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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File Number: 1-16119
SFBC International, Inc.
------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 59-2407464
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11190 Biscayne Blvd., Miami, FL 33181
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(Address of principal place of business)
(305) 895-0304
--------------
(Telephone number of principal place of business)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
3,589,642 Shares of Common Stock as of November 28, 2000
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
1
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INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements Page
----
Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999.................................................
Consolidated Statements of Operations for the Three and Nine
Month Periods Ended September 30, 2000 and 1999 (Unaudited).......
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999 (Unaudited).....................
Notes to Unaudited Interim Consolidated Financial Statements......
ITEM 2. Management's Discussion and Analysis of Interim
Financial Condition and Results of Operations.....................
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................
ITEM 2. Changes in Securities.............................................
ITEM 3. Defaults Upon Senior Securities...................................
ITEM 4. Submission of Matters to a Vote of Security Holders...............
ITEM 5. Other Information.................................................
ITEM 6. Exhibits..........................................................
2
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PART I-- FINANCIAL INFORMATION
Item 1. Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
================================================================================================================================
(Unaudited)
ASSETS September 30, 2000 December 31, 1999
================================================================================================================================
<S> <C> <C>
CURRENT ASSETS
Cash $ 429,247 $ 288,285
Accounts receivable, net 4,655,765 2,075,722
Notes receivable 205,316 -
Prepaid and other current assets 464,857 61,722
--------------------------------------------------------------------------------------------------------------------------------
Total current assets 5,755,185 2,425,729
LOAN RECEIVABLE FROM STOCKHOLDER 92,965 92,965
PROPERTY AND EQUIPMENT, NET 469,119 208,536
GOODWILL, NET 689,619 -
DEFERRED OFFERING COSTS 56,872 -
OTHER ASSETS 51,664 86,500
--------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 7,115,424 $ 2,813,730
================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
================================================================================================================================
CURRENT LIABILITIES
Accounts payable $ 474,055 $ 131,632
Accrued liabilities 899,873 226,313
Long-term debt - current portion (approximately $411,000 and $371,000 to
related parties) 590,227 587,328
Advance billings 1,479,638 280,357
Income taxes payable 905,000 -
Accrued interest to related parties 157,224 132,120
Deferred income taxes 130,000 100,000
--------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 4,636,017 1,457,750
--------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT (approximately $0 and $130,000 to related parties) 159,442 260,000
--------------------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 132,000 310,000
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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 2,336
Additional paid-in capital 2,008,256 1,880,756
Retained earnings (accumulated deficit) 177,373 (1,097,112)
--------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,187,965 785,980
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,115,424 $ 2,813,730
================================================================================================================================
</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
====================================================================================================================================
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- -----------------------------------
2000 1999 2000 1999
====================================================================================================================================
<S> <C> <C> <C> <C>
NET SALES $ 5,831,027 $ 1,857,629 $ 12,677,821 $ 5,802,152
COST OF SALES 3,619,084 1,234,257 7,459,687 3,613,550
------------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 2,211,943 623,372 5,218,134 2,188,602
GENERAL AND ADMINISTRATIVE EXPENSES 1,332,222 666,394 2,967,819 1,790,929
------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 879,721 (43,022) 2,250,315 397,673
INTEREST EXPENSE ($9,885, $34,873, $40,657 and
$134,821 to related parties) 51,110 38,228 152,831 140,505
------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 828,611 (81,250) 2,097,484 257,168
INCOME TAXES 321,000 (36,000) 823,000 108,000
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NET INCOME (LOSS) $ 507,611 $ (45,250) $ 1,274,484 $ 149,168
====================================================================================================================================
PRO FORMA DATA (1)
Income (loss) before income taxes $ 828,611 $ (81,250) $ 2,097,484 $ 257,168
Income taxes 321,000 (36,000) 823,000 98,000
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Pro forma net income (loss) $ 507,611 $ (45,250) $ 1,274,484 $ 159,168
====================================================================================================================================
Pro forma earnings (loss) per share:
Basic $ .22 $ (.02) $ .55 $ .09
Diluted .21 (.02) .53 .09
====================================================================================================================================
Shares used in computing pro forma earnings (loss) per
share:
Basic 2,335,736 2,080,000 2,335,736 1,768,889
Diluted 2,414,297 2,080,000 2,414,297 1,807,114
====================================================================================================================================
</TABLE>
(1) The pro forma data has been adjusted for income taxes which would have
been recorded had the Company been a C Corporation for the nine months
ended September 30, 1999.
See accompanying notes.
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<TABLE>
<CAPTION>
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
====================================================================================================================================
2000 1999
====================================================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,274,484 $ 149,168
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Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 107,445 46,107
Accrued interest on notes payable - purchase of assets - 25,347
Common stock options issued as compensation 127,500 262,083
Changes in operating assets and liabilities:
Accounts receivable (1,728,884) 190,552
Prepaid expenses (402,467) (17,665)
Other assets 40,403 (5,000)
Accounts payable (60,886) (134,474)
Accrued liabilities 673,560 (69,839)
Accrued interest 25,104 111,901
Advance billings 307,773 (61,455)
Income taxes payable 905,000 -
Deferred income taxes (148,000) 60,000
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Total adjustments (153,452) 407,557
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Net cash provided by operating activities 1,121,032 556,725
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CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred offering costs (56,872) -
Cash consideration paid for company acquired (295,740) -
Cash balance of company acquired 79,429 2,394
Issuance of notes receivable (205,316) -
Purchase of property and equipment (219,907) (38,579)
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Net cash used in investing activities (698,406) (36,185)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in notes payable - insurance 113,246 16,030
Principal payments on notes payable - purchase of assets (398,129) -
Net increase in notes payable - transportation equipment 16,443 -
Payments on capital lease obligations (13,224) -
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Net cash provided by (used in) financing activities (281,664) 16,030
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NET INCREASE IN CASH 140,962 536,570
CASH AT BEGINNING OF PERIOD 288,285 55,751
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CASH AT END OF PERIOD $ 429,247 $ 592,321
====================================================================================================================================
</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
====================================================================================================================================
2000 1999
====================================================================================================================================
<S> <C> <C>
Supplemental Disclosures:
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Interest paid $ 127,727 $ 28,604
====================================================================================================================================
Income taxes paid $ 66,000 $ -
====================================================================================================================================
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
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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 $ 127,500 $ 262,083
====================================================================================================================================
</TABLE>
See accompanying notes.
7
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SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB for quarterly
reports under section 13 or 15(d) of the Securities and Exchange Act of 1934.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included and such adjustments are of a normal recurring
nature. Operating results for the three and nine month periods ended September
30, 2000 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000. At December 31, 1999, the Company's audited
financial statements and footnotes thereto included in the Company's Amendment 5
of the Registration Statement on Form SB-2 dated October 6, 2000 should be read
in conjunction with these condensed consolidated financial statements.
The condensed 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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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--------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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Net Earnings (Loss) 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 (loss) per share is computed using
the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share is computed using the weighted average number
of common shares outstanding during the period adjusted for 78,561 incremental
shares attributed to outstanding options to purchase shares of common stock for
the three and nine month periods ended September 30, 2000 and 38,225 for the
nine month period ended September 30, 1999. Outstanding stock options were not
considered in the calculation of weighted average number of common shares
outstanding for the three months ended September 30, 1999 as their effect would
have been anti-dilutive. All stock information is adjusted to give effect to the
recapitalization and four-for-five reverse stock split in June 1999.
SUBSEQUENT EVENTS
In October 2000, the Company completed an initial public offering of 1,250,000
shares of common stock at $8.00 per share and warrants to purchase 625,000
shares of common stock at $0.25 per warrant. The warrants are exercisable at
$9.60 per share, expire five years from the date of the offering and are
redeemable by the Company under certain conditions, as defined. In November
2000, the underwriter of the initial public offering partially exercised its
over-allotment option by purchasing additional warrants from us.
9
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Item 2. Management's Discussion and Analysis or Plan of Operation.
The following discussion of our financial condition and results of
operations should be read together with the financial statements and related
notes included in this report. 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 the
discussion on forward-looking statements which follows this section.
In General
SFBC International, Inc. (the "Company") was organized in March 1999
for the purpose of acting as a holding company. In June 1999, we acquired South
Florida Kinetics, Inc. 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 the Company.
As permitted by accounting rules, all historical financial information
for the Company 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, Inc. the assets of which we acquired on March 29, 2000, since the
date of acquisition. No financial information for Pharmaceutical Development
Associates is included for the comparable period ended in 1999.
Results of Operations
Our net sales were $5,831,027 and $12,677,821 for the three and nine
month periods ended September 30, 2000, which is an increase of 213.9% and
118.5%, respectively, from $1,857,629 and $5,802,152 for the same periods in the
prior year. The increases include the net sales of our subsidiary,
SFBC/Pharmaceutical Development Associates, Inc. ("SFBC/PDA") since March 29,
2000. Its net sales were $1,329,316 for the quarter ended September 30, 2000 and
$2,046,696 for the period beginning March 30, 2000.
Our gross profit margins increased from 33.6% and 37.7% for the three
and nine month periods ended September 30, 1999 to 37.9% and 41.2% for the same
periods in 2000. The increases are attributable to the increased levels of
revenue as well as variance in our mix of contracts.
Our general and administrative expenses increased by $665,828 and
$1,176,890 or 99.9% and 65.7%, respectively, for the three and nine month
periods ended September 30, 2000, over the same periods in the prior year. Of
the increases, $479,631 and $763,585 for the three and nine month periods,
respectively, are directly attributable to the operations of SFBC/PDA. The
10
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three and nine month periods ended September 30, 1999 included $207,000 of
expenses related to the delay of our initial public offering ("IPO") which was
originally filed in August 1999 but was not completed until October 11, 2000.
The nine months ended September 30, 1999 also included additional compensation
expenses for stock options issued to Dr. Gregory Holmes of $135,000 in excess of
the amount incurred for the nine months ended September 30, 2000. The remaining
expense increases for the three and nine month periods ended September 30, 2000
were primarily due to increased marketing costs and additional personnel.
Liquidity and Capital Resources
For the nine months ended September 30, 2000, net cash provided by
operating activities was $1,121,032 in contrast to $556,725 in the first nine
months of 1999. The net increase is primarily due to the cash provided through
income from operations and the increase in accrued liabilities coupled with the
cash used as a result of the increase in accounts receivable.
For the nine months ended September 30, 2000, net cash used in
financing activities was $281,664. In the nine months ended September 30, 1999,
$16,030 of cash was provided by financing activities. The primary increase in
the funds used was for payments on notes.
During the first nine months of 2000, we used $698,406 for investing
activities in contrast to $36,185 used for the same period in 1999. The increase
was primarily due to our use of existing cash to make the acquisition of the
assets of Pharmaceutical Development Associates, Inc., by SFBC/PDA, our purchase
of equipment, and loans made to Lee Coast Research Center, Inc.
On October 11, 2000 the Company completed its IPO and realized net
proceeds of approximately $8,400,000. Of the net proceeds, the Company has used
to date $268,000 to pay off its line of credit, $344,000 to pay off past-due
minority stockholders' notes and has used approximately $288,000 for working
capital. The Company intends to use the remaining funds in accordance with the
Use of Proceeds section in its prospectus.
On November 22, 2000 the Company voluntarily elected to terminate its
line of credit with Heller Healthcare Finance, Inc., because it does not
anticipate any need to borrow funds during the next 12 months. The Company
believes its existing cash and cash equivalents are sufficient to meet its
working capital needs for more than the next 12 months and to fund any potential
acquisitions.
Forward-Looking Statements
The statements in this report relating to our future liquidity and
acquisitions are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The results anticipated by any or all
of these forward-looking statements may not occur. Important factors that may
cause actual results to differ materially from these forward-looking statements
include an unanticipated decision to make an acquisition of a substantially
larger competitor which would require us to re-allocate our intended uses of our
cash resources. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as
11
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the result of new information, future events or otherwise. For more information
regarding some of the ongoing risks and uncertainties of our business, see the
Risk Factors contained in our prospectus dated October 11, 2000 filed with the
Securities and Exchange Commission.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities.
On August 17, 1999, we filed a Registration Statement on Form SB-2
(Registration No. 333-85429) with the Securities and Exchange Commission. The
Registration Statement, as amended, registered 1,250,000 shares of our common
stock and warrants to purchase 625,000 shares of our common stock (plus an
additional 187,500 shares of our common stock and 93,750 warrants to cover
over-allotments). The Registration Statement was declared effective by the
Securities and Exchange Commission on October 11, 2000. The managing
underwriters for the offering were HD Brous & Co., Inc. and American Fronteer
Financial Corporation.
On October 16, 2000, we sold 1,250,000 shares of our common stock and
warrants to purchase 625,000 shares of our common stock to the underwriters in
our IPO. On November 27, 2000, we sold 84,950 additional warrants to the
underwriters upon partial exercise of the over-allotment option, and terminated
the offering.
The initial public offering price was $8.00 per share and $0.25 per
warrant. The aggregate proceeds of the offering (including the over-allotment
option) were $10,177,488. In connection with the offering, we paid an aggregate
of $1,017,749 in underwriting discounts and commissions and incurred
approximately $692,000 in other offering expenses. We did not pay any finders'
fees in connection with our initial public offering.
We received net offering proceeds of approximately $8,449,157, after
deducting underwriting discounts and commissions and other offering related
expenses. Of the net proceeds, the Company has used $268,000 to date to pay off
its line of credit, $344,000 to pay off past-due minority stockholders' notes
and has used approximately $288,000 for working capital. The Company intends to
use the remaining funds in accordance with the Use of Proceeds section in its
prospectus filed with the Securities and Exchange Commission on October 12,
2000. On November 27, 2000, HD Brous & Co., Inc. exercised part of its
over-allotment option by purchasing 84,950 additional warrants resulting in net
proceeds to us of $18,476.62.
Item 3. Defaults Upon Senior Securities
Not Applicable.
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Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits
Exhibit No. Exhibit Description
3.1 Certificate of Incorporation (1)
3.2 First Amendment to Certificate of Incorporation (1)
3.3 Form of Certificate of Correction to Certificate of Incorporation(2)
3.4 Bylaws(1)
4.1 Form of Common Stock Certificate (1)
4.2 Form of Warrant Certificate (2)
4.3 Form of Warrant (2)
27 Financial Data Schedule
(1) Incorporated by reference to the Form SB-2 filed by the Company on
August 17, 1999.
(2) Incorporated by reference to the Form SB-2 filed by the Company on
September 8, 2000.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SFBC International, Inc.
Date: December 4, 2000
/s/ Arnold Hantman
-------------------------------------------
By: Arnold Hantman, Chief Executive Officer
14
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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27 Financial Data Schedule
