations for SFBC
International and the results of operations for Pharmaceutical Development
Associates as if we acquired that business on January 1, 1999.
The unaudited selected statement of operations data for the quarters
ended March 31, 1999 and 2000, includes our actual results of operations for the
quarters then ended.
The pro forma unaudited selected statement of operations data for the
quarter ended March 31, 2000, includes our actual results of operations and
those of Pharmaceutical Development Associates as if we acquired its assets on
January 1, 2000.
Our pro forma unaudited selected balance sheet data, as adjusted, gives
effect to our receipt of the estimated net proceeds of approximately $8,300,000
from our sale of 1,250,000 shares of common stock in this offering at an initial
public offering price of $8.00 per share and the initial application of these
proceeds to repay our debt in connection with our line of credit, our note
payable - insurance, our notes payable to the former minority shareholders and
the accrued interest on those notes payable to the former minority shareholders.
.........The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the related notes appearing elsewhere
in this prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended December 31, Quarter Ended March 31,
1998 1999 1999 1999 2000 2000
Pro Forma Pro Forma
Actual Actual (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 5,869,987 $ 8,309,143 $10,509,204 $ 1,922,991 $ 2,303,116 $ 2,730,396
Operating income 707,300 1,401,891 974,757 329,787 299,626 288,296
Provision for income taxes -- 620,000 277,000 -- 106,000 96,500
Net income $ 507,716 $ 600,748 $ 451,554 $ 282,698 $ 169,504 $ 157,543
Additional pro forma
statement of operations
data (unaudited)(1):
Income before provision for $ 507,716 $ 1,220,748 $ 728,554 $ 282,698 -- --
income taxes
Provision for income taxes 191,000 470,000 277,000 109,000 -- --
Pro forma net income $ 316,716 $ 750,748 $ 451,554 $ 173,698 -- --
Shares used in computation of
pro forma net income per share 3,589,642 3,589,642 3,589,642 3,589,642 3,589,642 3,589,642
(2)
Pro forma net income per share $ 0.09 $ 0.21 $ 0.13 $ 0.05 $ 0.05 $ 0.04
=========== =========== =========== =========== =========== ===========
</TABLE>
6
<PAGE>
(1) The unaudited pro forma data has been adjusted for income taxes, which would
have been recorded had the Company been a C corporation for the years ended
December 31, 1999 and 1998.
(2) Pro forma net income per share of common stock has been computed using the
number of shares of common stock that will be outstanding immediately after the
offering.
Balance Sheet Data:
<TABLE>
<CAPTION>
March 31, 2000
Pro Forma as
Actual Adjusted
(Unaudited) (Unaudited)
<S> <C> <C>
Cash $ 561,827 $ 7,736,933
Working capital 709,985 8,353,787
Total assets 5,068,663 11,967,862
Long-term debt- current portion and accrued interest 695,775 227,079
Long-term debt 855,303 174,102
Total Liabilities 4,067,641 2,197,744
Total Stockholders' Equity 1,001,021 9,050,118
</TABLE>
Unless otherwise stated, the information in this prospectus does not give effect
to:
o warrants issuable to the representative of our underwriters or
the exercise of the warrants,
o the representative of the underwriters' over-allotment option
or its exercise,
o up to 700,000 shares of common stock reserved for issuance
upon the exercise of options which may be granted pursuant to
our existing stock option plan, of which options to purchase
582,000 shares of common stock have been granted prior to the
date of this prospectus, and
o up to an aggregate of 260,582 shares of common stock issuable
upon the exercise of warrants outstanding held by our minority
stockholders.
The number of shares of common stock outstanding following the offering
gives effect to the conversion of our remaining outstanding convertible note.
This note for $25,003 converts into 3,906 shares of our common stock upon the
closing of this offering.
7
<PAGE>
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 1999, three clients accounted for approximately 38.1% of our
revenues, giving effect to our acquisition of Pharmaceutical Development
Associates as if it occurred on January 1, 1999. These clients accounted for
approximately 13.3%, 12.9%, and 11.9% of our pro forma revenues in 1999. During
1998, we generated more than 10% of our revenues from each of four clients.
These clients accounted for approximately 17%, 15%, 14% and 12% 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. In the event that we lose one or more major clients, our
business, prospects, financial condition, and results of operations could be
materially and adversely affected.
If we cannot effectively manage our growth, we may not continue to operate at
the same levels of profitability and may actually lose money
We have grown rapidly since 1998. Businesses, which grow rapidly, often
have difficulty managing their growth. We have limited management depth and we
will have to employ experienced executives and key employees capable of
providing the necessary support. We cannot assure you that our management will
be able to manage our growth effectively or successfully. Our failure to meet
these challenges could cause us to lose money.
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 result in operating losses
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 request of the United States Food and Drug Administration.
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.
8
<PAGE>
Fluctuations in our operating results may cause our stock price to fall
Historically, 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 will
continue because of the way our clients budget their research expenditures. Our
varying quarterly results may result in the drop of our common stock price if
investors react to our reporting operating results less favorable than in a
prior quarter.
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 and 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 temporary or permanent shutdown of our operations.
We risk potential liability when conducting clinical trials, which if incurred
could cost us large amounts of money or possibly put us out of business
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 is a damage claim not covered by
insurance, the indemnification agreement is not broad enough or our client is
insolvent, any resulting award against us could result in large losses to us or
possibly put us out of business.
If government regulation of our business is relaxed, it could reduce the need
for our services and reduce revenues
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 and reduce our future revenues.
If the pharmaceutical and biotechnology industries reduce their expenditures,
our future revenues may be reduced
Our business and continued expansion is dependent on the research and
development expenditures of our clients. Any economic downturn or any decrease
in our clients' research and development expenditures may adversely affect us by
reducing our future revenues.
We are controlled by our management, which means they may stop a third party
from acquiring us even if it is in the best interests of our stockholders
After this offering, Dr. Lisa Krinsky and Mr. Arnold Hantman combined
will beneficially own
9
<PAGE>
approximately 43.5% of our outstanding 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.
We may issue preferred stock without the approval of our stockholders, which
could make it more difficult for a third-party to acquire us and could depress
our stock price
In the future, our board of directors may issue one or more series of
preferred stock that has more than one vote per share without a vote of our
stockholders. 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. Additionally, issuance of this preferred stock could block an
acquisition resulting 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. This could cause the market price of our common stock to drop
significantly, even if our business is doing well.
All of our total outstanding shares are restricted from immediate resale, but
642,475 shares may be publicly sold beginning in 90 days. 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 3,589,642 shares of
common stock. This includes the 1,250,000 shares we are selling in this
offering, which may be resold in the public market immediately. The remaining
shares may be publicly sold following expiration of agreements with the
representative of our underwriters as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------ ----------------------------------------------------------
No. of Shares May be Publicly Sold Beginning
------------------------------------------------------------ ----------------------------------------------------------
<S> <C>
642,475 90 days from the date of this prospectus
------------------------------------------------------------ ----------------------------------------------------------
1,697,167 12 months from the date of this prospectus
------------------------------------------------------------ ----------------------------------------------------------
23,667 shares upon exercise of options 90 days from the date of this prospectus
------------------------------------------------------------ ----------------------------------------------------------
497,249 shares upon exercise of options and warrants 12 months from the date of this prospectus
------------------------------------------------------------ ----------------------------------------------------------
</TABLE>
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 analyses and other
information including words such as "seek," "anticipate," "believe," "plan,"
"estimate," "expect," "intend" and other similar expressions are forward looking
statements. These statements are based on our beliefs as well as assumptions we
made using information currently available to us. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events, or otherwise. Because these statements reflect
our current views concerning future events, these statements involve risks,
uncertainties, and assumptions. Actual future results may differ significantly
from the results discussed in the forward-looking statements. We anticipate that
some or all of the results may not occur because of factors which we discuss in
the "Risk Factors" section of this prospectus beginning on page 8.
10
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds from the offering to be approximately
$8,300,000, or $9,605,000 if the representative of the underwriters 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 current best estimates of how we will use the net proceeds
of this offering:
Approximate
Net Proceeds % of Total
---------- ------
Acquisitions .......................................... $2,500,000 30.1 %
Repayment of line of credit ........................... 680,000 8.2 %
Repayment of past-due minority stockholders' notes .... 450,000 5.4 %
Expansion of clinic or relocation to larger facility .. 1,000,000 12.0 %
Purchase of computer hardware
and software and medical equipment .................... 350,000 4.2 %
Expansion of our marketing program
including hiring additional personnel ................. 250,000 3.0 %
Opening a clinical laboratory ........................... 500,000 6.0 %
Website development ................................... 75,000 1.0 %
Working capital ....................................... 2,495,000 30.1 %
---------- -------
Total ................................................. $8,300,000 100.0 %
========== =======
We may use a portion of the net proceeds to acquire additional clinical
research businesses. We are not currently engaged in any negotiations but we do
have an option to buy a Phase I clinical research firm for approximately
$600,000. See "Business-Summary of Our Acquisition of Pharmaceutical Development
Associates' Assets". We are not sure that we will make any future 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 entered into a $1,500,000 line of credit with an institutional
lender on January 31, 2000 and borrowed the amount necessary to purchase the
assets of Pharmaceutical Development Associates on March 29, 2000. The line of
credit is payable on January 31, 2002 and bears interest of 1.75% above the
lender's prime rate with a minimum interest rate of 10% per annum. We also are
paying notes held by our minority stockholders, which bear 10% interest per
annum. These notes are past due.
Based upon our contemplated operations, business plan, and current
economic and industry conditions, the above is our best estimate of the amount,
timing, and allocation of the expenditures of the net proceeds of this offering.
These estimated amounts are subject to reallocation within the listed categories
or to new categories in response to a number of unanticipated events. For
example, if we move to a larger facility, we may need to use an additional
$200,000 for this purpose, although we do not expect to encounter this
additional expense at this time. These may include changes in our business
plans, new government regulations, changing industry conditions, and future
revenues and expenditures.
11
<PAGE>
We believe that the net proceeds from this offering, together with
anticipated revenues from operations, will be sufficient to meet our presently
anticipated working capital and capital expenditure requirements for at least 12
months. Our belief is based on our operating plan, which in turn is based on
assumptions, which may prove to be incorrect. As a result, our financial
resources may not be sufficient to satisfy our capital requirements for this
period. In addition, we may need to raise significant additional funds sooner in
order to support our growth, develop new or enhanced services, respond to
competitive pressures, acquire or invest in complementary or competitive
businesses, or take advantage of unanticipated opportunities. If our financial
resources are insufficient we may require additional financing in order to meet
our plans for expansion. We cannot be sure that this additional financing, if
needed, will be available on acceptable terms or at all. Furthermore, any
additional debt financing, if available, may involve restrictive covenants,
which may limit our operating flexibility with respect to business matters. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our existing stockholders will be reduced, our
stockholders may experience additional dilution in net book value per share, and
such new equity securities may have rights, preferences, or privileges senior to
those of our existing stockholders. If adequate funds are not available on
acceptable terms, we may be unable to develop or enhance our services, take
advantage of future opportunities, repay debt obligations as they become due, or
respond to competitive pressures.
CAPITALIZATION
Our capitalization is presented on an actual basis and on an adjusted basis to
give effect to:
o our repayment of debt in connection with the line of credit;
and
o our repayment of notes payable and accrued interest to the
minority shareholders; and
o our conversion of a minority shareholders note payable into
common stock; and
o our receipt of the net proceeds of this offering.
<TABLE>
<CAPTION>
(unaudited)
March 31, 2000
Actual As Adjusted
------------------------
<S> <C> <C>
Accrued interest on minority shareholders notes payable $ 140,488 $ -0-
Long term debt current portion
Notes payable - minority stockholders 309,089
Current portion of all other long-term debt 242,368 223,249
Long term debt
Line of credit 681,201
All other long-term debt 174,102 174,102
Total debt and accrued interest on minority shareholders notes 1,547,248 397,351
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Stockholders' equity
Preferred stock, par value $.10 per share;
5,000,000 shares authorized, no shares issued or outstanding
Common stock, par value $.001 per share, 20,000,000 shares authorized,
2,335,736 shares issued and outstanding as of March 31, 2000 and
3,589,642 shares issued and outstanding as adjusted 2,336 3,590
Additional paid-in capital 1,576,173 9,624,105
Deficit (577,487) (577,487)
Stockholders' equity 1,001,022 9,050,118
Total capitalization $ 2,548,270 $ 9,447,469
</TABLE>
Except as otherwise stated, the outstanding shares of common stock
referred to in this prospectus 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
582,000 shares;
o 187,500 shares of common stock which may be issued if the
representative of our underwriters exercises its
over-allotment option;
o 4,846 shares issuable upon exercise of warrants we issued to
one minority stockholder, which warrants are exercisable over
a three-year period commencing with the closing of this
offering;
o 255,736 shares of common stock issuable upon exercise of the
warrants we issued to minority stockholders who received our
convertible notes in exchange for their past due old notes. We
offered these warrants to induce the note holders to forbear
from collecting on past-due notes and to accept the
convertible notes. On October 26, 1999, these minority
stockholders converted $1,150,800 of the convertible notes
into common stock at $4.50 per share. The warrants are
exercisable for a twenty month period commencing with the
closing of this offering; and
o 125,000 shares issuable upon exercise of the representative's
warrants.
We will have three classes of warrants outstanding following this
offering:
o minority stockholder warrants to purchase 255,736 shares of
common stock exercisable at $8.00 per share;
o minority stockholder warrants to purchase 4,846 shares at
$9.60 per share; and
o the representative of the underwriters' warrants to purchase
125,000 shares of common stock exercisable at $9.60 per share.
13
<PAGE>
DILUTION
As of March 31, 2000, the net tangible book value of our common stock
was [$800], or approximately $.00 per share. The net tangible book value per
share represents the amount of our tangible assets less our liabilities divided
by 2,335,736, which is the number of shares of our common stock currently
outstanding. The pro forma 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 March 31, 2000.
After selling the 1,250,000 shares of common stock that are offered by
this prospectus at $8.00 per share, deducting the underwriters' discount and the
estimated expenses of this offering, our pro forma net tangible book value would
have been $8,324,203 or $2.32 per share. This change in pro forma net tangible
book value represents an immediate increase in net tangible book value per share
of approximately $2.32 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
$5.68 to investors buying our common stock in this offering.
The following table illustrates the dilution of one share of common
stock as of March 31, 2000:
Per Share of
Common Stock
--------
Initial public offering price per share $ 8.00
Net tangible book value per share at March 31, 2000 $ 0.00
Increase per share attributable to investors in this offering $ 2.32
========
Pro forma net tangible book value per share after this offering $ 2.32(1)
Dilution to public investors in this offering $5.68 (1)
========
(1) If the representative of the underwriters exercises its over-allotment
option to purchase 187,500 additional shares of our common stock, this
will result in an increase in the pro forma net tangible book value per
share of $.23 and dilution to investors in this offering of $5.45 per
share.
The following table summarizes on a pro forma basis as of March 31,
2000 the total consideration and average purchase price paid by our present
stockholders, and by the investors who purchase common stock in this offering,
based on an assumed initial public offering price of $8.00 per share.
<TABLE>
<CAPTION>
Shares of Common
Stock Purchased Total Consideration Average Price
Number Percent Amount Percent Per Share
----------- ------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
Present stockholders 2,335,736 65.1% $ 1,578,509 13.6% $ 0.68
Conversion of convertible note 3,906 0.1% 25,003 0.2% 6.40
New investors 1,250,000 34.8% 10,000,000 86.2% 8.00
----------- ------- ----------- ------- --------
Total 3,589,642 100.0% $11,603,512 100.0% $ 3.23
=========== ======= =========== ======= ========
</TABLE>
14
<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
financial statements and the section of the prospectus entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Kaufman, Rossin & Co., independent certified public accountants, audited our
financial statements for the years ended December 31, 1999, 1998 and 1997 and
financial statements of the Phase III business we acquired for the years ended
December 31, 1999 and 1998. The pro forma financial statements for 1999 and the
quarter ended March 31, 2000 assume we made the acquisition of the business on
January 1, 1999 and January 1, 2000, respectively. See the notes to the pro
forma financial statements beginning at Page P-1 of this prospectus for
information containing the adjustments made in the pro forma financial
statements.
This unaudited pro forma financial information does not purport to
represent what our financial position or results of operations would actually
have been if such transactions in fact occurred on those dates, or to project
our financial position or results of operations for any future date or period.
These unaudited financial statements should be read in conjunction with the
historical financial statements of SFBC International and the business we
acquired from Pharmaceutical Development Associates included in this prospectus.
<TABLE>
<CAPTION>
Statement of Operations Data SFBC International, Inc. (1)
Year Ended December 31,
1997 1998 1999
<S> <C> <C> <C>
Net sales $ 4,261,505 $ 5,869,987 $ 8,309,143
Cost of sales 2,801,192 3,838,923 5,208,231
Gross profit 1,460,313 2,031,064 3,100,912
General and administrative expenses 1,383,356 1,323,764 1,699,021
Income from operations 76,957 707,300 1,401,891
Interest expense 239,707 199,584 181,143
Income (loss) before income taxes (162,750) 507,716 1,220,748
Provision for income taxes -- -- 620,000
Net income (loss) $ (162,750) $ 507,716 $ 600,748
=========== =========== ===========
Pro forma (unaudited):(1)
Income (loss) as reported before provision for
Income taxes
$ (162,750) $ 507,716 $ 1,220,748
Provision for income taxes (61,000) 191,000 470,000
----------- ----------- -----------
Pro forma net income (loss) $ (101,750) $ 316,716 $ 750,748
=========== =========== ===========
Shares used in computation of pro forma net
income (loss) per share(2) 3,589,642 3,589,642 3,589,642
=========== =========== ===========
Pro forma net income (loss) per share(2) $ (0.03) $ 0.09 $ 0.21
=========== =========== ===========
</TABLE>
15
<PAGE>
(1) The unaudited pro forma data has been adjusted for income taxes which would
have been recorded had the Company been a C corporation for the years ended
December 31, 1999, 1998 and 1997.
(2) Pro Forma 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.
<TABLE>
<CAPTION>
Pharmaceutical Development Associates Inc.
Year Ended December 31,
(Unaudited)
Pro Forma
Combined
Year-Ended
December 31,
1998 (3) 1999 (3) 1999 (4)
<S> <C> <C> <C>
Net sales $ 3,151,593 $ 2,200,061 $10,509,204
Cost of Sales 2,674,533 1,995,792 7,204,203
Gross profit 477,060 204,269 3,305,181
General and administrative expenses 482,522 625,072 2,330,424
Income (loss) from operations (5,462) (420,803) 974,757
Interest expense 15,202 18,560 246,203
Income (loss) before income taxes (20,664) (439,363) 728,554
Provision (benefit) for income taxes -- -- 277,000
Net income (loss) ($ 20,664) ($ 439,363) $ 451,554
=========== =========== ===========
</TABLE>
(3) These columns contain the results of operations of the business which was
sold by Pharmaceutical Development Associates.
(4) Includes our operations and the operations of the business we acquired on
March 29, 2000 as if we acquired it on January 1, 1999.
<TABLE>
<CAPTION>
SFBC International, Pharmaceutical Development
Inc. and Subsidiaries Associates, Inc. Pro forma Three
Three Months Ended Eighty-Nine Days Ended Months Ended
March 31, March 29, March 31,
2000 2000 2000 (5)
<S> <C> <C> <C>
Net sales $ 2,303,1116 $ 427,280 $2,730,396
Cost of Sales 1,468,858 283,872 1,752,430
Gross profit 834,238 143,708 977,966
General and administrative expenses 534,632 153,455 689,670
Income (loss) from operations 299,626 (9,747) 288,296
Interest expense 24,122 4,200 34,253
Income (loss) before income taxes 275,504 (13,947) 254,043
Provision (benefit) for income taxes 106,000 -- 96,500
Net income (loss) $ 169,504 ($ 13,947) $ 157,543
=========== ========== ==========
</TABLE>
16
<PAGE>
(5) Includes the operations of the business we acquired on March 29, 2000 as if
we acquired it on January 1, 2000.
Balance Sheet Data
The following balance sheet is presented on a historical basis and on a pro
forma basis, as adjusted to reflect;
o the net proceeds from the sale of 1,250,000 shares of common
stock in this offering at an assumed price of $8.00 per share
after deducting underwriting discounts and estimated offering
expenses;
o our repayment of debt in connection with the line of credit;
o our repayment of notes payable and accrued interest to the
minority shareholders; and
o our conversion of a minority shareholders note payable into
common stock.
<TABLE>
<CAPTION>
(Unaudited)
Quarter Ended March 31, 2000
---------------------------
Pro Forma, as
Actual Adjusted
---------------------------
<S> <C> <C>
Cash $ 561,827 $ 7,736,933
Working capital 709,985 8,353,787
Total assets 5,068,663 11,967,862
Long-term debt current portion and accrued interest 695,775 227,079
Long-term debt 855,303 174,102
Total liabilities 4,067,641 2,917,744
Total stockholders' equity $ 1,001,022 $ 9,050,118
</TABLE>
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 including the section entitled "Risk Factors".
In General
SFBC International was organized in March 1999 for the purpose of
acting as a holding company. In
17
<PAGE>
June 1999, we acquired South Florida Kinetics, our Phase I and II subsidiary. At
the same time we merged with BioClinic Management Company, an inactive Florida
corporation, controlled by Mr. Arnold Hantman, our chief executive officer.
BioClinic Management, organized in 1984, operated our Phase I and II clinic
until 1995. Lisa Krinsky, M.D., our president, organized South Florida Kinetics
in 1995. Following the June 1999 transactions, Dr. Krinsky owned 1,014,487
shares of our common stock, Mr. Hantman owned 507,244 shares and our minority
stockholders owned 558,269 shares. As a result, Dr. Krinsky and Mr. Hantman
controlled SFBC International.
Results of Operations
As permitted by accounting rules, all historical financial information
for SFBC International reflects the financial statements of our Phase I and II
subsidiary, South Florida Kinetics, which we acquired on June 7, 1999. The
following discussion also includes the operations of the Phase III business we
purchased on March 29, 2000.
Quarters Ended March 31, 1999 and 2000. We purchased certain assets of
Pharmaceutical Development Associates on March 29, 2000, which essentially
coincided with the end of the fiscal quarter. The results of operations for the
business acquired consisted of 89 days. Without including its revenues, our net
sales for the quarter ended March 31, 2000 increased to $2,303,116 from
$1,922,991, or an increase of approximately 19.7% over the first quarter of
1999. The net sales from business acquired from Pharmaceutical Development
Associates were $427,280 for the first quarter of 2000.
Our gross profit margins for the quarter ended March 31, 2000 declined
5.5% to 36.2% from the quarter ended March 31, 1999. The primary reason is
attributable to a large increase in fees paid to participants due to a change in
the mix of our contracts. Additionally, one large contract generated $455,000 in
revenues during the quarter but also incurred higher than normal third party
costs. In this case, the clinical trial involved a large number of MRIs, or
magnetic resonance imagings, which required us to outsource that portion of the
study to a third party. We do not believe these factors are indicative of any
trends. We expect our cost of sales percentage will be lower in the second
quarter. The gross profit margin of the business we acquired was 33.6% for the
quarter ended March 31, 2000. Gross profit margins of the business we acquired
vary from year to year depending on the mix of our contracts. Contracts
requiring us to pay for work subcontracted to others generate higher gross
revenues and higher costs. Although in such case gross profit margins are
decreased, actual profit in terms of dollars remains substantially the same.
Our general and administrative expenses increased by $72,060 or 15.3%
during the first quarter of 2000 in comparison to the first quarter of 1999. We
believe that this increase is directly attributable to our increased staff
including that Dr. Gregory B. Holmes joined us in the middle of the quarter in
1999 and another executive was not employed by us at all during the first
quarter of 1999. General and administrative expenses of the business we acquired
were $310,084 for the quarter ended March 31, 2000.
Our interest expense for the quarter ended March 31, 2000 was
approximately 52.1% less than the first quarter of 1999 reflecting our reduced
indebtedness. We did not draw on our line of credit until March 14, 2000. At the
end of the quarter, we owed $681,201 on the line of credit. As of June 30, 2000,
we owed $1,099,000. Depending on our current circumstances, this amount is
subject to frequent fluctuation.
Our income before income taxes for the quarter ended March 31, 2000 was
$275,504, in contrast to $282,698 for the same quarter in 1999. After provision
for income taxes, our net income was $169,504 for the
18
<PAGE>
quarter ended March 31, 2000 in contrast to $282,698 for the first quarter of
1999. The business we acquired reported a loss of $13,947 in the first quarter
of 2000. As we were an S corporation until June 7, 1999, no income tax expense
was recorded for the quarter ended March 31, 1999.
Although our results of operations for the quarter ended June 30, 2000
are not finalized, we believe that the net sales of our historical business,
which does not include the business we acquired, represented a record quarter
and exceeded $4,000,000. Business at our Phase I and II clinic remains strong,
and we anticipate that the third quarter will be greater than our third quarter
in 1999. As for SFBC/Pharmaceutical Development Associates, we expect that in
the third quarter our net sales will exceed $1,000,000.
Years Ended December 31, 1998 and 1999. Without including the Phase III
business we purchased, net sales for 1999 increased by $2,439,156 or
approximately 41.6% over the same period for 1998. While it is difficult to
pinpoint the reasons for our growth beginning in 1998, we believe it is a
combination of an increase in outsourcing by other contract research
organizations and a growing recognition of the high-quality services we provide
to our clients. Net sales of the business we acquired decreased in 1999 to
$2,200,061 from $3,151,593 in 1998, or approximately 30.2%. Its management
believes the primary reason was its lack of working capital, which diverted its
management's energies from operating the business. On a pro forma basis, net
sales in 1999 were $10,509,204.
Without including the results of the business we acquired, our gross
profit margins for the year ended December 31, 1999 increased to 37.3% from
34.6% during the same period in 1998. We believe this increase is a direct
result of the increase in revenues, as the mix of contracts was not
substantially different in 1999 and 1998. Since a portion of our cost of sales
is relatively fixed, as our net sales increase, our gross margins increase. For
example, our rent, management and key operating personnel costs and insurance
costs do not materially vary. General and administrative expenses increased by
$375,257 or approximately 28.3% over 1998. The major increases came from
increased facility expenses of approximately $91,000, professional fees of
approximately $93,000 and payroll and payroll taxes of approximately $114,000.
The gross profit margins for the business we acquired decreased in 1999 to 9.3%
from 15.1% the prior year. This is primarily due to an increase in contracts in
1999 with a higher amount of direct costs. At the same time, the general and
administrative expenses of the business we acquired increased, in large part due
to diversion of its management's resources from generating sales to seeking
working capital due to under capitalization of the business.
Our interest expense decreased by approximately 9.2% during 1999. Our
total indebtedness declined by approximately $324,000 in late May 1999 when our
Phase I and II subsidiary restructured its indebtedness and again in October
1999 when most of our convertible notes converted into common stock. We will
reduce interest expense upon the closing of this offering when we repay the
balance of our debt, including the debt we incurred to purchase the Phase III
business.
Without including the operations of the business we acquired, our
income before income taxes for 1999 was $1,220,748, in contrast to $507,716 for
1998. In 1999, we recorded $620,000 in income tax liability (or over 50%) while
in 1998 we did not have any provision for income taxes because we elected to be
taxed under Subchapter S of the Internal Revenue Code through June 6, 1999. See
note 1 to our financial statements for the years ended December 31, 1998 and
1999 contained in this prospectus beginning at page F-1. Going forward, we
expect our effective income tax rate to be 38%, assuming continued
profitability. This is illustrated in the pro forma consolidated statements of
income contained in our financial statements elsewhere in this prospectus. Our
1999 improved performance reflects the continued growth in our business.
19
<PAGE>
The business we acquired lost $420,803 from operations in 1999, which
represented a sharp increase over its 1998 loss from operations of $5,462. Its
interest expense was not material either year. On a combined basis, our pro
forma net income was $728,554 before taxes and $451,554 after taxes in 1999.
Liquidity and Capital Resources
In 1995 and 1996, our subsidiary, South Florida Kinetics, financed its
operations with borrowings from its former stockholders. As a result of our June
1999 acquisition of South Florida Kinetics, our balance sheet at December 31,
1999 includes $309,089 owed to South Florida Kinetics former stockholders who
are now our minority stockholders. In August 1999, most of our minority
stockholders agreed to accept $1,175,899 of our three-year convertible notes in
exchange for their old notes. Except for approximately $25,000 not converted,
these convertible notes converted into shares of our common stock at $4.50 per
share in October 1999. We also issued warrants to the note holders who converted
entitling them to purchase 255,736 shares of common stock. The warrants are
exercisable at $8.00 per share for a twenty-month period beginning upon the
closing of this offering.
Not including the business we acquired, net cash provided by operating
activities was $547,837 for the year ended December 31, 1999 and $46,536 for the
year ended December 31, 1998. The primary reason for improved cash flow from
operations is the substantial increase in income from operations. Despite South
Florida Kinetics 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
the quarter ended March 31, 2000, net cash provided by operating activities was
$210,098 in contrast to $270,469 in the first quarter of 1999. The decrease is
primarily due to the income taxes paid during the quarter ended March 31, 2000.
As a result of its 1999 loss, the business we recently purchased used
$137,484 in cash from operating activities in 1999. Its primary components
consisted of a loss for the year of $439,363, $145,563 in increased accounts
payable and $129,333 in depreciation and amortization resulting primarily from
its former parent's acquisition of it in 1997, which it was required to
recognize in its financial statements. For the first quarter of 2000, the
business we acquired generated $212,484 of cash from operating activities,
primarily as the result of a substantial increase in advanced billings, or
deposits from clients on new contracts, from December 31, 1999.
Not including the business we recently purchased, net cash used in
financing activities was $258,627 for the year ended December 31, 1999 and
$7,145 for 1998. Net cash used in financing activities came from deferred costs
of this offering in 1999 and previously almost exclusively from payments of
principal on South Florida Kinetics' debt. The Phase III business we acquired
used $21,964 in financing activities in 1999 and $8,564 in 1998. These funds
were used to make capital lease payments.
Not including the business we acquired, for the quarter ended March 31,
2000, net cash provided by financing activities was $355,057. In the first
quarter of 1999, we used $20,664 of cash in financing activities. The major item
in the current quarter consisted of our use of our new line of credit and our
use of our cash resources to repay debt we incurred in May 1999. The business we
acquired used $2,777 in financing activities in the first quarter.
Without our new acquisition, we used net cash in investing activities
of $56,676 for the year ended December 31, 1999 and $118,410 for 1998. We used
this cash to purchase property and equipment and also in
20
<PAGE>
1998 to advance $92,965 to our principal stockholder, Lisa Krinsky, M.D. She has
agreed to repay this loan in August 2002 with annual interest payments of 6%. In
1999, the business we acquired provided $34,430 from investing activities,
primarily as the result of advances from its former parent and affiliates.
During the first quarter of 2000, our historical business used $291,613 in
investing activities, primarily as the result of our using existing cash to make
the acquisition. Primarily because of advances to its parent and affiliates
during the first quarter of 2000, net cash used in investing activities for the
business we acquired was $130,781.
On January 31, 2000, we entered into a revolving line of credit with a
commercial lender which permits us to borrow up to $1,500,000 based upon the
amount of our accounts receivable and meeting other financial covenants. Our
agreement is for a two-year term. In addition to agreed upon loan fees, we pay
the lender an annual rate of interest equal to 1 3/4 % over the prime rate,
subject to a minimum interest rate of 10% per annum. In order to secure payment
on the line of credit, we have granted the lender a first lien on all of our
assets. We initially used $308,500 to repay acquisition debt. Mr. Arnold
Hantman, our chief executive officer, guaranteed this debt. The remaining
$191,500 owed to Mr. Hantman directly is being repaid in monthly installments of
$20,000. As of June 30, 2000, we owed $154,000 to Mr. Hantman. We also used
$450,000 of the line of credit to acquire the assets of Pharmaceutical
Development Associates as of March 29, 2000. As of June 30, 2000, we owed
$1,099,000 on this line of credit.
To date, we have spent $950,000 as required by our acquisition
agreement with the seller of the assets of Pharmaceutical Development
Associates. We spent this sum as follows:
o $272,000 down payment;
o $178,000 paid into escrow;
o $200,000 loaned to an affiliate of the seller payable in March
2001; and
o $300,000 of working capital for our new Phase III subsidiary.
Based upon the closing date balance sheet of the business we
purchased, we believe we are entitled to approximately $150,000 from the amount
in escrow representing an adjustment to the purchase price. At this time, we do
not know if the seller agrees with this computation.
In addition to the cash we paid to acquire the assets of Pharmaceutical
Development Associates, we also issued a $150,000 secured note due in March
2002. We agreed to possibly pay the seller additional sums of up to $1,200,000
based upon the future earnings of our new Phase III subsidiary. If the future
earnings tests are met, these sums will be payable annually beginning in July
2001 over a period of up to three years. Finally, we agreed to pay the seller 5%
of the amount, if any, by which the revenues of our new Phase III subsidiary
from one large client exceed a total of $2,600,000 for 2000 and 2001. This sum
will be payable, if at all, in June 2002.
BUSINESS
In General
We are a contract research organization which conducts clinical trials
and provides related services to pharmaceutical companies, biotechnology
companies, and other contract research organizations. We have conducted
operations for over 16 years. We have focused upon the development and
maintenance of our database of special populations of participants for clinical
trials and believe we are one of the leading United
21
<PAGE>
States companies in recruiting participants for special populations in clinical
trials. We believe that this is particularly important since medications require
extensive testing in many special populations.
On March 29, 2000, we expanded our operations with the acquisition of
the assets of Pharmaceutical Development Associates, a leading contract research
organization focused on managing Phase III clinical trials at multiple sites
involving ophthalmology, dermatology and generic drug testing.
Our History and Structure
We are a Delaware corporation organized in March 1999. Our predecessor,
Bio Clinic Management Company, a Florida corporation, was incorporated in 1984.
Our Phase I and II subsidiary, South Florida Kinetics, Inc. was organized in
1995. On March 29, 2000, we acquired the assets of Pharmaceutical Development
Associates, a contract research organization focused on managing Phase III
clinical trials at multiple sites.
The Drug Development Process
Pharmaceutical and certain other therapeutic products are generally
developed by pharmaceutical and biotechnology companies and are required to
undergo significant clinical experimentation and clinical testing prior to their
marketing or introduction to the general public. Clinical testing, known as
clinical trials, is either conducted internally by pharmaceutical or
biotechnology companies or is conducted on behalf of these companies by contract
research organizations. We are a contract research organization. When clinical
trials are outsourced, clients pay the contract research organization for
conducting the clinical trial, as well as for other related services.
The process of conducting clinical trials is highly regulated by the
United States Food & Drug Administration known as the FDA, as well as by other
governmental and professional bodies. Below we describe the principal framework
in which clinical trials are conducted. We also describe a number of the parties
involved in these trials.
Protocols. Before starting human clinical trials, a drug's sponsor must
submit an investigational new drug application to the FDA. 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 drug;
o what dosage of the drug to give to the participants; and
o what tests to perform on the participants.
Institutional Review Board. An institutional review board is an
independent committee of professionals and layperson, which reviews clinical
research trials involving human beings. The institutional review board does not
report to the FDA, and the FDA does not appoint its members. It is required to
adhere to guidelines issued by the FDA and the FDA audits its records.
An institutional review board must approve all clinical trials. The
institutional review board's role is to protect the rights of the participants
in the clinical trials. It approves the protocols to be used, the advertisements
which the company or contract research organization conducting the trial
proposes to use to recruit participants, and the form of consent which the
participants will be required to sign prior to their
22
<PAGE>
participation in the clinical trials. We can use any institutional review board
we choose. However, when our clients request us to use a specific institutional
review board, we follow their suggestions.
Clinical Trials. The government sets very specific requirements, which
must be followed in order to market a new drug or medical product in the United
States. Drugs and medical products generally require approval by the FDA before
marketing to the public.
Human clinical trials or testing of a potential product are generally
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 FDA.
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.
In the case of Phase I trials conducted by us, 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 Phase I and II subsidiary's
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
of the drug. In the case of Phase II trials conducted by us, 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. Phase III trials are conducted at multiple
locations or sites. Like the other phases, Phase III requires the site to keep
detailed records of data collected and procedures performed. Both of our
subsidiaries are involved in Phase III trials. South Florida Kinetics has
conducted them using its medical staff on a limited basis from its Miami,
Florida clinic. SFBC/Pharmaceutical Development Associates manages Phase III
studies conducted by physicians at multiple sites throughout the United States
and sometimes overseas.
New Drug Approval. Following the completion of Phase III trials,
assuming 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 FDA 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
FDA'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 FDA.
Phase IV. The FDA may require that the sponsor conduct additional
clinical trials following new drug approval and after the drug is available for
sale. The purpose of these trials, known as Phase IV trials, is to
23
<PAGE>
monitor long-term risks and benefits, study different dosage levels or evaluate
safety and effectiveness. In recent years, the FDA has increased its reliance on
these trials. Phase IV trials usually involve thousands of persons who are paid
to participate in the trials; at the same time members of the public can
purchase the drug apart from the Phase IV study. Phase IV trials also may be
initiated by the company sponsoring the new drug to gain broader market value
for an approved drug. For example, large-scale trials may also be 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.
Contract Research Industry
There is a growing market for contract research organizations in part
because the drug development process is characterized in general by high costs
and long development cycles. As a result, 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, thereby reducing their financial uncertainties and the
number of full-time highly specialized clinical personnel they must employ.
Further, as certain contract research organizations have increasingly focused
upon the development of special participant populations, these firms are able to
more efficiently and more rapidly screen potential participants who are the
subjects for the clinical trials.
As a result of the these efficiencies, pharmaceutical and biotechnology
companies, as well as contract research organizations with general, rather than
specialized, expertise, are increasingly turning to contract research
organizations, such as us, that have such expertise.
As a result of the multiple steps and complexities involved in the drug
development process described above, many companies have outsourced different
aspects of the process to a variety of vendors. This has resulted in a
fragmented market that often requires the pharmaceutical or biotechnology
company to contract with a number of different organizations providing
differing, and at times duplicative, services. We believe that few of the
existing contract research organizations provide the range of services required
to assist their pharmaceutical or biotechnology clients in a coordinated fashion
through the drug development process. Accordingly, we believe that these
companies are increasingly searching for contract research organizations that
not only have expertise in identifying and recruiting special clinical trial
participant populations and, therefore, reduce the time and expense associated
with the drug development process, but that also offer additional services, such
as protocol design, data management, report writing, institutional review board
services, and electronic data transfering.
We operate in a market segment that has seen steady growth over the
last five years as pharmaceutical companies research and development budgets
have almost doubled. Accordingly to a September 1999 article, the market for all
contract research organizations is expected to be $5.5 billion this year. We
operate in a niche part of this market. Further, industry sources have reported
that pharmaceutical companies increased their utilization of contract research
organizations from 28% in 1993 to 60% in 1997.
Summary of Our Acquisition of the Assets of Pharmaceutical Development
Associates
Under the terms of our agreement with the seller, we purchased
substantially all of the assets of
24
<PAGE>
Pharmaceutical Development Associates for $600,000 subject to adjustment and
possible additional sums, depending upon the future profitability of our new
subsidiary and the increase in sales from one of its large customers. We also
assumed liabilities of the seller, but did not assume the seller's indebtedness
or employee liability. However, because all of the assets of the seller have
been pledged to secure its indebtedness, all of the payments described below
have and will be made to the creditors of the seller, with the exception of the
escrow payment.
The Purchase Price. The $600,000 consists of:
o $272,000 in cash;
o $178,000 paid into escrow; and
o A $150,000 secured note, which is due in March 2002.
We expect to receive approximately $150,000 being held in escrow
representing the amount by which the operating liabilities exceeded the
operating assets. The seller will receive the balance. We do not know if the
seller will accept or challenge the closing date balance sheet.
We also contributed $300,000 in working capital to SFBC/Pharmaceutical
Development Associates. We may not repay this sum to ourselves for up to three
years. Additionally, until that time we may only pay to ourselves one-half of
the after-tax income of our new Phase III subsidiary; the balance must be
retained by the subsidiary.
The Possible Additional Purchase Price. Depending upon the net income
of our new Phase III subsidiary, we may pay the seller additional money for the
assets we purchased. This additional sum cannot exceed $600,000 for the 12-month
period beginning April 1, 2000 and a total of $1,200,000 for the three-year
period beginning April 1, 2000. If the agreed upon future earnings tests are
met, these payments are due in July of each year beginning in 2001. Until April
1, 2003, we agreed to charge our new Phase III subsidiary only $12,000 per year
for management services and to limit its share of annual auditing expenses to
$20,000.
Additionally, if the net revenues of our new Phase III subsidiary from
one large client exceed a total of approximately $ 2,600,000 in 2000 and 2001
combined, we will pay the seller 5% of the excess amount. The payment, if any,
will be due in April 1, 2002. Because of this possible additional consideration,
we have also agreed that ophthalmology, dermatology and generic bioequivalence
trials, which require the management of multiple sites, will only be conducted
through our new Phase III subsidiary and not through South Florida Kinetics
until January 1, 2003.
The Marketing Agreement. As a condition of our purchase of the assets,
our Phase III subsidiary entered into a marketing agreement with LeeCoast
Research Centers, Inc. under which SFBC/Pharmaceutical Development Associates is
required to market clinical trials for specific clients, including those of
generic drugs for Lee Coast Research. Under the marketing agreement,
SFBC/Pharmaceutical Development Associates will receive commissions from
LeeCoast Research. Although our Phase I and II subsidiary, South Florida
Kinetics, conducts similar clinical trials, it is free to compete for these
studies because it, unlike our Phase III subsidiary, is not bound by this
marketing agreement. The agreement expires on or before March 31, 2003. Either
party may cancel the agreement on 180 days notice, and we may cancel the
agreement on 30 days notice if LeeCoast Research management or a competitor of
ours buys LeeCoast Research.
LeeCoast Research operates a Phase I clinical trials facility in Fort
Myers, Florida that specializes in
25
<PAGE>
clinical trials of generic drugs. LeeCoast Research is owned by the company,
which sold us the assets of Pharmaceutical Development Associates.
Option to Purchase LeeCoast Research. We also acquired an option to
purchase the assets and assume the liabilities of LeeCoast Research. The
essential terms are:
o The purchase price is $600,000, plus the amount by which
LeeCoast Research's operating assets exceed its operating
liabilities. If the liabilities exceed the assets, we will get
a credit.
o The option is exercisable over a twelve-month period beginning
the earlier of 30 days from the date of the closing of the
offering or September 29, 2000.
o If we exercise the option, we must pay LeeCoast Research
one-half of the exercise price at closing and issue it a 24
month 8% note for the balance, payable monthly.
o In order to assist us in determining whether to exercise the
option, LeeCoast Research is required to send us monthly
financial reports and permit us to review its books and
records.
o Pending our exercise of the option, LeeCoast Research is free
to look for another buyer, subject to our right to match any
offer from a third party.
Other Agreements. Pending exercise of our option to purchase LeeCoast
Research, we lent $200,000 to it secured by a first lien on its accounts
receivables. LeeCoast Research issued us its 8% secured note due in March 2001.
If we are not paid, we may credit the unpaid balance against the contingent
purchase price due the seller based upon our Phase III subsidiary's future
earnings.
As a condition of our purchase of the assets, we entered into a
long-term employment agreement with Mr. D. Scott Davis who was the president of
the seller. See "Management - Management Compensation" at page 36 of this
prospectus for a summary of our agreement with Mr. Davis.
Our new Phase III subsidiary entered into an exclusive a two-year
consulting agreement with a former employee of the seller who is engaged
brokering clinical trial studies. The consultant's duties relate to obtaining
new contracts for our Phase III subsidiary, South Florida Kinetics and Lee Coast
Research.
Our new Phase III business has recently expanded overseas by obtaining
contracts to manage studies which it intends to place in Mexico and South
Africa.
Options to Deliver our Common Stock - Registration Rights. If our new
Phase III subsidiary meets its earnings targets and we are required to pay
additional consideration as described above, we have the option to use shares of
our common stock, valued at then current fair market value, rather than cash. If
we exercise our option to purchase LeeCoast Research, the seller has the option
to receive shares of our common stock, valued at then current fair market value,
rather than cash.
In either event, if we issue our common stock we are required to
register the common stock at our expense each time we deliver it. Pending each
registration of our common stock, we are required to place in escrow an amount
of cash equal to the fair market value of our common stock. The recipients of
our common stock will have the option to cancel the shares and take cash if the
price is below the price at the time of issuance.
26
<PAGE>
Our Strategies
Our objective is to become the provider of choice of turnkey contract
research and related services and to acquire complementary businesses. Our
strategy to achieve this objective includes the following key elements:
Continue building our proprietary database of special participant
populations. As we believe that a key determinant of the efficiency of the
services provided by contract research organizations is the ability to staff the
trial with individuals satisfying the trial's protocol, we intend to continue to
focus a substantial portion of our efforts upon the development and expansion of
our proprietary database of special population participants. "Special
population" refers to the need of our clients in Phase I and II clinical trials
to test drugs on participants who have the specific conditions specified in the
protocol. The special population and therapeutic areas in which we specialize in
generally are:
o cardiac o diabetics
o geriatrics o kidney disease
o pediatrics o liver diseases
o post-menopausal females o HIV positive
We intend to expand our proprietary database by continuing to network with our
existing participants, increasing our presence with support groups and
establishing relationships with additional doctors.
Continue expanding the range of services offered to our clients through
acquisitions and strategic alliances. We intend to supplement our internal
growth through the expansion of our geographic presence throughout the United
States by acquiring or creating strategic alliances with other clinical research
organizations and increasing our clinical research capabilities. Until our
recent acquisition of our Phase III subsidiary, we have conducted some Phase III
and IV clinical trials primarily at our facility. With regard to private medical
practices that specialize in Phase III and IV testing, we intend to acquire only
the clinical research portion of a practice, which is not involved in routine
ill patient treatment, rather than the medical care portion of the practice.
We are also planning to start or acquire an onsite clinical laboratory
as we currently rely on outside clinical laboratories to test our participants'
blood and urine. During the year ending December 31, 2000, we expect to pay over
$600,000 to outside clinical laboratories. We believe the ability to provide
these services will increase the efficiency of our services to our clients, as
well as increase our gross margins. As the laboratory will also provide services
for Phase III and IV trials, we believe it will be a source of additional
revenues, and will assist us in expanding our Phase III and IV business by
fostering relationships with doctors who conduct Phase III and IV trials, but do
not want the paperwork burdens. We estimate the cost of starting a clinical
laboratory to be $500,000.
Continue recruiting and training our employees. We believe that our
employees have been, and will continue to be a key to our success. Many of our
employees have been working for us for more than 10 years. We maintain an
in-house training program, and we regularly schedule in-house programs featuring
outside instructors to upgrade our employees' clinical and technical skills. We
continue our efforts in maintaining the employee satisfaction that in the past
has kept our employee turnover rate low. The satisfaction of our
27
<PAGE>
employees is a resource we believe we can draw on to find and hire additional
qualified employees.
Clients
The mix of our clients and revenues generated from individual clients
varies from year to year. On a long-term basis, we are not dependent on any one
or several customers. Although each year we have some clients who make up a
large percentage of our revenue, the identity of these clients may differ each
year. We believe that this changing mix 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 of
operations.
After combining our revenues with those of the Phase III business we
recently acquired, three clients each accounted for more than 10% of our
revenues in 1998 and 1999. Only one of these companies was a 10% customer in
both 1998 and 1999. In 1997, which does not include the results of the Phase III
business we recently acquired, three clients accounted for approximately 52% of
our revenues.
This change from year-to-year is best illustrated by the following
table with an "x" meaning that a client accounted for 10% of the revenues. We
have not identified these clients for competitive reasons.
Year Client A Client B Client C
1997 x x
1998 x x
1999 x x
We also perform clinical trial services for leading contract research
organizations. From 1999 through 2000, we have performed clinical trials on a
subcontract basis for Quintiles Transnational, PPD, Inc. and Phoenix
International.
Business Development and Marketing
Dr. Lisa Krinsky, Dr. Gregory B. Holmes and Mr. D. Scott Davis head our
marketing team. They rely upon their extensive experience and the relationships
they have developed to attract new contracts. We will continue to build our name
recognition within the pharmaceutical and biotechnology industries as a provider
of high quality services 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.
We have begun implementing this strategy. Dr. Holmes, our executive
vice president of clinical operations, acted as chairperson for In/Sites(TM)
2000, the 6th annual national forum sponsored by the Institute for Institutional
Research, Pharmaceutical Division in January 2000. In/Sites(TM)2000, a three-day
professional forum, featured presentations and case studies from many of the
largest pharmaceutical and biotechnology companies and other participants in the
clinical research process. Additionally, in April 2000, Dr. Holmes was one of
the workshop instructors of Partnerships 2000: The Ninth Annual Partnerships
with CROs & Other Outsourcing Providers, a three day trade show featuring
representatives from major pharmaceutical and biotechnology companies, contract
research organizations and others. This conference was also sponsored by the
Institute for International Research. As part of our acquisition of the assets
of Pharmaceutical Development Associates, it entered into the long-term
consulting agreement providing for marketing services as described above.
28
<PAGE>
Our Competitors
The clinical research industry is highly fragmented and is comprised 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 rapidly fill a
client's need for particular types of clinical trial participants, thereby
allowing our clients to complete the research necessary in Phases I and II to
quickly move on to further development of a new drug. Our new Phase III
subsidiary concentrates its clinical trials management services on the limited
niche areas of ophthalmology, dermatology and generic drugs.
However, many of our competitors are substantially larger and have
substantially greater financial, human, and other resources than we do. Once
that decision to outsource research is made, not only do we compete with other
private companies, but to a lesser extent in Phase III studies we also compete
with universities and teaching hospitals. Generally, contract research
organizations principally compete on the basis of following factors:
o their ability to recruit doctors and special population
participants for clinical trials,
o experience,
o medical and scientific expertise in specific therapeutic areas
in which clients are interested,
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,
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 and biotechnology industries as well as
the trend by the pharmaceutical and biotechnology industries 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 FDA.
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
29
<PAGE>
is always a risk that a client may not have the financial ability to fulfill its
obligation to indemnify us.
We also maintain liability insurance to further protect us and staff
doctors against these risks. Additional insurance beyond our current coverage
might not be available to us on commercially reasonable terms or at all. All
clinical trial participants sign an informed consent form approved by an
institutional review board. As required by the FDA, we explain the risks of a
trial to our participants. We believe the informed consents reduce our risk of
liability.
Our business, prospects, financial condition, and results of operations
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 are governed by extensive
FDA regulations. Our clients are responsible for selecting qualified contract
research organizations, providing those sites with protocols and any other
necessary information, monitoring the testing, and reporting any changes or
modification of the clinical trials to the FDA and reporting any serious and
unexpected adverse reaction to the new drug to the FDA. When we perform any of
these functions on behalf of our clients, we must comply with these
requirements.
The purpose of the FDA regulations is to assure that the products are
safe and effective before they are 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 FDA requires
the test results submitted to it are based on studies that are conducted
according to these regulations. The regulations cover subject matters including
the following:
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
30
<PAGE>
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.
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 the United States Congress will again address health care reform.
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 affect this reform might have on our future
business.
Our Employees
We currently have approximately 67 full-time employees, four of which
are executive officers. We also have approximately 39 persons we employ on an
as-needed basis. Our Phase I and II subsidiary employs an on-site medical
director, an associate medical director, a nurse practitioner, 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
and review of our standard operating procedure manual. In the case of our Phase
I and II clinical personnel, our employees training also includes CPR, seminars
in updated and new medical techniques and information, and regular performance
reviews.
None of our employees are represented by a union or other collective
bargaining organization. We consider our relationships with our employees and
independent contractors to be satisfactory and have historically experienced low
employee turnover.
Our Facility
Our Phase I and II subsidiary operates a 250 bed inpatient/outpatient
facility in Miami, Florida. We lease approximately 30,000 square feet at this
location on a month-to-month basis for our executive offices and the South
Florida Kinetics' clinic. The metropolitan Miami region provides us with access
to over 5,000,000 people from which we can recruit our testing participants.
We are currently exploring various options, which will provide us with
additional space for the South Florida Kinetics' clinic. These options include
the lease or purchase of property elsewhere in the greater Miami area, leasing
additional space at our current location, or purchasing the building. Our
current landlord has agreed to give us 12 months notice before we must vacate
the premises. Because of the size of the greater Miami area, we believe we could
obtain suitable space if we are required to move if our current lease
terminates.
Our Phase I and II clinic is required to utilize extensive equipment
and impose extensive controls upon our test subjects in order to conduct our
operations properly. Our medical technology and equipment includes cardiac
telemetry, computerized electrocardiograms, holter monitors, intravenous
infusion pumps, exercise
31
<PAGE>
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.
Our new Phase III subsidiary leases 3,988 square feet located in
Charlotte, North Carolina on a month-to-month basis. We expect that we will be
signing a lease for this premises, as well as additional space at the same
location, in the near future. In the event our subsidiary is required to move,
it believes it can obtain a new lease without a material increase in rent and
related costs.
Legal Proceedings
We are not a party to any material legal proceedings.
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information concerning our
directors and executive officers.
Name Age Position(s)
---- --- -----------
Lisa Krinsky, M.D. 36 President, chief operating officer, secretary,
and chairman of the board of directors
Arnold Hantman, C.P.A. 64 Chief executive officer, chief financial and
chief accounting officer, treasurer and
director
Dr. Gregory B. Holmes 43 Executive vice president of clinical
operations
D. Scott Davis 52 President of SFBC/Pharmaceutical Development
Associates
Jack Levine, C.P.A. 48 Director
Dr. Leonard I. Weinstein 54 Director
Lisa Krinsky, M.D. founded South Florida Kinetics in 1995. Since that
time, Dr. Krinsky has been its 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. Dr. Krinsky is a director of our new Phase III
subsidiary. Prior to 1995, she worked in various research positions with Baxter
HealthCare Corporation and us. Dr. Krinsky has 14 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 Phase I and II subsidiary.
Arnold Hantman, C.P.A. is one of our founders. Mr. Hantman has been our
chief executive officer since 1993 and has been a director since 1984. He became
our chief financial and accounting officer in June 1999. 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 and a Juris Doctor degree from the University of Miami
School of Law. Mr. Hantman is a licensed attorney in Florida and a life 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.
32
<PAGE>
Dr. Gregory B. Holmes became executive vice president of clinical
operations of South Florida Kinetics in February 1999 and SFBC International in
June 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, Pharmaco International in Austin, Texas, employed
Dr. Holmes. 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. Mr. Levine's firm
performs accounting services for us. We believe the fees we are paying it are
competitive with what we would pay unaffiliated accountants. 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 South Florida Kinetics 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 Medical Services, Inc. Dr. Weinstein received a doctorate of public
administration in health care administration from Nova Southeastern University.
D. Scott Davis became president of our new Phase III subsidiary,
SFBC/Pharmaceutical Development Associates, in March 2000 when we acquired the
assets of Pharmaceutical Development Associates. From April 1988 through March
2000, Mr. Davis served as president of Pharmaceutical Development Associates.
Mr. Davis received a Bachelor of Science degree in psychology and completed all
course work and qualifying examinations for his masters degree in microbiology
from East Tennessee State University.
Key Employees
Mr. Robert P. Grandy is vice president of clinical research for South
Florida Kinetics where he performs part-time consulting services. Mr. Grandy
joined us in April 1998. Prior to that time from January 1976 through March
1998, Mr. Grandy was the Director of Clinical Research for Purdue Frederick
Pharmaceutical Company, a pharmaceutical manufacturer located in Connecticut.
33
<PAGE>
Maria E. Quant is vice president of regulatory affairs of our Phase I
and II subsidiary. She has worked for us since 1989. She is a certified
English-Spanish translator.
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 are independent
directors. The audit committee reviews the scope of our audit, recommends to the
board the engagement of our independent auditors, reviews the financial
statements and reviews any transactions between us and any of our officers,
directors or other related parties. Our compensation committee evaluates our
compensation policies, approves executive compensation and executive employment
contracts and administers our stock option plan. Mr. Hantman, Mr. Levine and Dr.
Weinstein are members of the audit committee. Dr. Krinsky, Dr. Weinstein and Mr.
Levine are members of the compensation committee. In order to comply with the
guidelines of The Nasdaq Stock Market, we intend to add a third independent
director by December 2000 who will replace Mr. Hantman on the audit committee.
Compensation of Our Directors
We pay our independent directors a fee of $500 for each board and
committee meeting, which they attend. We have 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 vest in equal amounts 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.
Limitation of Our Director's Liability
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 any breach of the director's duty of loyalty to us or our
stockholders,
o acts or omission not in good faith or that involve intentional
misconduct or a knowing violation of law,
o payments of dividends or approval of stock repurchases or
redemptions that are prohibited by Delaware law, or
o 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.
Management Compensation
Set forth below is information with respect to compensation paid by us
for 1999, 1998, and 1997 to our chief executive officer, chief operating officer
and executive vice president of clinical operations who are our only executive
officers whose compensation exceeded $100,000 during 1999.
34
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
(a) (b) (c) (i)
All Other
Name and Principal Position Year Salary($) Compensation ($)
--------------------------- ---- --------- ----------------
<S> <C> <C> <C>
Arnold Hantman, 1999 $120,000 0
chief executive officer 1998 $120,000 0
1997 $120,000 0
Lisa Krinsky, M.D., 1999 $250,000 0
president and chief operating officer 1998 $250,000 0
1997 $200,000 0
Dr. Gregory B. Holmes, 1999 $120,000 (1) 0
executive vice president of
clinical operations
</TABLE>
(1) Commenced in February 1999.
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. Mr. Hantman receives an annual salary of $150,000 effective
January 1, 2000. Although they each waived their bonuses for 1999, Dr. Krinsky
is to receive an annual bonus of 5% of net pre-tax income and Mr. Hantman is to
receive an annual bonus of 3% of net pre-tax income pursuant to the agreements,
if net pre-tax income reaches specified levels as follows:
--------------------------------------------------------------------------------
Year 1999 2000 2001 2002 2003
Net pre-tax income $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000
Additionally, Dr. Krinsky receives an automobile allowance of $1,334
per month and Mr. Hantman receives a monthly automobile allowance of $700 per
month. We pay the cost of automobile insurance for Dr. Krinsky and Mr. Hantman,
which is $1,800 and $1,600 respectively on an annual basis. We also pay the
premiums for a life and a disability policy for Dr. Krinsky. Our monthly cost
for this insurance is $330. Dr. Krinsky and Mr. Hantman may terminate their
employment agreements if:
o their duties are substantially modified;
o we materially breach the terms of their employment agreements;
or
o 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 Phase I and II 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.
35
<PAGE>
Effective March 29, 2000, we entered into a three-year employment
agreement with Mr. D. Scott Davis, president of our Phase III subsidiary. Mr.
Davis receives a salary of $102,000 the first year and $112,000 per year for the
remaining two years. He also is eligible to receive two annual bonuses. One
bonus is equal to 7 1/2 % of the adjusted net income of our Phase III subsidiary
in excess of $133,000 each calendar year. It is determined in the same manner as
the contingent payment we may make to the seller of the Phase III business. The
second bonus is equal to 15% of the amount of the contingent payment, which we
may make to the seller of the assets of Pharmaceutical Development Associates
based upon our Phase III subsidiary's future earnings. We also pay disability
and life insurance payments for Mr. Davis and pay interest on a loan for him.
Our annual cost of these benefits is approximately $4,000.
Stock Option Plan
In June 1999, we adopted our 1999 stock option plan. We may issue
incentive stock options, as defined in the Internal Revenue Code of 1986, or
non-qualified stock options to purchase up to 700,000 shares of common stock
under the plan. We have issued stock options to purchase an aggregate of 582,000
shares of common stock to 34 employees, two non-employee directors and two
independent contractors including the following executive officers:
The following table contains information concerning grants of options
to our named executive officers during the last fiscal year.
<TABLE>
<CAPTION>
Individual Grants
(a) (b) (c) (d) (e)
Number of % of Total Options
Securities Underlying Granted to Employees in Exercise or Base Expiration
Name Options/SARs Granted Last Fiscal Year Price ($/Share) Date
---- -------- ---------------- --------------- ----
<S> <C> <C> <C> <C>
Dr. Lisa Krinsky 100,000 20.7% $ 6.60 08/03/2004
Dr. Gregory B. Holmes 160,000 33.2% $ 1.25 03/15/2009
Arnold Hantman 50,000 10.4% $ 6.60 08/03/2004
D. Scott Davis 100,000 20.7% $ 8.00 08/03/2009
</TABLE>
The table below shows information with respect to the exercise of options to
purchase our common stock by each of our named executive officers listed in the
option grants table shown above, as of December 31, 1999, and the unexercised
options held and the value at that date.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
(a) (d) (e)
Number of Securities Underlying Value of Unexercised In-The-
Unexercised Options/SARs Money Options/ SARs At
At FY-End FY-End ($) (1)
Name Exercisable / Unexercisable Exercisable / Unexercisable
<S> <C> <C> <C> <C>
Dr. Lisa Krinsky 0 100,000 $ -- $140,000
Dr. Gregory B. Holmes 40,000 120,000 $270,000 $810,000
Arnold Hantman 0 50,000 $ -- $ 70,000
</TABLE>
36
<PAGE>
(1) Based on the difference between the initial public offering price of $8.00
and the option exercise price.
Of the options we granted to Dr. Holmes, 80,000 options are currently
vested and the balance vest in 40,000 share increments on March 15th of each
year in 2001 and 2002. These options replaced the February 1999 grant to Dr.
Holmes by our Phase I and II subsidiary of the same number of options on the
same terms and conditions.
As part of his employment agreement with SFBC/Pharmaceutical
Development Associates, we granted Mr. D. Scott Davis 100,000 stock options
exercisable over a two-year period at the greater of $6.00 per share or the
price of this offering. Of these options, 33,334 vested immediately and the
balance vest in increments of 33,333, subject to continued employment commencing
March 29, 2001.
Except for Dr. Holmes and Mr. Davis, all options vest in increments of
one-sixth, on June 30 and December 31 each year, commencing on June 30, 2000,
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 10 years from the
day of grant, except that the options held by Dr. Krinsky and Mr. Hantman expire
five years from the date of grant. However 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 connection with our recapitalization and the cancellation of
approximately $824,000 of past-due secured notes, Mr. Arnold Hantman, our chief
executive officer, received approximately 43% of our outstanding common shares.
In addition, we issued $500,000 of notes payable with an 8% rate of interest.
Mr. Arnold Hantman guaranteed payment of the notes. Of this debt, Mr. Hantman
holds a note of $191,500. On January 31, 2000, we entered into a loan agreement
with Heller Healthcare Finance, Inc. Under the terms of this loan agreement, we
paid all of the May 1999 notes except for the note held by Mr. Hantman. We began
paying Mr. Hantman monthly installments of $20,000 per month as provided in his
note effective in April 2000. The last installment will be paid in February
2001.
Lisa Krinsky, M.D. organized South Florida Kinetics and is considered
to be our founder together with Mr. Hantman. As part of the acquisition of South
Florida Kinetics, our Phase I and II subsidiary, Dr. Krinsky received 1,014,487
shares of our common stock in exchange for her shares of the common stock of
South Florida Kinetics. 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 currently do not charge Lam rent. Mr. Hantman and
Dr. Krinsky together own approximately 14% of Lam's common stock.
37
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides information as of July 10, 2000 and as
adjusted to give effect to the sale of 1,250,000 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.
Percentage of
Common Stock
Number of Shares of
Common Stock
Name and Address Beneficially Prior to After
of Beneficial Owner Owned (1) Offering Offering
Lisa Krinsky, M.D (2)
11190 Biscayne Boulevard 1,047,821 44.2% 28.9%
Miami, FL 33181
Arnold Hantman (3)
11190 Biscayne Boulevard 523,912 22.3% 14.5%
Miami, FL 33181
Dr. Gregory Holmes (4)
11190 Biscayne Boulevard 81,000 3.4% 2.2%
Miami, FL 33181
Jack Levine, C.P.A. (5)
16855 N.E. 2nd Avenue 5,000 * *
Miami Beach, FL 33162
Dr. Leonard J. Weinstein (6)
3423 N. 31st Terrace 6,100 * *
Hollywood, FL 33021
D. Scott Davis (5)
8701 Mallard Creek Road 33,334 1.4% *
Charlotte, NC 28262
All executive officers and directors 1,607,165 67.6% 43.7%
as a group (six persons)
(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) Includes 33,334 shares of common stock issuable upon exercise of vested
options.
(3) Includes 16,668 shares of common stock issuable upon exercise of vested
options.
38
<PAGE>
(4) Includes 40,000 shares of common stock issuable upon exercise of vested
options.
(5) Represents shares issuable upon exercise of vested options.
(6) Includes 5,000 shares issuable upon exercise of vested options.
* Less than 1%
DESCRIPTION OF CAPITAL STOCK
The following is a summary of the material terms of our capital stock.
It is subject 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
We currently have 60 common stockholders. 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 did not pay any
dividends for the years ended December 31, 1997, 1998 and 1999.
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.
We have no plans, agreements or understandings with respect to the issuance of
any shares of preferred stock.
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.
Preferred stock may be issued in the future in connection with
acquisitions, financings, or other matters
39
<PAGE>
as the board of directors deems appropriate. The effect of this preferred stock
is that our board of directors alone may be able to authorize the issuance of
preferred stock which could have the effect of delaying, deferring, or
preventing a change in control of SFBC without further action by our
stockholders, and may adversely affect the voting and other rights of the
holders of the common stock. The issuance of preferred stock with voting and
conversion rights may also adversely affect the voting power of the holders of
common stock, including the loss of voting control to others.
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.
40
<PAGE>
Transfer Agent
Continental Stock Transfer & Trust Co., New York, New York, is the
transfer agent for our common stock.
Nasdaq National Market Listing
We have applied for listing of our common stock on the Nasdaq National
Market under the symbol SFBX. 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
All stock sold in this offering will be freely tradable without any
restrictions. 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 3,589,642 shares of common stock outstanding, assuming that the
representative of the underwriters does not exercise its over-allotment option
to sell up to an additional 187,500 shares.
None of our shares of common stock outstanding prior to this offering
or issuable upon exercise of options or warrants may be publicly sold for 90
days following the date of this prospectus. Following the expiration of these
periods, the shares of common stock may be publicly sold under Rule 144 under
the Securities Act of 1933.
Beginning on the dates specified below, the following shares of common
stock may be publicly sold under Rule 144 under the Securities Act of 1933:
<TABLE>
<CAPTION>
------------------------------------------------------------- ---------------------------------------------------------
Number of Shares Number of Days/Months
from the Date of this Prospectus
------------------------------------------------------------- ---------------------------------------------------------
<S> <C>
642,475 90 days
shares of outstanding common stock
------------------------------------------------------------- ---------------------------------------------------------
23,667 90 days
shares issuable upon exercise of options
------------------------------------------------------------- ---------------------------------------------------------
1,697,167 12 months
shares of outstanding common stock
------------------------------------------------------------- ---------------------------------------------------------
497,249 12 months
shares issuable upon exercise of options and warrants (1)
------------------------------------------------------------- ---------------------------------------------------------
</TABLE>
(1) Assumes exercise of 260,582 warrants as of the date of this prospectus,
which starts the required one-year holding period,
41
<PAGE>
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.
Any shares of common stock issued to our minority stockholders upon
exercise of 260,582 warrants owned by them cannot be sold until the later of 12
months from the date of this prospectus or 12 months from the date of exercise
12 month period has expired. In addition, at the time of the closing of this
offering, we will issue to the representative of our underwriters warrants to
purchase 125,000 shares of common stock exercisable at $9.60 per share
commencing one year following the date of this prospectus. The warrants to be
issued to the representative will contain certain provisions requiring us to
register the shares of common stock in the future once they become exercisable.
PLAN OF DISTRIBUTION
Our underwriters, for whom HD Brous & Co., Inc. is acting as the
representative, have agreed, severally, on the terms and subject to the
conditions of the underwriting agreement, to purchase from us, and we have
agreed to sell to the underwriters, 1,250,000 shares as follows:
HD Brous & Co., Inc. .............................................
---------
1,250,000
The underwriters are committed severally to purchase and pay for all of
the shares on a "firm commitment" basis if they purchase any shares.
The underwriters have advised us that they propose to offer the shares
to the public at the initial public offering price set forth on the cover page
of this prospectus. The underwriters may allow to certain dealers, who are
members of the National Association of Securities Dealers, Inc., concessions not
exceeding $ per share. After the offering, the offering price and the
concession may be changed.
We have granted an option to the representative of the underwriters,
exercisable during the 45-day period from the date of this prospectus, to
purchase up to a maximum of 187,500 additional shares at the public offering
price set forth on the cover page of this prospectus, less the underwriting
discount, for the sole purpose of covering over-allotments of the shares.
We have agreed to pay to representative a non-accountable expense
allowance of 3% of the aggregate public offering price of all shares sold,
including any shares sold pursuant to the underwriters' over-allotment option.
We have paid the representative $10,000 to date.
The underwriting agreement also provides for us to pay the
representative a fee if the representative
42
<PAGE>
introduces us to a party, which enters into a business combination or other
business transaction with us.
All of our officers, directors and 5% stockholders have agreed not to
sell (including any short sale or sale against the box) publicly or otherwise
transfer, subject to certain exceptions for transfers to related parties, any of
their securities during the 12-month period commencing with the date of this
prospectus, without the written consent of the representative. A sale against
the box is similar to a short sale, except that the seller owns the shares but
delivers borrowed shares to effect the sale. We have also agreed that, during
the 12-month period commencing with the date of this prospectus, we will not,
without the consent of the representative, publicly sell or register any
securities under the Securities Act, not including shares issuable under our
present stock option plans.
The underwriting agreement provides for reciprocal indemnification
between the underwriters and us against certain liabilities in connection with
the registration statement, including liabilities under the Securities Act of
1933.
In connection with this offering, we have agreed to sell to the
representative, for nominal consideration, warrants to purchase from us up to
125,000 shares at an exercise price equal to 120% of the offering price of the
shares being sold in this offering. The representative's warrants are
exercisable for a five-year period commencing on the date of this prospectus,
except that during the one-year period commencing on the date of this
prospectus, neither the warrants nor any of the shares issuable upon exercise of
the warrants may be sold, transferred, assigned or hypothecated, other than to
the officers or shareholders of the representative or to other underwriters or
selling group members or their officers, partners or members, all of whom will
be bound by these restrictions. The warrants provide the holders with cashless
exercise rights, which enable them to receive any appreciation in the value of
the underlying shares without making a cash investment. The holders of the
warrants have no voting, dividend or other rights as our stockholders with
respect to shares issuable upon exercise of the warrants until they are
exercised. The holders of the warrants have been given the opportunity to profit
from a rise in the market for our securities at a nominal cost, with a resulting
dilution in the interests of stockholders. The holders of the warrants can be
expected to exercise them at a time when, in all likelihood, we would be able to
obtain equity capital, if then needed, by a new equity offering on terms more
favorable to us than those provided by the warrants. This may adversely affect
the terms on which we could obtain additional financing. Any profit received by
the underwriters on the sale of the warrants or the shares issuable upon their
exercise may be deemed additional underwriting compensation.
We have agreed to register on one occasion the shares issuable upon the
exercise of the warrants upon the request of the holders of a majority of the
shares issuable upon exercise of the warrants. This agreement runs for five
years. We are required to pay all expenses.
In addition, for five years following the date of this prospectus, we
are required to give advance notice to the holders of the warrants or underlying
shares of our intention to file a registration statement, and the holders of the
warrants and underlying shares will have the right twice to include the
underlying shares in such registration statement at our expense.
The underwriting agreement provides that, during the five-year period
following the date of this prospectus, the representative will have the right to
designate one member to our board of directors. The representative has not yet
designated such a person to serve as a director.
The underwriting agreement also requires us to maintain $1,000,000 of
key man life insurance on the
43
<PAGE>
lives of Mr. Arnold Hantman and Dr. Lisa Krinsky during their respective terms
of employment with us.
Prior to this offering, there has been no public market for our shares.
The representative has informed us that sales to any account over which
the underwriter exercises discretionary authority will not exceed 1% of this
offering.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for us by Michael Harris, P.A., West Palm Beach, Florida. The
validity of the shares of common stock offered hereby will be passed upon for
the underwriters by Wolin & Rosen, Ltd., Chicago, Illinois.
EXPERTS
Our financial statements for the years ended December 31, 1998 and 1999
and the financial statements of the business we acquired from Pharmaceutical
Development Associates for years ended December 31, 1998 and 1999, 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 have filed with the Securities and Exchange Commission a
registration statement on Form SB-2, including the exhibits, schedules, and
amendments to this registration statement, under the Securities Act with respect
to the shares of common stock to be sold in this offering. This prospectus does
not contain all the information set forth in the registration statement. For
further information with respect to us and the shares of our common stock to be
sold in this offering, we make reference to the registration statement. Although
this prospectus contains all material information regarding us, statements
contained in this prospectus as to the contents of any contract, agreement or
other document referred to are not necessarily complete, and in each instance we
make reference to the copy of such contract, agreement, or other document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by such reference.
You may read and copy all or any portion of the registration statement
or any other information, which we file at the Securities and Exchange
Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the operation of the public reference rooms. Our Securities and Exchange
Commission filings, including the registration statement, are also available to
you on the Securities and Exchange Commission's Web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information
and reporting requirements of the Exchange Act and, in accordance with this Act,
will file periodic reports, proxy and information statements, and other
information with the Securities and Exchange Commission.
44
<PAGE>
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.
--------------------------------------------------------------------------------
45
<PAGE>
You may rely on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. This prospectus is not an offer to sell or solicitation of an
offer to buy these shares in any circumstances under which the offer or
solicitation is unlawful.
SFBC International, Inc.
Until _________, 2000 all dealers effecting transactions in the common
stock whether or not participating in this distribution, may be required to
deliver a prospectus. This delivery requirement 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.
46
<PAGE>
<TABLE>
<CAPTION>
INDEX TO HISTORICAL FINANCIAL STATEMENTS
Page
-------------------------------------------------------------------------------------------------------------------
<S> <C>
AUDITED FINANCIAL STATEMENTS
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
Independent Auditors' Report F - 2
Consolidated Balance Sheet as of December 31, 1999 F - 3
Consolidated Statements of Income for the years ended
December 31, 1999 and 1998 F - 4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999 and 1998 F - 5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998 F - 6
Notes to Consolidated Financial Statements F - 7 to F - 16
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
Independent Auditors' Report F - 17
Statement of Net Assets to be Sold as of December 31, 1999 F - 18
Statements of Operations of the Business to be Sold for the years
ended December 31, 1999 and 1998 F - 19
Statements of Cash Flows of the Business to be Sold for the years
ended December 31, 1999 and 1998 F - 20
Notes to Financial Statements F - 21 to F - 25
UNAUDITED FINANCIAL STATEMENTS
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet as of March 31, 2000 F - 26
Consolidated Statements of Income for the three month period
ended March 31, 2000 and 1999 F - 27
Consolidated Statements of Cash Flows for the three month period
ended March 31, 2000 and 1999 F - 28
Notes to Consolidated Financial Statements F - 29 to F - 30
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
Statement of Operations of the Business to be Sold for the eighty-nine days
ended March 29, 2000 F - 31
Statement of Cash Flows of the Business to be Sold for the eighty-nine days
ended March 29, 2000 F - 32
</TABLE>
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
To the Board of Directors and Stockholders
SFBC International, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheet of SFBC
International, Inc. and Subsidiary as of December 31, 1999 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SFBC International,
Inc. and Subsidiary as of December 31, 1999 and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1999 in conformity with generally accepted accounting principles.
KAUFMAN, ROSSIN & CO.
Miami, Florida
January 28, 2000 (except for Note 10, as to which
the date is June 30, 2000)
F-2
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
---------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash $ 288,285
Accounts receivable, net 2,075,722
Prepaid expenses 61,722
---------------------------------------------------------------------------------------------------
Total current assets 2,425,729
LOAN RECEIVABLE FROM STOCKHOLDER 92,965
PROPERTY AND EQUIPMENT, NET 208,536
DEFERRED OFFERING COSTS 255,537
OTHER ASSETS 86,500
---------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 3,069,267
---------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 131,632
Accrued liabilities 226,313
Accrued interest to related parties 132,120
Advance billings 280,357
Income taxes payable 66,000
Deferred income taxes 138,500
Notes payable - current portion ($371,089 to related parties) 587,328
---------------------------------------------------------------------------------------------------
Total current liabilities 1,562,250
---------------------------------------------------------------------------------------------------
NOTES PAYABLE ($130,000 to related parties) 260,000
---------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 415,500
---------------------------------------------------------------------------------------------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 5,000,000 shares
authorized, 0 shares issued and outstanding -
Common stock, $.001 par value, 20,000,000 shares authorized, 2,335,736
shares issued and outstanding 2,336
Additional paid-in capital 1,576,173
Deficit (746,992)
---------------------------------------------------------------------------------------------------
Total stockholders' equity 831,517
---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,069,267
---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
-----------------------------------------------------------------------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 8,309,143 $ 5,869,987
COST OF SALES 5,208,231 3,838,923
-----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 3,100,912 2,031,064
GENERAL AND ADMINISTRATIVE EXPENSES 1,699,021 1,323,764
-----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 1,401,891 707,300
INTEREST EXPENSE ($173,813 and $189,756 to related parties) 181,143 199,584
-----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,220,748 507,716
INCOME TAXES 620,000 -
-----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 600,748 $ 507,716
-----------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ .32 $ .33
Diluted .31 .33
-----------------------------------------------------------------------------------------------------------------------------------
Shares used in computing earnings per share:
Basic 1,881,863 1,520,000
Diluted 1,961,132 1,520,000
-----------------------------------------------------------------------------------------------------------------------------------
PRO FORMA DATA (UNAUDITED) (1)
Income before income taxes $ 1,220,748 $ 507,716
Income taxes 470,000 191,000
-----------------------------------------------------------------------------------------------------------------------------------
Pro forma net income $ $
-----------------------------------------------------------------------------------------------------------------------------------
Pro forma earnings per share:
Basic $ .40 $ .21
Diluted .38 .21
-----------------------------------------------------------------------------------------------------------------------------------
Shares used in computing pro forma earnings per share:
Basic 1,881,863 1,520,000
Diluted 1,961,132 1,520,000
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The unaudited pro forma data has been adjusted for income taxes which
would have been recorded had the Company been a C Corporation for the
years ended December 31, 1999 and 1998.
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
-----------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value; 20,000,000
shares authorized
------------------------------- Additional
Shares Par Value Paid-In
Capital Deficit Total
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances - January 1, 1998 1,520,000 $ 1,520 $ 99,480 ($ 1,855,456) ($ 1,754,456)
Net income - 1998 - - - 507,716 507,716
-----------------------------------------------------------------------------------------------------------------------------------
Balances - December 31, 1998 1,520,000 1,520 99,480 ( 1,347,740) ( 1,246,740)
Acquisition of net assets of SFBC
International, Inc. 560,000 560 326,143 - 326,703
Conversion of debt to common stock 255,736 256 1,150,550 - 1,150,806
Net income - 1999 - - - 600,748 600,748
-----------------------------------------------------------------------------------------------------------------------------------
Balances - December 31, 1999 2,335,736 $ 2,336 $ 1,576,173 ($ 746,992) $ 831,517
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All stock information has been adjusted to give effect to the recapitalization
and four-for-five reverse stock split in June 1999.
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
-----------------------------------------------------------------------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 600,748 $ 507,716
-----------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 64,425 56,945
Provision for bad debts 13,400 14,066
Accrued interest on notes payable - purchase of assets 25,347 35,297
Changes in operating assets and liabilities:
Accounts receivable ( 678,835) ( 752,950)
Prepaid expenses ( 1,648) 1,829
Other assets ( 9,000) ( 6,225)
Accounts payable ( 228,503) 47,631
Accrued liabilities ( 76,999) ( 11,591)
Accrued interest - 118,363
Advance billings 218,902 35,455
Income taxes payable 66,000 -
Deferred income taxes 554,000 -
-----------------------------------------------------------------------------------------------------------------------------------
Total adjustments ( 52,911) ( 461,180)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 547,837 46,536
-----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ( 59,070) ( 25,445)
Loans to stockholder - ( 92,965)
Cash balance of company acquired 2,394 -
-----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities ( 56,676) ( 118,410)
-----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred offering costs ( 255,537) -
Net repayments of notes payable - insurance ( 3,090) ( 3,242)
Principal payments on notes payable - purchase of assets - ( 3,903)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities ( 258,627) ( 7,145)
-----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 232,534 ( 79,019)
CASH AT BEGINNING OF PERIOD 55,751 134,770
-----------------------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 288,285 $ 55,751
-----------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures:
-----------------------------------------------------------------------------------------------------------------------------------
Interest paid $ 155,796 $ 81,221
-----------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Non-cash Investing and Financing Activities:
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In connection with the recapitalization of the Company in June 1999 (see
Note 1), the Company reduced long-term debt by $324,309 and issued 560,000
shares of common stock.
In June 1999, $376,032 of accrued interest was converted to long-term debt.
In October 1999, $1,150,806 of long-term debt and accrued interest was
converted to common stock and warrants (see Note 6).
See accompanying notes.
F-6
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
Basis of Consolidation and Organization
The consolidated financial statements include the accounts of
SFBC International, Inc. (SFBC) and its wholly owned
subsidiary South Florida Kinetics, Inc. (SFK) (collectively
"the Company"). All significant intercompany balances and
transactions have been eliminated in consolidation.
Recapitalization
On June 7, 1999, SFK entered into an Agreement and Plan of
Merger with a newly formed wholly owned subsidiary of SFBC.
The agreement provided for, among other things, SFBC's
acquisition of all the common stock of SFK. The resulting
ownership of SFBC is 54% by the former majority stockholder of
SFK, 19% by the former minority stockholders of SFK and 27% by
the former sole stockholder of SFBC. For accounting purposes,
this transaction (recapitalization) has been treated as an
acquisition of the assets of SFBC by SFK and as a
recapitalization of SFK. The historical financial statements
prior to June 7, 1999 are those of SFK.
Business Activity
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. 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, 1999 amounted to approximately $2,139,000.
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.
F-7
<PAGE>
--------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
--------------------------------------------------------------------------------
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.
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.
F-8
<PAGE>
--------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
--------------------------------------------------------------------------------
Income Taxes
The Company accounts for income taxes under the liability
method according to Statement of Financial Accounting
Standards No. 109. Deferred tax assets and liabilities are
recognized for future tax consequences attributable to
differences between the financial statements carrying amounts
of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled.
Through June 6, 1999, the Company 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 the Company is reflected by
the stockholders on their personal income tax returns.
Effective June 7, 1999, the Company terminated its S
Corporation status and in connection therewith, recorded a
deferred tax liability of $217,000, through a charge to income
taxes in the 1999 statement of income. In addition, the
Company recorded an income tax provision of $403,000 related
to taxable income for the period from June 7, 1999 through
December 31, 1999.
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 Per Share
The Company applies Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (FAS 128) which
requires dual presentation of net income per share; Basic and
Diluted. Basic earnings per share is computed using the
weighted average number of common shares outstanding during
the period. Diluted earnings per share is computed using the
weighted average number of common shares outstanding during
the period adjusted for incremental shares attributed to
outstanding options to purchase 79,269 shares of common stock
for the year ended December 31, 1999. All stock information is
adjusted to give effect to the recapitalization and
four-for-five reverse stock split in June 1999.
Segment Reporting
During 1998, the Company adopted Financial Accounting
Standards Board ("FASB") statement No. 131, "Disclosure about
Segments of an Enterprise and Related Information". The
Company has considered its operations and has determined that
it operates in a single operating segment for purposes of
presenting financial information and evaluating performance.
As such, the accompanying financial statements present
information in a format that is consistent with the financial
information used by management for internal use.
F-9
<PAGE>
--------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
--------------------------------------------------------------------------------
Comprehensive Income
The items affecting comprehensive income are not material to
the financial statements and, accordingly, are not presented
herein.
Long-lived Assets
Long-lived assets are reviewed for impairments whenever events
or changes in circumstances indicate that the carrying amount
may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of
the asset, a loss is recognized for the difference between the
fair value and carrying value of the asset.
Year 2000 Uncertainties
Although the Company has not identified any computer system or
program problems, there is still a possibility that at some
time during the Year 2000 their computer systems and programs,
as well as equipment that uses embedded computer chips, may be
unable to distinguish between the years 1900 and 2000. This
may create system errors and failures resulting in the
disruption of normal business operations. Although it is
unlikely, there may be some third parties, such as
governmental agencies, utilities, telecommunication companies,
vendors and customers that at times may not be able to
continue business with the Company due to their own Year 2000
problems.
--------------------------------------------------------------------------------
NOTE 2. MAJOR CUSTOMERS
--------------------------------------------------------------------------------
<TABLE>
Sales to individual unaffiliated customers in excess of 10% of net sales are as follows:
<CAPTION>
1999 1998
----------------------------------------------------------------------------------
Amount % of Sales Amount % of Sales
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Customer A $ 1,359,434 16% $ 795,263 14%
Customer B $ 1,252,248 15% $ 905,222 15%
Customer C $ 413,813 5% $ 686,334 12%
Customer D $ 28,167 - $ 1,004,678 17%
</TABLE>
<TABLE>
Individual accounts receivable balances at December 31, 1999 in excess of 10% of total accounts
receivable are as follows:
<CAPTION>
% of Accounts
Amount Receivable, Net
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Customer F $ 342,663 17%
Customer A $ 262,097 13%
Customer E $ 224,699 11%
</TABLE>
F-10
<PAGE>
--------------------------------------------------------------------------------
NOTE 3. ACCOUNTS RECEIVABLE
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accounts receivable consisted of the following at December 31, 1999:
<S> <C>
Accounts receivable - billed $ 1,734,397
Accounts receivable - unbilled 539,163
Less allowance for changes in contracts ( 140,000)
Less allowance for doubtful accounts ( 57,838)
------------------------------------------------------------------------------------------------------
$ 2,075,722
------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The activity in the allowance for changes in contracts and allowance for doubtful accounts during
the years ended December 31, 1999 and 1998 is as follows:
<CAPTION>
Allowance for Allowance for
Changes in Doubtful
Contracts Accounts
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance - January 1, 1998 $ - $ 30,372
1998 provision 142,000 14,066
1998 write-offs - -
------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 142,000 44,438
1999 provision 15,033 13,400
1999 write-offs ( 17,033) -
------------------------------------------------------------------------------------------------------
Balance - December 31, 1999 $ 140,000 $ 57,838
------------------------------------------------------------------------------------------------------
</TABLE>
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, 1999 amounted to $280,357.
--------------------------------------------------------------------------------
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 bears interest at 6% per annum and is due in August 2002.
F-11
<PAGE>
--------------------------------------------------------------------------------
NOTE 5. PROPERTY AND EQUIPMENT
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Property and equipment consisted of the following at December 31, 1999:
<S> <C>
Furniture and fixtures $ 31,866
Machinery and equipment 436,448
------------------------------------------------------------------------------------------------------
468,314
Less accumulated depreciation 259,778
------------------------------------------------------------------------------------------------------
$ 208,536
------------------------------------------------------------------------------------------------------
</TABLE>
Depreciation of property and equipment for the years ended
December 31, 1999 and 1998 amounted to $64,425 and $56,945,
respectively.
--------------------------------------------------------------------------------
NOTE 6. NOTES PAYABLE
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Notes payable consisted of the following at December 31, 1999:
<S> <C>
Notes payable - stockholders $ 309,089
Notes payable - purchase of assets 500,000
Notes payable - insurance 38,239
------------------------------------------------------------------------------------------------------
847,328
Less current portion 587,328
------------------------------------------------------------------------------------------------------
Long-term portion $ 260,000
------------------------------------------------------------------------------------------------------
</TABLE>
Notes Payable - Stockholders
In October 1999, approximately $1,150,800 of notes payable -
stockholders and accrued interest was converted into 255,736
shares of common stock and warrants to purchase an additional
255,736 shares of common stock at $8.00 per share. The
warrants expire 20 months after the closing of a proposed
initial public offering. The remaining notes bear interest at
10% per annum and are past due.
Notes Payable - Purchase of Assets
Concurrent with the recapitalization, approximately $824,000
of notes payable was extinguished and replaced with three new
notes aggregating $500,000. The new notes bear interest at 8%
per annum, are collateralized by all of the assets of the
Company and are personally guaranteed by a shareholder of the
Company. The new notes are payable in aggregate monthly
installments of $20,000 including interest, starting January
1, 2000 and are due upon the closing of a proposed initial
public offering of securities of SFBC except approximately
$192,000 of these notes, which are due to a shareholder of the
Company, and are payable $20,000 a month including interest
after all the other notes payable - purchase of assets are
satisfied.
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 $181,143 and
$199,584 for the years ended December 31, 1999 and 1998,
respectively.
F-12
<PAGE>
--------------------------------------------------------------------------------
NOTE 7. COMMITMENTS
--------------------------------------------------------------------------------
Facilities Lease
The Company leases its facilities on a month-to-month basis.
Total rent expense amounted to $427,588 and $270,706 for the
years ended December 31, 1999 and 1998, respectively.
Employment Contract
In February 1999, 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, and as a result
of the recapitalization discussed previously, the employee
received an option to purchase 160,000 shares of common stock
of SFBC at an exercise price of $1.25 per share. The option
expires in February 2009 and is exercisable in four equal
annual installments of 40,000 shares each, commencing on March
15, 1999. No options had been exercised through January 28,
2000.
--------------------------------------------------------------------------------
NOTE 8. INCOME TAXES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The income tax expense for the year ended December 31, 1999 consisted of the following:
<S> <C>
Current:
Federal $ 56,000
State 10,000
------------------------------------------------------------------------------------------------------
66,000
------------------------------------------------------------------------------------------------------
Deferred:
Federal 473,000
State 81,000
------------------------------------------------------------------------------------------------------
554,000
------------------------------------------------------------------------------------------------------
$ 620,000
------------------------------------------------------------------------------------------------------
</TABLE>
Deferred income taxes were recognized in the consolidated
balance sheet at December 31, 1999 due to the tax effect of
temporary differences primarily relating to the Company
reporting on the cash basis for income tax purposes.
F-13
<PAGE>
--------------------------------------------------------------------------------
NOTE 8. INCOME TAXES (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The major elements contributing to the difference between the income tax expense and the amount
computed by applying the federal statutory tax rate of 34% to income before income taxes for the
year ended December 31, 1999 are as follows:
<S> <C>
Statutory rate $ 415,000
State income taxes 39,000
S Corporation income prior to conversion to C Corporation ( 190,000)
Deferred tax liability recorded upon conversion to C Corporation 217,000
Permanent differences and other 139,000
---------------------------------------------------------------------------------------------------
$ 620,000
---------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
NOTE 9. STOCK BASED COMPENSATION
--------------------------------------------------------------------------------
In June 1999, the Company established a Stock Option Plan
which provides for the Company to issue options to employees,
directors and outside consultants of the Company. The issuance
and form of the options shall be at the discretion of the
Company's board of directors, except that the exercise price
may not be less than the fair market value at the time of
grant. Generally, the options vest over a three year period
and expire in ten years or three months after separation of
service, whichever occurs earlier.
The Company has elected to follow Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" (APB
25") in accounting for its employees stock options. Under APB
25, because the exercise price of the Company's employee stock
options issued was greater than the market price of the
underlying stock on the date of grant, no compensation expense
was recognized.
Statement of Financial Accounting Standards No. 123
"Accounting for Stock-based Compensation," ("SFAS No. 123")
requires the Company to provide pro forma information
regarding net income and earnings per common share as if
compensation cost for the Company's Stock Option plan had been
determined in accordance with the fair value based method
prescribed in SFAS No. 123. The Company estimated the fair
value of each stock option on the date of grant by using the
minimum value calculation with the following assumptions:
expected life of the options of 5 years; no dividends; and a
risk free interest rate of 6.5%.
Under the accounting provisions of SFAS No. 123, the Company's
net income and basic and diluted earnings per share for the
year ended December 31, 1999 would have been approximately
$592,000, $.31 and $.30, respectively.
F-14
<PAGE>
--------------------------------------------------------------------------------
NOTE 9. STOCK BASED COMPENSATION (Continued)
--------------------------------------------------------------------------------
The Company's pro forma net income and pro forma basic and
diluted earnings per share for the year ended December 31,
1999 would have been approximately $742,000, $.39 and $.38,
respectively.
<TABLE>
A summary of the Company's stock option activity, and related
information for the year ended December 31, 1999 is as
follows:
<CAPTION>
# of Weighted Average
Options Exercise Price
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding January 1, 1999 - $ -
Granted 514,500 4.70
Exercised - -
Forfeited - -
------------------------------------------------------------------------------------------------------
Outstanding December 31, 1999 514,500 $ 4.70
------------------------------------------------------------------------------------------------------
Exercisable at December 31, 1999 45,000 $ 1.78
------------------------------------------------------------------------------------------------------
</TABLE>
The weighted-average fair value of options granted during
1999, using the minimum value calculation was $.12 per option.
Exercise prices for options outstanding as of December 31,
1999 ranged from $1.25 to $6.60. The weighted average
remaining contractual life of these options is as follows:
<TABLE>
<CAPTION>
Weighted Average
Exercise Weighted Average Remaining Contractual
Price Shares Exercise Price Life (Years)
--------------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
$1.25 160,000 $1.25 9.25
$6.00 - $6.60 354,500 $6.25 7.38
</TABLE>
--------------------------------------------------------------------------------
NOTE 10. SUBSEQUENT EVENTS
--------------------------------------------------------------------------------
Line of Credit
In January 2000, the Company entered into a loan and security
agreement with Heller Healthcare Finance for a $1,500,000
revolving line of credit. The agreement provides for repayment
of certain notes payable - purchase of assets, and, among
other things, interest at the greater of 1.75% above the prime
rate or 10%. The borrowings are collateralized by all the
assets of the Company. Advances are based on 85% of qualified
accounts receivable, as defined.
F-15
<PAGE>
--------------------------------------------------------------------------------
NOTE 10. SUBSEQUENT EVENTS (Continued)
--------------------------------------------------------------------------------
Initial Public Offering
In June 2000, the Company entered into a letter of intent with
an underwriter to file a registration statement concerning the
sale of approximately 1,250,000 shares of the Company's common
stock. The Company anticipates the registration statement to
become effective during 2000.
Acquisition
Subsequent to December 31, 1999, the Company formed a wholly
owned subsidiary, SFBC/Pharmaceutical Development Associates,
Inc. (SFBC/PDA). On March 29, 2000, SFBC/PDA entered into an
agreement to purchase substantially all the assets and certain
liabilities of Pharmaceutical Development Associates, Inc.
(PDA), a clinical research organization located in North
Carolina. The aggregate purchase price is $600,000 with
possible contingent consideration of up to $1,200,000 based on
the adjusted net income of SFBC/PDA, as defined, and
additional possible contingent consideration based on a
percentage of revenue from a specific customer of SFBC/PDA.
In connection with the acquisition, SFBC/PDA entered into a
three-year employment agreement with the president of PDA. The
agreement provides for, among other things, the employee to
receive options to purchase 100,000 shares of common stock of
SFBC at an exercise price of the greater of $6.00 per share or
the initial public offering price if SFBC's registration
statement becomes effective during 2000. The options vest
through March 29, 2002 and expire on March 29, 2010.
In connection with the acquisition, SFBC and SFBC/PDA received
the option to purchase substantially all of the assets of
ClinSites/LeeCoast Research Center, Inc. (LeeCoast), a wholly
owned subsidiary of PDA's parent. The term of the option is
for a period of twelve months and commences on the earlier of
30 days after the closing of an initial public offering SFBC's
stock or September 29, 2000. The purchase price is $600,000,
plus the amount by which the operating assets exceed the
operating liabilities of LeeCoast.
In connection with the acquisition, SFBC committed to lend
LeeCoast $200,000 in installments of $66,667 on March 29, 2000
and $66,666 on April 29, 2000 and May 29, 2000. Repayment of
the $200,000 plus interest at 8% is due from LeeCoast on March
29, 2001. The loan is collateralized by the accounts
receivable of LeeCoast and SFBC has the right to offset any
unpaid amounts against the contingent consideration provisions
of the acquisition agreement described above.
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
To the Board of Directors
SFBC International, Inc.
Miami, Florida
We have audited the accompanying statement of net assets to be sold of
Pharmaceutical Development Associates, Inc. as of December 31, 1999 and the
related statements of operations and cash flows of the business to be sold for
each of the two years in the period ended December 31, 1999. 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.
The accompanying financial statements were prepared to present the net assets of
the Company as of December 31, 1999 to be sold to SFBC International, Inc.,
pursuant to the purchase agreement described in Note 7 and the related
operations and cash flows of the business to be sold of the Company for each of
the two years in the period ended December 31, 1999 and is not intended to be a
complete presentation of the Company's financial position and results of
operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets of Pharmaceutical Development Associates,
Inc. as of December 31, 1999 to be sold pursuant to the purchase agreement
described in Note 7 and the related results of its operations and its cash flows
of the business to be sold for each of the two years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
KAUFMAN, ROSSIN & CO.
Miami, Florida
March 3, 2000
See accompanying notes.
F-17
<PAGE>
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
STATEMENT OF NET ASSETS TO BE SOLD
DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
----------------------------------------------------------------------------------------------------
<S> <C>
CURRENT ASSETS
Cash $ 503
Accounts receivable 319,592
Prepaid expenses 4,505
----------------------------------------------------------------------------------------------------
Total current assets 324,600
PROPERTY AND EQUIPMENT, NET 114,255
GOODWILL, NET 469,340
OTHER ASSETS 3,325
----------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 911,520
----------------------------------------------------------------------------------------------------
LIABILITIES
----------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 315,436
Current portion of capital lease obligations 23,393
Advance billings 125,903
----------------------------------------------------------------------------------------------------
Total current liabilities 464,732
CAPITAL LEASE OBLIGATIONS 13,389
COMMITMENTS AND CONTINGENCIES
----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 478,121
----------------------------------------------------------------------------------------------------
NET ASSETS TO BE SOLD $ 433,399
----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-18
<PAGE>
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
STATEMENTS OF OPERATIONS OF THE BUSINESS TO BE SOLD
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 2,200,061 $ 3,151,593
COST OF SALES 1,995,792 2,674,533
---------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 204,269 477,060
GENERAL AND ADMINISTRATIVE EXPENSES 625,072 482,522
---------------------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS ( 420,803) ( 5,462)
INTEREST EXPENSE 18,560 15,202
---------------------------------------------------------------------------------------------------------------------------------
NET LOSS ( $ 439,363) ( $ 20,664)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-19
<PAGE>
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS OF THE BUSINESS TO BE SOLD
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ( $ 439,363) ( $ 20,664)
---------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 129,333 108,715
Provision for bad debts 61,210 -
Changes in operating assets and liabilities:
Accounts receivable 23,876 ( 25,449)
Prepaid expenses ( 3,527) 3,650
Other assets - ( 2,194)
Accounts payable 145,563 51,934
Advanced billings ( 54,576) ( 138,694)
---------------------------------------------------------------------------------------------------------------------------------
Total adjustments 301,879 ( 2,038)
---------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities ( 137,484) ( 22,702)
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ( 6,699) ( 119,797)
Advances from parent and affiliates, net 41,129 276,315
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 34,430 156,518
--------------------------------------------------------------------------------- ------------------------ ------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations ( 21,964) ( 8,564)
--------------------------------------------------------------------------------- ------------------------ ------------------------
NET INCREASE (DECREASE) IN CASH ( 125,018) 125,252
CASH AT BEGINNING OF PERIOD 125,521 269
--------------------------------------------------------------------------------- ------------------------ ------------------------
CASH AT END OF PERIOD $ 503 $ 125,521
--------------------------------------------------------------------------------- ------------------------ ------------------------
Supplemental Disclosures of Cash Flow Information and
Non-Cash Investing and Financing Activities:
--------------------------------------------------------------------------------- ------------------------ ------------------------
Interest paid $ 12,560 $ 9,202
--------------------------------------------------------------------------------- ------------------------ ------------------------
Income taxes paid $ - $ -
--------------------------------------------------------------------------------- ------------------------ ------------------------
Capital lease obligations incurred $ - $ 67,310
--------------------------------------------------------------------------------- ------------------------ ------------------------
</TABLE>
See accompanying notes.
F-20
<PAGE>
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTE 11. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
Basis of Presentation
The accompanying financial statements are intended to present
the net assets to be sold of Pharmaceutical Development
Associates, Inc. (the "Company"), as of December 31, 1999
pursuant to the agreement described in Note 7 and the related
operation of the business to be sold of the Company for the
periods presented. These financial statements do not present
the complete financial position and the results of operations
of the Company for the periods presented. In addition, certain
assets will be sold which have no historical costs (e.g.
customer list, business reputation, etc.) and therefore are
not reflected in the accompanying statement of net assets to
be sold.
The Company is a wholly owned subsidiary of Clinical Site
Services Corporation (the Parent). During 1999 and 1998, the
Parent and certain other affiliates incurred expenses on
behalf of the Company which include, but are not limited to,
salaries, rent, professional fees, travel and other general
and administrative expenses. These financial statements
include such expenses. Future expenses incurred as an
independent entity or as part of another group of entities may
not be comparable to historical levels.
Description of Business
The Company, located in Charlotte, North Carolina, is a
contract research organization managing clinical trials at
multiple sites involving ophthalmology, dermatology and
generic drug testing.
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. 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, 1999 amounted to approximately $658,000.
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.
See accompanying notes.
F-21
<PAGE>
--------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
--------------------------------------------------------------------------------
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.
Depreciation and Amortization
Depreciation and amortization is computed using the
straight-line method based upon the estimated useful lives of
the assets. The range of useful lives is as follows:
Computer and office equipment 3 - 5 years
Medical equipment 5 years
Furniture and fixtures 5 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.
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
The Company's operations are included in the consolidated
income tax return of the Parent. Deferred tax assets allocated
to the Company have been completely offset by a valuation
allowance.
F-22
<PAGE>
--------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
--------------------------------------------------------------------------------
Fair Value of Financial Instruments
The carrying values of cash and accrued liabilities
approximate their fair values due to the short-term maturity
of these instruments.
Based upon borrowing rates currently available to the Company
for loans with similar terms and maturities, the fair values
of capital lease obligations and notes payable approximate
carrying value.
Year 2000 Uncertainties
Although the Company has not identified any computer system or
program problems, there is still a possibility that at some
time during the Year 2000 their computer systems and programs,
as well as equipment that uses embedded computer chips, may be
unable to distinguish between the years 1900 and 2000. This
may create system errors and failures resulting in the
disruption of normal business operations. Although it is
unlikely, there may be some third parties, such as
governmental agencies, utilities, telecommunication companies,
vendors and customers that at times may not be able to
continue business with the Company due to their own Year 2000
problems.
--------------------------------------------------------------------------------
NOTE 12. MAJOR CUSTOMERS
--------------------------------------------------------------------------------
<TABLE>
Sales to individual unaffiliated customers in excess of 10% of net sales are as follows:
<CAPTION>
1999 1998
----------------------------------------------------------------------------------
Amount % of Sales Amount % of Sales
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Customer A $ 1,392,486 63% $ 372,069 12%
Customer B $ 306,530 14% $ 1,008,169 32%
Customer C $ 114,466 5% $ 583,301 19%
Customer D $ - - $ 506,654 16%
Customer E $ 67,305 3% $ 343,345 11%
</TABLE>
<TABLE>
Individual accounts receivable balances at December 31, 1999 in excess of 10% of total accounts
receivable are as follows:
<CAPTION>
% of Accounts
Amount Receivable
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Customer A $ 232,174 73%
</TABLE>
F-23
<PAGE>
--------------------------------------------------------------------------------
NOTE 13. ACCOUNTS RECEIVABLE
--------------------------------------------------------------------------------
<TABLE>
Accounts receivable consisted of the following at December 31, 1999:
<CAPTION>
<S> <C>
Accounts receivable - billed $ 267,539
Accounts receivable - unbilled 113,263
Less allowance for doubtful accounts ( 61,210)
-------------------------------------------------------------------------------------------------------
$ 319,592
-------------------------------------------------------------------------------------------------------
</TABLE>
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, 1999 amounted to $125,903.
--------------------------------------------------------------------------------
NOTE 14. PROPERTY AND EQUIPMENT
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Property and equipment consisted of the following at December 31, 1999:
<S> <C>
Computer and office equipment $ 126,505
Medical equipment 71,393
Furniture and fixtures 40,834
-------------------------------------------------------------------------------- ---------------------
238,732
Less accumulated depreciation and amortization 124,477
-------------------------------------------------------------------------------- ---------------------
$ 114,255
-------------------------------------------------------------------------------- ---------------------
</TABLE>
Depreciation and amortization of property and equipment for
the years ended December 31, 1999 and 1998 amounted to $62,740
and $42,123, respectively.
Property and equipment at December 31, 1999 included medical
equipment under capital leases and related accumulated
amortization of $67,310 and $20,115, respectively.
Amortization expense of medical equipment under capital leases
was approximately $6,400 and $13,600 in 1999 and 1998,
respectively.
--------------------------------------------------------------------------------
NOTE 15. GOODWILL
--------------------------------------------------------------------------------
In connection with the Parent's acquisition of the Company in
1997, goodwill of $662,598 was recorded. Amortization of
goodwill is computed using the straight-line method over 10
years. Accumulated amortization of goodwill at December 31,
1999 amounted to $193,258. Amortization of goodwill was
$66,260 for 1999 and 1998.
F-24
<PAGE>
--------------------------------------------------------------------------------
NOTE 16. COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------
Facilities Lease
The company leases its facilities on a month-to-month basis.
Rent expense under this lease agreement amounted to $60,336
and $55,873 for the years ended December 31, 1999 and 1998,
respectively.
Lease Commitments
The Company is obligated under one operating lease for office
equipment and three capital leases for medical equipment.
Future minimum payments under non-cancelable leases at
December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
Capital Operating
Leases Lease
----------------------------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 23,393 $ 5,964
2001 13,389 5,964
2002 - 5,964
2003 - 5,467
----------------------------------------------------------------------------------------------------
Total minimum lease payments 36,782 23,359
Less amount representing imputed interest (4,064) -
----------------------------------------------------------------------------------------------------
$ 32,718 $ 23,359
----------------------------------------------------------------------------------------------------
Debt
</TABLE>
The Company, the Parent and other subsidiaries of the Parent
are obligated under various notes totaling $1,750,000.
--------------------------------------------------------------------------------
NOTE 17. SALE OF ASSETS
--------------------------------------------------------------------------------
In March 2000, the Company entered into an agreement to sell
substantially all of its operating assets and liabilities to
SFBC International, Inc., a clinical research organization
located in Florida. The aggregate sales price is $600,000 with
possible contingent consideration of up to $1,200,000 based on
net income and additional possible contingent consideration
based on the Company's revenues.
F-25
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
---------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash $ 561,827
Accounts receivable, net 2,707,187
Prepaid and other current assets 237,809
---------------------------------------------------------------------------------------------------------------------------
Total current assets 3,056,823
LOAN RECEIVABLE FROM STOCKHOLDER 92,965
PROPERTY AND EQUIPMENT, NET 374,987
DEFERRED OFFERING COSTS 275,907
GOODWILL 725,915
OTHER ASSETS 92,066
---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 5,068,663
---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 655,935
Accrued liabilities 165,714
Accrued interest to related parties 144,318
Advance billings 1,034,914
Income taxes payable 244,500
Long-term debt - current portion (approximately $501,000 to related
parties) 551,457
---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,796,838
---------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 855,303
---------------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 415,500
---------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 5,000,000 shares authorized,
0 shares issued and outstanding -
Common stock, $.001 par value, 20,000,000 shares authorized,
2,335,736 shares issued and outstanding 2,336
Additional paid-in capital 1,576,173
Deficit (577,487)
---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,001,022
---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,068,663
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-26
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
March 31, 2000 March 31, 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 2,303,116 $ 1,922,991
COST OF SALES 1,468,858 1,121,632
----------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 834,258 801,359
GENERAL AND ADMINISTRATIVE EXPENSES 534,632 471,572
----------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 299,626 329,787
INTEREST EXPENSE ($17,380 and $44,105 to related parties) 24,122 47,089
----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 275,504 282,698
INCOME TAXES 106,000 -
----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 169,504 $ 282,698
----------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 0.07 $ 0.19
Diluted 0.07 0.18
----------------------------------------------------------------------------------------------------------------------
Shares used in computing earnings per share:
Basic 2,335,736 1,520,000
Diluted 2,445,736 1,556,923
----------------------------------------------------------------------------------------------------------------------
PRO FORMA DATA (1)
Income before income taxes N/A $ 282,698
Income taxes N/A 109,000
----------------------------------------------------------------------------------------------------------------------
Pro forma net income N/A $ 173,698
----------------------------------------------------------------------------------------------------------------------
Pro forma earnings per share:
Basic N/A $ 0.11
Diluted N/A 0.11
----------------------------------------------------------------------------------------------------------------------
Shares used in computing pro forma earnings per share:
Basic N/A 1,520,000
Diluted N/A 1,556,923
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The pro forma data has been adjusted for income taxes which would have
been recorded had the Company been a C Corporation for the three months
ended March 31, 1999.
See accompanying notes.
F-27
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
March 31, 2000 March 31, 1999
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 169,505 $ 282,698
--------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation 20,676 15,185
Accrued interest on notes payable - purchase of assets - 17,008
Changes in operating assets and liabilities:
Accounts receivable 219,694 ( 350)
Prepaid expenses ( 175,419) 20,110
Accounts payable 120,994 ( 33,110)
Accrued liabilities ( 60,599) ( 478)
Accrued interest 12,198 27,097
Advance billings ( 136,951) ( 57,691)
Deferred income taxes 40,000 -
--------------------------------------------------------------------------------------------------------------------------
Total adjustments 40,593 ( 12,229)
--------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 210,098 270,469
--------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash consideration paid for company acquired ( 295,740) -
Cash balance of company acquired 79,429 -
Purchase of property and equipment ( 75,302) ( 19,800)
--------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities ( 291,613) ( 19,800)
--------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred offering costs ( 20,370) -
Net decrease in notes payable - insurance ( 19,120) ( 20,664)
Principal payments on notes payable - purchase of assets ( 308,500) -
Net borrowings on credit facility 681,201 -
Net increase in notes payable - transportation equipment 21,846 -
--------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 355,057 ( 20,664)
--------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 273,542 230,005
CASH AT BEGINNING OF PERIOD 288,285 55,751
--------------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 561,827 $ 285,756
--------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures:
--------------------------------------------------------------------------------------------------------------------------
Interest paid $ 11,924 $ 19,992
--------------------------------------------------------------------------------------------------------------------------
Income taxes paid $ 66,000 $ -
--------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
--------------------------------------------------------------------------------------------------------------------------
Fair value of net liabilities assumed in connection with acquisition of
business $ 154,260 $ -
--------------------------------------------------------------------------------------------------------------------------
Note payable issued in connection with acquisition of business $ 150,000 $ -
--------------------------------------------------------------------------------------------------------------------------
Professional fees accrued in connection with acquisition of business $ 125,913 $ -
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-28
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTE 18. BASIS OF PRESENTATION
--------------------------------------------------------------------------------
The accompanying financial statements do not include all of
the disclosures made in the consolidated balance sheet of SFBC
International, Inc. and Subsidiary as of December 31, 1999 and
the related consolidated statements of income, stockholders'
equity and cash flows for each of the two years in the period
ended December 31, 1999 or in the statement of net assets to
be sold of Pharmaceutical Development Associates, Inc. as of
December 31, 1999 and the related statements of operations and
cash flows of the business to be sold for each of the two
years in the period ended December 31, 1999, both of 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 period presented.
The consolidated financial statements include the accounts of
SFBC International, Inc. (the Parent), (a Delaware
corporation), South Florida Kinetics, Inc. (Subsidiary 1), (a
Florida corporation) and SFBC/Pharmaceutical Development
Associates, Inc. (Subsidiary 2), (a Florida corporation). The
Parent owns 100% of the Subsidiaries. All material
inter-company balances and transactions have been eliminated
in consolidation.
--------------------------------------------------------------------------------
NOTE 19. OTHER EVENTS
--------------------------------------------------------------------------------
On March 15, 2000, Subsidiary 2 was incorporated and on March
29, 2000 it entered into an agreement to purchase
substantially all of the operating assets and liabilities of
Pharmaceutical Development Associates, Inc. The aggregate
sales price was $600,000 with possible contingent
consideration of up to $1,200,000 based on the adjusted net
income of Subsidiary 2, as defined, and additional possible
contingent consideration based on the future revenues of
Subsidiary 2. Goodwill of approximately $726,000 was recorded
in connection with the business combination.
F-29
<PAGE>
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
STATEMENT OF OPERATIONS OF THE BUSINESS TO BE SOLD
EIGHTY-NINE DAYS ENDED MARCH 29, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C>
NET SALES $ 427,280
COST OF SALES 283,572
---------------------------------------------------------------------------------------------------
GROSS PROFIT 143,708
GENERAL AND ADMINISTRATIVE EXPENSES 153,455
---------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS ( 9,747)
INTEREST EXPENSE 4,200
---------------------------------------------------------------------------------------------------
NET LOSS ( $ 13,947)
---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-30
<PAGE>
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
STATEMENT OF CASH FLOWS OF THE BUSINESS TO BE SOLD
EIGHTY-NINE DAYS ENDED MARCH 29, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ( $ 13,947)
-------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and amortization 28,837 Changes in operating assets and
liabilities:
Accounts receivable ( 531,567)
Prepaid expenses 3,837
Other assets ( 2,241)
Accounts payable ( 38,040)
Advanced billings 765,605
-------------------------------------------------------------------------------------------------------------
Total adjustments 226,431
-------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 212,484
-------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ( 9,841)
Advances from parent and affiliates, net ( 120,940)
-------------------------------------------------------------------------------------------------------------
Net cash used in investing activities ( 130,781)
-------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations ( 2,777)
-------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 78,926
CASH AT BEGINNING OF PERIOD 503
-------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 79,429
-------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information and
Non-Cash Investing and Financing Activities:
-------------------------------------------------------------------------------------------------------------
Interest paid $ 1,200
-------------------------------------------------------------------------------------------------------------
Income taxes paid $ -
-------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-31
<PAGE>
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
NOTES TO STATEMENTS OF OPERATIONS AND CASH FLOWS
OF THE BUSINESS TO BE SOLD
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
--------------------------------------------------------------------------------
The accompanying statements of operations and cash flows do
not include all of the disclosures made in the statement of
net assets to be sold of Pharmaceutical Development
Associates, Inc. as of December 31, 1999 and the related
statements of operations and cash flows of the business to be
sold for each of the two years in the period ended December
31, 1999, 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 period presented. The results for the
period presented is not necessarily indicative of the results
for the full fiscal years.
F-32
<PAGE>
INDEX TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Page
--------------------------------------------------------------------------------
SFBC International, Inc. and Subsidiaries
Introduction to Unaudited Pro Forma Consolidated Financial Statements P - 2
Unaudited Pro Forma Consolidated Statement of Operations for the
three month period ended March 31, 2000 P - 3
Notes to Unaudited Pro Forma Consolidated Statement of Operations P - 4
Unaudited Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1999 P - 5
Notes to Unaudited Pro Forma Consolidated Statement of Operations P - 6
P-1
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Prior to the commencement of this offering, SFBC International, Inc. formed a
100% owned Subsidiary, SFBC/Pharmaceutical Development Associates, Inc. which
acquired certain assets and assumed certain liabilities of Pharmaceutical
Development Associates, Inc.
The following pro forma financial information presents a) SFBC International,
Inc.'s (the Parent), South Florida Kinetics, Inc.'s (Subsidiary 1),
SFBC/Pharmaceutical Development Associates, Inc.'s (Subsidiary 2), and
Pharmaceutical Development Associates, Inc.'s ( collectively the Companies ) pro
forma unaudited consolidating statement of operations for the three month period
ended March 31, 2000, as if offering contemplated herein and the acquisition
occurred on January 1, 2000; and b) the Companies pro forma unaudited
consolidating statement of operations for the year ended December 31, 1999, as
if offering contemplated herein and the acquisition occurred on January 1, 1999.
This unaudited pro forma financial information does not purport to represent
what the Companies financial position or results of operations would actually
have been if such transactions in fact occurred on those dates, or to project
the Companies financial position or results of operations for any future date or
period. These unaudited pro forma consolidating financial statements should be
read in conjunction with the historical financial statements of SFBC
International, Inc. and Subsidiary and Pharmaceutical Development Associates,
Inc., and the Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere herein.
P-2
<PAGE>
--------------------------------------------------------------------------------
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Historical
--------------------------------------
SFBC Pharmaceutical
International, Inc. Development Pro Forma Pro Forma
and Subsidiary(1) Associates, Inc.(2) Adjustments Combined
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 2,303,116 $ 427,280 $ - $ 2,730,396
COST OF SALES 1,468,858 283,572 - 1,752,430
----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 834,258 143,708 - 977,966
GENERAL AND ADMINISTRATIVE EXPENSES 534,632 153,455 1,583 (6) 689,670
----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 299,626 ( 9,747) ( 1,583) 288,296
INTEREST EXPENSE 24,122 4,200 3,375 (3) 34,253
( 3,000) (4)
5,556 (5)
----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 275,504 ( 13,947) ( 7,514) 254,043
INCOME TAXES 106,000 - ( 9,500) (7) 96,500
----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 169,504 ($ 13,947) $ 1,986 $ 157,543
----------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 0.07
Diluted 0.06
----------------------------------------------------------------------------------------------------------------------------------
Shares used in computing earnings per share:
Basic 2,335,736
Diluted 2,445,736
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated
Statement of Operations.
P-3
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
NOTE 1. The column includes the historical consolidated results of
operations of SFBC International, Inc. and Subsidiary (the
Company) for the three month period ended March 31, 2000.
NOTE 2. The column includes the historical results of operations of
the business to be sold of Pharmaceutical Development
Associates, Inc. (PDA) for the eighty-nine day period ended
March 29, 2000.
NOTE 3. The adjustment gives effect for interest expense calculated at
9% per annum associated with the Company's $150,000 note
payable issued as of January 1, 2000 and assumes quarterly
payment of interest.
NOTE 4. The adjustment gives effect for a reduction in interest
expense associated with a $100,000 note payable not assumed by
the Company at a rate of 12% per annum.
NOTE 5. The adjustment gives effect for an increase in interest
expense of $11,250 associated with the Company's $450,000
advance on their line of credit at a rate of 10% per annum.
This increase is offset by a decrease in interest expense of
$5,694 associated with actual interest on the line of credit
for the quarter ended March 31, 2000.
NOTE 6. The adjustment gives effect for an increase in amortization
expense of $18,148 based upon goodwill of $725,913 recorded in
connection with the acquisition. Amortization of goodwill is
being computed over 10 years. The increase is offset by a
decrease in amortization of $16,565 associated with goodwill
of $662,598 not acquired by the Company.
NOTE 7. Income taxes have been adjusted to reflect the tax effects of
earnings on a pro forma basis using an effective income tax
rate of 38% as if the consolidated entity had been a C
Corporation for the quarter.
P-4
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Historical
--------------------------------------
SFBC Pharmaceutical
International, Inc. Development Pro Forma Pro Forma
and Subsidiary(1) Associates, Inc.(2) Adjustments Combined
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 8,309,143 $2,200,061 $ - $10,509,204
COST OF SALES 5,208,231 1,995,792 - 7,204,023
----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 3,100,912 204,269 - 3,305,181
GENERAL AND ADMINISTRATIVE EXPENSES 1,699,021 625,072 6,331 (6) 2,330,424
----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 1,401,891 ( 420,803) ( 6,331) 974,757
INTEREST EXPENSE 181,143 18,560 13,500 (3) 246,203
( 12,000)(4)
45,000 (5)
----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,220,748 ( 439,363) ( 52,831) 728,554
INCOME TAXES 620,000 - ( 343,000)(7) 277,000
----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 600,748 ($ 439,363) $290,169 $ 451,554
----------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 0.24
Diluted 0.23
----------------------------------------------------------------------------------------------------------------------------------
Shares used in computing earnings per share:
Basic 1,881,863
Diluted 1,961,132
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated
Statement of Operations.
P-5
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
NOTE 1. The column includes the historical consolidated results of
operations of SFBC International, Inc. and Subsidiary (the
Company) for the year ended December 31, 1999.
NOTE 2. The column includes the historical results of operations of
the business to be sold of Pharmaceutical Development
Associates, Inc. (PDA) for the year ended December 31, 1999.
NOTE 3. The adjustment gives effect for interest expense calculated at
9% per annum associated with the Company's $150,000 note
payable issued as of January 1, 1999 and assumes quarterly
payment of interest.
NOTE 4. The adjustment gives effect for a reduction in interest
expense associated with a $100,000 note payable not assumed by
the Company at a rate of 12% per annum.
NOTE 5. The adjustment gives effect for additional interest expense
associated with the Company's $450,000 advance on their line
of credit at a rate of 10% per annum.
NOTE 6. The adjustment gives effect for an increase in amortization
expense of $72,591 based upon the goodwill of $725,913
recorded in connection with the acquisition. Amortization of
goodwill is being computed over 10 years. The increase is
offset by a decrease in amortization of $66,260 associated
with goodwill of $662,598 not acquired by the Company.
NOTE 7. Income taxes have been adjusted to reflect the tax effects of
earnings on a pro forma basis using an effective income tax
rate of 38% as if the consolidated entity had been a C
Corporation for the year.
P-6
<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............................................ $3,352.80
Nasdaq Listing Fee.......................................... 11,000.00
NASD Filing Fee............................................. [update]
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....................................................... $*
===
o 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 has 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 and for
accredited investors also under Rule 506 thereunder. Under Item 26(a) each
person listed below, except for Mr. Arnold Hantman, our chief executive officer
exchanged his or her common stock of South Florida Kinetics, Inc. for our common
stock when we acquired South Florida Kinetics 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. Under Item 26(b),
the convertible noteholders converted their notes as of October 26, 1999.
We believe that 37 of the persons listed below were accredited
investors. The remaining persons were sophisticated investors, who were also
pre-existing stockholders of our subsidiary, South Florida Kinetics at the time
of the merger and our stockholders when they converted their notes.
(a)
<TABLE>
<CAPTION>
Amount of Consideration
Stockholder Class of Securities Securities Sold 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
and Mary L. Baldwin Family Trust accrued interest
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
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Amount of Consideration
Stockholder Class of Securities Securities Sold Received(1)
----------- ------------------- --------------- -----------
<S> <C> <C> <C>
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
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 and
U.D.T., dated February 18, 1984 accrued interest
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
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Amount of Consideration
Stockholder Class of Securities Securities Sold Received(1)
----------- ------------------- --------------- -----------
<S> <C> <C> <C>
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
Kurt H. Knecht convertible note $65,852.52 cancellation of note and
accrued interest
common stock 8,543 shares common stock
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, Margaret convertible note $43,076.33 cancellation of note and
Ann Miller, Trustee accrued interest
common stock 14,523 shares common stock
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Amount of Consideration
Stockholder Class of Securities Securities Sold Received(1)
----------- ------------------- --------------- -----------
<S> <C> <C> <C>
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
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
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Amount of Consideration
Stockholder Class of Securities Securities Sold Received(1)
----------- ------------------- --------------- -----------
<S> <C> <C> <C>
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
MDN Enterprises, 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 South
Florida Kinetics' notes.
(b)
<TABLE>
<CAPTION>
Amount of
Stockholder Class of Securities Securities Sold (1) Consideration Received
----------- ------------------- ------------------- ----------------------
<S> <C> <C> <C>
Maurice L. Baldwin c/o Maurice L. common stock warrant 4,209 conversion of note
and Mary L. Baldwin Family Trust
Robert P. Bisaillon common stock warrant 3,579 conversion of note
Roland W. Boone common stock warrant 5,686 conversion of note
Keith C. Carini, M.D. common stock warrant 1,917 conversion of note
Norman Cloutier common stock warrant 1,708 conversion of note
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Amount of
Stockholder Class of Securities Securities Sold (1) Consideration Received
----------- ------------------- ------------------- ----------------------
<S> <C> <C> <C>
Hilda S. Davis common stock warrant 4,209 conversion of note
Robert L. Dible common stock warrant 5,333 conversion of note
Robert Dudley common stock warrant 3,541 conversion of note
Rudolph Dickson common stock warrant 4,160 conversion of note
Howard L. Foglesong common stock warrant 1,772 conversion of note
Edmond W. and Georgia Gardiner common stock warrant 1,610 conversion of note
Harold T. and Ruth B. George Trustees common stock warrant 3,599 conversion of note
Dennis D. Glass common stock warrant 6,947 conversion of note
Margaret K. Greene common stock warrant 2,707 conversion of note
William and Helen A. Havel common stock warrant 3,611 conversion of note
Dennis Hieronymus common stock warrant 2,830 conversion of note
Frank L. Jenkins common stock warrant 1,532 conversion of note
Kurt H. Knecht common stock warrant 14,633 conversion of note
Philip A. and Linda C. Magyar common stock warrant 3,613 conversion of note
Edith L. Marion common stock warrant 4,919 conversion of note
Edith L. Marion common stock warrant 2,393 conversion of note
George L. and Linda J. May common stock warrant 1,831 conversion of note
Joanne B. May common stock warrant 4,130 conversion of note
Ann Miller (Miller Trust) common stock warrant 9,572 conversion of note
Patrick J. Murphy, M.D. common stock warrant 13,859 conversion of note
Jerry Nash common stock warrant 4,449 conversion of note
Howard Nunn, Jr., M.D. common stock warrant 3,568 conversion of note
Jay L. Rentzel common stock warrant 20,855 conversion of note
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Amount of
Stockholder Class of Securities Securities Sold (1) Consideration Received
----------- ------------------- ------------------- ----------------------
<S> <C> <C> <C>
Roscoe M. Smith common stock warrant 3,409 conversion of note
John and Mary Sviatek common stock warrant 12,583 conversion of note
Carl J. Wallace common stock warrant 3,485 conversion of note
Leo Watkins common stock warrant 7,671 conversion of note
Robert K. Wawrousek, Trustee common stock warrant 30,598 conversion of note
Joseph E. Webb common stock warrant 5,672 conversion of note
Gordon Wilbur common stock warrant 4,035 conversion of note
James R. and Mildred H. Williams common stock warrant 16,077 conversion of note
Raymond F. Zuczuski common stock warrant 3,467 conversion of note
Jerry Frost common stock warrant 4,619 conversion of note
Robert Reynoldson common stock warrant 4,874 conversion of note
Harold and Marilyn F. Chalmers common stock warrant 16,473 conversion of note
</TABLE>
(1) The number refers to the number of shares of common stock issued. The
warrant entitles each holder to purchase the number of shares of common
stock issued to the holder.
II-8
<PAGE>
Item 27. Exhibits.
Exhibit Number Description
-------------- -----------
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealer's Agreement
1.3 Form of Underwriter's Warrants
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.
10.1 Employment Agreement of Arnold Hantman
10.2 Employment Agreement of Lisa Krinsky, M.D.
10.3 Employment Agreement of Dr. Gregory Holmes (1)
10.4 Amended and Restated 1999 Stock Option Plan
10.5 Heller Healthcare Finance Loan Agreement, as amended
10.6 $383,000 Secured Note (1)
10.7 Employment Agreement of D. Scott Davis
10.8 Asset Purchase Agreement*
10.9 Strategic Alliance Agreement
10.10 Audit Committee Charter
21 Subsidiaries
23.1 Consent of Kaufman, Rossin & Co.
23.2 Consent of Michael Harris, P.A. (2)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
* Confidential Portions have been omitted and filed separately under an
application for Confidential Treatment.
(1) Contained in Form SB-2 filed on August 17, 1999
(2) Contained in Opinion of Michael Harris, P.A.
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:
II-9
<PAGE>
(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.
(c) We will provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to such purchaser.
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 Amendment No.
2 to the Registration Statement to be signed on its behalf by the undersigned,
in Miami, Florida, on the 19 day of July, 2000.
SFBC International, Inc.
By: /S/ ARNOLD HANTMAN
------------------------------
Arnold Hantman
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 2 to the registration statement on Form SB-2 was signed by the
following persons in the capacities and on the dates indicated.
II-10
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/S/ LISA KRINSKY, M.D. Chairman of the Board of Directors July 19, 2000
--------------------------------
Lisa Krinsky, M.D.
/S/ ARNOLD HANTMAN Director and Principal Financial Officer July 19, 2000
-------------------------------- and Accounting Officer
Arnold Hantman
/S/ JACK LEVINE Director July 19, 2000
--------------------------------
Jack Levine
/S/ DR. LEONARD WEINSTEIN Director July 19, 2000
--------------------------------
Dr. Leonard Weinstein
</TABLE>
II-11
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealer's Agreement
1.3 Form of Underwriter's Warrants
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.
10.1 Employment Agreement of Arnold Hantman
10.2 Employment Agreement of Lisa Krinsky, M.D.
10.3 Employment Agreement of Dr. Gregory Holmes (1)
10.4 Amended and Restated 1999 Stock Option Plan
10.5 Heller Healthcare Finance Loan Agreement, as amended
10.6 $383,000 Secured Note (1)
10.7 Employment Agreement of D. Scott Davis
10.8 Asset Purchase Agreement*
10.9 Strategic Alliance Agreement
10.10 Audit Committee Charter
21 Subsidiaries
23.1 Consent of Kaufman, Rossin & Co.
23.2 Consent of Michael Harris, P.A. (2)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
