As filed with the Securities and Exchange Commission on October 6, 2000
Registration No. 333-85429
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 5
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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.)
---------------
<TABLE>
<S> <C>
11190 Biscayne Blvd., 11190 Biscayne Blvd.,
Miami, FL 33181 Miami, FL 33181
(305) 895-0304 (305) 895-0304
(Address and telephone number (Address of principal place of business
or intended principal place of business) or intended principal place of business)
</TABLE>
Mr. Arnold Hantman
SFBC International, Inc.
11190 Biscayne Blvd.,
Miami, FL 33181
(305) 895-0304
(Name, address and telephone number of agent for service)
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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
1645 Palm Beach Lakes Blvd. Suite 3600
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
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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. [ ]
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.
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<PAGE>
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
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Proposed Proposed
Amount Maximum Maximum
Title of Each Class to be Offering Price Aggregate Amount of
of Securities To Be Registered Registered Per Security(1) Offering Price Registration Fee(2)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(3) .................... 1,437,500 $8.00 $11,500,000 $3,036.00
---------------------------------------------------------------------------------------------------------
Warrants(4)(5) ..................... 718,750 $.25 $179,687.50 $47.44
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Common Stock issuable upon
exercise of warrants(4)(5) ........ 718,750 $9.60 $6,900,000 $1,821.60
---------------------------------------------------------------------------------------------------------
Underwriter's purchase option --
common stock(5) ................... 125,000 $0.001 $125.00 $0
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Underwriter's purchase option --
warrants(5) ....................... 62,500 $0.001 $62.50 $0
---------------------------------------------------------------------------------------------------------
Common Stock issuable upon
exercise of the Underwriter's
purchase option(5) ................ 125,000 $12.80 $1,600,000 $422.40
---------------------------------------------------------------------------------------------------------
Warrants issuable upon exercise
of the underwriter's purchase
option(5) ......................... 62,500 $.40 $25,000 $6.60
---------------------------------------------------------------------------------------------------------
Common Stock issuable upon
exercise of the purchase option
warrants(5) ....................... 62,500 $15.36 $960,000 $253.44
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Total Registration Fee(6) ........................................................ $5,587.48
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<FN>
(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 of common stock initially offered and (ii)
187,500 shares issuable pursuant to the underwriter's over-allotment
option.
(4) Includes (i) 625,000 warrants initially offered and (ii) 93,750 warrants
issuable pursuant to the underwriter's over-allotment option.
(5) 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
warrants and the underwriter's purchase option.
(6) Due to an increase in the number of securities being registered, the
registration fee has increased by $2,234.68 over the previous fee due of
$3,352.80, which is being paid concurrently with the filing of this
Amendment No. 3.
</FN>
</TABLE>
<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 OCTOBER 6, 2000
PROSPECTUS
1,250,000 shares of common stock
and warrants to purchase 625,000 shares of common stock
SFBC International, Inc.
This is an initial public offering of common stock and warrants to
purchase common stock of SFBC International, Inc. You must purchase both common
stock and warrants in the ratio of two shares of common stock for each warrant.
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 and warrants
on the American Stock Exchange under the symbols "SFC" and "SFC.WS".
----------------
Investing in our common stock and warrants involves a high degree of risk. See
the risks, which are described in the "Risk Factors" section beginning on page
11 of this prospectus.
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Per Share Per Warrant Total
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Public offering price .................. $8.00 $ .25 $10,156,250
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Underwriting discounts ................. $0.80 $.025 $ 1,015,625
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Proceeds to SFBC International, Inc. ... $7.20 $.225 $ 9,140,625
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HD Brous & Co., Inc. as representative of our underwriters has a 45 day
option from SFBC International, Inc. to purchase up to 187,500 shares of our
common stock at $8.00 each and 93,750 warrants at $0.25 each less underwriting
discounts 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 securities will be
$8.00 per share of common stock and $.25 per warrant. The initial public
offering price may not reflect the market price after the offering. The
underwriters expect to deliver the common stock and warrants on , 2000.
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HD Brous & Co., Inc. American Fronteer Financial Corporation
----------------
The date of this prospectus is , 2000
<PAGE>
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TABLE OF CONTENTS
Page
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Prospectus Summary .................................................. 3
Risk Factors ........................................................ 11
Forward Looking Statements .......................................... 14
Use of Proceeds ..................................................... 15
Capitalization ...................................................... 16
Dilution ............................................................ 17
Selected Financial Data ............................................. 18
Management's Discussion and
Analysis of Financial Condition and Results of Operations .......... 21
Business ............................................................ 25
Management .......................................................... 36
Related Party Transactions .......................................... 41
Principal Stockholders .............................................. 42
Description of Securities ........................................... 43
Shares Eligible for Future Sale ..................................... 46
Plan of Distribution ................................................ 47
Legal Matters ....................................................... 49
Experts ............................................................. 49
Additional Information .............................................. 49
Index to Financial Statements ....................................... F-1
<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 14.
SFBC International
<TABLE>
<S> <C>
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. The United States Food & Drug Administration sets forth
very specific guidelines for human clinical trials testing a potential drug
or medical product. This testing is usually done in three or four stages
known as Phase I through Phase IV.
o Phase I involves testing a drug or product on a limited number of
healthy participants to determine how the drug or product is absorbed
by and eliminated from the body.
o Phase II involves testing a drug or product on approximately 200
participants suffering from the condition targeted by the drug or
product to determine the safety and effectiveness of the drug or
product.
o Phase III involves testing a drug or product on a large number of
participants to determine long term and large scale safety and
effectiveness of a drug or product.
o Phase IV involves continued testing after new drug approval, to
monitor long term effects of the drug or product.
</TABLE>
3
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<TABLE>
<S> <C>
In March 2000, we expanded into Phase III clinical trial work through
the acquisition of the assets of Pharmaceutical Development Associates,
Inc. 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 and a leading
provider of dermatology drug studies. It is also one of few established
providers of studies for potential new generic drugs in the United States
where the absorption of the drugs into the bloodstream cannot be
determined. These studies are large scale Phase III or Phase IV clinical
trials in which the proposed generic drug is compared to the brand name
drug. These studies began to be required by the Food and Drug
Administration 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 quickly accommodate 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 Diabetics
o Geriatrics
o Kidney disease
o Ophthalmology
o Pediatrics
o Liver diseases
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
o Post-menopausal females
o HIV positive
o Dermatology
Combining our revenues with the revenues of Pharmaceutical
Development Associates in the year ended December 31, 1999, we
derived approximately 38.1% of our revenues from R.W. Johnson,
Abbott Laboratories and Clay Park, Inc.
Although we derived approximately 85% of our revenues from Phase 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
with 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
comprehensive 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.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
6
<PAGE>
The Offering
<TABLE>
<S> <C>
Securities offered ............................ 1,250,000 shares of common stock and 625,000 warrants to
purchase shares of common stock. You must purchase both
common stock and warrants in the ratio of two shares of
common stock for each warrant.
Description of common stock
Common stock outstanding
immediately prior to this offering ......... 2,335,736 shares
Common stock outstanding 3,589,642 shares. The number of shares outstanding does
immediately following this offering not include 625,000 shares of common stock issuable upon
exercise of the warrants offered by this prospectus.
Description of the warrants
Exercise Price ............................... Each warrant will entitle you to purchase one share of
common stock at $9.60 per share, subject to adjustment.
Exercise Period .............................. Unless we redeem the warrants, you may exercise the
warrants at any time during the period commencing one
year from the date of this prospectus, or earlier with the
consent of HD Brous , until , 2005.
Redemption ................................... When the warrants become exercisable, we may redeem
the warrants at a price of $.25 per warrant if the closing
price of our common stock for each day of a 20 trading
day period ending not earlier than three trading days prior
to the date the warrants are called for redemption is at
least $20.00.
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 relocation to a larger
facility,
o Expansion of our business development and marketing
efforts,
o Opening of 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.
</TABLE>
7
<PAGE>
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.
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 supplemental pro forma unaudited selected statement of operations data
for the year ended December 31, 1999, includes the pro forma unaudited selected
statement of operations amounts and also gives effect to the repayment of debt
and accrued interest with the use of the proceeds of the offering as if the
repayment occurred on January 1, 1999.
The unaudited selected statement of operations data for the six months
ended June 30, 1999 and 2000, includes our actual results of operations for the
six month periods then ended.
The pro forma unaudited selected statement of operations data for the six
month period ended June 30, 2000, includes our actual results of operations and
those of Pharmaceutical Development Associates as if we acquired its assets on
January 1, 2000.
The supplemental pro forma unaudited selected statement of operations data
for the six month period ended June 30, 2000, includes the pro forma unaudited
selected statement of operations amounts and also gives effect to the repayment
of debt and accrued interest with the use of the proceeds of the offering as if
the repayment occurred 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 $8,436,000
from our sale of 1,250,000 shares of common stock in and 625,000 warrants in
this offering at an initial public offering price of $8.00 per share and $.25
per warrant, as well as the initial application of these proceeds to repay our
debt in connection with our line of credit, our notes payable to the former
minority stockholders and the accrued interest on those notes payable to the
former minority stockholders.
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.
8
<PAGE>
Statement of Operations Data:
<TABLE>
<CAPTION>
Supplemental
Pro Forma
Year Ended
Historical Year Ended December 31, December 31,
---------------------------------------------------- ----------------
1998 1999 1999 1999
--------------- --------------- ---------------- ----------------
Actual Actual Pro Forma Pro Forma
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales ........................................ $ 5,869,987 $ 8,309,143 $ 10,509,204 $ 10,509,204
Operating income ................................. 707,300 841,771 414,637 414,637
Provision for income taxes ....................... -- 410,000 118,000 148,000
Net income ....................................... $ 507,716 $ 250,628 $ 193,371 $ 241,075
Additional pro forma statement of operations
data (unaudited)(1):
Income before provision for income taxes ......... $ 507,716 $ 660,628 $ 311,371 $ 389,075
Provision for income taxes ....................... 191,000 251,000 118,000 148,000
Pro forma net income ............................. $ 316,716 $ 409,628 $ 193,371 $ 241,075
Shares used in computation of pro forma net
income per share(2) ............................ 1,520,000 1,881,863 1,881,863 1,993,332
Pro forma net income per share ................... $ 0.21 $ 0.22 $ 0.10 $ 0.12
=========== =========== ============ ============
</TABLE>
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(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 six months
ended June 30, 1999.
(2) The number of shares in the Supplemental Pro Forma column increased from
1,881,863 to 1,993,332 as the result of the issuance of 111,469 shares of
common stock to repay debt.
<TABLE>
<CAPTION>
Supplemental
Pro Forma Pro Forma
Historical Six Month Six Months Six months
Period Ended June 30, June 30, June 30,
--------------------------------- --------------- ---------------
1999 2000 2000 2000
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales ............................... $ 3,944,523 $ 6,846,794 $ 7,274,074 $ 7,274,074
Operating income ........................ 440,695 1,370,594 1,359,264 1,359,264
Provision for income taxes .............. 144,000 502,000 474,000 505,000
Net income .............................. $ 194,418 $ 766,873 $ 773,412 $ 822,948
Additional pro forma statement of
operations data (unaudited)(1):
Income before provision for income
taxes ................................. $ 338,418 -- -- --
Provision for income taxes .............. 129,000 -- -- --
Pro forma net income .................... $ 209,418 $ -- $ -- $ --
Shares used in computation of pro
forma net income per share(2) ......... 1,606,630 2,335,736 2,335,736 2,555,995
Pro forma net income per share .......... $ 0.13 $ 0.33 $ 0.33 $ 0.32
=========== =========== =========== ===========
</TABLE>
9
<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 six months
ended June 30, 1999.
(2) The number of shares in the Supplemental Pro Forma column increases from
2,335,736 to 2,555,995 as the result of the issuance of 220,259 shares of
common stock to repay debt.
Balance Sheet Data:
<TABLE>
<CAPTION>
June 30, 2000
----------------------------
Pro Forma
Actual as Adjusted
------------ -------------
<S> <C> <C>
Cash ......................................................... $ 906,094 $7,810,143
--------- ----------
Working capital .............................................. 1,724,732 9,086,726
--------- ----------
Total assets ................................................. 6,576,971 13,481,020
--------- ----------
Long-term debt--current portion and accrued interest ......... 493,947 184,858
--------- ----------
Long-term debt ............................................... 1,262,246 163,237
--------- ----------
Total liabilities ............................................ 4,939,118 3,382,164
--------- ----------
Total stockholders' equity ................................... 1,637,853 10,098,856
--------- ----------
</TABLE>
Unless otherwise stated, the information in this prospectus does not give
effect to:
o the 625,000 shares of common stock issuable upon exercise of the warrants
offered by this prospectus,
o The 125,000 shares of common stock issuable upon exercise of HD Brous'
purchase option and the 62,500 shares of common stock issuable upon
exercise of the warrants contained in the purchase option,
o HD Brous' 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 640,667 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.
10
<PAGE>
RISK FACTORS
An investment in our common stock and warrants involves a high degree of
risk, and you should purchase our common stock and warrants 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 and warrants.
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, R.W. Johnson, Abbott Laboratories and Clay
Park, Inc., accounted for approximately 38.1% of our revenues, after 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. This kind of
client concentration in the contract research organization industry is common,
and we expect it to continue. Our largest clients vary from year to year,
because revenues from our individual clients fluctuate. 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
11
<PAGE>
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.
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.
12
<PAGE>
If you purchase our shares of common stock, you will suffer substantial
dilution
Investors who pay $8.00 for a share of common stock will suffer dilution
of $5.42 per share or approximately 68% of the purchase price.
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 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. Additionally, management's voting control may depress the future
market price of the common stock and warrants offered by this prospectus.
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. but
does not include the common stock issuable upon exercise of the 625,000
warrants we are selling in this offering. These 1,250,000 shares of common
stock and the 625,000 warrants may be separately resold in the public market
immediately. The remaining shares may be publicly sold following expiration of
agreements with HD Brous 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
641,230 shares upon exercise of options and 12 months from the date of this prospectus
currently outstanding warrants
625,000 shares upon exercise of warrants sold in 12 months from the date of this prospectus
this offering
</TABLE>
The warrants offered for sale by this prospectus may not be exercised unless a
current registration statement is in effect with the Securities and Exchange
Commission and the shares of common stock issuable upon exercise of the
warrants are qualifieed for sale under the securities laws of each state in
which the warrant holders reside
The warrrants offered for sale by this prospectus are not exercisible for
one year, or earlier with the consent of HD Brous. Unless at the time of
exercise a current registration statement is in effect with the Securities and
Exchange Commission, the warrants may not be exercised. Additionally, at the
13
<PAGE>
time of exercise the shares of common stock issuable upon exercise of the
warrants must be qualified for sale in each state in which a warrant holder
resides. If both of these conditions are not met, the warrants will expire
without value unless they are redeemed in which case investors will receive
only the redemption price even though the fair market value of the warrants
shall be substantially higher.
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 11.
14
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds from the offering to be approximately
$8,436,000, or $9,761,000 if HD Brous 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:
<TABLE>
<CAPTION>
Approximate
Net Proceeds % of Total
-------------- ------------
<S> <C> <C>
Acquisitions ................................................................ $2,500,000 29.6%
Repayment of line of credit ................................................. 268,000 3.2%
Repayment of past-due minority stockholders' notes .......................... 450,000 5.3%
Expansion of clinic or relocation to larger facility ........................ 1,000,000 11.9%
Purchase of computer hardware and software and medical equipment ............ 350,000 4.1%
Expansion of our marketing program including hiring additional personnel 250,000 3.0%
Opening of clinical laboratory .............................................. 500,000 5.9%
Website development ......................................................... 75,000 0.9%
Working capital ............................................................. 3,043,000 36.1%
---------- -----
TOTAL ....................................................................... $8,436,000 100.0%
========== =====
</TABLE>
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. We do not intend to consider making this acquisition unless and until
we have an opportunity to review audited financial statements of this business.
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 Heller Healthcare
Finance, Inc. 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 12 of our minority stockholders, which bear 10% interest
per annum. These minority stockholders are not officers, directors or 5%
stockholders of SFBC. These notes are past due. We have not paid these notes
because no request for payment has been made.
A substantial portion of the proceeds has been allocated to working
capital. We may use a substantial portion of the proceeds devoted to working
capital to support the growth of our business pending collection of our
accounts receivable. We use our line of credit to supplement our working
capital. The amount available for use to borrow under our line of credit varies
from day-to-day. As we collect our accounts receivable, we pay down our line of
credit.
Based upon our contemplated operations, business plans, 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. These may include changes in our business plans, new government
regulations, changing industry conditions, and future revenues and
expenditures. 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.
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
15
<PAGE>
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.
Pending the use of proceeds as disclosed above, we intend to invest the
net proceeds in the United States Government securities, short-term of
certificates of deposit, money market funds or other short-term,
interest-bearing investment grade securities.
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;
o our repayment of notes payable and accrued interest to our minority
stockholders;
o our conversion of a minority stockholder's note payable into common
stock;
o our receipt of the net proceeds of this offering.
<TABLE>
<CAPTION>
June 30, 2000
------------------------------
Actual As Adjusted
------------- --------------
(Unaudited)
<S> <C> <C>
Accrued interest on minority stockholders' notes payable ................... $ 148,856 $ -0-
Long term debt current portion .............................................
Notes payable--minority stockholders ....................................... 309,089 -0-
Current portion of all other long-term debt ................................ 184,858 184,858
Long term debt .............................................................
Line of credit ............................................................. 1,099,009 -0-
All other long-term debt ................................................... 163,237 163,237
Total debt and accrued interest on minority stockholders' notes ............ 1,905,049 348,095
========== ===========
Stockholders' equity
Preferred stock, par value $.10 per share; 5,000,000 shares authorized,
no shares issued or outstanding ......................................... -0- -0-
Common stock, par value $.001 per share, 20,000,000 shares authorized,
2,335,736 shares issued and outstanding as of June 30, 2000 and
3,589,642 shares issued and outstanding as adjusted ..................... 2,336 3,590
Additional paid-in capital ............................................... 1,965,756 10,425,505
Deficit .................................................................. (330,239) (330,239)
---------- -----------
Stockholders' equity ....................................................... 1,637,853 10,098,856
---------- -----------
Total capitalization ....................................................... $3,542,902 $10,446,951
========== ===========
</TABLE>
16
<PAGE>
Except as otherwise stated, the outstanding shares of common stock
referred to in this prospectus do not include:
o 625,000 shares of common stock issuable upon the exercise of the warrants
offered by this prospectus;
o 700,000 shares of common stock issuable under our 1999 stock option plan,
of which we have granted options to purchase 640,667 shares;
o 187,500 shares of common stock which may be issued through exercise of HD
Brous' common stock over-allotment option and 93,750 shares of common
stock which may be issued upon exercise of the warrants obtained through
exercise of HD Brous' warrant 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 20 month
period commencing with the closing of this offering; and
o 125,000 shares of common stock, and 62,500 shares issuable upon exercise
of warrants, contained in HD Brous' purchase option.
We will have three classes of warrants outstanding following this
offering:
o warrants offered by this prospectus to purchase 625,000 shares of common
stock exercisable at $9.60 per share;
o minority stockholder warrants to purchase 255,736 shares of common stock
exercisable at $8.00 per share; and
o minority stockholder warrants to purchase 4,846 shares at $9.60 per
share.
Additionally, if HD Brous exercises its purchase option and acquires
warrants at $.40 per warrant, we will have up to 62,500 warrants, exercisable
at $15.36, outstanding. The purchase option is not exercisable for one year
from the date of this prospectus.
DILUTION
As of June 30, 2000, the net tangible book value of our common stock was
$930,086, or approximately $.40 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 June 30, 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 be $9,255,089 or $2.58 per share. This change in pro forma net tangible
book value represents an immediate increase in net tangible book value per
share of approximately $2.18 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 $5.42 to investors buying our common stock in this offering. The
numbers contained in this section do not give effect to the increase in net
tangible book value arising from the sale of the warrants.
17
<PAGE>
The following table illustrates the dilution of one share of common stock
as of June 30, 2000:
<TABLE>
<CAPTION>
Per Share of
Common Stock
---------------------------
<S> <C> <C>
Initial public offering price per share ............................... $ 8.00
Net tangible book value per share at June 30, 2000 ................... $ .40
Increase per share attributable to investors in this offering ........ $ 2.18
------
Pro forma net tangible book value per share after this offering ....... $2.58(1)
Dilution to public investors in this offering ......................... $5.42(1)
==========
<FN>
----------------
(1) If HD Brous 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 $.22 and dilution to
investors in this offering of $5.20 per share.
</FN>
</TABLE>
The following table summarizes on a pro forma basis as of June 30, 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>
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 Pharmaceutical Development Associates for the years
ended December 31, 1999 and 1998. The pro forma financial statements for 1999
and the six months ended June 30, 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.
18
<PAGE>
Statement of Operations Data
SFBC International, Inc.
<TABLE>
<CAPTION>
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 2,259,141
Income from operations .............................................. 76,957 707,300 841,771
Interest expense .................................................... 239,707 199,584 181,143
Income (loss) before income taxes ................................... (162,750) 507,716 660,628
Provision for income taxes .......................................... -- -- 410,000
Net income (loss) ................................................... $ (162,750) $ 507,716 $ 250,628
========== =========== ===========
Pro forma (unaudited):(1)
Income (loss) as reported before provision for income taxes ......... $ (162,750) $ 507,716 $ 660,628
Provision for income taxes (benefit) ................................ (61,000) 191,000 251,000
---------- ----------- -----------
Pro forma net income (loss) ......................................... $ (101,750) $ 316,716 $ 409,628
========== =========== ===========
Shares used in computation of pro forma net income (loss) per
share(2) .......................................................... 1,520,000 1,520,000 1,881,863
========== =========== ===========
Pro forma net income (loss) per share(2) ............................ $ (0.07) $ 0.21 $ 0.22
========== =========== ===========
<FN>
----------------
(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 historical number of shares of common stock outstanding.
</FN>
</TABLE>
Pharmaceutical Development Associates Inc.
<TABLE>
<CAPTION>
(Unaudited)
(Unaudited) Supplementary
Pro Forma Pro Forma
Combined Combined
Year Ended December 31, Year-Ended Year-Ended
----------------------------- December 31, December 31,
1998(3) 1999(3) 1999(4) 1999(5)
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales ................................... $3,151,593 $2,200,061 $10,509,204 $10,509,204
Cost of Sales ............................... 2,674,533 1,995,792 7,204,023 7,204,023
Gross profit ................................ 477,060 204,269 3,305,181 3,305,181
General and administrative expenses ......... 482,522 625,072 2,890,544 2,890,544
Income (loss) from operations ............... (5,462) (420,803) 414,637 414,637
Interest expense ............................ 15,202 18,560 103,266 25,562
Income (loss) before income taxes ........... (20,664) (439,363) 311,371 389,075
Provision for income taxes .................. -- -- 118,000 148,000
Net income (loss) ........................... $ (20,664) $ (439,363) $ 193,371 $ 241,075
========== ========== =========== ===========
<FN>
----------------
(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.
(5) Includes the same information as in the column entitled "Pro Forma Combined
Year-Ended December 31, 1999" and gives effect to the repayment of debt
and accrued interest with the use of the proceeds of the offering as if
the repayment occurred on January 1, 1999.
</FN>
</TABLE>
19
<PAGE>
SFBC International, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Supplementary
Pro Forma Pro Forma
Six Months Six Months
Six Months Ended Ended Ended
June 30, 2000 June 30, 2000(6) June 30, 2000(7)
------------------ ------------------ -----------------
<S> <C> <C> <C>
Net sales .................................... $ 6,846,794 $7,274,074 $7,274,074
Cost of Sales ................................ 3,840,603 4,124,175 4,124,175
Gross profit ................................. 3,006,191 3,149,899 3,149,899
General and administrative expenses .......... 1,635,597 1,790,635 1,790,635
Income (loss) from operations ................ 1,370,594 1,359,264 1,359,264
Interest expense ............................. 101,721 111,852 31,316
Income (loss) before income taxes ............ 1,268,873 1,247,412 1,327,948
Provision (benefit) for income taxes ......... 502,000 474,000 505,000
Net income (loss) ............................ $ 766,873 $ 773,412 $ 822,948
=========== ========== ==========
<FN>
----------------
(6) Includes the operations of the business we acquired on March 29, 2000 as if
we acquired it on January 1, 2000.
(7) Includes the same information as in column entitled "Pro Forma Six Months
Ended June 30, 2000" and gives effect in the repayment of debt and accrued
interest with the use of the proceeds of the offering as if the repayment
occurred on January 1, 2000.
</FN>
</TABLE>
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 and 625,000 warrants
at an assumed price of $.25 per warrant 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
stockholders; and
o our conversion of a minority stockholder's note payable into common
stock.
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
------------------------------
Pro Forma,
Actual As Adjusted
------------- --------------
<S> <C> <C>
Cash ........................................................ $ 906,094 $ 7,810,143
Working capital ............................................. 1,724,732 9,086,726
Total assets ................................................ 6,576,971 13,481,020
Long-term debt current portion and accrued interest ......... 493,947 184,858
Long-term debt .............................................. 1,262,246 163,237
Total liabilities ........................................... 4,939,118 3,382,164
Total stockholders' equity .................................. $1,637,853 $10,098,856
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with the financial statements and related
notes included in another part of the prospectus and which are deemed to be
incorporated into this section. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in those forward-looking statements as a
result of certain factors, including but not limited to, those contained in
other sections of this prospectus 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 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.
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 Pharmaceutical Development
Associates. We purchased certain assets of Pharmaceutical Development
Associates on March 29, 2000, which essentially coincided with the end of our
fiscal quarter. All information for the six months ended June 30, 2000 includes
the results of operations and cash flows of our new subsidiary,
SFBC/Pharmaceutical Development Associates, Inc. since the date of acquisition.
No financial information for Pharmaceutical Development Associates is included
for the comparable period ended in 1999.
Results of Operations.
Six Months Ended June 30, 1999 and 2000.
Our net sales for the six months ended June 30, 2000 increased to
$6,846,794 from $3,944,523, or an increase of approximately 73.6% over the same
period in 1999.
Our gross profit margins increased from 39.7% for the six months ended
June 30, 1999 to 43.9% for the six months ended June 30, 2000. The increase is
attributable to variance in our mix of contracts as well as the acquisition of
Pharmaceutical Development Associates which maintained higher gross profit
margins. Gross profit margins of Pharmaceutical Development Associates vary
from year to year depending on the mix of its 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 $511,062 or 45.4%
during the six months ended June 30, 2000 in comparison to the same period in
1999. We believe that this increase is directly attributable to our increased
staff including those employed by SFBC/Pharmaceutical Development Associates.
Additionally, Dr. Gregory B. Holmes joined us in February 1999 and another
executive was not employed by us at all during the first quarter of 1999.
In February 1999, our Phase I and II subsidiary, South Florida Kinetics,
hired Dr. Gregory B. Holmes as executive vice president of clinical operations.
It issued 160,000 options to Dr. Holmes exercisable at $1.25 per share. When we
accquired South Florida Kinetics in June 1999, we re-issued
21
<PAGE>
the options to Dr. Holmes on the same terms. We are incurring expenses of
$680,000 from these options including approximately $85,000 which we incurred
in the six months ended June 30, 2000, and $220,000 which we incurred in the
six months ended June 30, 1999. As the result of these options, we will incur
additional expenses of approximately $85,000 for the balance of this year,
approximately $170,000 in 2001 and approximately $35,000 in 2002.
Our interest expense for the six months ended June 30, 2000 was
essentially unchanged compared to the same period in 1999 although the
components of our indebtness have changed. We expect interest expense to
increase in the third quarter because of our use of our line of credit. We did
not draw on our line of credit until March 14, 2000. At August 31, 2000, we
owed $268,000 on the line of credit. Depending on our current circumstances,
this amount is subject to frequent fluctuation.
Our income before income taxes for the six months ended June 30, 2000 was
$1,268,873, in contrast to $338,418 for the same period in 1999. After
provision for income taxes, our net income was $766,873 for the six months
ended June 30, 2000 in contrast to $194,418 for the same period in 1999.
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
its net sales will exceed $1,000,000.
Years Ended December 31, 1998 and 1999.
Without including SFBC/Pharmaceutical Development Associates, 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 pharmaceutical and biotechnology companies and a growing recognition of the
high-quality services we provide to our clients. Net sales of Pharmaceutical
Development Associates 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.
Without including Pharmaceutical Development Associates, 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 $935,377 or
approximately 70.7% over 1998. The major increases came from expenses
attributable to Dr. Holmes' options of $304,583 and $255,537 in expenses
related to the delay of this offering. We initially filed our first
registration statement in August 1999. The delay in proceeding resulted in our
incurring $255,537 as general and administrative expenses in 1999 rather than
reflecting them as an asset on our balance sheet at December 31, 1999. Other
large expenses increases include 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 Pharmaceutical
Development Associates 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
Pharmaceutical Development Associates 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 assets of
Pharmaceutical Development Associates.
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Without including Pharmaceutical Development Associates, our income before
income taxes for 1999 was $660,628, in contrast to $507,716 for 1998. In 1999,
we recorded $410,000 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.
Pharmaceutical Development Associates 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 $311,371 before taxes and $193,371 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 20-month period beginning
upon the closing of this offering.
Not including our acquisition of Pharmaceutical Development Associates,
net cash provided by operating activities was $292,300 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 plus additional compensation expense recorded in
connection with stock options issued to Dr. Holmes. This compensation expense,
did not reduce our cash. 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 six months ended June 30, 2000, net cash
provided by operating activities was $394,364 in contrast to $471,823 in the
first six months of 1999 despite a large increase in income from operations.
The decrease is primarily due to the increase in accounts receivable for the
six months ended June 30, 2000.
As a result of its 1999 loss, Pharmaceutical Development Associates 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.
Not including Pharmaceutical Development Associates, net cash used in
financing activities was $3,090 for the year ended December 31, 1999 and $7,145
for 1998. These funds were used to make loan payments. Pharmaceutical
Development Associates used $21,964 in financing activities in 1999 and $8,564
in 1998. These funds were used to make capital lease payments.
For the six months ended June 30, 2000, net cash provided by financing
activities was $724,860. In the six months 1999, we used $41,329 of cash in
financing activities. The major items this year 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. 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
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also in 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%. Pharmaceutical Development Associates provided $34,430 in 1999
as compared to $156,518 in 1998 from investing activities, primarily as the
result of advances from its former parent and affiliates. During the six months
of 2000, we used $501,415 in investing activities, as the result of our using
existing cash to make the acquisition, purchase equipment, and to make loans to
Lee Coast Research.
On January 31, 2000, we entered into a revolving line of credit with
Heller Healthcare Finance, Inc. 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 Heller Healthcare Finance an annual rate of interest equal to
13/4% 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 Heller
Healthcare Finance a first lien on all of our assets. We initially used
$308,500 from this line of credit to repay acquisition debt. Mr. Arnold
Hantman, our chief executive officer, guaranteed this debt. At the time of our
acquisition of South Florida Kinetics on June 7, 1999, we owed $191,500 to Mr.
Hantman. This amount is being repaid in monthly installments of $20,000. As of
August 31, 2000, we owed $140,129 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 August 31, 2000, we owed $268,000 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 SFBC/Pharmaceutical Development Associates.
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
SFBC/Pharmaceutical Development Associates 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.
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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 Phase I and Phase II
clinical trials and believe we are one of the leading United States companies
in recruiting participants for special populations in Phase I and Phase II
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 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 , and act as a
holding company for our two subsidiaries:
o South Florida Kinetics, Inc., formed in 1995, and
o SFBC/Pharmaceutical Development Associates, Inc., formed in March 2000.
On June 7, 1999, we merged with our predecessor, Bio Clinic Management
Company. At the time of the merger, our chief executive officer, Mr. Arnold
Hantman was the sole stockholder of Bio Clinic Management Company. We were the
surviving entity in the transaction. Also, on June 7, 1999, we acquired South
Florida Kinetics in exchange for 1,572,756 shares of our common stock. Dr. Lisa
Krinsky, our president, was the founder and principal stockholder of South
Florida Kinetics and as a result of the acquisition, became our principal
stockholder.
We currently conduct our Phase I and II business through South Florida
Kinetics. On March 29, 2000, our subsidiary, SFBC/Pharmaceutical Development
Associates acquired the assets of Pharmaceutical Development Associates, a
contract research organization focused on managing Phase III clinical trials at
multiple sites. Over the past three years, South Florida Kinetics' business has
increased. See the results of operations for 1997-99 at page of this
prospectus which reflects South Florida Kinetics' growth.
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:
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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 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
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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 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
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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 transferring.
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. According 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.
Some of our clients and other companies that we work with are as follows:
<TABLE>
<CAPTION>
Pharmaceutical Companies Biotechnology Companies Contract Research Organizations
----------------------------- --------------------------------- -------------------------------
<S> <C> <C>
Abbott Laboratories Immunex Corp. Quintiles Transnational Corp.
Bristol-Myers Squibb Company Medeva Americas, Inc. Phoenix International
Glaxo Wellcome Inc. Genaissance Pharmaceuticals, Inc. PPD, Inc.
Johnson & Johnson, Inc. Celtrix Pharmaceuticals, Inc. Premier Research
Merck & Co., Inc. Elan Corp, PLC
Pfizer, Inc. Hughes Institute
Agouron Pharmaceuticals, Inc.
Sarawak Medichem
Pharmaceuticals, Inc.
</TABLE>
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 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 SFBC/Pharmaceutical Development Associates; the balance
must be retained by the subsidiary.
The Possible Additional Purchase Price.
Depending upon the net income of SFBC/Pharmaceutical Development
Associates, we may pay the seller additional money for the assets we purchased.
This additional sum cannot exceed $600,000
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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 SFBC/Pharmaceutical
Development Associates $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 SFBC/Pharmaceutical Development
Associates from Clay Park, Inc. exceed a total of approximately $2,600,000 in
2000 and 2001 combined, we will pay the seller five percent of the excess
amount. The payment, if any, will be due on 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 SFBC/Pharmaceutical Development
Associates and not through South Florida Kinetics until January 1, 2003. The
seller insisted on this condition, so we could not divert business to South
Florida Kinetics to avoid paying the additional consideration.
The Marketing Agreement.
As a condition of our purchase of the assets, SFBC/Pharmaceutical
Development Associates 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 of two to five percent of net sales from clinical trials
referred to Lee Coast Research by SFBC/Pharmaceutical Development Associates,
depending on the type of study and management of the clinical trials. 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
SFBC/Pharmaceutical Development Associates, 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 clinical trials of generic drugs. LeeCoast
Research is owned by Clinical Site Services Corp., which also owns
Pharmaceutical Development Associates.
Option to Purchase LeeCoast Research.
We 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 12-month period beginning 30 days from
the date of the closing of the offering.
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.
LeeCoast Research has not sent us the monthly financial reports. Our
management has decided not to consider exercising the option until it reviews
audited financial statements which reflect LeeCoast Research's financial
condition and operating history. We have asked LeeCoast Research to
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obtain audited financial statements for 1999 and the nine months ended
September 30, 2000. We do not expect the audit to be completed until late
November or December of this year.
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 SFBC/Pharmaceutical Development Associates' 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 of this
prospectus for a summary of our agreement with Mr. Davis.
SFBC/Pharmaceutical Development Associates entered into an exclusive a
two-year consulting agreement with a corporation owned by Mr. George Gessner, a
former employee of the seller who is engaged in brokering clinical trial
studies. The consultant's duties relate to obtaining new contracts for
SFBC/Pharmaceutical Development Associates, South Florida Kinetics and Lee
Coast Research. We are currently negotiating an employment agreement with Mr.
Gessner which would terminate the consulting agreement.
SFBC/Pharmaceutical Development Associates 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 SFBC/Pharmaceutical Development Associates 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.
Our Strategies
Our objective is to become the provider of choice of comprehensive
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 Geriatrics
o Diabetics o Kidney disease
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o Ophthalmology o Pediatrics
o HIV positive o Liver diseases
o Dermatology o Post-menopausal females
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
Pharmaceutical Development Associates, 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 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 Pharmaceutical Development
Associates, 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 Pharmaceutical Development
Associates, three clients accounted for approximately 52% of our revenues.
This change from year-to-year is best illustrated by the following table
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Year
--------
1997 Purdue Frederick Noven Abbott Laboratories
Pharmaceutical Company
1998 Purdue Frederick R.W. Johnson Alcon Laboratories
Pharmaceutical Company
1999 Clay Park, Inc. R.W. Johnson Abbott Laboratories
We also perform clinical trial services for leading contract research
organizations. In 1999 and 2000, we 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.
This year we expanded this marketing strategy by participating in
professional trade shows. 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, we entered into a two-year consulting agreement with a corporation
owned by Mr. George Gessner which is referred to on page of this
prospectus. The consultant is required to devote substantial time to marketing
and soliciting new business for us in exchange for an annual fee of $108,000
payable monthly. In addition, the consultant may receive a commission of 1.25%
on sales generated from specific existing customers.
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. SFBC/Pharmaceutical Development
Associates 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
32
<PAGE>
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 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.
33
<PAGE>
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 care and security
procedures to safeguard and account for all controlled substances. We have an
outstanding record of regulatory compliance relating to our clinical trials. 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.
34
<PAGE>
Our Employees
We currently have 76 full-time employees consisting of the following:
Category Number
-------------------------------------- -------
Executive officers ................ 4
Management ........................ 5
Supervisors ....................... 5
Technical ......................... 8
Accounting ........................ 3
Sales ............................. 4
Clinical .......................... 24
Clerical .......................... 15
Kitchen and housekeeping .......... 8
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 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.
SFBC/Pharmaceutical Development Associates leases 3,988 square feet
located in Charlotte, North Carolina. The lease is for a three-year term
commencing May 1, 2000. Our subsidiary is required to pay monthly rent of
approximately $5,000 in the first year, $5,384 in the second year, and $5,783
in the final year. Mr. D. Scott Davis, president of SFBC/Pharmaceutical
Development Associates, guaranteed the lease.
Legal Proceedings
We are not a party to any material legal proceedings.
35
<PAGE>
MANAGEMENT
Directors and Executive Officers
<TABLE>
<S> <C> <C>
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
</TABLE>
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. We are seeking
to hire a new chief financial and accounting officer who has public company
business or auditing experience. Previously, Mr. Hantman 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.
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
36
<PAGE>
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.
[In March 1996, Mr. Levine became a director of Bankers Savings Bank of Coral
Gables, Florida. He continued to serve in this capacity until November 1998,
when Bankers Savings Bank 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.
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.
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 American Stock Exchange, 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.
37
<PAGE>
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 $100,000 during 1999.
Summary Compensation Table
Annual Compensation
-------------------------------
(a) (b) (c) (i)
All Other
Name and Principal Position Year Salary($) Compensation ($)
------------------------------------- ------ ----------- -----------------
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 $101,996 0
executive vice president of
clinical operations
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:
<TABLE>
<CAPTION>
Year 1999 2000 2001 2002 2003
---------------------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net pre-tax income ... $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000
</TABLE>
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:
38
<PAGE>
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
stockholder 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.
Effective March 29, 2000, we entered into a three-year employment
agreement with Mr. D. Scott Davis, president of SFBC/Pharmaceutical Development
Associates. 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 71/2% of the adjusted net income of
SFBC/Pharmaceutical Development Associates 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 SFBC/Pharmaceutical Development Associates. 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
SFBC/Pharmaceutical Development Associates' 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 $4,000.
39
<PAGE>
Stock Option Plan
In June 1999, we adopted our 1999 stock option plan. We may issue
incentive stock options, as defined in the Internal Revenue Code of 1986, or
non-qualified stock options to purchase up to 700,000 shares of common stock
under the plan. We have issued stock options to purchase an aggregate of
640,667 shares of common stock to 38 employees, two non-employee directors and
three independent contractors including the executive officers listed in the
table below. Under our 1999 stock option plan, our non-employee directors
receive grants of 15,000 options upon election or appointment to our board of
directors and again after all prior options have vested.
The following table contains information concerning grants of options to
our named executive officers during the last fiscal year.
Individual Grants
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
% of Total
Number of Options Granted
Securities Underlying to Employees in Exercise or Base Expiration
Name Options/SARs Granted Last Fiscal Year Price ($/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% $6.60 08/03/2004
</TABLE>
----------------
The table below shows information with respect to the exercise of options
to purchase our common stock by each of our named executive officers listed in
the option grants table shown above, as of December 31, 1999, and the
unexercised options held and the value at that date.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
<TABLE>
<CAPTION>
(a) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options/SARs Options/SARs At
At FY-End FY-End ($) (1)
------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Dr. Lisa Krinsky .............. 16,667 83,333 $ 23,334 $116,666
Dr. Gregory B. Holmes ......... 40,000 120,000 $270,000 $810,000
Arnold Hantman ................ 8,334 41,666 $ 11,668 $ 58,332
</TABLE>
----------------
(1) Based on the difference between the $8.00 per share of the common stock 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 15, 2001 and
2002.
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 December 31,
1999, provided that the option holder is employed by us, providing services to
us or acting as a director on such vesting date. The options expire 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.
40
<PAGE>
RELATED PARTY TRANSACTIONS
As the result of our recapitalization and the cancellation of
approximately $824,000 of past-due secured notes, Mr. Arnold Hantman, our chief
executive officer, owned approximately 24.4% of our outstanding common stock.
In addition, we issued $500,000 of notes payable with an 8% rate of interest.
The decrease in the debt was recorded as additional paid-in capital. 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. Under the terms of this loan agreement, we paid all of the
above 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 is due in March 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.
However, Dr. Krinsky has agreed to pay the note in full within six months
from the date of this prospectus. Any future loans or advances (or forgiveness
of loans) to officers, directors or 5% stockholders will be for a bona fide
business purpose and approved by a majority of disinterested independent
directors. Additionally, any future transactions with officers, directors and
5% stockholders will be on terms that are at least as favorable to us as we
could obtain from third parties. Additionally, we will pay for legal counsel
for the independent directors.
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.
Each of the above transactions has been approved by at least two
disinterested directors at the time of the transactions, except for the loan
made to Dr. Krinsky which was approved by all three of our disinterested
directors at the time she delivered us the three-year note.
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides information as of September 30, 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.
<TABLE>
<CAPTION>
Number of Percentage of
Shares of Common Stock
Common Stock ----------------------
Name and Address Beneficially Prior to After
of Beneficial Owner Owned (1) Offering Offering
----------------------------------------------- ------------- ---------- ---------
<S> <C> <C> <C>
Lisa Krinsky, M.D. (2)
11190 Biscayne Boulevard
Miami, FL 33181 ............................... 1,047,821 44.2% 29.0%
Arnold Hantman (3)
11190 Biscayne Boulevard
Miami, FL 33181 ............................... 523,912 22.3% 14.5%
Dr. Gregory B. Holmes (4)
11190 Biscayne Boulevard
Miami, FL 33181 ............................... 81,000 3.4% 2.2%
Jack Levine, C.P.A. (5)
16855 N.E. 2nd Avenue
Miami Beach, FL 33162 ......................... 5,000 * *
Dr. Leonard J. Weinstein (6)
3423 N. 31st Terrace
Hollywood, FL 33021 ........................... 6,100 * *
D. Scott Davis (5)
8701 Mallard Creek Road
Charlotte, NC 28262 ........................... 33,334 1.4% *
All executive officers and directors as a group
(six persons) ............................... 1,697,167 67.6% 45.1%
<FN>
----------------
(1) 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. Beneficial ownership exists when a person has
either the power to vote or sell our common stock. 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.
(4) Includes 80,000 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%
</FN>
</TABLE>
42
<PAGE>
DESCRIPTION OF SECURITIES
The following is a summary of the material terms of our securities. 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 61 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.
Warrants
Unless previously redeemed by us, you may, upon payment of the exercise
price of $9.60 per share, purchase one share of common stock during the period
commencing one year from the date of this prospectus, or earlier at the
election of HD Brous and ending five years from the date of this prospectus.
You may only exercise the warrants if a current prospectus under the Securities
Act of 1933 relating to the shares of common stock issuable upon exercise of
the warrants is then in effect, and the securities are qualified for sale or
exempt from qualification under the applicable securities laws of the state in
which you reside.
Commencing one year from the date of this prospectus, or earlier with the
consent of HD Brous, we may redeem the warrants at a price of $.25 per warrant,
if
o our common stock is listed on the Nasdaq Stock Market or the American or
New York Stock Exchange,
o at such time there is a current registration statement covering the
shares of common stock issuable upon the exercise of the warrants, and
o the closing price of our common stock is at least $20.00 per share for at
least 20 consecutive trading days ending not earlier than three days prior
to the date on which we give notice of redemption. We may not redeem the
warrants prior to the date the warrants become exercisable. If we exercise
our right to redeem the warrants, you will automatically forfeit your
right to exercise your warrants unless you exercise the warrants before
the redemption date. If we redeem the warrants, we must redeem all of the
outstanding warrants.
In order for us to redeem the warrants, we must give you between 30 to 60
days written notice of redemption. The notice of redemption shall specify the
redemption price, the redemption date, the place where the warrant certificates
shall be delivered and the redemption price paid. The notice shall also advise
you that your right to exercise the warrants shall terminate at 5:00 p.m., New
York City time, on the business day immediately preceding the redemption date.
43
<PAGE>
The warrants may be exercised upon surrender of the warrant certificate(s)
on or prior to 5:00 p.m., New York City time, on the expiration date of the
warrants or, if we redeem the warrants, the day prior to the redemption date at
the offices of our warrant agent with the form of an Election to Purchase on
the reverse side of the warrant certificate(s) filled out and executed as
indicated, accompanied by payment of the full exercise price for the number of
shares of common stock for which the warrants are being exercised.
The warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price, and the number of shares in
certain specified events, such as stock dividends, stock splits, mergers, sale
of substantially all of our assets, and for other similar events.
We are not required to issue fractional shares of common stock. We will
pay cash in lieu of fractional shares, based upon the current market value of
such fractional shares at the date of exercise. A holder of warrants will not
possess any rights as a stockholder unless and until he or she exercises the
warrants.
In the event of any merger, consolidation, sale or lease of substantially
all of our assets or reorganization whereby we are not the surviving
corporation, we may provide in the agreement relating to the transaction that
each warrant shall be converted into such securities of the surviving or
acquiring corporation or other entity as has a value equal to the value of the
warrants, which shall not exceed the amount by which the consideration to be
received per share of common stock exceeds the exercise price of the warrant.
The value of the warrants and securities being issued in exchange therefor are
to be determined by our board of directors. If the value of the consideration
to be received per share of common stock is not greater than the exercise price
of the warrants, the warrants shall expire and be worthless.
Although the warrants have a fixed exercise price and have a fixed
expiration date, it is possible that in the future we may wish to reduce the
exercise price or extend the exercise period of the warrants. We have no plans
to reduce such price or extend the exercise period of the warrants. Any such
change would be effected pursuant to a post-effective amendment to the
registration statement of which this prospectus is a part or a new registration
statement, and no warrants with amended terms may be exercised unless and until
such post-effective amendment or new registration statement has been declared
effective by the Securities and Exchange Commission.
The warrants are issued pursuant to a warrant agreement between us and
Continental Stock Transfer & Trust Co., as warrant agent.
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.
44
<PAGE>
Preferred stock may be issued in the future in connection with
acquisitions, financings, or other matters 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 662/3% of outstanding voting stock not owned by
the interested stockholder.
Indemnification and Liability of Our Directors and Officers
Section 145 of the Delaware General Corporation Law provides a corporation
with the power to indemnify any officer or director acting in his capacity as
our representative who is or is threatened to be made a party to any lawsuit or
other proceeding for expenses, judgment and amounts paid in settlement in
connection with such lawsuit or proceeding. The indemnity provisions apply
whether the action was instituted by a third party or was filed by one of our
stockholders. The Delaware General Corporation Law provides that Section 145 is
not exclusive of other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise. We have provided for this indemnification in our
certificate of incorporation because we believe that it is important to attract
qualified directors and officers. We have also entered into indemnification
agreements with our directors and officers which agreements are designed to
indemnify them to the fullest extent permissible by law, subject to one
limitation described in the next sentence. We have further provided in our
certificate of incorporation that no indemnification shall be available,
whether pursuant to our certificate of incorporation or otherwise, arising from
any lawsuit or proceeding in which we assert a direct claim, as opposed to a
stockholders' derivative action, against any directors and officers. This
limitation is designed to insure that if we sue a director or officer we do not
have to pay for his defense. We have been advised that the Securities and
Exchange Commission believes it is against public policy for us to indemnify
our directors and officers for violations of the Securities Act of 1933 and the
Securities Exchange Act of 1934. Accordingly, we have agreed that unless our
attorneys advise us that the courts have ultimately decided whether the SEC is
correct, we will let a court determine whether we can indemnify our directors
and officers under such laws.
Transfer and Warrant Agent
Continental Stock Transfer & Trust Co., New York, New York, is the
transfer and warrant agent for our common stock and warrants.
45
<PAGE>
American Stock Exchange Listing
We have applied for listing of our common stock and warrants on the
American Stock Exchange under the symbols SFC and SFC.WS. An active trading
market for our common stock and warrants 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
The common stock and warrants 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 HD Brous does not exercise its over-allotment option
to purchase up to an additional 187,500 shares and 93,750 warrants.
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 outstanding 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 Days/Months
Number of Shares from the Date of this Prospectus
-------------------------------------------------- ---------------------------------
<S> <C>
642,475 shares of outstanding common stock 90 days
1,697,167 shares of outstanding common stock 12 months
641,230 shares issuable upon exercise of
outstanding options and warrants(1) 12 months
625,000 shares issuable upon exercise of warrants
offered by this prospectus(2) 12 months
<FN>
----------------
(1) Assumes exercise of 260,582 outstanding warrants as of the date of this
prospectus, which starts the required one-year holding period.
(2) In order for you to exercise the warrants offered by this prospectus, a
current registration statement must be in effect.
</FN>
</TABLE>
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
46
<PAGE>
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 for 12 months from
the date of exercise of the warrants. In addition, at the time of the closing
of this offering, we will issue to HD Brous a purchase option to purchase
125,000 shares of common stock at $12.80 per share and 62,500 warrants at $.40
per warrant, commencing one year following the date of this prospectus. Once HD
Brous acquires the warrants, their exercise price will be $15.36 per share. The
purchase option to be issued to HD Brous will contain provisions requiring us
to register the shares of common stock, including the shares of common stock
issuable upon exercise of the warrants, in the future once they become
exercisable.
PLAN OF DISTRIBUTION
Our underwriters, for whom HD Brous 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 and 625,000 warrants as follows:
Shares of
Common Stock Warrants
-------------- ---------
HD Brous & Co., Inc. ............................
American Fronteer Financial Corporation .........
--------- -------
1,250,000 625,000
The underwriters are committed severally to purchase and pay for all of
the securities on a "firm commitment" basis if they purchase any securities.
The underwriters have advised us that they propose to offer the securities
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 of common stock and $. per warrant. After
the offering, the offering price and the concession may be changed.
We have granted an option to HD Brous, exercisable during the 45-day
period from the date of this prospectus, to purchase up to a maximum of 187,500
additional shares and 93,750 additional warrants 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 securities. HD Brous
may purchase up to 187,500 shares of common stock and/or 93,750 warrants or any
combination of shares of common stock or warrants.
We have agreed to pay to HD Brous a non-accountable expense allowance of
3% of the aggregate public offering price of all securities sold, including any
securities sold pursuant to the over-allotment option. We have paid HD Brous
$10,000 to date.
The underwriting agreement also provides for us to pay HD Brous a fee if
it 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
47
<PAGE>
related parties, any of their securities during the 12-month period commencing
with the date of this prospectus, without the written consent of HD Brous. 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 HD Brous, publicly sell or register any
securities under the Securities Act, including shares issuable under our
present stock option plan.
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.
In connection with this offering, we have agreed to sell to HD Brous, for
nominal consideration, a purchase option to purchase from us up to 125,000
shares at a price equal to $12.80 per share and 62,500 warrants at a price of
$.40 per warrant. Once HD Brous acquires the warrants, their exercise price
will be $15.36 per share. The warrants to be issued upon the exercise of this
purchase option are substantially similar to the warrants we are selling by
this prospectus. HD Brous' purchase option is exercisable for a five-year
period commencing on the date of this prospectus and during the one-year period
commencing on the date of this prospectus, it may not be sold, transferred,
assigned or hypothecated, other than to the officers or stockholders of HD
Brous or to other underwriters or selling group members or their officers,
partners or members, all of whom will be bound by these restrictions. The
purchase option provides the holders with cashless exercise rights, which
enable them to receive any appreciation in the value of the underlying shares
and warrants without making a cash investment. The holders of the purchase
option have no voting, dividend or other rights as our stockholders with
respect to the securities issuable upon exercise of the purchase option until
exercise of the option, or the warrants contained in the option as the case may
be. The holders of the purchase option 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
purchase option 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
purchase option. This may adversely affect the terms on which we could obtain
additional financing. Any profit received by the underwriters on the sale of
the purchase option or the securities issuable upon their exercise may be
deemed additional underwriting compensation. The purchase option is not
exercisable for one year from the date of this prospectus.
We have agreed to register on one occasion the common stock contained in
the purchase option and 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 purchase option and 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 purchase option or
underlying securities of our intention to file a registration statement, and
the holders of the purchase option and underlying securities will have the
right twice to include the shares of common stock issuable upon exercise of the
purchase option and the warrants in the registration statement at our expense.
The underwriting agreement provides that, during the five-year period
following the date of this prospectus, HD Brous will have the right to
designate one member to our board of directors. HD Brous 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
person life insurance on the lives of Mr. Arnold Hantman and Dr. Lisa Krinsky
during their terms of employment with us.
Prior to this offering, there has been no public market for our shares of
common stock or the warrants.
HD Brous has informed us that sales to any account over which any
underwriter exercises discretionary authority will not exceed 1% of this
offering.
48
<PAGE>
During 1998, the State of Connecticut Department of Banking and the State
of New Jersey Bureau of Securities conducted an examination of books and
records and interviewed certain personnel located in HD Brous' now closed
Melville, New York office. Following that examination, the states alleged that
HD Brous failed to enforce its procedures to reasonably supervise certain of
its sales agents' use of written sales materials, which resulted in violations
of those states' securities laws. In order to resolve issues raised as a result
of the examination without the expense and delay of an administrative hearing,
in August 1998 HD Brous entered into a joint consent order with the states of
Connecticut and New Jersey without admitting or denying the allegations and
without any hearing or presentation of evidence. Under the consent order, HD
Brous agreed to (a) cease and desist from engaging in conduct that would
violate Connecticut or New Jersey securities laws by reason of failing to
establish written supervisory procedures and a system for applying them to
prevent the use of written sales presentations that have not been approved by
HD Brous, (b) engage a consultant to review HD Brous' policies and procedures
and prepare a written report for HD Brous, and (c) pay an aggregate of $30,000
in administrative fines to the states of Connecticut and New Jersey.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us
by Michael Harris, P.A., West Palm Beach, Florida. Wolin & Rosen, Ltd.,
Chicago, Illinois is acting as counsel for the underwriters.
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 and warrants 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 and warrants 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 website, www.sec.gov.
49
<PAGE>
As a result of this offering, we will become subject to the information
and reporting requirements of the Securities 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.
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.
50
<PAGE>
I N D E X T O H I S T O R I C A L F I N A N C I A L S T A T E M E N T S
<TABLE>
<CAPTION>
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
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
UNAUDITED FINANCIAL STATEMENTS
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet as of June 30, 2000 .................................... F-25
Consolidated Statements of Income for the three month period ended
June 30, 2000 and 1999 ........................................................... F-26
Consolidated Statements of Cash Flows for the six month periods ended
June 30, 2000 and 1999 ........................................................... F-27
Notes to Consolidated Financial Statements ........................................ F-28
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
Statement of Operations of the Business to be Sold for the eighty-nine days ended
March 29, 2000 ................................................................... F-30
Statement of Cash Flows of the Business to be Sold for the eighty-nine days ended
March 29, 2000 ................................................................... F-31
Notes to Statements of Operations and Cash Flows .................................. 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
<TABLE>
<CAPTION>
December 31,
1999
---------------
<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
OTHER ASSETS ........................................................... 86,500
------------
TOTAL ASSETS ........................................................ $ 2,813,730
============
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
Deferred income taxes ................................................ 100,000
Notes payable--current portion ($371,089 to related parties) ......... 587,328
------------
Total current liabilities ........................................... 1,457,750
------------
NOTES PAYABLE ($130,000 to related parties) ............................ 260,000
------------
DEFERRED INCOME TAXES .................................................. 310,000
------------
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 ........................................... 1,880,756
Deficit .............................................................. (1,097,112)
------------
Total stockholders' equity .......................................... 785,980
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 2,813,730
============
</TABLE>
See accompanying notes.
F-3
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
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 ................................. 2,259,141 1,323,764
---------- ----------
INCOME FROM OPERATIONS .............................................. 841,771 707,300
INTEREST EXPENSE ($173,813 and $189,756 to related parties) ......... 181,143 199,584
---------- ----------
INCOME BEFORE INCOME TAXES .......................................... 660,628 507,716
INCOME TAXES ........................................................ 410,000 --
---------- ----------
NET INCOME .......................................................... $ 250,628 $ 507,716
========== ==========
PRO FORMA DATA (UNAUDITED) (1)
Income before income taxes ........................................ $ 660,628 $ 507,716
Income taxes ...................................................... 251,000 191,000
---------- ----------
Pro forma net income ............................................. $ 409,628 $ 316,716
========== ==========
Pro forma earnings per share:
Basic ............................................................. $ .22 $ .21
Diluted ........................................................... .21 .21
========== ==========
Shares used in computing pro forma earnings per share:
Basic ............................................................. 1,881,863 1,520,000
Diluted ........................................................... 1,906,333 1,520,000
========== ==========
<FN>
----------------
(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.
</FN>
</TABLE>
See accompanying notes.
F-4
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended December 31, 1999 and 1998
--------------------------------------------------------------------------------
Common stock, $.001 par
value; 20,000,000
shares authorized Additional
------------------------- Paid-In
Shares Par Value Capital Deficit Total
----------- ----------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balances--January 1, 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
Common stock options issued as
compensation ......................... -- -- 304,583 -- 304,583
Conversion of debt to common stock ..... 255,736 256 1,150,550 -- 1,150,806
Net income--1999 ....................... -- -- -- 250,628 250,628
--------- ------- ----------- ------------ ------------
Balances--December 31, 1999 ............ 2,335,736 $ 2,336 $ 1,880,756 $ (1,097,112) $ 785,980
========= ======= =========== ============ ============
</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>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 250,628 $ 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
Common stock options issued as compensation ................... 304,583 --
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
Deferred income taxes ........................................ 410,000 --
---------- ----------
Total adjustments .......................................... 41,672 (461,180)
---------- ----------
Net cash provided by operating activities ................. 292,300 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:
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 ..................... (3,090) (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
========== ==========
</TABLE>
Supplemental Disclosure of Non-cash Investing and Financing Activities:
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 connection with the issuance of an option to purchase 160,000 shares of
the Company's common stock during 1999, the Company recorded $304,583 of
compensation expense.
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 49% by the former majority stockholder of SFK, 27% by the
former minority stockholders of SFK and 24% 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.
CASH
The Company, from time to time, maintains cash balances with financial
institutions in amounts that exceed federally insured limits.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Expenditures for major
betterments and additions are charged to the asset accounts while replacements,
maintenance and repairs which do not improve or extend the lives of the
respective assets are charged to expense currently.
F-7
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
DEPRECIATION
Depreciation is computed using the straight-line method based upon the
estimated useful lives of the assets. The range of useful lives is as follows:
Furniture and fixtures .......... 7 years
Machinery and equipment ......... 5-7 years
DEFERRED OFFERING COSTS
Deferred offering costs consisting of direct expenditures relating to a
proposed initial public offering (IPO) of the Company's common stock of
$255,537 were incurred in 1999. Because of the delay of the proposed IPO, the
Company charged this amount to general and administrative expenses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
respective reporting period. Actual results could differ from those estimates.
The allowance for changes in contracts is an estimate established through
reductions to sales while the allowance for doubtful accounts is an estimate
established through charges to general and administrative expenses.
Management's judgment in determining the adequacy of the allowances is based
upon several factors which include, but are not limited to, analysis of
subsequent changes to contracts, analysis of delinquent accounts, the nature
and volume of the accounts, the payment histories of the accounts and
management's judgment with respect to current economic conditions. Given the
nature of accounts receivable, it is reasonably possible the Company's estimate
of the allowances will change in the near term.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. The Company performs services and
extends credit based on an evaluation of the customers' financial condition
without requiring collateral. Exposure to losses on receivables is expected to
vary by customer due to the financial condition of each customer. The Company
monitors exposure to credit losses and maintains allowances for anticipated
losses considered necessary under the circumstances.
INCOME TAXES
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.
F-8
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
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 $193,000 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 40,000 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.
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.
F-9
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
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
Sales to individual unaffiliated customers in excess of 10% of net sales
are as follows:
1999 1998
---------------------------- ---------------------------
Amount % of Sales Amount % of Sales
------------- ------------ ------------- -----------
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%
Individual accounts receivable balances at December 31, 1999 in excess of
10% of total accounts receivable are as follows:
% of Accounts
Amount Receivable, Net
----------- ----------------
Customer F .............. $342,663 17%
Customer A .............. $262,097 13%
Customer E .............. $224,699 11%
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31, 1999:
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
==========
F-10
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 3. ACCOUNTS RECEIVABLE--(Continued)
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:
Allowance for Allowance for
Changes in Doubtful
Contracts Accounts
--------------- --------------
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
========= =======
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.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1999:
Furniture and fixtures ................ $ 31,866
Machinery and equipment ............... 436,448
--------
468,314
Less accumulated depreciation ......... 259,778
--------
$208,536
========
Depreciation of property and equipment for the years ended December 31,
1999 and 1998 amounted to $64,425 and $56,945, respectively.
F-11
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 6. NOTES PAYABLE
Notes payable consisted of the following at December 31, 1999:
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
========
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 replaced with three new notes aggregating $500,000. The amount
extinguished of approximately $324,000 was recorded as additional paid-in
capital. 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.
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
F-12
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 7. COMMITMENTS--(Continued)
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
The income tax expense for the year ended December 31, 1999 consisted of
the following:
Deferred:
Federal .............. $349,000
State ................ 61,000
--------
$410,000
========
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.
The components of the net deferred tax liability at December 31, 1999 are
as follows:
Deferred Tax Asset
Net operating loss carryforward .............................. $ 30,000
Common stock options issued as compensation .................. 115,000
--------
$145,000
========
Deferred Tax Liability
Net timing differences due to conversion from cash basis ..... $519,000
Depreciation ................................................. 36,000
--------
$555,000
========
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:
<TABLE>
<S> <C>
Statutory rate ...................................................... $ 225,000
State income taxes .................................................. 19,000
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
----------
$ 410,000
==========
</TABLE>
F-13
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 certain of
the Company's employee stock options issued was less than the market price of
the underlying stock on the date of grant, compensation expense of $304,583 was
recognized in 1999. The Company expects to recognize compensation expense of
$170,000 in 2000, $170,000 in 2001 and $35,417 in 2002 in connection with these
options.
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
for the year ended December 31, 1999 would have been approximately $234,000.
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 $393,000, $.21 and $.20, respectively.
A summary of the Company's stock option activity, and related information
for the year ended December 31, 1999 is as follows:
Weighted
# of Average
Options Exercise Price
--------- ---------------
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
======= ======
The weighted-average fair value of options granted during 1999, using the
minimum value calculation was $1.52 per option.
F-14
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 9. STOCK BASED COMPENSATION--(Continued)
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:
Weighted Average
Remaining
Exercise Weighted Average Contractual Life
Price Shares Exercise Price (Years)
-------------------- --------- ------------------ -----------------
$1.25 160,000 $1.25 9.25
$6.00 -- $6.60 354,500 $6.25 7.38
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.
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 and 625,000 of
warrants to purchase 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.
F-15
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 10. SUBSEQUENT EVENTS--(Continued)
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
F-17
<PAGE>
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
STATEMENT OF NET ASSETS TO BE SOLD
December 31,
1999
-------------
ASSETS
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
=========
See accompanying notes.
F-18
<PAGE>
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
STATEMENTS OF OPERATIONS OF THE BUSINESS TO BE SOLD
Years Ended December 31,
-------------------------------
1999 1998
-------------- --------------
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)
=========== ===========
See accompanying notes.
F-19
<PAGE>
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS OF THE BUSINESS TO BE SOLD
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
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 1. 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 expenses have been allocated to the Company by
specific identification or on a reasonable allocation based upon various
factors such as sales, payroll and facility usage. 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.
CASH
The Company, from time to time, maintains cash balances with financial
institutions in amounts that exceed federally insured limits.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Expenditures for major
betterments and additions are charged to the asset accounts while replacements,
maintenance and repairs which do not improve or extend the lives of the
respective assets are charged to expense currently.
F-21
<PAGE>
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
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.
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.
F-22
<PAGE>
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 2. MAJOR CUSTOMERS
Sales to individual unaffiliated customers in excess of 10% of net sales
are as follows:
<TABLE>
<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>
Individual accounts receivable balances at December 31, 1999 in excess of
10% of total accounts receivable are as follows:
% of Accounts
Amount Receivable
------------ --------------
Customer A ......... $ 232,174 73%
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31, 1999:
Accounts receivable--billed .................. $ 267,539
Accounts receivable--unbilled ................ 113,263
Less allowance for doubtful accounts ......... (61,210)
---------
$ 319,592
=========
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 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1999:
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
=========
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.
F-23
<PAGE>
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5. 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.
NOTE 6. 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:
Capital Operating
Leases Lease
----------- ----------
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
The Company, the Parent and other subsidiaries of the Parent are obligated
under various notes totaling $1,750,000.
NOTE 7. 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-24
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 2000
--------------
(unaudited)
<S> <C>
ASSETS
CURRENT ASSETS
Cash ....................................................................... $ 906,094
Accounts receivable, net ................................................... 3,888,716
Notes receivable ........................................................... 134,881
Prepaid and other current assets ........................................... 323,913
-----------
Total current assets ..................................................... 5,253,604
LOAN RECEIVABLE FROM STOCKHOLDER ............................................. 92,965
PROPERTY AND EQUIPMENT, NET .................................................. 420,569
GOODWILL, NET ................................................................ 707,767
OTHER ASSETS ................................................................. 102,066
-----------
TOTAL ASSETS ............................................................. $ 6,576,971
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ........................................................... $ 448,359
Accrued liabilities ........................................................ 603,473
Accrued interest to related parties ........................................ 157,710
Advance billings ........................................................... 1,127,383
Income taxes payable ....................................................... 568,000
Deferred income taxes ...................................................... 130,000
Long-term debt--current portion (approximately $461,000 to related parties). 493,947
-----------
Total current liabilities ................................................ 3,528,872
-----------
LONG-TERM DEBT ............................................................... 1,262,246
-----------
DEFERRED INCOME TAXES ........................................................ 148,000
-----------
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 ................................................. 1,965,756
Accumulated deficit ........................................................ (330,239)
-----------
Total stockholders' equity ............................................... 1,637,853
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................... $ 6,576,971
===========
</TABLE>
See accompanying notes.
F-25
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Month Periods Ended
--------------------------------
June 30, 2000 June 30, 1999
--------------- --------------
(unaudited)
<S> <C> <C>
NET SALES ......................................................... $ 6,846,794 $ 3,944,523
COST OF SALES ..................................................... 3,840,603 2,379,293
----------- -----------
GROSS PROFIT ...................................................... 3,006,191 1,565,230
GENERAL AND ADMINISTRATIVE EXPENSES ............................... 1,635,597 1,124,535
----------- -----------
INCOME FROM OPERATIONS ............................................ 1,370,594 440,695
INTEREST EXPENSE ($30,772 and $99,948 to related parties) ......... 101,721 102,277
----------- -----------
INCOME BEFORE INCOME TAXES ........................................ 1,268,873 338,418
INCOME TAXES ...................................................... 502,000 144,000
----------- -----------
NET INCOME ........................................................ $ 766,873 $ 194,418
=========== ===========
PROFORMA DATA (1)
Income before income taxes ....................................... $ 1,268,873 $ 338,418
Income taxes ..................................................... 502,000 129,000
----------- -----------
Proforma net income ............................................ $ 766,873 $ 209,418
=========== ===========
Proforma earnings per share:
Basic ............................................................ $ 0.33 $ 0.13
Diluted .......................................................... 0.32 0.13
=========== ===========
Shares used in computing proforma earnings per share:
Basic ............................................................ 2,335,736 1,606,630
Diluted .......................................................... 2,391,100 1,671,758
=========== ===========
<FN>
----------------
(1) The proforma data has been adjusted for income taxes which would have been
recorded had the Company been a C Corporation for the six months ended
June 30, 1999.
</FN>
</TABLE>
See accompanying notes.
F-26
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Month Periods Ended
--------------------------------
June 30, 2000 June 30, 1999
--------------- --------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................ $ 766,873 $ 194,418
---------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization ............................................ 68,163 30,738
Accrued interest on notes payable--purchase of assets .................... -- 25,347
Common stock options issued as compensation .............................. 85,000 219,583
Changes in operating assets and liabilities:
Accounts receivable ..................................................... (961,835) (99,993)
Prepaid expenses ........................................................ (261,523) (30,204)
Other assets ............................................................ (10,000) (5,000)
Accounts payable ........................................................ (86,582) 5,998
Accrued liabilities ..................................................... 377,160 (29,974)
Accrued interest ........................................................ 25,590 74,601
Advance billings ........................................................ (44,482) (57,691)
Income taxes payable .................................................... 568,000 23,000
Deferred income taxes ................................................... (132,000) 121,000
---------- ---------
Total adjustments ..................................................... (372,509) 277,405
---------- ---------
Net cash provided by operating activities ............................ 394,364 471,823
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash consideration paid for company acquired .............................. (295,740) --
Cash balance of company acquired .......................................... 79,429 2,394
Issuance of notes receivable .............................................. (134,881) --
Purchase of property and equipment ........................................ (150,223) (36,137)
---------- ---------
Net cash used in investing activities ................................ (501,415) (33,743)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in notes payable--insurance .................................. (38,239) (41,329)
Principal payments on notes payable--purchase of assets ................... (348,500) --
Net borrowings on credit facility ......................................... 1,099,009 --
Net increase in notes payable--transportation equipment ................... 19,974 --
Payments on capital lease obligations ..................................... (7,384) --
---------- ---------
Net cash provided by (used in) financing activities .................. 724,860 (41,329)
---------- ---------
NET INCREASE IN CASH ........................................................ 617,809 396,751
CASH AT BEGINNING OF PERIOD ................................................. 288,285 55,751
---------- ---------
CASH AT END OF PERIOD ....................................................... $ 906,094 $ 452,502
========== =========
Supplemental Disclosures:
Interest paid ............................................................. $ 76,131 $ 27,676
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 $ --
Reduction of long-term debt in connection with issuance of 560,000
shares of common stock ................................................... $ -- $ 324,309
Conversion of accrued interest to long-term debt .......................... $ -- $ 376,032
Common stock options issued as compensation ............................... $ 85,000 $ 219,583
</TABLE>
See accompanying notes.
F-27
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. 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 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 intercompany balances and
transactions have been eliminated in consolidation.
NOTE 2. 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 and is being amortized on a straight-line basis
over 10 years as follows:
<TABLE>
<S> <C>
Cash consideration paid to the seller ......................... $ 296,000
Note payable issued to the seller ............................. 150,000
Acquisition costs ............................................. 126,000
------------
Total consideration ........................................... 572,000
Fair value of assets acquired ................................. (1,049,000)
Fair value of liabilities assumed ............................. 1,203,000
------------
Excess of cost over fair value of net assets acquired, Goodwill $ 726,000
============
</TABLE>
The fair value of the net assets acquired were in determined accordance
with APB 16 paragraph 87 & 88 as follows:
1. Accounts receivable was valued at the present value of the amounts
expected to be realized.
2. Property and equipment was assigned their fair value based upon current
estimated replacement costs for similar capacity.
3. Accounts payable, advance billings and capital leases were valued at
the present value of the amounts expected to be satisfied.
F-28
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 2. OTHER EVENTS--(Continued)
In the event that the possible contingent consideration is paid, the
Company shall record the current fair value of the consideration issued as
additional costs of the acquisition. These additional costs, usually goodwill,
shall be amortized over the remaining life of the asset.
F-29
<PAGE>
PHARMACEUTICAL DEVELOPMENT ASSOCIATES, INC.
STATEMENT OF OPERATIONS OF THE BUSINESS TO BE SOLD
EIGHTY-NINE DAYS ENDED MARCH 29, 2000
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)
=========
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>
<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>
I N D E X T O U N A U D I T E D P R O F O R M A
C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
<TABLE>
<CAPTION>
Page
-----
<S> <C>
SFBC International, Inc. and Subsidiaries
Introduction to Unaudited Pro Forma Consolidated Financial Statements .................... P-2
Unaudited Pro Forma Consolidated Statement of Operations for the six month period ended
June 30, 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
</TABLE>
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 six month period
ended June 30, 2000, as if the 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 the 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
SIX MONTH PERIOD ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Historical
---------------------------------
SFBC Pharmaceutical
International, Development
Inc. and Associates,
Subsidiaries(1) Inc.(2)
----------------- ---------------
<S> <C> <C>
Net Sales ................. $6,846,794 $427,280
Cost of Sales ............. 3,840,603 283,572
----------- ---------
Gross Profit .............. 3,006,191 143,708
General and
Administrative
Expenses ................ 1,635,597 153,455
----------- ---------
Income (Loss) From
Operations .............. 1,370,594 (9,747)
Interest Expense .......... 101,721 4,200
----------- ---------
Income Before Income
Taxes ................... 1,268,873 (13,947)
Income Taxes .............. 502,000 --
----------- ---------
Net Income (Loss) ......... $ 766,873 $(13,947)
=========== =========
Earnings per share (9):
Basic ....................
Diluted ..................
Shares used in
computing earnings
per share (9):
Basic ....................
Diluted ..................
<CAPTION>
Supplementary Supplementary
Pro Forma Pro Forma Pro Forma Pro Forma
Adjustments Combined Adjustments Combined
------------------- -------------- -------------------- --------------
<S> <C> <C> <C> <C>
Net Sales ................. $ -- $ 7,274,074 $ -- $ 7,274,074
Cost of Sales ............. -- 4,124,175 -- 4,124,175
----------- ----------- ------------ -----------
Gross Profit .............. -- 3,149,899 -- 3,149,899
General and
Administrative
Expenses ................ 1,583(6) 1,790,635 -- 1,790,635
------------- ----------- ------------ -----------
Income (Loss) From
Operations .............. (1,583) 1,359,264 -- 1,359,264
Interest Expense .......... 3,375 (3) 111,852 (80,536) (8) 31,316
(3,000) (4)
5,556 (5)
------------- ----------- ------------ -----------
Income Before Income
Taxes ................... (7,514) 1,247,412 80,536 1,327,948
Income Taxes .............. (28,000)(7) 474,000 31,000 (7) 505,000
------------- ----------- ------------ -----------
Net Income (Loss) ......... $ 20,486 $ 773,412 $ 49,536 $ 822,948
============= =========== ============ ===========
Earnings per share (9):
Basic .................... $ 0.33 $ 0.32
Diluted .................. 0.32 0.32
=========== ===========
Shares used in
computing earnings
per share (9):
Basic .................... 2,335,736 2,555,995
Diluted .................. 2,391,100 2,611,359
=========== ===========
</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 Subsidiaries (the Company) for the six month
period ended June 30, 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 before
the acquisition.
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.
NOTE 8.
The adjustment gives effect for a reduction in interest expense associated
with the repayment of $1,556,954 of debt and accrued interest with the proceeds
of the offering.
NOTE 9.
Shares used in computing earnings per share for the "Pro Forma Combined"
column are based upon the historical number of shares for the period presented.
Shares used in the "Supplementary Pro Forma Combined" column include an
additional 220,259 (effected for underwriter's fees of 13%) shares issued to
repay $1,556,954 of debt and accrued interest.
P-4
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Historical
--------------------------------
SFBC Pharmaceutical
International, Development
Inc. and Associates,
Subsidiary(1) Inc.(2)
---------------- ---------------
<S> <C> <C>
Net Sales ................. $ 8,309,143 $ 2,200,061
Cost of Sales ............. 5,208,231 1,995,792
----------- -----------
Gross Profit .............. 3,100,912 204,269
General and
Administrative
Expenses ................. 2,259,141 625,072
----------- -----------
Income (Loss) From
Operations ............... 841,771 (420,803)
Interest Expense .......... 181,143 18,560
----------- -----------
Income Before Income
Taxes .................... 660,628 (439,363)
Income Taxes .............. 410,000 --
----------- -----------
Net Income (Loss) ......... $ 250,628 $ (439,363)
=========== ===========
Earnings per share (11):
Basic ....................
Diluted ..................
Shares used in
computing earnings
per share (11):
Basic ....................
Diluted ..................
<CAPTION>
Supplementary Supplementary
Pro Forma Pro Forma Pro Forma Pro Forma
Adjustments Combined Adjustments Combined
-------------------- --------------- ---------------------- --------------
<S> <C> <C> <C> <C>
Net Sales ................. $ -- $ 10,509,204 $ -- $ 10,509,204
Cost of Sales ............. -- 7,204,023 -- 7,204,023
------------ ------------ ------------ ------------
Gross Profit .............. -- 3,305,181 -- 3,305,181
General and
Administrative
Expenses ................. 6,331 (6) 2,890,544 -- 2,890,544
------------ ------------ ------------ ------------
Income (Loss) From
Operations ............... (6,331) 414,637 -- 414,637
Interest Expense .......... 13,500 (3) 103,266 (77,704) (10) 25,562
(12,000) (4)
45,000 (5)
(25,347)(7)
(117,590)(8)
------------ ------------ ------------ ------------
Income Before Income
Taxes .................... 90,106 311,371 77,704 389,075
Income Taxes .............. (292,000)(9) 118,000 30,000 (9) 148,000
------------ ------------ ------------ ------------
Net Income (Loss) ......... $ 382,106 $ 193,371 $ 47,704 $ 241,075
============ ============ ============ ============
Earnings per share (11):
Basic .................... $ 0.10 $ 0.12
Diluted .................. 0.10 0.12
============ ============
Shares used in
computing earnings
per share (11):
Basic .................... 1,881,863 1,993,332
Diluted .................. 1,906,333 2,017,802
============ ============
</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.
The adjustment gives effect for a reduction in interest expense associated
with the reduction of debt of approximately $324,000 in connection with the
recapitalization in June 1999.
NOTE 8.
The adjustment gives effect for a reduction in interest expense associated
with the conversion of debt of approximately $1,150,800 to common stock in
October 1999.
NOTE 9.
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.
NOTE 10.
The adjustment gives effect for a reduction in interest expense associated
with the repayment of $787,948 of debt and accrued interest with the proceeds
of the offering.
NOTE 11.
Shares used in computing earnings per share for the "Pro Forma Combined"
column are based upon the historical number of shares for the period presented.
Shares used in the "Supplementary Pro Forma Combined" column include an
additional 111,469 shares (effected for underwriter's fees of 13%) issued to
repay $787,948 of debt and accrued interest.
P-6
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1,250,000 shares of common stock
and warrants to purchase 625,000 shares of common stock
SFBC International, Inc.
HD Brous & Co., Inc. American Fronteer Financial Corporation
----------------
, 2000
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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Our certificate of incorporation, as amended, 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 ........................................ $ 5,587.48
American Stock Exchange Listing Fee...................... 27,500.00
NASD Filing Fee ......................................... 2,617.00
Transfer Agent Fee ...................................... 2,500.00
Printing Costs .......................................... 100,000.00
Legal Fees and Expenses ................................. 150,000.00
Accounting Fees and Expenses ............................ 90,000.00
Blue Sky Fees and Expenses .............................. 10,000.00
Underwriters' Non-Accountable Expense Allowance ......... 304,687.50
Miscellaneous ........................................... 11,733.02
------------
Total ................................................... $ 704,625.00
============
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
II-1
<PAGE>
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
Class Securities
Stockholder of Securities Sold Consideration Received(1)
----------------------------------- ------------------ ---------------- ------------------------------------------
<S> <C> <C> <C>
Jay W. Atkins common stock 11,106 shares common stock
Maurice L. Baldwin c/o Maurice L. convertible note $18,943.08 Cancellation of note and accrued interest
and Mary L. Baldwin common stock 2,563 shares common stock
Family Trust
Donald E. Birzer common stock 6,835 shares common stock
Robert P. Bisaillon convertible note $16,108.33 cancellation of note and accrued interest
common stock 2,136 shares common stock
Roland W. Boone convertible note $25,588.34 cancellation of note and accrued interest
common stock 8,543 shares common stock
Keith C. Carini, M.D. convertible note $ 8,629.17 cancellation of note and accrued interest
common stock 2,478 shares common stock
Harold and Marilyn F. Chalmers convertible note $74,129.17 cancellation of note and accrued interest
common stock 21,358 shares common stock
Norman Cloutier convertible note $ 7,690.37 cancellation of note and accrued interest
common stock 2,136 shares common stock
Hilda S. Davis convertible note $18,943.08 cancellation of note and accrued interest
common stock 2,563 shares common stock
Patricia DeLovely common stock 9,398 shares common stock
Robert L. Dible convertible note $24,000.00 cancellation of note and accrued interest
common stock 12,815 shares common stock
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, convertible note $16,197.92 cancellation of note and accrued interest
Trustees U.D.T., dated common stock 2,136 shares common stock
February 18, 1984
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
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Amount of
Class Securities
Stockholder of Securities Sold Consideration Received(1)
------------------------------- ------------------ ----------------- ------------------------------------------
<S> <C> <C> <C>
Margaret K. Greene convertible note $ 12,185.33 cancellation of note and accrued interest
common stock 1,709 shares common stock
Dale and Sandra Halverstadt common stock 8,543 shares common stock
William and Helen A. Havel convertible note $ 16,250.00 cancellation of note and accrued interest
common stock 2,136 shares common stock
Dennis Hieronymus convertible note $ 12,738.44 cancellation of note and accrued interest
common stock 3,417 shares common stock
Frank L. Jenkins convertible note $ 6,896.00 cancellation of note and accrued interest
common stock 8,543 shares common stock
Kurt H. Knecht convertible note $ 65,852.52 cancellation of note and accrued interest
common stock 8,543 shares common stock
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, convertible note $ 43,076.33 cancellation of note and accrued interest
Margaret Ann Miller, Trustee common stock 14,523 shares common stock
Patrick Murphy, M.D. convertible note 62,365.57 cancellation of note and accrued interest
common stock 11,790 shares common stock
Jerry Nash convertible note $ 20,023.39 cancellation of note and accrued interest
common stock 2,990 shares common stock
Howard Nunn, Jr., M.D. convertible note $ 16,056.33 cancellation of note and accrued interest
common stock 2,136 shares common stock
Jay L. Rentzel convertible note $ 93,849.58 cancellation of note and accrued interest
common stock 29,902 shares common stock
Integrity Associates convertible note $ 21,935.83 cancellation of note and accrued interest
common stock 2,990 shares common stock
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-3
<PAGE>
<TABLE>
<CAPTION>
Amount of
Class Securities
Stockholder of Securities Sold Consideration 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
<FN>
----------------
(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.
</FN>
</TABLE>
(b)
<TABLE>
<CAPTION>
Amount of
Class Securities
Stockholder of Securities Sold (1) Consideration Received
--------------------------------------- --------------- ----------- -----------------------
<S> <C> <C> <C>
Maurice L. Baldwin c/o Maurice L. common stock 4,209 conversion of note
and Mary L. Baldwin Family Trust warrants 4,209
Robert P. Bisaillon common stock 3,579 conversion of note
warrants 3,579
Roland W. Boone common stock 5,686 conversion of note
warrants 5,686
Keith C. Carini, M.D. common stock 1,917 conversion of note
warrants 1,917
Norman Cloutier common stock 1,708 conversion of note
warrants 1,708
Hilda S. Davis common stock 4,209 conversion of note
warrants 4,209
Robert L. Dible common stock 5,333 conversion of note
warrants 5,333
Robert Dudley common stock 3,541 conversion of note
warrants 3,541
Rudolph Dickson common stock 4,160 conversion of note
warrants 4,160
Howard L. Foglesong common stock 1,772 conversion of note
warrants 1,772
Edmond W. and Georgia Gardiner common stock 1,610 conversion of note
warrants 1,610
Harold T. and Ruth B. George Trustees common stock 3,599 conversion of note
warrants 3,599
Dennis D. Glass common stock 6,947 conversion of note
warrants 6,947
Margaret K. Greene common stock 2,707 conversion of note
warrants 2,707
William and Helen A. Havel common stock 3,611 conversion of note
warrants 3,611
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Amount of
Class Securities
Stockholder of Securities Sold (1) Consideration Received
---------------------------------- --------------- ----------- -----------------------
<S> <C> <C> <C>
Dennis Hieronymus common stock 2,830 conversion of note
warrants 2,830
Frank L. Jenkins common stock 1,532 conversion of note
warrants 1,532
Kurt H. Knecht common stock 14,633 conversion of note
warrants 14,633
Philip A. and Linda C. Magyar common stock 3,613 conversion of note
warrants 3,613
Edith L. Marion common stock 4,919 conversion of note
warrants 4,919
Edith L. Marion common stock 2,393 conversion of note
warrants 2,393
George L. and Linda J. May common stock 1,831 conversion of note
warrants 1,831
Joanne B. May common stock 4,130 conversion of note
warrants 4,130
Ann Miller (Miller Trust) common stock 9,572 conversion of note
warrants 9,572
Patrick J. Murphy, M.D. common stock 13,859 conversion of note
warrants 13,859
Jerry Nash common stock 4,449 conversion of note
warrants 4,449
Howard Nunn, Jr., M.D. common stock 3,568 conversion of note
warrants 3,568
Jay L. Rentzel common stock 20,855 conversion of note
warrants 20,855
Roscoe M. Smith common stock 3,409 conversion of note
warrants 3,409
John and Mary Sviatek common stock 12,583 conversion of note
warrants 12,583
Carl J. Wallace common stock 3,485 conversion of note
warrants 3,485
Leo Watkins common stock 7,671 conversion of note
warrants 7,671
Robert K. Wawrousek, Trustee common stock 30,598 conversion of note
warrants 30,598
Joseph E. Webb common stock 5,672 conversion of note
warrants 5,672
Gordon Wilbur common stock 4,035 conversion of note
warrants 4,035
James R. and Mildred H. Williams common stock 16,077 conversion of note
warrants 16,077
Raymond F. Zuczuski common stock 3,467 conversion of note
warrants 3,467
Jerry Frost common stock 4,619 conversion of note
warrants 4,619
Robert Reynoldson common stock 4,874 conversion of note
warrants 4,874
Harold and Marilyn F. Chalmers common stock 16,473 conversion of note
warrants 16,473
</TABLE>
II-5
<PAGE>
Item 27. Exhibits.
Exhibit
Number Description
-------- ---------------------------------------------------------------------
1.1 Form of Underwriting Agreement(2)
1.2 Form of Selected Dealer's Agreement(2)
1.3 Form of Underwriter's Purchase Option(3)
2 Agreement and Plan of Merger (1)
3.1 Certificate of Incorporation (1)
3.2 First Amendment to Certificate of Incorporation (1)
3.3 Certificate of Correction to Certificate of Incorporation (4)
3.4 Bylaws (1)
3.5 First Amendment to the Bylaws (4)
4.1 Form of Common Stock Certificate (1)
4.2 Form of Warrant Agreement(3)
4.3 Form of Warrant(3)
5 Opinion of Michael Harris, P.A.(3)
10.1 Employment Agreement of Arnold Hantman (2)
10.2 Employment Agreement of Lisa Krinsky, M.D. (2)
10.3 Employment Agreement of Dr. Gregory Holmes (1)
10.4 Amended and Restated 1999 Stock Option Plan (2)
10.4.1 Second Amendment to the 1999 Stock Option Plan
10.5 Heller Healthcare Finance Loan Agreement, as amended (2)
10.6 $383,000 Secured Note (1)
10.7 Employment Agreement of D. Scott Davis (2)
10.8 Asset Purchase Agreement* (4)
10.9 Strategic Alliance Agreement (2)
10.10 Audit Committee Charter (2)
21 Subsidiaries (2)
23.1 Consent of Kaufman, Rossin & Co.
23.2 Consent of Michael Harris, P.A. (5)
27 Financial Data Schedule(3)
----------------
* 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 Form SB-2 filed on July 21, 2000
(3) Contained in Form SB-2 filed on September 8, 2000
(4) Contained in Form SB-2 filed on October 5, 2000
(5) 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.
II-6
<PAGE>
(b) The registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each such
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part
of the registration statement as of the time it was declared
effective.
(5) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(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.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and has authorized this
Amendment No. 5 to the Registration Statement to be signed on its behalf by the
undersigned, in Miami, Florida, on the 6th day of October, 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. 5 to the registration statement on Form SB-2 was signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
--------------------------------- ------------------------------------------ ------------------
<S> <C> <C>
/s/ Lisa Krinsky, M.D. Chairman of the Board of Directors October 6, 2000
---------------------------------
Lisa Krinsky, M.D.
/s/ Arnold Hantman Director and Principal Financial Officer October 6, 2000
--------------------------------- and Accounting Officer
Arnold Hantman
/s/ Jack Levine Director October 6, 2000
---------------------------------
Jack Levine
/s/ Dr. Leonard Weinstein Director October 6, 2000
---------------------------------
Dr. Leonard Weinstein
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
-------- ---------------------------------------------------------------------
1.1 Form of Underwriting Agreement(2)
1.2 Form of Selected Dealer's Agreement(2)
1.3 Form of Underwriter's Purchase Option(3)
2 Agreement and Plan of Merger (1)
3.1 Certificate of Incorporation (1)
3.2 First Amendment to Certificate of Incorporation (1)
3.3 Certificate of Correction to Certificate of Incorporation (4)
3.4 Bylaws (1)
3.5 First Amendment to the Bylaws (4)
4.1 Form of Common Stock Certificate (1)
4.2 Form of Warrant Agreement(3)
4.3 Form of Warrant(3)
5 Opinion of Michael Harris, P.A.(3)
10.1 Employment Agreement of Arnold Hantman (2)
10.2 Employment Agreement of Lisa Krinsky, M.D. (2)
10.3 Employment Agreement of Dr. Gregory Holmes (1)
10.4 Amended and Restated 1999 Stock Option Plan (2)
10.4.1 Second Amendment to the 1999 Stock Option Plan (4)
10.5 Heller Healthcare Finance Loan Agreement, as amended (2)
10.6 $383,000 Secured Note (1)
10.7 Employment Agreement of D. Scott Davis (2)
10.8 Asset Purchase Agreement* (4)
10.9 Strategic Alliance Agreement (2)
10.10 Audit Committee Charter (2)
21 Subsidiaries (2)
23.1 Consent of Kaufman, Rossin & Co.
23.2 Consent of Michael Harris, P.A. (5)
27 Financial Data Schedule(3)
----------------
* 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 Form SB-2 filed on July 21, 2000
(3) Contained in Form SB-2 filed on September 8, 2000
(4) Contained in Form SB-2 filed on October 5, 2000
(5) Contained in Opinion of Michael Harris, P.A.
