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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF SECURITIES EXCHANGE ACT OF 1934)
(AMENDMENT NO. 4)
BIOSEARCH MEDICAL PRODUCTS, INC.
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(Name of the Issuer)
JOINT FILING BY:
BIOSEARCH MEDICAL PRODUCTS, INC.; HYDROMER, INC.; MANFRED F. DYCK;
URSULA M. DYCK, MARTIN C. DYCK AND ROBERT J. MORAVSIK, ESQ.
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(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
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$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.
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<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) see schedule 14A
(b) see schedule 14A
(c) See Section I of Proxy Statement, subsection entitled "Share Price of
Company" incorporated by reference herein.
(d) See Proxy Statement, Section I, "Dividends".
(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 II, subsection entitled "Nominees for Election."
As to the Purchaser: for information about officers and directors see the Proxy
Statement Section I, Subsection entitled "Directors and Officers of Hydromer"
As to Affiliates
Manfred F. Dyck
(a)-(d) See Proxy Statement "Identity and Background of Parties"
(e)(f) not applicable
Ursula M. Dyck
(a)-(d) See Proxy Statement "Identity and Background of Parties"
(e)(f) not applicable
Martin C. Dyck
(a)-(d) See Proxy Statement "Identity and Background of Parties"
(e)(f) not applicable
Robert J. Moravsik
<PAGE>
(a)-(d) See Proxy Statement "Identity and Background of Parties"
(e)(f) not applicable
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
As to Hydromer, Biosearch, Manfred F. Dyck, Martin C. Dyck and Robert J.
Moravsik:
(a)(1) See Proxy Statement, Section II, subsections entitled "Other Information
Concerning Directors, Officers and Stockholders."
(2) See Proxy Statement, Section II, subsection entitled "Other Information
Concerning Directors, Officers and Stockholders" and Section I, "Special
Factors", sub-section B, C and D
(b)(i) See Proxy Statement, Section I, "Special Factors"-subsection B, C and D.
(ii) Not applicable
As to Ursula M. Dyck (a)(b) NONE
ITEM 4. TERMS OF THE TRANSACTION.
(a) See Section I of the Proxy Statement, subsection entitled "Summary of
Material Features of this Exchange".
(b) See Special Factors Section of the Proxy Statement, Section I "Effects of
this Transaction" sub-section.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a) through (e) inclusive: Not applicable.
(f) See Proxy Statement, section I entitled "Biosearch will go private"
(g) Not applicable
ITEM 6. SOURCE AND AMOUNTS OF FUNDS AND OTHER CONSIDERATION.
(a)-(c) See Proxy Statement, section entitled "Source of Funds"
(d) not applicable
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND FACTS
As to Biosearch, Hydromer,
Manfred F. Dyck,
Martin C. Dyck and
Robert J. Moravsik:
(a)-(c) See Section I of the Proxy Statement,subsection entitled
"Special Factors"
(d) See Section I of the Proxy Statement, subsections entitled
"Special Factors effects of this transaction" "Federal Income
Tax Consequences," and
<PAGE>
"Biosearch Medical Products, Inc. will go Private."
As to Ursula M. Dyck (a)-(d) NONE
ITEM 8. FAIRNESS OF TRANSACTION.
(a) See Section I of the Proxy Statement, subsections entitled "Special
Factors"
(b) See Section I 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)-(e) See Section I of the Proxy Statement, subsection entitled
"Special Factors"
(f) Not applicable
ITEM 9. REPORTS, OPINIONS, APPRAISALS, AND CERTAIN NEGOTIATIONS.
(a)-(c) See Section I of the Proxy Statement, subsection entitled
"Special Factors"
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 II, 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 Ursula M. Dyck: (a) Not Applicable
(b) Not Applicable
As to Martin C. Dyck: (a) See Proxy Statement, Section II, 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 Robert J. Moravsik: (a) Not Applicable
(b) Not Applicable
<PAGE>
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
See Section I 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)-(b) See Section I of the Proxy Statement, subsection entitled
"Special Factors"
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) See Section I of the Proxy Statement, subsections entitled "Right of
dissent/appraisal," and "Shareholders Protection Act."
(b) Not applicable
(c) Not applicable
ITEM 14. FINANCIAL INFORMATION.
(a) See Section I of Proxy Statement "Other Information"
(b) Not applicable
ITEM 15. PERSONS AND ASSETS EMPLOYED RETAINED OR UTILIZED.
(a) See Section I 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.
LAWSON LETTER dated June 28, 1999
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
<PAGE>
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 I 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 II, 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) Ursula M. Dyck
(b) 35A Industrial Parkway
Somerville, NJ 08876
(c) Former Director of Biosearch Medical Products, Inc.,
and wife of Manfred F. Dyck
(d) not applicable
(e)(f) Ursula M. 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 II, 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.
(a) Robert J. Moravsik
<PAGE>
(b) 35A Industrial Parkway
Somerville, NJ 08876
(c) Present Vice President, General Counsel and Secretary
of Biosearch Medical Products, Inc.; Present Vice
President and General Counsel of Hydromer, Inc.
(d) not applicable
(e)(f) Robert J. Moravsik 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 Hydromer and
Biosearch, see the Proxy Statement Section I, Subsection entitled "Special
Factors and Section II, "Nominees for Election".
ITEM 3. PAST CONTRACTS, TRANSACTIONS OR NEGOTIATIONS.
As to Hydromer,
Biosearch,
Manfred F. Dyck
Martin C. Dyck and
Robert J. Moravsik:
(a) (1) See Proxy Statement, Section II, subsections
entitled "Other Information Concerning Directors,
Officers and Stockholders."
(2) See Proxy Statement, Section II,
subsection entitled "Other
Information Concerning Directors,
Officers and Stockholders" and
Section I, "Share Exchange for
$0.20."
(b) (i) See Proxy Statement, Section I,
"Share Exchange for $0.20,"
subsection entitled "Summary of
Material features of this Exchange,
paragraphs d and e.
(ii) Not applicable
As to Ursula M. Dyck (a)-(b) Not applicable
ITEM 4. TERMS OF THE TRANSACTION.
(a) See Section I 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.
<PAGE>
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 ($440,576). The balance of expenses (except for legal fees,
evaluations and exchange) will be funded by the issuer from working
capital. The total amount of funds is estimated to be $573,364.
(b) Itemized expenses
Exchange of common stock $440,576
Legal ....................$ 27,000 (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 ............... 16,000 (analysis/responding to SEC comments)
Solicitation ............. 3,600
Edgarizing ............... 15,000 (electronic filing with SEC, keying reports)
Printing ................. 7,000
Proxy solicitation ....... 3,600
Exchange of money
for certificates ....... 3,000(1)
Filing fees (Form 13 E 3). 88
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TOTAL .....................$573,364
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(1) Estimated costs for the transfer agent to send out letters to stockholders
requesting that they mail in their certificates and receive the exchange
price of $0.20 per share.
(c) None of the above funds will be borrowed
(d) not applicable
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND FACTS
As to Biosearch, Hydromer,
Manfred F. Dyck
Martin C. Dyck and
Robert J. Moravsik:
(a) See Section I of the Proxy
Statement, subsection
<PAGE>
entitled "Special Factors"
incorporated by reference
herein.
(b) The Issuer sought
unsuccessfully to raise the
additional capital
necessary for marketing its
products. See Section I of
the Proxy Statement,
subsection entitled
"Special Factors"
incorporated by reference
herein.
(c) See Section I of the Proxy
Statement, subsection
entitled "Special Factors"
incorporated by reference
herein.
(d) See Section I of the Proxy
Statement, subsections
entitled "Special Factors"
"Federal Income Tax
Consequences," and
"Biosearch Medical
Products, Inc. will go
Private," incorporated by
reference herein.
As to Ursula M. Dyck
(a)-(d) not applicable
ITEM 8. FAIRNESS OF TRANSACTION.
In addition to the following, see Section I of the Proxy Statement,
subsections entitled "Special Factors"
(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 and Ursula M. Dyck have both 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.
Robert J. Moravsik 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. Mr.
Moravsik acting in the capacity of counsel to Biosearch Medical Products
advised the Board on legal issues regarding the fairness of this
transaction. By expressing and opinion in this filing, the attorney client
privilege is not waived as to legal advice.
<PAGE>
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, 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 average 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 I 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 all shareholders including but not limited to the unaffiliated
shareholders.
(e) The transaction was unanimously approved by the three directors of
Biosearch who are not employees of the Biosearch. These three directors
constitute a majority of the Board of Directors.
(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 I 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. In June of 1999 Hydromer received a letter dated June 28, 1999 from
Howard Lawson ("LAWSON LETTER") indicating that the reports and
conclsion reached by Howard Lawson were based on the projections
provided to Howard Lawson by Biosearch. Lawson inquired into a license
transaction that Biosearch did after the Lawson Reports were rendered.
The Lawson Letter dated June 28, 1999 is attached to this Schedule
13E-3 as Exhibit LAWSON LETTER.
5. 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
<PAGE>
under different scenarios (hereinafter the "RBB Report"). The RBB
Report is annexed to this Schedule 13E-3 as Exhibit RBB ONE.
(b) As to the Wharton Report:
1. See Section I of the Proxy Statement, subsection entitled "Special
Factors-WHARTON ONE report and Exhibit B to Proxy Statement,
incorporated by reference herein,
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, Lawson II and LAWSON LETTER dated 6/28/99
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.
<PAGE>
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. See Proxy Statement, Section I, entitled "Special Factors
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 II, 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 Ursula M. Dyck: (a) Not applicable
(b) Not Applicable
As to Martin C. Dyck: (a) See Proxy Statement, Section II, 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 Robert J. Moravsik: (a) Not applicable
(b) Not Applicable
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
See Section I 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 I of the Proxy Statement, subsection entitled "Intentions of
Certain Persons," incorporated by reference herein.
(b) See Section I of the Proxy Statement, subsection entitled "Intentions of
Certain Persons," incorporated by reference herein.
<PAGE>
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) See Section I 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 Proxy Statement, Section I, "Other Information".
(b) Not applicable
ITEM 15. PERSONS AND ASSETS EMPLOYED RETAINED OR UTILIZED.
(a) See Section I 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
ITEM 17. EXHIBITS.
(a) Not Applicable
(b) Exhibits:
WHARTON PROPOSAL -- Proposal letter and representative transactions of
Wharton Valuation Associates.
LAWSON LETTER -- Letter dated June 28, 1999.
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
stock option plans; bankruptcies, reorganizations and recapitalization; estate,
gift and income tax planning and compliance;
<PAGE>
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>
LAWSON LETTER Dated June 28, 1999
Howard, Lawson & Co.
Two Penn Center Plaza Investment Banking
Philadelphia, PA 19102 orporate Finance
215-988-0010 June 28, 1999
215-568-0029 FAX
Mr. Kenneth P. Brice
Vice President of Finance
Hydromer, Inc.
35 Industrial Parkway
Somerville, NJ 08876-3518 PERSONAL & CONFIDENTIAL
re: Biosearch Forecasts
Dear Ken:
Unfortunately, at the Hydromer Board meeting which I was asked to
attend, no copies of forecasts or other key financial slides were provided to
the attendees. When I asked about copies of financial details and assumptions,
Martin Dyck responded that he had provided them to you already which I assumed
were the forecasts that had been given to me for the evaluation.
Consequently, I was concerned when you told me that the current version
of Biosearch forecasts indicated the company is expected to fall far short of
the performance reflected in the forecasts that we used as a basis of our
evaluation. As noted in our opinion letter, the range of value of $0.18 to $0.20
per share was predicated on Biosearch meeting the forecasts which we reviewed
and which were included in our report. Most of this estimated value is based on
the present value of expected future earnings. However, the fact that current
year forecasts are significantly below the plan calls into doubt the reliability
of forecasts for the year 2000 through 2003. If, upon review, it is determined
that the forecasts for 2000 through 2003 need to be revised downward (similar to
the 1999 budget), it is likely that the range of $0.18 to $0.20 per share is no
longer valid under such less favorable outlook.
Further, you indicated that Biosearch has agreed to transfer rights to
certain technology to a third party prior to closing. You also indicated that
this was disclosed to the attendees of the above mentioned Board meeting which
Hydromer management was excused from. Whether or not it was disclosed, our
analysis assumed that all intangible assets in the form of technology would be
available to Hydromer and that if there was a situation that warranted the sale
of an intangible, Hydromer would be consulted to see if it was a technology they
wanted as part of the transaction. If this is no longer the case, not only are
the assets to be received by Hydromer of diminished value, the impact of the
technology in the hands of a potential competitor raises the additional business
risk which further could impair value.
If you would like to discuss this further, please give me a call.
Sincerely,
/s/ FRANK SPEWOCK
----------------------------
Frank Spewock
Partner
<PAGE>
SIGNATURES
NOVEMBER 17, 1999
-----------------
(Date)
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete and correct.
On behalf of Hydromer, Inc. and as an affiliated person
/s/ MANFRED F. DYCK
- --------------------------------------
Manfred F. Dyck, C.E.O Hydromer, Inc.
Director of Hydromer, Inc.
An affiliated person
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete and correct.
On behalf of Biosearch Medical Products, Inc. and as an affiliated person
/s/ MARTIN C. DYCK
- -----------------------------------------------------------
Martin C. Dyck, President, Biosearch Medical Products, Inc.
Director of Biosearch Medical Products, Inc.
An affiliated person
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete and correct.
/s/ URSULA M. DYCK
- -------------------------------------------
Director of Hydromer, An affiliated person
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete and correct.
/s/ ROBERT J. MORAVSIK
- -------------------------------------------------
Vice President, General Counsel and Secretary of
Biosearch Medical Products, Inc.
Vice President and General Counsel of
Hydromer, Inc. a filing person.
<PAGE>
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.5)
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 January 26, 2000
-------------------------------
Somerville, New Jersey
November 29, 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,
January 26, 2000, at 10:00 AM, for the following purposes, as more fully
described in the accompanying Proxy Statement:
1. 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.
2. To elect directors of the Company for the ensuing year. (In case
Proposal I is not approved by a majority vote of the stockholders.)
3. To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
The close of business on November 22, 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>
[ROUTE MAP]
RYLAND INN
BOX 284 * ROUTE 22 WEST
WHITEHOUSE, NJ 08888
(908) 534-4011
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT............................................................. 1
IMPORTANT NOTES:............................................................ 1
VOTING .............................................................. 1
FORWARD-LOOKING STATEMENTS............................................. 1
SUMMARY OF PROPOSALS TO BE VOTED ON......................................... 2
IDENTITY AND BACKGROUND OF PARTIES.......................................... 2
I. SHARE EXCHANGE for $0.20 ................................................ 3
Information about transaction.......................................... 3
Right of dissent/appraisal............................................. 3
Shareholders Protection Act............................................ 4
Special Factors........................................................ 4
I. Background of this Transaction............................. 4
II. Fairness of this Transaction.............................. 9
III. The following reports have been received................. 21
Business of Hydromer, Inc.............................................. 27
Directors and Officers of Hydromer, Inc................................ 27
Executive Officers of Hydromer......................................... 28
Summary of material features of this Exchange.......................... 28
Accounting Treatment................................................... 29
Federal Income Tax Consequences........................................ 29
Dividends.............................................................. 29
Book Value of Company.................................................. 29
Price of Securities before and after public announcement on
May 13, 1999......................................................... 30
Share Price of Company................................................. 30
Regulatory requirements................................................ 30
BIOSEARCH, Inc. WILL "GO PRIVATE"...................................... 30
SOURCE OF FUNDS/FEES................................................... 31
Fairness Opinion....................................................... 31
Material Contracts with Hydromer....................................... 31
Further information about the Company.................................. 31
Description of Business....................................... 31
Principal Products/Services................................... 32
Anorectal Biofeedback Systems for fecal incontinence
and constipation.................................... 32
Bipolar Electro Coagulation Probes.................... 33
Indwelling Biliary Stents............................. 33
Jujunostomy catheters................................. 34
Enteral Accessory Devices............................. 35
Hydrophilic Coatings/Services......................... 35
Total Number of employees and full time employees............. 36
Description of Property....................................... 36
LEGAL PROCEEDING.............................................. 36
MARKET PRICE OF AND DIVIDENDS................................. 36
INDEPENDENT AUDITORS' REPORT.................................. 38
FINANCIAL STATEMENTS.......................................... 39
BALANCE SHEETS........................................ 39
STATEMENTS OF OPERATIONS.............................. 41
STATEMENTS OF SHAREHOLDERS' EQUITY.................... 42
STATEMENTS OF CASH FLOWS.............................. 43
NOTES TO FINANCIAL STATEMENTS......................... 44
-i-
<PAGE>
CONDENSED BALANCE SHEETS.............................. 54
CONDENSED STATEMENTS OF OPERATIONS.................... 56
CONDENSED STATEMENTS OF CASH FLOWS.................... 57
NOTES TO CONDENSED FINANCIAL STATEMENTS............... 57
SELECTED FINANCIAL DATA............................... 59
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 60
EXHIBIT A (PLAN OF EXCHANGE)........................................... 62
EXHIBIT B (FAIRNESS OPINION)........................................... 65
II. ELECTION OF DIRECTORS.................................................. 66
NOMINEES FOR ELECTION.................................................. 66
BOARD MEETINGS......................................................... 67
COMMITTEES IN GENERAL.................................................. 68
EXECUTIVE OFFICERS..................................................... 68
SECTION 16 FILING OBLIGATIONS.......................................... 68
SUMMARY COMPENSATION TABLE............................................. 69
OPTION GRANTED......................................................... 69
OPTION GRANTS IN LAST FISCAL YEAR...................................... 70
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR........................ 70
LONG-TERM STOCK INCENTIVE PLAN AWARDS.................................. 70
PROFIT SHARING RETIREMENT PLAN......................................... 70
CERTAIN AGREEMENTS/TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS.. 70
INFORMATION CONCERNING CERTAIN STOCKHOLDERS............................ 71
OTHER INFORMATION CONCERNING DIRECTORS, OFFICERS AND STOCKHOLDERS...... 72
III. RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS.............................. 76
IV. OTHER MATTERS.......................................................... 76
V. MISCELLANEOUS.......................................................... 76
-ii-
<PAGE>
PROXY STATEMENT
This Proxy Statement, which will be mailed commencing on or about November 29,
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 January 26, 2000, 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 November 22, 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 NOVEMBER 22, 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 NOVEMBER 22, 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. CHECKING AN EXCEPTION
BOX (AN ABSTENTION) COUNTS TOWARDS THE QUORUM REQUIREMENT BUT NOT TOWARDS THE
VOTE TO PASS ANY PROPOSALS OR VOTE FOR ANY DIRECTOR(S). IT AMOUNTS TO A NO VOTE.
NOT VOTING BY NOT CHECKING ANY BOX GIVES THE PROXY HOLDERS THE DISCRETION TO
VOTE YOUR SHARES FOR ALL DIRECTORS AND FOR THE PROPOSALS. PLEASE BE SURE YOU
VOTE AND DON'T JUST SIGN THE PROXY CARD AND LEAVE IT BLANK. 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>
SUMMARY OF PROPOSALS TO BE VOTED ON:
The Board of Directors of Biosearch has asked and recommends that the
stockholders vote yes on both proposals. The first proposal (See PROPOSAL I)
seeks approval of the shareholders to exchange their stock for $0.20 per share.
Hydromer, Inc. ("the Purchaser") an affiliated company has offered the $0.20
exchange for the purpose of taking Biosearch private. The reasons, the analysis
and the opinions of the various parties are included in this proxy statement
under Proposal I. The second proposal is for the stockholders to approve 5
directors. Their backgrounds, holdings and affiliation are discussed under
PROPOSAL II. The Company has also filed a Form 13E3 with the Securities and
Exchange Commission containing the full text of the reports of experts on the
fairness of the transaction or evaluation of the Company. They will be provided
to any stockholder upon request. In addition all reports and other filings of
Biosearch can be viewed at the Edgar Web Site of the SEC at http://www.sec.gov.
Additional information of Biosearch can be viewed at http://www.biosearch.com.
Hydromer, Inc.'s web site is http://www.hydromer.com.
IDENTITY AND BACKGROUND OF PARTIES:
This proxy statement has been jointly prepared by and filed by:
The Issuer: Biosearch Medical Products, Inc. ("Biosearch" or "Company")
A New Jersey corporation
Manufacturer of medical devices
and custom applicator of lubricous
coatings for medical devices
35A Industrial Parkway
Somerville, NJ 08876
The Purchaser: Hydromer, Inc.("Hydromer")
A New Jersey Corporation
Polymer technology company
35 Industrial Parkway
Somerville, NJ 08876
Affiliates: Manfred F. Dyck
35 Industrial Parkway
Somerville, NJ 08876
Chairman and CEO of Biosearch Medical Products, Inc., the
Issuer, and President of Hydromer, Inc., the Purchaser.
Ursula M. Dyck
35 Industrial Parkway
Somerville, NJ 08876
Director of Hydromer and Wife of Manfred F. Dyck
Martin C. Dyck
35A Industrial Parkway
Somerville, NJ 08876
President of Biosearch Medical Products, Inc., the Issuer,
and, upon completion of the subject
-2-
<PAGE>
transaction, Vice President of Hydromer, Inc., the
Purchaser.
Robert J. Moravsik
35A Industrial Parkway
Somerville, NJ 08876
Vice President, General Counsel and Secretary of Biosearch
Medical Products, Inc., the Issuer, and, Vice President,
General Counsel of Hydromer, Inc., the Purchaser. (Mr.
Moravsik did not represent Hydromer in this transaction or
participate in the deliberations of the Hydromer acquisition
committee. Hydromer, Inc. was represented by the firm of
Robert D. Frawley.)
For information as to the officers and directors of Hydromer, Proposal I,
Subsection entitled "Directors of Hydromer" and "Officers of Hydromer""; for
officers and directors of Biosearch, see Proposal II.
I. SHARE EXCHANGE FOR $0.20
(PROPOSAL I)
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 I.]
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. The plan of exchange is
included in this proxy statement as Exhibit A.
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.
-3-
<PAGE>
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. [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:
I. BACKGROUND OF THIS TRANSACTION
A. PURPOSE OF THIS TRANSACTION
1. Hydromer Needs Certain Facilities to Remain Competitive
In January of 1998, Hydromer first looked into the possibility of acquiring or
merging with Biosearch. Hydromer is an innovative, technology-focused company in
the business of inventing, developing, patenting, licensing, manufacturing and
selling hydrophilic, polymer-based products for commercial markets. Hydromer
developed one of the first permanent, lubricous coatings for medical devices,
and currently licenses its products for use on enteral feeding products,
catheter guidewires, urological devices, infusion microcatheters, guiding and
umbilical catheters, angioplasty balloon catheters, embolization delivery
devices, and pancreatic stents. Medical product coatings represent 80% percent
of Hydromer's royalty income. The market for medical coatings has grown, and
Hydromer no longer enjoys unique status as a medical coating supplier.
Significant competition has developed in the medical coating business with 9 to
12 competing companies in the U.S. and several in Europe.
Hydromer anticipated a need for additional manufacturing lab and office space in
future years, and faced a decision as to whether to improve its existing leased
space or seek to acquire a building. Further, in order for Hydromer to protect
its medical coating business, it had to consider ways to move beyond the simple
development, licensing and sale of medical coatings, by expanding its customer
services to include such items as prototype medical product development and
pilot production of coated medical products in a qualified manufacturing
environment. Such capabilities would enable Hydromer to become a partner with
its customers and licensees and not merely a vendor of coatings.
In order to expand its business in this manner, Hydromer needed to expand its
applied engineering and coating technology base. It needed also to add seasoned
manufacturing executives with relevant experience and quality
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assurance personnel, and it needed additional laboratory space and a
manufacturing facility that was registered with the US Food and Drug
Administration and met ISO standards. For sale of certain products to Europe,
the qualification to apply CE marking was essential.
It was natural that Hydromer would look to Biosearch as a potential acquisition
target. Biosearch has used Hydromer's chemicals on most of Biosearch's medical
devices and has developed expertise in the use of Hydromer's coatings in medical
and commercial applications. Biosearch is a medical device manufacturer and has
the engineering and production facilities to develop prototype uses for
Hydromer's coatings and other chemicals, and an FDA registered, ISO-qualified
(and CE-qualified) manufacturing facility. In short, Biosearch possesses all the
assets needed by Hydromer, and an acquisition could enable Hydromer to obtain
all of these assets together with a company that is familiar with Hydromer's
products, services, markets and personnel.
2. BIOSEARCH IS UNLIKELY TO REMAIN IN BUSINESS AS AN INDEPENDENT COMPANY.
Biosearch in early 1998 was a struggling company with a history of losses,
declining sales, and no immediate prospects for turning its business around.
Biosearch has reported for some time that its ability to continue as a going
concern was dependent upon its success in generating sufficient cash flow or
obtaining additional financing as required to meet its long term obligations,
support its working capital needs, and curtailing ongoing losses by generating
profitable revenue levels.
B. Alternatives Considered to Accomplish the Same Purpose.
Biosearch had been struggling to increase sales by using direct mailings,
Internet solicitations, phone solicitations and attending trade shows. In mid
1996 it purchased physician mailing lists and initiated mailings with reply
cards to generate interest in its products. The results failed to materially
increase sales. In the 4th quarter of 1998 Biosearch modified its web site
(www.biosearch.com) and expanded on the description of its product lines.
Electronic mail was used to contact over 200 persons. The results were more
promising then direct mailing. In addition in mid 1998 a person was dedicated to
call on major hospitals throughout the country to promote and offer Biosearch
products. Results were poor. Starting in July of 1998 the Company attended 3
major urological trade shows. No additional business was obtained.
In August of 1996 Biosearch began contacting investment bankers and other
investment groups using various means of reaching these entities. Over 35
replies were received but none resulted in anything meaningful. Most of the
responses quoted non-refundable fees in excess of $35,000 plus expenses. Other
attempts by Biosearch to finance its business included 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).
Although Biosearch, in 1999, entered into OEM agreements with Wilson-Cook and
Applied Medical Resources, the continuing lack of any capital for marketing
programs has impeded the Company's ability to exist as a going concern.
In short, Biosearch has been unable to obtain financing due to its financial
history and to maintain its existing operations Biosearch had to sell some of
its assets.
Biosearch, by March of 1998, had defaulted on its building mortgage and faced a
possible bankruptcy if it could not raise cash. Biosearch considered and
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.
The board of directors of Hydromer briefly and preliminarily considered a merger
with Biosearch at that time, and engaged the firm of Howard Lawson to develop
some preliminary information for the consideration of the Hydromer board. See
the discussion of Lawson I, in Reports, Appraisals and Certain Negotiations,
below. However, during the course of this early review, Biosearch lost a major
customer, and in light of that situation, the Hydromer board was concerned that
Biosearch revenues might fall significantly below its operating expenses and
that any merger or combination might have too great an adverse effect on the
earnings of Hydromer. The Hydromer board in March
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of 1998 elected to put off consideration of a merger until the situation at
Biosearch stabilized.
Subsequent to this decision, Hydromer engaged in negotiations with Biosearch to
acquire the land and building which was owned and occupied by Biosearch. The
building was acquired for a cash price of $850,000 and a three-year prepaid
leaseback to Biosearch of approximately 2/3 of the building (the parties valued
the lease at $7.00 per year per square foot or $346,000). See Other information
Concerning Officers, Directors and Stockholders, below. Acquisition of the
building resolved certain of Hydromer's anticipated space concerns, providing it
with additional space for its laboratories and executive offices, but did not
give Hydromer access to the engineering know how, the FDA registration or ISO or
CE certifications, which could only come through ownership of the stock of
Biosearch.
Once Biosearch was relieved of the obligation to pay a building mortgage and a
sheriff's sale of its building, the financial situation recovered slightly, and
in August of 1998, the two companies again considered some type of combination.
Hydromer appointed an Acquisition Committee of its Board of Directors,
consisting of its three outside directors, to negotiate and recommend a course
of action to the Hydromer board.
Hydromer required that any acquisition result in Biosearch remaining a
wholly-owned subsidiary of Hydromer. This status was required to maintain
existing FDA registrations and ISO and CE qualifications, and, to a lesser
extent, to possibly take advantage of existing Biosearch tax loss
carry-forwards. Hydromer's Acquisition Committee considered an asset 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. Acquisition without these benefits was determined not
to be in the interest of Hydromer.
Hydromer initially proposed for the consideration of Biosearch, a share exchange
under New Jersey law which would have the effect of exchanging one share of
Hydromer for six shares of Biosearch. The Board of Directors of Biosearch did
not accept this proposal as a basis for negotiation because of the inherent
difficulty in constructing an accurate value for each company using thinly
traded shares as the currency of the transaction. Negotiations came to a
standstill. (See Other Information Concerning Officers, Directors and
Stockholders, below)
In the fall of 1998 and winter of 1999, both Hydromer and Biosearch negotiated
transactions with C.R. Bard, Inc. ("Bard"). Negotiations between Hydromer and
Biosearch concerning this transaction were not actively pursued while each
company separately negotiated its transaction with Bard. Biosearch executed a
stand still agreement in 1998 with Bard for $200,000, and agreed to sell its
urinary catheter coating business for $450,000. After these transactions
Biosearch retained its OEM business in coagulation probes, J-tubes, biliary
stents and catheters. It retained its proprietary product line in anorectal
feedback devices, stents and catheters. It also retained its coating services on
all medical devices except intermittent urinary catheters. Biosearch's
transaction with Bard enabled Biosearch to strengthen its cash position and pay
down certain liabilities. (See Other Information Concerning Officers, Directors
and Stockholders, below).
Hydromer's transaction with Bard involved license and supply agreements for
certain medical coatings, for intermittent and indwelling urinary catheters and
a stock purchase agreement whereby Hydromer sold to Bard Two Hundred Twenty
Thousand (220,000) newly issued common shares of the Company for Four ($4.00)
Dollars per share, and put Hydromer in a very strong cash position.
The Bard transactions closed in February, 1999.
C. REASONS FOR STRUCTURE OF THE TRANSACTION AND FOR UNDERTAKING THE TRANSACTION
AT THIS TIME.
Hydromer's original reasons for considering an acquisition of Biosearch had not
changed, and the Hydromer Acquisition Committee considered that Hydromer's
marketing staff, combined with Biosearch's manufacturing expertise, could
generate new sales for existing products of both companies. The two companies
revisited the proposed transaction beginning in March of 1999.
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The Hydromer Acquisition Committee considered that an exchange of Hydromer
shares for Biosearch shares, as originally proposed would require registration
of the Hydromer shares, which would result in higher transaction fees, and a
longer time to close the transaction than a cash transaction. In view of the
fact that Hydromer's cash position was strong, following the Bard transaction,
the Hydromer board elected to structure the share exchange as a cash
transaction, converting Biosearch shares to cash instead of Hydromer shares.
Biosearch is of the opinion that the structure of this transaction as proposed
by Hydromer would be easy for the stockholders to comprehend and would 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 proposed 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 cash only 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 light of Biosearch's ongoing cash problems, the quicker
transaction was more desirable, to preserve value for all stockholders.
In March of 1999, the Hydromer Acquisition Committee considered the following to
be the major issues in a transaction with Biosearch:
o price per share
o Biosearch sales and net profits/losses
o Change of control liabilities to employees (incentive payments promised to
certain key employees to keep them at Biosearch through any acquisition,
estimated to aggregate $136,000); and
o Accrued liabilities to employees and directors for deferred salary and
other payments (estimated to aggregate $170,000)
The Hydromer Acquisition Committee considered a number of factors in proposing
an offer to Biosearch, including:
1. historic and likely continued revenue and earnings growth for Hydromer.
2. on a worse case basis, Biosearch revenues were not likely to be less then
$950,000 for fiscal 1999 and the expected net loss was not likely to be greater
then $437,000.
3. incremental revenues were likely to be generated by the combined companies
and incremental savings were likely to be gained by elimination of duplicate
positions.
The Acquisition Committee concluded that if revenues and earnings were at worst
case, an exchange price of $0.15 would be justified and proposed a transaction
comprising the following:
o Exchange price of $0.15 per share (Biosearch was trading at approximately
$0.12 at the time)
o Change of control and other liabilities to be paid on an "earn out basis"
to be negotiated. Biosearch rejected this offer, (See Other Information
Concerning Officers, Directors and Stockholders, below) and proposed a
counter-offer comprising the following:
o Exchange price of $0.25 per share,
o All liabilities including change of control liabilities paid as shown on
the books
The Hydromer Acquisition Committee met again on April 26 and May 7, 1999,
including its financial advisor in the final meeting, to prepare a final
response to Biosearch. The Acquisition Committee considered management's
projections for Biosearch and their assurance that new business could be
developed for the combined companies. Relying on its management and the advice
of its financial advisor, and considering (1) Hydromer's need for acquiring the
ability to manufacture in an FDA-registered, ISO 9000 qualified facility and
being qualified to apply CE marks, (2) the efficiencies of combining the medical
coating operations of the two companies, which would enable Hydromer's marketing
and sales organization to increase the sales volume of products and services
within Biosearch's area of expertise: the manufacture and coating of medical
devices, (3) an anticipated strengthening of
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the financial picture for Biosearch, arising from the OEM agreements entered
into by Biosearch with Wilson-Cook and Applied Medical Resources, which Hydromer
could capitalize upon, the Acquisition Committee, agreed to go forward and made
a proposal comprising the following:
o Exchange price of $0.20 per share (Biosearch was trading at approximately
$0.12 at the time)
o Change of control liabilities paid for employees other than Martin C. Dyck,
who was offered employment and certain stock options (See Summary of
Material Features of this Exchange)
o Any accrued and unpaid liabilities for employee salaries, existing on April
30, 1999 will be paid by Hydromer, provided however, that this obligation
shall not apply to salary increases, raises or bonuses authorized or taking
effect after January 1, 1999.
o Liabilities for Biosearch unpaid director fees would not be paid by
Hydromer.
o Net liabilities (liabilities less cash and receivables) to parties other
than Hydromer, and employees and directors of BMP, cannot exceed $100,000
on the date of closing.
In addition to the business reasons set forth the Acquisition Committee
considered that Hydromer would be able to make use of the tax credits that
Biosearch has built up due to its 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.
That proposal was accepted by the Board of Biosearch, and is being submitted for
approval by the shareholders of Biosearch by this Proxy Statement.
D. EFFECTS OF THIS TRANSACTION
1. Effect on Hydromer and affiliates:
Hydromer will have a 100% interest in the net book value and net earnings of
Biosearch. Hydromer anticipates that the transaction will have an immediate
positive effect on its revenue growth, and net worth, and that and future growth
will be facilitated as Hydromer will have immediate access to the facilities and
people it needs to remain competitive in its core business.
In addition, the President of Biosearch, Martin C. Dyck has been offered
employment with Hydromer, Inc. as the Vice President of Operations 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 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)
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 $0.20 and the option price if under $0.20 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.
Manfred F. Dyck owns 344,720 shares of the Common Stock of Biosearch (options,
shares held in trust or beneficially owned by others are excluded) and will be
paid a total of $68,944 in exchange for his shares. Martin C Dyck owns an
aggregate of 4,654 (excluding options) shares of Common Stock of Biosearch and
will be paid an aggregate of $931 in exchange for his shares. Ursula M. Dyck
owns 33,516 shares of Common Stock of Biosearch either in her name or as
custodian for her daughters; she will be paid $6713.20 for these shares.
Manfred F. Dyck and his wife Ursula M. 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. Their holdings in Hydromer will not be
effected by this transaction. As Biosearch will be a wholly-owned subsidiary of
Hydromer, Hydromer
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will have a 100% interest in the net book value and net earnings of Biosearch.
2. Effect on Biosearch
If this transaction is approved, Biosearch shareholders will no longer
participate in the future of Biosearch whether it be growth or further reduction
as has been seen in the past. Biosearch has never paid a dividend, so this
transaction would not deprive unaffiliated shareholders of any current income.
In the past filings with the S.E.C. the Company's management has consistently
indicated that the future operations of the Company are uncertain. The Biosearch
Board in its evaluation considered the past facts and the uncertain and
speculative future in recommending this transaction for approval as a response
to the May 10, 1999 offer from Hydromer. The timing of the transaction depends
on the ability of the Company to present the transaction to its shareholders.
Originally this was planned for July of 1999 but has been delayed until the
proxy and other filings are complete.
3. Regulatory Compliance
Biosearch anticipates that a cost savings of approximately $50,000 per year
could be achieved if Biosearch was no longer required to comply with reporting
and other requirements associated with continued registration of the Common
Stock under the Securities Exchange Act of 1934 (the "1934 Act"), and the
regulations promulgated thereunder. Hydromer and its officers and directors will
continue to be subject to the 1934 Act.
4. Tax effects/Federal Income Tax Consequences:
The exchange (form of sale) of Common Shares into the right to receive cash
pursuant to the Plan of Exchange (See Exhibit A of this Proxy Statement) 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 and (ii) certain non-resident aliens and foreign corporations and
stockholders who are subject to special tax treatment under the Code.
Each stockholder is urged to consult his own tax advisor as to the particular
state, local, foreign and other tax consequences, in light of a particular set
of specific circumstances.
II. Fairness of this Transaction
A. BIOSEARCH
1. PROCEDURAL FAIRNESS
Biosearch believes that this transaction is procedurally fair to
unaffiliated security holders.
a. The transaction was negotiated by the directors of
Biosearch without the participation of Manfred F. Dyck, who
is a common director of both the Issuer, Biosearch, and the
acquirer, Hydromer. Mr. Dyck (and his wife, Ursula M. Dyck)
absented themselves from discussions of the transaction and
abstained from participating in the negotiation of the
transaction.
b. Biosearch commissioned Wharton Valuation Associates to
render a fairness opinion as to the transaction (See section
III below)
c. Absence of Certain Procedures: The transaction is not
structured to require the approval of at least a majority of
unaffiliated stock holders. No unaffiliated representative
acting solely on behalf of the unaffiliated shareholders was
retained to negotiate the terms of this transaction,
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or to prepare a report concerning the fairness of this
transaction. However, the Biosearch Board of Directors
believes that this transaction is fair to the unaffiliated
shareholders of Biosearch notwithstanding the absence of
such procedures, because all Biosearch shareholders are
treated equally, and a fairness opinion was received by
Biosearch which confirms that both the value of Biosearch
shares and the fairness of the transaction to all Biosearch
shareholders, including but not limited to unaffiliated
shareholders. Further, the transaction was unanimously
approved by the independent, non-employee directors of
Biosearch.
2. SUBSTANTIVE FAIRNESS
Biosearch believes that this transaction is substantively fair to
the unaffiliated shareholders of Biosearch, taking into
consideration the following factors:
a. Current and Historical Market Prices: The exchange price
of $0.20 per share represents a premium over the current
market price ($0.12) of the Common Stock at the time of the
approval of this transaction in May of 1999, and over
historical market prices. Except for a one-time purchase at
a price of $0.50 per share in the second quarter of 1999,
which the Biosearch Board did not consider meaningful (see
Share Price of Company), Biosearch shares had not traded at
or above the exchange price for almost a year before this
exchange transaction was agreed upon ($0.22 in the second
quarter of 1998). In the last two years, Biosearch shares
have hit quarterly highs of $0.22 to $0.28 (fourth quarter
1997), and have traded as low as $0.06 to $0.08 (third and
fourth quarters of 1998 respectively). See Share Price of
the Company. Biosearch shares are not traded on any exchange
or quoted on the National Association of Securities Dealers
Automated Quotation (NASDAQ) system. The shares are traded
in the over-the-counter market and quoted in the "Pink
Sheets." The shares are thinly traded, with only a few
thousand shares being traded monthly in 1999 and virtually
non liquid. Biosearch's weak financial status makes it
highly unlikely that Biosearch will qualify for listing on
any exchange or on the NASDAQ system at any time in the
foreseeable future, and unlikely that the shares will be any
more liquid than they are now.
b. Net Book Value: The net book value per share of Biosearch
since December, 1998 was:
As of 12/31/98-$0.04;
as of 3/31/99-$0.22
as of 6/30/99-$0.26.
as of 9/30/99-$0.19
The increase since December of 1998 was primarily due to two
extraordinary transactions, one with Bard, described above,
and the second a License to Applied Medical Resources, which
resulted in a payment of $ 125,000 to the Company. Although
the exchange price of $0.20 is less then the net book value
per share as of March or June 1999, but not September when
it was $0.19, it is the opinion of the board of directors of
Biosearch that net book value per share is not necessarily a
measure of true value, but rather an accounting concept
based upon the historic cost of certain assets. Furthermore,
a main component of Biosearch's assets is "other current
assets" which consists primarily of a prepaid lease in a
building owned by Hydromer. This lease is not a freely
marketable asset, and is not valuable to any party other
than Biosearch, as Hydromer has the authority to prevent any
assignment or sublease by simply repaying the unused portion
of any pre-paid rent. In any case, the lease will come off
the books upon completion of this transaction. If the value
of the lease is deducted from the net book value, the net
book value per share of Biosearch is closer to the market
price of $0.12 per share. Except for the fourth quarter of
1998, when Biosearch's net book value per share was $0.04,
Biosearch's stock has historically traded well below its
book value per share.
c. Liquidation Value: Biosearch has no plans to liquidate.
Further, if Biosearch did liquidate, the board of directors
is of the opinion that Biosearch would not realize the full
value of its assets, owing to the facts that winding up
costs would be incurred, FDA registration, ISO and CE
qualifications would not be transferable in liquidation, and
inventory and equipment would have to be disposed of on a
forced sale basis. Biosearch's valuation expert determined
the liquidation
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value of Biosearch to be $0.15 per share. The exchange price
represents a premium of one third over the liquidation
value.
d. Going Concern Value: Biosearch has reported annual
operating losses for the last seven years, and net losses
for six of the last seven years. Biosearch has reported for
some time that its ability to continue as a going concern
was dependent upon its success in generating sufficient cash
flow or obtaining additional financing as required to meet
its long term obligations, support its working capital
needs, and curtailing ongoing losses by generating
profitable revenue levels. Biosearch's independent auditors
in March of 1999 expressed the opinion that "There is no
assurance that the Company's operations will generate
sufficient cash flow to meet its obligations or that the
Company has the ability to obtain additional financing as
required, which raises substantial doubt about the Company's
ability to continue as a going concern." It is the opinion
of Biosearch and Hydromer that Biosearch has value as a
going concern only if it is acquired in a transaction that
enables the acquirer 1. to have access to Biosearch's FDA
registrations, ISO and CE qualifications, and 2. to
incorporate Biosearch's technology and existing products and
services into a related and synergistic business.
e. Absence of Offers: There have been no previous purchases
of shares of Biosearch stock in the past eighteen months
either by Biosearch or by any affiliates of Biosearch.
Biosearch has received no firm offers (and is not aware of
any firm offers) from any person other than Hydromer to
merge or consolidate, sell or transfer all or substantially
all of its assets, or sell securities which would enable the
holder to exercise control of Biosearch.
f. Opportunity to Liquidate Shares of Stock: In addition to
the factors listed above, the board of directors of
Biosearch considered that this transaction offered
unaffiliated Biosearch shareholders the opportunity to
liquidate their share holdings at a fixed price, with a
premium to the market price, and without incurring brokerage
costs or driving down the market price in a relatively non
liquid market.
B. MANFRED F. DYCK
1. PROCEDURAL FAIRNESS
Manfred F. Dyck believes that this transaction is procedurally fair to
unaffiliated security holders.
a. The transaction was negotiated by the directors of
Biosearch without the participation of Manfred F. Dyck, who
is a common director of both the Issuer, Biosearch, and the
acquirer, Hydromer. Mr. Dyck (and his wife, Ursula M. Dyck)
absented themselves from discussions of the transaction and
abstained from participating in the negotiation of the
transaction.
b. Biosearch commissioned Wharton Valuation Associates to
render a fairness opinion as to the transaction (See section
III below)
c. Absence of Certain Procedures: The transaction is not
structured to require the approval of at least a majority of
unaffiliated stock holders. No unaffiliated representative
acting solely on behalf of the unaffiliated shareholders was
retained to negotiate the terms of this transaction, or to
prepare a report concerning the fairness of this
transaction. However, Manfred F. Dyck believes that this
transaction is fair to the unaffiliated shareholders of
Biosearch notwithstanding the absence of such procedures,
because all Biosearch shareholders are treated equally, and
a fairness opinion was received by Biosearch which confirms
that both the value of Biosearch shares and the fairness of
the transaction to all Biosearch shareholders, including but
not limited to unaffiliated shareholders. Further, the
transaction was unanimously approved by the independent,
non-employee directors of Biosearch.
2. SUBSTANTIVE FAIRNESS
Manfred F. Dyck believes that this transaction is substantively fair
to the unaffiliated shareholders of Biosearch, taking into
consideration the following factors:
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a. Current and Historical Market Prices: The exchange price of
$0.20 per share represents a premium over the current market
price ($0.12) of the Common Stock at the time of the approval of
this transaction in May of 1999, and over historical market
prices. Except for a one-time purchase at a price of $0.50 per
share in the second quarter of 1999, which Mr. Dyck does not
consider meaningful (see Share Price of Company), Biosearch
shares had not traded at or above the exchange price for almost a
year before this exchange transaction was agreed upon ($0.22 in
the second quarter of 1998). In the last two years, Biosearch
shares have hit quarterly highs of $0.22 to $0.28 (fourth quarter
1997), and have traded as low as $0.06 to $0.08 (third and fourth
quarters of 1998 respectively). See Share Price of the Company.
Biosearch shares are not traded on any exchange or quoted on the
National Association of Securities Dealers Automated Quotation
(NASDAQ) system. The shares are traded in the over-the-counter
market and quoted in the "Pink Sheets." The shares are thinly
traded, with only a few thousand shares being traded monthly in
1999 and virtually non liquid. Biosearch's weak financial status
makes it highly unlikely that Biosearch will qualify for listing
on any exchange or on the NASDAQ system at any time in the
foreseeable future, and unlikely that the shares will be any more
liquid than they are now.
b. Net Book Value: The net book value per share of Biosearch
since December, 1998 was:
As of 12/31/98-$0.04;
as of 3/31/99-$0.22
as of 6/30/99-$0.26.
as of 9/30/99-$0.19
The increase since December of 1998 was primarily due to two
extraordinary transactions, one with Bard, described above, and
the second a License to Applied Medical Resources, which resulted
in a payment of $ 125,000 to the Company. Although the exchange
price of $0.20 is less then the net book value per share as of
March or June 1999, but not September when it was $0.19, it is
the opinion of Mr. Dyck that net book value per share is not
necessarily a measure of true value, but rather an accounting
concept based upon the historic cost of certain assets.
Furthermore, a main component of Biosearch's assets is "other
current assets" which consists primarily of a prepaid lease in a
building owned by Hydromer. This lease is not a freely marketable
asset, and is not valuable to any party other than Biosearch, as
Hydromer has the authority to prevent any assignment or sublease
by simply repaying the unused portion of any pre-paid rent. In
any case, the lease will come off the books upon completion of
this transaction. If the value of the lease is deducted from the
net book value, the net book value per share of Biosearch is
closer to the market price of $0.12 per share. Except for the
fourth quarter of 1998, when Biosearch's net book value per share
was $0.04, Biosearch's stock has historically traded well below
its book value per share.
c. Liquidation Value: Biosearch has no plans to liquidate.
Further, if Biosearch did liquidate, Mr. Dyck is of the opinion
that Biosearch would not realize the full value of its assets,
owing to the facts that winding up costs would be incurred, FDA
registration, ISO and CE qualifications would not be transferable
in liquidation, and inventory and equipment would have to be
disposed of on a forced sale basis. Biosearch's valuation expert
determined the liquidation value of Biosearch to be $0.15 per
share. The exchange price represents a premium of one third over
the liquidation value.
d. Going Concern Value: Biosearch has reported annual operating
losses for the last seven years, and net losses for six of the
last seven years. Biosearch has reported for some time that its
ability to continue as a going concern was dependent upon its
success in generating sufficient cash flow or obtaining
additional financing as required to meet its long term
obligations, support its working capital needs, and curtailing
ongoing losses by generating profitable revenue levels.
Biosearch's independent auditors in March of 1999 expressed the
opinion that "There is no assurance that the Company's operations
will generate sufficient cash flow to meet its obligations or
that the Company has the ability to obtain additional financing
as required, which raises substantial doubt about the Company's
ability to continue as a going
-12-
<PAGE>
concern." It is the opinion of Mr. Dyck that Biosearch has value
as a going concern only if it is acquired in a transaction that
enables the acquirer 1. to have access to Biosearch's FDA
registrations, ISO and CE qualifications, and 2. to incorporate
Biosearch's technology and existing products and services into a
related and synergistic business.
e. Absence of Offers: There have been no previous purchases of
shares of Biosearch stock in the past eighteen months either by
Biosearch or by any affiliates of Biosearch. Biosearch has
received no firm offers (and is not aware of any firm offers)
from any person other than Hydromer to merge or consolidate, sell
or transfer all or substantially all of its assets, or sell
securities which would enable the holder to exercise control of
Biosearch.
f. Opportunity to Liquidate Shares of Stock: In addition to the
factors listed above, Mr. Dyck considered that this transaction
offered unaffiliated Biosearch shareholders the opportunity to
liquidate their share holdings at a fixed price, with a premium
to the market price, and without incurring brokerage costs or
driving down the market price in a relatively non liquid market.
g. Other: Manfred F. Dyck, 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 III 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.
C. URSULA M. DYCK
1. PROCEDURAL FAIRNESS
Ursula M. Dyck believes that this transaction is procedurally fair to
unaffiliated security holders.
a. The transaction was negotiated by the directors of Biosearch
without the participation of Manfred F. Dyck, who is a common
director of both the Issuer, Biosearch, and the acquirer,
Hydromer. Mrs. Dyck (and her husband, Manfred F. Dyck) absented
themselves from discussions of the transaction and abstained from
participating in the negotiation of the transaction.
b. Biosearch commissioned Wharton Valuation Associates to render
a fairness opinion as to the transaction (See section III below)
c. Absence of Certain Procedures: The transaction is not
structured to require the approval of at least a majority of
unaffiliated stock holders. No unaffiliated representative acting
solely on behalf of the unaffiliated shareholders was retained to
negotiate the terms of this transaction, or to prepare a report
concerning the fairness of this transaction. However, Ursula M.
Dyck believes that this transaction is fair to the unaffiliated
shareholders of Biosearch notwithstanding the absence of such
procedures, because all Biosearch shareholders are treated
equally, and a fairness opinion was received by Biosearch which
confirms that both the value of Biosearch shares and the fairness
of the transaction to all Biosearch shareholders, including but
not limited to unaffiliated shareholders. Further, the
transaction was unanimously approved by the independent,
non-employee directors of Biosearch.
2. SUBSTANTIVE FAIRNESS
Ursula M. Dyck believes that this transaction is substantively fair to
the unaffiliated shareholders of Biosearch, taking into consideration
the following factors:
a. Current and Historical Market Prices: The exchange price of
$0.20 per share represents a premium over the current market
price ($0.12) of the Common Stock at the time of the approval of
this transaction in May of 1999, and over historical market
prices. Except for a one-time purchase at a price of $0.50 per
share in the second quarter of 1999, which Mrs. Dyck does not
consider meaningful (see Share Price of Company), Biosearch
shares had not
-13-
<PAGE>
traded at or above the exchange price for almost a year before
this exchange transaction was agreed upon ($0.22 in the second
quarter of 1998). In the last two years, Biosearch shares have
hit quarterly highs of $0.22 to $0.28 (fourth quarter 1997), and
have traded as low as $0.06 to $0.08 (third and fourth quarters
of 1998 respectively). See Share Price of the Company. Biosearch
shares are not traded on any exchange or quoted on the National
Association of Securities Dealers Automated Quotation (NASDAQ)
system. The shares are traded in the over-the-counter market and
quoted in the "Pink Sheets." The shares are thinly traded, with
only a few thousand shares being traded monthly in 1999 and
virtually non liquid. Biosearch's weak financial status makes it
highly unlikely that Biosearch will qualify for listing on any
exchange or on the NASDAQ system at any time in the foreseeable
future, and unlikely that the shares will be any more liquid than
they are now.
b. Net Book Value: The net book per share value of Biosearch
since December, 1998 was:
As of 12/31/98-$0.04;
as of 3/31/99-$0.22
as of 6/30/99-$0.26.
as of 9/30/99-$0.19
The increase since December of 1998 was primarily due to two
extraordinary transactions, one with Bard, described above, and
the second a License to Applied Medical Resources, which resulted
in a payment of $ 125,000 to the Company. Although the exchange
price of $0.20 is less then the net book value per share as of
March or June 1999, but not September when it was $0.19, it is
the opinion of Mrs. Dyck that net book value per share is not
necessarily a measure of true value, but rather an accounting
concept based upon the historic cost of certain assets.
Furthermore, a main component of Biosearch's assets is "other
current assets" which consists primarily of a prepaid lease in a
building owned by Hydromer. This lease is not a freely marketable
asset, and is not valuable to any party other than Biosearch, as
Hydromer has the authority to prevent any assignment or sublease
by simply repaying the unused portion of any pre-paid rent. In
any case, the lease will come off the books upon completion of
this transaction. If the value of the lease is deducted from the
net book value, the net book value per share of Biosearch is
closer to the market price of $0.12 per share. Except for the
fourth quarter of 1998, when Biosearch's net book value per share
was $0.04, Biosearch's stock has historically traded well below
its book value per share.
c. Liquidation Value: Biosearch has no plans to liquidate.
Further, if Biosearch did liquidate, Mrs. Dyck is of the opinion
that Biosearch would not realize the full value of its assets,
owing to the facts that winding up costs would be incurred, FDA
registration, ISO and CE qualifications would not be transferable
in liquidation, and inventory and equipment would have to be
disposed of on a forced sale basis. Biosearch's valuation expert
determined the liquidation value of Biosearch to be $0.15 per
share. The exchange price represents a premium of one third over
the liquidation value.
d. Going Concern Value: Biosearch has reported annual operating
losses for the last seven years, and net losses for six of the
last seven years. Biosearch has reported for some time that its
ability to continue as a going concern was dependent upon its
success in generating sufficient cash flow or obtaining
additional financing as required to meet its long term
obligations, support its working capital needs, and curtailing
ongoing losses by generating profitable revenue levels.
Biosearch's independent auditors in March of 1999 expressed the
opinion that "There is no assurance that the Company's operations
will generate sufficient cash flow to meet its obligations or
that the Company has the ability to obtain additional financing
as required, which raises substantial doubt about the Company's
ability to continue as a going concern." It is the opinion of
Mrs. Dyck that Biosearch has value as a going concern only if it
is acquired in a transaction that enables the acquirer 1. to have
access to Biosearch's FDA registrations, ISO and CE
qualifications, and 2. to incorporate Biosearch's technology and
existing products and services into a related and synergistic
business.
-14-
<PAGE>
e. Absence of Offers: There have been no previous purchases of
shares of Biosearch stock in the past eighteen months either by
Biosearch or by any affiliates of Biosearch. Biosearch has
received no firm offers (and is not aware of any firm offers)
from any person other than Hydromer to merge or consolidate, sell
or transfer all or substantially all of its assets, or sell
securities which would enable the holder to exercise control of
Biosearch.
f. Opportunity to Liquidate Shares of Stock: In addition to the
factors listed above, Mrs. Dyck considered that this transaction
offered unaffiliated Biosearch shareholders the opportunity to
liquidate their share holdings at a fixed price, with a premium
to the market price, and without incurring brokerage costs or
driving down the market price in a relatively non liquid market.
g. Other: Ursula M. Dyck, Director 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 III 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.
D. MARTIN C. DYCK
1. PROCEDURAL FAIRNESS
Martin C. Dyck believes that this transaction is procedurally fair to
unaffiliated security holders.
a. The transaction was negotiated by the directors of Biosearch
without the participation of Manfred F. Dyck, who is a common
director of both the Issuer, Biosearch, and the acquirer,
Hydromer. Manfred F. Dyck (and his wife, Ursula M. Dyck) absented
themselves from discussions of the transaction and abstained from
participating in the negotiation of the transaction.
b. Biosearch commissioned Wharton Valuation Associates to render
a fairness opinion as to the transaction (See section III below)
c. Absence of Certain Procedures: The transaction is not
structured to require the approval of at least a majority of
unaffiliated stock holders. No unaffiliated representative acting
solely on behalf of the unaffiliated shareholders was retained to
negotiate the terms of this transaction, or to prepare a report
concerning the fairness of this transaction. However, Martin C.
Dyck believes that this transaction is fair to the unaffiliated
shareholders of Biosearch notwithstanding the absence of such
procedures, because all Biosearch shareholders are treated
equally, and a fairness opinion was received by Biosearch which
confirms that both the value of Biosearch shares and the fairness
of the transaction to all Biosearch shareholders, including but
not limited to unaffiliated shareholders. Further, the
transaction was unanimously approved by the independent,
non-employee directors of Biosearch.
2. SUBSTANTIVE FAIRNESS
Martin C. Dyck believes that this transaction is substantively fair to
the unaffiliated shareholders of Biosearch, taking into consideration
the following factors:
a. Current and Historical Market Prices: The exchange price of
$0.20 per share represents a premium over the current market
price ($0.12) of the Common Stock at the time of the approval of
this transaction in May of 1999, and over historical market
prices. Except for a one-time purchase at a price of $0.50 per
share in the second quarter of 1999, which Mr. Dyck does not
consider meaningful (see Share Price of Company), Biosearch
shares had not traded at or above the exchange price for almost a
year before this exchange transaction was agreed upon ($0.22 in
the second quarter of 1998). In the last two years, Biosearch
shares have hit quarterly highs of $0.22 to $0.28 (fourth quarter
1997), and have traded as low as $0.06 to $0.08 (third and fourth
quarters of 1998 respectively). See Share Price of the Company.
Biosearch shares are not traded on any exchange or quoted on the
National Association of Securities Dealers Automated Quotation
(NASDAQ) system. The shares are traded in the
-15-
<PAGE>
over-the-counter market and quoted in the "Pink Sheets." The
shares are thinly traded, with only a few thousand shares being
traded monthly in 1999 and virtually non liquid. Biosearch's weak
financial status makes it highly unlikely that Biosearch will
qualify for listing on any exchange or on the NASDAQ system at
any time in the foreseeable future, and unlikely that the shares
will be any more liquid than they are now.
b. Net Book Value: The net book value per share of Biosearch
since December, 1998 was:
As of 12/31/98-$0.04;
as of 3/31/99-$0.22
as of 6/30/99-$0.26.
as of 9/30/99-$0.19
The increase since December of 1998 was primarily due to two
extraordinary transactions, one with Bard, described above, and
the second a License to Applied Medical Resources, which resulted
in a payment of $ 125,000 to the Company. Although the exchange
price of $0.20 is less then the net book value per share as of
March or June 1999, but not September when it was $0.19, it is
the opinion of Mr. Dyck that net book value per share is not
necessarily a measure of true value, but rather an accounting
concept based upon the historic cost of certain assets.
Furthermore, a main component of Biosearch's assets is "other
current assets" which consists primarily of a prepaid lease in a
building owned by Hydromer. This lease is not a freely marketable
asset, and is not valuable to any party other than Biosearch, as
Hydromer has the authority to prevent any assignment or sublease
by simply repaying the unused portion of any pre-paid rent. In
any case, the lease will come off the books upon completion of
this transaction. If the value of the lease is deducted from the
net book value, the net book value per share of Biosearch is
closer to the market price of $0.12 per share. Except for the
fourth quarter of 1998, when Biosearch's net book value per share
was $0.04, Biosearch's stock has historically traded well below
its book value per share.
c. Liquidation Value: Biosearch has no plans to liquidate.
Further, if Biosearch did liquidate, Mr. Dyck is of the opinion
that Biosearch would not realize the full value of its assets,
owing to the facts that winding up costs would be incurred, FDA
registration, ISO and CE qualifications would not be transferable
in liquidation, and inventory and equipment would have to be
disposed of on a forced sale basis. Biosearch's valuation expert
determined the liquidation value of Biosearch to be $0.15 per
share. The exchange price represents a premium of one third over
the liquidation value.
d. Going Concern Value: Biosearch has reported annual operating
losses for the last seven years, and net losses for six of the
last seven years. Biosearch has reported for some time that its
ability to continue as a going concern was dependent upon its
success in generating sufficient cash flow or obtaining
additional financing as required to meet its long term
obligations, support its working capital needs, and curtailing
ongoing losses by generating profitable revenue levels.
Biosearch's independent auditors in March of 1999 expressed the
opinion that "There is no assurance that the Company's operations
will generate sufficient cash flow to meet its obligations or
that the Company has the ability to obtain additional financing
as required, which raises substantial doubt about the Company's
ability to continue as a going concern." It is the opinion of Mr.
Dyck that Biosearch has value as a going concern only if it is
acquired in a transaction that enables the acquirer 1. to have
access to Biosearch's FDA registrations, ISO and CE
qualifications, and 2. to incorporate Biosearch's technology and
existing products and services into a related and synergistic
business.
e. Absence of Offers: There have been no previous purchases of
shares of Biosearch stock in the past eighteen months either by
Biosearch or by any affiliates of Biosearch. Biosearch has
received no firm offers (and is not aware of any firm offers)
from any person other than Hydromer to merge or consolidate, sell
or transfer all or substantially all of its assets, or sell
securities which would enable the holder to exercise control of
Biosearch.
-16-
<PAGE>
f. Opportunity to Liquidate Shares of Stock: In addition to the
factors listed above, Mr. Dyck considered that this transaction
offered unaffiliated Biosearch shareholders the opportunity to
liquidate their share holdings at a fixed price, with a premium
to the market price, and without incurring brokerage costs or
driving down the market price in a relatively non liquid market.
g. Other: Martin C. Dyck, President and Director of the Issuer
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 III 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.
E. HYDROMER
1. PROCEDURAL FAIRNESS
Hydromer believes that this transaction is procedurally fair to
unaffiliated security holders of Biosearch.
a. The transaction was negotiated by the directors of Biosearch
and the Acquisition Committee of Hydromer without the
participation of Manfred F. Dyck, who is a common director of
both the Issuer, Biosearch, and the acquirer, Hydromer. Mr. Dyck
(and his wife, Ursula M. Dyck, a director of Hydromer) absented
themselves from discussions of the transaction and abstained from
participating in the negotiation of the transaction.
b. Biosearch commissioned Wharton Valuation Associates to render
a fairness opinion as to the transaction, and Hydromer
commissioned a valuation of the shares of Biosearch by Howard
Lawson and Company (See section III below).
c. Absence of Certain Procedures: The transaction is not
structured to require the approval of at least a majority of
unaffiliated stock holders. No unaffiliated representative acting
solely on behalf of the unaffiliated shareholders was retained to
negotiate the terms of this transaction, or to prepare a report
concerning the fairness of this transaction. However, Hydromer
believes that this transaction is fair to the unaffiliated
shareholders of Biosearch notwithstanding the absence of such
procedures, because all Biosearch shareholders are treated
equally, and a fairness opinion was received by Biosearch which
confirms that both the value of Biosearch shares and the fairness
of the transaction to all Biosearch shareholders, including but
not limited to unaffiliated shareholders. Further, the
transaction was unanimously approved by the independent,
non-employee directors of Biosearch and Hydromer.
2. SUBSTANTIVE FAIRNESS
Hydromer believes that this transaction is substantively fair to the
unaffiliated shareholders of Biosearch, taking into consideration the
following factors:
a. Current and Historical Market Prices: The exchange price of
$0.20 per share represents a premium over the current market
price ($0.12) of the Common Stock at the time of the approval of
this transaction in May of 1999, and over historical market
prices. Except for a one-time purchase at a price of $0.50 per
share in the second quarter of 1999, which the Hydromer
Acquisition Committee did not consider meaningful (see Share
Price of Company) Biosearch shares had not traded at or above the
exchange price for almost a year before this exchange transaction
was agreed upon ($0.22 in the second quarter of 1998). In the
last two years, Biosearch shares have hit quarterly highs of
$0.22 to $0.28 (fourth quarter 1997), and have traded as low as
$0.06 to $0.08 (third and fourth quarters of 1998 respectively).
See Share Price of the Company. Biosearch shares are not traded
on any exchange or quoted on the National Association of
Securities Dealers Automated Quotation (NASDAQ) system. The
shares are traded in the over-the-counter market and quoted in
the "Pink Sheets." The shares are thinly traded, with only a few
thousand shares being traded monthly in 1999 and virtually non
liquid. Biosearch's weak financial status makes it highly
unlikely that Biosearch will qualify
-17-
<PAGE>
for listing on any exchange or on the NASDAQ system at any time
in the foreseeable future, and unlikely that the shares will be
any more liquid than they are now.
b. Net Book Value: The net book value per share of Biosearch
since December, 1998 was:
As of 12/31/98-$0.04;
as of 3/31/99-$0.22
as of 6/30/99-$0.26.
as of 9/30/99-$0.19
The increase since December of 1998 was primarily due to two
extraordinary transactions, one with Bard, described above, and
the second a License to Applied Medical Resources, which resulted
in a payment of $ 125,000 to the Company. Although the exchange
price of $0.20 is less then the net book value per share as of
March or June 1999, but not September when it was $0.19, it is
the opinion of Hydromer that net book value per share is not
necessarily a measure of true value, but rather an accounting
concept based upon the historic cost of certain assets.
Furthermore, a main component of Biosearch's assets is "other
current assets" which consists primarily of a prepaid lease in a
building owned by Hydromer. This lease is not a freely marketable
asset, and is not valuable to any party other than Biosearch, as
Hydromer has the authority to prevent any assignment or sublease
by simply repaying the unused portion of any pre-paid rent. In
any case, the lease will come off the books upon completion of
this transaction. If the value of the lease is deducted from the
net book value, the net book value per share of Biosearch is
closer to the market price of $0.12 per share. Except for the
fourth quarter of 1998, when Biosearch's net book value per share
was $0.04, Biosearch's stock has historically traded well below
its book value per share.
c. Liquidation Value: Hydromer understands that Biosearch has no
plans to liquidate. Further, if Biosearch did liquidate, Hydromer
is of the opinion that Biosearch would not realize the full value
of its assets, owing to the facts that winding up costs would be
incurred, FDA registration, ISO and CE qualifications would not
be transferable in liquidation, and inventory and equipment would
have to be disposed of on a forced sale basis. Biosearch's
valuation expert determined the liquidation value of Biosearch to
be $0.15 per share. The exchange price represents a premium of
one third over the liquidation value.
d. Going Concern Value: Biosearch has reported annual operating
losses for the last seven years, and net losses for six of the
last seven years. Biosearch has reported for some time that its
ability to continue as a going concern was dependent upon its
success in generating sufficient cash flow or obtaining
additional financing as required to meet its long term
obligations, support its working capital needs, and curtailing
ongoing losses by generating profitable revenue levels.
Biosearch's independent auditors in March of 1999 expressed the
opinion that "There is no assurance that the Company's operations
will generate sufficient cash flow to meet its obligations or
that the Company has the ability to obtain additional financing
as required, which raises substantial doubt about the Company's
ability to continue as a going concern." It is the opinion of
Hydromer that Biosearch has value as a going concern only if it
is acquired in a transaction that enables the acquirer 1. to have
access to Biosearch's FDA registrations, ISO and CE
qualifications, and 2. to incorporate Biosearch's technology and
existing products and services into a related and synergistic
business.
e. Absence of Offers: There have been no previous purchases of
shares of Biosearch stock in the past eighteen months either by
Biosearch or by any affiliates of Biosearch. Biosearch has
received no firm offers (and is not aware of any firm offers)
from any person other than Hydromer to merge or consolidate, sell
or transfer all or substantially all of its assets, or sell
securities which would enable the holder to exercise control of
Biosearch.
f. Opportunity to Liquidate Shares of Stock: In addition to the
factors listed above, the board of directors of Biosearch
considered that this transaction offered unaffiliated Biosearch
shareholders the opportunity to liquidate their share holdings at
a fixed price, with a premium
-18-
<PAGE>
to the market price, and without incurring brokerage costs or
driving down the market price in a relatively non liquid market.
g. Other: 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 III below) 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 of Biosearch.
F. ROBERT J. MORAVSIK
Preliminary Statement: Mr. Moravsik served as counsel to Biosearch
during the pendency of this transaction. The following statements set
forth facts previously disclosed, and Mr. Moravsik's evaluation of
those facts as an executive officer of Biosearch. The following
statements do not constitute legal opinions or legal advice. Except as
to matters specifically disclosed herein, and matters not otherwise
subject to attorney-client privilege, that privilege is not waived.
1. PROCEDURAL FAIRNESS
Robert J. Moravsik believes that this transaction is procedurally fair
to unaffiliated security holders.
a. The transaction was negotiated by the directors of Biosearch
without the participation of Manfred F. Dyck, who is a common
director of both the Issuer, Biosearch, and the acquirer,
Hydromer. Mr. Dyck (and his wife, Ursula M. Dyck) absented
themselves from discussions of the transaction and abstained from
participating in the negotiation of the transaction.
b. Biosearch commissioned Wharton Valuation Associates to render
a fairness opinion as to the transaction (See section III below)
c. Absence of certain procedures: This transaction is not
structured to require the approval of at least a majority of
unaffiliated security holders of Biosearch. No unaffiliated
representative acting solely on behalf of the unaffiliated
shareholders was retained to negotiate the terms of this
transaction, or to prepare a report concerning the fairness of
this transaction. However, Mr. Moravsik believes that this
transaction is fair to the unaffiliated shareholders of Biosearch
notwithstanding the absence of such a procedures, because all
Biosearch shareholders are treated equally, and a fairness
opinion was received by Biosearch which confirms that both the
value of Biosearch shares and the fairness of the transaction to
all Biosearch shareholders, including but not limited to
unaffiliated shareholders. Further, the transaction was
unanimously approved by the independent, non-employee directors
of Biosearch.
2. SUBSTANTIVE FAIRNESS
Robert J. Moravsik believes that this transaction is substantively
fair to the unaffiliated shareholders of Biosearch, taking into
consideration the following factors:
a. Current and Historical Market Prices: The exchange price of
$0.20 per share represents a premium over the current market
price ($0.12) of the Common Stock at the time of the approval of
this transaction in May of 1999, and over historical market
prices. Except for a one-time purchase at a price of $0.50 per
share in the second quarter of 1999, which Mr. Moravsik does not
consider meaningful (see Share Price of Company), Biosearch
shares had not traded at or above the exchange price for almost a
year before this exchange transaction was agreed upon ($0.22 in
the second quarter of 1998). In the last two years, Biosearch
shares have hit quarterly highs of $0.22 to $0.28 (fourth quarter
1997), and have traded as low as $0.06 to $0.08 (third and fourth
quarters of 1998 respectively). See Share Price of the Company.
Biosearch shares are not traded on any exchange or quoted on the
National Association of Securities Dealers Automated Quotation
(NASDAQ) system. The shares are traded in the over-the-counter
market and quoted in the "Pink Sheets." The shares are thinly
traded, with only a few thousand shares being traded monthly in
1999 and virtually non liquid. Biosearch's weak financial status
makes it highly unlikely that Biosearch will qualify for listing
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on any exchange or on the NASDAQ system at any time in the
foreseeable future, and unlikely that the shares will be any more
liquid than they are now.
b. Net Book Value: The net book value per share of Biosearch
since December, 1998 was:
As of 12/31/98-$0.04;
as of 3/31/99-$0.22
as of 6/30/99-$0.26.
as of 9/30/99-$0.19
The increase since December of 1998 was primarily due to two
extraordinary transactions, one with Bard, described above, and
the second a License to Applied Medical Resources, which resulted
in a payment of $ 125,000 to the Company. Although the exchange
price of $0.20 is less then the net book value per share as of
March or June 1999, but not September when it was $0.19, it is
the opinion of Mr. Moravsik that net book value per share is not
necessarily a measure of true value, but rather an accounting
concept based upon the historic cost of certain assets.
Furthermore, a main component of Biosearch's assets is "other
current assets" which consists primarily of a prepaid lease in a
building owned by Hydromer. This lease is not a freely marketable
asset, and is not valuable to any party other than Biosearch, as
Hydromer has the authority to prevent any assignment or sublease
by simply repaying the unused portion of any pre-paid rent. In
any case, the lease will come off the books upon completion of
this transaction. If the value of the lease is deducted from the
net book value, the net book value per share of Biosearch is
closer to the market price of $0.12 per share. Except for the
fourth quarter of 1998, when Biosearch's net book value per share
was $0.04, Biosearch's stock has historically traded well below
its book value per share.
c. Liquidation Value: Biosearch has no plans to liquidate.
Further, if Biosearch did liquidate, Mr. Moravsik is of the
opinion that Biosearch would not realize the full value of its
assets, owing to the facts that winding up costs would be
incurred, FDA registration, ISO and CE qualifications would not
be transferable in liquidation, and inventory and equipment would
have to be disposed of on a forced sale basis. Biosearch's
valuation expert determined the liquidation value of Biosearch to
be $0.15 per share. The exchange price represents a premium of
one third over the liquidation value.
d. Going Concern Value: Biosearch has reported annual operating
losses for the last seven years, and net losses for six of the
last seven years. Biosearch has reported for some time that its
ability to continue as a going concern was dependent upon its
success in generating sufficient cash flow or obtaining
additional financing as required to meet its long term
obligations, support its working capital needs, and curtailing
ongoing losses by generating profitable revenue levels.
Biosearch's independent auditors in March of 1999 expressed the
opinion that "There is no assurance that the Company's operations
will generate sufficient cash flow to meet its obligations or
that the Company has the ability to obtain additional financing
as required, which raises substantial doubt about the Company's
ability to continue as a going concern." It is the opinion of Mr.
Moravsik that Biosearch has value as a going concern only if it
is acquired in a transaction that enables the acquirer 1. to have
access to Biosearch's FDA registrations, ISO and CE
qualifications, and 2. to incorporate Biosearch's technology and
existing products and services into a related and synergistic
business.
e. Absence of Offers: There have been no previous purchases of
shares of Biosearch stock in the past eighteen months either by
Biosearch or by any affiliates of Biosearch. Biosearch has
received no firm offers (and is not aware of any firm offers)
from any person other than Hydromer to merge or consolidate, sell
or transfer all or substantially all of its assets, or sell
securities which would enable the holder to exercise control of
Biosearch.
f. Opportunity to Liquidate Shares of Stock: In addition to the
factors listed above, Mr. Moravsik considered that this
transaction offered unaffiliated Biosearch shareholders the
opportunity to
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liquidate their share holdings at a fixed price, with a premium
to the market price, and without incurring brokerage costs or
driving down the market price in a relatively non liquid market.
g. Other: Robert J. Moravsik, 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 III 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.
III. The following reports have been received:
1. Biosearch has received a fairness opinion from Wharton Valuation
Associates, Inc. ("WVA")attached as Exhibit B.
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 letter from Howard Lawson & Co. dated June 18,
1999 (hereinafter "Lawson Letter")which indicated that if projected income
of Biosearch was significantly below the projections used in Lawson II, or
that if rights were transferred to a third party prior to closing, that the
value of Biosearch could be impaired.
5. 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 "RBB Report").
Wharton Valuation Associates of West Trenton, NJ 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. Its 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 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.
WVA was recommended by Biosearch's auditors and interviewed directly by the
Board of Directors of Biosearch. Biosearch considered other advisors, but
concluded that WVA was well qualified and reasonably priced.
WVA has no material relationship to Biosearch or its affiliates, and no
compensation is to be received by WVA except for its engagement fee. The amount
of consideration was negotiated by Biosearch with the advice of WVA.
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 the same projections provided to Hydromer
and Hydromer's advisors. However, WVA included a calculation for the present
value of net operating loss carry forwards, and subtracted from its total net
present value of Biosearch cash flows the cost of change of control liabilities
(estimated at $136,000 for these purposes). Using discount rates of 35%, 30% and
25%, WVA's calculations of the net present value of Biosearch cash flows were as
follows:
35% $275,361 $0.125 per share
30% $503,554 $0.229 per share
25% $858,011 $0.391 per share
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Discount rates were based on WVA's knowledge of and business judgement regarding
the expected rates of return that were required by investors in the equity
securities of companies with a risk profile comparable to that of Biosearch.
This analysis were based on projections 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
(Company note: This forecast was done at the time the
Company was in negotiations with C.R.Bard for the sale of
a coating machine which was custom developed by Biosearch
along with a proprietary coating process relating to
Intermittent Urinary Catheters. It was the opinion of the
Company that C.R. Bard could achieve a similar unit sales
volume as had been previously achieved with a prior client
in Europe (SIMS). This would result in an anticipated new
sales revenue in 1999 of $300,000; $500,000 in 2000;
$900,000 in 2001; $1,125,000 in 2002 and $1,350,000 in
2003.
During this same time the Company was negotiating with
three (3) other large medical corporations for private
label manufacturing and contract coating services. It was
believed that should all three of these negotiations come
to fruition an additional annual sales revenue of $790,000
in 1999. Projections for the years 2000 to 2003 was
$1,250,000, $1,525,000, $1,800,000, and $2,100,000
respectively. To the extent that these expectations were
to actually happen, it was the Company's opinion that the
year 1999 would be a turn around year. The projections
were done at a time that the Company had doubts as to its
continual existence coupled with the optimistic
possibility of new revenue creating opportunities which
would give Biosearch the opportunity to prolong it's
survival. These projections done in good faith by and
approved by the President of the Company, were made for
the purpose of a fairness report by WVA and for an
evaluation report given by LAWSON and reflected this
optimism.)
WVA also performed a comparable company analysis. WVA reviewed the price to
revenue ratio and the price to book value ratio on companies which were sold and
it provided the requisite financing and transitional data. Price to book value
ratio ranged from .54 to 1.71; price to revenue ratio ranged from .47 to 6.99.
WVA selected from the range of values of appropriate ratios near the low end of
the ratio to reflect Biosearch's poor operating history and weak balance sheet.
It selected as comparables what it considered to be sufficiently large samples
of public companies engaged substantially in the design, development, production
and/or sale of medical instruments and devices. As part of its selection
process, WVA also stipulated meaningful financial and market data regarding
prospective comparables be available for use in its analysis.
Using that ratio, WVA calculated a preliminary indicated value for Biosearch and
subtracted from that value $200,000 which represented required working capital.
On a price/revenue basis, the indicated value of Biosearch was $771,129. On a
price/book value basis, the indicated value was $289,561. The average of these
two values was $530,345 or $0.242 per share.
WVA also performed an analysis of companies which were involved in sale/merger
transactions using the same ratios and methodology. WVA reviewed the price to
revenue ratio and the price to book value ratio on 12 public companies which
were sold. WVA selected from the range of values an appropriate ratio near the
low end of the range. Using that ratio, WVA calculated a preliminary indicated
value for Biosearch and subtracted from that value
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$200,000 which represented required working capital. On a price/revenue basis,
the indicated value of Biosearch was $641,645. On a price/book value basis, the
indicated value was $64,363. The average of these two values was $353,004 or
$0.161 per share.
Lastly, WVA performed a liquidating value analysis, adding to Biosearch current
liabilities the sum of $135,000 representing change of control liabilities. This
calculation resulted in an estimated liquidating valuation of $329,882 or $0.15
per share.
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 Biosearch or any Affiliate, other than as set forth in the WVA's
proposal letter, and no limitations were placed upon WVA.
Subsequent to the submission of WVA's analysis, the change in control
liabilities dropped from $135,000 to $63,000. WVA has advised that the reduction
in this liability does not materially affect the validity of the analysis.
No instructions were delivered to WVA from Biosearch or any Affiliate, other
than as set forth in the WVA's proposal letter and the projections above and no
limitations were placed upon WVA.
The Fairness Opinion is annexed to the Proxy Statement, and will be distributed
to shareholders of Biosearch. In addition, the Fairness Opinion and the Wharton
Report will be made available for inspection and copying at the principal
executive offices of Biosearch during regular business hours by any interested
equity security holder of Biosearch or his representative who has been so
designated in writing. A copy of the Fairness Opinion and the Wharton Report
will be transmitted by Biosearch to any interested equity security holder of
Biosearch or his representative who has been so designated in writing, without
charge.
Howard Lawson & Co., Two Penn Center Plaza, Philadelphia, PA 19102, 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.
Howard Lawson was recommended by the counsel to Hydromer, Inc. and was selected
by Hydromer's management following interviews. Howard Lawson has no material
relationship to Biosearch or its affiliates, and no compensation is to be
received by Howard Lawson except for its engagement fee. The amount of
consideration was negotiated by Hydromer with the advice of Howard Lawson.
LAWSON I: This report was divided into 4 sections:
1. Summary five-year historical financial statements and trailing twelve-month
financial information as of September 30, 1997 for Hydromer and Biosearch,
taken from publicly available information.
2. An analysis of guideline public companies for Hydromer. Howard Lawson
selected 8 public companies comparable to Hydromer in lines of business,
growth rates, financial condition or size. The report compared public
market multiples of guideline companies to Hydromer, and summarized the
financial performance of the guideline group. The report also ranked the
guideline companies and Hydromer with respect to size, growth and
profitability, and provided detailed historical financial information for
each guideline company and Hydromer.
For parameters of absolute size and profit margin, the report showed
Hydromer to be last in ranking in terms of revenues and assets, but first
or second in EBIT, EBITDA and net income.
In terms of growth rate, Hydromer 3 year compound annual growth rate for
the following parameters was shown to be as follows:
Revenues: 19.3% (mean 16.5%; median 19.8%)
EBITDA: 53.0% (mean 21.0%; median 29.7%)
EBIT: 79.7% (mean 27.1%; median 34.5%)
Net Income 110.3% (mean 47.5%; median 47.2%)
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For the parameters of relative performance, Hydromer's numbers were
as follows:
Return on Assets: 18.5% (mean 12.7%; median 12.3%)
Return on Equity: 19.9% (mean 18.5%; median 14.8%)
Return on Total Invested Capital: 19.9% (mean 15.8%; median 14.4%)
3. An analysis of guideline public companies for Biosearch. Howard Lawson
selected 8 public companies comparable to Biosearch in lines of business,
growth rates, financial condition or size. The report compared public
market multiples of guideline companies to Biosearch, and summarized the
financial performance of the guideline group. The report also ranked the
guideline companies and Biosearch with respect to size, growth and
profitability, and provided detailed historical financial information for
each guideline company and Biosearch.
For parameters of absolute size and profit margin, the report showed
Biosearch to be last in ranking in terms of revenues and assets, sixth in
EBIT, and EBITDA and seventh in net income.
In terms of growth rate, Biosearch 3 year compound annual growth rate for
the following parameters was shown to be as follows:
Revenues: -11.3% (mean 18.8%; median 3.5%)
EBITDA: nmf (mean -0.5%; median -14.6%)
EBIT: 34.09% (mean 13.9%; median -6.7%)
Net Income 53.6% (mean -6.2%; median -9.5%)
For the parameters of relative performance, Biosearch's numbers were
as follows:
Return on Assets: -27.8% (mean -19.8%; median -11.6%)
Return on Equity: -60.0% (mean 7.3%; median -6.4%)
Return on Total Invested Capital: -34.8% (mean -28.0%; median -13.7%)
4. An analysis of guideline acquisitions. Howard Lawson provided a summary of
acquisitions of companies that were similar to Biosearch. The transactions
were completed between 1/1/97 and 3/3/98, and had a deal value of less than
$1 Million. The reports compared the transaction value to a number of
financial parameters of the target companies , and results were as follows:
Transaction value to sales: mean 2.3 times; median 1.4 times
Transaction value to cash flow: mean 11.3 times, median 10.1 times
Transaction value to EBIT: mean 21.3 times; median 17.5 times
Transaction value to net income: mean 22.1 times; median 21.0 times
premium over market price 4 weeks before announcement: mean 47.1%
median 2.8%
The Lawson I report highlighted the median figures as being the most relevant
for consideration.
No instructions were delivered to Howard Lawson except to describe the services
needed, and no limitations were placed upon Howard Lawson.
LAWSON II: This 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 at their opinion, 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
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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 reviewed the following:
1. Financial statements of Biosearch for the years ended December 30, 1994
through December 31, 1998;
2. Financial statements of Biosearch for the three months ended March 31,
1998 and 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 which Howard Lawson deemed to be comparable to Biosearch.
5. Information regarding the business and its prospects derived from
discussions with the managements of Hydromer and Biosearch.
Howard Lawson considered all recognized valuation methodologies, placing
emphasis on those methods used to estimate fair market value under the
assumption of Biosearch continuing as a going concern.
Howard Lawson performed an asset purchase analysis of Biosearch based upon
estimated fair market values of Biosearch's fixed and intangible assets. Howard
Lawson used estimated values of $50,000 for tangible assets and $50,000 for
intangible assets. Assuming that tax loss carry forwards would be available to a
buyer, Howard Lawson estimated their value to be $250,000 to 300,000. They
concluded that on the basis of an asset purchase, and excluding all liabilities,
Biosearch had a value of $350,000 to $400,000 or $0.16 to $0.18 per share.
Howard Lawson also performed a discounted cash flow analysis to determine the
net present value of expected future cash flows of Biosearch, based upon
forecasts of future earnings, adjusted to reflect the probability of a range of
possible outcomes. Howard Lawson 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. Howard
Lawson reviewed financial and market data of publicly traded guideline companies
and used the Gordon Growth Model to determine an implied cost of equity.
According to this model, the rate of return (k) is a function of the Company's
projected net income (I), market value (MV), and expected five year growth rate
(g). The formula is k=I/MV + g. Only one guideline company had five year growth
rates available and calculations using this methodology resulted in implied
equity costs of 42%. Biosearch did not have any debt, and Howard Lawson
therefore used the implied equity cost instead of a WACC.
Howard Lawson determined to calculate discounted cash flow at 45%. Assuming
first that Biosearch achieves approximately 41 percent of its forecast, and
using the discount rate of 45 percent, Howard Lawson calculations resulted in a
present value of cash flows of $161,000, or $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 present value of
cash flows to be $445,000 or $0.20 per share.
On the basis of their discussions with management and all materials reviewed,
and assuming that Biosearch can turn around its declining revenues in accordance
with its forecasts, 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.
No instructions were delivered to Howard Lawson except to describe the valuation
services needed, and no limitations were placed upon Howard Lawson.
LAWSON LETTER: Subsequent to issuing Lawson II, Howard Lawson cautioned the
Hydromer Board that if projected
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income of Biosearch was significantly below the projections used in Lawson II,
or that if certain rights were transferred to a third party prior to closing the
transaction, that the value of Biosearch could be impaired. In June of 1999, the
Hydromer Board of Directors met and specifically reviewed the points in the
Lawson letter with management of Hydromer. As to the projections, management
reported that Biosearch's annualized revenues through June of 1999 were well
above the numbers needed to support the Howard Lawson valuation of $0.20 per
share, (Biosearch was at 144 % of forecast, and needed only to be at 55% of
forecast to support the Howard Lawson Valuation). As to the purported "transfer
of assets," this concern arose from the Applied Medical Resources license
entered into by Biosearch (see Description of Business).
The Hydromer board inquired whether the license would undercut the ability of
the combined companies to generate new sales, a key point in the Board's
analysis (and Howard Lawson's valuation) of the proposed transaction with
BioSearch. Management assured the board that the license would not hamper any
new transactions, for the following reasons:
1. It did not include Hydromer's patented or proprietary coatings,
2. It was limited to the licensee's products and did not permit the
licensee to contract coat or private label products for other parties,
3. The license includes in part, proprietary primers not sold by Hydromer,
4. The licensee is sending contract coating business to BioSearch and
wanted the license only as back up for this coating arrangement in the
event BioSearch went out of the coating business for any reason.
The Board of Directors concluded that the license was not a transfer of assets
which would adversely affect the revenue of the combined companies.
CONSENT OF HOWARD LAWSON: Howard Lawson has declined to give its consent to the
inclusion of the foregoing description of Lawson I, Lawson II and the Lawson
Letter in this Proxy. Howard Lawson has taken the position that, despite the
requirements of Rule 13E-3, Hydromer does not have the right to publish this
information, which was originally prepared for the sole, confidential use of the
Hydromer Board of Directors. The issues raised in the Lawson Letter were not
cited as a basis for denial of consent.
Lawson I, Lawson II and the Lawson Letter will be made available for inspection
and copying at the principal executive offices of Biosearch during regular
business hours by any interested equity security holder of Biosearch or his
representative who has been so designated in writing. A copy of Lawson I, Lawson
II and the Lawson Letter will be transmitted by Biosearch to any interested
equity security holder of Biosearch or his representative who has been so
designated in writing, upon the written request and at the expense of the
requesting equity security holder.
As to the RBB Report.
Rosenberg Rich Baker Berman & Co., 380 Foothill Blvd. PO Box 6483, Bridgewater,
NJ 08807 are Certified Public Accountants and serve as Hydromer's auditors.
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. Rosenberg Rich Baker Berman
& Co. serves as Hydromer's auditors and is compensated on an hourly or project
basis for accounting services. Rosenberg Rich Baker Berman & Co. provided
background information only, and did not play any role in determining the
consideration paid by Hydromer. 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
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Rosenberg Rich Baker Berman & Co. The RBB Report will be made
available for inspection and copying at the principal executive offices of
Biosearch during regular business hours by any interested equity security holder
of Biosearch or his representative who has been so designated in writing. A copy
of The RBB Report will be transmitted by Biosearch to any interested equity
security holder of Biosearch 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 II, "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.
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 Dyck 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.
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EXECUTIVE OFFICERS OF HYDROMER:
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.
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 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.
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f. Manfred F. Dyck owns 344,720 shares of the Common Stock of Biosearch
(options, shares held in trust or beneficially owned by others are
excluded) and will be paid a total of $68,944 in exchange for his shares.
Martin C Dyck owns an aggregate of 4,654 (excluding options) shares of
Common Stock of Biosearch and will be paid an aggregate of $931 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, and (ii) certain non-resident aliens and foreign corporations and
stockholders who are subject to special tax treatment under the Code.
Each stockholder is urged to consult his own tax advisor as to the particular
state, local, foreign and other tax consequences, in light of a particular set
of specific circumstances.
DIVIDENDS:
The Company has never paid dividends and no dividends are in arrears.
BOOK VALUE OF COMPANY
The Book value per share of the Company for the past 5 years has been:
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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. In the
second quarter a license was granted to Applied Medical resources for
$150,000. This raised the book value per share as of 6/30/99 to $0.26. At
the end of the third quarter (9/30/99) the book value per share was $0.19.
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 - $0.06 to 0.16
Q2 - $0.09 to 0.18 (In early Q2 there was trading at $0.50 traced to
a purchases by a Fla. investment group, not
considered as meaningful by any filing person
after consulting the opinions set forth in the
Wharton Report and the Lawson Two report).
No further investigation was done as the stock
price settled back to a bid/ask of 0.12-0.18.
Q3 - $0.12 to 0.14
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. Its' stock will no longer be registered under Section 12 of the
Exchange Act. Registration under the exchange act is meant to cause a registrant
to fully disclose certain characteristics to it stockholders. Not being
registered with one remaining stockholder has no material consequences to any
other party but that one stockholder which can exercise its ability to install
directors who will report on operating matters internally. If the present
stockholder desire to be part of the future of Biosearch, they can purchase
shares of Hydromer stock on the open market.
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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:
Exchange of common stock $440,576
Legal ................... $ 27,000 (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 .............. 16,000 (analysis/responding to SEC comments)
Solicitation ............ 3,600
Edgarizing .............. 15,000 (electronic filing with SEC, keying reports)
Printing ................ 7,000
Proxy solicitation ...... 3,600
Exchange of money
for certificates ...... 3,000(1)
Filing fees (Form 13 E 3) 88
--------
TOTAL .................... $573,364
========
(1) Estimated costs for the transfer agent to send out letters to stockholders
requesting that they mail in their certificates and receive the exchange
price of $0.20 per share.
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
DESCRIPTION OF BUSINESS
Biosearch Medical Products Inc. was incorporated in the State of New Jersey in
1975 and went public in 1982 with its initial public offering. The Company
received ISO 9000 certification in October 1996, which is needed to sell
products in Europe. The Company's two year supply agreement with Sherwood
Medical, based on the sale of licensed and sub-licensed technology in May 1994,
expired in early 1997. During 1996, the Company developed and sold, on an OEM
basis, hydrophilically coated intermittent urinary catheters to Smith Industries
Medical Systems/ Portex Ltd. The Company had no signed agreement with Smith
Industries Medical Systems/ Portex Ltd.and all dealing were on a purchase order
basis. In early 1998, the Company was near completion on its current
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commitment, and requested that a new purchase order be issued to keep production
flowing uniformly. Due to some internal problems with a product launch by
SIMS/Portex, the company was told there would be no purchase orders coming for
at least one year. This was a devastating situation for the Company and forced
it to look elsewhere for another partner. In discussions with C.R.Bard, it
became evident that their United Kingdom subsidiary was interested in a
hydrophilically coated intermittent urinary catheter to compete with Astra
Pharmaceuticals " Lo-Fric" catheter. The company signed a standstill agreement
in August 1998 in which C.R.Bard paid the Company $100,000 for the right to
negotiate the sale of the coating technology and the related coating machine to
C.R.Bard. The standstill agreement was for thirty days and after the period was
over the agreement was extended for an additional forty five days for an
additional $100,000. The agreement was finally consummated in February 1999 and
C.R.Bard acquired the worldwide exclusive rights to the coating technology for
$400,000 and the related coating machine for $250,000. The Company also agreed
to produce and sell intermittent urinary catheters to C.R.Bard, at an agreed
price, until C.R.Bard decides to produce the catheters themselves.
The Company has also entered into OEM relationships with Wilson-Cook Medical and
U.S. Endoscopy Group to produce and sell Bi-Polar Coagulation probes on a
purchase order by purchase order basis.
With these OEM relationships with Wilson-Cook and U.S. Endoscopy along with our
other OEM relationship with C.R.Bard, for both the intermittent urinary
catheters and jejunal feeding tubes, the Company feels its niche is in its OEM
capabilities and will continue to look for other opportunities in that area.
During 1998 the Company continued to advertise its coating capabilities in
various publications and also developed most of its own coatings, allowing it to
use these developed coatings on various substrates. Applied Medical Resources
entered into an agreement with the Company in which they purchased the
non-exclusive worldwide rights to certain proprietary coatings for use on
urological and surgical products for $150,000.
The Company believes its ability to continue as a going concern depends on its
ability to attract new OEM business and its expertise at coating various
products with its own proprietary coatings, which it believes will attract new
customers and new revenues to the Company.
PRINCIPAL PRODUCTS/SERVICES
1. ANORECTAL BIOFEEDBACK SYSTEMS FOR FECAL INCONTINENCE AND CONSTIPATION: The
hand held electronic monitor is connected to the silicone probe and
inserted rectally by the patient who then uses the monitor to visualize the
slightest movements of the muscles of continence.
Distribution methods: The product is distributed via direct Internet
communication with a patient who submits a physicians prescription along
with payment. However, the majority of product is distributed via several
international dealer organizations.
Status of any publicly announced new product or service: Not applicable
Competition and competitive position in industry: The competition has been
growing steadily over the past few years by larger and better capitalized
corporations with dedicated sales forces and strong distribution channels.
It is estimated that Biosearch has a very small portion of the market and
our sales have been flat for the last three years.
Sources and availability of raw materials and names of principal suppliers:
Biosearch manufactures the silicone Probes and hand held electronic patient
monitors using components purchased from several vendors. Some of these
components are custom designed by Biosearch while others are off the self.
Availability of raw materials is not a concern since these items can be out
sourced from various sources including the Biosearch designed components.
For this reason there are no principal supplies.
Dependence on one or a few major customers: Since the sales of this item
are spread out among direct Internet and several international dealers,
Biosearch is not dependant on one or a few major customers.
Patents, trademarks, licenses, franchises, concessions, royalty agreements
or labor contracts: Not applicable.
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Government Approval: The FDA issued a 510(k) release for sale on June 1990.
British Standards Institution awarded the "CE" approval for sale into
Europe on September 1998. No other governmental approval is required.
Effect of existing or probable governmental regulations: Products must be
manufactured in strict compliance to FDA Good Manufacturing Practice
guidelines and to ISO 9001 rules via the European Community directives.
Biosearch complies with these regulations and no change is foreseen.
Estimated amount of time spent during the last two fiscal years on research
and development: No time was spent on this product line over the past two
fiscal years.
2. BIPOLAR ELECTRO COAGULATION PROBES: This product connected to
electrosurgical generator by the physician and used to coagulate bleeding
sites in the gastrointestinal tract. The physician places the probe through
an endoscope and makes contact with the bleeding site and probe tip. The
electrosurgical generator sends energy through the probe to the bleeding
site causing it to dry and stop bleeding.
Distribution methods: The majority of the product is distributed via
private label agreements with Wilson-Cook and United States Endoscopy,
Inc. The remainder of product is distributed via several domestic and
international dealer organizations.
Competition and competitive position in industry: The competition has not
increased over the past few years. However, our position in the market has
improved substantially with the private label sales to Wilson-Cook.
Our actual position in the market is unknown.
Status of any publicly announced new product or service: Not applicable
Sources and availability of raw materials and names of principal suppliers:
Biosearch manufactures the Probes using components made by Biosearch and
some purchased from several vendors. Some of these components are custom
designed by Biosearch while others are off the self. Availability of raw
materials is not a concern since these items can be out sourced from
various sources including the Biosearch designed components. For this
reason there are no principal supplies and the raw materials used are
plentiful.
Dependence on one or a few major customers: Since the sales of this item
are spread out among United States Endoscopy and Wilson-Cook and several
domestic and international dealers, Biosearch is not dependant on one or a
few major customers.
Patents, trademarks, licenses, franchises, concessions, royalty agreements
or labor contracts: Not applicable
Government Approval: The FDA issued a 510(k) release for sale on July 1991.
British Standards Institution awarded the "CE" approval for sale into
Europe on September 1998. No other governmental approval is required.
Effect of existing or probable governmental regulations: Products must be
manufactured in strict compliance to FDA Good Manufacturing Practice
guidelines and to ISO 9001 rules via the European Community directives.
Biosearch complies with these regulations and no change is foreseen.
Estimated amount of time spent during the last two fiscal years on research
and development: No time was spent on this product line over the past two
fiscal years.
3. INDWELLING BILIARY STENTS: These are small catheters with a hydrophilic
coating that an Endoscopist places into the patients biliary ducts using
and endoscope and guidewire to restore the flow of bile from the gall
bladder. This flow of bile is essential for normal human digestion and the
devices are used in both terminal and non-terminal patients.
Distribution methods: The product is distributed via several international
dealer organizations. There is virtually not domestic sales due to the lack
of a specialized sales force and specialty dealers.
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Competition and competitive position in industry: The competition had been
well entrenched prior to our entry into this market. These competitors are
larger and better capitalized corporations with dedicated sales forces and
strong distribution channels. It is estimated that Biosearch has a very
small portion of the market and our sales have been flat for the last three
years.
Status of any publicly announced new product or service: Not applicable.
Sources and availability of raw materials and names of principal suppliers:
Biosearch manufactures the stents using plastic resin purchased from
several vendors Availability of raw materials is not a concern since the
resin can be purchased from various sources. For this reason there are no
principal supplies.
Dependence on one or a few major customers: Since the sales of this item
are spread out among several international dealers, Biosearch is not
dependant on one or a few major customers.
Patents, trademarks, licenses, franchises, concessions, royalty agreements
or labor contracts: Not applicable.
Government Approval: The FDA issued a 510(k) release for sale on July 1990.
British Standards Institution awarded the "CE" approval for sale into
Europe on September 1998. No other governmental approval is required.
Effect of existing or probable governmental regulations: Products must be
manufactured in strict compliance to FDA Good Manufacturing Practice
guidelines and to ISO 9001 rules via the European Community directives.
Biosearch complies with these regulations and no change is foreseen.
Estimated amount of time spent during the last two fiscal years on research
and development: No time was spent on this product line over the past two
fiscal years.
4. JUJUNOSTOMY CATHETERS: These are small feeding catheters with a hydrophilic
coating that an Endoscopist places into the patients jejunum using and
endoscope and guidewire. These catheters are used in conjunction with a
pre-existing per cutaneous endoscopic feeding catheter.
Distribution methods: The product is distributed only via private label
agreements with C.R. Bard and United States Endoscopy.
Competition and competitive position in industry: It is estimated that
through Bard and United States Endoscopy, Biosearch enjoys 50% of the
market share. However, the market mature and no real increases in sales
volume expected.
Status of any publicly announced new product or service: Not applicable.
Sources and availability of raw materials and names of principal suppliers:
Biosearch manufactures the catheters using plastic resin and components
purchased from several vendors Availability of raw materials is not a
concern since the resin and components can be purchased from various
sources. For this reason there are no principal supplies.
Dependence on one or a few major customers: Bard is our major customer
accounting for 95% of the catheters sold.
Patents, trademarks, licenses, franchises, concessions, royalty agreements
or labor contracts: Not applicable.
Government Approval: The FDA issued a 510(k) release for sale in the late
1980's. British Standards Institution awarded the "CE" approval for sale
into Europe on September 1998. No other governmental approval is required.
Effect of existing or probable governmental regulations: Products must be
manufactured in strict compliance to FDA Good Manufacturing Practice
guidelines and to ISO 9001 rules via the European Community directives.
Biosearch complies with these regulations and no change is foreseen.
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Estimated amount of time spent during the last two fiscal years on research
and development: No time was spent on this product line over the past two
fiscal years.
5. ENTERAL ACCESSORY DEVICES: These are connecting catheters that connect to a
enteral feeding bag and deliver feeding formula via a pump or gravity to a
indwelling feeding catheter.
Distribution methods: The product is distributed via several domestic and
international dealer organizations.
Status of any publicly announced new product or service: Not applicable
Competition and competitive position in industry: This business was
virtually entirely sold to Sherwood with the exception of a few enteral
accessory devices. The competitors are larger and better capitalized
corporations with dedicated sales forces and strong distribution channels.
It is estimated that Biosearch has a very small portion of the market and
our sales have been declining for the last three years.
Sources and availability of raw materials and names of principal suppliers:
Biosearch manufactures the products using components purchased from several
vendors Availability of raw materials is not a concern since the components
can be purchased from various sources. For this reason there are no
principal supplies.
Dependence on one or a few major customers: Since the sales of this item
are spread out among several domestic and international dealers, Biosearch
is not dependant on one or a few major customers.
Patents, trademarks, licenses, franchises, concessions, royalty agreements
or labor contracts: Not applicable.
Government Approval: The FDA issued a 510(k) release for sale in the late
1970's and early 1980's, British Standards Institution awarded the "CE"
approval for sale into Europe on September 1998. No other governmental
approval is required.
Effect of existing or probable governmental regulations: Products must be
manufactured in strict compliance to FDA Good Manufacturing Practice
guidelines and to ISO 9001 rules via the European Community directives.
Biosearch complies with these regulations and no change is foreseen.
Estimated amount of time spent during the last two fiscal years on research
and development: No time was spent on this product line over the past two
fiscal years.
6. HYDROPHILIC COATINGS/SERVICES: Biosearch has been hydrophilically (Slippery
when exposed to water) coating medical devices since the late 1970's and
made this service available to other companies beginning in the 2nd quarter
of 1998. In addition, Biosearch developed several new proprietary medical
grade hydrophilic coating formulas and processes that it hope will be of
great interest to other companies.
Distribution methods: This is a on site service that is made available to
other companies via direct mailings, e-mail , advertising and visits to our
web site. Direct customer prospecting via visits and telephone is also
performed by key employees when ever possible.
Status of any publicly announced new product or service: Please see
"Distribution methods" above.
Competition and competitive position in industry: Most competitors are
larger and better capitalized corporations with dedicated sales forces and
strong marketing capabilities. It is estimated that Biosearch has a small
but growing portion of the market.
Sources and availability of raw materials and names of principal suppliers:
Biosearch manufactures the hydrophilic coating solutions using chemicals
purchased from several vendors Availability of raw materials is not a
concern since these chemicals can be purchased from various sources. For
this reason there are no principal supplies.
Dependence on one or a few major customers: This is a new business venture
and Biosearch is not dependant on one or a few major customers.
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Patents, trademarks, licenses, franchises, concessions, royalty agreements
or labor contracts: The company may file patents should the revenue allow.
License and royalty agreements will become an important part of this
business. To date, their has only been one such license agreement with
Applied Medical Resources, Inc.
Government Approval: No government approval is required however for
marketing reasons all medical devices coated by Biosearch are done so under
strict compliance to FDA guidelines and ISO 9001 directives.
Effect of existing or probable governmental regulations: For marketing
reasons all medical devices coated by Biosearch are done so under strict
compliance to FDA Good Manufacturing Practice guidelines and to ISO 9001
rules via the European Community directives. Biosearch complies with these
regulations and no new regulations are foreseen.
Estimated amount of time spent during the last two fiscal years on research
and development: Over the past 2 fiscal years 100% of research and
development was applied in the development of new hydrophilic coatings.
Furthermore, 100% of the cost is borne by the customers.
Costs and effects of compliance to environmental laws: Since Biosearch is
small hazardous waste generator due to the hydrophilic coating business,
the Company spend an estimated $3,000 disposing of this waste.
There is no adverse effect caused by these environmental laws.
TOTAL NUMBER OF EMPLOYEES AND FULL TIME EMPLOYEES: In 1997 the Company had an
average of 30 employees with 26 being full time. In 1998 there was an average of
38 employees with 28 being full time. Year to date 1999, there was an average of
45 employees with 27 being full time.
DESCRIPTION OF PROPERTY
Prior to June 1998 the Company owned the building in which it operated located
at 35 Industrial Parkway, Somerville, NJ 08876. The building was built in 1982
with a loan issued by the NJ Economic Development Authority ("EDA"). The
mortgage was held by Summit Bank who purchased bonds from the EDA pertaining to
the building.
The Company sold its property at 35 Industrial Parkway to Hydromer Inc., a
related party,for $850,000 and a prepaid leaseback of approximately two thirds
of the building for three years with a value of approximately $346,500, bringing
the value of the total deal to $1,196,500. With this transaction the Company is
debt free and all judgements against relating to a default on the mortgage have
been dismissed (See "Legal Proceeding").
LEGAL PROCEEDING
On August 25, 1997 Summit Bank notified the Company that it was in default for
failure to make mortgage payments when due. Summit exercised its right under the
load documents to declare the mortgage immediately due and payable. On February
24, 1998, Summit Bank obtained a judgement against the Company in the Superior
Court of New Jersey. (At the sale of the building the judgement was satisfied
for an amount of $810,558 which included attorney's fees). On March 19, 1998
they obtained a judgement of foreclosure against the Company's property. On June
12, 1998, the Company sold its property as discussed above, paid its debt to
Summit Bank and all judgements were dismissed.
There are no legal proceedings by or against the Company.
MARKET PRICE OF AND DIVIDENDS
The Company's stock is sold on the NASD bulletin board "pink sheets" and is
available by appointment. This bulletin board is a limited market place
subject to sporadic quotations. The Company has never paid dividends.
For it stock price refer to the section above entitled "Stock Price"
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The approximate number of holders of common stock is 600.
The Company has never paid any dividends.
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INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
BIOSEARCH MEDICAL PRODUCTS, INC.:
We have audited the accompanying balance sheets of Biosearch Medical
Products, Inc. as of December 31, 1998 and 1997 and the related statements of
operations, shareholders' equity and cash flows for each of the three years
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly
the financial position of Biosearch Medical Products, Inc. as of December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years ended December 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
Biosearch Medical Products, Inc. will continue as a going concern. As discussed
in note 1 to the financial statements, the Company has suffered recurring losses
from operations. There is no assurance that the Company's operations will
generate sufficient cash flow to meet its obligations or that the Company has
the ability to obtain additional financing as required, which raises substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
AMPER, POLITZINER & MATTIA P.A.
EDISON, NEW JERSEY
SEPTEMBER 18, 1999
-38-
<PAGE>
FINANCIAL STATEMENTS
BIOSEARCH MEDICAL PRODUCTS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................... $ 105,768 $ 14,486
Trade receivables - less allowance for
doubtful accounts of $10,000 ................. 78,751 351,964
Inventories .................................. 297,613 372,012
Other assets ................................. 256,127 18,762
---------- ----------
Total current assets .............. 738,259 757,224
---------- ----------
PROPERTY, PLANT AND EQUIPMENT .......................... 2,440,400 4,239,648
Less accumulated depreciation
and amortization ............................. 2,287,523 2,887,766
---------- ----------
Net property, plant and equipment . 152,887 1,351,882
---------- ----------
OTHER ASSETS
Other assets, net ......................... 5,862 8,123
---------- ----------
Total other assets ................ 5,862 8,123
---------- ----------
TOTAL ASSETS ...................... $ 896,998 $2,117,229
========== ==========
</TABLE>
(continued)
-39-
<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
BALANCE SHEETS
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt .................. $ -- $ 691,041
Accounts payable ...................................... 253,498 353,712
Customer deposits ..................................... 380,000 --
Accrued liabilities ................................... 174,330 132,330
------------ ------------
Total current liabilities .................. 807,828 1,177,083
SHAREHOLDERS' EQUITY:
Common stock, no par value; 5,000,000
shares authorized; 2,210,798 issued and 2,202,878
shares outstanding at December 31, 1998 and 1997 ... 11,129,954 11,129,954
Accumulated deficit ................................... (11,009,545) (10,158,569)
Treasury stock, at cost;
7,920 shares at December 31, 1998
and 1997 ........................................... (31,239) (31,239)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY ................. 89,170 940,146
Commitments and contingencies ................................... -- --
------------ ------------
$ 896,998 $ 2,117,229
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO
FINANCIAL STATEMENTS
-40-
<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues ...................................... $ 1,294,838 $ 1,936,171 $ 2,648,719
Cost of goods sold ............................ 1,271,216 1,536,936 2,238,606
----------- ----------- -----------
Gross profit .................................. 23,622 399,235 410,113
Selling, general and administrative expenses .. 859,077 892,602 1,222,901
----------- ----------- -----------
Loss from operations .......................... (835,455) (493,367) (812,788)
----------- ----------- -----------
Other income (expense):
Interest expense, net .................... (22,427) (84,441) (72,055)
Other, net ............................... 6,906 21,598 1,275
----------- ----------- -----------
(15,521) (62,843) (70,780)
----------- ----------- -----------
(LOSS) BEFORE PROVISION FOR INCOME TAXES ...... (850,976) (556,210) (883,568)
Provision for income taxes .................... -- -- --
----------- ----------- -----------
NET (LOSS) .................................... $ (850,976) $ (556,210) $ (883,568)
=========== =========== ===========
BASIC AND DILUTED NET LOSS
PER COMMON SHARE ......................... $ (.39) $ (.25) $ (.40)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING ................ 2,202,878 2,202,878 2,202,878
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO
FINANCIAL STATEMENTS
-41-
<PAGE>
<TABLE>
BIOSEARCH MEDICAL PRODUCTS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
COMMON STOCK
--------------------------------------- TREASURY STOCK
SHARES SHARES ACCUMULATED ------------------------
ISSUED OUTSTANDING AMOUNT DEFICIT SHARES AMOUNT TOTAL
--------- ----------- ------------ ------------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 ......... 2,210,798 2,202,858 $ 11,129,948 $ (8,718,791) (7,940) $ (31,315) $3,223,046
Issuance of treasury shares in connection
with employee stock awards ....... -- 20 6 -- 20 76 82
Net loss ................................. -- -- -- (883,568) -- -- (883,568)
--------- --------- ------------ ------------ ------ --------- ----------
BALANCE, DECEMBER 31, 1996 ....... 2,210,798 2,202,878 $ 11,129,954 $ (9,602,359) (7,920) $ (31,239) $1,496,356
Net loss ................................. -- -- -- (556,210) -- -- (556,210)
--------- --------- ------------ ------------ ------ --------- ----------
BALANCE, DECEMBER 31, 1997 ....... 2,210,798 2,202,878 $ 11,129,954 $(10,158,569) (7,920) $ (31,239) $ 940,146
--------- --------- ------------ ------------ ------ --------- ----------
Net Loss ................................. -- -- -- (850,976) -- -- (850,976)
--------- --------- ------------ ------------ ------ --------- ----------
BALANCE, DECEMBER 31, 1998 ....... 2,210,798 2,202,878 $ 11,129,954 $(11,009,545) (7,920) $ (31,239) $ 89,170
========= ========= ============ ============ ====== ========= ==========
</TABLE>
SEE ACCOMPANYING NOTES TO
FINANCIAL STATEMENTS.
-42-
<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ............................................. $(850,976) $(556,210) $(883,568)
Adjustments to reconcile (loss) to net cash
(used in) operating activities:
Depreciation and amortization ..................... 60,271 91,279 90,862
Gain on sale of fixed assets ...................... -- (2,763) --
Changes in assets and liabilities:
Decrease/(increase) in trade receivables .......... 273,213 (169,716) (19,747)
Decrease in inventories ........................... 74,398 141,538 102,540
Decrease (increase) in other current assets ....... 56,657 11,903 (13,114)
Decrease in other assets .......................... 2,262 5,457 (23)
Increase in accounts payable ...................... 8,637 168,059 22,119
Increase/(decrease) in accrued liabilities ........ 92,109 637 (56,553)
Increase in customer deposits ..................... 380,000 -- --
--------- --------- ---------
Net cash provided/(used) in operating activities ....... 96,571 (309,816) (757,484)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................... (5,289) (34,593) (172,180)
Proceeds from sale of fixed assets ..................... -- 46,000 --
Decrease in escrow .................................... -- -- 312,811
--------- --------- ---------
Net cash provided/(used) by investing activities ....... (5,289) 11,407 140,631
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from surrendering whole life policy ........... -- -- 402,785
Principal payments on long-term borrowings ............. -- (8,481) (32,648)
--------- --------- ---------
Net cash provided by (used in)
financing activities .............................. -- (8,481) 370,137
--------- --------- ---------
Net (decrease)/ increase in cash and cash equivalents .. 91,282 (306,890) (246,716)
--------- --------- ---------
Cash and cash equivalents at beginning of period ....... 14,486 321,376 568,092
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............. $ 105,768 $ 14,486 $ 321,376
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO
FINANCIAL STATEMENTS.
-43-
<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. LIQUIDITY
The Company's financial statements have been presented on the basis that the
Company is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company had
recurring losses from continuing operations of $850,976 in 1998 and $556,210 in
1997.
There is no assurance that the Company's revenue from its OEM strategic
alliances or niche surgical and biofeedback products will reach volumes to which
long-term operations can be conducted.
Management believes that the Company's financial condition at December 31, 1998
represents an uncertain base to conduct current operations. The Company's
ability to continue as a going concern is dependent upon its success at
generating sufficient cash flow or obtaining additional financing as required to
meet its long-term obligations, support its working capital needs and curtail
the ongoing losses by generating profitable revenue levels. The Company had no
available line of credit established at December 31, 1998. On February 25, 1999
the Company signed an agreement with C.R.Bard to sell its worldwide exclusive
rights to the Company's technology for coating intermittent urinary catheters
for $400,000 and sold its related machinery for $250,000. The parties also
reached an agreement, whereby the Company has offered to manufacture and coat
intermittent urinary catheter components for C.R.Bard until such time as it
decides to perform these operations themselves. Proceeds of this transaction
have increased the working capital of the Company, however it is not significant
enough to warrant a change in managements belief as to the financial condition
of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Biosearch Medical Products, Inc. (the "Company") is a
U.S. based corporation whose principal lines of business are in contract
manufacturing and distributing, under its own label of medical devices. The
Company is an OEM manufacturer for various medical product companies and
manufactures and distributes its own line of endoscopic products to hospitals,
through a network of dealers, both domestic and international.
Credit is granted to substantially all customers.
REVENUE RECOGNITION - The Company recognizes all revenues when the product is
shipped. Customers have the right to return merchandise only in the event of
product defects and then only upon approval by the Company. These policies apply
to distributors, OEM customers and direct sales customers. OEM sales represent
approximately 73% of the Company's total revenues, distributors amount to
approximately 12% and the balance are direct sales. Customer returns were
approximately $10,000 and $5,000 for the years ending December 31, 1998 and 1997
respectively.
ESTIMATES - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - The Company considers all short-term investments
with maturities of three months or less at the date of purchase to be cash
equivalents. Cash and cash equivalents include money market funds and short-term
treasury bills. The Company, at December 31, 1998 and 1997 and periodically
throughout the years, has maintained balances in various operating and money
market accounts in excess of federally insured limits.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are carried at
cost less accumulated depreciation and amortization. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the related assets.
INVENTORIES - Inventories are valued at the lower of cost, determined by the
first in, first out method, or market.
-44-
<PAGE>
Cost includes materials, direct labor and manufacturing overhead.
RESEARCH AND DEVELOPMENT CONTRACTS - The Company recognizes revenue on research
and development contracts on the completed contract method. The related costs
are capitalized at inception until the completion of the contract. Anticipated
losses on contracts are recorded in the period they become known.
ADVERTISING COSTS - Advertising costs are expensed as incurred and totaled
approximately $1,500, $1,400 and $24,000 for the years ended December 31, 1998,
1997 and 1996 respectively.
STOCK OPTION PLAN - The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB25) and
related interpretations in accounting for its employee stock options. Under this
method, compensation cost is measured as the amount by which the market price of
the underlying stock exceeds the exercise price of the stock option at the date
at which both the number of options granted and the exercise price are known.
LOSS PER COMMON SHARE - Effective for the Company's financial statements for the
year ended December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS replaces the
presentation of primary earnings per share ("EPS") and fully diluted EPS with a
presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes
dilution and is computed by dividing earnings available to common stockholders
by the weighted average number of common shares outstanding during the period.
Diluted EPS assumes conversion of dilutive options and warrants, and the
issuance of common stock for all other potentially dilutive equivalent shares
outstanding. All potentially dilutive equivalent shares outstanding are
anti-dilutive for all periods. The adoption of SFAS 128 did not have a material
effect on the Company's reported EPS amounts.
3. INVENTORIES
DECEMBER 31,
---------------------------
1998 1997
--------- ---------
Finished goods ....................... $ 96,263 $ 95,992
Work-in-process ...................... 61,915 140,271
Raw materials ........................ 139,435 135,749
--------- ---------
$ 297,613 $ 372,012
========= =========
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ ESTIMATED
1998 1997 USEFUL LIVES
----------- ----------- ------------
<S> <C> <C> <C>
Land ................................. $ -- $ 137,182
Buildings and improvements ........... -- 1,667,355 40 years
Machinery and equipment .............. 1,919,410 1,915,249 3 - 10 years
Furniture and fixtures ............... 520,990 519,862 5 years
----------- -----------
$ 2,440,400 $ 4,239,648
=========== ===========
</TABLE>
Depreciation and amortization charged to income was $60,271, $91,279 and $90,862
in 1998, 1997 and 1996, respectively.
The Company entered into an agreement with Hydromer Inc., a related party,
through a common non-majority stockholder for the sale and lease back of their
facility. The lease is classified as an operating lease in accordance with SFAS
No. 13 "Accounting for Leases". As of June 12, 1998, the building, land and
improvements with a net book value of $1,144,023 have been removed from the
balance sheet, and the loss realized on the sale transaction of $294,022 has
been deferred as prepaid rent and is being charged of to rent expense over the
lease term of 36 months. The lease requires no other rental payments.
In conjunction with the above transaction, the following noncash activity took
place:
-45-
<PAGE>
<TABLE>
<S> <C> <C>
Net book value of the building sold ........................... $1,144,023
Noncash consideration
Direct payoff of mortgage debt by buyer .............. $ 691,041
Direct payoff of accrued mortgage interest by buyer .. 31,378
Additional mortgage fees paid by buyer ............... 108,151
Reduction of amount due to buyer for royalties ....... 18,730
850,000
----------
Loss on sale of building (treated as prepaid rent) ............ $ 294,022
==========
</TABLE>
5. LONG-TERM DEBT
DECEMBER 31,
-------------------
1998 1997
------- --------
Note payable originally due April 1, 2007 .. $ -- $691,041
Less current maturities ..................... -- 691,041
------- --------
Long-term debt ............................. $ -- $ --
======= ========
The Company extinguished debt from the proceeds of the sale of the property
(Note 4.) The Company used the proceeds to pay the debt relating to the building
and with this transaction the Company is debt free and all judgements have been
dismissed
6. SAVINGS AND INVESTMENT PLANS
In May 1988, the Company established a contributory 401(k) plan for all eligible
employees. However, in April 1991, the Company's Board of Directors indefinitely
suspended the Company's contribution primarily due to the Company's adverse
profit performance. The Company pays the cost of administering the plan which
totaled approximately $7,000 per year for 1998, 1997 and 1996, respectively.
7. INCOME TAXES
Deferred tax attributes resulting from differences between financial accounting
amounts and tax bases of its assets and liabilities at December 31, follow:
1998 1997
---------- ----------
Current assets and liabilities:
Allowance for doubtful accounts ............ $ 4,000 $ 4,000
Inventory valuation reserve ................ 88,000 103,000
Inventory overhead capitalization .......... -- --
---------- ----------
92,000 107,000
Valuation allowance ........................ 92,000 107,000
---------- ----------
Net current deferred tax assets ........ $ -- $ --
========== ==========
Non current assets and liabilities:
Depreciation ............................... 458,000 89,000
Net operating loss carry forward ........... 4,084,000 3,987,000
Alternative minimum tax credit carry forward 60,000 60,000
Investment tax credit carry forward ........ 182,000 182,000
---------- ----------
4,784,000 4,318,000
Valuation allowance ........................ 4,784,000 4,318,000
---------- ----------
Net non current deferred tax asset ......... $ -- $ --
========== ==========
-46-
<PAGE>
The provision for income taxes consists of the following for the years ended
December 31:
1998 1997 1996
--------- --------- ---------
Current tax expense ............... $ -- $ -- $ --
Deferred tax benefit .............. (481,000) (485,000) (504,000)
Net change in valuation allowance.. 481,000 485,000 504,000
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
The statutory income tax rate differs from the effective tax rate used in the
financial statements for the years ended December 31, 1998, 1997 and 1996 as a
result of current year net operating losses, the benefit of which has not been
recognized in the current year.
The investment tax credit carry forward expires in various years through 2000.
As of December 31, 1998, the Company had available the following net operating
loss carry forwards for tax purposes:
Expiration Date:
Year ending December 31, Federal State
- ------------------------ ----------- -----------
1998 ........................... -- $ 1,439,000
1999 ........................... -- 1,707,000
2000 ........................... -- 295,000
2002 ........................... -- 939,000
2003 ........................... $ 1,374,000 1,091,000
2004 ........................... 2,183,000 631,000
2005 ........................... 195,000 --
2006 ........................... 1,637,000 --
2007 ........................... 1,739,000 --
2008 ........................... 316,000 --
2010 ........................... 938,000 --
2011 ........................... 1,092,000 --
2012 ........................... 631,000 --
2013 ........................... 887,000 --
----------- -----------
$10,992,000 $ 6,989,000
=========== ===========
8. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments during 1998, 1997 and 1996 for interest were approximately
$22,427, $83,275 and $85,063, respectively. There were no cash payments for
income taxes during 1998, 1997 and 1996.
9. STOCK OPTIONS AND STOCK AWARDS
STOCK OPTIONS
During 1994, 133,515 five-year stock options were granted to employees in
continued recognition of a wage freeze and service time. The options reflect a
market price on the date of the grant of $.50 per share which vested in
one-third portions per year over three years of continued employment beginning
April 6, 1994. Additionally, 32,000 five-year stock options were granted to
board members and 5,000 options were granted
-47-
<PAGE>
to a product development consultant reflecting a price of $.50 per share, and
600 five year options granted to a certain officer of the Company at $.60 per
share. These shares were also priced at the per share market value on the date
of the grant. A total of 171,115 shares were granted in 1994. At December 31,
1997, 84,015 shares remain reserved which is net of the expirations attributed
to employment terminations.
During 1996, 8,000 five-year stock options were granted to a new board member at
$.30 per share. At December 31, 1998 all 8,000 shares remain reserved.
During 1997, 200,043 five-year stock options were to key employees in continued
recognition of a wage freeze and service time. The options reflect a market
price on the date of the grant of $.19 per share. Additionally, 8,000 five-year
stock options were granted to a new board member reflecting a price of $.17 per
share. A total of 208,043 were granted in 1997. At December 31, 1998 all 208,043
shares remain reserved.
During 1998, 18,000 five year stock options were to two key employees in
continued recognition of a wage freeze and service time. The options reflect a
market price on the date of the grant of $.19 per share. Additionally 33,000
five year options were granted to board members for past service and for
agreeing to accrue board member fees. These options replace all previous options
granted to these board members. At December 31, 1998 all 51,000 shares remain
reserved.
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method. The fair value for these options was estimated at the
date of the grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1998 and 1997; respectively: risk free interest
rates of 5.68% and 5.53%; dividend yields of 0% and 0%; volatility factors of
the expected market price of the Company's common stock of 107% and 174%; and a
weighted-average expected life of the options of 5 years.
The Black-Scholes option value model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
1998 1997 1996
--------- ---------- -----------
Pro forma net loss ..... $(860,666) $(593,510) $(885,868)
Pro forma loss per share
Basic .................. $(.39) $(.27) $(.40)
Diluted ................ $(.39) $(.27) $(.40)
There was no compensation expense recorded from stock options for the years
ended December 31, 1998, 1997 and 1996.
-48-
<PAGE>
A summary of the Company's stock option activity, and related information for
the years ended December 31, follows:
Number of
-----------------------------------------------------------
Options Weighted-Average Exercisable Weighted-Average
(000) Exercise Price (000) Exercise Price
------- ---------------- ------------ ----------------
Outstanding -
December 31,1996.. 148 $.67 148 $.67
Granted ....... 208 .19
Exercised ..... -- --
Terminated .... (40) .19
Outstanding -
December 31,1997.. 316 $.29 316 $.29
Granted ...... 51 $.19
Exercised .... -- --
Terminated ... (16) .50
Outstanding -
December 31,1998.. 351 $.27 351 $.27
Weighted-average fair
value of options granted
during the year December 31: 1998 1997
---- ----
Where exercise price
equals stock price .............. $.19 $.18
Where exercise price
equals stock price .............. $ -- $ --
Where exercise price
equals stock price ............. $ -- $ --
Following is a summary of the status of stock options outstanding at December
31, 1997.
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
- ------------------------------------------------ -------------------------------------------------
Weighted
Average Weighted Weighted
Exercise Remaining Average Average
Price Range Number Contractual Life Exercise Price Number Exercise Price
- ----------- ------- ---------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$.19 - $.19 51,000 4.1 years $ .19 51,000 $ .19
$.17 - $.19 208,043 3.8 years $ .19 208,043 $ .19
$.30 - $.30 8,000 2.4 years $ .30 8,000 $ .30
$.50 - $.50 84,015 0.3 years $ .50 84,015 $ .50
</TABLE>
-49-
<PAGE>
STOCK AWARDS
During 1998, 1997 and 1996 the Company awarded shares of common stock to certain
employees for five and ten years of continued employment. The common stock
awarded was issued without any restrictions from the Company's treasury stock.
The related compensation expense is recorded in selling, general and
administrative expense.
10. RELATED PARTY TRANSACTIONS
In 1982 the Company entered into an exclusive, world-wide, royalty free license
with Hydromer, Inc. to use Hydromer coating on its enteral feeding products. In
1991, the Company entered into a license agreement, as amended, with Hydromer
for the use of certain patents to coat products which were not included in the
royalty-free license, specifically the products are for pancreatic and biliary
stents, hemostatic coagulation probes and an introducer catheter device. Manfred
F. Dyck, President and Chief Executive Officer of the Company, is also a major
stockholder, President and Chief Executive Officer of Hydromer, Inc.
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 of $193,000 per year. In December 1994 as a
part of a cost reduction plan, Mr Dyck voluntarily agreed to a salary reduction
to $150,000. 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 per year based on a three day work week. On May 5, 1998 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 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 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 December
31,1998 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 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 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. CEO for salary
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.
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 has agreed to
accrue, but not pay Directors' fees.
The Company, during 1998 was a party to various transactions with Hydromer, Inc.
Hydromer provides the Company with chemicals and analytical services. In 1998
the Company purchased approximately $35,000
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<PAGE>
worth of goods and services from Hydromer and billed Hydromer for approximately
$26,000 for services and out of pocket expenses incurred on its behalf (the
Company provides secretarial services to Hydromer at $500 per month. The Company
has served as a subcontractor of Hydromer to provide coating services on various
products using the chemicals made by Hydromer. The prices that the Company
charges to Hydromer are equal to those prices it would charge any third party
for like services. The Company paid $38,900 to Hydromer for patent licenses that
expired or were terminated in March of 1998.
The Company, during 1997 was 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 on its behalf, 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 late 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
(approximately 2/3 rds. 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. The Company
believes that the terms of the foregoing arrangement are fair and equitable to
both parties.
As of April 20, 1998, as a part of a cost reduction, the General Counsel was
employed by the Company on a part time basis of one day per week. The remaining
four days are spent as the General Counsel of Hydromer. In the event of a
conflict between the Company and Hydromer, outside counsel is used.
In September of 1998, Hydromer expressed interest in acquiring the stock of the
Company in a stock exchange at six 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
interest of the stockholders. In March of 1999 the Directors sought the advice
of an evaluation expert to render a fairness opinion. In April 1999, Hydromer
again expressed their interest to exchange each Biosearch share for a payment of
$0.15. In addition there were other conditions which the board found to be
burdensome on certain employees. On May 10, 1999 Hydromer, Inc revised its offer
and at a special meeting of the Board of Directors, held on May 12, 1999 the
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 of 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 than 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 for 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.
In July 1999 Mr. Robert C. Keller , V.P. and CFO of Biosearch was appointed as
Principal Accounting Officer of Hydromer, Inc. on a part time basis to oversee
the accounting staff and to comply with Generally Accepted Accounting
Principles.
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<PAGE>
Manfred F. Dyck, CEO 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 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.
11. COMMITMENTS AND CONTINGENCIES
As part of our sale to Sherwood Medical in 1994, the Company had a supply
agreement with Sherwood in which we agreed to manufacture and supply all product
purchased by Sherwood at cost plus 10% from May 1994 to the end of 1997. There
was also a covenant not to compete for five years starting with the signing of
the agreement in May 1994 and expiring in May 1999.
12. SEGMENT INFORMATION AND CREDIT CONCENTRATION
The Company considers that its products and services compete in the business
segment of the "Medical Device" industry involving research, development,
manufacturing and sale.
Sales of the Company's products to specific customers may, at times, be
significant to the overall revenues of the Company. During 1998 and 1997,
Sherwood Medical Company accounted for approximately 1% and 27% of the Company's
revenues, respectively, and there is no receivable at December 31,1998 and it
was approximately 3% of accounts receivables in 1997. Smith Industries Medical
Systems/Portex Ltd. (SIMS) accounted for approximately 49% and 36% of revenues
in 1998 and 1997 and 0% and 71% of accounts receivable at December 31, 1998 and
1997. All purchase orders were completed and no additional orders were received
from SIMS after June, 1998. C.R.Bard revenues accounted for approximately 19%
and 12% of the Company's total revenues during 1998 and 1997 respectively, and
approximately 25% and 9% of accounts receivable at December 31,1998 and 1997.No
other single customer accounted for more than 10% of the Company's revenue in
1998, 1997, or 1996. International sales were $725,000 in 1998 and $916,000 in
1997, of which sales to the United Kingdom amounted to 83% and 76% respectively.
All foreign sales are conducted in United States dollars. There are no foreign
currency transactions.
13. RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Such expenses were
approximately $0, $2,000 and $38,000 in 1998, 1997 and 1996 respectively. The
Company may, from time to time, utilize certain physicians and surgeons, who are
recognized in their field of expertise, for product development and evaluations.
Remunerations to these medical professionals for their efforts may be in the
form of royalties contingent on the products being subsequently marketed and
revenue streams generated. The cost of such royalties is expensed as incurred in
selling, general and administration expense.
14. YEAR 2000 ISSUE
In 1998 the Company formed a Y2K committee of its CEO, President and two Vice
Presidents and members of Hydromer Inc. (a related party) with whom they share
facility space. The committee has conducted a review of its computer system and
products to identify what could be affected by the Year 2000 Issue. They do not
believe there are any products, hardware nor software that will be affected
except for the Company's System 36 software which may not perform the Year 2000
calculations correctly. The committee believes that by converting to a new
software , the Year 2000 Issue will not pose significant operational problems
for the Company's computer system.
In addition to Year 2000 software and equipment implementation activities, the
Company intends to contact major suppliers to assess their compliance. The
Company cannot assess the effect of Year 2000 programs implemented by their
customers and suppliers.
The Company has adopted a worse case scenario and has formulated plans to
preserve its property and business. The Company intends on delaying shipments
during January 2000 due to possible malfunctions caused by the Year 2000 Issue;
however, they anticipate being able to supply their customers with sufficient
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<PAGE>
products prior to this date to cover their needs beyond January 2000. While the
costs of planning for the Year 2000 scenario may not have a material impact on
the Company, the four week loss of operations is likely to materially impact its
business.
15. NEW ACCOUNTING STANDARDS
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 establishes accounting and
reporting standards for derivatives as other assets or liabilities and measures
them at fair value. Under certain conditions, the gains or losses from
derivatives may be offset against those from the items the derivatives hedge
against. Otherwise, gains and losses from derivatives are recognized currently
in the results of operations. The Company will adopt SFAS 133 in the fiscal year
ending December 31, 1999. Adoption of this statement is not anticipated to have
a material effect on the Company's financial position or results of operations.
16. SUBSEQUENT EVENT
In February 1999, the Company signed an agreement to sell its worldwide
exclusive rights to the Company's intermittent urinary catheter coating
technology for $400,000 and its related machinery for $250,000 (Note 1).
(continued)
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<PAGE>
PART I
ITEM I - FINANCIAL STATEMENTS
BIOSEARCH MEDICAL PRODUCTS, INC.
CONDENSED BALANCE SHEETS
ASSETS
SEPTEMBER 30 DECEMBER 31
1999 1998(1)
------------ -----------
UNAUDITED
CURRENT ASSETS:
Cash and cash equivalents .......... $ 10,206 $105,768
Trade receivables .................. 213,366 78,751
Inventories (note 2) ............... 404,366 297,613
Other assets ....................... 182,874 256,127
-------- --------
TOTAL CURRENT ASSETS ............... 810,812 738,259
PROPERTY, PLANT AND EQUIPMENT, (NET) 81,837 152,887
OTHER ASSETS ....................... 3,251 5,862
-------- --------
TOTAL ASSETS ....................... $895,900 $896,998
======== ========
(1) - Derived from audited financial statements.
(continued)
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<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
CONDENSED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998(1)
------------ ------------
UNAUDITED
<S> <C> <C>
CURRENT LIABILITIES:
Customer deposit ................................... $ -- $ 380,000
Accounts payable ................................... 390,439 253,498
Accrued liabilities ................................ 77,582 174,330
------------ ------------
TOTAL CURRENT LIABILITIES .......................... 468,021 807,828
LONG-TERM DEBT (NOTE 3) ............................ -- --
------------ ------------
TOTAL LIABILITIES .................................. 468,021 807,828
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, no par value; 5,000,000
shares authorized; issued 2,202,878
at September 30, 1999, and at December 31, 1998... 11,129,954 11,129,954
Accumulated deficit ................................ (10,670,836) (11,009,545)
Treasury stock, at cost; 7,920 shares
at September 30, 1999 and at December 31, 1998.... (31,239) (31,239)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY ......................... 427,879 89,170
------------ ------------
$ 895,900 $ 896,998
============ ============
</TABLE>
(1) - Derived from audited financial statements.
See accompanying notes to unaudited
condensed financial statements.
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<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues, net .................... $ 370,685 $ 186,169 $ 1,087,160 $ 1,171,351
Cost of goods sold ............... 318,243 223,683 874,156 974,765
----------- ----------- ----------- ------------
Gross profit ..................... 52,442 (37,514) 213,004 196,596
Selling, general and
administrative costs ............. 202,577 211,274 616,186 637,334
----------- ----------- ----------- ------------
Operating loss ................... (150,135) (248,788) (403,182) (440,737)
Other income/(expense):
Interest expense ................. -- -- -- (22,427)
Other, net ....................... 10 5,000 150,632 6,886
Gain on sale of fixed assets
and technology ................. -- -- 591,259 --
----------- ----------- ------------ ------------
10 5,000 741,891 (15,541)
----------- ----------- ----------- ------------
Pre-tax net income (loss) ........ (150,125) (243,788) 338,708 (456,278)
Federal income taxes
NET INCOME/(LOSS) ................ $ (150,125) $ (243,788) $ 388,708 $ (456,278)
=========== =========== =========== ============
NET INCOME/(LOSS) PER COMMON SHARE $ (.07) $ (.11) $ . 15 $ (.21)
=========== =========== =========== ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES ................. 2,202,878 2,202,878 2,202,878 2,202,878
=========== =========== =========== ===========
</TABLE>
See accompanying notes to
unaudited condensed financial statements
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<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................. $ 338,708 $(456,278)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization .............................. 24,426 49,394
(Gain) on sale of fixed assets and technology............... (591,259) --
Sub total ............................................. (566,833) 49,934
--------- ---------
CHANGES IN ASSETS AND LIABILITIES:
(Increase)/decrease in accts receivable .................... (134,615) 236,349
(Increase/decrease in inventory ............................ (106,752) 17,820
Decr/(incr) in other current assets ........................ 73,253 33,534
Increase in other assets ................................... 2,611 (3,071)
Increase)/(decrease) in accts payable ...................... 136,941 (58,739)
Increase/(decrease) in other liabilities ................... (96,747) 245,000
Increase/(decrease) in customer deposits ................... (180,000) 47,103
--------- ---------
Sub total ............................................. (305,309) 517,996
--------- ---------
Total adjustments .......................................... (872,142) 567,390
--------- ---------
Net cash provided by operating activities .................. (533,434) 111,112
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................... (12,128) (3,488)
Proceeds from sale of Equipment & technology ............... 450,000 --
Net cash used by investing activities ...................... 437,872 (3,488)
Cash flows from financing activities:
Principle payments on long-term borrowings ............ -- --
Net cash used in financing activities ...................... -- --
Net (decrease)/increase in cash & cash equivalents.......... (95,562) 107,624
Cash & cash equivalents at beginning of period.............. 105,768 14,486
--------- ---------
Cash & cash equivalents at end of period ................... $ 10,206 $ 122,110
========= =========
</TABLE>
See accompanying notes to
unaudited condensed financial statements
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<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION
The accounting policies followed by the Company are set forth in Note 1 of Notes
to Condensed Financial Statements in the 1998 Annual Report on Form 10-KSB.
In the opinion of the management of the Company, the accompanying condensed
financial statements contain only normal and recurring adjustments necessary for
the fair presentation of the Company's financial position as of September 30,
1999 and the results of operations for the three month periods and nine month
periods ended September 30, 1999 and September 30, 1998 and the statement of
cash flows for the nine month periods September 30, 1999 and September 30, 1998.
The results of operations for the three month periods and nine month periods
ended September 30, 1999 are not necessarily indicative of the results to be
expected for a succeeding quarter or for the full year.
2. INVENTORIES
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
UNAUDITED
Finished Goods ........................ $129,397 $ 96,263
Work In Process ....................... 84,917 61,915
Raw Materials ......................... 190,052 139,435
-------- --------
$404,366 $297,613
======== ========
3. OTHER INCOME
In February 1999 the Company reached an agreement with C.R.Bard where they
purchased the worldwide exclusive rights to the coating technology for
intermittent urinary catheters and related equipment for $650,000. The machine
had a net book value of $58,741 creating a gain on the sale of $591,259. The
Company received $450,000 in cash and applied a $200,000 deposit received
earlier to the purchase price.
On June 7, 1999 entered into an agreement with Applied Medical Resources in
which they were granted a perpetual, non exclusive, worldwide license for using
the Company's Licensed Technology for the sum of $150,000. The entire amount was
booked as other income.
4. COMMITMENTS AND CONTINGENCIES
There are no claims or actions against the Company which will materially effect
its financial statements.
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<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
OPERATIONS DATA
YEARS ENDED DECEMBER 31,
NINE MONTHS ENDED -------------------------------
SEPTEMBER 30, 1999 1998 1997 1996
------------------ ------- ------- -------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Revenues ........................... $ 1,087 1,295 1,936 2,649
Gross profit ....................... 213 24 399 410
Loss from operations ............... (403) (835) (493) (813)
(Loss)/earnings
before extraordinary item .......... 339 (851) (556) (884)
Extraordinary item ................. -- -- -- --
Federal Income Tax ................. -- -- -- --
------- ------- ------- -------
Net(loss)/income ................... $ 339 $ (851) $ (556) $ (884)
======= ======= ======= =======
INCOME (LOSS) PER COMMON SHARE FROM:
Continuing operations
before extraordinary item .......... $ 0.15 $ (.39) $ (.25) $ (.40)
Extraordinary item ................. -- -- -- --
------- ------- ------- -------
Net income/(loss) .................. $ 0.15 $ (.39) $ (.25) $ (.40)
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES ................... 2,203 2,203 2,203 2,203
</TABLE>
BALANCE SHEET DATA (IN THOUSANDS)
SEPTEMBER 30, 1999 1998 1997 1996
------------------ ------ ------ ------
Total assets ........... $ 896 $ 897 $2,117 $2,513
Current maturities of
long-term debt ......... $ -- $ -- $ 691 $ 37
Long-term debt ......... $ -- $ -- $ -- $ 663
NOTE: THE COMPANY HAS NOT PAID A DIVIDEND DURING THE
THREE (3) YEAR PERIOD ENDED DECEMBER 31, 1998.
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<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
Revenues during the nine months ended September 30, 1999 and the years ended
December 31,1998, 1997 and 1996 were $1,087,160, $1,294,838, $1,936,171 and
$2,648,719 respectively. Revenues declined by $84,191 versus the same nine month
period in 1998. 1998 revenues declined by $641,333 versus 1997 and $712,578
versus 1996 due primarily to the end of the supply agreement with Sherwood
Medical in early 1997 because of the complete internalization of all
manufacturing of the medical devices purchased from the Company in 1994 and the
loss of the Smith Industries Medical Systems/Portex intermittent urinary
catheter business due to internal problems at SIMS/Portex when the Company was
notified that no additional purchase orders would be forthcoming for at least
another year and all purchase orders were completed in June 1998. The Company
entered into an agreement with C.R.Bard to sell the worldwide exclusive rights
to the coating technology and the related coating machine for $650,000. With
this agreement the Company also agreed the leaseback of the machine at $10 per
month for the length of the license and supply agreement and also agreed to
manufacture and ship intermittent urinary catheters to C.R.Bard, United Kingdom
at an agreed price until they decide to manufacture the product themselves. The
Company has no contractual relationship with C.R. Bard's subsidiary. Catheters
are shipped to the addressed requested by C.R. Bard, U.S.A. The decline in sales
was partially offset by our OEM sales to new customers, Wilson-Cook Medical and
U.S. Endoscopy Group, for which we manufacture our bi-polar coagulation probe.
During June 1999, the Company entered into an agreement with Applied Medical
Resources in which it granted a perpetual, non exclusive, worldwide license for
using the Company's Licensed Technology for the sum of $150,000.
Gross profit during the nine months ended September 30,1999 and the years ended
December 31, 1998, 1997 and 1996 was 19.6%,1.8%, 20.6% and 15.5% of sales
respectively. Our gross profit margins remained fairly constant through the past
three years and the last none months with the exception of the year ending 1998
in which our gross profit margin dropped to 2% of sales. This was primarily due
to the loss of revenue from SIMS during the year. SIMS abruptly notified the
Company of an internal problem which caused them to discontinue ordering any
additional urinary catheters for at least another year. This cause the Company
to lay off personnel and shut down the urinary catheter coating operation at an
additional cost to the Company. The revenues attained during 1998, because of
this event were insufficient to cover the fixed manufacturing costs. Cost
savings initiated in 1997, which included no wage increases, substantial salary
cut taken by CEO, vacated positions not filled and a change from stocking
product to building to order , offset the loss in revenues and helped to reduce
the loss in gross profits.
Operating losses during the nine months ended September 30,1999 and the years
ended December 31, 1998, 1997 and 1996 were $403,180, $835,455, $493,367 and
$812,788 respectively. The higher operating loss in 1998 over 1997 is primarily
due to the significant drop in revenues in 1998 as discussed above offset by the
cost savings attained during the year. Those cost savings amounted to $266,000
or 17% in manufacturing and $34,000 or 4% in selling and general administration.
Had sales not declined as discussed above, the operating loss incurred in 1998
would be more in line with the results of 1997.
Interest expense declined by $62,000 during 1998 versus 1997 and was due
primarily to the sale of the Company's property in June, 1998 which paid off the
mortgage.
During the nine months ended September 30, 1999, the Company recognized a gain
on the sale of fixed assets and technology of $591,259 due to the agreement with
C.R.Bard entered into in February 1999, and recognized other income of $150,000
from an agreement entered into in June 1999 in which Applied Medical Resources
was granted a perpetual, non exclusive, worldwide license for using the
Company's Licensed Technology for certain urological products. Due to these
extraordinary items, net income for the nine month ended September 30, 1999 was
$ 338,708.
Liquidity and Capital Resources
During the nine months ended September 30,1999 and the years ended December 31,
1998,1997 and 1996 the cash
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<PAGE>
drain on the Company has continued. Operating activities have used $533,434
during 1999 and $309,816 and $757,484 in 1997 and 1996. This was due primarily
to the significant losses incurred during those years. During 1998 operating
activities generated $96,571 due primarily to the Company's efforts to extend
its liabilities as long as possible, collect its receivables as timely as
possible and $380,000 in customer deposits received during the later part of
1998. The Company received $200,000 from C.R.Bard as payment for a standstill
agreement in which the Company would not negotiate with any other entity,while
negotiating the C.R.Bard agreement that was eventually entered into
in February 1999. C.R.Bard, as part of the negotiations agreed to prepay the
first purchase order for intermittent urinary catheters amounting to $180,000.
Due to the cash problems incurred, the Company's investing activities and
financing activities were minimal. The only significant activity during this
period was in 1999 when the Company sold its coating technology and the related
coating machine to C.R.Bard. This transaction generated cash proceeds of
$450,000. Also in 1996 the Company spent significant funds on building the
intermittent urinary catheter coating machine and also improvements to the
Company's building preparing for ISO 9000 certification. The funds used to
accomplish this came from proceeds generated from surrending a whole life policy
the Company owned on M.F.Dyck the CEO and the balance of money held in escrow as
part of the sale of the feeding tube product line to Sherwood Medical in 1994.
The final payments were received in 1996.
During 1998, the Company sold its property at 35 Industrial Parkway to Hydromer
Inc., a related party, for $850,000 and a three year prepaid leaseback of two
thirds of the facility. The Company used all proceeds from the sale to pay off
all monies owed to Summit Bank and all judgements against the Company were
dismissed.
In February 1999 the Company entered into an agreement with C.R.Bard were the
Company granted world wide exclusive rights to the coating technology and the
related coating machine for $650,000. The Company received $450,000 from
C.R.Bard and the $200,000 deposited in 1998 was applied against the purchase
price. The proceeds from the transaction were used to pay off certain
liabilities due directors and officers which were deferred because of the
Company's cash problems.
In June 1999 the Company entered into an agreement with Applied Medical
Resources in which the Company granted a perpetual, non exclusive worldwide
license for using the Company's Licensed Technology for the sum of $150,000.
The proceeds from this transaction were used to reduce current liabilities.
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EXHIBIT A (PLAN OF EXCHANGE)
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
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<PAGE>
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.
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.
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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 President
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EXHIBIT B (FAIRNESS OPINION)
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
******END OF PROPOSAL I ******
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<PAGE>
II. ELECTION OF DIRECTORS
(Proposal II)
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 I 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
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP OF PERCENT OF
NAME, AGE, & PRINCIPAL COMMON STOCK OUTSTANDING
OCCUPATION AS OF NOVEMBER 22, 1999 (1) SHARES
- ----------------------- --------------------------- ------------
<S> <C> <C>
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.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP OF PERCENT OF
NAME, AGE, & PRINCIPAL COMMON STOCK OUTSTANDING
OCCUPATION AS OF NOVEMBER 22, 1999 (1) SHARES
- ----------------------- --------------------------- ------------
<S> <C> <C>
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
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.
</TABLE>
- ------------
(1) Except as otherwise indicated, as of November 22, 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.
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<PAGE>
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.
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.
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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.
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 for 1999 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 $0.19 were
awarded to 13 managerial and key employees including Manfred F. Dyck who
received 77,617. These options immediately vested. The options expire if the
employee resigns. It was the Company's opinion that such awards are necessary to
retain the companies experienced key employees who have not received salary
increments for the past three years.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
% of Total
Options Exercise or
Granted Base Price Expir-
Options in Per Share ation
Name Granted Fiscal Year ($/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
Options Held at Val.of Unexer, in the money
Shares Fisc. Year End (#) Options at Fiscal Year End($)
Acquired when Value Exercis- Unexercis- Exercis- Unexercis-
Name Exercised(#) Realized($) 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 (November 22,
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/TRANSACTIONS 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 consented 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 consented
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
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<PAGE>
salary being voluntarily reduced to $95,000/year based on a three day work week.
On 5/5/98 by consent, Mr. Manfred Dyck's salary was amended to $95,000, accrued
not paid. He consented to be removed as President, but retained the title of
Chairman and CEO. Mr. Martin C. Dyck, son of Mr. Dyck was appointed President.
Effective 8/23/99 Mr. Manfred F. Dyck consented to a salary of $39,000 per year
based on a one day work week. The Board of Hydromer an affiliated company
resolved to pay Mr. Dyck's full time total salary of $195,000 per year, then be
reimbursed $9,750 on a quarterly basis by the Company. The Board of Directors of
the Company consented to this arrangement.
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 would 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 I.)
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 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. Four director
including Mr. Manfred F. Dyck, received $3,750, the other director received
$3,000.
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.
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 November 22, 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.
SHARES OF COMMON STOCK
NAME AND OWNED BENEFICIALLY AS OF PERCENT
ADDRESS NOVEMBER 22, 1999 OF CLASS
- ------- ------------------------ --------
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
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<PAGE>
SHARES OF COMMON STOCK
NAME AND OWNED BENEFICIALLY AS OF PERCENT
ADDRESS NOVEMBER 22, 1999 OF CLASS
- ------- ------------------------ --------
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.
(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 the process of coating medical devices Biosearch one of
the diagnostic procedures requires the breakdown of a coating solution into its
components. IR Spectrography and/or Gas Chromatography is the method used.
Hydromer has this equipment and performs these tests for Biosearch. 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
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<PAGE>
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
the opinion of Biosearch, the terms of these transactions were no less favorable
then could be obtained by a non-affiliated party.
In 1997 the Company was a party to various transactions with Hydromer, Inc.
Hydromer provides the Company with chemicals and analytical (chemical analysis)
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 the opinion of Biosearch, the terms of these transactions were no less
favorable then could be obtained by 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.
From July 96 to June 98 Hydromer purchased an aggregate of $46,500 of furniture
from Biosearch at terms which were no less favorable then could be obtained by a
non-affiliated party.
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. 2/3 rds 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. Biosearch is of the opinion that the terms of this
transaction were fair under the circumstances.
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.
In late 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
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<PAGE>
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 $0.16. (On September 2, 1998 the date the offer was reviewed by
the Biosearch Board the stock prices were:
Stock Hydromer Biosearch
- ----- -------- ---------
Bid $0.75 $0.08
Ask 1.18 0.16
(Bid is the amount a potential buyer has offered to buy the stock at. Ask is the
price a potential seller has indicated they will sell at.)
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 of this Proxy Statement for
the opinion rendered from 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. Mr. Martin C. Dyck, President of the Company was one of these
employees. 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 I).
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. (The
Company retained the coating machine at the request of C.R. Bard to manufacture
and coat urinary catheters pursuant to a supply arrangement.) On the same date,
Hydromer closed a transaction which
-74-
<PAGE>
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. as their Principal Accounting Officer 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 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.
*****END OF PROPOSAL II*****
-75-
<PAGE>
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. In the event a later dated proxy is received
this later dated proxy will revoke an earlier dated proxy.
IMPORTANT
IF NO DIRECTIONS ARE INDICATED IN SUCH PROXY, THE SHARES REPRESENTED THEREBY
WILL BE VOTED IN THE ELECTION OF DIRECTORS (PROPOSAL II) IN FAVOR OF THE
INDIVIDUAL PROPOSE BY THE BOARD OF DIRECTORS AND IN FAVOR OF PROPOSAL I
(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 OR BY SENDING IN A LATER-DATED PROXY.
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 27, 2000 in
order to be considered for inclusion in the Company's Proxy Statement relating
to such Meeting.
***END***
-76-
<PAGE>
PROXY CARD
PROXY BIOSEARCH MEDICAL PRODUCTS INC. PROXY-Annual Meeting of Shareholders -
January 26, 2000. This Proxy is Solicited on behalf of the Board of Directors
1. Exchange of Common Stock: Should the shareholders exchange (a form of sale)
their stock for a payment of $0.20 per share ? The shareholders are being asked
to approve a plan by which ALL shareholders would be required to exchange their
common stock for $0.20 per share
(The Board of Directors recommend you vote YES for this PROPOSAL I)
YES [X]
NO [X]
WITHHOLD AUTHORITY (an abstention) [X]
2. ELECTION FOR, all nominees [X]
WITHHOLD AUTHORITY (an abstention) [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 _____________________________________________________________________
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.
-77-
<PAGE>
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 January 26, 2000, 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
-78-
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% $469 21.1%
</TABLE>
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Howard, Lawson & Co.
<PAGE>
March 18, 1998
- --------------------------------------------------------------------------------
Target
Balance Sheet
($ 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.
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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.
