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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended: March 31, 2003
Commission File No. 1-16119
SFBC INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-2407464
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11190 BISCAYNE BLVD.
MIAMI, FL 33181
(305) 895-0304
(Address and telephone number
of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
The registrant has 7,226,444 shares of common stock outstanding as of May 7,
2003
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
as of March 31, 2003 and December 31, 2002 3
Condensed Consolidated Statements of Earnings
for the three months ended March 31, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2003 and 2002 5 - 6
Notes to Unaudited Condensed Consolidated Interim Financial Statements 7 - 12
ITEM 2. Management's Discussion and Analysis of Interim Financial
Condition and Results of Operations 13 - 21
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 21 - 22
ITEM 4. Controls and Procedures 22
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 22
ITEM 2. Change in Securities 22
ITEM 3. Defaults upon Senior Securities 22
ITEM 4. Submission of Matters to a Vote of Security Holders 23
ITEM 5. Other Information 23
ITEM 6. Exhibits and Reports on Form 8-K 23
2
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND DECEMBER 31, 2002
================================================================================
ASSETS (Unaudited)
March 31, December 31,
2003 2002
---- ----
Current Assets
Cash and cash equivalents 4,203,524 6,361,496
Investment in marketable securities 3,894,279 2,413,522
Accounts receivable, net 21,880,388 21,753,778
Income tax receivable -- 290,221
Loans receivable from officers/stockholders 258,344 343,400
Prepaids and other current assets 3,635,831 4,256,584
----------- -----------
Total current assets 33,872,366 35,419,001
Loans receivable from officers 600,000 600,000
Property and equipment, net 17,205,112 16,612,579
Goodwill, net 30,151,148 30,151,148
Other intangibles, net 2,360,537 2,662,603
Deferred income taxes 616,554 283,665
Other assets, net 301,157 230,444
----------- -----------
Total assets 85,106,874 85,959,440
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable 5,079,614 6,323,414
Accrued liabilities 2,269,580 3,041,087
Advance billings 2,296,048 3,802,754
Income taxes payable 57,278 --
Deferred income taxes 85,308 85,308
Notes payable, current portion 1,496,656 1,361,231
----------- -----------
Total current liabilities 11,284,484 14,613,794
Notes payable 2,778,157 2,786,956
Deferred income taxes -- --
Commitments -- --
Stockholders' equity
Preferred stock. $0.10 par value, 5,000,000 shares authorized, none issued
Common stock, $0.001 par value, 20,000,000 shares authorized, 7,225,944 and
7,408,682 shares issued and outstanding as of March 31, 2003 and
December 31, 2002 7,226 7,409
Additional paid-in capital 55,978,133 58,068,002
Retained earnings 14,584,715 12,641,431
Accumulated other comprehensive earnings 474,159 18,332
Common stock held in treasury, at cost - 0 shares at March 31, 2003
and 204,300 shares at December 31, 2002 -- (2,176,484)
----------- -----------
Total stockholders' equity 71,044,233 68,558,690
----------- -----------
Total liabilities and stockholders' equity 85,106,874 85,959,440
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
================================================================================
Three Months Ended
March 31,
2003 2002
---- ----
Net revenue $ 18,670,036 $ 9,582,555
Costs and expenses
Direct costs 10,568,592 4,861,743
Selling, general and administrative expenses 5,814,860 2,819,628
------------ ------------
Total costs and expenses 16,383,452 7,681,371
Earnings from operations 2,286,584 1,901,184
Other income (expense)
Interest income 52,015 191,010
Interest expense (74,439) (45,719)
------------ ------------
Total other income (expense) (22,424) 145,291
------------ ------------
Earnings before taxes 2,264,160 2,046,475
Income tax expense 320,876 716,699
------------ ------------
Net earnings $ 1,943,284 $ 1,329,776
============ ============
Earnings per share:
Basic $ 0.27 $ 0.20
============ ============
Diluted $ 0.26 $ 0.18
============ ============
Shares used in computing earnings per share:
Basic 7,219,558 6,699,022
============ ============
Diluted 7,582,589 7,345,152
============ ============
The accompanying notes are an integral part of these financial statements.
4
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
================================================================================
2003 2002
---- ----
Cash flows from operating activities
Net earnings 1,943,284 1,329,807
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 1,035,312 249,590
Provision for bad debt (140,000) --
Noncash compensation - reduction of note receivable -- --
Common stock options issued as compensation -- 35,417
Issuance of common stock for services -- --
Tax benefit resulting from exercise of stock options -- --
Changes in assets and liabilities
Accounts receivable 430,769 556,865
Income tax receivable 290,221 --
Prepaid expenses and other current assets 812,246 (236,141)
Other assets (70,713) 277,532
Accounts payable (1,502,289) (751,258)
Accrued liabilities (771,507) (149,782)
Advance billings (1,540,536) (363,972)
Income taxes payable 57,278 (943,317)
Deferred income taxes (220,651) (681,833)
------------ ------------
Total adjustments (1,619,870) (2,006,899)
------------ ------------
Net cash provided by (used in) operating activities 323,414 (677,092)
------------ ------------
Cash flows from investing activities
Cash consideration - acquisitions, net of cash acquired (1,572,703) (22,047,577)
Purchase of property and equipment (1,325,779) (508,783)
Purchase of / change in long term investment - marketable securities 362,985 --
Loans to officers/stockholders (10,815) (1,798)
Repayment on loans to officers/stockholders 95,871 --
------------ ------------
Net cash used in investing activities (2,450,441) (22,558,158)
------------ ------------
Cash flows from financing activities
Principal payments on notes payable - purchase of assets -- --
Principal payments on notes payable - stockholders -- --
Principal payments on notes payable (166,799) (1,873)
Repurchase of common stock -- --
Proceeds from the issuance/exercise of warrants and common stock 86,433 --
Net proceeds from secondary public offering -- --
------------ ------------
Net cash used in financing activities (80,366) (1,873)
------------ ------------
Net effect of exchange rate changes on cash 49,421 --
------------ ------------
Net decrease in cash and cash equivalents (2,157,972) (23,237,123)
Cash and cash equivalents at beginning of period 6,361,496 39,103,139
------------ ------------
Cash and cash equivalents at end of period $ 4,203,524 $ 15,866,016
============ ============
The accompanying notes are an integral part of these financial statements.
5
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
================================================================================
2002 2001
---- ----
Supplemental disclosures:
Interest paid $ 74,439 $ 45,719
Income taxes paid $ 20,855 $1,706,740
Supplemental disclosures of non-cash investing and finance activities:
Fair value of net assets (liabilities) assumed in connection with
acquisition of businesses $1,573,430 $ 128,613
Common stock issued in connection with acquisition of business $ -- $3,255,443
Professional fees accrued in connection with acquisition of business $ -- $ 413,000
Common stock options issued as compensation $ -- $ 35,417
The accompanying notes are an integral part of these financial statements.
6
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
- ------- --------------------------------------
PRINCIPLES OF CONSOLIDATION AND ORGANIZATION
The consolidated financial statements include the accounts of
SFBC International, Inc. (the "Company") and its wholly owned
subsidiaries South Florida Kinetics, Inc., SFBC Charlotte,
Inc., SFBC New Drug Services, Inc., SFBC Ft. Myers, Inc., SFBC
Canada, Inc., Anapharm Inc. and SFBC Analytical Laboratories,
Inc. (collectively the "Company"). On April 1, 2003, the
operations of SFBC Charlotte were merged into SFBC New Drug
Services. All significant intercompany balances and
transactions have been eliminated in consolidation.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
for interim financial information and with the instructions to
Form 10-Q for quarterly reports under section 13 of the
Securities Exchange Act of 1934. Accordingly, they do not
include all of the information and footnotes required by
accounting principles generally accepted in the United States
of America for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
items) necessary for a fair presentation have been made.
Operating results for the three-month period ended March
31,2003 are not necessarily indicative of the results that may
be expected for the remaining quarters and for the year ending
December 31, 2003.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------- ------------------------------------------
The accompanying condensed consolidated statements have been
prepared in accordance with the accounting policies described
in the Company's Annual Report Form 10-KSB for the year ended
December 31, 2002, and should be read in conjunction with the
consolidated financial statements and notes which appear in
that Report. These statements do not include all of the
information and footnotes required by accounting principles
generally accepted in the United States of America for
complete financial statements.
The preparation of the Company's financial statements in
conformity with accounting principles generally accepted in
the United States of America requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements
and revenues and expenses during the period. Future events and
their effects cannot be determined with absolute certainty;
therefore, the determination of estimates requires the
exercise of judgment. Actual results inevitably will differ
from those estimates, and such differences may be material to
our financial statements. Management continually evaluates its
estimates and assumptions, which are based on historical
experience and other factors that are believed to be
7
reasonable under the circumstances. These estimates and the
Company's actual results are subject to the risk factors
listed in "Forward-Looking Statements".
NET EARNINGS PER SHARE
The Company applies Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (FAS 128) which
requires dual presentation of net earnings 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 and warrants to purchase approximately
823,395 and 1,076,957, shares of common stock for the three
month periods ended March 31, 2003 and 2002, respectively,
less the assumed repurchase of shares in accordance with the
treasury stock method of approximately 460,363 and 430,827
shares for the three month period ended March 31, 2003 and
2002, respectively.
On July 17, 2002, we announced a common stock buyback plan of
up to 750,000 shares. As of December 31, 2002, we had
purchased 204,300 shares in various open market purchases at
an average price of approximately $10.65 per share, or a total
expenditure of approximately $2,176,484. These shares are
presented as common stock held in treasury at December 31,
2002 and were retired in February 2003. We have not made any
additional treasury share purchases since December 31, 2002.
We may continue to purchase our shares, or may discontinue the
buyback at any time depending on the selling price of our
common stock, the viability of potential acquisition targets,
and our cash flows from operations and on hand cash balances.
STOCK BASED COMPENSATION
At March 31, 2003, the Company had one stockbased compensation
plan and had entered into a limited number - stock option
agreements, which have been disclosed in the Company's annual
report on Form 10-KSB for the year ended December 31, 2002 and
its proxy statement for the 2003 annual meeting filed with the
Securities and Exchange Commisssion. The Company accounts for
stock-based compensation using the intrinsic value method.
Accordingly, compensation cost for stock options issued is
measured as the excess, if any, of the fair value of the
Company's common stock at the date of grant over the exercise
price of the options. The Company's net earnings and earnings
per share would have been changed to the pro forma amounts
indicated below had compensation cost for the stock option
plans and non-qualified options issued to employees been
determined based on the fair value of the options at the grant
dates consistent with the method of SFAS 123.
8
MARCH 31, 2003 MARCH 31, 2002
Net earnings:
As reported....................................... $1,943,284 $1,329,776
Pro forma......................................... 1,405,975 1,081,409
Basic earnings per share:
As reported....................................... $ 0.27 $ 0.20
Pro forma......................................... 0.19 0.16
Diluted earnings (loss) per share:
As reported....................................... $ 0.26 $ 0.18
Pro forma......................................... 0.19 0.15
The above pro forma disclosures may not be representative of
the effects on reported net earnings for future years as
options vest over several years and the Company may continue
to grant options to employees.
In accordance with the requirements of SFAS 123, the fair
value of each option grant was estimated on the date of grant
using a binomial option-pricing model with the following
weighted-average assumptions used for grants in 2003 and 2002,
respectively: no dividend yield for all years; expected
volatility of 75% for 2003 and 2002; risk-free interest rates
of 3% in 2003 and 2002; and expected holding periods of 5
years in 2003 and 2002.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued Statement No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities. ("SFAS
146"). SFAS 146 applies to costs associated with an exit
activity (including restructuring) or with a disposal of
long-lived assets. Those activities can include eliminating or
reducing product lines, terminating employees and contracts
and relocating plant facilities or personnel. SFAS 146 is
effective prospectively for exit or disposal activities
initiated after December 31, 2002, with earlier adoption
encouraged. The Company does not believe the adoption of this
standard will have a material impact on the financial
statements.
In December 2002, the FASB issued Statement No. 148,
"Accounting for Stock-Based Compensation-Transition and
Disclosure", ("SFAS 148") an amendment of FASB Statement No.
123. SFAS 148 amends FASB Statement No. 123, "Accounting for
Stock-Based Compensation", to provide alternative methods of
transition for an entity that voluntarily changes to the fair
value based method of accounting for stock-based employee
compensation and to require prominent disclosures about the
effects on reported net income of an entity's accounting
policy decisions with respect to stock-based employee
compensation. SFAS 148 also amends APB Opinion No. 28,
9
"Interim Financial Reporting," to require disclosures about
those effects in interim financial information. The Company
currently accounts for its stock-based compensation awards to
employees and directors under the accounting prescribed by
Accounting Principles Board Opinion No. 25 and provides the
disclosures required by SFAS No. 123. The Company currently
intends to continue to account for its stock-based
compensation awards to employees and directors under the
accounting prescribed by Accounting Principles Board Opinion
No. 25 and adopted the additional disclosure provisions of
SFAS 148 in December 2002.
In November 2002, the FASB issued Interpretation 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others. For a guarantee subject to FASB Interpretation 45, a
guarantor is required to:
o measure and recognize the fair value of the guarantee
at inception (for many guarantees, fair value will be
determined using a present value method); and
o provide new disclosures regarding the nature of any
guarantees, the maximum potential amount of future
guarantee payments, the current carrying amount of the
guarantee liability, and the nature of any recourse
provisions or assets held as collateral that could be
liquidated and allow the guarantor to recover all or a
portion of its payments in the event guarantee payments
are required.
The disclosure requirements of this Interpretation are
effective for financial statements for fiscal years ending
after December 15, 2002 and did not have a material effect on
the Company's financial statements. The initial recognition
and measurement provisions are effective prospectively for
guarantees issued or modified on or after January 1, 2003,
which should not have a material effect on the Company's
financial statements.
In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities, an Interpretation
of APB No. 51, which requires all variable interest entities
to be consolidated by the primary beneficiary. The primary
beneficiary is the entity that holds the majority of the
beneficial interests in the variable interest entity. In
addition, the Interpretation expands disclosure requirements
for both variable interest entities that are consolidated as
well as variable interest entities from which the entity is
the holder of a significant amount of the beneficial
interests, but not the majority. The disclosure requirements
of this Interpretation are effective for all financial
statements issued after January 31, 2003. The consolidation
requirements of this Interpretation are effective for all
periods beginning after June 15, 2003. The Company does not
believe the adoption of this Interpretation will have a
material effect on its financial statements.
10
NOTE 3. ACQUSITIONS
- ------- -----------
During 2002, we acquired the common stock of Anapharm, Inc.
and the assets of New Drug Services, Inc. ("NDS"). The terms
of these acquisitions are described in our Form 10-KSB for the
period ended December 31, 2002.
On March 26, 2003, SFBC, through its wholly-owned subsidiary,
Anapharm, acquired substantially all of the common stock of
SynFine Research, Inc., an Ontario corporation. Earlier in
2003, SynFine acquired the assets of PDI-Research Laboratories
located in suburban Toronto, Canada. The business of PDI(now
SynFine) provides synthesized research compounds used by
bioanalytical laboratories. Prior to the acquisition, both
Anapharm and SFBC Analytical were customers of PDI.
We paid $1.6 million for SynFine's net assets comprised
primarily of scientific equipment, customer lists and real
estate. No goodwill was recorded on this transaction since the
fair value of the net assets was in excess of the $1.6 million
paid by the Company. Anapharm used its own cash without
borrowing any funds to consummate the transaction. All of the
12 employees of SynFine have remained as employees. This new
business unit within Anapharm will pursue the same research
activities and same business as PDI under the new name of
SynFine Research. This acquisition is not expected to have a
material impact on Anapharm's revenues or earnings during 2003
and is not material for financial reporting purposes.
The Company originally had anticipated entering into the
synthesis business during late 2004. However, we accelerated
our entry into this market due to the availability of PDI's
scientific expertise and personnel, and the availability of
PDI's equipment, customer list and real estate at a very
favorable price.
UNAUDITED PRO FORMA RESULTS
Unaudited pro forma results of operations after giving effect
to certain adjustments resulting from the 2002 acquisitions
were as follows for the periods ended March 31, 2003 and March
31, 2002 as if the business combinations had occurred at the
beginning of each period presented:
Three Months Ended March 31
2003 2002
(Unaudited)
Net revenue 18,670,036 15,686,635
Net earnings 1,943,284 1,910,857
Earnings per share - basic $0.27 $0.27
Earnings per share - diluted $0.26 $0.25
The pro forma data is provided for information purposes only
and does not purport to be indicative of results which
actually would have been obtained if the combinations had been
effected at the beginning of each period presented, or of
those results which may be obtained in the future.
11
NOTE 4. GOODWILL AND INTANGIBLE ASSETS
- ------- ------------------------------
In connection with adopting SFAS 142, the Company
reassessed the useful lives and the classifications of its
identifiable intangible assets and determined that they
continue to be appropriate. The components of the Company's
intangible assets subject to amortization are approximately as
follows:
March 31,2003 December 31, 2002
Weighted ---------------------------- -----------------------------
Average Gross Gross Gross Gross
Life Carrying Accumulated Carrying Accumulated
(Years) Amount Amortization Amount Amortization
--------- ----------- ------------ ----------- ------------
Methodologies 3.5 $ 1,721,000 $ (496,000) $ 1,721,000 $ (377,000)
Employment
Agreement 5 590,000 (194,000) 590,000 (162,000)
Subject Database 4 900,000 (225,000) 900,000 (169,000)
Customer backlog .75 290,000 (226,000) 290,000 (130,000)
----------- ----------- ----------- -----------
$ 3,501,000 $(1,141,000) $ 3,501,000 $ (838,000)
=========== =========== =========== ===========
Amortization expense for intangible assets during the
three-month period ended March 31, 2003 was approximately
$303,000. The following table provides information regarding
estimated amortization expense for each of the following years
ended December 31:
2003 $ 987,000
2004 826,000
2005 725,000
2006 125,000
----------
$2,663,000
==========
As of March 31, 2003, all intangible assets except goodwill
were subject to amortization expense.
Reported earnings and earnings per share for the three month
periods ended March 31, 2003 and March 31, 2002 remain
unchanged by the adoption of SFAS 142.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As used in the quarterly report on Form 10-Q, "we", "our",
"us", the "Company" and "SFBC" refer to SFBC International,
Inc. and its subsidiaries unless the context otherwise
requires.
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 that follows this
section.
OVERVIEW
We are a provider of specialized drug development services to
the pharmaceutical and biotechnology industries. We specialize
in recruiting for and conducting Phase I and Phase II clinical
trials including participants from special populations. We
also provide our clients with bioanalytical service for Phase
I and II clinical trials. Our clients include the largest
pharmaceutical manufacturers in the world, medium and small
pharmaceutical manufacturers, generic drug companies,
biotechnology companies and other drug development companies,
such as ourselves. Our principal clinical operations are
located in Miami, Florida and Anapharm's facilities in Quebec
and Montreal, Canada. Our Miami Phase I and II clinic is, we
believe, the largest Phase I and Phase II clinic in the United
States. We very recently opened our new expanded Phase I
through IV clinical trial facility in Ft. Myers, Florida. In
addition we provide data management, regulatory submissions,
and Phase III and IV clinical trials management services in
targeted therapeutic areas. Our services help reduce the
amount of time and expense associated with drug development
and enable our clients to bring new drugs to market faster.
Our revenues consist primarily of fees earned under contracts
with pharmaceutical and biotechnology company clients.
Typically, a portion of our contract fee is due upon signing
of the contract, and the majority of the contract fee is
generally paid in installments upon the achievement of certain
agreed upon performance milestones over the duration of the
contracted services.
All financial information presented in this report relating to
Anapharm has been converted to United States dollars.
CRITICAL ACCOUNTING POLICIES
----------------------------
Revenue and Cost Recognition
----------------------------
Revenues from contracts are generally recognized as services
are performed on the percentage-of-completion method of
accounting with performance generally assessed using output
measures, such as units-of-work performed to date as compared
to the total units-of-work contracted. Contracts may contain
13
provisions for renegotiation in the event of cost overruns due
to changes in the level of work scope. Renegotiated amounts
are included in revenue when the work is performed and
realization is assured. Provisions for losses to be incurred
on contracts are recognized in full in the period in which it
is determined that a loss will result from performance of the
contractual arrangement.
Direct costs include all direct costs related to contract
performance. Costs are not deferred in anticipation of
contracts being awarded, but instead are expensed 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.
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.
Collectibility of Accounts Receivable
-------------------------------------
The Company's allowance for doubtful accounts and allowance
for changes in contracts are based on management's estimates
of the creditworthiness of its clients, analysis of subsequent
changes in contracts, analysis of delinquent accounts, the
payment histories of the accounts and management's judgment
with respect to current economic conditions and, in the
opinion of management, is believed to be an amount sufficient
to respond to normal business conditions. Management sets
reserves for customers based upon historical collection
experience, and sets specific reserves for customers whose
accounts have aged significantly beyond this historical
collection experience. Should business conditions deteriorate
or any major client default on its obligations to the Company,
this allowance may need to be significantly increased, which
would have a negative impact upon the Company's operations.
The allowance for changes in contracts is an estimate
established through reductions to net revenue while the
allowance for doubtful accounts is an estimate established
through charges to selling, general and administrative
expenses.
Income Taxes
------------
Significant management judgment is required in developing the
Company's provision for income taxes, including the
determination of foreign tax liabilities, deferred tax assets
and liabilities and any valuation allowances that might be
required against the deferred tax assets. The Company
evaluates quarterly its ability to realize its deferred tax
assets and adjusts the amount of its valuation allowance, if
necessary. The Company operates within multiple taxing
jurisdictions and is subject to audit in those jurisdictions.
Because of the complex issues involved, any claims can require
an extended period to resolve. In management's opinion,
adequate provisions for income taxes have been made.
14
Impairment of Assets
--------------------
The Company reviews long-lived assets and certain identifiable
intangibles held and used for possible impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In evaluating the
fair value and future benefits of its intangible assets,
management performs an analysis of the anticipated
undiscounted future net cash flows of the individual assets
over the remaining amortization period. The Company will
recognize an impairment loss if the carrying value of the
asset exceeds the expected future cash flows.
In 2002, the Company began to perform an annual test for
impairment of goodwill. This test is performed by comparing,
at the reporting unit level, the carrying value of goodwill to
its fair value. The Company assesses fair value based upon its
best estimate of the present value of future cash flows that
it expects to generate by the reporting unit. The tests
performed for 2002 did not identify any instances of
impairment. However, changes in expectations as to the present
value of a reporting unit's future cash flows might impact a
subsequent year's assessments of impairment.
Other Estimates
---------------
The Company makes a number of other estimates in the ordinary
course of business. Historically, past changes to these
estimates have not had a material impact on our financial
condition. However, circumstances could change which may alter
future expectations.
RESULTS OF OPERATIONS
During the first quarter ended March 31, 2002 we had
operations in Miami, Charlotte, Ft. Myers, and Philadelphia,
and for one-half a month at Anapharm. In contrast this year we
had operations in all of the mentioned locations for the full
quarter including the results of operations of the NDS
business which we acquired on September 6, 2002.
PRO FORMA DISCLOSURE
The following table reflects our actual results of operations
for the quarter ended March 31, 2003 and our pro forma results
of operations for the same quarter. The pro forma adjustment
reflects the reclassification of $750,149 in Canadian tax
credits to the costs which generated the credit. Under United
States generally accepted accounting principles ("GAAP"),
these tax credits are applied as a deduction from "Income Tax
Expense" on the income statement.
Under the U.S. GAAP approach, net income before taxes is
reduced by the amount of all of the direct costs and selling,
general and administrative expenses. Under the pro forma
approach credits are added back increasing the income tax
expense. The end result is that the net income is identical
under both the actual and pro forma approaches.
We believe that the above pro forma presentation, which is a
non-GAAP financial measure as defined by Regulation G of the
Securities and Exchange Commission, is more indicative of
income from operations and operating margins; it also assists
15
management in calculating earnings before income taxes,
depreciation and amortization ("EBITDA") and comparing EBITDA
to other companies in our sector. For these reasons, we
believe the pro forma table is useful to investors.
SELECTED PROFORMA QUARTERLY DISCLOSURES
FOR THE PERIOD ENDED MARCH 31, 2003 (all in $USD)
Recast proforma income statement to reflect the impact
- ------------------------------------------------------
of Canadian tax credits
- -----------------------
(UNAUDITED)
ADJUSTED
PROFORMA
CANADIAN INCOME
(UNAUDITED) TAX REFLECTING
REPORTED CREDIT CANADIAN
ACTUAL RECLASS TAX CREDITS
RESULTS FOR FOR THE FOR THE
THE PERIOD PERIOD PERIOD
ENDED ENDED ENDED
3/31/03 3/31/03 3/31/03
(A) (B)
Net revenue $ 18,670,036 100.0% $ 18,670,036 100.0%
Costs and expenses
Direct costs 10,568,592 56.6% $ (635,562) 9,933,030 53.2%
Selling, general and administrative
expenses 5,814,860 31.1% (114,587) 5,700,273 30.5%
------------- ------------ ---------------
Total costs and expenses 16,383,452 87.8% (750,149) 15,633,303 83.7%
Earnings from operations 2,286,584 12.2% 750,149 3,036,733 16.3%
Other income (expense)
Interest income 52,015 52,015
Interest expense (74,439) (74,439)
------------- ---------------
Total other income (expense) (22,424) (22,424)
------------- ------------ ---------------
Earnings before taxes 2,264,160 750,149 3,014,309
Income tax expense 320,876 14.2% 750,149 1,071,025 35.5%
------------- ------------ ---------------
---------------
Net earnings $ 1,943,284 10.4% $ (0) $ 1,943,284 10.4%
============= ============ ===============
Earnings per share:
Basic $ 0.27 $ 0.27
============= ===============
Diluted $ 0.26 $ 0.26
============= ===============
Shares used in computing earnings per share:
Basic 7,219,558 7,219,558
============= ===============
Diluted 7,582,589 7,582,589
============= ===============
16
Net Revenues
------------
Our net revenues were $18,670,036 for the three-month period
ended March 31, 2003, which is an increase of 95% from
$9,582,555 from the corresponding period in the prior year.
The increase is attributable to (i) three months of revenues
from Anapharm, (ii) three months of revenues from the
subsidiary which acquired NDS and (iii) internal growth from
operations. The strong performance at Anapharm reflects its
importance as a significant entity in the market for generic
drug research.
On a pro forma basis, if the Company had owned all of its
subsidiaries as of January 1, 2002, net revenue for the
three-month period ended March 31, 2003 would have increased
approximately 19.0% over the same three-month period ended
March 31, 2002. We believe that this pro forma comparison
permits us to more accurately track our growth rate. We
believe it is also more meaningful to investors since the
inclusion of the results of operations from our two
acquisitions since the date of the acquisitions does not
provide a fair comparison. For the period ended March 31, 2003
net revenues from foreign operations (substantially all from
Anapharm) were $8,842,870 , and $9,827,166 from U.S.
operations.
Gross Profit Margins
--------------------
Our gross profit margins decreased to 43.4% from 49.3% for the
three months ended March 31, 2003 as compared to the
corresponding period in the prior year. This decrease in our
gross profit margins is primarily attributable to the
inclusion of a full quarter of Anapharm's operations compared
to approximately one-half of one month during the same three
month period in 2002. Anapharm's gross profit margins are
lower due to the nature of Anapharm's business in the generic
market where it employs a high number of research and
development employees and incurs higher direct costs as a
percentage of revenues than our United States operations. The
Canadian government subsidizes a portion of these additional
expenses through tax credits. Under United States GAAP, these
credits are applied against income tax expense rather than
against the underlying direct cost that generated the credit.
The overall impact on our operations is that the direct cost
and S,G&A expenses as a percentage of revenues will be
permanently higher and our effective tax rate will be
permanently lower than in the past. Our net income is not
affected by this method. See "Pro Forma Disclosure".
Additionally, to a lesser extent, the decrease in our gross
margins is attributable to the mix of our contracts which
changes from quarter to quarter. For the remainder of the year
we expect our gross margins to be between 41-43%.
Selling, General and Administrative Expenses
--------------------------------------------
Our selling, general and administrative expenses or S,G&A
expenses increased to $5,814,860 for the three-month period
ended March 31, 2003 from $2,819,628 in the corresponding
period in the prior year, an increase of 106%. As a percentage
of net revenues, our S,G&A expenses increased from 29.4% for
the three-month period ended March 31, 2003 to 31.1% for the
three-month period ended March 31, 2002.
17
The increase in total S,G&A expenses is primarily due to (i)
our increased sales and marketing efforts, (ii) increased
depreciation and amortization expense and other expenses
consistent with the growth of the Company, and (iii) the
inclusion of Anapharm's and NDS' S,G&A expenses for a full
quarter. The increase in S,G&A expenses as a percentage of
revenues is primarily due to the inclusion of Anapharm's
S,G,&A expenses. As noted above in the "Gross Profit Margins"
section and shown in the "Pro Forma Disclosure" above,
Anapharm also receives tax credits for certain S,G&A expenses.
These credits are accounted in the same manner as direct
costs.
Net Earnings
------------
Net income increased from $1,329,807 to $1,943,284 for the
three-month period ended March 31, 2003 as compared to the
corresponding period in the prior year, an increase of 46%. On
a fully diluted basis, our earnings per share increased from
$.18 to $.26 for the three-month period ended March 31, 2003
compared to the same period in 2002. The weighted average
number of shares outstanding used in computing earnings per
share on a fully diluted basis increased from 7,345,152 to
7,582,589 for the three-month period ended March 31, 2003 as
compared to the corresponding period in the prior year. The
change in the number of shares resulted primarily from the
issuance of 167,375 shares to Anapharm on March 18th 2002, and
234,060 shares to NDS on September 6, 2003 as acquisition
consideration, the exercise of approximately 337,000 options
and warrants, and the change in our stock price (which causes
additional unexercised options to be included as shares
outstanding), offset by the share repurchases described below.
On July 17, 2002, we announced a common stock buyback plan of
up to 750,000 shares. As of December 31, 2002, we had
purchased 204,300 shares in various open market purchases at
an average price of approximately $10.65 per share, or a total
expenditure of approximately $2,176,484. These shares are
presented as common stock held in treasury at December 31,
2002 and were retired in February 2003. We have not made any
additional treasury share purchases since December 31, 2002.
We may continue to purchase our shares, or may discontinue the
buyback at any time depending on the selling price of our
common stock, the viability of potential acquisition targets,
and our cash flows from operations and on hand cash balances.
Our effective tax rate for the three month period ended March
31, 2003 was 14% compared to 35% for the same period in 2002.
This decrease is primarily attributable to the inclusion of
our Canadian income, which is taxed at a significantly lower
tax rate than U.S. operations, for the full three month period
ended March 31, 2003, compared to the inclusion of Canadian
operations for only one-half of one month in 2002. As
described earlier, Anapharm receives significant tax credits
from the government of Canada for incurring research and
development expenses. These credits and the lower Canadian tax
rates lower our effective tax rate. We expect Canada's
provision for research and development tax credits to
continue; however, there can be no assurance on the future
amount of these credits on a quarterly or annual basis.
The future effective tax rate will be dependent on the amount
of the credits Anapharm receives and Anapharm's relative
contribution to our consolidated pre-tax income. For the
remainder of 2003, we expect our average effective tax rate to
be between 24% and 26%, and an annual rate of between 20-22%,
compared to the 2002 tax rate of 24% which included Anapharm's
lower tax rate for nine and one-half months. The higher tax
rate we anticipate for the balance of the year gives effect to
the fact that our Phase I and II business in the United States
during 2002 was substantially stronger in the second half of
the year, particularly in the fourth quarter. In 2002
excluding SFBC NDS U.S. operations recorded approximately 40%
of its revenues and earnings in the first half of the year and
60% in the second half of the year. We expect this cyclical
trend to continue.
18
Whenever commercially practical, we refer Phase I and Phase II
studies and bioanalytical contracts to our Canadian operations
to benefit from the lower operating costs lower tax rates in
Canada, and the availability of tax credits. Excluding the
impact of tax credits, SFBC's effective tax rate in Canada is
approximately 33% compared to approximately 40% in the United
States. There will be some practical limitations which prevent
us from referring some studies to Anapharm including differing
areas of expertise, the availability of special population
groups or client preferences on where the work should be
performed.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 2003, net cash provided
by operating activities was $323,414 in contrast to $677,092
of net cash used in operations for the corresponding period in
2002. The change is primarily attributable to the increase in
net earnings and depreciation and amortization resulting from
the growth of our business, offset by substantial decreases in
the Company's accounts payable, accrued liabilities and
advance billings.
For the three months ended March 31, 2003, net cash used in
investing activities was $2,450,441 compared to $22,558,158
used in investing activities for the corresponding period in
2002. The decrease is primarily attributable to the use of
approximately $22,000,000 of net cash to acquire Anapharm,
Inc. in March 2002 as compared to approximately $1,600,000 of
net cash used to acquire SynFine Research, Inc. on March 26,
2003.
During the three months ended March 31 2003, we used $80,366
in financing activities compared to net cash used in financing
activities of $1,873 in the corresponding period of 2002. The
increase is primarily attributable to payments made against
notes outstanding and the effect of changes in currency
exchange rates on the notes outstanding. In addition, proceeds
of approximately $86,000 were received from the exercise of
stock options and warrants.
On September 16, 2002, we entered into a $10 million Revolving
Credit and Security Agreement with Wachovia Bank National
Association. The interest rate on this Credit Facility is
LIBOR based and variable. As of December 31, 2002, our average
interest rate on the entire Credit Facility was approximately
3.5 %. This Credit Facility enables SFBC to borrow for general
working capital purposes and for the purpose of financing
acquisitions of companies in related industries. This Credit
Facility is secured by substantially all of our assets. We
have not borrowed any funds under this Credit Facility. In
order to qualify to be able to draw down on the Credit
Facility we must comply with covenants requiring us to
maintain certain leverage and debt service coverage ratios, as
well as minimum liquidity. As of March 31, 2003, the Company
was in compliance with all required covenants.
We expect to spend between $3.0 to $3.5 million during the
balance of the year to acquire capitla assets.
At May 9, 2003, we had approximately $ 5,000,000 in cash on
hand. Based upon our cash balances and our positive cash flows
from operations, we believe we have enough working capital to
meet our operational needs within the next 12 months. If we
consummate any acquisitions, we expect to use our Credit
Facility and, if necessary, obtain additional debt or equity
financing. Except for the possibility of issuing stock related
to potential earn-outs described in "Commitments" below or a a
potential accretive acquisition, should one arise we do not
anticipate issuing any of our common stock during 2003.
COMMITMENTS
Charlotte Earn-out
------------------
We acquired SFBC Charlotte in March 2000. As part of the
purchase price we agreed to pay the seller potential
additional consideration up to a maximum payment of $1.2
million earn-out based upon future SFBC Charlotte's operating
performance during the first three post-acquisition years.
This three year period ended on March 31, 2003. No payments
have been earned during the first two years following the
acquisition. Based upon the attainment by SFBC Charlotte of
certain operating milestones through the 12-month measurement
period ending March 31,2003 of the third year, we expect to
19
pay the full $1.2 million to the seller of SFBC Charlotte. As
a result both goodwill and accrued liabilities on our
Consolidated Balance Sheet have been increased by $1.2
million. We have the option to pay this earn-out in any
combination of cash and SFBC common stock when it is due on
July 1, 2003. If we elect to deliver stock, the number of
shares is based upon the average closing price for each
trading day of April 2003 or a maximum of approximately 81,000
shares. We expect to make the determination as to whether to
deliver cash or deliver shares of common stock (or some
combination of both) on or before July 1, 2003. If we deliver
shares of common stock, we have agreed to register them on
Form S-3. If we do so, we expect that the registration
statement will be effective by the July 1st delivery date. If
the registration statement is not effective by July 1st and
the price upon effectiveness is lower than on July 1st, the
seller will have the option at that time to elect to receive
the shares or cash up to $1,200,000.
NDS Earn-out
------------
In addition, we may pay NDS up to $8 million as an earn-out
based upon SFBC NDS' future operating results over a three
year period with the initial year ending September 30, 2003.
Of this $8 million potential earnout, $6 million is to be paid
in cash and the remaining $2 million will be paid through the
issuance of common stock.
RELATED PARTY TRANSACTIONS
In March 2003, Lisa Krinsky, M.D., our chairman of the board
of directors and president, voluntarily prepaid a note due on
July 31, 2003 in the amount of $94,918 including accrued
interest. The loan represented personal expenses we paid for
Dr. Krinsky in 1998 prior to our initial public offering. We
will not make any future loans to our executive officers and
directors.
FORWARD-LOOKING STATEMENTS The statements in this Report
relating to our expectations about our future gross margins,
future Canadian tax credits and tax rates, Anapharm's
contribution to our pre-tax income, the Company's effective
future tax rates, continuation of the cyclical trend which
affects our United States operations, the possibility of
future dilution, the adequacy of our working capital, new
capital expenditures, and future acquisitions, the type of
consideration to used to pay the Charlotte earn-out,
effectiveness of the registration statement and the repurchase
of our common stock are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of
1995 (the "Act"). Additionally, words such as "expects",
"anticipates", "intends", "believes", "will" and similar words
are used to identify forward-looking statements within the
meaning of the Act.
The results anticipated by any or all of these forward-looking
statements might not occur. Important factors, uncertainties
and risks that may cause actual results to differ materially
from these forward-looking statements include (1) our
ability to successfully implement our plans for operational
and geographical expansion; (2) our ability to successfully
achieve and manage the technical requirements of specialized
clinical trial services, while maintaining compliance with
applicable rules and regulations; (3) our ability to compete
nationally in attracting pharmaceutical companies in order to
develop additional business; (4) our continued ability to
recruit participants for clinical studies; (5) the economic
20
climate nationally and internationally as it affects drug
development operations, (6) our ability to integrate and
absorb any future acquisitions into our current operational
structure, (7) the changing mix of, and the amount contracts
and laboratory services offered, (8) future legislation in
Canada which may affect our ability to continue to generate
tax credits at Anapharm to lower the effective tax rate, and
(9) our future stock price.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as 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 Form 10-KSB for the year ended December 31,
2002 we filed with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SFBC is subject to market risks in some of its financial
instruments. These instruments are carried at fair value on
its financial statements. SFBC is subject to currency risk at
Anapharm . SFBC is also subject to interest rate risk on its
credit facility if it borrows under it as described below.
SFBC has not entered into market risk sensitive instruments
for trading purposes.
In 2002, SFBC purchased certain debt securities SFBC
classifies its investments in debt securities as
available-for-sale in accordance with SFAS 115, "Accounting
for Certain Investments in Debt and Equity Securities."
Investments classified as available-for-sale are carried at
fair value based on quoted market prices. The estimated fair
value of securities for which there are no quoted market
prices is based on similar types of securities that are traded
in the market. The unrealized holding gain (loss) on
available-for-sale securities is reported as a component of
accumulated other comprehensive earnings, net of applicable
deferred income taxes. As of December 31, 2002 the unrealized
gain on investments in marketable securities was
insignificant. Cost is determined on an average cost per share
basis for determining realized gains and losses. In 2002,
there were no realized gains or losses.
Financial instruments that potentially subject SFBC to credit
risk consist principally of trade receivables. SFBC performs
services and extends credit based on an evaluation of its
clients' financial condition without requiring collateral.
Exposure to losses on receivables is expected to vary by
client due to the financial condition of each client. SFBC
monitors exposure to credit losses and maintains allowances
for anticipated losses considered necessary under the
circumstances. Additionally, SFBC, from time to time,
maintains cash balances with financial institutions in amounts
that exceed federally insured limits.
SFBC's financial instruments consist primarily of cash and
cash equivalents, marketable securities, accounts receivable,
notes receivable, accounts payable, and notes payable. At
December 31, 2002, the fair value of these instruments
approximates the carrying amount of these items due to the
short-term maturities of these instruments.
At Anapharm where the local currency is the functional
currency, assets and liabilities are translated into United
States dollars at the exchange rate in effect at the end of
the year. Revenues and expenses of Anapharm are translated at
the average exchange rate during the year. The aggregate
effect of translating the financial statements of Anapharm is
included in a separate component of stockholders' equity
entitled "Accumulated Other Comprehensive Earnings." In 2002,
21
SFBC had losses from foreign currency transactions of
$123,264. Currency translation risks arise primarily from
Anapharm. SFBC does not hedge its foreign currency risks.
On September 16, 2002, SFBC entered into a $10 million
Revolving Credit and Security Agreement with Wachovia Bank
National Association. The interest rate on this Credit
Facility is LIBOR based and variable. As of December 31, 2002,
our average interest rate on the entire Credit Facility was
3.5 %. This Credit Facility enables SFBC to borrow for general
working capital purposes and for the purpose of financing
acquisitions of companies in related industries. This Credit
Facility is secured by substantially all of SFBC's assets. As
of December 31, 2002 and as of the date of this Report, SFBC
had not borrowed on this credit facility. Changes in interest
rates, and LIBOR in particular, will affect the cost of funds
should SFBC draw on such facility.
ITEM 4. CONTROLS AND PROCEDURES
In accordance with Section 302 of the Sarbanes-Oxley Act of
2002 and the rules thereunder, our chief executive officer and
chief financial officer reviewed our disclosure controls and
procedures. This review was completed within the time required
by law, and these executive officers reported the results to
our audit committee. Based upon this review, our chief
executive officer and chief financial officer concluded that
our disclosure controls and procedures are effective and are
sufficient to meet the requirements for this report.
In addition, we reviewed our internal controls, and there have
been no significant changes in our internal controls or in
other factors that could significantly affect those controls
subsequent to the date we carried out this evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
During the quarter ended March 31, 2003, we issued shares of
our common stock to the following individuals and corporation
upon exercise of options or warrants which were not covered by
an effective registration statement but were exempt under
Section 4(2) of the Securities Act of 1933:
DATE NAME NUMBER OF SHARES CONSIDERATION
---- ---- ---------------- -------------
February 18, 2003 Andrew B. Dorman 2,813 Cashless exercise of
10,000 Stock Options
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBIT INDEX
Exhibit
Number Description
- -------- ---------------------------------------------------------------------
3.1 Certificate of Incorporation(1)
3.2 First Amendment to Certificate of Incorporation(1)
3.3 Certificate of Correction to Certificate of Incorporation(2)
3.4 Bylaws(1)
3.5 First Amendment to the Bylaws(2)
3.6 Second Amendment to the Bylaws (3)
99.1 Section 906 Certification of Chief Executive Officer.
99.2 Section 906 Certification of Chief Financial Officer.
(1) Contained in Form SB-2 filed on August 17, 1999.
(2) Contained in Form SB-2 filed on October 5, 2000.
(3) Contained in Form 10-KSB for the fiscal year ended December 31, 2002 filed
on March 31, 2003.
(b) REPORTS ON FORM 8-K.
On March 21, 2003, the registrant filed a Form 8-K/A No. 3. The date of the
report was September 6, 2002, and the report contained the Asset Purchase
Agreement regarding the NDS acquisition.
23
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf on May 15, 2003 by the
undersigned, thereunto duly authorized.
SFBC INTERNATIONAL, INC.
/s/ Arnold Hantman
------------------
Arnold Hantman, Chief Executive Officer
/s/ David Natan
---------------
David Natan, Chief Financial Officer
24
CERTIFICATION
I, Arnold Hantman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SFBC International,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003
/s/ Arnold Hantman
------------------
Chief Executive Officer
25
CERTIFICATION
I, David Natan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SFBC International,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003
/s/ David Natan
---------------
Chief Financial Officer
26