UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
( PURSUANT TO SECTION 13(e) OF SECURITIES EXCHANGE ACT OF 1934)
(Amendment No. 1)
Biosearch Medical Products, Inc.
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(Name of the Issuer)
Joint filing by:
Biosearch Medical Products, Inc. Hydromer, Inc.;
Manfred F. Dyck and Martin C. Dyck
- --------------------------------------------------------------------------------
(Name of Person Filing Statement)
Common Stock
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(Title of Class of Securities)
090660 20 0
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(CUSIP Number of Class of Securities)
Robert J. Moravsik, General Counsel
Biosearch Medical Products, Inc, 35A Industrial Parkway, Somerville, NJ 08876
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(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communication on Behalf of Person Filing Statement)
This statement is filed in connection with(Check appropriate box)
a. _X_ The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or rule 13E-3(c) under
the Securities Exchange Act of 1934.
b. ___ The filing of a registration statement under the Securities Act
of 1933.
c. ___ A tender offer.
d. ___ None of the above.
Check the following box if the soliciting materials of information statement
referred to in checking box (a) are preliminary copies. _X_
Calculation of Filing Fee
Transaction valuation* Amount of Filing Fee
---------------------- --------------------
$440,576 1/50 of 1% $88
Check box if any part of fee is offset as provided by Rule 0-11 (a)(2) and
identify the filing with which the offsetting fee was previously paid. Identify
the previous filing by registration statement number, or the form or schedule
and the date of its filing.
Amount previously paid: ________ Filing party: ________
Form or registration No.: ________ Date filed: ________
Instruction. Eight copies of this statement, including all exhibits, should be
filed with the commission.
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
CROSS REFERENCE SHEET
Certain information required to be filed in response to the Items in this
Schedule 13E-3 is included in the Proxy Statement of Biosearch Medical Products,
Inc. filed in connection with this transaction, (hereinafter "Proxy Statement").
Such referenced information is indicated below and is hereby incorporated by
reference into the response to the item to which it relates.
Item 1. Issuer and Class of Security Subject to the Transaction
(a) no cross reference
(b) no cross reference
(c) See Section II of Proxy Statement, subsection entitled "Share Price of
Company" incorporated by reference herein.
(d) no cross reference
(e) Not applicable
(f) Not applicable
Item 2. Identity and Background
As to the Issuer: For information about officers and directors see Proxy
Statement, Section I, subsection entitled "Nominees for Election."
As to the Purchaser: for information about officers and directors see the Proxy
Statement Section II, Subsection entitled "Special Factors."
As to Affiliates
Manfred F. Dyck
(a) no cross reference
(b) no cross reference
(c) no cross reference
(d) see Proxy Statement, Section I, subsection entitled "Nominees for
Election."
(e)(f) no cross reference
Martin C. Dyck
(a) no cross reference
(b) no cross reference
(c) no cross reference
<PAGE>
(d) see Proxy Statement, Section I, subsection entitled "Nominees for
Election."
(e)(f) no cross reference
As to the Issuer: For information about officers and directors see Proxy
Statement, Section I, subsection entitled "Nominees for Election."
As to Purchaser: for information about officers and directors see Proxy
Statement Section II, subsection entitled "Special Factors".
Item 3. Past Contacts, Transactions or Negotiations.
As to Hydromer, Manfred F. Dyck and Martin C. Dyck:
(a) (1) See Proxy Statement, Section I, subsections entitled "Other
Information Concerning Directors, Officers and Stockholders."
(2) See Proxy Statement, Section I, subsection entitled "Other Information
Concerning Directors, Officers and Stockholders" and Section II,
"Share Exchange for $0.20."
(b) (i) See Proxy Statement, Section II, "Share Exchange for $0.20,"
subsection entitled "Summary of Material features of this Exchange,
paragraphs d and e.
(ii) Not applicable
Item 4. Terms of the Transaction.
(a) See Section II of the Proxy Statement, subsection entitled "Summary of
Material Features of this Exchange".
(b) (i) No cross reference
(ii) No cross reference
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a) through (e) inclusive: No cross reference
(f) No cross reference
(g) Not applicable
Item 6. Source and Amounts of Funds and other Consideration.
(a) No cross reference
(b) No cross reference
(c) No cross reference
(d) not applicable
Item 7. Purpose(s), Alternatives, Reasons and Facts
<PAGE>
As to Biosearch, Hydromer,
Manfred F. Dyck and
Martin C. Dyck: (a) See Section II of the Proxy Statement,
subsection entitled "Special Factors -
Reasons for this Transaction."
(b) See Section II of the Proxy Statement,
subsection entitled "Special Factors -
Reasons for this Transaction."
(c) See Section II of the Proxy Statement,
subsection entitled "Special Factors -
Reasons for this Transaction."
(d) See Section II of the Proxy Statement,
subsections entitled "Special Factors -
Summary of Material Features of this
Exchange," "Special Factors Reasons for this
Transaction," "Federal Income Tax
Consequences," and "Biosearch Medical
Products, Inc. will go Private."
Item 8. Fairness of Transaction.
(a) See Section II of the Proxy Statement, subsections entitled "Special
Factors - Intention of Certain Persons; Special Factors - Fairness Opinion;
and Special Factors - Reports, Opinions, Appraisals and Certain
Negotiations."
(b) See Section II of the Proxy Statement, subsections entitled "Book Value of
the Company," "Share Price of Company," and "Price of Securities Before And
After Public Announcement on May 13, 1999."
(c) See Section II of the Proxy Statement, subsection entitled "Special Factors
- Fairness Opinion."
(d) See Section II of the Proxy Statement, subsection entitled "Special Factors
- Fairness Opinion."
(e) See Section II of the Proxy Statement, subsection entitled "Special Factors
- Fairness Opinion."
(f) Not applicable
Item 9. Reports, Opinions, Appraisals, and Certain Negotiations.
(a) See Section II of the Proxy Statement, subsection entitled "Special Factors
- Fairness Opinion; and Special Factors - Reports, Opinions, Appraisals and
Certain Negotiations"
(b) See Section II of the Proxy Statement, subsection entitled "Special Factors
- Fairness Opinion; and Special Factors - Reports, Opinions, Appraisals and
Certain Negotiations"
(c) See Section II of the Proxy Statement, subsection entitled "Special Factors
- Fairness Opinion; and Special Factors - Reports, Opinions, Appraisals and
Certain Negotiations"
<PAGE>
Item 10. Interest in Securities of the Issuer
As to Biosearch: (a) Not applicable
(b) Not applicable
As To Hydromer: (a) Not applicable
(b) Not Applicable
As to Manfred F. Dyck: (a) See Proxy Statement, Section I, subsections
entitled "Nominees for Election," "Summary
Compensation Table," "Option Granted,"
"Option Grants in Last Fiscal Year" and
"Aggregated Option Exercises in last Fiscal
Year and Fiscal Year End Option Status."
(b) Not Applicable
As to Martin C. Dyck: (a) See Proxy Statement, Section I, subsections
entitled "Nominees for Election," "Summary
Compensation Table," "Option Granted,"
"Option Grants in Last Fiscal Year" and
"Aggregated Option Exercises in last Fiscal
Year and Fiscal Year End Option Status."
(b) Not Applicable
Item 11. Contracts, Arrangements or Understandings with Respect to the Issuer's
Securities.
See Section II of the Proxy Statement, subsection entitled "Summary of Material
Features of this Exchange."
Item 12. Present Intention and recommendation of Certain Persons with respect to
the Transaction.
(a) See Section II of the Proxy Statement, subsection entitled "Special factors
-Intentions of Certain Persons."
(b) See Section II of the Proxy Statement, subsection entitled "Special factors
-Intentions of Certain Persons."
Item 13. Other Provisions of the Transaction.
(a) See Section II of the Proxy Statement, subsections entitled "Right of
dissent/appraisal," and "Shareholders Protection Act."
(b) No cross reference
(c) Not applicable
Item 14. Financial Information.
<PAGE>
(a) See the Issuer's Annual report on Form 10-K SB-A for the fiscal year ended
December 31, 1998 and the Issuers Quarterly Report on Form 10-Q SB for the
quarter ended March 31, 1999, incorporated by reference.
(b) Not applicable
Item 15. Persons and Assets Employed Retained or Utilized.
(a) See Section II of the Proxy Statement, subsection entitled "Special Factors
- Reasons for this Transaction" and "Summary of Material features of this
Exchange."
Item 16. Additional Information.
Not applicable
Item 17. Exhibits.
(a) Not Applicable
(b) Exhibits annexed to this 13E3:
WHARTON PROPOSAL- Proposal letter and representative transactions of
Wharton Valuation Associates.
PROXY- 1999 Proxy which will be sent to stockholders
LAWSON ONE- Report to Hydromer Board of Directors in March 1998 concerning
a stock for stock exchange
LAWSON TWO- Report to Hydromer Board of Directors in May 1999 concerning a
cash offer for Biosearch
RBB ONE- Report to Hydromer Board of Directors in 1998 concerning methods
of accounting for the transactions
WHARTON ONE- Report to the Biosearch Board of Directors in April 1999
concerning a fair evaluation.
(c) See Exhibit A to Proxy Statement.
<PAGE>
Rule 13e-3 Transaction Statement
Item 1. Issuer and Class of Security Subject to the Transaction.
(a) Biosearch Medical Products, Inc.
35A Industrial Parkway, Somerville, NJ 08876
(b) Common Stock, no par value (hereinafter the "Common Stock") 2,202,878
shares issued and outstanding as of July 15, 1999 approximately 600
shareholders of record as of July 15, 1999
(c) See Section II in Proxy Statement of Biosearch Medical Products, Inc.
(hereinafter, the "Proxy Statement"), subsection entitled "Share Price of
Company" incorporated by reference herein.
(d) No dividends have been paid in the last two years
(e) Not applicable
(f) Not applicable
Item 2. Identity and Background.
This statement is being jointly filed by:
The Issuer: Biosearch Medical Products, Inc. ("Biosearch" or
"Issuer") A New Jersey corporation Manufacturer of
medical devices and custom applicator of lubricous
coatings for medical devices
35A Industrial Parkway
Somerville, NJ 08876
Neither Biosearch nor any of its officers or
directors has been convicted in a criminal
proceeding, and has never been a party to a civil,
judicial or administrative proceeding which found
it in violation of federal or state securities
laws or enjoined further violations of such laws
or prohibited any activities under such laws.
The Purchaser: Hydromer, Inc.("Hydromer")
A New Jersey Corporation
Polymer technology company
35 Industrial Parkway
Somerville, NJ 08876
Neither Hydromer nor any of its officers or
directors has been convicted in a criminal
proceeding, and has never been a party to a civil,
judicial or administrative proceeding which found
it in violation of federal or state securities
laws or enjoined further violations of such laws
or prohibited any activities under such laws.
Affiliates: (a) Manfred F. Dyck
<PAGE>
(b) 35A Industrial Parkway
Somerville, NJ 08876
(c) Chairman and CEO of Biosearch Medical
Products, Inc., the Issuer, and President of
Hydromer, Inc., the Purchaser.
(d) See Proxy Statement, Section I, subsection
entitled "Nominees for Election."
(e)(f) Manfred F. Dyck has never been convicted in
a criminal proceeding, and has never been a
party to a civil, judicial or administrative
proceeding which found it in violation of
federal or state securities laws or enjoined
further violations of such laws or prohibited
any activities under such laws.
(a) Martin C. Dyck
(b) 35A Industrial Parkway
Somerville, NJ 08876
(c) President of Biosearch Medical Products,
Inc., the Issuer, and, upon completion of the
subject transaction, Vice President of
Hydromer, Inc., the Purchaser.
(d) See Proxy Statement, Section I, subsection
entitled "Nominees for Election."
(e)(f) Martin C. Dyck has never been convicted in
a criminal proceeding, and has never been a
party to a civil, judicial or administrative
proceeding which found it in violation of
federal or state securities laws or enjoined
further violations of such laws or prohibited
any activities under such laws.
For information as to the officers and directors of Biosearch and Hydromer,
see the Proxy Statement Section II, Subsection entitled "Special Factors."
Item 3. Past Contacts, Transactions or Negotiations.
As to Hydromer,
Manfred F. Dyck
and
Martin C. Dyck: (a) (1) See Proxy Statement, Section I,
subsections entitled "Other Information
Concerning Directors, Officers and
Stockholders."
(2) See Proxy Statement, Section I, subsection
entitled "Other Information Concerning
Directors, Officers and Stockholders" and
Section II, "Share Exchange for $0.20."
<PAGE>
(b) (i) See Proxy Statement, Section II, "Share
Exchange for $0.20," subsection entitled
"Summary of Material features of this
Exchange, paragraphs d and e.
(ii) Not applicable
Item 4. Terms of the Transaction.
(a) See Section II of the Proxy Statement, subsection entitled "Summary of
Material Features of this Exchange" incorporated by reference herein.
(b) i. All holders of issued and outstanding shares of Common Stock are
treated equally.
ii. Exercisable options to purchase shares of Common Stock which have an
exercise price of less than $.20 will be paid the difference between
the exercise price and $.20 in cash. Options to purchase shares of
Common Stock which have an exercise price equal to or greater than
$.20 will be extinguished.
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a) through (e) inclusive: No such plans or proposals.
(f) The Common Stock will be eligible for termination of registration.
(g) Not applicable
Item 6. Source and Amounts of Funds and other Consideration.
(a) The cash reserves of Hydromer, will be used to fund the exchange price and
legal fees ($450,576). The balance of expenses (except for legal fees and
evaluations-$55,000 (*)) will be funded by the issuer from working capital.
The total amount of funds is estimated to be $554,364.
(b) Itemized expenses
Exchange of common stock $440,576
Legal - $25,000 (outside counsel used by Hydromer)*
Fairness opinion - 27,500 (the Wharton Fairness Report to Biosearch)
Evaluation - 30,000 (the Lawson evaluation reports to Hydromer)*
Accounting - 5,000 (analysis/responding to SEC comments)
Solicitation - 3,600
Edgarizing - 9,000 (electronic filing with SEC, keying reports)
Printing - 7,000
Proxy solicitation - 3,600
Exchange of money
for certificates - 3,000
Filing fees (Form 13 E 3) - 88
TOTAL 554,364
(c) None of the above funds will be borrowed
<PAGE>
(d) not applicable
Item 7. Purpose(s), Alternatives, Reasons and Facts
As to Biosearch, Hydromer,
Manfred F. Dyck and
Martin C. Dyck: (a) See Section II of the Proxy Statement,
subsection entitled "Special Factors -
Reasons for this Transaction," incorporated
by reference herein.
(b) The Issuer sought unsuccessfully to raise the
additional capital necessary for marketing
its products. See Section II of the Proxy
Statement, subsection entitled "Special
Factors - Reasons for this Transaction,"
incorporated by reference herein.
(c) See Section II of the Proxy Statement,
subsection entitled "Special Factors -
Reasons for this Transaction," incorporated
by reference herein.
(d) See Section II of the Proxy Statement,
subsections entitled "Special Factors -
Summary of Material Features of this
Exchange," "Special Factors Reasons for this
Transaction," "Federal Income Tax
Consequences," and "Biosearch Medical
Products, Inc. will go Private," incorporated
by reference herein.
Item 8. Fairness of Transaction.
In addition to the following, see Section II of the Proxy Statement,
subsections entitled "Special Factors - Intention of Certain Persons; Special
Factors - Fairness Opinion; and Special Factors - Reports, Opinions, Appraisals
and Certain Negotiations."
(a) The issuer believes that this transaction is fair to unaffiliated security
holders. Although Manfred F. Dyck, Director of the Issuer and Hydromer,
absented himself from discussions of the transaction and abstained from
participating in the negotiation of the transaction, because of his
security holdings in both Biosearch and Hydromer, he has reviewed both the
fairness opinion of Wharton Valuation Associates provided to Biosearch and
the reports of Howard Lawson & Co. provided to the Board of Hydromer, (see
Item 9 below) and the deliberations of the Biosearch Board and the Hydromer
Acquisition Committee and believes, based upon these reports, and
deliberations, that this transaction is fair to unaffiliated security
holders of Biosearch. Martin C. Dyck has reviewed both the fairness opinion
of Wharton Valuation Associates provided to Biosearch and the reports of
Howard Lawson & Co. provided to the Board of Hydromer, (see Item 9 below),
and the deliberations of the Biosearch Board and the Hydromer Acquisition
Committee and believes, based upon these reports and deliberations, that
this transaction is fair to unaffiliated security holders of Biosearch. The
Board of Directors of Hydromer has reviewed both the fairness opinion of
Wharton Valuation Associates provided to Biosearch and the reports of
Howard Lawson & Co. provided to the Board of Hydromer, (see Item 9 below),
and believes, based upon these reports,
<PAGE>
that this transaction is fair to unaffiliated security holders.
(b) The exchange price represents a premium over the current market price of
the Common Stock for most of the last two years and a substantial premium
over the book value of the Issuer. The Board of Directors of the Issuer
engaged a valuation expert who reviewed the transaction and gave his
opinion that the transaction was fair to the shareholders of the Issuer.
See Section II of the Proxy Statement, subsections entitled "Book Value of
the Company," "Share Price of Company," and "Price of Securities Before And
After Public Announcement on May 13, 1999," incorporated by reference
herein.
(c) The transaction does not require the approval of a majority of unaffiliated
security holders but can be passed by a simple majority of all shareholders
who vote.
(d) No such representative was retained, but each filing person considers that
the experts who have been retained by each company adequately protected the
interests of the unaffiliated shareholders, and in fact such experts were
retained for that purpose.
(e) The transaction was unanimously approved by the directors of the Issuer who
are not employees of the Issuer.
(f) Not applicable.
Item 9. Reports, Opinions, Appraisals, and Certain Negotiations.
(a) The following reports have been received:
1. The Issuer has received a fairness opinion from Wharton Valuation
Associates, Inc. ("WVA") See Section II of the Proxy Statement,
subsection entitled "Special Factors - Wharton ONE report and (Exhibit
B of the Proxy Statement) which is annexed to this Schedule 13E-3.
Supporting the Fairness Opinion, WVA performed a valuation analysis
(hereinafter the "Wharton Report) which is annexed to this Schedule
13E-3 as Exhibit WHARTON ONE.
2. Hydromer received a Report of Howard Lawson & Company dated March 18,
1998 entitled "Materials Prepared for Preliminary Discussion of
Valuation Issues in Connection with Target Transaction" (hereinafter
"Lawson I"). Lawson I is annexed to this Schedule 13E-3 as Exhibit
LAWSON ONE.
3. Hydromer also received a Report of Howard Lawson & Company entitled
"Valuation of Certain Shares of Biosearch Medical Products, Inc."
(hereinafter "Lawson II"). Lawson II has a valuation date of May 17,
1999 and an issue date of June 4, 1999. Lawson II is annexed to this
Schedule 13E-3 as Exhibit LAWSON TWO.
4. Hydromer also received a report in mid -1998 from its auditors,
Rosenberg Rich Baker Berman & Co. entitled "Project Comet," which set
forth certain pro-forma balance sheets for Biosearch and Hydromer as
if the companies were combined under different scenarios (hereinafter
the "RRBB Report"). The RRBB Report is annexed to this Schedule 13E-3
as Exhibit RRBB ONE.
(b) As to the Wharton Report:
1. See Section II of the Proxy Statement, subsection entitled "Special
Factors-WHARTON ONE report and Exhibit B to Proxy Statement,
incorporated by reference herein,
<PAGE>
2. See proposal letter of WVA and representative transactions annexed as
Exhibit 1 to this Statement.
3. WVA was recommended by Biosearch's auditors and interviewed directly
by the Board of Directors of the Issuer. Biosearch considered other
advisors, but concluded that WVA was well qualified and reasonably
priced.
4. WVA has no material relationship to the issuer or its affiliates, and
no compensation is to be received by WVA except for its engagement
fee.
5. The amount of consideration was negotiated by the Issuer with the
advice of WVA.
6. WVA reviewed and summarized the balance sheets and income statements
of Biosearch for the years 1993 through 1998 and the balance sheet and
income statement at the end of the first quarter of 1999. WVA also did
a discounted cash flow analysis of Biosearch using discount rates of
35%, 30% and 25%. WVA also performed a comparable public company
analysis, and an analysis of market value ratios from sales and
mergers of medical instrumentation companies. Lastly, WVA performed a
liquidating value analysis. A valuation recap of all analyses showed
the median share value to be $0.195 per share and the mean share value
to be $0.216. No instructions were delivered to WVA from the Issuer or
any Affiliate, other than as set forth in the WVA's proposal letter,
and no limitations were placed upon WVA.
(c) The Fairness Opinion is annexed to the Proxy Statement, and will be
distributed to shareholders of the Issuer. In addition, the Fairness
Opinion and the Wharton Report will be made available for inspection and
copying at the principal executive offices of the Issuer during regular
business hours by any interested equity security holder of the Issuer or
his representative who has been so designated in writing. A copy of the
Fairness Opinion and the Wharton Report will be transmitted by the Issuer
to any interested equity security holder of the Issuer or his
representative who has been so designated in writing, without charge.
(d) As to Lawson I and Lawson II
1. Howard Lawson & Co., Two Penn Center Plaza, Philadelphia, PA 19102
2. Howard Lawson & Co are well known investment bankers in the New
Jersey/Pennsylvania area. The company provides investment banking
services to senior management of private and Public companies.
Services include financial plans for corporations and their
shareholders, valuations of securities and business interests, debt
and equity financing, litigation support, and advice and negotiations
dealing with changes in ownership, acquisitions and divestitures.
3. Howard Lawson was recommended by the counsel to Hydromer, Inc. and was
selected by Hydromer's management following interviews.
4. Howard Lawson has no material relationship to the issuer or its
affiliates, and no compensation is to be received by Howard Lawson
except for its engagement fee.
5. The amount of consideration was negotiated by Hydromer with the advice
of Howard Lawson.
6. (i) Lawson I: Lawson I provided preliminary information and provided
no opinion as to valuation. Lawson I provided summary historical
financial statements (balance sheets and statements of operations) for
Hydromer and
<PAGE>
Biosearch; an analysis of guideline public companies for Hydromer; an
analysis of guideline public companies for Biosearch; and an analysis
of guideline acquisitions.
(ii) Lawson II: Lawson II is a complete valuation report, including an
opinion letter setting forth Howard Lawson's opinion as to the value
of Biosearch shares as of May 17, 1999. In arriving in the they are
opening unit of the fair market value both though, the stock both
Biosearch Howard Lawson considered the following factors:
1. The nature and history of Biosearch business
2. To the general economic outlook and the outlook for the
medical equipment industry
3. The book value of Biosearch and the financial condition of the
company
4. The results of operations of Biosearch
5. The dividend paying capacity of Biosearch
6. Whether or not Biosearch has any goodwill or other intangible
value
7. Past transactions in Biosearch common stock and
8. The market price of the stock of corporations engaged in the
same or similar lines of business as Biosearch.
Howard Lawson performed an asset purchase analysis of Biosearch based
upon estimated fair market values of Biosearch's fixed and intangible
assets. Howard Lawson also performed a discounted cash flow analysis
based upon forecasts of future earnings, adjusted to reflect the
probability of a range of possible outcomes.
On the basis of an asset purchase, and excluding all liabilities,
Howard Lawson was of the opinion that the relevant range of values for
Biosearch was $0.16 to $0.18 per share.
Assuming that Biosearch can turn around its declining revenues and
further assuming that Biosearch achieves approximately 41 percent of
its forecast, and using a discount rate of 45 percent, Howard Lawson
found the equity value to be $0.15 per share. Assuming that Biosearch
achieved approximately 55 percent of its forecast, using the same
discount rate of 45 percent, Howard Lawson found the resulting equity
value to be $0.20 per share.
On the basis of their discussions with management at all materials
reviewed, it is the opinion to Howard Lawson that the fair market
value for Biosearch shares is $0.18-$0.20 per share as of the
valuation date. No instructions were delivered to Howard Lawson except
to describe the valuation services needed, and no limitations were
placed upon Howard Lawson.
(e) Lawson I and Lawson II will be made available for inspection and copying at
the principal executive offices of the Issuer during regular business hours
by any interested equity security holder of the Issuer or his
representative who has been so designated in writing. A copy of Lawson I
and Lawson II will be transmitted by the
<PAGE>
Issuer to any interested equity security holder of the Issuer or his
representative who has been so designated in writing, upon the written
request and at the expense of the requesting equity security holder.
(f) As to the RRBB Report.
1. Rosenberg Rich Baker Berman & Co., 380 Foothill Blvd. PO Box 6483,
Bridgewater, NJ 08807
2. Rosenberg Rich Baker Berman & Co. are Certified Public Accountants and
serve as Hydromer's auditors.
3. Hydromer selected Rosenberg Rich Baker Berman & Co. to provide certain
financial scenarios because they are familiar with Hydromer's
financial statements and qualified as CPA's to prepare pro forma
statements.
4. Rosenberg Rich Baker Berman & Co. serves as Hydromer's auditors and is
compensated on an hourly or project basis for accounting services.
5. Rosenberg Rich Baker Berman & Co. provided background information
only, and did not play any role in determining the consideration paid
by Hydromer.
6. Management and the Board of Directors of Hydromer desired to review
the possible effect of the acquisition of the stock of Biosearch on
the balance sheet of Hydromer. Rosenberg Rich Baker Berman & Co.
prepared pro forma balance sheets assuming acquisition of Biosearch
accounted for by the purchase method and by the pooling method.
Rosenberg Rich Baker Berman & Co. was not asked for, and did not give
any findings or recommendations. No instructions were delivered to
Rosenberg Rich Baker Berman & Co. except to describe the accounting
services needed, and no limitations were placed upon Rosenberg Rich
Baker Berman & Co.
(g) The RRBB Report will be made available for inspection and copying at the
principal executive offices of the Issuer during regular business hours by
any interested equity security holder of the Issuer or his representative
who has been so designated in writing. A copy of The RRBB Report will be
transmitted by the Issuer to any interested equity security holder of the
Issuer or his representative who has been so designated in writing, upon
the written request and at the expense of the requesting equity security
holder.
Item 10. Interest in securities of the Issuer.
As to Biosearch: (a) Not applicable
(b) Not applicable
As To Hydromer: (a) Not applicable
(b) Not Applicable
As to Manfred F. Dyck: (a) See Proxy Statement, Section I, subsections
entitled "Nominees for Election," "Summary
Compensation Table," "Option Granted,"
"Option Grants in Last Fiscal Year" and
"Aggregated Option Exercises in last Fiscal
Year and Fiscal Year End Option Status."
(b) Not Applicable
<PAGE>
As to Martin C. Dyck: (a) See Proxy Statement, Section I, subsections
entitled "Nominees for Election," "Summary
Compensation Table," "Option Granted,"
"Option Grants in Last Fiscal Year" and
"Aggregated Option Exercises in last Fiscal
Year and Fiscal Year End Option Status."
(b) Not Applicable
Item 11. Contracts, Arrangements or Understandings with Respect to the Issuer's
Securities.
See Section II of the Proxy Statement, subsection entitled "Summary of Material
features of this Exchange," incorporated by reference herein.
Item 12. Present Intention and recommendation of Certain Persons with respect to
the Transaction.
(a) See Section II of the Proxy Statement, subsection entitled "Intentions of
Certain Persons," incorporated by reference herein.
(b) See Section II of the Proxy Statement, subsection entitled "Intentions of
Certain Persons," incorporated by reference herein.
Item 13. Other Provisions of the Transaction.
(a) See Section II of the Proxy Statement, subsections entitled "Right of
dissent/appraisal," and "Shareholders Protection Act," incorporated by
reference herein.
(b) No provision has been made to allow unaffiliated security holders to obtain
access to the corporate files of the Issuer or to obtain counsel or
appraisal services at the expense of the Issuer.
(c) Not applicable.
Item 14. Financial Information.
(a) See the Issuer's Annual report on Form 10-K SB-A for the fiscal year ended
December 31, 1998 and the Issuers Quarterly Report on Form 10-Q SB for the
quarter ended March 31, 1999, incorporated by reference herein.
(b) Not applicable
Item 15. Persons and Assets Employed Retained or Utilized.
(a) See Section II of the Proxy Statement, subsection entitled "Special
Factors-Reason for this Transaction" and "Summary of Material features of
this Exchange," incorporated by reference herein. The Issuer anticipates
that its employees, assets will be utilized in the same manner after the
Exchange as they were before the transaction.
(b) No persons will be employed, retained or compensated by the Issuer or any
affiliate to make solicitations or recommendations in connection with this
transaction.
Item 16. Additional Information.
Not applicable
<PAGE>
Item 17. Exhibits.
(a) Not Applicable
(b) Exhibits:
WHARTON PROPOSAL- Proposal letter and representative transactions of
Wharton Valuation Associates.
PROXY- 1999 Proxy which will be sent to stockholders
LAWSON ONE- Report to Hydromer Board of Directors in March 1998 concerning
a stock for stock exchange
LAWSON TWO- Report to Hydromer Board of Directors in May 1999 concerning a
cash offer for Biosearch
RBB ONE- Report to Hydromer Board of Directors in 1998 concerning methods
of accounting for the transactions
WHARTON ONE- Report to the Biosearch Board of Directors in April 1999
concerning a fair evaluation.
(c) See Exhibit A to Proxy Statement.
<PAGE>
WHARTON PROPOSAL- Proposal letter and representative transactions of Wharton
Valuation Associates.
November 6, 1998
Mr. Robert C. Keller
Vice President Finance
Biosearch Medical Products Inc.
35A Industrial Parkway
Somerville, NJ 08876
Dear Mr. Keller
Thanks very much for taking the time to meet with Andrew Shaiman and me last
week. As requested, I am outlining the terms and conditions by which Wharton
Valuation Associates, Inc.("WVA") would be willing to render an opinion with
respect to the financial fairness of a proposed merger between Biosearch Medical
Products Inc. ("BMPI") and Hydromer Inc.("HYDI"). Our opinion would rendered
from a financial point of view from the perspective of BMPI's shareholders.
Biosearch Medical Products, Inc. ("BMPI")
BMPI was incorporated in the State of New Jersey on September 17, 1975. The
Company's early emphasis was on contract research and development of medical
devices and systems for larger medical product companies. During 1982 the
Company successfully made its initial public offering of equity securities. The
Company had designed and successfully marketed under its own Dobbhoff (R)
trademark, a small bore feeding catheter which quickly became the enteral
industry's feeding device standard. Related products followed.
The dominance of the enteral food market by larger medical product companies and
reimbursement changes in the Federal Government Medicare System prompted the
Company's decision to reassess its business objectives. The Company subsequently
curtailed its selling activities in the alternate care market and in August
1989, laid off its dietary sales force. During 1994, BMPI entered into
agreements with Sherwood Medical Company which formed with them a strategic
business alliance. In 1997 sales of contracted manufactured products were
approximately 80 percent of total sales.
BMPI's revenues have declined from approximately $20 million in the late 1980's
to under $2 million in 1997, while operating losses have been reduced from
($842,004) in 1995 to ($493,367) in 1997 through vigorous cost cutting efforts.
The Company's balance sheet showed a total shareholders' equity of $940,146 at
December 31, 1997. There are currently discussions underway with a large medical
products company which could well lead to sharply higher sales and earnings over
the near term.
Wharton Valuation Associates, Inc. ("WVA")
WVA is a consulting firm engaged primarily in the valuation of business
interests and also in providing advice in connection with mergers, acquisitions,
divestitures and similar capital transactions. Although the firm has been in
existence for eight years, its managing directors have a combined total of more
than 60 years of experience performing valuations and acting as financial
advisers to corporations and their shareholders. Our valuations are performed in
connection with a variety of planning and transactional applications, including:
mergers, acquisitions and divestitures; initial public securities offerings;
private placement of debt and equity; employee stock ownership and incentive
<PAGE>
stock option plans; bankruptcies, reorganizations and recapitalization; estate,
gift and income tax planning and compliance; litigation involving business and
securities valuation issues; and general corporate and shareholder planning.
Neither WVA nor any of its employees has any interests in the Proposed
Transaction which would compromise its ability to render an opinion with respect
to the Proposed Transaction in a totally objective and disinterested fashion. In
this connection, the fee for our services would in no way be contingent on the
value or on a favorable opinion regarding the fairness of the Proposed
Transaction.
Proposal
We would be willing to render an opinion with respect to the financial fairness
to BMPI's shareholders of the Proposed Transaction for a fee of between $25,000
and $30,000, plus actual out-of-pocket data acquisitions expenses (if any). As
noted above, the fee for this service would be contingent on our conclusion with
respect to financial fairness. Our opinion would be transmitted in the form of a
letter, although we would make ourselves available to discuss with BMPI's Board
of Directors the basis for our conclusion.
We appreciate very much being given the opportunity to propose on this project.
If you have questions regarding any aspect of the foregoing, please let me know.
If the terms of this Proposal are acceptable, please sign this letter below and
return to my attention.
Sincerely,
Jeffery Nelson s/s
Managing Director
Wharton Valuation Associates, Inc.
<PAGE>
10KSB-10QSB.
Audited balance sheets, unaudited balance sheets; ratio of earnings to fixed
charges and book value per share as required by Item 14. See the Issuer's Annual
report on Form 10-K SB-A for the fiscal year ended December 31, 1998 and the
Issuers Quarterly Report on Form 10-Q SB for the quarter ended March 31, 1999,
incorporated by reference herein. See the Proxy Statement Section II "BOOK
VALUES" for a table of Book Values also incorporated by reference herein. Issuer
has had no earning for the past 10 years hence its ratio of earnings to fixed
charges is not relevant.
<PAGE>
SIGNATURE
-------------
(Date)
On behalf of Hydromer, Inc.
/s/ Manfred F. Dyck
- --------------------------------------
Manfred F. Dyck, C.E.O Hydromer, Inc.
Director of Hydromer, Inc.
An affiliated person
On behalf of Biosearch Medical Products, Inc.
/s/ Martin C. Dyck
- --------------------------------------
Martin C. Dyck, President, Biosearch Medical Products, Inc.
Director of Biosearch Medical Products, Inc.
An affiliated person
<PAGE>
PROXY.R1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT
(PURSUANT TO SECTION 14(a) OF SECURITIES EXCHANGE ACT OF 1934)
(Amendment No.2)
Filed by Registrant _XX_
Filed by a Party other then Registrant
Check the appropriate box:
_X_Preliminary Proxy Statement (PRER14A)
___Confidential, for use of the Commission Only
(as permitted by Rule 14a-6(e)(2)
___Definitive Proxy Statement
___Definitive Additional Materials
___Soliciting Material Pursuant to section 240.14a-11(c) or section 240.14a-12
-------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Biosearch Medical Products, Inc.
-------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other then Registrant)
-------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
_X_ No fee required
___ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies: COMMON
STOCK
- -------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies: 2,202,878
- -------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which filing fee is
calculated and state how it was determined):
- -------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction: $440,576
- -------------------------------------------------------------------------------
5) Total paid:
- -------------------------------------------------------------------------------
___ Fee paid previously with preliminary material:
___ Check box if any part of the fee is offset as provided by the Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or Form or Schedule and the date of its filing.
1) Amount previously paid:
- -------------------------------------------------------------------------------
2) Form, Schedule or Registration No.:
- -------------------------------------------------------------------------------
3) Filing Party:
- -------------------------------------------------------------------------------
4) Date filed:
- -------------------------------------------------------------------------------
<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
-------------------------------
Notice of Annual Meeting of Stockholders
to be held October 20, 1999
-------------------------------
Somerville, New Jersey
September 13, 1999
To the Holders of Common Stock of
BIOSEARCH MEDICAL PRODUCTS, INC.:
The Annual Meeting of the Stockholders of BIOSEARCH MEDICAL PRODUCTS, INC.
will be held at the Ryland Inn, U.S.Route 22 West, Whitehouse, NJ 08876,
Wednesday, October 20, 1999, at 10:00 AM, for the following purposes, as more
fully described in the accompanying Proxy Statement:
1. To elect directors of the Company for the ensuing year. (In case
Proposal II is not approved by a majority vote of the stockholders.)
2. To vote on exchanging (a form of sale) all the Common Shares of the
Company with Hydromer, Inc. an affiliated entity, for $0.20 per share.
Upon the affirmation vote of a majority of votes cast at the meeting,
all issued and outstanding shares of the Company will be exchanged for
$0.20 per share.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
3. To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
The close of business on September 1, 1999 has been fixed by the Board of
Directors as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Meeting.
By Order of the Board of Directors,
Robert J. Moravsik, Secretary
You are cordially invited to attend the Meeting in person. If you do not
expect to be present, please mark, sign, and date the enclosed form of Proxy and
mail it in the enclosed return envelope, which requires no postage if mailed in
the United States, so that your vote can be recorded.
<PAGE>
Ryland Inn
Box 284 * Route 22 West
Whitehouse, NJ 08888
(908) 534-4011
[GRAPHIC OMITTED]
<PAGE>
PROXY STATEMENT
This Proxy Statement, which will be mailed commencing on or about September
13, 1999 to the persons entitled to receive the accompanying Notice of Annual
Meeting of Stockholders, is provided in connection with the solicitation of
Proxies on behalf of the Board of Directors of Biosearch Medical Products, Inc.
("Biosearch" or the "Company"), for use at the Annual Meeting of Stockholders to
be held on October 20, 1999, and at any adjournment or adjournments thereof, for
the purposes set forth in such Notice. The Company's executive office is located
at 35A Industrial Parkway, Somerville, New Jersey 08876.
At the close of business on September 1, 1999, the record date stated in
the accompanying Notice, the Company had outstanding 2,202,878 shares of common
stock (a quorum will be 1,101,440 shares), without par value (the "Common
Stock"), each of which is entitled to one vote with respect to each matter to be
voted on at the Meeting. The Company has no class or series of stock outstanding
other than the Common Stock.
On September 1, 1999, Manfred F. Dyck, C.E.O. and a director of the
Company, beneficially owned approximately 21.8% of the outstanding Common Stock
of the Company and his son, Martin C. Dyck, President of the Company,
beneficially owned an additional 1.8% of the Common Stock. Such ownership may
enable such stockholders to exercise a controlling influence over the Company's
affairs.
Also on September 1, 1999 Manfred F. Dyck owned approximately 47% of the
outstanding stock of Hydromer, Inc. Mr. Dyck is C.E.O., President and a Director
of Hydromer. This common ownership causes Hydromer, Inc. to be an affiliated
entity pursuant to the Rules promulgated by the United States Security and
Exchange Commission.
IMPORTANT NOTES:
VOTING:
The vote required to elect directors or act on other proposals are a majority of
the votes case, for/against, at a meeting containing a quorum. A quorum is
attained if 50% plus one shares (1,101,440) of the total outstanding shares are
represented at the annual meeting in person or by proxy. An abstention (send in
proxy with no vote) counts towards the quorum requirement but NOT towards the
vote to pass any proposals. In the event a stockholder, holds their shares in
street name then broker is required to obtain instructions from each stockholder
on how to vote these shares. The Company and/or its contractor solicits
information from all known brokers holding stock for the benefit of others.
["street name" stock]. If the broker does not vote the shares held in street
name the effect is that the shares are not counted towards the quorum or the
vote to pass any proposal.
FORWARD-LOOKING STATEMENTS:
Certain information contained in this Proxy Statement as to future
financial or operating performance of Biosearch or any other entity may
constitute a "forward looking statement". Forward looking statements include
statements containing plans, objectives, goals, strategies, future events or
performance, and underlying assumptions and other statements which are other
then statements of historical facts. Forward looking statements can be
identified by, among other things, the use of forward looking terminology such
as "believes", "expects", "may", "will", "should", "seeks", "pro forma",
"anticipates", "intends", "thinks" or the negative of any of these terms or
similar terms having the same variation or are comparable to these terms, or by
discussion of strategy or intentions. Forward looking statements involve a
number of risks and uncertainties. A number of factors could cause actual
results, performance, predictions or achievements of Biosearch, the industry or
any other entity to be materially different from any future results, performance
or achievements, expressed or implied, by such forward looking statements. These
factors include but are not limited to, the regulatory climate such a reduction
in Medicare and Medicaid, changes in the laws affecting the insurance industry,
HMO's, PPO's and health care groups, changes in the medical device and
industrial products for which Biosearch manufactures products or performs
services, changes in the European market place or regulations affecting
Biosearch's ISO 9001 registration and the CE Marks on certain of its products
and national economic conditions, demographic trends, employee availability and
cost increases.
-1-
<PAGE>
I. ELECTION OF DIRECTORS
(Proposal I)
Five directors will be elected at the Annual Meeting of Stockholders, each
to serve for one year and until a successor shall have been chosen and
qualified. It is the intention of each of the persons named in the accompanying
form of Proxy to vote the shares represented thereby in favor of the five
nominees listed in the following table, unless otherwise instructed in such
Proxy. Each such nominee is currently serving as a director. In case any of the
nominees are unable or decline to serve, such persons reserve the right to vote
the shares represented by such Proxy for another person duly nominated by the
Board of Directors in such nominee's stead or, if no other person is so
nominated, to vote such shares only for the remaining nominees. The Board of
Directors has no reason to believe that any person named will be unable or will
decline to serve. Certain information concerning the nominees for election as
directors is set forth below. Such information was furnished by them to the
Company. In the event Proposal II is approved by the stockholders, it will
result in the stock of Biosearch being owned by one entity, Hydromer, Inc.
Pursuant to the Bylaws of Biosearch, Hydromer may keep or replace the elected
Board members in its sole discretion.
Nominees for Election
- ---------------------
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP OF PERCENT OF
NAME, AGE, & PRINCIPAL COMMON STOCK OUTSTANDING
OCCUPATION AS OF September 1, 1999 (1) SHARES
- ---------- --------------------------- ------
MANFRED F. DYCK, age 63; 480,004 (2) 21.8
C.E.O. of the Company
since 1975; Director, CEO &
President: Hydromer, Inc.,
(developer and marketer
of polymeric complexes).
Director of the Company
since 1975.
MARTIN C. DYCK, age 37; 39,041 (3) 1.8
President of the
Company since 1998; Vice
President of Operations
since 1993, Employed by
the Company in various
position since 1986, starting
as a Project Manager.
DAVID M. SCHRECK, M.D. age 45; 10,000(4) 0.5
Chief, Department of Emergency
Medicine, Medical Director,
Muhlenberg Regional
Medical Center since 1991;
also President EMO Medical
Offices in Livingston,
NJ. Director of the Company
since April 1996.
FREDERICK A. PERL, MD, age 71 9,000(4) 0.4
Attending staff, Somerset Medical
Center since 1957; Consulting staff
Obstetrics and Gynecology, Carrier
Clinic since 1959; Affiliated with
St. Peter's Medical Center, active staff
Since 1994, Director of the Company
since December 1996
-2-
<PAGE>
KLAUS J.H. MECKELER, M.D. age 65; 22,000 (4) 1.0
Clinical Professor of Medicine
UMDNJ, Robert Wood Johnson Medical School
Former Chief of Gastroenterology
and Director of Endoscopic Clinic
(a clinic specializing in
gastrointestinal disorders)
Somerset Medical Center, since
1966; Director of the
Company since January 1984.
- ----------
(1) Except as otherwise indicated, as of September 1, 1999, each nominee
had sole voting and investment power with respect to all shares shown
in the table as beneficially owned by such nominee.
(2) Includes an aggregate of 38,418 shares held by Mr. Dyck as custodian
for certain of his children and his children directly; also includes
96,867 stock options in Mr. Dyck's name. Excludes 4,654 shares and
34,387 options in the name of Mr. Dyck's son Martin who is also a
Director. Includes 29,607 shares held by Ursula M. Dyck, his wife,
individually or as custodian.
(3) Includes 34,387 options being held by Mr. Martin C. Dyck
(4) In January 1998 the directors voted to re-issue certain options to
account for past services as Board members and to compensate directors
for agreeing to accrue Board Member fees. Dr. Meckeler was granted
22,000 options to purchase shares as a replacement for all previous
options; Dr. Schreck was granted 10,000 options to purchase shares as
a replacement for all previous options and Dr. Perl was granted 1,000
options in addition to the 8,000 previously granted in 1997. The
options were granted at the market price on the date of grant.
No family relationship exists between any of the directors or executive officers
of the Company, except that Martin C. Dyck who serves as President is Mr.
Manfred F. Dyck's son.
Board Meetings
During the past year, the Board of Directors of the Company met ten times.
Each of the persons named above attended at least seventy-five percent (75%) of
the meetings of the Board of Directors and meetings of any committees of the
Board on which such person served which were held during the time that such
person served except for Mr. Martin C. Dyck who was appointed in September of
1998 and Dr. David Schreck who attended 50% of the meetings.
Committees in General
The Board of Directors of the Company does not have a Nominating Committee
or a Compensation Committee. In June of 1989 the Company formed an Audit
Committee to oversee the auditing process and evaluate the performance of the
outside accountants. The Audit Committee met on one occasion in 1998. The Board
of Directors approved a practice in 1990 whereby the outside directors are to
approve the raises of all employees whose salaries are above $50,000 a year.
Executive Officers
Manfred F. Dyck has been Chairman of the Board, Chief Operating Officer since
1975. Mr. Dyck has been President of Biosearch from 1975 to 1998. He also serves
as Chief Executive Officer of Hydromer since June 1983 and a Director of
Hydromer since its inception. Mr. Dyck served as Chief Executive Officer of
Hydromer from its inception until October of 1986, and as of August 1989,
reassumed the duties of Chief Executive Officer.
Martin C. Dyck has been President of Biosearch since 1998. Prior to that he
served as Vice President of Operation from 1993-1998. He joined Biosearch in
1986 as a Project Manager and has served in various positions since then.
Robert Keller has been Vice President and Chief Financial Officer of Biosearch
since 1995. Prior to this he was Vice President and Chief Financial Officer of
Mailing Services. Mr Keller is also Principal Accounting Officer of Hydromer
since June 1999.
-3-
<PAGE>
Robert J. Moravsik has been Vice President and General Counsel of Biosearch
since 1987. He also serves in the same capacity for Hydromer since April 1998.
Prior to that he was Vice President and General Counsel to Fisher Stevens, Inc.
a subsidiary of the Bureau of National Affairs.
Section 16 Filing Obligations
During 1998 all directors and officers have complied with their obligation
to file the reports which are required by Section 16(a) of the Exchange Act. The
Company is not aware of any failure on the part of beneficial owners of more
then 10% of the outstanding common stock of the Company, to file timely reports.
Summary Compensation Table
The following table sets forth information concerning the CEO and executive
officers of the Company whose cash compensation exceeded $100,000 as of December
31, 1998.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compen. Awards Payouts
Other
Name Annual Restricted All Other
and Compen- Stock LTIP Compen-
Principle sation Award Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#) ($) ($)
--------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Manfred F. Dyck 1998 36,840 0 3,420 0 0 0 0
1997 95,803 0 3,510 0 77,617 0 0
1996 192,500 0 16,760 0 0 0 0
</TABLE>
No other executive qualifies for inclusion in this table.
Notes:
1. On October 29, 1997 Mr. Dyck was granted 77,617 options to purchase
company stock at $0.19. This grant was vested in full. (see Options
granted.)
2. On May 5, 1998 Mr. Martin C. Dyck was appointed President of the Company
(Mr. Manfred Dyck retaining the position of Chairman and CEO). Martin
Dyck's 1998 Salary was less then $100,000.
3. The other annual compensation is premiums paid on a life insurance
policy for amounts over $50,000.
4. Mr. Dyck's salary for 1998 was $95,000. The above table reflects only
what was actually paid. The remaining moneys plus additional accrued salary
was paid in March of 1999. (See "Certain Agreements with Directors and
Executive Officers")
The Company has customary medical and group life insurance programs. See
"Certain Employee Benefit Arrangements" below. See also "Certain Agreements with
Directors and Executive Officers" and "Other Information Concerning Directors,
Officers, and Stockholders" below. The Company makes certain benefits not
described elsewhere herein available to its executive officers with a view to
acquiring and retaining qualified personnel and facilitating job performance.
The Company considers such benefits to be ordinary and incidental business costs
and expenses. The aggregate value of such benefits in the case of each executive
officer in the above table, which cannot be precisely ascertained, but is less
than the lesser of (a) 10% of the total salary and bonus paid to each executive
officer or (b) $50,000 as the case may be, is not included in such table.
Option Granted
On October 29, 1997 Stock Options to purchase 200,041 shares at $0.19 were
awarded to 13 managerial and key employees including Manfred F. Dyck who
received 77,617. These options immediately vested. The options expire if the
employee resigns. It was the Company's opinion that such awards are necessary to
retain the companies experienced key employees who have not received salary
increments for the past three years.
-4-
<PAGE>
Option Grants in Last Fiscal Year
% of Total
Options Exercise or
Granted Base Price Expir-
Options in Per Share ation
Name Granted Fiscal Year ($/sh) Date
Dr. Frederick Perl 1,000 2% .19 1/21/2003
Dr. Klaus J.H. Meckeler 22,000 43% " "
Dr. Davis Schreck 10,000 21% " "
These options were granted on January 21, 1998 based on the longevity of the
director's services to the Company.
Two employees were granted at total of 18,000 options (34%), 5 years, vesting
1/3 in each year at .19 to compensate for not receiving an increase in salary.
It is the opinion of the Company that these options are needed to retain these
important employees.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Status
<TABLE>
<CAPTION>
Number of Unexercised See note
Shares Options Held at Val.of Unexer, in the money
Acquired when Value Fisc. Year End (#) Options at Fiscal Year End($)
Exercised(#) Realized($) Exercis- Unexercis- Exercis- Unexercis-
Name able able able able
<S> <C> <C> <C> <C> <C> <C>
Manfred F. Dyck, CEO, BD -- -- 96,867 0 0 0
</TABLE>
note: "in the money" calculation assumes a market price of $.12 (September 1,
1999). Pursuant to the terms of the option grant the shares are restricted, and
may only be sold in the marketplace pursuant to an exception to the requirements
to register such as Rule 144.
Long-Term Stock Incentive Plan Awards
The Company did not have such a plan in effect for the fiscal year 1998 and
has no present intention to establish such a plan.
Profit Sharing Retirement Plan
The Company has a "401K" Plan in effect for all of its employees. Subject
to the discretion of the Company, exercised each year, it contributes 33 1/3% of
employee contributions up to 6% to the plan. Effective May 1, 1991, the Company
has discontinued the contribution subject to further action by the Board. The
full costs of administering the plan, which includes service fees paid to an
insurance company for administering the plan and monies paid to the Company's
auditors to provide an audit report, will be borne by the Company.
Certain Agreements with Directors
and Executive Officers
Mr. Dyck has an employment agreement with the Company which provides a
minimum annual salary of $192,500, and a 6-month notice of termination. Mr. Dyck
was required to devote at least 90% of his business time to the affairs of the
Company. On January 1, 1993 the Company and Mr. Dyck agreed that his annual
salary would be reduced to $96,500 and he would be required to work on a part
time basis of three days per week. On June 4, 1994 Mr. Dyck's salary was
increased to the full time amount (90% of his time) of $193,000 per year. In
December 1994 as part of a cost reduction plan, Mr. Dyck voluntarily agreed to a
salary reduction to $150,000 per year. On February 5, 1997 Mr. Dyck presented
the Board with a cost reduction program which resulted in his salary being
voluntarily reduced to $95,000/year based on a three day work week. On 5/5/98 by
consent and agreement, Mr. Dyck's salary was amended to $95,000 accrued not
paid. He agreed to be removed as President, but retained the title of Chairman
and CEO. Mr. Martin C. Dyck, son of Mr. Dyck was appointed President.
In June of 1998 the Board passed a resolution providing that in the event
of change of control to one entity or more than one entity acting in concert,
key employees are to be immediately paid a percentage of their yearly salary.
Mr. Martin C. Dyck, President is to be paid one years salary and Mr. Keller a
Vice President and the treasurer is to be paid 25% of a years salary. Four other
key employees are to be paid 25% of their salary. The total payment if made on
12/31/98 would have been $136,000. On May 12, 1999 at a special board meeting to
consider the offer made by Hydromer, Inc. to exchange $0.20 for each common
share of the Company, Mr. Martin C. Dyck waived this change of control payment
($72,000) in lieu of an offer by Hydromer of the position of Vice President at a
salary of $110,000 per year and an option to purchase 10,000 Hydromer shares at
a price equal to the last five day average market price on the day of closing of
the exchange transaction (see Proposal II.)
On December 30, 1998 the Company paid Mr. Martin C. Dyck $ 8,492
representing salary earned but not paid and on March 4, 1999 the Company paid
the Directors as a group $ 70,500 representing directors' fees earned but not
previously paid. On March 11, 1999 the amount of $76,730 owed to Manfred F.
Dyck, C.E.O. for salary
-5-
<PAGE>
accrued was paid. On March 17, 1999 the Board agreed to continue to accrue
directors' fees, and Manfred F. Dyck agreed to a continued accrual of his
salary. On July 21, 1999 the Directors voted to pay all Directors fees owed to
date and continuing paying director's fees as they become due. Mr. Manfred F.
Dyck agreed to allow the Company to continue accruing his salary.
For services rendered to the Company certain directors of the Company were
granted options to purchase Common Stock of the Company. (See "Options Granted"
above.)
Each director of the Company is entitled to receive compensation in the
amount of $750 for each meeting of the Board of Directors attended either in
person or telephonically, and $200 for each specially called telephonic
conference meeting. In March of 1999 and until further notice the Board agreed
to accrue, but not pay Directors fees.
Information Concerning Certain Stockholders
The stockholders (including any "group" as that term is used in Section
13(d) (3) of the Securities Exchange Act of 1934), who, to the knowledge of the
Board of Directors of the Company, owned beneficially more than 5% of any class
of the outstanding voting securities of the Company as of September 1, 1999,
each Director of the Company who owned beneficially shares of Common Stock and
all Directors and Officers of the Company as a group, and their respective share
holdings as of such date (according to information furnished by them to the
Company), are set forth in the following table. Except as indicated in the
footnotes to the table, all of such shares are owned with sole voting and
investment power. The company has one class of shares.
NAME AND SHARES OF COMMON STOCK PERCENT
ADDRESS OWNED BENEFICIALLY AS OF OF CLASS
- -------- September 1, 1999 --------
-----------------
Manfred F. Dyck 480,004 (1) 21.8
255 Holland Road
Far Hills, NJ 07931
Martin C. Dyck 39,041 (2) 1.8
Biosearch Medical Products, Inc.
35A Industrial Pkwy
Somerville, NJ 08876
Frederick A. Perl 9,000 (3) 0.4
951 North Mountain Ave.
Boundbrook, NJ 08805
David M. Schreck 10,000 (3) 0.5
80 Division Ave.
Summit, NJ 07901
Klaus J.H. Meckeler 22,000 (3) 1.0
Biosearch Medical Products, Inc.
35A Industrial Pkway
Somerville, NJ 08807
Steve N. Bronson 301,494 13.7
2101 W. Commercial Blvd, Suite 1500
Ft. Lauderdale, Florida 33309
All Directors and Officers 605,084 (4) 27.5
as a Group (7 persons)
(1) Includes an aggregate of 38,418 shares held by Mr. Dyck as custodian for
certain of his children and his children directly; also includes 96,867
stock options in Mr. Dyck's name. Excludes 4,654 shares and 34,387 options
in the name of Mr. Dyck's son Martin who is also a Director. Includes
29,607 shares held by Ursula M. Dyck, his wife, individually or as
custodian.
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(2) Includes 34,387 options being held by Mr. Martin C. Dyck
(3) In January 1998 the directors voted to re-issue certain options to account
for past services as Board members and to compensate directors for agreeing
to accrue Board Member fees. Dr. Meckeler was granted 22,000 options to
purchase shares as a replacement for all previous options; Dr. Schreck was
granted 10,000 options to purchase shares as a replacement for all previous
options and Dr. Perl was granted 1,000 options in addition to the 8,000
previously granted in 1997. The options were granted at the market price on
the date of grant.
(4) Includes 217,035 options presently held by Officers or Directors, see
"Options Granted Outside Of Stock Option Plan."
Other Information Concerning Directors,
Officers and Stockholders
The Company, during 1998 was a party to various transactions with Hydromer,
Inc., an affiliated entity. Hydromer provides the Company with chemicals and
analytical services. In 1998 the Company purchased approximately $35,000 worth
of goods and services from Hydromer and billed Hydromer for approximately
$26,000 for services and out of pocket expenses incurred in its behalf (the
Company provides secretarial services to Hydromer at $500 per month). The
Company has served as the a subcontractor of Hydromer to provide coating
services on various products using the chemicals made by Hydromer at prices it
would charge to any other non-affiliated party for like services. The Company
paid $38,900 to Hydromer as royalties owed up to the date of expiration or
termination on patents that expired or were terminated in March of 1998.
In 1997 the Company was a party to various transactions with Hydromer, Inc.
Hydromer provides the Company with chemicals and analytical services. In 1997
the Company purchased approximately $40,000 worth of goods and services from
Hydromer and billed Hydromer for approximately $77,000 for services, out of
pocket expenses incurred in its behalf (the Company provides secretarial
services to Hydromer at $500 per month), the purchase of a curing oven for
$46,000 and rented some space at Biosearch for $19,000. This arrangement for
space was terminated in latter 1997 and the oven was removed and reinstalled at
Hydromer's production facility. The Company paid Hydromer $29,000 representing a
minimum royalty fee for a patent/know-how license concerning the Hydromer
coatings and accrued an additional $26,875 for royalties due but not paid. In
late 1997 Hydromer and Biosearch entered into a secrecy agreement whereby the
Officers of Hydromer were granted access to the non-public records of Biosearch
to explore any possible business relationships or ventures. On March 31, 1998
the Company and Hydromer entered into a contract of sale whereby, Hydromer
agreed to purchase the Company's building and land at a price of $850,000 and a
three year lease-back to the Company of 16,000 square feet (approx. 2/3rds of
the building). The parties valued the lease at $346,500. Closing is expected to
take place with 60 days.
From July 96 to June 98 Hydromer purchased an aggregate of $46,500 of
furniture from Biosearch at terms Biosearch is of the opinion was fair and on no
less favorable terms available to a non-affiliated party.
In late 1997 Hydromer and Biosearch entered into a secrecy agreement
whereby the Officers of Hydromer were granted access to the non-public records
of Biosearch to explore any possible business relationships or ventures.
On March 31, 1998 the Company and Hydromer entered into a contract of sale
whereby, Hydromer agreed to purchase the Company's building and land at a price
of $850,000 and a three year lease-back to the Company of 16,000 square feet
(approx. 2/3rds of the building). The parties valued the lease at $346,500. The
transaction was closed on June 12, 1998. Since then the parties have shared
various costs in accordance with the terms of the lease in the area of taxes,
utilities, security, cleaning, and other services which are in common. The
Company believes that the terms of the foregoing arrangement are fair and
equitable to both parties as prior to the closing, a non-affiliated party
canceled a transaction of substantially the same terms (except the purchase
price was $50,000 higher then purchased by Hydromer), due to their inability to
obtain a mortgage. After this cancellation and prior to the purchase by
Hydromer, Inc., Summit Bank, the holder of a $840,000 mortgage filed an action
seeking foreclosure against Biosearch and a court order to conduct a sheriff's
sale of Biosearch's property. If not for the sale to Hydromer, Inc. it is the
opinion of Biosearch that the sale price of the property at a forced sale would
have been substantially less that the amount paid by Hydromer, Inc. There were
no other potential buyers.
As of April 20, 1998, as part of a cost reduction plan, the General Counsel
was employed by the Company on a part time basis of 1 day per week. The
remaining 4 days are spent as the General Counsel of Hydromer. In the event of a
conflict between the Company and Hydromer, outside counsel is used.
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In August of 1998, the Hydromer Board of Directors considered that it may
be beneficial to Hydromer to acquire the stock of Biosearch Medical Products,
Inc. Hydromer is a company which is an affiliate of Biosearch by virtue of the
common stock ownership and control of both companies by Manfred F. Dyck. The
Hydromer Board considered that Hydromer could make use of Food and Drug
Administration- registered manufacturing facilities of Biosearch for coating,
and prototype development under GMP/ISO 9000 conditions, which the company needs
to remain competitive. The Hydromer board also considered that a stock
acquisition would permit the possible use of tax loss carry forwards ("NOL's")
which could improve Hydromer's cash flow. Because of the potential conflict of
interest, Manfred F. Dyck and Ursula M. Dyck excused themselves from these
deliberations and the Board established its three independent directors Robert
Bea, Dieter Heinemann and Dr. Maxwell Borow, to act as an Acquisition Committee
with authority to evaluate and recommend a course of action for Hydromer in this
matter.
The Hydromer's Acquisition Committee considered external reports from
Howard Lawson & Co. and a report from Hydromer's independent accountants.
In September of 1998, Hydromer qualified its interest in acquiring the
stock of the Company in a stock exchange at the ratio of 6 shares of Biosearch
stock for each one share of Hydromer and conditioned on certain liabilities of
Biosearch being eliminated. The Board of Directors (Manfred F. Dyck, not taking
part in the decision) was of the opinion that the stated terms might not be in
the best interests of the stockholders as the assets of the Company were worth
more then the total value of the Hydromer shares that the Biosearch stockholders
would have gotten. In September of 1998 Hydromer shares were selling on the
"pink sheets" (OTC Bulletin Board) at prices fluctuating between $0.62 to $0.95
(with occasional spikes over $1.00); Biosearch shares were selling at prices
ranging from $0.06 to $0.14. At this time Biosearch was negotiating an asset
sale and a technology license with C.R. Bard, Inc. and was unsure of the outcome
in respect to the value of the Company. The Biosearch Board was optimistic that
such a transaction could increase the perceived value of Biosearch to a third
party. With respect to the price of the Company's stock, it is the opinion of
Biosearch that the OTC Bulletin Board does not reflect the true value of the
Company's stock due to small amount of transactions and the wide fluctuation in
price that can occur because of a few small transactions.
In March of 1999 the Biosearch directors sought the advice of an evaluation
expert to render a fairness opinion. (See Exhibits B and B1 of this Proxy
Statement for a sumary of the report rendered by Wharton Valuation Associates,
Inc.)
In April 1999, Hydromer expressed interest to exchange each Biosearch share
for a payment of $0.15. In addition there were other conditions which the
Biosearch board found to be burdensome on certain employees (it required 5 key
employees to waive a total of $136,000 in compensation, due and payable upon a
change of control. This conditional compensation was given because these
employees have not gotten raises in the past few years.) The Directors were of
the opinion that loss of these key employees would be detrimental to the
operation of Biosearch.
On May 10, 1999 Hydromer, Inc. revised its offer to $0.20 and the allowance
of part of the employee change of control payment and at a special meeting of
the Biosearch Board of Directors, held on May 12, 1999 the Biosearch Board
approved the offer and directed that it be presented to the stockholders for a
vote. A PLAN OF EXCHANGE was thereafter approved at the regular Board meeting
held on May 27, 1999 (see Proposal II).
In the latter part of 1998 the Company and Hydromer formed a Y2K joint task
force to assess the effect the Y2K problem would have on the facilities, jointly
occupied. The companies are devising a plan that in the opinion of the
management of the Company will be less expensive to implement then any plan
implemented alone by the Company.
On February 25, 1999 the Company closed a transaction with C.R. Bard, Inc.
which transferred the Company's process coating technology and a coating machine
pertaining to intermittent urinary catheters for the sum of $650,000. On the
same date, Hydromer closed a transaction which licensed the right to use
Hydromer's coating chemicals on the same device. Biosearch's contract had a
condition whereby, the closing was conditioned on the Hydromer transaction
closing at the same time. Outside counsel was used to represent the interests of
Hydromer, because of a potential conflict.
On June 28, 1999 the C.F.O. of Biosearch (Mr. Robert Keller) agreed to
provide accounting services to Hydromer, Inc. on a part time basis in such a way
as it would not interfere with his responsibilities at Biosearch. The total
amount of his compensation for 1999 is expected to be far less then $100,000.
Manfred F. Dyck, C.E.O. of the Company and his wife Ursula M. Dyck are also
directors of Hydromer. Mr. Manfred Dyck is the President and CEO of Hydromer. In
total they hold 42% (on a fully diluted basis) of the
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capital stock of Hydromer. Their son Martin C. Dyck, who is President of the
Company, owns 46,152 shares or 1.1% of Hydromer stock.
II. SHARE EXCHANGE for $0.20
(Proposal II)
SHOULD THE SHAREHOLDERS OF THE COMPANY EXCHANGE (a form of sale) THEIR SHARES
FOR A PAYMENT OF $0.20 PER SHARE. Upon the affirmation vote of a majority of
votes cast at the meeting, all issued and outstanding shares of the Company will
be exchanged for $0.20 per share.
[The BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE YES TO THIS PROPOSAL II.]
Information about transaction:
If approved by a majority of the votes cast at a quorum representing 50%
plus 1 of the outstanding shares and pursuant to New Jersey Law N.J.S.A.
14A:10-13 (Share Exchange) all the issued and outstanding shares of Common Stock
of the Company will be acquired by Hydromer, Inc. a New Jersey Corporation as a
wholly owned, non-public subsidiary by exchanging each share of the Company for
the right to receive a payment of $0.20 ("Share Consideration"). Hydromer's
principal place of business is 35 Industrial Parkway, Branchburg, NJ 08876,
(908- 526-2828). Hydromer is an affiliate of the Company because Manfred F.
Dyck, CEO of both company's owns a substantial amount of stock in both companies
to exercise a controlling influence over the affairs of both companies.
If a majority of the votes cast by holders of shares which are entitled to
vote on the plan of exchange approve this plan then on the effective date of
exchange the share certificates shall only evidence the right to receive the
Share Consideration times the amount of the shares on the certificate (orange
certificate). In the event a share certificate is blue in color the Share
Consideration shall be divided by 5 (in 1996 there was a 1 for 5 reverse split),
as the blue certificates represents pre-split shares
Right of dissent/appraisal:
Under the New Jersey Business Corporation Act, because the consideration is
cash, shareholders have no statutory right of dissent or appraisal [N.J.S.A.
14A:11-1(a)(i)(B)]
The New Jersey Business Corporation Act (the "Act") sets forth the
procedure for and authorizes the share exchange proposed herein. However, even
full compliance with the provisions of the Act does relieve the directors of a
corporation from their fiduciary obligations to all shareholders, and New Jersey
case law permits a shareholder to bring an action to enjoin a transaction such
as the one proposed herein if the transaction does not conform to accepted
concepts of fairness and equity. The Boards of Directors of Biosearch and
Hydromer, for the reasons set forth in this Proxy Statement, believe that this
transaction conforms to such concepts.
Shareholders Protection Act:
In New Jersey there is a law known as the "New Jersey Shareholders
Protection Act" [N.J.S.A. 14A:10A-1 et seq. the "Protection Act"]. One of its
purposes as stated is to discourage takeovers of public corporations financed
largely through debt to be repaid in short-term by the sale of substantial
assets of the target corporation. These takeovers prevent shareholders from
realizing the full value of their holdings through forced mergers and coercive
devices.
The Protection Act prevents any business combinations between an
"interested shareholder" as defined in the law, and the Company for a period of
five years unless the business combination is approved by the Board of Directors
prior to the interested stockholder's stock acquisition date or unless the
transaction is otherwise exempt from the law. There are two "interested
shareholders" in this transaction. Hydromer, Inc. which will acquire the shares
of the Company and Mr. Manfred F. Dyck who holds more then 10% of the voting
shares of both Hydromer and the Company. The business combination in this case
occurs when the Company becomes a wholly owned subsidiary of Hydromer, Inc.
Prior to the shareholders vote on this matter, the Board of Directors has
investigated the fairness of the share exchange, hired and independent
evaluation expert. This expert was of the opinion that the exchange rate of
$0.20 per share is fair. (See Fairness Opinion, Exhibit B). The Board has
approved the transaction and has submitted the final approval to the
shareholders.
Hydromer's acquisition of the Company's shares is permitted by the
Protection Act because the Company's Board of Directors has approved the
transaction before Hydromer has acquired any shares of the Company.
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[N.J.S.A. 14A:10A-4 and 5a.]
Although Manfred F. Dyck is an "interested shareholder" by virtue of his
share ownership of Hydromer, Inc. [N.J.S.A. 14A:10A-3j(2)], this transaction is
specifically exempt from the Protection Act because Manfred F. Dyck owns a
smaller proportion of the voting power of the Company on the Effective Date of
this transaction (21.8%) then he owned on the effective date (August 5, 1986) of
the Protection Act (41.2%) [N.J.S.A. 14A:10A-6b]
Special Factors:
Directors and Officers of Hydromer, Inc.
Directors:
MANFRED F. DYCK, age 63, Chief Executive Officer of Biosearch Medical
Products, Inc.(since 1975) and Hydromer, Inc. since July of 1989;
Chairman of the Board of Hydromer since June 1983; President of
Hydromer from 1980 to June 1983 and thereafter since July 1989.
Director of Biosearch since 1975; Director of Hydromer since 1980.
Manfred and Ursula are husband and wife, Martin C. Dyck, President of
Biosearch is their son. He holds 1,682,172 shares or 38.5% in
Hydromer.
MAXWELL BOROW, M.D., age 72, Medical Doctor, retired Chief of Surgery
at Somerset Medical Center (hospital) from 1985-1994, Chief of
Vascular Surgery at Somerset Medical Center from 1978-1985; Director
of the Hydromer since 1990. He holds 6000 shares or <1% in Hydromer.
URSULA M. DYCK, age 64; Director of Hydromer since 1980. Ursula and
Manfred F. Dyck are wife and husband. She holds 158,076 shares or 3.6%
in Hydromer.
DIETER HEINEMANN, age 60; Specialist, Frankfurt, Germany Stock
Exchange since prior to 1987. Director of the Company since 1991. He
holds 565,125 shares or 12.9% in Hydromer.
ROBERT H. BEA, age 45; Vice President of Quality Assurance &
Regulatory Affairs at Siemens Hearing Instrument, Inc. since 1994;
Vice President of Quality Assurance and Regulatory Affairs for
Biosearch from 1992-1994; Previously, he worked at Johnson & Johnson
where he held positions of increasing responsibility in
Quality/Regulatory affairs from 1973-1991. Director of Hydromer since
1996. He holds no shares in Hydromer.
Executive Officers:
Manfred F. Dyck has been Chairman of the Board of Hydromer since June 1983
and a Director of Hydromer since its inception. Mr. Dyck served as Chief
Executive Officer of Hydromer from its inception until October of 1986, and
as of August 1989, reassumed the duties of Chief Executive Officer. Mr.
Dyck has been Chief Executive Officer of Biosearch since 1975.
Robert Keller has been Principle Accounting Officer of Hydromer since June
1999. Mr. Keller is Vice President and Chief Financial Officer of Biosearch
since 1995. Prior to this he was Vice President and Chief Financial Officer
of Mailing Services.
Joseph A. Ehrhard has been Vice President of New Business and R&D of
Hydromer since September 1997. Prior to joining Hydromer, Mr. Ehrhard was
Director of R&D for the Golden Cat Division of Ralston-Purina in St. Louis,
Mo. Mr. Ehrhard was previously Director of R&D in Worldwide Absorbent
Products and Materials Research for Johnston and Johnston in New Jersey.
From June 1987 through January 1995, he was in R&D at Procter & Gamble
Company, most recently as Section Head of Global New Technology Development
in Personal Cleansing in Cincinnati, OH.
Robert J. Moravsik has been Vice President and General Counsel of Hydromer
since April 1998. He also serves in the same capacity for Biosearch. Prior
to that he was Vice President and General Counsel to Fisher Stevens, Inc. a
subsidiary of the Bureau of National Affairs.
Robert D. Frawley has been secretary of Hydromer since 1984. Mr. Frawley
has been an attorney in private practice since December 1985. He counsel to
the law firm of Smith, Stratton, Wise, Heher and Brennan, Princeton, New
Jersey since February 1994. From December 1983 to December of 1985, Mr.
Frawley was Vice President-Corporate Counsel and Secretary of Biosearch.
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Reasons for this transaction:
The Company has been struggling to increase sales by using direct mailings,
Internet solicitations, phone solicitations and attending trade shows. In
1999 it has entered into OEM agreements with Wilson-Cook and Applied
Medical Resources. However the lack of any capital for marketing programs
has impeded the Company's ability to exist as a going concern. It has been
unable to obtain financing due to its financial history and to maintain its
existing operations the Company has had to sell off some of its assets
(sold its real property in 1998 to terminate foreclosure proceeding,
executed a stand still agreement in 1998 for $200,000, sold urinary
catheter coating business in 1999 for $450,000). Some attempts at financing
include: internet solicitations for debt financing (no response); private
offerings through investment bankers and financial intermediaries (fees too
high and results too speculative); direct private placements (price was far
less the $0.20).
The Company has rejected filing under the Bankruptcy statutes as it was of
the opinion that one asset which would be lost was its "Net Operating
Losses". The NOL can be used to lower taxes under certain conditions. It is
the Company's opinion after seeking advice from its experts that the
liquidation value of Biosearch would be less then $0.15 per share. See
summary of the Wharton Presentation to the Board of the Company which
follows Exhibit B (see also "Forward Looking Statements"in the front of
this proxy).
Hydromer has the marketing and sales organization that would increase the
sales volume of activities within the Company's area of expertise which is
the manufacture and coating of medical devices. The Company has an FDA
registered facility which also is registered under ISO 9001 (A standard
used in Europe). The Company is authorized to put the "CE Mark" on some of
its medical products such as stents, biofeedback devices and various
catheters.
As to Hydromer, Inc. it sees benefits in the Company's operation. The
Company has used Hydromer's chemicals on most of its medical devices and
has developed expertise in the use of Hydromer's Coatings in medical and
commercial applications. At present, Hydromer does not have any engineering
or production facilities to develop prototype uses for its coatings and
other chemicals; in addition it cannot provide coating services on medical
devices as it is not registered as a medical device manufacturer. Biosearch
will bring such abilities and the production facilities to do production
runs. Hydromer will, in addition be able to make use of the tax credits the
Company has built up due to losses (Net Operating Losses or NOL's).
Hydromer values these NOL's at a maximum of $12,000 if Hydromer continues
to be profitable. There is, of course, no assurance that the Net Operating
Losses will be useful unless they can be offset against income tax owed.
The change of control limits the use of NOL's to approximately $12,000. If
the transaction was not done and Biosearch would be profitable the value of
the NOL's could be as high as $250,000. Use of NOL's is highly speculative
and there is no assurance that Biosearch could ever use them. It is likely
that these NOL will be used to some extent by Hydromer.
Biosearch is of the opinion that the structure of this transaction was
chosen by Hydromer to be easy for the stockholders to comprehend and to
maintain the corporate existence of Biosearch to take advantage of the FDA
and ISO 9000 registrations as well as the Net Operating Losses in the
future. The structure was independently chosen by Hydromer during the
negotiation between the outside Board members of both Companies. (Mr.
Manfred F. Dyck did not take part in the discussions). The Biosearch Board
exercising it business judgement originally felt the transaction could be
consummated in a shorter time frame then a share exchange. If the
transaction required the exchange of Biosearch stock for Hydromer stock,
the time and expense of complying with the registration procedures for
Hydromer stock would have resulted in undesirable delay and expense.
In the opinion of the Company its shareholders will be given a premium over
the past market price. The transaction is structured pursuant to New Jersey
Law, whereby majority vote is conclusive. Neither the market or any third
party has come forward to date and offered a better price/terms. Biosearch
has never paid any dividends either because of its past loses or because
past financing covenants precluded payment. It is the Company's opinion
that there are no real detriments for the Biosearch stockholder. Other
structures of transactions (like a share for share exchange) were rejected
because of the transaction costs and the time factors. (Hydromer stock
would have to be registered.) The transaction form was chosen as the
simplest way to obtain a fair amount for the Company's stock. If Biosearch
stockholders desire to retain any equity in the combined Hydromer-Biosearch
entity, they can easily purchase Hydromer stock on the public market (OTC
"pink sheets").
Hydromer's Acquisition Committee considered an acquisition of Biosearch on
a liquidation basis, and net book value basis, but considered also that an
acquisition of assets on those bases would not bring to Hydromer: 1. the
Food and Drug Administration registration for a manufacturing facilities,
2. the ISO 9000 approval or 3. the tax loss carry forwards, which would
remain with the corporate shell.
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Acquisition without these benefits was determined not to be in the interest
of Hydromer and since the acquisition of the Biosearch stock was for a
price that is greater then the price that Biosearch's stock is publicly
traded (ignoring unjustified peaks from time to time) Hydromer is of the
opinion that the $0.20 per share price is fair. For these reasons, Martin
C. Dyck also determined that Biosearch was most valuable if the company
were acquired in an exchange of stock for cash, rather than an asset
transaction. Martin C. Dyck considers this transaction to be fair to the
non-affiliated stockholders because in his opinion the future of Biosearch
as a going concern is not certain. As a condition of the transaction
closing Mr. Martin C. Dyck has waived the change of control payment of
$72,000 due him at the closing. He will be offered a position of Vice
President of Manufacturing at Hydromer for an anual salary of $110,000 and
10,000 stock options at a price set by the 5 day average prior to the
closing.
Although Manfred F. Dyck did not participate in the negotiation of the
terms and conditions of this transaction, he concurs that the result of the
transaction after reading the (reports and minutes of the Hydromer
Acquisition Committee and the Biosearch Board minutes, that were not
available to him during the negotiation) is fair to the non-affiliated
stockholders.
Intentions of certain persons:
Mr. Manfred F. Dyck, C.E.O. of both companies will exchange his shares at
the same price as all other stockholders of the Company ($0.20 per share)
(see "Information Concerning Certain Stockholders"). He intends to vote YES
on this Proposal II. He has not made any statements for or in opposition to
this Proposal II and has abstained as a Director from any consideration or
vote on this matter. However as a member of the Board of Directors, they as
a group have recommended that the stockholders vote YES to this proposal
II.
Although Manfred F. Dyck, Director of the Issuer and Hydromer, absented
himself from discussions of the transaction and abstained from
participating in the negotiation of the transaction, because of his
security holdings in both Biosearch and Hydromer, he has reviewed the
fairness opinion of Wharton Valuation Associates provided to Biosearch, and
the deliberations of the Biosearch Board and the Hydromer Acquisition
Committee and believes, based upon these items, that this transaction is
fair to unaffiliated security holders. Martin C. Dyck has reviewed both the
fairness opinion of Wharton Valuation Associates provided to Biosearch, and
the deliberations of the Biosearch Board and the Hydromer Acquisition
Committee and believes, based upon these reports, that this transaction is
fair to unaffiliated security holders. The Board of Directors of Hydromer
has reviewed the fairness opinion of Wharton Valuation Associates provided
to Biosearch, and believes, based upon this review and its own
deliberations and the outside reports of its experts, that this transaction
is fair to unaffiliated security holders. Manfred F. Dyck and Martin C.
Dyck intend to vote "YES" for Proposal II. Hydromer does not own any shares
of Biosearch, and cannot vote on the proposal. No information is available
to any filing person as to the intentions or mental impressions of officers
and directors of Biosearch and Hydromer with respect to voting on this
transaction.
Reports, Appraisals and Certain Negotiations
(a) The following reports have been received:
1. The Issuer has received a fairness opinion from Wharton Valuation
Associates, Inc. ("WVA") See Section II of the Proxy Statement,
subsection entitled "Special Factors -
2. Hydromer received a Report of Howard Lawson & Company dated March 18,
1998 entitled "Materials Prepared for Preliminary Discussion of
Valuation Issues in Connection with Target Transaction" (hereinafter
"Lawson I").
3. Hydromer also received a Report of Howard Lawson & Company entitled
"Valuation of Certain Shares of Biosearch Medical Products, Inc."
(hereinafter "Lawson II"). Lawson II has a valuation date of May 17,
1999 and an issue date of June 4, 1999.
4. Hydromer also received a report in mid -1998 from its auditors,
Rosenberg Rich Baker Berman & Co. entitled "Project Comet," which set
forth certain pro-forma balance sheets for Biosearch and Hydromer as
if the companies were combined using the purchase method and Pooling
method.
(b) As to the Wharton Report:
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1. Report was provided by Wharton Valuation Associates, 704 River Road,
Trenton, NJ 08628.
2. WVA has performed corporate valuations and fairness opinions for both
private and public companies.
3. WVA was recommended by Biosearch's auditors and interviewed directly
by the Board of Directors of the Issuer. Biosearch considered other
advisors, but concluded that WVA was well qualified and reasonably
priced.
4. WVA has no material relationship to the issuer or its affiliates, and
no compensation is to be received by WVA except for its engagement
fee.
5. The amount of consideration was negotiated by the Issuer with the
advice of WVA.
6. WVA reviewed and summarized the balance sheets and income statements
of Biosearch for the years 1993 through 1998 and the balance sheet and
income statement at the end of the first quarter of 1999. WVA also did
a discounted cash flow analysis of Biosearch using discount rates of
35%, 30% and 25%. WVA also performed a comparable public company
analysis, and an analysis of market value ratios from sales and
mergers of medical instrumentation companies. Lastly, WVA performed a
liquidating value analysis. A valuation recap of all analyses showed
the median share value to be $0.195 per share and the mean share value
to be $0.216. No instructions were delivered to WVA from the Issuer or
any Affiliate, other than as set forth in the WVA's proposal letter,
and no limitations were placed upon WVA.
The Fairness Opinion and a summary of the Wharton Report is annexed to this
Proxy Statement (see Exhibits B and B1). In addition, the Fairness Opinion and
the Wharton Report will be made available for inspection and copying at the
principal executive offices of the Issuer during regular business hours by any
interested equity security holder of the Issuer or his representative who has
been so designated in writing. A copy of the Fairness Opinion and the Wharton
Report will be transmitted by the Issuer to any interested equity security
holder of the Issuer or his representative who has been so designated in
writing, without charge.
(c) As to Lawson I and Lawson II
1. Howard Lawson & Co., Two Penn Center Plaza, Philadelphia, PA 19102
2. Howard Lawson & Co are well known investment bankers in the New
Jersey/Pennsylvania area. The company provides investment banking
services to senior management of private and Public companies.
Services include financial plans for corporations and their
shareholders, valuations of securities and business interests, debt
and equity financing, litigation support, and advice and negotiations
dealing with changes in ownership, acquisitions and divestitures.
3. Howard Lawson was recommended by the counsel to Hydromer, Inc. and was
selected by Hydromer's management following interviews.
4. Howard Lawson has no material relationship to the issuer or its
affiliates, and no compensation is to be received by Howard Lawson
except for its engagement fee.
5. The amount of consideration was negotiated by Hydromer with the advice
of Howard Lawson.
6. (i) Lawson I: Lawson I provided preliminary information and provided
no opinion as to valuation. Lawson I provided summary historical
financial statements (balance sheets and statements of operations) for
Hydromer and Biosearch; an analysis of guideline public companies for
Hydromer; an analysis of guideline public companies for Biosearch; and
an analysis of guideline acquisitions.
(ii) Lawson II: Lawson II is a complete valuation report, including an
opinion letter setting forth Howard Lawson's opinion as to the value
of Biosearch shares as of May 17, 1999. In arriving in the they are
opening unit of the fair market value both though,
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the stock both Biosearch Howard Lawson considered the following
factors:
1. The nature and history of Biosearch business
2. To the general economic outlook and the outlook for the medical
equipment industry
3. The book value of Biosearch and the financial condition of the
company
4. The results of operations of Biosearch
5. The dividend paying capacity of Biosearch
6. Whether or not Biosearch has any goodwill or other intangible
value
7. Past transactions in Biosearch common stock and
8. The market price of the stock of corporations engaged in the same
or similar lines of business as Biosearch.
Howard Lawson performed an asset purchase analysis of Biosearch based upon
estimated fair market values of Biosearch's fixed and intangible assets.
Howard Lawson also performed a discounted cash flow analysis based upon
forecasts of future earnings, adjusted to reflect the probability of a
range of possible outcomes.
On the basis of an asset purchase, and excluding all liabilities, Howard
Lawson was of the opinion that the relevant range of values for Biosearch
was $0.16 to $0.18 per share.
Assuming that Biosearch can turn around its declining revenues and further
assuming that Biosearch achieves approximately 41 percent of its forecast,
and using a discount rate of 45 percent, Howard Lawson found the equity
value to be $0.15 per share. Assuming that Biosearch achieved approximately
55 percent of its forecast, using the same discount rate of 45 percent,
Howard Lawson found the resulting equity value to be $0.20 per share.
On the basis of their discussions with management at all materials
reviewed, it is the opinion to Howard Lawson that the fair market value for
Biosearch shares is $0.18-$0.20 per share as of the valuation date. No
instructions were delivered to Howard Lawson except to describe the
valuation services needed, and no limitations were placed upon Howard
Lawson.
Lawson I and Lawson II will be made available for inspection and copying at the
principal executive offices of the Issuer during regular business hours by any
interested equity security holder of the Issuer or his representative who has
been so designated in writing. A copy of Lawson I and Lawson II will be
transmitted by the Issuer to any interested equity security holder of the Issuer
or his representative who has been so designated in writing, upon the written
request and at the expense of the requesting equity security holder.
(d) As to the RRBB Report.
1. Rosenberg Rich Baker Berman & Co., 380 Foothill Blvd. PO Box 6483,
Bridgewater, NJ 08807
2. Rosenberg Rich Baker Berman & Co. are Certified Public Accountants and
serve as Hydromer's auditors.
3. Hydromer selected Rosenberg Rich Baker Berman & Co. to provide certain
financial scenarios because they are familiar with Hydromer's
financial statements and qualified as CPA's to prepare pro forma
statements.
4. Rosenberg Rich Baker Berman & Co. serves as Hydromer's auditors and
and is compensated on an hourly or project basis for accounting
services.
5. Rosenberg Rich Baker Berman & Co. provided background information
only, and did not play any role in determining the consideration paid
by Hydromer.
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6. Management and the Board of Directors of Hydromer desired to review
the possible effect of the acquisition of the stock of Biosearch on
the balance sheet of Hydromer. Rosenberg Rich Baker Berman & Co.
prepared pro forma balance sheets assuming acquisition of Biosearch
accounted for by the purchase method and by the pooling method.
Rosenberg Rich Baker Berman & Co. was not asked for, and did not give
any findings or recommendations. No instructions were delivered to
Rosenberg Rich Baker Berman & Co. except to describe the accounting
services needed, and no limitations were placed upon Rosenberg Rich
Baker Berman & Co.
The RRBB Report will be made available for inspection and copying at the
principal executive offices of the Issuer during regular business hours by
any interested equity security holder of the Issuer or his representative
who has been so designated in writing. A copy of The RRBB Report will be
transmitted by the Issuer to any interested equity security holder of the
Issuer or his representative who has been so designated in writing, upon
the written request and at the expense of the requesting equity security
holder.
Business of Hydromer, Inc.:
Hydromer, Inc. is a corporation organized in April of 1980. In September
1982 it was spun off from the Company to exploit certain chemical coating
technology (chemicals that become dry on a surface but become slippery when wet)
invented by the Company in the industrial/medical device market place. Presently
Hydromer occupies 33% of the building that the Company leases from Hydromer.
Hydromer manufactures chemicals and performs R&D in the polymer coating markets.
Hydromer's annual sales for the year ending 6/30/98 were $2,360,570.
Hydromer intends to use the Company's currently under utilized facilities
to produce items that would otherwise have to be subcontracted. Hydromer also
believes that the Company's medical coating expertise will be a synergistic
addition to its own capabilities.
Hydromer and Biosearch are related parties (affiliated entities) because
Manfred F. Dyck holds a substantial amount of stock in both companies. A summary
of the relationships with the numbers computed on the basis of Biosearch's
fiscal year can be found under Proposal I, "Other Information Concerning
Directors, Officers and Stockholders"
Hydromer manufactures chemicals that are used as lubricous (slippery)
coatings on medical products and on industrial surfaces for anti-fog properties.
Hydromer also manufacturers chemicals that form gels intended for medical uses
and cosmetic components. Biosearch is a medical device manufacturer which has
developed expertise in the process of applying coating to various substrates.
Hydromer does not have the experience in applying its own coatings outside the
laboratory environment. In Hydromer's opinion the acquisition of Biosearch
brings with it this commercial technology which will allow Hydromer to
immediately expand the market for its patented products and related services
using these products to customers in the medical device marketplace because
Biosearch is registered with the FDA and has an ISO 9000 registration.
Summary of material features of this Exchange:
a. The Board of Directors have proposed that each stockholder vote for the
exchange (sale) of each of their common shares of the Company for a payment
of $0.20. Once approved by a majority of the votes cast at the meeting,
Biosearch stock certificates will be evidence to receive $0.20 times the
number of shares held.
b. Both Hydromer and Biosearch represent to each other that they are valid
companies and they can enter into this exchange if approved by the
Biosearch shareholders.
c. Either company can terminate the exchange if in the opinion of either
Board of Directors there is a material change in the business of the other.
One specific requirements is that Biosearch's current debt, excluding debt
to Hydromer cannot exceed $100,000. In the opinion of Biosearch, it feels
this condition can be achieved if there is no further material delay in
closing this transaction.
d. In addition, the President of the Company, Martin C. Dyck has been
offered employment with Hydromer, Inc. as the Vice President of Operation
at a salary of $110,000 per year. He will also be given options to purchase
10,000 shares of Hydromer, Inc. at the 5 day rolling average market price
prior to the Effective Date. Mr. Martin C. Dyck will remain as President of
Biosearch Medical Products, Inc. at a salary of $1.00/year. In
consideration, Mr. Martin C. Dyck agreed to waive a "change of control"
payment of $72,000 which was
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awarded in June of 1998. Four other key employees were also awarded a
"change of control payment", which Hydromer, Inc. has agreed to allow to be
paid ($64,000)
e. From time to time the Company has issued options (there are no warrants
outstanding) to its key employees. Hydromer will pay these employees the
difference between .20 and the option price if under .20 time the shares
represented by the option certificate. Mr. Manfred F. Dyck holds the
greatest amount of option for which he will receive $776. To the extent the
option price is higher then $.20 they will be allowed to expire.
f. Manfred F. Dyck holds 480,004 shares of the Common Stock of Biosearch
and will be paid a total of $96,000.80 in exchange for his shares. Martin C
Dyck holds an aggregate of 39,041 shares of Common Stock of Biosearch and
will be paid an aggregate of $7,808.20 in exchange for his shares. Both
Manfred F. Dyck's and Martin C. Dyck's interest in the net book value and
net earnings of Biosearch will be proportional to their respective share
holdings in Hydromer. Manfred F. Dyck holds approximately 47% of the
outstanding shares of Hydromer, and Martin C. Dyck holds less than one
percent of the outstanding shares of Hydromer. As Biosearch will be a
wholly-owned subsidiary of Hydromer, Hydromer will have a 100% interest in
the net book value and net earnings of Biosearch.
g. It is anticipated that the duration between the stockholders approval
and the closing of the exchange (upon filing in the N.J. Division of
Commercial Recording per New Jersey Law), will be less then two weeks). It
is further anticipated that notices to shareholders to send in their
certificates will be done within 4 weeks. Shareholders will send in their
certificates and a form requiring their social security number and
certification in the absence of backup withholding. Payment in the form of
a check will be sent as soon as possible.
Accounting Treatment:
The proposed transaction is a business combination accounted for under the
purchase method, effective on the date of the transaction. Balance sheet
elements of both companies will be combined on the effective date. The monies
paid to the stockholders for their exchange of Biosearch stock along with the
fees and costs associated with the acquisition will be accounted for on
Hydromer's balance sheet as an investment in a subsidiary. The consolidated
stockholders equity that remains on the effective date will go to Hydromer
(Biosearch's stockholders' equity will be eliminated upon consolidation). Assets
of Biosearch Medical Products, Inc. will be appraised and recorded at their fair
value on the consolidated balance sheet. Any difference between the amount paid
to Biosearch stockholders (the Purchase Price) and the fair value of Biosearch
will result in good will. This goodwill will be amortized over 20 years. This
amortization is not deductible for tax purposes.
Fixed assets will be recorded at fair value as of the close of business on
the effective date. Any balances between Hydromer and Biosearch, such as trade
payables and receivables, prepaid and deferred rent, will be eliminated in
consolidation.
Federal Income Tax Consequences:
The exchange (form of sale) of Common Shares into the right to receive cash
pursuant to the Plan of Exchange will be a taxable transaction for federal
income tax purposes under the Internal Revenue Code as amended ("the CODE"), and
may also be a taxable transaction under applicable state, local and other tax
laws.
In general, a stockholder will recognize gain or loss equal to the
difference between the tax basis of his shares and the amount of cash received
under this exchange. Such gain or loss will be treated as a capital gain or loss
if the shares are capital assets in the hands of the stockholder.
The tax consequences described in the preceding paragraph may not apply to
(i) shares acquired upon the exercise of incentive stock options or otherwise as
compensation, (ii) certain non-resident aliens and foreign corporations and
stockholders who are subject to special tax treatment under the Code, and (iii)
any stockholder who now intends to utilize installment sale treatment with
respect to applicable gain realized upon them of payments under this exchange.
The federal income tax consequences set forth above are for general
information. Each stockholder is urged to consult his own tax advisor to
determine the particular tax consequence to them of this exchange, including the
applicability and effect of state, local and other tax laws.
Dividends:
The Company has never paid dividends and no dividends are in arrears.
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Book Value of Company
The Book Value of the Company for the past 5 years has been:
As of 12/31
1994 1995 1996 1997 1998
$1.46 1.08 0.68 0.43 0.04
(Note) In February of 1999 the Company sold a coating machine and licensed
certain technology to C.R. Bard, Inc. for a total price of $650,000 of
which $200,000 was paid as an advance. This extraordinary transaction
raised the book price of the Company on March 30, 1999 to $0.22
Price of Securities before and after public announcement on May 13, 1999.
before public announcement- $0.12
after public announcement- $0.16
Share Price of Company
The Company currently trades on the "pink sheets" which is a form of "over
the counter". If a buyer or seller wishes to buy or sell shares they must
contact a broker who will conduct a search to see if there are any other sellers
or buyers of stock at the price desired. The share price of the Company stock
over the last 2 years was:
1999 Q1 - $0.08 to 0.50 (.50 traced to a one-time purchase by a Fla.
investment group, not considered as meaningful by any filing person)
1998 Q4 - $0.08 to 0.11
Q3 - $0.06 to 0.14
Q2 - $0.14 to 0.22
Q1 - $0.19 to 0.22
1997 Q4 - $0.09 to 0.28
Q3 - $0.09 to 0.19
Q2 - $0.09 to 0.19
Q1 - $0.12 to 0.22
Regulatory requirements:
Completing this transaction will result in the Company having only one
stockholder (it has gone private). The Company will still stay in existence and
retain all its rights and liabilities. No regulatory approval is required other
then an acknowledgement of an environmental filing with the N.J. State
Department of Environmental Protection. Such filing has been completed and
approved.
Hydromer, Inc. and the Company and certain affiliated persons, must comply
with the requirements of S.E.C. Rule 13 E 3 which will be filed at the same time
as this proxy is mailed to the stockholders.
BIOSEARCH, Inc. WILL "GO PRIVATE"
If the proposed transaction is completed, the Company will no longer have a
filing obligation pursuant to any Securities Laws as it will have only one
stockholder. At present, the acquiring company, Hydromer, Inc. does not own any
shares of Common Stock in the Company although it is considered an affiliate
because of stock owned in both companies by Manfred F. Dyck who is C.E.O. of
both Hydromer and Biosearch. Existing stockholders will be paid $0.20 for each
share of Biosearch Common Stock held by them and will no longer be shareholders
of Biosearch.
SOURCE OF FUNDS/FEES
Hydromer, Inc. will pay for the exchange of the 2,202,878 outstanding
shares at $0.20 per share ($440,576) out of cash reserves. Total expenses and
anticipated fees or costs to be paid in connection with this transaction are
estimated to be:
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Exchange of common stock $440,576
Legal - $25,000 (outside counsel used by Hydromer)
Fairness opinion - 27,500 (the Wharton Fairness Report to Biosearch)
Evaluation - 30,000 (the Lawson evaluation reports to Hydromer)
Accounting - 5,000 (analysis/responding to SEC comments)
Solicitation - 3,600
Edgarizing - 9,000 (electronic filing with SEC, keying reports)
Printing - 7,000
Proxy solicitation - 3,600
Exchange of money
for certificates - 3,000
Filing fees (Form 13 E 3) - 88
TOTAL $554,364
Fairness Opinion:
The Company has retained Jeffrey F. Nelson of Wharton Valuation Associates,
Inc. to investigate this transaction and render an opinion as to its fairness.
The Board of Directors has relied on this report in recommending to the
stockholders to vote FOR this exchange. The report is attached as Exhibit B.
Material Contracts with Hydromer:
Hydromer, Inc. is defined as an affiliated party as Mr. Manfred F. Dyck,
the CEO of the Company owns 42% of the outstanding stock of Hydromer, Inc.
Please refer to "Other Information Concerning Directors, Officers and Other
Stockholders"
Further information about the Company
Included with this mailing is the Company's 10KSB for 1998, the Company's
10 QSB for the quarters ending March 30, 1999 and June 30, 1999.
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Exhibit IIA
PLAN OF EXCHANGE
BY AND BETWEEN
HYDROMER, INC.
AND
BIOSEARCH MEDICAL PRODUCTS, INC.
This is a Plan Of Exchange ("PLAN") by and between Hydromer Inc., a corporation
of the State of New Jersey ("HYDI " or "Acquiring Corporation") and Biosearch
Medical Products, Inc. a corporation of the State of New Jersey ("BMP").
I. PLAN OF EXCHANGE
1.01. A PLAN by which the issued and outstanding common shares of BMP are
acquired by HYDI and converted to a right to receive $0.20 per BMP share
pursuant to the provisions of Chapter 10 of the New Jersey Business
Corporation Act is adopted as follows:
(a) On the EFFECTIVE DATE, all the issued and outstanding common
shares of BMP shall be deemed to be acquired by HYDI.
(b) On the EFFECTIVE DATE, each issued and outstanding common share of
BMP shall be converted into a right to receive $0.20. Each holder of
issued and outstanding BMP shares on the EFFECTIVE DATE shall be
entitled to receive, upon surrender to HYDI or its transfer agent of a
certificate or certificates representing such shares in accordance
with such reasonable procedures and conditions with respect to such
surrender as HYDI and BMP shall establish, a check for a cash amount
representing that number of BMP shares surrendered multiplied by
$0.20. Certificates for BMP shares not surrendered to HYDI shall,
after the EFFECTIVE DATE, be deemed to represent such right to receive
$0.20 for each BMP share represented by such certificate.
(c) When this PLAN shall become effective, BMP shall continue its
corporate existence as a wholly owned subsidiary of HYDI, and the
Certificate of Incorporation of BMP, as existing on the EFFECTIVE DATE
shall continue in full force and effect as the Certificate of
Incorporation of BMP until altered, amended or repealed as provided in
the Certificate or as provided by law.
(d) Options to purchase shares of BMP which have an exercise price of
less than $0.20 shall be redeemed by the payment to the holder of such
option of the difference between the exercise price and $0.20. Options
to purchase shares of BMP, which have an exercise price of greater
than $0.20 shall be extinguished.
(e) The Certificate of Incorporation of HYDI, as existing on the
EFFECTIVE DATE, shall continue in full force and effect as the
Certificate of Incorporation of the Acquiring Corporation until
altered, amended or repealed as provided in the Certificate or as
provided by law.
1.02. The effective date of the PLAN ("EFFECTIVE DATE") shall be upon
recordation with the Division of Commercial Recording in the State of New
Jersey.
II. REPRESENTATIONS AND WARRANTIES OF CONSTITUENT CORPORATIONS
2.01. HYDI represents and warrants to BMP that it is a corporation duly
organized, validly existing and in good standing under the laws of the
State of New Jersey with corporate power and authority to own property and
carry on its business as it is now being conducted, and to enter into and
carry out the terms of this PLAN OF EXCHANGE.
2.02.(a) BMP represents and warrants to HYDI that BMP is a corporation duly
organized, validly existing and in good standing under the laws of the
State of New Jersey with corporate power and authority to own property and
carry on its business as it is now being conducted and to enter into and
carry out the terms of this PLAN OF EXCHANGE.
(b) BMP has an authorized capital of 5,000,000 shares of common stock
of which, prior to the EFFECTIVE DATE, 2,202,878 shares are validly issued
and outstanding and 257,000 are subject to warrants, options and rights to
purchase.
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III. COVENANTS AND OBLIGATIONS PRIOR TO THE EFFECTIVE DATE
3.01. Pending consummation of this PLAN, each of the constituent
corporations will carry on its business in substantially the same manner as
before and will use its best efforts to maintain its business organization
intact, to retain its present employees, and to maintain its relationships
with suppliers and other business contacts.
IV. DIRECTORS AND OFFICERS
4.01.(a) The Board of Directors of BMP on the EFFECTIVE DATE shall serve as
the Board of Directors until their successors have been elected and
qualified.
(b) If a vacancy shall exist on the Board of Directors of the BMP on
the EFFECTIVE DATE, the vacancy may be filled as provided in the By-laws of
BMP.
V. BY-LAWS
5.01. The By-laws of HYDI and BMP as existing on the EFFECTIVE DATE shall
continue in full force until altered, amended or repealed as provided in
such By-laws or as provided by law.
VI. TERMINATION
6.01. This Plan may be terminated and abandoned at any time prior to the
EFFECTIVE DATE at the election of the Board of Directors of HYDI or BMP, if
between the date of this PLAN and on the EFFECTIVE DATE there shall have
been in the opinion of such Board of Directors any materially adverse
change in the business or condition, financial or otherwise, of either
corporation.
VII. MISCELLANEOUS
7.01. The validity, interpretation and performance of this PLAN shall be
governed by, construed and enforced in accordance with the laws of the
State of New Jersey.
7.02. The original executed copy of this PLAN is on file at the principal
place of business of HYDI, 35 Industrial Parkway, Branchburg, NJ 08876.
7.03. A copy of the PLAN will be furnished without cost to any stockholder
of BMP or HYDI upon request.
IN WITNESS WHEREOF, the parties hereto caused this PLAN to be executed
by their duly authorized officers and their respective corporate seals
affixed hereto on the twenty seventh day of May, 1999.
HYDROMER, INC.
ATTEST:
By:_____________________ By:_____________________
Secretary Vice-President
BIOSEARCH MEDICAL PRODUCTS, INC.
ATTEST:
By:_____________________ By:_____________________
Secretary Vice-President
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Exhibit B
Fairness opinion; Report of:
Jeffrey J. Nelson
Wharton Valuation Associates, Inc.
704 River Road
West Trenton, NJ 08628
Dated May 12, 1999
We have conducted an analysis of Biosearch Medical Products, Inc.("Biosearch" or
the "Company") for the purpose of determining the fair value of 100 percent of
the Company's outstanding stock. It is our understanding that our analysis may
be used by the Company's Board of Directors in assessing the financial fairness
of an offer to purchase all the Company's outstanding common stock.
It is our understanding that an offer of $0.20 per share of common stock has
been made by Hydromer, Inc. We understand further that Hydromer has agreed to
assume approximately one-half of the "change of control" obligation (not booked
on the Company's balance sheet). We consider this offer to be fair from a
financial point of view from the perspective of the stockholders of Biosearch
Medical Products, Inc.
We base this conclusion upon an analysis of financial projections for Biosearch
out over the next five years, as well as the prices being paid for companies in
the medical instrument industry. With respect to out valuation of the Company's
projections, we applied a discount rate which reflects the considerable
uncertainty that the actual results will not materialize as projected. With
respect to the prices being paid for similar companies, we valued the Company at
the lower end of the range of multiples (of revenue) prevailing in the market
place, again reflecting relatively poor operating history. We also considered
the Company's relatively thin equity capitalization and poor operating results
for the first three months of 1999.
I hope this brief summary is of help to you and urge you to call if there is any
questions regarding it.
/ss/ Jeffrey J. Nelson, Managing Director
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Exhibit B1.
Summary of report given to the Biosearch Board on April 29, 1999 by Wharton
Valuation Associates, Inc. (See Forward Looking Statements).
Exhibit A was the balance sheets of Biosearch for the fiscal years 1993 to
1998 and a balance sheet for 3/31/99. The figures were taken from the
Company's filings with the S.E.C.
Exhibit B was a recap of the Income statements for the same years as
Exhibit A.
Three Models were used to determine the fair value of Biosearch: 1 Discounted
Cash Flow; Comparative Sales and Liquidation Value Analysis.
DISCOUNTED CASH FLOW:
Exhibit 1 was an analysis of present value of free cash flows projected out
for 4.5 years based on projection supplied by Biosearch and then further
projected for 17 more years based on an assumption of a 10% growth. The
Biosearch projections are based on the business judgement of Mr. Martin C.
Dyck, President and Mr. Robert Keller, CFO of the Company. Biosearch
projection indicate:
1999 2000 2001 2002 2003
Sales $1,855,300 $2,696,000 $3,526,000 $4,201,000 $4,851,000
Net Income (74,152) 140,301 128,813 421,988 718,138
Based on certain assumption of Federal Income Tax=34%, State Income Tax=9%,
Present Value Interest Factor of 35%, the Enterprise value calculated to
$275,361 or $0.125 per share.
Exhibit 2 contained the same information except the Present Value Interest
Factor was set to 30%. It indicated that the Enterprise value was $503,554 or
$0.229 per share
Exhibit 3 changed the Present Value Interest Factor to 25% indicating the
Present Enterprise value was $858,011 or $0.391 per share.
COMPARATIVE ANALYSIS-SALES, MERGERS and ACQUISITIONS:
Exhibits 4 and 5 contained data on over 40 Companies. Based on averages of Price
to Revenue ratios, Wharton concluded that the value of the Company was $530,345
or $0.242 per share. If an average was computed based on Sales/Merger
transactions the value of the Company would be $353,004 or $0.161 per share.
Exhibits 6,7 & 8 were summaries of the information in Exhibits 4&5.
LIQUIDATION:
Exhibit 9 calculated the liquidation value as of 3/31/99 based on the Company's
balance sheet.
ASSETS
Current Assets:
Cash and cash equivalents $ 49,157
Accounts receivable @ 85% 94,903
Inventories @ 50% 164,914
Other current assets 235,908
--------
TOTAL current assets 544,882
Property, plant & Equipment 250,000
-------
TOTAL ASSETS 794,882
Liabilities and stock holders
equity
Current Liabilities 330,000
Change of control obligations 135,000
-------
Total Liabilities 465,000
ESTIMATED LIQUIDATION VALUE
329,882
Per share $ 0.150
OVERALL
Exhibit 10 averages all the models and presents a median value of $0.195 per
share and a mean value of $0.216 per share.
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III. RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Amper, Politziner & Mattia to serve as
independent accountants for the Company for the fiscal year ending December 31,
1998. The Board of Directors considers this firm to be eminently qualified.
A representative of Amper, Politzner & Mattia will be present at the
Meeting with the opportunity to make a statement, if such representative desires
to do so, and will be available to respond to appropriate questions.
IV. OTHER MATTERS
The Board of Directors of the Company does not know of any other matters
which may be brought before the Meeting. However, if any such matters are
properly presented for action, it is the intention of the person named in the
accompanying form of Proxy to vote the shares represented thereby in accordance
with their judgment on such matters.
V. MISCELLANEOUS
If the accompanying form of Proxy is executed and returned, the shares of
Common Stock represented thereby will be voted in accordance with the terms of
the Proxy, unless the Proxy is revoked.
IMPORTANT
If no directions are indicated in such Proxy, the shares represented thereby
will be voted in the election of directors (Proposal I) IN FAVOR OF the
individual propose by the Board of Directors and in favor of Proposal II
(Exchange [form of sale] of stock for $0.20/share). Any Proxy may be revoked at
any time before it is exercised. The casting of a ballot at the Meeting by a
stockholder, who may have already given a Proxy, will have the effect of
revoking the same. A stockholder may revoke a proxy by notifying the Secretary
of Biosearch in writing in any form signed by the stockholder, that the prior
proxy is revoked.
All costs relating to the solicitation of Proxies will be borne by the
Company. Proxies will be solicited by the Company by mail and the Company may
pay brokers and other persons holding shares of stock in their names or those of
their nominees for their reasonable expenses in sending soliciting material to
their principals.
It is important that Proxies be returned promptly. Stockholders who do not
expect to attend the Meeting in person are urged to mark, sign, and date the
accompanying form of Proxy and mail it in the enclosed return envelope, which
requires no postage if mailed in the United States, so that their votes can be
recorded.
Stockholder Proposals
Stockholder proposals intended to be presented at the 2000 Annual Meeting
of Stockholders of the Company must be received by the Company by April 20, 2000
in order to be considered for inclusion in the Company's Proxy Statement
relating to such Meeting.
***END***
-23-
<PAGE>
PROXY CARD
PROXY BIOSEARCH MEDICAL PRODUCTS INC. PROXY-Annual Meeting of Shareholders -
October 20, 1999. This Proxy is Solicited on behalf of the Board of Directors
1. ELECTION FOR, all nominees [X] WITHHOLD AUTHORITY [X] *EXCEPTIONS [X] OF
DIRECTORS listed below to vote for all nominees.
Nominees: Manfred F. Dyck, Martin C. Dyck, Klaus J.H. Meckeler, M.D., Frederick
L. Perl, M.D. and David M. Schreck, M.D. (INSTRUCTIONS: To withhold authority to
vote for any individual nominee, mark the Exceptions box and write that
nominee's name in the space provided below).
Exceptions
- --------------------------------------------------------------------------------
2. Exchange of Common Stock: Should the shareholders exchange (a form of sale)
their stock for a payment of $0.20 per share? (The Board of Directors recommend
you vote YES for this PROPOSAL II) YES [X] NO [X]
3. In their discretion, upon such other matters as may properly come before the
meeting.
Change of Address or Comments Mark Here [X]
Important please sign your name or names on the line(s) below exactly as shown
hereon. Executors, administrators, trustees, guardians or corporate officers
indicate their full title when signing. Where shares are registered in the names
of joint tenants or trustees, each tenant or trustee should sign. Dated: ,1999
- --------------------------------------------------------------------------------
| (Signature of Shareholder) | | -----------------------------------
| (Signature of Shareholder if -------| held jointly)
Votes MUST be indicated (x) in Black or Blue ink. [X] Please sign, Date and
Return the Proxy Card Promptly Using the Enclosed Envelope.
The undersigned, a shareholder of BIOSEARCH MEDICAL PRODUCTS INC., does hereby
appoint ROBERT KELLER and ROBERT J. MORAVSIK, or either of them with full power
of substitution, his proxies, to appear and vote all shares of Common Stock of
the Company which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held at the Ryland Inn, Route 22 West, Whitehouse, New
Jersey, on October 20, 1999, 10:00 am, local time, or at any adjournment
thereof, upon such matters as may properly come before the Meeting. THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS
INDICATED THEY WILL BE VOTED IN FAVOR OF THE NOMINEES LISTED ON THE REVERSE SIDE
AND FOR THE STOCK EXCHANGE (Continued and to be Completed on Reverse Side)
BIOSEARCH MEDICAL PRODUCTS P.O. BOX 11047 NEW YORK, N.Y. 10203-0047
-24-
LAWSON ONE
REPORT TO HYDROMER BOARD OF DIRECTORS DATED March 1998
<PAGE>
March 18, 1998
- --------------------------------------------------------------------------------
[LOGO] HYDROMER, Inc.
---------------------
Materials Prepared for Preliminary Discussion of
Valuation Issues in Connection with
the Target Acquisition
Howard, Lawson & Co.
Two Penn Center Plaza, Philadelphia, Pennsylvania 19102
Telephone: 215-988-0010 Telefax: 215-568-0029
- --------------------------------------------------------------------------------
<PAGE>
March 18, 1998
- --------------------------------------------------------------------------------
Table of Contents
1. Summary Historical Financial Statements (Balance Sheets and Statements of
Operations) for Hydromer and Target
2. Analysis of Guideline Public Companies for Hydromer
3. Analysis of Guideline Public Companies for Target
4. Analysis of Guideline Acquisitions
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
March 18, 1998
- --------------------------------------------------------------------------------
Summary Historical Financial statements
(Balance Sheets and statements of Operations)
for Hydromer and Target
The following pages summarize the balance sheets and income statements of
Hydromer and Target for the last five years, and the latest twelve month period.
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
March 18, 1998
- --------------------------------------------------------------------------------
Hydromer, Inc.
Balance Sheet
($ in 000's)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
June 30,
1993 1994 1995 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash & Cash Equivalents $948 70.9% $983 70.9% $41 4.2% $168 10.9%
Trade Receivables, Net 219 16.4% 198 14.3% 268 27.2% 624 40.7%
Marketable Investment Securities 0 0.0% 0 0.0% 271 27.5% 0 0.0%
Inventory 36 2.7% 43 3.1% 81 8.3% 171 11.2%
Other Current Assets 18 1.4% 14 1.0% 70 7.1% 107 7.0%
------ ------ ------ ------
Total Current Assets 1,221 91.3% 1,239 89.3% 732 74.2% 1,071 69.8%
Net Property & Equipment 111 8.3% 132 9.5% 183 18.6% 223 14.5%
Other Assets
Deferred Tax Asset 0 0.0% 0 0.0% 61 6.2% 232 15.1%
Other 6 0.4% 16 1.2% 10 1.0% 10 0.6%
------ ------ ------ ------
Total Other Assets 6 0.4% 16 1.2% 71 7.2% 241 15.7%
------ ------ ------ ------
TOTAL ASSETS $1,337 100.0% $1,386 100.0% $986 100.0% $1,535 100.0%
====== ====== ====== ======
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $35 2.6% $25 1.8% $28 2.8% $22 1.5%
Accrued Expenses 10 0 8 48 3.5% 32 3.2% 70 4.6%
Income Tax Payable 0 0.0% 239 17.3% 39 3.9% 4 0.2%
------ ------ ------ ------
Total Current Liabilities 45 3.4% 313 22.5% 98 10.0% 96 6.3%
Total Liabilities 45 3.4% 313 22.5% 98 10.0% 96 6.3%
Shareholders' Equity
Common Stock 2,923 218.6% 2,923 210.8% 2,923 296.3% 2,923 190.4%
Contributed Capital 578 43.2% 578 41.7% 578 58.6% 578 37.6%
Accumulated Deficit (2,202) -164.7% (2,420) -174.6% (2,607) -264.4% (2,056) -134.0%
Unrealized Gain 0 0.0% 0 0.0% 1 0.1% 0 0.0%
Cash Dividends Paid 0 0.0% 0 0.0% 0 0.0% 0 0.0%
Treasury Stock, at cost (6) -0.5% (6) -0.4% (6) -0.6% (6) -0.4%
------ ------ ------ ------
Total Shareholders' Equity 1,292 96.6% 1,074 77.5% 888 90.0% 1,439 93.7%
------ ------ ------ ------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,337 100.0% $1,386 100.0% $986 100.0% $1,535 100.0%
------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
June 30, December 31,
1997 1997
----------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash & Cash Equivalents $716 35.4% $646 31.7%
Trade Receivables, Net 431 21.3% 564 27.7%
Marketable Investment Securities 0 0.0% 0 0.0%
Inventory 149 7.4% 141 6.9%
Other Current Assets 178 8.8% 216 10.6%
------ ------
Total Current Assets 1,474 72.9% 1,567 77.0%
Net Property & Equipment 272 13.5% 288 14.1%
Other Assets
Deferred Tax Asset 263 13.0% 171 8.4%
Other 12 0.6% 9 0.5%
------ ------
Total Other Assets 275 13.6% 180 8.9%
------ ------
TOTAL ASSETS $2.020 100.0% $2,035 100.0%
====== ======
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $29 1.4% $44 2.2%
Accrued Expenses 168 8.3% 80 3.9%
Income Tax Payable 40 2.0% 21 1.0%
------ ------
Total Current Liabilities 237 11.7% 144 7.1%
Total Liabilities 237 11.7% 144 7.1%
Shareholders' Equity
Common Stock 2,923 144.7% 2,923 143.6%
Contributed Capital 578 28.6% 578 28.4%
Accumulated Deficit (1,711) -84.7% (1,472) -72.3%
Unrealized Gain 0 0.0% 0 0.0%
Cash Dividends Paid 0 0.0% (131) -6 5%
Treasury Stock, at cost (6) -0.3% (6) -0 3%
------ ------
Total Shareholders' Equity 1,783 88.3% 1,891 92.9%
------ ------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $2,020 100.0% $2,035 100.0%
------ ------
</TABLE>
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
March 18, 1998
- --------------------------------------------------------------------------------
Hydromer, Inc.
Historical Income Statements - AS REPORTED
($ in 000's)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
June 30,
1993 1994 1995 1996 1997
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Product and Service Sales $450 31.4% $389 32.0% $584 50.0% $632 37.2% $748 36.3%
Royalties, Options, and Licenses 985 68.6% 826 68.0% 583 50.0% 1,066 62.8% 1,314 63.7%
----- ----- ----- ----- -----
Total Sales 1,435 100.0% 1,215 100.0% 1,167 100.0% 1,698 100.0% 2,062 100.0%
Cost of Goods Sold 161 11.2% 126 10.4% 184 15.8% 231 13.6% 242 11.7%
----- ----- ----- ----- -----
Gross Profit 1,275 88.8% 1,089 89.6% 983 84.2% 1,468 86.4% 1,820 88.3%
Operating Expenses
Selling,General & Administrative 678 47.3% 595 48.9% 748 64.1% 846 49.8% 1,042 50.5%
Research and Development 411 28.6% 465 38.3% 575 49.3% 499 29.4% 385 18.7%
----- ----- ----- ----- -----
Total Operating Expenses 1,089 75.9% 1,060 87.2% 1,323 113.4% 1,344 79.1% 1,426 69.2%
Income from Operations 185 12.9% 29 2.4% (340) -29.2% 123 7.3% 394 19.1%
Other Expense
Interest Expense (Income) 9 0.6% (10) -0.8% (31) -2.7% (10) -0.6% (14) -0.7%
Other Expense (Income) 0 0.0% 0 0.0% 0 0.0% (88) -5.2% 95 4.6%
----- ----- ----- ----- -----
Total Other Expense 9 0.6% (10) -0.8% (31) -2.7% (99) -5.8% 81 3.9%
Income Before Income Taxes 177 12.3% 39 3.2% (309) -26.5% 222 13.1% 313 15.2%
----- ----- ----- ----- -----
Income Taxes (Benefit) 52 3.6% 24 2.0% (122) -10.5% (167) -9.9% (32) -1.5%
----- ----- ----- ----- -----
Net Income $125 8.7% $15 1.2% ($187) -16.0% $390 22.9% $344 16.7%
===== ===== ===== ===== =====
EBIT $185 12.9% $29 2.4% -$340 -29.2% $212 12.5% $299 14.5%
EBITDA $234 16.3% $73 6.0% -$309 26.5% $246 14.5% $342 16.6%
</TABLE>
<TABLE>
<CAPTION>
-----------------------
Latest Twelve Months
Ended 12/31/97
-----------------------
<S> <C> <C>
Revenues
Product and Service Sales $698 31.5%
Royalties, Options, and Licenses 1,521 68.5%
-----
Total Sales 2,219 100.0%
Cost of Goods Sold 227 10.2%
-----
Gross Profit 1,992 89.8%
Operating Expenses
Selling,General&Administrative 1,347 60.7%
Research and Development 189 8.5%
-----
Total Operating Expenses 1,536 69.2%
Income from Operations 456 20.6%
Other Expense
Interest Expense (Income) (26) -1.2%
Other Expense (Income) 37 1.7%
-----
Total Other Expense 11 0.5%
Income Before Income Taxes 446 20.1%
-----
Income Taxes (Benefit) 68 3.1%
-----
Net Income $378 17.0%
=====
EBIT $419 18.9%
EBITDA $469 21.1%
</TABLE>
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
- --------------------------------------------------------------------------------
March 18, 1998
Hyromer, Inc.
Historical Income Statements - ADJUSTED
($ in 000's)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
June 30,
1993 1994 1995 1996 1997
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Product and Service Sales $450 31.4% $389 32.0% $584 50.0% $632 37.2% $748 36.3%
Royalties, Options, and Licenses 985 68.6% 826 68.0% 583 50.0% 1,066 62.8% 1,314 63.7%
----- ----- ----- ----- -----
Total Sales 1,435 100.0% 1,215 100.0% 1,167 100.0% 1,698 100.0% 2,062 100.0%
Cost of Goods Sold 161 11.2% 126 10.4% 184 15.8% 231 13.6% 242 11.7%
----- ----- ----- ----- -----
Gross Profit 1,275 88.8% 1,089 89.6% 983 84.2% 1,468 86.4% 1,820 88.3%
Operating Expenses
Selling, General & Administrative 678 47.3% 595 48.9% 748 64.1% 846 49.8% 1,042 50.5%
Research and Development 411 28.6% 465 38.3% 575 49.3% 499 29.4% 385 18.7%
----- ----- ----- ----- -----
Total Operating Expenses 1,089 75.9% 1,060 87.2% 1,323 113.4% 1,344 79.1% 1,426 69.2%
Income from Operations 185 12.9% 29 2.4% (340) -29.2% 123 7.3% 394 19.1%
Other Expense
Interest Expense (Income) 9 0.6% (10) -0.8% (31) -2.7% (10) -0.6% (14) -0.7%
Other Expense (Income) 0 0.0% 0 0.0% 0 0.0% (88) -5.2% 95 4.6%
----- ----- ----- ----- -----
Total Other Expense 9 0.6% (10) -0.8% (31) -2.7% (99) -5.8% 81 3.9%
Income Before Income Taxes 177 12.3% 39 3.2% (309) -26.5% 222 13.1% 313 15.2%
----- ----- ----- ----- -----
Income Taxes (Benefit) 52 3.6% 24 2.0% (122) -10.5% (167) -9.9% (32) -1.5%
Reported Net Income $125 8.7% $15 1.2% ($187) -16.0% $390 22.9% $344 16.7%
----- ----- ----- ----- -----
Adjustments [1] $52 3.6% $23 1.9% $0 0.0% ($85) -5.0% $0 0.0%
----- ----- ----- ----- -----
Adjusted Net Income $177 12.3% $37 3.1% ($187) -16.0% $305 17.9% $344 16.7%
===== ===== ===== ===== =====
[1] Adjustment were made to account for the classification as a Personal
Holding Company in error.
The $85,000 litigation settlement in 1996 has been removed as non-recurring
income. Income tax expense for 1993 and 1994 have been adjusted for the personal
holding company taxes paid by the company in error of $22,525 in 1994 and
$51,896 in 1993.
EBIT $185 12.9% $29 2.4% -$340 -29.2% $212 12.5% $299 14.5%
EBITDA $234 16.3% $73 6.0% -$309 -26.5% $246 14.5% $342 16.6%
</TABLE>
<TABLE>
<CAPTION>
----------------------
Latest Twelve Months
Ended 12/31/97
----------------------
<S> <C> <C>
Revenues
Product and Service Sales $698 31.5%
Royalties, Options, and Licenses 1.521 68.5%
-----
Total Sales 2,219 100.0%
Cost of Goods Sold 227 10.2%
-----
Gross Profit 1,992 89.8%
Operating Expenses
Selling, General & Administrative 1,347 60.7%
Research and Development 189 8.5%
-----
Total Operating Expenses 1,536 69.2%
Income from Operations 456 20.6%
Other Expense
Interest Expense (Income) (26) -1.2%
Other Expense (Income) 37 1.7%
-----
Total Other Expense 11 0.5%
Income Before Income Taxes 446 20.1%
-----
Income Taxes (Benefit) 68 3.1%
Reported Net Income $378 17.0%
-----
Adjustments [1] $0 0.0%
-----
Adjusted Net Income $378 17.0%
=====
EBIT $419 18.9%
EBITDA $469 21.1%
</TABLE>
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
March 18, 1998
- --------------------------------------------------------------------------------
Hydromer, Inc.
Trailing Twelve Months Income
($ in 000's)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
June 30,1997 6 Months Ended 6 Months Ended Trailing
Last Fiscal Year December 31.1996 December 31,1997 Twelve Months
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Product and Service Sales $748 36.3% $341 33.9% $291 25.0% $698 31.5%
Royalties, Options, and Licenses 1,314 63.7% 665 66.1% 871 75.0% 1,521 68.5%
----- ----- ----- -----
Total Sales 2,062 100.0% 1,006 100.0% 1,163 100.0% 2,219 100.0%
Cost of Goods Sold 242 11.7% 119 11.8% 104 8.9% 227 10.2%
----- ----- ----- -----
Gross Profit 1,820 88.3% 887 88.2% 1,058 91.1% 1,992 89.8%
Operating Expenses
Selling, General & Administrative 1,042 50.5% 450 44.8% 756 65.0% 1,347 60.7%
Research and Development 385 18.7% 196 19.5% 0 0.0% 189 8.5%
----- ----- ----- -----
Total Operating Expenses 1,426 69.2% 646 64.3% 756 65.0% 1,536 69.2%
Income from Operations 394 19.1% 240 23.9% 303 26.1% 456 20.6%
Other Expense
Interest Expense (Income) (14) -0.7% (4) -0.4% (17) -1.4% (26) -1.2%
Other Expense (Income) 95 4.6% 58 5.8% 0 0.0% 37 1.7%
----- ----- ----- -----
Total Other Expense 81 3.9% 54 5.3% (17) -1.4% 11 0.5%
Income Before Income Taxes 313 15.2% 187 18.6% 320 27.5% 446 20.1%
----- ----- ----- -----
Income Taxes (Benefit) (32) -1.5% (19) -1.9% 81 6.9% 68 3.1%
----- ----- ----- -----
Net Income $344 16.7% $206 20.4% $239 20.6% $378 17.0%
===== ===== ===== =====
EBIT $299 14.5% $182 18.1% $303 26.1% $419 18.9%
EBITDA $342 16.6% $202 20.0% $328 28.2% $469 21.1%
</TABLE>
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
March 18, 1998
- --------------------------------------------------------------------------------
Target
Balance Sheet
($ in 000's)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
December 31,
1992 1993 1994 1995
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash & Cash Equivalents $54 1.7% $75 2.8% $466 10.5% $568 16.4%
Trade Receivables 420 13.1% 320 11.8% 548 12.3% 163 4.7%
Inventory 778 24.4% 576 21.2% 575 12.9% 616 17.8%
Other Current Assets 28 0.9% 52 1.9% 36 0.8% 18 0.5%
------ ------ ------ ------
Total Current Assets 1,279 40.1% 1,023 37.6% 1,625 36.5% 1,364 39.4%
Net Property & Equipment 1,808 56.6% 1,609 59.1% 1,387 31.2% 1,370 39.6%
Other Assets
Escrow - 0.0% - 0 0% - 0.0% 313 9.0%
Cash Surrender Value of Life Insurance - 0.0% - 0.0% - 0.0% 403 11.6%
Other Assets, Net 105 3.3% 89 3.3% 1,440 32.3% 14 0.4%
------ ------ ------ ------
Total Other Assets 105 3.3% 89 3.3% 1,440 32.3% 729 21.1%
------ ------ ------ ------
TOTAL ASSETS $3,192 100.0% $2.721 100.0% $4,452 100.0% $3.464 100.0%
====== ====== ====== ======
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt $682 21.4% $900 33.1% $29 0.7% $33 0.9%
Accounts Payable 446 14.0% 405 14.9% 229 5.1% 164 4.7%
Accrued Liabilities & Other 435 13.6% 367 13.5% 239 5.4% 188 5.4%
------ ------ ------
Total Current Liabilities 1,564 49.0% 1,672 61.4% 497 11.2% 385 11.1%
Long-Term Debt Less CurrentMaturities 1,114 34.9% 778 28.6% 732 16.4% 700 20.2%
------ ------ ------ ------
Total Liabilities 2,678 83.9% 2,450 90.0% 1,229 27.6% 1,084 31.3%
Shareholders' Equity
Common Stock 11,130 348.7% 11,130 409.0% 11,130 250.0% 11,130 321.3%
Accumulated Deficit (10,582) -331.5% (10,826) -397.9% (7,875) -176.9% (8,719) -251.7%
Treasury Stock, at Cost (34) -1.1% (33) -1.2% (32) -0.7% (31) -0.9%
------ ------ ------ ------
Total Shareholders' Equity 514 16.1% 271 10.0% 3,223 72.4% 2,380 68.7%
------ ------ ------ ------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $3,192 100.0% $2,721 100.0% $4,452 100.0% $3,464 100.0%
------ ------ ------ ------
<CAPTION>
--------------------------------------
September 30,
1996 1997
--------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash & Cash Equivalents $321 12.8% $23 1.1%
Trade Receivables 182 7.3% 266 12.8%
Inventory 514 20.4% 391 18.9%
Other Current Assets 31 1.2% 18 0.9%
------ ------
Total Current Assets 1,048 41.7% 698 33.7%
Net Property & Equipment 1,452 57.8% 1,364 65.9%
Other Assets
Escrow - 0.0% - 0.0%
Cash Surrender Value of Life Insurance - 0.0% - 0.0%
Other Assets, Net 14 0.5% 9 0.4%
------ ------
Total Other Assets 14 0.5% 9 0.4%
------ ------
TOTAL ASSETS $2,513 100.0% $2.071 100.0%
====== ======
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt $37 1.5% $694 33.5%
Accounts Payable 186 7.4% 313 15.1%
Accrued Liabilities & Other 132 5.2% 104 5.0%
------ ------
Total Current Liabilities 354 14.1% 1,111 53.6%
Long-Term Debt Less CurrentMaturities 663 26.4% 0 0.0%
------ ------
Total Liabilities 1,017 40.5% 1,111 53.6%
Shareholders' Equity
Common Stock 11,130 442.9% 11,130 537.4%
Accumulated Deficit ((9,602) -382.1% (10,138) -489.5%
Treasury Stock, at Cost (31) -1.2% (31) -1.5%
------ ------
Total Shareholders' Equity 1,496 59.5% 960 46.4%
------ ------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $2,513 100.0% $2,071 100.0%
------ ------
</TABLE>
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
March 18, 1998
- --------------------------------------------------------------------------------
Target
Income Statement
($ in 000's)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31,
1992 1993 1994 1995 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Sales 3,993 100.0% 3,794 100.0% 3,574 100.0% 3,268 100.0% 2,649 100.0%
Cost of Goods Sold 3,255 81.5% 2,916 76.9% 2,909 81.4% 2,778 85.0% 2,239 84.5%
------- ------- ------- ------- -------
Gross Profit 738 18.5% 877 23.1% 664 18.6% 490 15.0% 410 15.5%
Operating Expenses
Selling, General & Administrative 2,336 58.5% 1,601 42.2% 1,452 40.6% 1,332 40.8% 1.223 46.2%
------- ------- ------- -------
Income from Operations (1,597) -40.0% (723) -19.1% (788) -22.0% (842) -25.8% (813) -30.7%
Other Expense (Income)
Interest Expense, Net 225 5.6% 205 5.4% 99 2.8% 30 0.9% 72 2.7%
Sale of Assets -- 0.0% -- 0.0% (3,329) -93.1% -- 0.0% -- 0.0%
Other, Net (194) -4.9% (684) -18.0% (454) -12.7% (29) -0.9% (1) 0.0%
------- ------- ------- ------- -------
Total Other Expense 31 0.8% (479) -12.6% (3,684) -103.1% 2 0.0% 71 2.7%
Income Before Income Taxes (1,628) -40.8% (244) -6.4% 2,897 81.0% (844) -25.8% (884) -33.4%
------- ------- ------- ------- -------
Income Taxes -- 0.0% -- 0.0% 60 1.7% -- 0.0% -- 0.0%
Extraordinary Item (65) -1.6% -- 0.0% 114 3.2% -- 0.0% -- 0.0%
------- ------- ------- ------- -------
Net Income ($1,693) -42.4% ($244) -6.4% $2,951 82.6% ($844) -25.8% ($884) -33.4%
======= ======= ======= ======= =======
EBIT (1,403) -35.1% (39) -1.0% 2,995 83.8% (813) -24.9% (812) -30.6%
EBITDA (1,102) -27.6% 176 4.6% 3,120 87.3% (698) -21.4% (721) -27.2%
------------------------------------------------------------------------------------------------
<CAPTION>
----------------------
Trailing Twelve Months
September 30, 1997
----------------------
<S> <C> <C>
Total Sales 1,866 100.0%
Cost of Goods Sold 1,427 76.5%
-------
Gross Profit 439 23.5%
Operating Expenses
Selling, General & Administrative 957 51.3%
-------
Income from Operations (518) -27.8%
Other Expense (Income)
Interest Expense, Net 64 3.5%
Sale of Assets -- 0.0%
Other, Net (7) -0.4%
-------
Total Other Expense 57 3.1%
Income Before Income Taxes (576) -30 9%
-------
Income Taxes -- 0.0%
Extraordinary Item -- 0.0%
-------
Net Income ($576) -30.9%
=======
EBIT (511) -27.4%
EBITDA (418) -22.4%
----------------------
</TABLE>
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
March 18, 1998
- --------------------------------------------------------------------------------
Target
Trailing Twelve Months Income
($ in 000's)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
December 31. 1996 9 Months Ended 9 Months Ended
Last Fiscal Year September 30, 1996 Sentember 30,1997 Trailing Twelve Months
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Sales 2,649 100.0% 2,011 100.0% 1,228 100.0% 1,866 100.0%
Cost of Goods Sold 2,239 84.5% 1,887 93.9% 1,075 87.6% 1,427 76.5%
----- ----- ----- -----
Gross Profit 410 15.5% 123 6.1% 152 12.4% 439 23.5%
Operating Expenses
Selling, General & Administrative 1,223 46.2% 916 45.6% 650 53.0% 957 51.3%
----- ----- ----- -----
Income from Operations (813) -30.7% (793) -39.4% (498) -40.6% (518) -27.8%
Other Expense (Income)
Interest Expense, Net 72 2.7% 63 3.1% 55 4.5% 64 3.5%
Sale of Assets -- 0.0% -- 0.0% -- 0.0% -- 0.0%
Other, Net (1) 0.0% (121) -0.6% (17) -1.4% (7) -0.4%
----- ----- ----- -----
Total Other Expense 71 2.7% 51 2.6% 38 3.1% 57 3.1%
Income Before Income Taxes (884) -33.4% (844) 42.0% (536) 43.7% (576) -30.9%
----- ----- ----- -----
Income Taxes -- 0.0% -- 0.0% -- 0.0% -- 0.0%
Extraordinary Item -- 0.0% -- 0.0% -- 0.0% -- 0.0%
----- ----- ----- -----
Net Income ($884) -33.4% ($844) 42.0% ($536) 43.7% ($576) -30.9%
===== ===== ===== =====
EBIT -$812 -30.6% -$781 -38.8% -$481 -39.2% -$511 -27.4%
EBITDA -$721 -27.2% -$719 -35.8% -$416 -33.9% -$418 -22.4%
</TABLE>
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
March 18, 1998
- --------------------------------------------------------------------------------
Analysis of Hydromer
Guideline Public Companies
We have selected 7 public companies that are similar to Hydromer in lines of
business, growth rates, financial condition, or size. The following pages
include the following:
o a description of each guideline company;
o a comparison of the public market multiples of guideline companies to
Hydromer and a summary of financial performance for the guideline company
group;
o rankings of the guideline companies and Hydromer with respect to size,
growth and profitability; and,
o detailed historical financial information for each guideline company and
Hydromer.
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
March 18, 1998
- --------------------------------------------------------------------------------
Hydromer Guideline Public Companies
Advanced Materials Group, Inc. (Nasdaq: ADMG) - Manufactures and fabricates
specialty foams, foils, films and pressure-sensitive adhesive components for
customers in the computer, medical, automotive and aerospace industries.
Balchem Corp. (AMS: BCP) - Manufactures and sells specialty chemicals for use in
foods, oil, resins, sterilization, water treatment, fumigation and synthesis.
Biopool International, Inc. (Nasdaq: BIPL) - Develops, manufactures and markets
test kits to diagnose and assess bleeding and clotting disorders and
cardiovascular risk factors and products used to screen for antibodies.
Chemfab Corp. (NYSE: CFA) - Designs, manufactures and fabricates flexible
fiber-reinforced fluoropolymer composite materials; and produces and sells
specialty fluoropolymer films and silicon-based products. Customers include the
electrical, environmental, food processing, architectural, aerospace,
communications and protective clothing industries.
PolyMedica Corporation (ASE: PM) - Provides targeted medical products and
services with a focus in diabetes supplies and consumer healthcare markets.
Polymer Research Corp. of America (Nasdaq: PROA) - Researches and develops
polymer chemistry on a contract basis, for chemical grafting. Also makes and
sells products developed from research activities and textile printing inks.
United Guardian (ASE: UG) - Manufactures and distributes pharmaceuticals,
medical devices, health care products, bases for cosmetic products and specialty
chemical products; and distributes a line of fine organic chemicals, research
chemicals, solutions, indicators, dyes, stains and reagents.
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
March 18, 1998
- --------------------------------------------------------------------------------
Analysis of Target
Guideline Public Companies
We have selected 8 public companies that are similar to Target in lines of
business, growth rates, financial condition, or size. The following pages
include the following:
o a description of each guideline company;
o a comparison of the public market multiples of guideline companies to
Target and a summary of financial performance for the guideline company
group;
o rankings of the guideline companies and Target with respect to size, growth
and profitability; and,
o detailed historical financial information for each guideline company and
Target.
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
March 18, 1998
- --------------------------------------------------------------------------------
Target Guideline Public Companies
Electro-Catheter Corp. (Nasdaq: ECTH) - Develops, manufactures and markets
catheters and related devices for treatment of illnesses of the heart and the
circulatory system. Entered into a letter of intent with Cardiac Control
Systems, Inc. to effect a merger, and on January 20, l998 the parties entered
into a plan of reorganization.
LifeQuest Medical Inc. (Nasdaq: LQMD) - Designs, develops, manufactures and
distributes disposable and reusable surgical devices for use in minimally
invasive surgery.
Luther Medical Inc. (Nasdaq: LUTH) - Designs, develops, manufactures, sells and
licenses needle catheter placement systems for use when soft, flexible catheters
must be inserted for intravenous therapy.
MedAmicus, Inc. (Nasdaq: MEDM) - Designs, develops, manufactures and markets a
system for measuring and monitoring physiological pressures in the human body;
and manufactures and markets vascular access products; and engages in contract
manufacturing activities.
Nitinol Medical Technologies Inc. (Nasdaq: NMTI) - Designs, develops and markets
innovative medical devices which utilize advanced technologies and are delivered
by minimally invasive procedures.
Rochester Medical Technologies (Nasdaq: ROCM) - Develops, manufactures and
markets innovative products for urinary dysfunction management and urine
drainage management.
Trimedyne Inc. (Nasdaq: TMED) - Researches, develops, manufactures and markets
fiber-optic laser catheters, fiber-optic endoscopes, lasers for scientific,
medical and other uses and plastic optical fibers for industrial and medical
purposes.
Valley Forge Scientific Corp (Nasdaq: VLFG) - Develops and manufactures medical
devices and products for hospitals and healthcare companies, based on patented
technology.
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
March 18, 1998
- --------------------------------------------------------------------------------
Analysis of
Guideline Acquisitions
We searched for acquisitions of companies that were similar to Target. The
following pages detail the financial characteristics of each acquisition and
summarizes the high, low, mean, and median financial ratios resulting from the
searches.
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
<TABLE>
<CAPTION>
Over
4 Weeks
[GRAPHIC OMITTED] Value of Value/ Value/ Prior to
action Transaction Value/ Cash EBIT Net Announce-
Company Date ($000s) Sales Flow Multiple Income ment Date
------- ---- ------- ----- ---- -------- ------ ---------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Biosys 7/20/97 $ 11,000 1.1x 0.6x 0.6x na na
- ------------------------------------------------------------------------------------------------------------------------------------
2 Ideas for Medicine Inc. 3/5/97 11,300 1.8x 22.2x 32.0x 31.8x na
- -----------------------------------------------------------------------------------------------------------------------------------
3 ChemGenics Pharmaceuticals 2/11/97 4,000 1.1x na na na na
- -----------------------------------------------------------------------------------------------------------------------------------
4 Cardiometrics 7/24/97 56,800 4.2x 2.4x na na 47.1%
- ------------------------------------------------------------------------------------------------------------------------------------
5 Coromed Inc. 12/29/97 15,000 1.7x na na na na
- ------------------------------------------------------------------------------------------------------------------------------------
6 Contour Medical (Retirement) 2/13/97 9,800 1.1x 14.0x 17.5x 33.4x -2.4%
- ------------------------------------------------------------------------------------------------------------------------------------
7 Luxar Corporation 3/12/97 94,400 3.4x na na 21.0x na
- ------------------------------------------------------------------------------------------------------------------------------------
8 Clark Laboratories Inc. 2/24/97 5,600 0.7x na na na na
- ------------------------------------------------------------------------------------------------------------------------------------
9 International Technidyne Corp. 5/2/97 69,600 2.0x na na 14.9x na
- ------------------------------------------------------------------------------------------------------------------------------------
10 Survivair Inc. 6/3/97 27,400 0.9x na na na na
- ------------------------------------------------------------------------------------------------------------------------------------
11 Imagyn Medical Inc. 9/30/97 57,100 6.1x na 56.7x na -12.2%
- ------------------------------------------------------------------------------------------------------------------------------------
12 Alanex Corp. 5/23/97 61,500 7.1x 23.0x 30.6x 40.3x na
- ------------------------------------------------------------------------------------------------------------------------------------
13 Imex Medical Systems Inc. 9/10/97 9,300 0.9x 19.8x na nmf 2.8%
- ------------------------------------------------------------------------------------------------------------------------------------
14 Nutrition 21 LP 8/12/97 11,200 0.7x 1.9x 1.9x 1.9x na
- ------------------------------------------------------------------------------------------------------------------------------------
15 Flents Product Co. 8/6/97 3,500 0.6x na na na na
- ------------------------------------------------------------------------------------------------------------------------------------
16 Allergan Ligand Retinoid 11/24/97 71,400 na na na na 7.8%
- ------------------------------------------------------------------------------------------------------------------------------------
17 Medwave Inc. 9/26/97 400 2.9x na na na na
- ------------------------------------------------------------------------------------------------------------------------------------
18 Biomagnetic Technologies Inc. 10/2/97 31,300 7.1x na na na na
- ------------------------------------------------------------------------------------------------------------------------------------
19 MPL Technologies Inc. 11/11/97 5,400 0.8x na na na na
- ------------------------------------------------------------------------------------------------------------------------------------
20 Brimfeld Precision 12/15/97 9,200 0.9x 6.3x 9.9x 11.2x na
- ------------------------------------------------------------------------------------------------------------------------------------
21 Quest Medical Inc. 1/30/98 24,500 1.7x na na na na
- ------------------------------------------------------------------------------------------------------------------------------------
# of Data Points 21 20 8 7 7 5%
Low 0.6x 0.6x 0.6x 1.9x 47.1%
High 7.1x 23.0x 56.7x 40.3x 47.1%
Mean 2.3x 11.3x 21.3x 22.1x 47.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Median 1.4x 10.1x 17.5x 21.0x 2.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Source: Securities Data Company, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Howard, Lawson & Co.
</TABLE>
LAWSON TWO
REPORT TO HYDROMER
1999
<PAGE>
Confidential Valuation Report
- --------------------------------------------------------------------------------
VALUATION OF CERTAIN SHARES
OF
BIOSEARCH MEDICAL PRODUCTS, INC.
Valuation Date: May 17, 1999
Issuance Date: June 4, 1999
Howard, Lawson & Co.
Two Penn Center Plaza Philadelphia, PA 19102
Tel: (215) 988-0010 Fax: (215) 568-0029
- --------------------------------------------------------------------------------
<PAGE>
Opinion Letter
- --------------------------------------------------------------------------------
Table of Contents
Opinion Letter - The Opinion of Howard, Lawson & C the common stock of Biosearch
Medical Products, Inc. ( possible acquisition of Biosearch. The effective date
of our letter (the "Valuation Date").
Definition of Fair Market Value
The Situation
Factors Considered
Materials Reviewed
Relevant Factors Considered
Activities Conducted
Limiting Conditions and Assumptions
Discussion
Acknowledgment
Opinion
Exhibits
Summary Balance Sheet of Biosearch Medical Products
Summary Income Statement of Biosearch Medical Prod
Comparable Companies' Financial Data
Comparable Companies' Valuation Indications
Rankings of Comparable Companies
Calculation of Cost of Capital
Discounted Cash Flow Analysis - Probability of Achiev
Discounted Cash Flow Analysis - Probability of Achievi
Methodology and Background
- ---------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
Howard, Lawson & Co.
Two Penn Center Plaza Investment Banking
Philadelphia, PA 19102 Corporate Finance
215 988-0010
215 568-0029 FAX
May 17, 1999
Mr. Kenneth P. Brice
Vice President of Finance
Hydromer, Inc.
35 Industrial Parkway
Somerville, NJ 08876-3518
Dear Mr. Brice:
You have asked us to provide a valuation of the common stock (the "Shares")
of Biosearch Medical Products, Inc. ("Biosearch") to assist Hydromer, Inc.
("Hydromer") in evaluating a possible acquisition of Biosearch. The effective
date of the valuation is as of the date of our letter (the "Valuation Date").
Definition of Fair Market Value
Fair market value is the price at which an asset would change hands between
a willing buyer and a willing seller when the former is not under any compulsion
to buy and the latter is not under any compulsion to sell, and both parties are
able, as well as willing, to trade and are well informed about the asset and the
market for that asset.
The Situation
Biosearch develops, manufactures, and markets products designed for medical
and surgical applications. Biosearch's manufacturing is largely focused on
applying hydrophilic coatings to intermittent urinary catheters. Biosearch holds
an exclusive, worldwide, license to apply Hydromer(R), a patented coating
technology to certain medical devices.
Revenues for Biosearch have declined from $3.6 million in 1994 to $1.3
million in 1998. In addition, Biosearch has experienced net losses in the
aggregate of $3.1 million for the fiscal years 1995 through 1998. Revenues for
the three months ended March 31, 1999 were $218,401 compared to $604,117 for the
same period a year ago. In addition, operating losses for the three months ended
March 31, 1999 amounted to $191,035 compared to operating losses of $28,004 for
the three months ended March 31, 1998.
<PAGE>
Biosearch Medical Products, Inc. Opinion Letter
- --------------------------------------------------------------------------------
The Situation (continued)
Hydromer is a polymer research and development company that develops
polymeric complexes for commercial markets in the medical and industrial fields
Hydromer owns several process and application patents for Hydromer(R) which is a
polymeric substance that becomes extremely lubricious when wet, and a technique
of grafting or applying this substance onto surfaces which consist of a broad
variety of materials, including other polymers such as polyurethane, polyvinyl
chloride, and silicone elastomers, ceramics and metals.
Hydromer is considering acquiring Biosearch, which would allow Hydromer to
funnel its chemical production through Biosearch. Accordingly, you have asked us
to provide a valuation of the common stock of Biosearch to assist you in
evaluating a possible acquisition of Biosearch.
Factors Considered
In arriving at our opinion of the fair market value of common stock of
Biosearch as of the Valuation Date, we have considered all factors we deemed
relevant, including the following:
(1) The nature and history of Biosearch's business;
(2) The general economic outlook and the outlook for the medical equipment
industry;
(3) The book value of Biosearch and the financial condition of the
company;
(4) The results of operations of Biosearch;
(5) The dividend-paying capacity of Biosearch;
(6) Whether or not Biosearch has goodwill or other intangible value;
(7) Past transactions in Biosearch's common stock; and,
(8) The market price of the stocks of corporations (listed on exchanges,
NASDAQ or trading over-the-counter) engaged in the same or similar
lines of business as Biosearch, where such stock is traded in a free
and open market.
A determination of fair market value depends upon the circumstances in each
case. In forming our opinion, we considered these factors and concluded that
certain factors are more significant indicators of value than others, but have
not assigned mathematical weights to any of them in determining fair market
value.
- --------------------------------------------------------------------------------
Howard, Lawson & Co. 2
<PAGE>
Biosearch Medical Products, Inc. Opinion Letter
- --------------------------------------------------------------------------------
Materials Reviewed
In arriving at our opinion, we have considered, among other things, the
following information:
(1) Audited financial statements of Biosearch for the years ended December
30, 1994 through December 31, 1998;
(2) Audited financial statements of Biosearch for three months ended March
31, 1998 and the three months ended March 31, 1999;
(3) Forecasted financial statements of Biosearch for the years ending
December 31, 1999 through December 31, 2003 provided by Biosearch;
(4) Publicly available financial and market information regarding certain
companies we deemed comparable to Biosearch; and,
(5) Information regarding the business and its prospects obtained in
discussions with the managements of Hydromer and Biosearch.
Relevant Factors Considered
In forming our opinion as to the fair market value of Biosearch as of the
Valuation Date, we considered all recognized valuation methodologies, placing
emphasis on those methods used to estimate fair market value under the
assumption of the Biosearch continuing as a going concern.
Activities Conducted
In arriving at our opinion of the fair market value of Biosearch, we
conducted the following activities:
1. We performed an asset purchase analysis of Biosearch based on
estimated fair market values of Biosearch's fixed and intangible
assets. The management of Hydromer estimates that Biosearch's fixed
assets have a fair market value of $50,000 and the intangible assets
have a fair market value of $50,000.
2. We performed a discounted cash flow ("DCF") analysis based on
management's forecasts of future earnings, adjusted to reflect the
probability of a range of possible outcomes. We employed different
probabilities of Biosearch meeting its forecasts, much in the same
manner that a venture capital investor would use to analyze an
investment in a development stage company. This method is referred to
as The First Chicago Method.
- --------------------------------------------------------------------------------
Howard, Lawson & Co. 3
<PAGE>
Biosearch Medical Products, Inc. Opinion Letter
- --------------------------------------------------------------------------------
Limiting Conditions or Assumptions
We have relied on management's representations concerning Biosearch and on
financial statements of Biosearch in forming our opinion of value. We have
assumed the accuracy of all financial information reviewed. See the Methodology
and Background exhibit of our report for a full description of assumptions and
limiting conditions to our valuation opinion.
Discussion
As mentioned in The Situation section of our report, revenues for Biosearch
declined from $3.6 million in 1994 to $1.3 million in 1998. In addition,
revenues for the three months ended March 31, 1999 were $218,401 compared to
$604,117 for the same period a year ago. Biosearch experienced net losses in the
aggregate of $3. l million for the fiscal years 1995 through 1998. In addition,
operating losses for the three months ended March 31, 1999 amounted to $191,035
compared to operating losses of $28,004 for the same period a year ago.
Furthermore, shareholders' equity as of March 31, 1999 was $489,561 compared to
$3.2 million as of December 31, 1994. See Exhibits 1 and 2 for a summary balance
sheet and income statement of Biosearch.
Asset Purchase
In arriving at our opinion of the fair market value of Biosearch, we
considered an asset purchase analysis of Biosearch based on estimated fair
market values of Biosearch's fixed and intangible assets as of the Valuation
Date. The management of Hydromer estimates that Biosearch's fixed assets have a
fair market value of $50,000 and the intangible assets have a fair market value
of $50,000. Assuming that Biosearch's net operating loss carryfowards are
available to a buyer, they would have an estimated value of $250,000 to
$300,000.
On the basis of an asset purchase and excluding all liabilities, we believe
the relevant range of values for Biosearch is $350,000 to $400,000 in the
aggregate, or $0.16 per share to $0.18 per share.
Discounted Cash Flow
We also performed a DCF analysis based on management's forecasts of future
earnings, adjusted to reflect the probability of a range of possible outcomes.
We employed different probabilities of Biosearch meeting its forecasts, much in
the same manner that a venture capital investor would use to analyze an
investment in a development stage company. This method is referred to as The
First Chicago Method.
In preparing the DCF analysis to determine the net present value of the
expected future cash flows of Biosearch, we first calculated a cost of capital
for Biosearch. Our DCF analysis was based on projections provided by Biosearch
to Hydromer.
- --------------------------------------------------------------------------------
Howard, Lawson & Co. 4
<PAGE>
Biosearch Medical Products, Inc. Opinion Letter
- --------------------------------------------------------------------------------
Discussion (continued)
Discounted Cash Flow (continued)
In order to determine the net present value of the estimated cash flows, we
first calculated a weighted average cost of capital ("WACC") for Biosearch. The
WACC serves as an estimate of the required rate of return for an investment of
similar risk and capital structure. In calculating the cost of capital of
Biosearch, we calculated the estimated implied cost of equity based on multiples
reflected in the values of comparable publicly traded companies. See Exhibits 3
and 4 for the financial and market data of the publicly traded guideline
companies, respectively. Also, see Exhibit 5 for a comparison of Biosearch to
the public guideline companies.
The guideline companies cost of equity is readily determined by the use of
the Gordon Growth Model. According to this methodology, the rate of return (k)
is a function of a company's projected net income (I), market value (MV), and
expected five year growth rate (g).
K= I/MV + g
In our calculation of the implied cost of equity, we determined the ratio
of price, or market value, to projected net income, as shown in Exhibit 6. The
1999 projected net income-to-market value ratio is the inverse of the
price-to-projected net income ratio. The cost of equity is then determined by
adding the expected five-year growth rate to the projected net income-to-market
value ratio. Only one of the seven-selected guideline companies had analysts'
consensus five-year forecasted growth rates available. Using this methodology
results in implied costs of equity of 42%.
Biosearch did not have any interest-bearing debt as of the Valuation Debt,
and therefore we used the implied cost of equity rather than a WACC.
Exhibit 7 illustrates the calculation of the present value of forecasted
net after-tax free cash flows over the forecasted period and the calculation of
the present value of a residual value for Biosearch at the end of the forecast
period assuming that Biosearch achieves approximately 41% of its forecast. In
Exhibit 7, all cash flows of Biosearch have been discounted at 45%. We assumed
that the cash flow of Biosearch will grow at an average rate of 5% over the
long-term following the forecast period.
Using a discount rate of 45%, our calculations resulted in a present value
of the estimated cash flows for the fiscal years 1999 through 2003 of
approximately $161,000. The present value of the post-year 2003 cash flows
received in perpetuity, or residual value, is approximately $119,000. When these
two amounts are added together, the total present value of future cash flows, or
enterprise value, is $280,000. In order to determine the equity value of
Biosearch, we subtracted debt, net of any cash of $49,000. Using a WACC of 45%,
the resulting equity value is $329,000, or $0.15 per share.
- --------------------------------------------------------------------------------
Howard, Lawson & Co. 5
<PAGE>
Biosearch Medical Products, Inc. Opinion Letter
- --------------------------------------------------------------------------------
Discussion (continued)
Discounted Cash Flow (continued)
In addition, we performed a DCF analysis in which Biosearch achieved
approximately 55% of its forecast, as illustrated in Exhibit 8. Using the same
discount rate of 45%, the resulting equity value is $445,000, or $0.20 per
share.
As indicated above, Biosearch has experienced declining revenues and
continued operating losses during the last five fiscal years. However, the
forecasts provided by Biosearch assume a turnaround in both revenue growth and
profitability beginning in 1999. In addition, both DCF analyses illustrated in
Exhibits 7 and 8 assume a turnaround of Biosearch. If it becomes apparent that
Biosearch will be unable to meet its forecasts, then the appropriate steps will
need to be taken to cut expenses in order to stem further losses and achieve the
level of profitability indicated in the forecasts provided by Biosearch.
On the basis of our discussions with management and the materials reviewed,
it is our opinion that the fair market value for the Shares is $0.18 to $0.20
per share as of the Valuation Date.
Acknowledgment
This report was prepared by Frank Spewock and Michael Hanzelik, both
employees of Howard, Lawson & Co. and actively involved in the firm's extensive
valuation practice. The appraisers have no present or contemplated future
interest in Biosearch or any other interest that might tend to prevent their
making a fair and unbiased appraisal.
This report has been prepared in conformity with the Uniform Standards of
Professional Appraisal Practice of The Appraisal Foundation and the Principles
of Appraisal Practice and Code of Ethics of the American Society of Appraisers.
A signed certification is contained in the Methodology and Background exhibit of
our report.
Opinion
On the basis of our analysis and the materials reviewed as stated in this
letter, it is our opinion that Biosearch had a fair market value of $0.18 to
$0.20 per share as of the Valuation Date.
/s/ Howard, Lawson & Co.
HOWARD, LAWSON & CO.
- --------------------------------------------------------------------------------
Howard, Lawson & Co. 6
<PAGE>
EXHIBIT 2
BIOSEARCH MEDICL PRODUCTS
Income Statement
($ in 000's)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
December 30,
1994 1995 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total sales $3,574 100.0% $3,268 100.0% $2,649 100.0%
Cost of Goods Sold 2,909 81.4% 2,778 85.0% 2,239 84.5%
------ ------ ------
Gross Profit 664 18.6% 490 15.0% 410 15.5%
Operating Expenses
Selling, General & Administrative 1,452 40.6% 1,332 40.8% 1,223 46.2%
------ ------ ------
Income from Operations (788) (22.0%) (842) (25.8%) (813) (30.7%)
Other Expense (Income)
Interest Expense, Net 99 2.8% 30 0.9% 72 2.7%
Sale of Assets (3,329) (93.1%) -- 0.0% -- 0.0%
Other, Net (454) (12.7%) (29) (0.9%) (1) 0.0%
------ ------ ------
Total Other Expense (3,684) (103.1%) 2 0.0% 71 2.7%
Income Before Income Taxes 2,897 81.0% (844) (25.8%) (884) (33.4%)
------ ------ ------
Income Taxes 60 1.7% -- 0.0% -- 0.0%
Extraordinary Item 114 3.2% -- 0.0% -- 0.0%
------ ------ ------
Net Income $2,951 82.6% ($844) (25.8%) ($884) (33.4%)
====== ====== ======
EBIT 2,995 83.8% (813) (24.9%) (812) (30.6%)
EBITDA 3,120 87.3% (698) (21.4%) (721) (27.2%)
Depreciation 124 115 91
<CAPTION>
----------------------------------------------------
3 months 3 months
December 30, ended ended
1997 1998 3/31/99 3/31/98
---------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Total sales $1,936 100.0% $1,295 100.0% $218 $604
Cost of Goods Sold 1,537 79.4% 1,271 98.2% 214 430
------ ------ ------------------------
Gross Profit 399 20.6% 24 1.8% 4 174
Operating Expenses
Selling, General & Administrative 893 46.1% 859 66.3% 195 202
------ ------ ------------------------
Income from Operations (493) (25.5%) (835) (64.5%) (191) (28)
Other Expense (Income)
Interest Expense, Net 84 4.4% 22 1.7% -- 21
Sale of Assets -- 0.0% -- 0.0% (192) --
Other, Net (22) (1.1%) (7) (0.5%) (400) (2)
------ ------ ------------------------
Total Other Expense 63 3.2 16 1.2% (592) 19
Income Before Income Taxes (556) (28.7%) (851) (65.7%) 401 (47)
------ ------ ------------------------
Income Taxes -- 0.0% -- 0.0% -- --
Extraordinary Item -- 0.0% -- 0.0% -- --
------ ------ ----
Net Income ($556) (28.7%) ($851) (65.7%) $401 ($47)
====== ====== ========================
EBIT (472) (24.4%) (829) (64.0%) 401 (26)
EBITDA (380) (19.7%) (768) (59.3%) 401 (26)
Depreciation 91 60
</TABLE>
<PAGE>
EXHIBIT 3
BIOSEARCH MEDICAL PRODUCTS, INC.
Comparable Public companies Financial Summary
($ in 000s)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Electro- Dexterity Nitinol
Cathether Surgical, Medical
Corp. Inc. Technologies, Inc. MedAmicus, Inc.
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED Aug 31 Dec 31 Dec 31 Dec 31
REVENUES % Growth % Growth % Growth % Growth
LATEST 12 MONTHS: LTM $4,979 $18,492 $22,131 $8,032
PRECEDING FISCAL YEARS: FY1 5,347 -19.6% 18,492 29.0% 10,125 44.2% 8,032 12.0%
FY2 6,648 -9.7% 14,337 na 7,024 83.2% 7,173 26.7%
FY3 7,362 1.4% na na 3,833 44.8% 5,660 6.9%
FY4 7,263 0.2% na na 2,647 na 5,295 75.9%
FY5 7,248 na 2,003 3,011
EBITDA % Rev % Rev % Rev % Rev
LATEST 12 MONTHS: LTM ($629) -12.6% ($1,959) -10.6% ($2,383) -10.6% $370 4.6%
PRECEDING FISCAL YEARS: FY1 (629) -11.8% (1,959) -10.6% (2,693) -26.6% 370 4.6%
FY2 (505) -7.6% (2,851) -19.9% (1,505) -21.4% 371 5.2%
FY3 (543) -7.4% na na 746 19.5% (635) -11.2%
FY4 (769) -10.6% na na 384 14.5% 10 0.2%
FY5 (1,141) -15.7% na na na na (850) -28.2%
EBIT % Rev % Rev % Rev % Rev
LATEST 12 MONTHS: LTM ($761) -15.3% ($2,089) -11.3% ($3,474) -15.7% ($95) -1.2%
PRECEDING FISCAL YEARS: FY1 (763) -14.3% (2,089) -11.3% (3,154) -31.2% 95 -1.2%
FY2 (659) -9.9% (3,013) -21.0% (1,732) -24.7% (114) -1.6%
FY3 (682) -9.3% na na 658 17.2% (1,038) -18.3%
FY4 (968) -13.3% na na 328 12.4% (283) -5.3%
FY5 (1,279) -17.6% na na na na (1,153) -38.3%
NET INCOME % Rev % Rev % Rev % Rev
LATEST 12 MONTHS: LTM ($1,384) -27.8% ($2,368) -12.8% ($3,469) -15.7% ($144) -1.8%
PRECEDING FISCAL YEARS: FY1 (1077) -20.1% (2,368) -12.8% (1,837) -18.1% (144) -1.8%
FY2 (599) -9.0% (2,283) -15.9% (1,163) -16.6% (146) -2.0%
FY3 (1,136) -15.4% na na 584 15.2% (1,212) -21.4%
FY4 (1,372) -18.9% na na 289 10.9% (1,294) -24.4%
FY5 (804) -11.1% na na na na (799) -26.5%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
FINANCIALS AS OF: 11/30/98 12/31/98 9/30/98 12/31/98
TOTAL ASSETS 2,741 12,270 65,279 4,220
CASH 64 3,386 9,969 1,022
TOTAL FUNDED DEBT 2,501 3,007 18,087 978
SHAREHOLDERS' EQUITY (1,495) 4,190 33,658 2,574
TOTAL INVESTED CAPITAL 1,006 7,197 51,746 3,552
RATIO ANALYSIS:
CURRENT RATIO: 0.9 2.2 3.4 2.2
NET PROFIT MARGIN -27.8% -12.8% -15.7% -1.8%
RETURN ON ASSETS -50.5% -19.3% -5.3% -3.4%
RETURN ON EQUITY 92.6% -56.5% -10.3% -5.6%
RETURN ON TOTAL INVESTED CAPITAL -137.5% -32.9% -6.7% -4.0%
DEBT/TOTAL INVESTED CAPITAL 248.6% 41.8% 35.0% 27.5%
THREE YEAR GROWTH RATES:
REVENUES -9.7% 29.0% 56.4% 14.9%
EBITDA -6.5% -31.3% nmf 238.7%
EBIT -7.6% -30.7% nmf -30.5%
NET INCOME -7.7% 3.7% nmf -51.9%
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Valley Forge Rochester BIOSEARCH
Scientific Medical MEDICAL PRODUCTS,
Corp. Corp. Trimedyne Inc. INC.
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED Sep 30 Sep 30 Sep 30 Dec 31
REVENUES % Growth % Growth % Growth % Growth
LATEST 12 MONTHS: LTM $3,996 $10,009 $6,385 $1,295
PRECEDING FISCAL YEARS: FY1 3,880 -2.5% 9,518 25.0% 6,985 -24.6% 1,295 -33.1%
FY2 3,978 16.2% 7,615 37.5% 9,262 -1.3% 1,936 -26.9%
FY3 3,425 27.4% 5,540 76.9% 9,383 -2.7% 2,649 -18.9%
FY4 2,688 -25.1% 3,131 43.0% 9,639 -28.0% 3,268 -8.6%
FY5 3,587 2,189 13,393 3,574
EBITDA % Rev % Rev % Rev % Rev
LATEST 12 MONTHS: LTM $206 5.2% ($2,484) -24.8% ($2,034) -31.9% ($768) -59.3%
PRECEDING FISCAL YEARS: FY1 125 3.2% (2,329) -24.5% (5,733) -82.1% (768) -59.3%
FY2 160 4.0% (1,875) -24.6% (4,975) -53.7% (380) -19.7%
FY3 46 1.3% (1,415) -25.5% (4,854) -51.7% (721) -27.2%
FY4 (223) -8.3% (954) -30.5% (5,343) -55.4% (699) -21.4%
FY5 776 21.6% (668) -30.5% (2,226) -16.6% (308) -8.6%
EBIT % Rev % Rev % Rev % Rev
LATEST 12 MONTHS: LTM $74 1.8% ($3,338) -33.4% ($2,323) -36.4% ($829) -64.0%
PRECEDING FISCAL YEARS: FY1 (10) -0.2% (3,106) -32.6% (6,038) -86.4% (829) -64.0%
FY2 20 0.5% (2,414) -31.7% (5,379) -58.1% (472) -24.4%
FY3 (96) -2.8% (1,893) -34.2% (5,351) -57.0% (812) -30.7%
FY4 (366) -13.6% (1,299) -41.5% (5,931) -61.5% (814) -24.9%
FY5 695 19.4% (1,003) -45.8% (2,774) -20.7% (333) -9.3%
NET INCOME % Rev % Rev % Rev % Rev
LATEST 12 MONTHS: LTM $20 0.5% ($2,487) -24.8% ($2,481) -38.9% ($851) -65.7%
PRECEDING FISCAL YEARS: FY1 (34) -0.9% (2,258) -23.7% (6,218) -89.0% (851) -65.7%
FY2 7 0.2% (2,099) -27.6% (5,535) -59.8% (556) -28.7%
FY3 (75) -2.2% (1,360) -24.5% (4,956) -52.8% (884) -33.4%
FY4 (216) -8.0% (1,311) -41.9% (5,622) -58.3% (844) -25.8%
FY5 548 15.3% (964) -44.0% (2,265) -16.9% (440) -12.3%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
FINANCIALS AS OF: 12/31/98 12/31/98 12/31/98 12/31/98
TOTAL ASSETS 4,209 32,029 14,602 897
CASH 1,085 15,671 2,497 106
TOTAL FUNDED DEBT 0 0 0 0
SHAREHOLDERS' EQUITY 4,018 30,724 13,487 89
TOTAL INVESTED CAPITAL 4,018 30,724 13,487 89
RATIO ANALYSIS:
CURRENT RATIO: 18.9 15.6 12.6 0.9
NET PROFIT MARGIN 0.5% -24.8% -38.9% -65.7%
RETURN ON ASSETS 0.5% -7.8% -17.0% -94.9%
RETURN ON EQUITY 0.5% -8.1% -18.4% -954.3%
RETURN ON TOTAL INVESTED CAPITAL 0.5% -8.1% -18.4% -954.3%
DEBT/TOTAL INVESTED CAPITAL 0.0% 0.0% 0.0% 0.0%
THREE YEAR GROWTH RATES:
REVENUES 13.0% 44.9% -10.2% -26.6%
EBITDA nmf 34.7% 2.4% nmf
EBIT -70.2% 33.7% nmf nmf
NET INCOME -45.8% 19.9% nmf nmf
</TABLE>
<PAGE>
EXHIBIT 4
BIOSEARCH MEDICAL PRODUCTS, INC.
Comparable Public Companies Market Data
($ in 000s, except per share)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Electro- Dexterity Miltnol Valley Forge
Cathether Surgical, Medical Scientific
Corp. Inc. Technologies, Inc. MedAmicus, Inc. Corp.
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Exchange Listing Nasdaq BB Nasdaq Nasdaq Nasdaq Nasdaq
Ticket Symbol ECTH DEXT NMTI MEDM VLFG
Common Shares Oustanding (000's) 6,290.00 6,654.00 10,629.00 4,112.00 8,229.00
Price Per Share (April 9, 1999) 0.15 1.42 3.56 1.13 3.75
Market Value 944.00 9,461.00 37,871.00 4,626.00 30,860.00
Cash 64.00 3,386.00 9,969.00 1,022.00 1,085.00
Total Funded Debt 2,501.00 3,007.00 18,087.00 978.00 0.00
Total Capitalization (1) 3,380.00 9,082.00 45,989.00 4,583.00 29,775.00
Latest Twelve Month Earnings Per Share 0.22 0.36 0.33 0.03 0.00
Three Year Average Earnings Per Share 0.15 0.35 0.08 0.12 0.00
1999 Forecasted Earnings Per Share na na na na na
1999 Forecasted Earnings Per Share na na na na na
RELATIVE VALUE MULTIPLES
- ------------------------------------------------------------------------------------------------------------------------------------
Price to Earnings neg x neg x neg x neg x 1,527.96 x
Price to 3 Year Average Earnings neg x neg x neg x neg x neg x
Price to 1999 Forecasted Earnings na x na x 14.3 x na x na x
Price to 2000 Forecasted Earnings na x na x 8.9 x na x na x
Price to Shareholders' Equity neg x x 1.1 x 1.8 x 7.7 x
Total Capitalization to Revenues 0.7 x 0.5 x 2.1 x 0.6 x 7.5 x
Total Capitalization to EBITDA neg x neg x neg x 12.4 x 144.6 x
Total Capitalization to 3 yr. Avg. EBITDA neg x neg x neg x neg x neg x
Total Capitalization to EBIT neg x neg x neg x neg x 404.2 x
Total Capitalization to 3 yr. Avg. EBIT neg x neg x neg x neg x neg x
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
----------------------------------------
Rochester BIOSEARCH
Medical Trimedyne, MEDICAL
Corp. Inc. PRODUCTS, INC.
----------------------------------------
<S> <C> <C> <C> <C> <C>
Exchange Listing Nasdaq Nasdaq Nasdaq BB
Ticket Symbol ROCM TMED no
Common Shares Oustanding (000's) 5,349.00 10,906.00 2,211.00
Price Per Share (April 9, 1999) 8.88 1.19 0.38
Market Value 47,472.00 12,956.00 829.00
Cash 15,671.00 2,497.00 106.00
Total Funded Debt 0.00 0.00 0.00
Total Capitalization (1) 31,801.00 10,459.00 723.00
Latest Twelve Month Earnings Per Share 0.46 0.23 0.38
Three Year Average Earnings Per Share 0.36 0.51 0.35
1999 Forecasted Earnings Per Share na na na
1999 Forecasted Earnings Per Share na na na
Median Mean
- ---------------------------------------------------------------------------------------------------------------
Price to Earnings neg x neg x neg x nmf x nmf x
Price to 3 Year Average Earnings neg x neg x neg x nmf x nmf x
Price to 1999 Forecasted Earnings na x na x na x 14.3 x 14.3 x
Price to 2000 Forecasted Earnings na x na x na x 8.9 x 8.9 x
Price to Shareholders' Equity 1.5.x 1.0 x 9.3 x 1.5 x 2.6 x
Total Capitalization to Revenues 3.2 x 1.6 x 0.6 x 1.6 x 2.3 x
Total Capitalization to EBITDA neg x neg x neg x 78.5 x 78.5 x
Total Capitalization to 3 yr. Avg. EBITDA neg x neg x neg x nmf x nmf x
Total Capitalization to EBIT neg x neg x neg x nmf x nmf x
Total Capitalization to 3 yr. Avg. EBIT neg x neg x neg x nmf x nmf x
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total Capitalization = Total Funded Debt + Market Value of Equity
Securities Cash
<PAGE>
EXHIBIT 5
BIOSEARCH MEDICAL PRODUCTS
Comparision of Biosearch to the Public Comparables Group
Absolute Size and Profit Margins
- --------------------------------------------------------------------------------
LTM Revenues
Company (In 000s)
- ------- ---------
Nitnol Medical Technologies, Inc. $22,131.00
Dexterity Surgical, Inc. $18,492.00
Rochester Medical Corp. $10,009.00
MedAmicus, Inc. $ 8,032.00
Trimedyne, Inc. $ 6,385.00
Electro-Cathether Corp. $ 4,979.00
Valley Forge Scientific Corp. $ 3,996.00
- --------------------------------------------------------------------------------
BIOSEARCH MEDICAL PRODUCTS $ 1,295.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LTM EBITT
Company (As % of Revs)
- ------- ----- --------
Valley Forge Scientific Corp. 1.80%
MedAmicus, Inc. -1.20%
Dexterity Surgical, Inc. -11.30%
Electro-Cathether Corp. -15.30%
Nitnol Medical Technologies, Inc. -15.70%
Rochester Medical Corp. -33.40%
Trimedyne, Inc. -36.40%
- --------------------------------------------------------------------------------
BIOSEARCH MEDICAL PRODUCTS -64.40%
- --------------------------------------------------------------------------------
mean -21.90%
median -15.50%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net Income
Company (As % of Revs)
- ------- ----- --------
Valley Forge Scientific Corp. 0.50%
MedAmicus, Inc. -1.80%
Dexterity Surgicial, Inc. -12.80%
Nitnol Medical Technologies, Inc. -15.70%
Rochester Medical Corp. -24.80%
Electro-Cathether Corp. -27.80%
Timedyne, Inc. -38.90%
- --------------------------------------------------------------------------------
BIOSEARCH MEDICAL PRODUCTS -65.70%
- --------------------------------------------------------------------------------
mean 23.40%
median -20.30%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Assets
Company (in $000s)
- ------- ----------
Nitnol Medical Technologies, Inc. $65,279.00
Dexterity Surgical, Inc. $32,029.00
Rochester Medical Corp. $14,602.00
MedAmicus, Inc. $12,270.00
Trimedyne, Inc. $ 4,220.00
Electro-Cathether Corp. $ 2,209.00
Valley Forge Scientific Corp. $ 2,741.00
- --------------------------------------------------------------------------------
BIOSEARCH MEDICAL PRODUCTS $ 897.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LTM EBITDA
Company (As % of Revs)
- ------- --------------
Valley Forge Scientific Corp. 5.20%
MedAmicus, Inc. 4.60%
Dexterity Surgical, Inc. -10.60%
Nitnol Medical Technologies, Inc. -10.80%
Electro-Cathether Corp. -12.60%
Rochester Medical Corp. -24.80%
Trimedyne, Inc. -31.90%
- --------------------------------------------------------------------------------
BIOSEARCH MEDICAL PRODUCTS -59.30%
- --------------------------------------------------------------------------------
mean -17.50%
median -11.70%
- --------------------------------------------------------------------------------
Notes:
- -----
<PAGE>
EXHIBIT 5
BIOSEARCH MEDICAL PRODUCTS
Comparision of Biosearch to the Public Comparables Group
Growth Rates
- --------------------------------------------------------------------------------
3 Year CAGR
Company Revenues
- ------- --------
Nitnol Medical Technologies, Inc. 56.40%
Rochester Medical Corp. 44.90%
Dexterity Surgical, Inc. 29.00%
MedAmicus, Inc. 14.90%
Valley Forge Scientific Group 13.00%
Electro-Cathether Corp. -9.70%
Trimedyne, Inc. -10.20%
- --------------------------------------------------------------------------------
BIOSEARCH MEDICAL PRODUCTS -26.60%
- --------------------------------------------------------------------------------
Mean 14.00%
Median 14.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3 Year CAGR
Company EBIT
- ------- ----
Rochester Medical Corp. 33.70%
Electro-Cathether Corp. -7.60%
MedAmicus, Inc. -30.50%
Dexterity Surgicial, Inc. -30.70%
Valley Forge Scientific Corp. -70.20%
Trimedyne, Inc. nmf
Nitnol Medical Technologies, Inc. nmf
- --------------------------------------------------------------------------------
BIOSEARCH MEDICAL PRODUCTS, INC nmf
- --------------------------------------------------------------------------------
mean -21.10%
median -30.50%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3 Year
Company CAGR Revenues
- ------- -------------
MedAmicus, Inc. 238.70%
Rochester Medical Corp. 34.70%
Trimedyne, Inc. 2.40%
Electro-Cathether Corp. -6.50%
Dexterity Surgical, Inc. -31.30%
Valley Forge Scientific Corp. nmf
Nitnol Medical Technologies, Inc. nmf
- --------------------------------------------------------------------------------
BIOSEARCH MEDICAL PRODUCTS nmf
- --------------------------------------------------------------------------------
Mean 47.60%
Median 2.40%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3 Year CAGR
Company Net Income
- ------- ----------
Rochester Medical Corp. 19.90%
Dexterity Surgicial, Inc. 3.70%
Electro-Cathether Corp. -7.70%
Valley Forge Scientific Corp. -45.80%
MedAmicus, Inc. -51.90%
Trimedyne, Inc. nmf
Nitnol Medical Technologies, Inc. nmf
- --------------------------------------------------------------------------------
BIOSEARCH MEDICAL PRODUCTS, INC nmf
- --------------------------------------------------------------------------------
mean -16.40%
median -7.70%
- --------------------------------------------------------------------------------
Notes:
- ------
<PAGE>
EXHIBIT 5
BIOSEARCH MEDICAL PRODUCTS
Comparision of Biosearch to the Public Comparables Group
Relative Performance
- --------------------------------------------------------------------------------
Company Return on Assets
- ------- ----------------
Valley Forge Scientific Corp. 0.50%
MedAmicus, Inc. -3.40%
Nitnol Medical Technologies, Inc. -5.30%
Rochester Medical Corp. -7.80%
Trimedyne, Inc. -17.00%
Dexterity Surgicial, Inc. -19.30%
Electro-Cathether Corp. -50.50%
- --------------------------------------------------------------------------------
BIOSEARCH MEDICAL PRODUCTS, INC -94.90%
- --------------------------------------------------------------------------------
Mean -24.70%
Median -12.40%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Return on Total
Company Invested Capital
- ------- ----------------
Valley Forge Scientific Corp. 0.50%
MedAmicus, Inc. -4.00%
Nitnol Medical Technologies, Inc. -6.70%
Rochester Medical Corp. -8.10%
Trimedyne, Inc. -18.40%
Dexterity Surgicial, Inc. -32.90%
Electro-Cathether Corp. -137.50%
- --------------------------------------------------------------------------------
BIOSEARCH MEDICAL PRODUCTS, INC -954.30%
- --------------------------------------------------------------------------------
mean -145.20%
median -13.20%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Company Return on Equity
- ------- ----------------
Electro-Cathether Corp. 92.60%
Valley Forge Scientific Corp. 0.50%
MedAmicus, Inc. -5.60%
Rochester Medical Corp. -8.10%
Nitinol Medical Technologies, Inc. -10.30%
Trimedyne, Inc. -18.40%
Dexterity Surgicial, Inc. -56.50%
- --------------------------------------------------------------------------------
BIOSEARCH MEDICAL PRODUCTS, INC -954.30%
- --------------------------------------------------------------------------------
Mean -120.00%
Median -9.20%
- --------------------------------------------------------------------------------
Notes:
- ------
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
EXHIBIT 6
BIOSEARCH MEDICAL PRODUCTS
CALCULATION OF COST OF CAPITAL
- ---------------------------------------------------------------------------------------------------------------
Comparable Company Financial Data
- ---------------------------------
Analysts' Consensus
Price/Earnings Earnings Capitialization Forecasted Growth Implied Discounted
Company Name Multiple (1) Rate (2) Rate (3) Rate (4)
- ------------ ------------ -------- -------- --------
<S> <C> <C> <C> <C>
Nitinol Medical 14.3 x 7.0% 35.0% 42.0%
Mean Discount Rate 42.00%
(1) Based on the market data as of 4/9/99
(2) The inverse of the price/earnings multiple
(3) Source: Zacks
(4) Sum of the growth rate and the capitalization rate.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 7
BIOSEARCH MEDICAL PRODUCTS
Discounted Cash Flow Analysis
($ in 000's)
- ----------------------------------
PROBABILITY = 41% of the FORECASTS
- ----------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Terminal
1999 2000 2001 2002 2003 Value [2]
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Revenues 765 1,112 1,454 1,733 2,001
Earnings before Interest and Taxes (29) 69 73.8 205 343
----- ----- ----- ----- -----
Income Taxes of Subchapter S Distributions (1) (9) 22 23.6 66 110
----- ----- ----- ----- -----
Operating Income, net of tax (20) 47 50.2 139 233 245
Plus: Depreciation and Amortization 19 19 19 19 19 19
Less: (Increase) Reduction in Net Working Capital (44) 29 28 23 22 23
Less: (Capital Expenditures) (8) (8) (8) (8) (8) (19)
----- ----- ----- ----- ----- -----
Cash Flows (52) 86 89 173 266 268
-----
Residual Value (3) 670
-----
-------------------------------------------------------
Discount Rate 45.00%
-------------------------------------------------------
Number of periods 0.32 1.15 2.15 3.15 4.15 4.65
Discount Factor 0.887 0.6533 0.4506 0.3107 0.2143 0.178
Present Value of Cash Flows (47) 56 40 54 57
Sum of Present Value of Cash Flows 181
Present Value of Residual Value 119
Total Present Value (Enterprise Value) $ 280
Less: Debt net of cash and investments as of (49)
-----
=====
Net Equity Value $ 329
=====
Per Share $0.15
</TABLE>
- --------------------------------------------------------------------------------
Discount Rate Sensitivity Analysis
- --------------------------------------------------------------------------------
40% 45% 50%
Equity Value $346 $329 $ 316
- --------------------------------------------------------------------------------
Per Share $0.16 $0.15 $ 0.14
- --------------------------------------------------------------------------------
Calculation of Net Debt
- --------------------------------------------------------------------------------
Total Debt 0
Less: Cash and Marketable Securities 49
-------
Net Debt (49)
- --------------------------------------------------------------------------------
Notes:
- ------
(1) Assumes Pro-forma income taxes of 32%
(2) Terminal Cash flow based on growth rate in operating come of 5% with
depreciation, CAPEX, and working capital investments unchanged from last
forecasted year.
(3) Residual value equals cash flow capitalized at discount rate of 45% less
growth rate of 5%, equaling 40%
Percentage of
Forecasted Probability of Expected
Results Result Value
------- ------ -----
0% 5% 0%
25% 35% 9%
50% 50% 25%
75% 10% 8%
100% 0% 0%
--------- ----------
100% 41%
----------
<PAGE>
Exhibit 8
BIOSEARCH MEDICAL PRODUCTS
Discounted Cash Flow Analysis
($ in 000's)
PROBABILITY = 55% of the FORECASTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Terminal
1999 2000 2001 2002 2003 Value [2]
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Revenues 1,020 1,483 1,939 2,311 2,668
Earnings before Interest and Taxes (38) 92 98 273 457
------ ------ ------ ------ ------
Income Taxes of Subchapter S Distributions (1) (12) 29 32 87 146
------ ------ ------ ------ ------
Operating Income, net of tax (26) 62 67 186 311 327
Plus: Depreciation and Amortization 25 25 25 25 25 25
Less: (Increase) Reduction in Net Working Capital (23) 38 38 31 29 31
Less: (Capital Expenditures) (14) (14) (14) (14) (14) (25)
------ ------ ------ ------ ------ ------
Cash Flows (38) 111 115 227 351 358
------
Residual Value (3) 895
------
-------------------------------------------------------------
Discount Rate 45.00%
-------------------------------------------------------------
Number of periods 0.32 1.15 2.15 3.15 4.15 4.65
Discount Factor 0.887 0.6533 0.4506 0.3107 0.2143 0.1780
Present Value of Cash Flows (34) 73 52 71 75
Sum of Present Value of Cash Flows 237
Present Value of Residual Value 159
Total Present Value (Enterprise Value) $ 396
Less: Debt net of cash and investments as of (49)
------
======
Net Equity Value $ 445
======
Per Share $ 0.20
</TABLE>
- --------------------------------------------------------------------------------
Discount Rate Sensitivity Analysis
- --------------------------------------------------------------------------------
40% 45% 50%
Equity Value $527 $445 $ 384
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Calculation of Net Debt
- --------------------------------------------------------------------------------
Total Debt 0
Less: Cash and Marketable Securities 49
-------
Net Debt (49)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes:
- ------
(1) Assumes Pro-forma income taxes of 32%
(2) Terminal Cash flow based on growth rate in operating come of 5% with
depreciation, CAPEX, and working capital investments unchanged from last
forecasted year.
(3) Residual value equals cash flow capitalized at discount rate of 45% less
growth rate of 5%, equaling 40%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Percentage of
Forecasted Probability of Expected
Results Result Value
------- ------ -----
0% 5% 0%
25% 10% 3%
50% 50% 25%
75% 30% 23%
100% 5% 5%
------ -----
100% 55%
-----
- --------------------------------------------------------------------------------
<PAGE>
Biosearch Medical Products, Inc. Methodology & Background
- --------------------------------------------------------------------------------
Overview
Howard, Lawson & Co. provides investment banking services to the senior
management of private and public companies. Services include financial plans for
corporations and their shareholders, valuations of securities and business
interests, fairness opinions, debt and equity financing, litigation support,
advice and negotiations dealing with changes in ownership, acquisitions and
divestitures.
In forming our opinion as to the value of Biosearch as of the Valuation
Date, we considered all the factors which we deemed relevant and have described
them in our report.
We have interviewed the senior managements of Hydromer and Biosearch, and
reviewed those documents which were necessary to form a sound opinion as to the
value of Biosearch. In forming our opinion, we have followed the suggestion of
Internal Revenue Service Revenue Ruling 59-60, which states in part:
"Because valuations cannot be made on the basis of a prescribed formula,
there is no means whereby the various applicable factors in a particular case
can be assigned mathematical weights in deriving the fair market value. For this
reason, no useful purpose is served by taking an average of several factors (for
example, book value, capitalized earnings and capitalized dividends) and basing
the valuation on the result. Such a process excludes active consideration of
other pertinent factors, and the end result cannot be supported by a realistic
application of significant facts in the case except by mere chance."
In forming our opinion, we have also reviewed relevant court cases,
treatises and articles dealing with valuation procedures.
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
Biosearch Medical Products, Inc. Methodology & Background
- --------------------------------------------------------------------------------
Assumptions and Limiting Conditions
This appraisal is subject to the following assumptions and limiting
conditions: (1) information, estimates, and opinions contained in this report
are obtained from sources considered reliable; however, no liability for such
sources is assumed by the appraiser; (2) Hydromer and its representatives
warrant to appraiser that the information supplied to appraiser was complete and
accurate to the best of client's knowledge. Information supplied by management
has been accepted without further verification as correctly reflecting
Biosearch's past results and current condition in accordance with general
accepted accounting principles, unless otherwise noted; (3) possession of this
report, or a copy thereof, does not carry with it the right of publication of
all or part of it, nor may it i be used for any purpose by anyone but the client
without the previous written consent of the appraiser or the client and, in any
event, only with proper attribution; (4) appraiser is not required to give
testimony in court, or be in attendance during any hearings or depositions with
reference to Biosearch, unless previous arrangements have been made; and (5) the
various estimates of value presented in this report apply to this appraisal only
and may not be used out of the context presented herein. This appraisal is valid
only for the appraisal date or dates specified herein and only for the appraisal
purpose or purposes specified herein.
- --------------------------------------------------------------------------------
Howard, Lawson & Co.
<PAGE>
Biosearch Medical Products, Inc. Methodology & Background
Certification
This report was prepared by Frank Spewock and Michael Hanzelik, both
employees of Howard, Lawson & Co. and actively involved in the firm's extensive
valuation practice. The appraisers have no present or contemplated future
interest in Biosearch or any other interest which might tend to prevent their
making a fair and unbiased appraisal.
We hereby certify, to the best of our knowledge and beliefs, the statements
of fact contained in this report are true and correct, and this report has been
prepared in conformity with the Uniform Standards of Professional Appraisal
Practice of The Appraisal Foundation and the Principles of Appraisal Practice
and Code of Ethics of the American Society of Appraisers.
/s/ Frank Spewock
--------------------
Frank Spewock
Partner
/s/ Michael Hanzelik
--------------------
Michael Hanzelik
Associate
June 3, 1999
RBB ONE
REPORT TO HYDROMER BOARD FROM HYDROMER'S INDEPENDANT ACCOUNTANTS
<PAGE>
Rosenberg Rich
Baker Berman
---------------
& C O M P A N Y
---------------
A PROFESSIONAL ASSOCIATION OF
CERTIFIED PUBLIC ACCOUNTANTS
380 Foothill Road o PO. Box 6483 o Bridgewater, NJ 08807-0483
908-231-1000 o FAX: 908-231-6894 o E-Mail: [email protected]
Kalman A. Parson, CPA*~#
Kenneth A. Berman, CPA*
Leonard M. Friedman, CPA#o
Barry D. Kopp, CPA*
Frank S. LaForgia, CPA
Alvin P. Levine, CPA+
Aaron A. Rich, CPA.
David N. Roth, CPA
Carl S.Schwartz, CPA*
Nicholas L. Truglio, CPA~
Steven J. Truppo, CPA
- -----------------
Daniel M. Brooks, CPA
Dorvin M. Rosenberg, CPA
Hydromer
Project Comet
* NJ and NY
+ NJ and FL
. NJ, NY and PA
o Accredited in Business Valuation
~Certified Fraud Examiner
#Certified Valuation Analyst
Other Offices:
195 Maplewood Avenue
Maplewood, NJ 07040
973-763-6363
973-763-4430 Fax
rgauerstrasse 54 CH-8050
ich, Switzerland
011-41-1-308-2969
011~1-1-308-2968 Fax
P.O. Box 61
Grand Cayman, Cayman Islands
345-949 4244
345-949-8635 Fax
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS o SEC PRACTICE SECTION o
PRIVATE COMPANIES PRACTICE SECTION o NATIONAL ASSOCIATED CPA FlRMS o INDEPENDENT
ACCOUNTANTS INTERNATIONAL
<PAGE>
Rosenberg Rich
Baker Berman
- ---------------
& C 0 M P A N Y
- ---------------
A PROFESSIONAL ASSOCIATION OF
CERTIFIED PUBLIC ACCOUNTANTS
Hydromer
Project Comet
Balance Sheet
Purchase Method-Net Assets of Company Acquired
Exceeds Cost of Acquisition ........................................ A
Balance Sheet
Purchase Method-Cost of Acquisition Exceeds Net Assets
of Company Acquired................................................. B
Balance Sheet
Pooling Method...................................................... C
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET (PURCHASE METHOD-NET ASSETS OF COMPANY ACQUIRED EXCEEDS COST OF ACQUISITION)
ASSETS BIOSEARCH HYDROMER ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS 14,486 716,045 730,531
TRADE RECEIVABLES 351,964 431,150 783,114
INVENTORIES 372,012 148,753 520,765
PREPAID EXPENSES 77,567 77,567
DEFERRED TAX ASSET 100,000 100,000
OTHER ASSETS 18,762 18,762
---------------------------------------------------------------------
TOTAL CURRENT ASSETS 757,224 1,473,515 0 2,230,739
---------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 1,351,882 271,743 (340,146) 1,283,479 (1)
DEFERRED TAX ASSET 262,856 262,856
OTHER ASSETS 8,123 11,968 20,091
INVESTMENT IN BIOSEARCH 600,000 (600,000) 0 (1)
---------------------------------------------------------------------
TOTAL ASSETS 2,117,229 2,620,082 (940,146) 3,797,165
=====================================================================
CURRENT LIABILITIES
CURRENT MATURITIES OF L/T DEBT 691,041 691,041
ACCOUNTS PAYABLE 353,712 29,213 382,925
ACCRUED LIABILITIES 132,330 167,678 300,008
INCOME TAX PAYABLE 40,223 40,223
---------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,177,083 237,114 1,414,197
---------------------------------------------------------------------
LONG-TERM DEBT, LESS CURRENT MATURITIES 0
---------------------------------------------------------------------
TOTAL LIABILITIES 1,177,083 237,114 1,414,197
---------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SECURITIES ISSUED FOR BIOSEARCH ACQUISITION 600,000 600,000 (1)
COMMON STOCK 11,129,954 2,922,708 (11,129,954) 2,922,708 (1)
CONTRIBUTED CAPITAL 577,750 577,750
ACCUMULATED DEFICT (10,158,569) (1,711,350) 10,158,569 (1,711,350) (1)
TREASURY STOCK, AT COST; 7,940 SHARES (31,239) (6,140) 31,239 (6,140) (1)
---------------------------------------------------------------------
TOTAL SHAREHOLDERS EQUITY 940,146 2,382,968 (940,146) 2,382,968
COMMITMENTS AND CONTINGENCIES
---------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 2,117,229 2,620,082 (940,146) 3,797,165
=====================================================================
</TABLE>
(1) INVESTMENT IN BIOSEARCH (B) INVOLVES HYDROMER (H)ISSUING 400,000 COMMON
SHARES
<PAGE>
AT $1.50 PER SHARE RESULTING IN A TOTAL INVESTMENT ON H'S BOOKS
OF $600,000. THE ENTRY IS RECORDED AS FOLLOWS:
DR INVESTMENT.. 600,000
CR CS (600,000)
IN CONSOLIDATION, THE INVESTMENT (ON H'S BOOKS) IS ELIMINATED AGAINST THE EQUITY
(BV) OF BIOSEARCH (AMOUNTING TO $940,146) IN A SEPARATE CONSOLIDATION COLUMN -
IN THIS CASE, THE DIFFERENCE BETWEEN THE COST AND BV RESULTS IN "NEGATIVE"
GOODWILL WHICH IS E1QUALLY OFFSET AGAINST THE NON-CURRENT ASSETS (IN THIS CASE
'FIXED ASSETS'). THUS, FIXED ASSETS IS REDUCED IN CONSOLIDATION BY THE
DIFFERENCE ($340,146=$940,146 - $600,000)
ELIMINATION ADJUSTMENT:
DR PAID-IN-CAPITAL 11,129,954
CR ACCUMULATED DEFICIT 10,158,569
CR TREASURY STOCK 31,239
CR FIXED ASSETS 340,146
CR INVESTMENT IN BIOSEARCH 600,000
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET (PURCHASE METHOD-COST OF ACQUISITION EXCEEDS NET ASSETS OF COMPANY ACQUIRED)
ASSETS BIOSEARCH HYDROMER ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS 14,486 716,045 730,531
TRADE RECEIVABLES 351,964 431,150 783,114
INVENTORIES 372,012 148,753 520,765
PREPAID EXPENSES 77,567 77,567
DEFERRED TAX ASSET 100,000 100,000
OTHER ASSETS 18,762 18,762
---------------------------------------------------------------------
TOTAL CURRENT ASSETS 757,224 1,473,515 0 2,230,739
---------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 1,351,882 271,743 50,000 1,673,625 (1)
DEFERRED TAX ASSET 262,856 262,856
OTHER ASSETS 8,123 11,968 20,091
GOODWILL 59,854 59,854
INVESTMENT IN BIOSEARCH 1,050,000 (1,050,000) 0 (1)
---------------------------------------------------------------------
TOTAL ASSETS 2,117,229 3,070,082 (940,146) 4,247,165
=====================================================================
CURRENT LIABILITIES
CURRENT MATURITIES OF L/T DEBT 691,041 691,041
ACCOUNTS PAYABLE 353,712 29,213 382,925
ACCRUED LIABILITIES 132,330 167,678 300,008
INCOME TAX PAYABLE 40,223 40,223
---------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,177,083 237,114 1,414,197
---------------------------------------------------------------------
LONG-TERM DEBT, LESS CURRENT MATURITIES 0
---------------------------------------------------------------------
TOTAL LIABILITIES 1,177,083 237,114 1,414,197
---------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SECURITIES ISSUED FOR BIOSEARCH ACQUISITION 1,050,000 1,050,000 (1)
COMMON STOCK 11,129,954 2,922,708 (11,129,954) 2,922,708 (1)
CONTRIBUTED CAPITAL 577,750 577,750
ACCUMULATED DEFICIT (10,158,569) (1,711,350) 10,158,569 (1,711,350) (1)
TREASURY STOCK, AT COST; 7,940 SHARES (31,239) (6,140) 31,239 (6,140) (1)
---------------------------------------------------------------------
TOTAL SHAREHOLDERS EQUITY 940,146 2,832,968 (940,146) 2,832,968
COMMITMENTS AND CONTINGENCIES
---------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 2,117,229 3,070,082 (940,146) 4,247,165
=====================================================================
</TABLE>
<PAGE>
(1) INVESTMENT IN BIOSEARCH (B) INVOLVES HYDROMER (H) ISSUING 700,000 COMMON
SHARES AT $1.50 PER SHARE RESULTING IN A TOTAL INVESTMENT ON H'S BOOKS OF
$600,000. THE ENTRY IS RECORDED AS FOLLOWS:
DR INVESTMENT.. 1,050,000
CR CS (1,050,000)
IN CONSOLIDATION, THE INVESTMENT (ON H'S BOOKS) IS ELIMINATED AGAINST THE EQUITY
(BV) OF BIOSEARCH (AMOUNTING TO $940,146) IN A SEPARATE CONSOLIDATION COLUMN -
IN THIS CASE, THE DIFFERENCE BETWEEN THE COST AND BV RESULTS IN AN EXCESS WHICH
IS FIRST ATTRIBUED TO THE FAIR VALUE OF THE ASSETS OF BIOSEARCH. IF AFTER THE
ASSETS ARE WRITTEN UP THERE IS STILL A DIFFERENCE, THAT DIFFERENCE IS RECORDED
AS GOODWILL AND AMORTIZED OVER A LIFE NOT TO EXCEED 40 YEARS. IN THE EXAMPLE
ABOVE, IT IS ASSUMED THAT $50,000 IS ATTRIBUTABLE TO A FIXED ASSET INCREASE AND
THE REMAINDER IS RECORDED AS GOODWILL.
ELIMINATION ADJUSTMENTS:
A)
DR GOODWILL 59,854
DR FIXED ASSETS 50,000
DR PAID-IN CAPITAL 11,129,954
CR ACCUMULATED DEFICIT 10,158,569
CR TREASURY STOCK 31,239
CR INVESTMENT IN BIOSEARCH 1,050,000
TO ELIMINATE INVESTMENT AND RECORD GOODWILL
B)
DR DEPRECIATION EXPENSE 10,000
CR FIXED ASSETS 10,000
TO RECORD DEPR. EXP ON FIXED ASSET WRITE-UP - ASSUMING 5 YEAR LIFE STRAIGHT LINE
C)
DR AMORTIZATION 1,500
CR GOODWILL 1,500
TO RECORD AMORTIZATION OF GOODWILL ASSUMING 40 YEAR LIFE
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET-POOLING METHOD
ASSETS BIOSEARCH HYDROMER ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS 14,486 716,045 730,531
TRADE RECEIVABLES 351,964 431,150 783,114
INVENTORIES 372,012 148,753 520,765
PREPAID EXPENSES 77,567 77,567
DEFERRED TAX ASSET 100,000 100,000
OTHER ASSETS 18,762 18,762
---------------------------------------------------------------------
TOTAL CURRENT ASSETS 757,224 1,473,515 0 2,230,739
---------------------------------------------------------------------
NET PROPERTY,PLANT AND EQUIPMENT 1,351,882 271,743 1,623,625
DEFERRED TAX ASSET 262,856 262,856
OTHER ASSETS 8,123 11,968 20,091
GOODWILL 0
INVESTMENT IN BIOSEARCH 940,146 (940,146) 0 (1)
---------------------------------------------------------------------
TOTAL ASSETS 2,117,229 2,960,228 (940,146) 4,137,311
=====================================================================
CURRENT LIABILITIES
CURRENT MATURITIES OF L/T DEBT 691,041 691,041
ACCOUNTS PAYABLE 353,712 29,213 382,925
ACCRUED LIABILITIES 132,330 167,678 300,008
INCOME TAX PYABLE 40,223 40,223
---------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,177,083 237,114 1,414,197
---------------------------------------------------------------------
LONG-TERM DEBT, LESS CURRENT MATURITIES 0
---------------------------------------------------------------------
TOTAL LIABILITIES 1,177,083 237,114 1,414,197
---------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SECURITIES ISSUED FOR BIOSEARCH ACQUISITION 0 (1)
COMMON STOCK 11,129,954 14,021,423 (11,129,954) 14,021,423 (1)
CONTRIBUTED CAPITAL 577,750 577,750
ACCUMULATED DEFICIT (10,158,569) (11,869,919) 10,158,569 (11,869,919) (1)
TREASURY STOCK, AT COST; 7,940 SHARES (31,239) (6,140) 31,239 (6,140) (1)
---------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 940,146 2,723,114 (940,146) 2,723,114
---------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
---------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 2,117,229 2,960,228 (940,146) 4,137,311
=====================================================================
</TABLE>
<PAGE>
(1) INVESTMENT IN BIOSEARCH (B) INVOLVES HYDROMER (H) ISSUING 400,000 COMMON
SHARES AT $1.50 PER SHARE FOR ALL THE O/S SHARES OF B. THE INVESTMENT ON
H'S BOOKS IS THE NET VALUE OF B AT THE TIME THE DEAL IS CONSUMMATED
DR INVESTMENT.. 940,146
DR DEFICIT 10,158,569
CR CS (11,098,715)
IN CONSOLIDATION, THE INVESTMENT(ON H'S BOOKS) IS ELIMINATED AGAINST THE
EQUITY (BV) OF BIOSEARCH (AMOUNTING TO $940,146) IN A SEPARATE
CONSOLIDATION COLUMN - NO GOODWILL IS RECORDED OR ASSETS WRITTEN UP OR DOWN
EVERYTHING IS RECORDED AND "POOLED" AT BOOK VALUE.
NOTE: A POOLING MUST BE DONE IF ALL 12 OF THE CRITERIA (SEE ATTACHED) ARE MET.
IF NOT, THE PURCHASE METHOD IS USED.
ELIMINATION ADJUSTMENTS:
DR PAID-IN CAPITAL 11,129,954
CR ACCUMULATED DEFICIT 10,158,569
CR TREASURY STOCK 31,239
CR INVESTMENT IN BIOSEARCH 940,146
TO ELIMINATE INVESTMENT
WHARTON ONE
REPORT TO BIOSEARCH BOARD OF DIRECTORS April 1999
<PAGE>
Biosearch Medical Products, Inc. Exhibit A
Comparative Balance Sheets at the Years Ended December 31, 1992-1998
and at March 31, 1999
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 03/31/99
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $74,717 $466,832 $568,092 $321,376 $14,486 $105,768 $49,157
Accounts receivable 320,122 547,986 162,500 182,247 351,964 78,751 111,650
Inventories 576,113 574,766 616,091 513,551 372,012 297,613 329,827
Other current assets 52,456 35,716 17,551 30,665 18,762 256,127 235,908
------------------------------------------------------------------------------------------
Total current assets 1,023,408 1,625,300 1,364,234 1,047,839 757,224 738,259 726,542
Property, plant & equipment@cost 4,399,427 3,980,373 4,078,875 4,251,055 4,239,648 2,440,400 NA
Less: Accumulated depreciation 2,790,208 2,593,172 2,708,388 2,799,250 2,887,766 2,287,523 V
------------------------------------------------------------------------------------------
Net property, plant & equipment 1,609,219 1,387,201 1,370,487 1,451,805 1,351,882 152,877 88,028
Escrow 0 1,025,706 312,811 0 0 0
Cash surrender value of life insurance 24,062 346,385 402,785 0 0 0
Other assets 64,476 67,423 13,557 13,580 8,123 5,862 4,991
Total assets $2,721,165 $4,452,015 $3,463,874 $2,513,224 $2,117,229 $896,998 $819,561
==========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt $900,414 $28,968 $32,648 $36,788 $691,041 $0 $0
Customer deposit 15,800 9,282 0 0 380,000 123,913
Accounts payable 405,185 229,008 163,534 185,653 353,712 253,497 155,705
Accrued liabilities 350,817 230,120 188,328 131,693 132,330 174,330 50,382
------------------------------------------------------------------------------------------
Total current liabilities 1,672,216 497,378 384,510 354,134 1,177,083 807,827 330,000
Long term debt 777,512 731,591 699,522 662,734 0 0 0
Stockholders' equity:
Common stock 11,129,913 11,129,913 11,129,948 11,129,954 11,129,954 11,129,954 11,129,954
Accumulated deficit (10,825,741) (7,875,158) (8,718,791) (9,602,359) (9,602,359) (11,009,544) (10,609,154)
Treasury stock@cost (32,735) (31,709) (31,315) (31,239) (31,239) (31,239) (31,239)
------------------------------------------------------------------------------------------
Stockholders' equity 271,437 3,223,046 2,379,842 1,496,356 1,496,356 89,171 489,561
Liabilities and stockholders' equity $2,721,165 $4,452,015 $3,463,874 $2,513,224 $2,673,439 $896,998 $819,561
==========================================================================================
</TABLE>
<PAGE>
Biosearch Medical Products, Inc.
Discounted Cash Flow Analysis Exhibit 1
<TABLE>
<CAPTION>
1.3078635 1.1914351 1.547251
1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C>
Total Revenue $1,855,300 $2,696,000 $3,526,000 $4,201,000 $4,851,000
Growth Rate
Material Cost 463,825 598,512 881,500 1,050,250 1,212,750
25% 22% 25% 25% 25%
Direct Labor 212,500 296,560 476,010 567,135 654,885
11% 11% 14% 14% 14%
Overhead
Manufacturing 204,000 249,000 300,000 326,000 357,000
Extrusion 0 0 0 0 0
Maintenance 11,550 70,000 75,000 75,000 75,000
Warehouse/Purchasing 44,000 62,500 65,500 69,000 72,300
Manufacturing Engineering 0 62,500 65,500 69,000 72,300
Quality Assurance 57,000 125,500 156,000 164,000 173,000
Building & Utilities 55,000 60,000 100,000 100,000 100,000
Other 50,000 75,000 200,000 200,000 200,000
Total Overhead 421,500 704,500 962,000 1,003,000 1,049,600
23% 26% 27% 24% 22%
Sales & General Administrative
Payroll & Benefits 473,000 570,000 593,000 616,000 641,000
Insurance 80,000 80,000 85,000 90,000 90,000
Professional Fees 30,000 35,000 35,000 35,000 30,000
Financial Reporting 15,000 15,000 15,000 15,000 15,000
Car Allowance 20,000 20,000 20,000 20,000 20,000
Royalties 0 0 0 0 0
Rent Expense 98,000 98,000 120,000 120,000 120,000
Telephone 20,000 20,000 25,000 25,000 25,000
Postage & Supplies 25,000 25,000 30,000 30,000 30,000
Advertising 10,000 10,000 20,000 30,000 30,000
Misc. 10,000 10,000 20,000 30,000 30,000
Travel 5,000 10,000 25,000 25,000 25,000
Directors Fees 40,000 40,000 45,000 45,000 45,000
Depreciation 50,577 72,577 98,577 122,577 150,577
Allocation to Hydromer (J.P) (20,450) (22,500) (23,600) (20,450) (20,450)
Allocation to Hydromer (J.N) (24,500) (26,950) (28,300) (24,500) (24,500)
Total Sales & General Administrative Expense 831,627 956,127 1,077,677 1,158,627 1,206,627
45% 34% 29% 26% 23%
Depreciation 50,577 72,577 96,577 122,577 150,577
Computation of Present value of NOL to Biosearch:
Income before state and federal income taxes (74,152) 140,031 128,813 421,988 727,138
State income taxes @ 9% 0 0 0 0 9,000
Income before federal income taxes (74,152) 140,301 128,813 421,988 718,138
Federal income taxes @ 34% 0 0 0 0 0
Tax benefit of NOL 47,702 43,796 143,476 244,167
PVIF @ 35.0% 0.6375281 0.4722431 0.3498097 0.2591183
Present value of tax benefits of NOL 30,411 20,682 50,189 63,268
--------
Sum of present values of tax benefits $349,551
--------
Net Income (74,152) 140,301 128,813 421,988 718,138
Plus:
Rent 98,000 98,000 49,000 0 0
Depreciation 50,577 72,577 96,577 122,577 150,577
Less: Addition to net working capital 200,000 270,000 269,700 216,543 210,218
Capital expenditures 100,000 110,000 120,000 130,000 140,000
Net Working Capital 600,000 870,000 1,139,700 1,356,243 1,566,461
Free cash flow ($225,849) ($68,982) ($115,181) $198,444 $519,128
Present value interest factor @ 35.0% 0.890663 0.6375281 0.4722431 0.3498097 0.2591183
Present value of free cash flows ($194,208) ($43,978) ($54,393) $69,418 $134,516
Sum of present values $410,361
Less Change of Control Liabilities 135,000
--------
Enterprise value $275,361
--------
<CAPTION>
1.1500722 1.15 1.15 1.12 1.1
2004 2005 2006 2007 2008
<S> <C> <C> <C> <C> <C>
Total Revenue $5,578,650 $6,415,448 $7,377,765 $8,263,096 $9,089,406
Growth Rate
Material Cost 1,394,663 1,603,862 1,844,441 2,065,774 2,272,352
Direct Labor 781,011 898,163 1,032,867 1,158,833 1,272,517
Overhead
Manufacturing
Extrusion
Maintenance
Warehouse/Purchasing
Manufacturing Engineering
Quality Assurance
Building & Utilities
Other
Total Overhead 1,283,090 1,475,553 1,696,886 1,900,512 2,090,563
Sales & General Administrative
Payroll & Benefits NA NA NA NA NA
Insurance
Professional Fees
Financial Reporting
Car Allowance
Royalties
Rent Expense
Telephone
Postage & Supplies
Advertising
Misc.
Travel
Directors Fees
Depreciation
Allocation to Hydromer (J.P)
Allocation to Hydromer (J.N)
Total Sales & General Administrative Expense 1283089.5 1475552.9 1696885.9 1900512.2 2090563.4
Depreciation
Computation of Present value of NOL to Biosearch:
Income before state and federal income taxes 836,798 962,317 1,106,665 1,239,464 1,363,411
State income taxes @ 9% 75,312 86,609 99,600 111,552 122,707
Income before federal income taxes 761,486 875,709 1,007,065 1,127,913 1,240,704
Federal income taxes @ 34% 0 0 0 0 0
Tax benefit of NOL 258,905 297,741 342,402 383,490 421,839
PVIF @ 35.0% 0.1919395 0.1421774 0.1053166 0.0780123 0.0577869
Present value of tax benefits of NOL 49,694 42,332 36,061 29,917 24,377
Sum of present values of tax benefits
Net Income 761485.73 875708.58 1007064.9 1127912.7 1240703.9
Plus:
Rent 0 0 0 0 0
Depreciation 130,000 140,000 150,000 160,000 170,000
Less: Addition to net working capital 234,969 270,214 310,747 285,886 266,828
Capital expenditures 150,000 160,000 170,000 180,000 190,000
Net Working Capital 1,801,430 2,071,644 2,382,391 2,668,277 2,935,105
0
Free cash flow $507,410 $586,521 $676,318 $822,027 $953,876
Present value interest factor @ 35.0% 0.1919395 0.1421774 0.1053166 0.0780123 0.0577869
Present value of free cash flows $97,392 $83,390 $71,227 $64,128 $55,122
Sum of present values
Less Change of Control Liabilities
Enterprise value
<CAPTION>
1.1 1.1 1.1 1.1 1.1
2009 2010 2011 2012 2013
<S> <C> <C> <C> <C> <C>
Total Revenue $9,998,347 $10,998,181 $12,097,999 $13,307,799 $14,638,579
Growth Rate
Material Cost 2,499,587 2,749,545 3,024,500 3,326,950 3,659,645
Direct Labor 1,399,769 1,539,745 1,693,720 1,863,092 2,049,401
Overhead
Manufacturing
Extrusion
Maintenance
Warehouse/Purchasing
Manufacturing Engineering
Quality Assurance
Building & Utilities
Other
Total Overhead 2,299,620 2,529,582 2,782,540 3,060,794 3,366,873
Sales & General Administrative
Payroll & Benefits NA NA NA NA NA
Insurance
Professional Fees
Financial Reporting
Car Allowance
Royalties
Rent Expense
Telephone
Postage & Supplies
Advertising
Misc.
Travel
Directors Fees
Depreciation
Allocation to Hydromer (J.P)
Allocation to Hydromer (J.N)
Total Sales & General Administrative Expense 2299619.7 2529581.69 2782539.86 3060793.85 3366873.24
Depreciation
Computation of Present value of NOL to Biosearch:
Income before state and federal income taxes 1,499,752 1,649,727 1,814,700 1,996,170 2,195,787
State income taxes @ 9% 134,978 148,475 163,323 179,655 197,621
Income before federal income taxes 1,364,774 1,501,252 1,651,377 1,816,515 1,998,166
Federal income taxes @ 34% 402,823 510,426 581,468 617,615 679,376
Tax benefit of NOL 61,200 0 0 0 0
PVIF @ 35.0% 0.0428051 0.0317075 0.0234870 0.0173978 0.0128873
Present value of tax benefits of NOL 2,620 0.0000000 0 0 0
Sum of present values of tax benefits
Net Income 961951.31 990826.152 1089908.77 1198899.64 1318789.61
Plus:
Rent 0 0 0 0 0
Depreciation 180,000 190,000 200,000 210,000 220,000
Less: Addition to net working capital 293,511 322,862 355,148 390,663 429,729
Capital expenditures 200,000 210000 220000 230000 240000
Net Working Capital 3,228,616 3,551,477 3,906,625 4,297,288 4,727,016
0
Free cash flow $648,441 $647,965 $714,761 $788,237 $869,061
Present value interest factor @ 35.0% 0.0428051 0.03170748 0.02348702 0.01739779 0.01288725
Present value of free cash flows $27,757 $20,545 $16,788 $13,714 $11,200
Sum of present values
Less Change of Control Liabilities
Enterprise value
<CAPTION>
1.1 1.1 1.1 1.1 1.1
2014 2015 2016 2017 2018
<S> <C> <C> <C> <C> <C>
Total Revenue $16,102,437 $17,712,681 $19,483,949 $21,432,344 $23,575,578
Growth Rate
Material Cost 4,025,609 4,428,170 4,870,987 5,358,086 5,893,895
Direct Labor 2,254,341 2,479,775 2,727,753 3,000,528 3,300,581
Overhead
Manufacturing
Extrusion
Maintenance
Warehouse/Purchasing
Manufacturing Engineering
Quality Assurance
Building & Utilities
Other
Total Overhead 3,703,561 4,073,917 4,481,308 4,929,439 5,422,383
Sales & General Administrative
Payroll & Benefits NA NA NA NA NA
Insurance
Professional Fees
Financial Reporting
Car Allowance
Royalties
Rent Expense
Telephone
Postage & Supplies
Advertising
Misc.
Travel
Directors Fees
Depreciation
Allocation to Hydromer (J.P)
Allocation to Hydromer (J.N)
Total Sales & General Administrative Expense 3703560.56 4073916.62 4481308.28 4929439.1 5422383.01
Depreciation
Computation of Present value of NOL to Biosearch:
Income before state and federal income taxes 2,415,366 2,656,902 2,922,592 3,214,852 3,538,337
State income taxes @ 9% 217,383 239,121 263,033 289,337 318,270
Income before federal income taxes 2,197,983 2,417,781 2,659,559 2,925,515 3,218,066
Federal income taxes @ 34% 747,314 822,046 904,250 994,675 1,094,143
Tax benefit of NOL 0 0 0 0 0
PVIF @ 35.0% 0.0095461 0.0070712 0.0052379 0.0038799 0.0028740
Present value of tax benefits of NOL 0 0 0 0 0
Sum of present values of tax benefits
Net Income 1450668.57 1595735.43 1755308.97 1930839.86 2123923.85
Plus:
Rent 0 0 0 0 0
Depreciation 230,000 240,000 250,000 260,000 270,000
Less: Addition to net working capital 472,702 519,972 571,969 629,166 692,082
Capital expenditures 250000 260000 270000 280000 290000
Net Working Capital 5,199,718 5,719,690 6,291,659 6,920,825 7,612,907
Free cash flow $957,967 $1,055,764 $1,163,340 $1,281,674 $1,411,841
Present value interest factor @ 35.0% 0.00954611 0.0070712 0.00523792 0.00387994 0.00287403
Present value of free cash flows $9,145 $7,466 $6,093 $4,973 $4,058
Sum of present values
Less Change of Control Liabilities
Enterprise value
<CAPTION>
1.1 1.1
2019 2020
<S> <C> <C>
Total Revenue $25,933,136 $28,526,450
Growth Rate
Material Cost 6,483,284 7,131,612
Direct Labor 3,630,639 3,993,703
Overhead
Manufacturing
Extrusion
Maintenance
Warehouse/Purchasing
Manufacturing Engineering
Quality Assurance
Building & Utilities
Other
Total Overhead 5,964,621 6,561,083
Sales & General Administrative
Payroll & Benefits NA NA
Insurance
Professional Fees
Financial Reporting
Car Allowance
Royalties
Rent Expense
Telephone
Postage & Supplies
Advertising
Misc.
Travel
Directors Fees
Depreciation
Allocation to Hydromer (J.P)
Allocation to Hydromer (J.N)
Total Sales & General Administrative Expense 5964621.32 6561083.45
Depreciation
Computation of Present value of NOL to Biosearch:
Income before state and federal income taxes 3,889,970 4,278,967
State income taxes @ 9% 350,097 385,107
Income before federal income taxes 3,539,873 3,893,860
Federal income taxes @ 34% 1,203,557 1,323,913
Tax benefit of NOL 0 0
PVIF @ 35.0% 0.0021289 0.0015770
Present value of tax benefits of NOL 0 0
Sum of present values of tax benefits
Net Income 2336316.24 2569947.86
Plus:
Rent 0 0
Depreciation 280,000 290,000
Less: Addition to net working capital 761,291 837,420
Capital expenditures 300000 310000
Net Working Capital 8,374,198 9,211,618
Free cash flow $1,555,026 $1,712,528
Present value interest factor @ 35.0% 0.00212891 0.00157697
Present value of free cash flows $3,311 $2,701
Sum of present values
Less Change of Control Liabilities
Enterprise value
</TABLE>
<PAGE>
Biosearch Medical Products, Inc.
Discounted Cash Flow Analysis
<TABLE>
<CAPTION>
1.3078635 1.1914351
1999 2000 2001 2002
<S> <C> <C> <C> <C>
Total Revenue $1,855,300 $2,696,000 $3,526,000 $4,201,000
Growth Rate
Material Cost 463,825 598,512 881,500 1,050,250
25% 22% 25% 25%
Direct Labor 212,500 296,560 476,010 567,135
11% 11% 14% 14%
Overhead
Manufacturing 204,000 249,000 300,000 326,000
Extrusion 0 0 0 0
Maintenance 11,500 70,000 75,000 75,000
Warehouse/Purchasing 44,000 62,500 65,500 69,000
Manufacturing Engineering 0 62,500 65,500 69,000
Quality Assurance 57,000 125,500 156,000 164,000
Building & Utilities 55,000 60,000 100,000 100,000
Other 50,000 75,000 200,000 200,000
Total Overhead 421,500 704,500 962,000 1,003,000
23% 26% 27% 24%
Sales & General Administrative
Payroll & Benefits 473,000 570,000 593,000 616,000
Insurance 80,000 80,000 85,000 90,000
Professional Fees 30,000 35,000 35,000 35,000
Financial Reporting 15,000 15,000 15,000 15,000
Car Allowance 20,000 20,000 20,000 20,000
Royalties 0 0 0 0
Rent Expense 98,000 98,000 120,000 120,000
Telephone 20,000 20,000 25,000 25,000
Postage & Supplies 25,000 25,000 30,000 30,000
Advertising 10,000 10,000 20,000 30,000
Misc. 10,000 10,000 20,000 30,000
Travel 5,000 10,000 25,000 25,000
Directors Fees 40,000 40,000 45,000 45,000
Depreciation 50,577 72,577 96,577 122,577
Allocation to Hydromer (J.P.) (20,450) (22,500) (23,600) (20,450)
Allocation to Hydromer (J.N.) (24,500) (26,950) (28,300) (24,500)
Total Sales & General Administrative Expense 831,627 956,127 1,077,677 1,158,627
45% 34% 29% 26%
Depreciation 50,577 72,577 96,577 122,577
Computation of Present value of NOL to Biosearch:
Income before state and federal income taxes (74,152) 140,301 128,813 421,988
State income taxes @9% 0 0 0 0
Income before federal income taxes (74,152) 140,301 128,813 421,988
Federal income taxes @34% 0 0 0 0
Tax benefit of NOL 47,702 43,796 143,476
PVIF @ 30.0% 0.6746600 0.5189692 0.3992071
Present value of tax benefits of NOL 32,183 22,729 57,277
--------
Sum of present values of tax benefits $430,300
--------
Net Income (74152) 140301 128813 421988
Plus:
Rent 98,000 98,000 49,000 0
Depreciation 50,577 72,577 96,577 122,577
Less: Addition to net working capital 200,000 270,000 296,700 216,543
Capital expenditures 100,000 110,000 120,000 130,000
Net Working Capital 600,000 870,000 1,139,700 1,356,243
Free cash flow ($225,649) ($68,982) ($115,181) $198,444
Present value interest factor @ 30.0% 0.877058 0.67466 0.5189692 0.3992071
Present value of free cash flows ($197,907) ($46,539) ($59,775) $79,220
Sum of present values $638,554
Less: Change of Control Liabilities 135,000
--------
Enterprise value $503,554
--------
<CAPTION>
1.1547251 1.1500722 1.15 1.15 1.12
2003 2004 2005 2006 2007
<S> <C> <C> <C> <C> <C>
Total Revenue $4,851,000 $5,578,650 $6,415,448 $7,377,765 $8,263,096
Growth Rate
Material Cost 1,212,750 1,394,663 1,603,862 1,844,441 2,065,774
25%
Direct Labor 654,885 781,011 898,163 1,032,887 1,156,833
14%
Overhead
Manufacturing 357,000
Extrusion 0
Maintenance 75,000
Warehouse/Purchasing 72,300
Manufacturing Engineering 72,300
Quality Assurance 173,000
Building & Utilities 100,000
Other 200,000
Total Overhead 1,049,600 1,283,090 1,475,553 1,696,886 1,900,512
22%
Sales & General Administrative
Payroll & Benefits 641,000 NA NA NA NA
Insurance 90,000
Professional Fees 30,000
Financial Reporting 15,000
Car Allowance 20,000
Royalties 0
Rent Expense 120,000
Telephone 25,000
Postage & Supplies 30,000
Advertising 30,000
Misc. 30,000
Travel 25,000
Directors Fees 45,000
Depreciation 150,577
Allocation to Hydromer (J.P.) (20,450)
Allocation to Hydromer (J.N.) (24,500)
Total Sales & General Administrative Expense 1,206,627 1283089.5 1475552.9 1696885.9 1900512.2
23%
Depreciation 150,577
Computation of Present value of NOL to Biosearch:
Income before state and federal income taxes 727,138 836,798 962,317 1,106,665 1,239,646
State income taxes @9% 9,000 75,312 86,609 99,600 111,552
Income before federal income taxes 718,138 761,486 875,709 1,007,065 1,127,913
Federal income taxes @34% 0 0 0 0 0
Tax benefit of NOL 244,167 258,905 297,741 342,402 383,490
PVIF @ 30.0% 0.3070824 0.2362172 0.1817056 0.1397735 0.1075181
Present value of tax benefits of NOL 74,979 61,158 54,101 47,859 41,232
Sum of present values of tax benefits
Net Income 718138 761485.73 875708.58 1007064.9 1127912.7
Plus:
Rent 0 0 0 0 0
Depreciation 150,577 130,000 140,000 150,000 160,000
Less: Addition to net working capital 210,218 234,969 270,214 310,747 285,886
Capital expenditures 140,000 150,000 160,000 170,000 180,000
Net Working Capital 1,566,461 1,801,430 2,071,644 2,382,391 2,668,277
Free cash flow $519,128 $507,410 $586,521 $676,318 $822,027
Present value interest factor @ 30.0% 0.3070824 0.2362172 0.1817056 0.1397735 0.1075181
Present value of free cash flows $159,415 $119,859 $106,574 $94,531 $88,383
Sum of present values
Less: Change of Control Liabilities
Enterprise value
<CAPTION>
1.1 1.1 1.1 1.1 1.1
2008 2009 2010 2011 2012
<S> <C> <C> <C> <C> <C>
Total Revenue $9,089,406 $9,998,347 $10,998,181 $12,097,999 $13,307,799
Growth Rate
Material Cost 2,272,352 2,499,587 2,749,545 3,024,500 3,326,950
Direct Labor 1,272,517 1,399,769 1,539,745 1,693,720 1,863,092
Overhead
Manufacturing
Extrusion
Maintenance
Warehouse/Purchasing
Manufacturing Engineering
Quality Assurance
Building & Utilities
Other
Total Overhead 2,090,563 2,299,620 2,529,582 2,782,540 3,060,794
Sales & General Administrative
Payroll & Benefits NA NA NA NA NA
Insurance
Professional Fees
Financial Reporting
Car Allowance
Royalties
Rent Expense
Telephone
Postage & Supplies
Advertising
Misc.
Travel
Directors Fees
Depreciation
Allocation to Hydromer (J.P.)
Allocation to Hydromer (J.N.)
Total Sales & General Administrative Expense 2090563.4 2299619.7 2529581.69 2782539.86 3060793.85
Depreciation
Computation of Present value of NOL to Biosearch:
Income before state and federal income taxes 1,363,411 1,499,752 1,649,727 1,814,700 1,996,170
State income taxes @9% 122,707 134,978 148,475 163,323 179,655
Income before federal income taxes 1,240,704 1,364,774 1,501,252 1,651,377 1,816,515
Federal income taxes @34% 0 402,823 510,426 561,468 617,615
Tax benefit of NOL 421,839 61,200 0 0 0
PVIF @ 30.0% 0.0827062 0.0636202 0.0489386 0.0376451 0.0289577
Present value of tax benefits of NOL 34,889 3,894 0 0 0
Sum of present values of tax benefits
Net Income 1240703.9 961951.31 990826.152 1089908.77 1198899.64
Plus:
Rent 0 0 0 0 0
Depreciation 170,000 180,000 190,000 200,000 210,000
Less: Addition to net working capital 266,828 293,511 322,862 355,148 390,663
Capital expenditures 190,000 200,000 210,000 220,000 230,000
Net Working Capital 2,935,105 3,228,616 3,551,477 3,906,625 4,297,288
Free cash flow $953,876 $648,441 $647,965 $714,761 $788,237
Present value interest factor @ 30.0% 0.0827062 0.0636202 0.04893859 0.03764507 0.02895775
Present value of free cash flows $78,891 $41,254 $31,710 $26,907 $22,826
Sum of present values
Less: Change of Control Liabilities
Enterprise value
<CAPTION>
1.1 1.1 1.1 1.1 1.1
2013 2014 2015 2016 2017
<S> <C> <C> <C> <C> <C>
Total Revenue $14,638,579 $16,102,437 $17,712,681 $19,483,949 $21,432,344
Growth Rate
Material Cost 3,659,645 4,025,609 4,428,170 4,870,987 5,358,086
Direct Labor 2,049,401 2,254,341 2,479,775 2,727,753 3,000,528
Overhead
Manufacturing
Extrusion
Maintenance
Warehouse/Purchasing
Manufacturing Engineering
Quality Assurance
Building & Utilities
Other
Total Overhead 3,366,873 3,703,561 4,073,917 4,481,308 4,929,439
Sales & General Administrative
Payroll & Benefits NA NA NA NA NA
Insurance
Professional Fees
Financial Reporting
Car Allowance
Royalties
Rent Expense
Telephone
Postage & Supplies
Advertising
Misc.
Travel
Directors Fees
Depreciation
Allocation to Hydromer (J.P.)
Allocation to Hydromer (J.N.)
Total Sales & General Administrative Expense 3366873.24 3703560.56 4073916.62 4481308.28 4929439.1
Depreciation
Computation of Present value of NOL to Biosearch:
Income before state and federal income taxes 2,195,787 2,415,366 2,656,902 2,922,592 3,214,852
State income taxes @9% 197,621 217,383 239,121 263,033 289,337
Income before federal income taxes 1,998,166 2,197,983 2,417,781 2,659,559 2,925,515
Federal income taxes @34% 679,376 747,314 822,046 904,250 994,675
Tax benefit of NOL 0 0 0 0 0
PVIF @ 30.0% 0.0222752 0.0171348 0.0131806 0.0101389 0.0077992
Present value of tax benefits of NOL 0 0 0 0 0
Sum of present values of tax benefits
Net Income 1318789.61 1450668.57 1595735.43 1755308.97 1930839.86
Plus:
Rent 0 0 0 0 0
Depreciation 220,000 230,000 240,000 250,000 260,000
Less: Addition to net working capital 429,729 472,702 519,972 571,969 629,166
Capital expenditures 240,000 250,000 260,000 270,000 280,000
Net Working Capital 4,727,016 5,199,718 5,719,690 6,291,659 6,920,825
Free cash flow $869,061 $957,967 $1,055,764 $1,163,340 $1,281,674
Present value interest factor @ 30.0% 0.02227519 0.01713476 0.01318059 0.01013891 0.00779916
Present value of free cash flows $19,358 $16,415 $13,916 $11,795 $9,996
Sum of present values
Less: Change of Control Liabilities
Enterprise value
<CAPTION>
1.1 1.1 1.1
2018 2019 2020
<S> <C> <C> <C>
Total Revenue $23,575,578 $25,933,136 $28,526,450
Growth Rate
Material Cost 5,893,895 6,483,284 7,131,612
Direct Labor 3,300,581 3,630,639 3,993,703
Overhead
Manufacturing
Extrusion
Maintenance
Warehouse/Purchasing
Manufacturing Engineering
Quality Assurance
Building & Utilities
Other
Total Overhead 5,422,383 5,964,621 6,561,083
Sales & General Administrative
Payroll & Benefits NA NA NA
Insurance
Professional Fees
Financial Reporting
Car Allowance
Royalties
Rent Expense
Telephone
Postage & Supplies
Advertising
Misc.
Travel
Directors Fees
Depreciation
Allocation to Hydromer (J.P.)
Allocation to Hydromer (J.N.)
Total Sales & General Administrative Expense 5422383.01 5964621.32 6561083.45
Depreciation
Computation of Present value of NOL to Biosearch:
Income before state and federal income taxes 3,536,337 3,889,970 4,278,867
State income taxes @9% 318,270 350,097 385,107
Income before federal income taxes 3,218,066 3,539,873 3,893,860
Federal income taxes @34% 1,094,143 1,203,557 1,323,913
Tax benefit of NOL 0 0 0
PVIF @ 30.0% 0.0059994 0.0046149 0.0035499
Present value of tax benefits of NOL 0 0 0
Sum of present values of tax benefits
Net Income 2123923.85 2336316.24 2569947.86
Plus:
Rent 0 0 0
Depreciation 270,000 280,000 290,000
Less: Addition to net working capital 692,082 761,291 837,420
Capital expenditures 290,000 300,000 310,000
Net Working Capital 7,612,907 8,374,198 9,211,618
Free cash flow $1,411,841 $1,555,026 $1,712,528
Present value interest factor @ 30.0% 0.00599936 0.00461489 0.00354991
Present value of free cash flows $8,470 $7,176 $6,079
Sum of present values
Less: Change of Control Liabilities
Enterprise value
</TABLE>
<PAGE>
Biosearch Medical Products, Inc.
Discounted Cash Flow Analysis
<TABLE>
<CAPTION>
1.3078635
1999 2000 2001
<S> <C> <C> <C>
Total Revenue $1,855,300 $2,696,000 $3,526,000
Growth Rate
Material Cost 463,825 598,512 881,500
25% 22% 25%
Direct Labor 212,500 296,560 476,010
11% 11% 14%
Overhead
Manufacturing 204,000 249,000 300,000
Extrusion 0 0 0
Maintenance 11,550 70,000 75,000
Warehouse/Purchasing 44,000 62,500 65,500
Manufacturing Engineering 0 62,500 65,500
Quality Assurance 57,000 125,500 156,000
Building & Utilities 55,000 60,000 100,000
Other 50,000 75,000 200,000
Total Overhead 421,500 704,500 962,000
23% 26% 27%
Sales & General Administrative
Payroll & Benefits 473,000 570,000 593,000
Insurance 80,000 80,000 85,000
Professional Fees 30,000 35,000 35,000
Financial Reporting 15,000 15,000 15,000
Car Allowance 20,000 20,000 20,000
Royalties 0 0 0
Rent Expenses 98,000 98,000 120,000
Telephone 20,000 20,000 25,000
Postage & Supplies 25,000 25,000 30,000
Advertising 10,000 10,000 20,000
Misc. 10,000 10,000 20,000
Travel 5,000 10,000 25,000
Directors Fees 40,000 40,000 45,000
Depreciation 50,577 72,577 98,577
Allocation to Hydromer (J.P) (20,450) (22,500) (23,600)
Allocation to Hydromer (J.N) (24,500) (26,950) (28,300)
Total Sales & General Administrative Expense 831,627 956,127 1,079,677
45% 34% 29%
Depreciation 50,577 72,577 96,577
Computation of Present value of NOL to Biosearch:
Income before state and federal income taxes (74,152) 140,301 128,813
State income taxes @ 9% 0 0 0
Income before federal income taxes (74,152) 140,301 128,813
Federal income taxes @ 34% 0 0 0
Tax benefit of NOL 47,702 43,796
PVIF @ 25% 0.7155418 0.5724334
Present value of tax benefits of NOL 34,133 25,070
--------
Sum of present values of tax benefits $538,343
--------
Net Income (74,152) 140301 128813
Plus:
Rent 98,000 98,000 49,000
Depreciation 50,577 72,577 96,577
Less: Addition to net working capital 200,000 270,000 269,700
Capital expenditures 100,000 110,000 120,000
Net Working Capital 600,000 870,000 1,139,700
Free cash flow ($225,649) ($68,982) ($115,181)
Present value interest factor @ 25% 0.8944272 0.7155418 0.5724334
Present value of free cash flows ($201,827) ($49,360) ($65,933)
Sum of present values $993,011
Less Change of Control Liabilities 135,000
--------
Enterprise value $858,011
--------
<CAPTION>
1.1914351 1.1547251 1.1500722 1.15 1.15
2002 2003 2004 2005 2006
<S> <C> <C> <C> <C> <C>
Total Revenue $4,201,000 $4,851,000 $5,578,650 $6,415,448 $7,377,765
Growth Rate
Material Cost 1,050,250 1,212,750 1,394,663 1,603,862 1,844,441
25% 25%
Direct Labor 567,135 654,885 781,011 898,163 1,032,887
14% 14%
Overhead
Manufacturing 326,000 357,000
Extrusion 0 0
Maintenance 75,000 75,000
Warehouse/Purchasing 69,000 72,300
Manufacturing Engineering 69,000 72,300
Quality Assurance 164,000 173,000
Building & Utilities 100,000 100,000
Other 200,000 200,000
Total Overhead 1,003,000 1,049,600 1,283,090 1,475,553 1,696,886
24% 22%
Sales & General Administrative
Payroll & Benefits 616,000 641,000 NA NA NA
Insurance 90,000 90,000
Professional Fees 35,000 30,000
Financial Reporting 15,000 15,000
Car Allowance 20,000 20,000
Royalties 0 0
Rent Expenses 120,000 120,000
Telephone 25,000 25,000
Postage & Supplies 30,000 30,000
Advertising 30,000 30,000
Misc. 30,000 30,000
Travel 25,000 25,000
Directors Fees 45,000 45,000
Depreciation 122,577 150,577
Allocation to Hydromer (J.P) (20,450) (20,450)
Allocation to Hydromer (J.N) (24,500) (24,500)
Total Sales & General Administrative Expense 1,158,627 1,206,627 1,283,090 1,475,553 1,696,886
26% 23%
Depreciation 122,577 150,577
Computation of Present value of NOL to Biosearch:
Income before state and federal income taxes 421,988 727,138 836,798 962,317 1,106,665
State income taxes @ 9% 0 9,000 75,312 86,609 99,600
Income before federal income taxes 421,988 718,138 761,486 875,709 1,007,065
Federal income taxes @ 34% 0 0 0 0 0
Tax benefit of NOL 143,476 244,167 258,905 297,741 342,402
PVIF @ 25% 0.4579467 0.3663574 0.2930859 0.2344687 0.1875750
Present value of tax benefits of NOL 65,704 89,452 75,881 69,811 64,226
Sum of present values of tax benefits
Net Income 421988 718138 761485.73 875708.58 1007064.9
Plus:
Rent 0 0 0 0 0
Depreciation 122,577 150,577 130,000 140,000 150,000
Less: Addition to net working capital 216,543 210,218 234,969 270,214 310,747
Capital expenditures 130,000 140,000 150,000 160,000 170,000
Net Working Capital 1,356,243 1,566,461 1,801,430 2,071,644 2,382,391
Free cash flow $198,444 $519,128 $507,410 $586,521 $676,318
Present value interest factor @ 25% 0.4579467 0.3663574 0.2930589 0.2344687 0.187575
Present value of free cash flows $90,877 $190,186 $148,715 $137,521 $126,860
Sum of present values
Less Change of Control Liabilities
Enterprise value
<CAPTION>
1.12 1.1 1.1 1.1 1.1
2007 2008 2009 2010 2011
<S> <C> <C> <C> <C> <C>
Total Revenue $8,263,096 $9,089,406 $9,998,347 $10,998,181 $12,097,999
Growth Rate
Material Cost 2,065,774 2,272,352 2,499,587 2,749,545 3,024,500
Direct Labor 1,156,833 1,272,517 1,399,769 1,539,745 1,693,720
Overhead
Manufacturing
Extrusion
Maintenance
Warehouse/Purchasing
Manufacturing Engineering
Quality Assurance
Building & Utilities
Other
Total Overhead 1,900,512 2,090,563 2,299,620 2,529,582 2,782,540
Sales & General Administrative
Payroll & Benefits NA NA NA NA NA
Insurance
Professional Fees
Financial Reporting
Car Allowance
Royalties
Rent Expenses
Telephone
Postage & Supplies
Advertising
Misc.
Travel
Directors Fees
Depreciation
Allocation to Hydromer (J.P)
Allocation to Hydromer (J.N)
Total Sales & General Administrative Expense 1,900,512 2,090,563 2,299,620 2,529,582 2,782,540
Depreciation
Computation of Present value of NOL to Biosearch:
Income before state and federal income taxes 1,239,464 1,363,411 1,499,752 1,649,727 1,814,700
State income taxes @ 9% 111,552 122,707 134,978 148,475 163,323
Income before federal income taxes 1,127,913 1,240,704 1,364,774 1,501,252 1,651,377
Federal income taxes @ 34% 0 0 402,823 510,426 561,468
Tax benefit of NOL 383,490 421,839 61,200 0 0
PVIF @ 25% 0.15000600 0.1200480 0.0960384 0.0768307 0.0614646
Present value of tax benefits of NOL 57,547 50,641 5,878 0 0
Sum of present values of tax benefits
Net Income 1127912.7 1240703.9 961951.31 990826.152 1089908.77
Plus:
Rent 0 0 0 0 0
Depreciation 160,000 170,000 180,000 190,000 200,000
Less: Addition to net working capital 285,886 266,828 293,511 322,862 355,148
Capital expenditures 180,000 190,000 200,000 210,000 220,000
Net Working Capital 2,668,277 2,935,105 3,228,616 3,551,477 3,906,625
Free cash flow $822,027 $953,876 $648,441 $647,965 $714,761
Present value interest factor @ 25% 0.15006 0.120048 0.096384 0.07683071 0.06146457
Present value of free cash flows $123,353 $114,511 $62,275 $49,784 $43,932
Sum of present values
Less Change of Control Liabilities
Enterprise value
<CAPTION>
1.1 1.1 1.1 1.1 1.1
2012 2013 2014 2015 2016
<S> <C> <C> <C> <C> <C>
Total Revenue $13,307,799 $14,638,579 $18,102,437 $17,712,681 $19,483,949
Growth Rate
Material Cost 3,326,950 3,659,645 4,025,609 4,428,170 4,870,987
Direct Labor 1,863,092 2,049,401 2,254,341 2,479,775 2,727,753
Overhead
Manufacturing
Extrusion
Maintenance
Warehouse/Purchasing
Manufacturing Engineering
Quality Assurance
Building & Utilities
Other
Total Overhead 3,060,794 3,366,873 3,703,561 4,073,917 4,481,308
Sales & General Administrative
Payroll & Benefits NA NA NA NA NA
Insurance
Professional Fees
Financial Reporting
Car Allowance
Royalties
Rent Expenses
Telephone
Postage & Supplies
Advertising
Misc.
Travel
Directors Fees
Depreciation
Allocation to Hydromer (J.P)
Allocation to Hydromer (J.N)
Total Sales & General Administrative Expense 3,060,794 3,366,873 3,703,561 4,073,917 4,481,308
Depreciation
Computation of Present value of NOL to Biosearch:
Income before state and federal income taxes 1,996,170 2,195,787 2,415,366 2,656,902 2,922,592
State income taxes @ 9% 179,655 197,621 217,383 239,121 263,033
Income before federal income taxes 1,816,515 1,998,166 2,197,983 2,417,781 2,659,559
Federal income taxes @ 34% 617,615 679,376 747,314 822,046 904,250
Tax benefit of NOL 0 0 0 0 0
PVIF @ 25% 0.0491717 0.0393373 0.0314699 0.0251759 0.0201407
Present value of tax benefits of NOL 0 0 0 0 0
Sum of present values of tax benefits
Net Income 1198899.64 1318789.61 1450668.57 1595735.43 1755308.97
Plus:
Rent 0 0 0 0 0
Depreciation 210,000 220,000 230,000 240,000 250,000
Less: Addition to net working capital 390,663 429,729 472,702 519,972 571,969
Capital expenditures 230,000 240,000 250,000 260,000 270,000
Net Working Capital 4,297,288 4,727,016 5,199,718 5,719,690 6,291,659
Free cash flow $788,237 $869,061 $957,967 $1,055,764 $1,163,340
Present value interest factor @ 25% 0.04917185 0.03933732 0.03146986 0.02517589 0.02014071
Present value of free cash flows $38,759 $34,187 $30,147 $26,580 $23,430
Sum of present values
Less Change of Control Liabilities
Enterprise value
<CAPTION>
1.1 1.1 1.1 1.1
2017 2018 2019 2020
<S> <C> <C> <C> <C>
Total Revenue $21,432,344 $23,575,578 $25,933,138 $28,526,450
Growth Rate
Material Cost 5,358,086 5,893,895 6,483,284 7,131,012
Direct Labor 3,000,528 3,300,581 3,630,639 3,993,703
Overhead
Manufacturing
Extrusion
Maintenance
Warehouse/Purchasing
Manufacturing Engineering
Quality Assurance
Building & Utilities
Other
Total Overhead 4,929,439 5,422,383 5,964,621 6,561,065
Sales & General Administrative
Payroll & Benefits NA NA NA NA
Insurance
Professional Fees
Financial Reporting
Car Allowance
Royalties
Rent Expenses
Telephone
Postage & Supplies
Advertising
Misc.
Travel
Directors Fees
Depreciation
Allocation to Hydromer (J.P)
Allocation to Hydromer (J.N)
Total Sales & General Administrative Expense 4,929,439 5,422,383 5,964,621 6,561,083
Depreciation
Computation of Present value of NOL to Biosearch:
Income before state and federal income taxes 3,214,852 3,536,337 3,889,970 4,278,967
State income taxes @ 9% 289,337 318,270 350,097 385,107
Income before federal income taxes 2,925,515 3,218,066 3,539,873 3,893,860
Federal income taxes @ 34% 994,675 1,094,143 1,203,557 1,323,913
Tax benefit of NOL 0 0 0 0
PVIF @ 25% 0.0161126 0.0128901 0.0103120 0.0082496
Present value of tax benefits of NOL 0 0 0 0
Sum of present values of tax benefits
Net Income 1930839.86 2123923.85 2336316.24 2569947.86
Plus:
Rent 0 0 0 0
Depreciation 260,000 270,000 280,000 290,000
Less: Addition to net working capital 629,166 692,082 761,291 837,420
Capital expenditures 280,000 290,000 300,000 310,000
Net Working Capital 6,920,825 7,612,907 8,374,198 9,211,618
Free cash flow $1,281,674 $1,411,841 $1,555,026 $1,712,528
Present value interest factor @ 25% 0.01811257 0.01289005 0.01031204 0.00824963
Present value of free cash flows $20,651 $18,199 $16,035 $14,128
Sum of present values
Less Change of Control Liabilities
Enterprise value
</TABLE>
<PAGE>
Biosearch Medical Products, Inc.
Comparative Income Statements for the Years Ended December 31, 1993-1998
and at for the Three Months Ended
March 31,1998-1999.
Exhibit B
<TABLE>
<CAPTION>
1993 1994 1995 1996
<S> <C> <C> <C> <C>
Revenues $3,793,670 $3,573,877 $3,268,220 $2,648,719
Cost of goods sold 2,916,187 2,909,482 2,777,747 2,238,606
-----------------------------------------------------------
Gross profit 877,483 664,395 490,473 410,113
Selling, general and administrative expenses 1,600,619 1,451,966 1,332,497 1,222,901
-----------------------------------------------------------
Operating profit (loss) (723,136) (787,571) (842,024) (812,788)
Other income (expense)
Interest expense, net (204,616) (98,902) (30,426) (72,055)
Sale of Assets-Certain Business Groups 0 3,328,765 0 0
Other, net 683,930 454,291 28,818 1,275
-----------------------------------------------------------
Total other income (expense) 479,314 3,684,154 (1,608) (70,780)
Income (Loss) from operations before
extraordinary item (243,822) (2,896,583) (843,632) (883,568)
Extraordinary items: 0 114,000 0 0
Gain (loss) on retirement of debt
Federal income taxes 0 (60,000) 0 0
Net income (loss) ($243,822) $2,950,583 ($843,632) ($883,568)
=========================================================
<CAPTION>
1997 1998 03/31/98 03/31/99
<S> <C> <C> <C> <C>
Revenues $1,936,171 $1,294,838 $604,117 $218,401
Cost of goods sold 1,536,936 1,271,216 430,102 214,206
-------------------------------------------------------
Gross profit 399,235 23,622 174,015 4,195
Selling, general and administrative expenses 892,602 859,077 202,018 195,230
-------------------------------------------------------
Operating profit (loss) (493,367) (835,455) (28,003) (191,035)
Other income (expense)
Interest expense, net (84,441) (22,427) (20,885) 0
Sale of Assets-Certain Business Groups 0 0 0 191,259
Other, net 21,598 6,906 1,887 400,167
-------------------------------------------------------
Total other income (expense) (62,843) (15,521) (18,998) 591,426
Income (Loss) from operations before
extraordinary item (556,210) (850,976) (47,001) 400,391
Extraordinary items: 0 0 0 0
Gain (loss) on retirement of debt
-------------------------------------------------------
Federal income taxes 0 0 0 0
Net income (loss) ($556,210) ($850,976) ($47,001) $400,391
=======================================================
</TABLE>
<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
COMPARABLE COMPANY ANALYSIS
PRICING AS OF March 199,1999
Exhibit 4
<TABLE>
<CAPTION>
Net Working
PRICE/ PRICE/LTM PRICE/LTM EBITDA/ EBITDA/ Capital/
BOOK VALUE REVENUES EBITDA BOOK VALUE REVENUES Revenues
(A) (B) (C) (D) (E) (F)
<S> <C> <C> <C> <C> <C> <C>
COMPARABLE COMPANY
ABIOMED, INC. (ABMD) 2.90 3.60 NM -20.30% -30.06% 1.09
ADVANCED NEUROMODULATION SYSTEMS (ANSI) 1.60 3.50 11.80 11.96% 29.35% 0.88
ALARIS MEDICAL, INC. (ALRS) 1.40 2.00 8.30 19.34% 24.72% 0.36
APPLIED IMAGING CORP. (AICX) 0.83 1.00 NM -89.33% -68.39% 1.02
ARROW INTERNATIONAL, INC. (ARRO) 1.90 2.20 7.00 27.89% 30.99% 0.38
BALLARD MEDICAL PRODUCTS, INC. (BMP) 4.10 6.20 16.80 25.51% 36.63% 0.85
BARD (C.R.), INC. (BCR) 3.50 2.90 15.90 21.29% 17.94% 0.07
BAXTER INTERNATIONAL INC. (BAX) 3.90 3.60 14.10 30.05% 25.36% 0.23
BIONIX IMPLANTS, INC. (BINX) 1.70 2.60 25.90 6.80% 10.06% 1.24
BOSTON SCIENTIFIC CORP. (BSX) 3.20 7.00 20.30 35.97% 34.28% -0.82%
EP MEDISYSTEMS, INC. (EPMD) 3.60 4.30 NM -48.97% -50.41% 0.98
FOCAL, INC. (FOCL) 3.80 10.30 NM -3.60% -11.86% 2.34
GISH BIOMEDICAL, INC. (GISH) 0.59 0.50 29.0 1.77% 1.73% 0.71
GUIDANT CORP. (GDT) 9.00 5.10 17.50 63.39% 28.63% 0.06
HAEMONETICS CORP.(HAE) 1.70 1.80 9.40 19.23% 18.86% 0.56
HENLEY HEALTHCARE, INC.(HENL) 1.20 1.50 NM -5.14% -3.31% -0.09%
ICU MEDICAL, INC. (ICUI) 2.60 3.90 12.40 58.70% 31.07% 1.10
KENSEY NASH CORP. (KNSY) 3.50 6.10 69.80 5.07% 8.77% 0.83
MEDAMICUS, INC. (MEDM) 1.90 0.83 17.50 13.56% 4.73% 0.24
MERIDAN MED TECHNOLOGIES, INC. (MTEC) 1.00 0.96 9.30 12.14% 10.41% 0.14
MERIT MEDICAL SYSTEMS, INC. (MMSI) 1.40 0.80 6.90 21.71% 11.69% 0.22
MINNTECH CORP. (MNTX) 1.68 1.07 6.58 28.77% 16.30% 0.41
NITINOL MEDICAL TECHNOLOGY, INC. (NMTI) 1.40 3.20 64.10 3.25% 4.92% 1.07
ORTHOLOGIC CORP. (OLGC) 1.20 1.10 NM -11.45% -12.66% 0.49
OXBORO MEDICAL INTERNATIONAL, INC. (OMED) 8.40 6.10 NM -42.19% -23.93% 0.33
ROCHESTER MEDICAL CORP. (ROCM) 1.70 5.60 NM -7.53% -24.47% 2.00
STRYKER CORP. (SYK) 6.60 5.10 15.00 51.09% 34.07% 0.52
US SURGICAL CORP. (USS) 1.90 2.80 13.80 18.59% 20.27% 0.37
VITAL SIGNS, INC. (VITL) 1.90 1.80 9.90 18.84% 18.08% 0.28
UTAH MEDICAL PRODUCTS, INC. (UM) 1.80 2.10 6.70 29.71% 30.70% 0.37
VENTANA MEDICAL SYSTEMS, INC. (VMSI) 5.60 6.40 101.70 6.29% 6.30% 0.81
VIVUS, INC. (VVUS) 6.20 1.30 NM -23.82% -30.58% -0.07%
MEDIAN 1.90 2.85 9.65 12.85% 11.05% 44.88%
MEAN 2.93 3.35 15.93 8.71% 6.26% 59.30%
STANDARD DEVIATION 2.11 2.29 22.16 30.27% 25.59% 59.27%
COEFFICIENT OF VARIATION 0.72 0.68 1.39 3.48 4.06
</TABLE>
(A) MARKET VALUE OF TOTAL INVESTED CAPITAL DIVIDED BY BOOK VALUE OF TOTAL
INVESTED CAPITAL.
(B) MARKET VALUE OF TOTLA INVESTED CAPITAL DIVIDED BY REVENUES RECOGNIZED
DURING THE LATEST TWELVE MONTHS, AS REPORTED IN SEC FILINGS.
(C) MARKET VALUE OF TOTAL INVESTED CAPITAL DIVIDED BY EARNINGS BEFORE INTEREST,
TAXES, DEPRECIATION AND AMORTIZATION AND EXTRAORDINARY!
(D) EARNINGS BEFORE INTERST TAXES DEPRECIATION AND AMORTIZATION DIVIDED BY THE
BOOK VALUE OF TOTAL INVESTED CAPITAL.
(E) EARNINGS BEFORE INTEREST TAXES DEPRECIATION AND AMORTIZATION DIVIDED BY
REVENUES.
(F) NET WORKING CAPITAL (CURRENT ASSETS MINUS CURRENT LIABILITIES) DIVIDED BY
REVENUES.
<PAGE>
Biosearch Medical Products, Inc.
Data Relating to Sales, Mergers, and Acquisitions
of Companies in the Surgical Instruments and Equipment Industry
<TABLE>
<CAPTION>
EXHIBIT 5
Date of Price/ Price/ Price/ EBITDA/ EBITDA/
Name of Target Transaction Book Value Revenues EBITDA Book Value Revenues
<S> <C> <C> <C> <C> <C> <C>
Venture Medical, Inc. 02/09/98 0.54 0.47 1.67 31.80% 27.98%
Equidyne Systems, Inc. 05/11/98 NM NM NM NM NM
Elekta Neuro-surgical Instruments 07/08/98 NA 0.89 NM NA -5.03%
Ideas for Medicine, Inc. 09/30/98 NA 2.70 NA NA NA
Norfolk Medical Products, Inc. 06/02/98 NA 3.67 NA NA NA
NA 01/30/98 1.71 1.71 15.21 11.27% 11.23%
Edward Weck, Inc. of Bristol-Meyers Squibb 12/21/93 NA 1.01 NA NA NA
Intervention Therapeutics Corp. 04/29/96 NA 6.99 NA NA NA
Master Medical Corporation 05/22/95 NA 1.15 4.99 NA 23.01%
Microgyn, Inc. 10/29/96 NA NM NM NM NM
X-Cardia 02/28/97 NA NA NA NA NA
Neuromed, Inc. 03/31/95 NA 2.69 NA NA NA
Median 1.13 1.71 4.99 21.54% 17.12%
Mean 1.13 2.36 7.29 21.54% 14.30%
Source Pratt's Stats, Inc.
</TABLE>
<PAGE>
Exhibit 6
Biosearch Medical Products, Inc.
Discounted Cash Flow Analysis
Valuation Summary
(A) Projected free cash flows discounted at 35%: $275,361, or $0.125 per share
Under this scenario, NOL has present value to Company of $349,551.
(B) Projected free cash flows discounted at 30%: $503,554, or $0.229 per share.
Under this scenario, NOL has present value to Company of $430,000.
(C) Projected free cash flows discounted at 25%: $858,011, or $0.391 per share.
Under this scenario, NOL has present value to Company of $538,343.
<PAGE>
Exhibit 7
Biosearch Medical Products, Inc.
Market Comparable Analysis
Valuation Summary
(A) Public Companies - Medical Instrumentation
(1) Median Price/Revenue Ratio: 2.85
(a) Appropriate ratio near low end of range: .75
(b) Preliminary indicated value: $971,129
Less: Required working capital: (200,000)
Indicated value: $771,129
(2) Median Price/Book Value: 1.90
(a) Appropriate ratio near low end of range: 1.00
(b) Preliminary indicated: $489,561
Less: Required working capital: (200,000)
Indicated value: $289,561
(3) Average of (1) and (2) $530,345, or $0.242
per share.
Quality of data: FAIR
<PAGE>
Exhibit 8
Biosearch Medical Products, Inc.
Market Comparable Analysis
Valuation Summary
(A) Market Value Ratios Derive from Sale/Merger Transactions
(1) Median Price/Revenue Ratio: 1.71
(a) Appropriate ratio near low end of range- .65
(b) Preliminary indicated value: $841,645
Less: Required working capital: (200,000)
Indicated value: $641,645
(2) Median Price/Book Value: 1.13
(a) Appropriate ratio at low end of range: .54
(b) Preliminary indicated value: $264,363
Less: Required working capital: (200,000)
Indicated value: $ 64,363
(3) Average of (1) and (2): $353,004, or $0.161
per share.
Quality of data: POOR
<PAGE>
Biosearch Medical Products, Inc. Exhibit 9
Liquidating Value Analysis
March 31, 1999 Balance Sheet
ASSETS
Current Assets:
Cash and cash equivalents $ 49,157
Accounts receivable @85% 94,903
Inventories @50% 164,914
Other current assets 235,908
--------
Total current assets 544,882
Property, plant & equipment 250,000
--------
Total assets $794,882
========
Liabilities and Stockholders' Equity
Current Liabilities $330,000
Change of control obligations 135,000
--------
Total liabilities 465,000
--------
Estimated Liquidating Value $329,882
========
Per share $ 0.150
<PAGE>
Exhibit 10
Biosearch Medical Products, Inc.
Valuation Recap.
Aggregate Value Per Share
(A) DCF Analysis
(1) 35% Discount Rate: $275,361 $0.125
(2) 30% Discount Rate: $503,554 $0.229
(3) 25% Discount Rate: $858,011 $0.391
(B) Public Comparables $530,345 $0.242
(C) Sale/Merger Transactions $353,004 $0.161
(D) Liquidating Value Analysis $329,882 $0.150
Median $428,279 $0.195
Mean $475,026 $0.216
Note: No consideration given to effect on per share value of stock option
exercise.
<PAGE>
Exhibit 11
Biosearch Medical Products, Inc.
Cash Flow Forecast
<TABLE>
<CAPTION>
April May June July August December
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 50,000 $ 13,500 $ 0 $ 9,500 ($ 8,000) ($ 3,500)
Cash proceeds:
Accounts receivable $ 100,000 $ 125,000 $ 160,000 $ 165,000 $ 165,000 $ 170,000
Cash out:
Payroll and benefits $ 62,000 $ 64,000 $ 64,000 $ 96,000 $ 64,000 $ 64,000
Accounts payable $ 50,000 $ 50,000 $ 60,000 $ 60,000 $ 70,000 $ 70,000
Accounts payable-Med & Dent. $ 15,000 $ 15,000 $ 15,000 $ 15,000 $ 15,000 $ 15,000
Accounts payable-Comm. Insur $ 5,000 $ 5,000 $ 7,000 $ 7,000 $ 7,000 $ 7,000
Accounts payable-Building Expense $ 4,500 $ 4,500 $ 4,500 $ 4,500 $ 4,500 $ 5,000
Total cash out $ 136,500 $ 138,500 $ 150,500 $ 182,500 $ 160,500 $ 161,000
Net cash $ 13,500 $ 0 $ 9,500 ($ 8,000) ($ 3,500) $ 5,000
</TABLE>
Note: Provided by management.
